All Commentary
Thursday, February 1, 1973

Controlling Pollution

Delivered November 19, 1972 before Board Members and guests, The Foundation for Economic Education, Inc., Irvington-on-Hudson, New York. Dr. Sennholz, a Trustee of the Foundation, heads the Department of Economics at Grove City College — Pennsylvania.

“Pollution is a classic example of failure of the private enterprise system.” At least this is what we are told by countless critics of environmental pollution. Private property and the profit motive are held responsible for polluting man’s environment with ever-increasing quantities of wastes or effluents. As the byproducts of economic production and consumption, such as gasses, solid or liquid wastes, or released energy in the form of heat or noise, the effluents are said to overload the capacity of the environment to assimilate them, which is injurious to human, animal and plant life. Pollution is affecting the comfort, well-being, and possibly even the survival of the human race.

Such serious charges must ultimately be answered by biologists, chemists, and physicians. But for the sake of argument let us assume that the pollution problem really is as serious as described by the environmentalists. Let us then search into the causes of the dilemma so that we may find the cure. For only an understanding of the causes can lead us to a possible solution.

The explanations so popular with environmentalists appear to be taken directly from the armory of political and economic radicalism that blames the private property order not only for all economic shortcomings but also nearly all human services. These explanations invariably misinterpret the causes and consequently prescribe solutions that are either ineffective or even detrimental to our environment.

Even economists schooled in the classical tradition are joining the chorus of vocal critics. The private enterprise system, they contend, does not lead to maximum welfare because many social costs are ignored in the calculation of welfare. Large blocs of “externalities,” which are social costs not included in private costs, are characteristic of the enterprise system. These externalities are destroying our physical environment and precipitating disaster for the human race.

Robert U. Ayres and Allen V. Kneese make such charges in an essay on “Production, Consumption and Externalities.” (American Economic Review, June, 1969, pp. 282-297). Private businessmen are discharging wastes into the atmosphere and water courses without cost to themselves. And consumers do not fully use up, through the act of economic consumption, the material elements that enter production. Almost 3 billion tons of residue are going back annually into our environment. This is becoming unbearable, especially in mass urban societies with growing populations and rising material output. Ad hoc taxes and government restrictions are not sufficient to cope with the growing problem. Central, or at least regional, control is needed; and above all, a new economics must be devised that considers waste disposal an integral part of the production and consumption process, and places it within the framework of general equilibrium analysis. “Under conditions of intensive economic and population development the environmental media which can receive and assimilate residual wastes are not free goods but natural resources of great value with respect to which voluntary exchange cannot operate because of their common property characteristics.”

Such observations reflect an unbounded faith in the political and bureaucratic process. No matter what the grievance may be, the blame is always laid on private property and individual enterprise, and the solution is always more government!

Who is Polluting?

Even some of the facts are grossly misstated. The worst offenders are not private businessmen in their search for profits, but government itself rendering economic services in a primitive manner. Urban communities are polluted by an increasingly formidable cascade of solid waste, such as garbage and trash, rubbish and debris. According to a preliminary report made in 1968 by the Bureau of Solid Waste Management in the U.S. Public Health Service, only 64 per cent of the nation’s people lived in communities that had refuse collection systems. About half of household wastes were collected by public agencies, and one-third by private collectors; the rest were disposed by householders themselves. Most commercial and industrial wastes were handled by private collectors. And most of the dumps and incinerators were operated by public authorities or licensed contractors working for public authorities.

These facts primarily indict government rather than profit-seeking enterprise for our environmental crisis.

Or, take the pollution of our waterways. Who is discharging pollutants into streams and rivers, lakes and oceans? Lake Erie, the most polluted inland body of water, is an example. According to independent surveys, the city of Cleveland is by far the worst offender, followed by Toledo and Buffalo and other cities. Numerous public sewer authorities discharge thousands of tons of waste into the lake every day. So filthy is Cleveland’s Cuyahoga River that it catches fire occasionally and traps tugs and boats in its flames. Surely, Lake Erie would suffer no serious pollution were it not for sewer authorities established and operated by government.

Under common law, the beds of navigable bodies of water are government property. Can it be surprising then that government itself either is polluting the lakes and rivers or permits them to be polluted? To blame individual enterprise is an obvious distortion of facts.

It is true, public attitude toward government property usually differs from that toward private property. While the latter is generally respected and the owner protected in its use, government property is treated as a common good without an owner. Unless it is guarded by a host of inspectors and policemen, it is used and abused by the citizenry as if it were free. This common attitude can hardly be construed as recommendation for more government ownership or control over environmental resources.

The Air We Breathe

The third pollution that is often laid on the doorstep of profit-seeking enterprise is the contamination of the air we breathe. In a stinging criticism of the “conventional wisdom” of economics, E. J. Mishan of the London School of Economics and Political Science called the private automobile one of the great disasters of the human race. It pollutes the air, clogs city streets, and contributes to the destruction of natural beauty. The economic growth it represents conflicts with social welfare. (“Economic Priority: Growth or Welfare” in Political Quarterly, January, 1969).

Such a severe indictment of the automobile is tantamount to a rejection of one of the most splendid fruits of private enterprise. There are few, if any, private automobiles in collective economies, from Soviet Russia to Castro Cuba. The automobile means high standards of living, great individual mobility and productivity, and access to the countryside for recreation and enjoyment. In rural America it is the only means of transportation that assures employment and income. Without it, the countryside would surely be depopulated and our cities far more congested than now.

The air pollution in our cities, the smoke, haze, and smog, nevertheless present grave health hazards to millions of city dwellers. Is individual enterprise that manufactures those millions of automobiles not responsible for most of the city pollution?

Zoning and Other Intervention

Again, the blame for the intolerable pollution of city air rests mainly with government. In particular, three well-established political practices have contributed to the environmental dilemma. First, zoning has become a popular legislative method of government control over the use of land. Primarily applied in urban areas, zoning constitutes government planning along “orderly lines,” to control congestion in houses and neighborhoods, height, size and appearance of buildings and their uses, density of population, and so on. Surely, zoning has shaped the growth of American cities ever since the 1920’s when it became popular.

Take Los Angeles, for instance. Radical zoning ordinances made it the largest U.S. city in area, a vast sprawling metropolis of more than 500 square miles in which transportation is an absolute necessity. The resident of Los Angeles may travel a hundred miles every day to work, shop, eat, to attend school or church, or to seek recreation or entertainment. Public transportation cannot possibly meet the millionfold needs of Los Angeles transportation; only the private automobile can.

Secondly, in nearly all American cities public transportation has deteriorated to disgraceful levels of inefficiency and discomfort. The private companies that first provided the service were regulated and taxed into losses, and finally replaced by public authorities. Under their control, mass transportation has generally deteriorated in quality and quantity while the costs have soared, as in the New York City subways, for example.

Union Tactics

Public transport authorities are easy prey for militant unions. Politicians or their appointees cannot easily resist the demands of teamsters locals and their allies, despite the resultant inefficiency and high cost. The traveling public is frequently left stranded by organized work stoppages, slowdowns, and other union tactics. When public transportation is most urgently needed, in the vacation or holiday season, it is often struck by one of the unions.

The privately-owned mass transportation media are taxed by a host of government authorities until their services deteriorate or even sputter to a halt. The examples are legion. But the recent bankruptcy of the Penn Central Railroad illustrates the point. Even in bankruptcy, public tax authorities are crowding the courts to force collection of their levies. While labor unions threaten nationwide walkouts, government tax collectors prey on railroad income and assets. And when a company finally petitions its regulatory authority to halt some loss-inflicting service, it may be denied the right to do so. If permission is granted, local courts may order the company to continue the service and bear the losses. Can it be surprising, then, that service reluctantly rendered is minimal and poor?

When public transportation is dismal, undependable and inefficient, neglected and uncomfortable, primitive and costly, people naturally provide their own transportation. And millions of private automobiles are clogging the city streets adding their exhaust fumes to the city air.

In the “Free Goods” Class

Finally, there is the tendency to treat road and highway investments, no matter how huge, as “free goods” that are available to anyone without charge. City governments endeavor to provide adequate approach roads for unrestricted use of the automobile, continually constructing new expressways on the city’s fringes. It is true, a great number of highway taxes are levied on those who use the highways. The Federal government collects taxes on gasoline, lubricating oil, new automobiles, tires and tubes. A highway trust fund established by the Highway Revenue Act of 1956 receives and expends the excise taxes, which are the sole source of funds for the Federal aid highway systems. But as soon as an expressway is completed it is overcrowded with countless automobiles speeding or crawling to the city. No matter how many millions of dollars were expended on its construction, it is “free” to the user who simply does not relate the tax on his gasoline or tire to a particular trip to the city. But even if he were mindful of the tax aspect of the expressway, its convenience, speed and safety may exceed by far the tax cost. Thus, millions of suburban automobiles are rushing to or from the cities on billion-dollar highways, adding their exhaust fumes to our environmental dilemma.

In summary, the following table clearly depicts the role of government in environmental pollution. 



Free or minimal cost trash and garbage collection by government agencies

Littering, hazard to health, air pollution

Free dumps and incinerators operated by governmental agencies


Hazard to health, air pollution

Free or minimal cost sewage treatment


Water pollution


Free lakes, waterways and harbors


Water pollution, traffic congestion


Free airport facilities

Air pollution, noise pollution

Free highways

Air pollution, traffic congestion

Free public parks

Waste, littering

Zoning laws and ordinances

Favoring the automobile over mass transportation, air pollution

Public transport authorities

Inefficient service, promoting the automobile, air pollution

Labor legislation

Expensive and unreliable mass transportation, promoting the automobile, air pollution


Removing the Causes of Pollution

As government is the prime polluter of our environment, we must call on government to cease and desist. All levels of government must abandon their policies that invite, promote or even subsidize the pollution. This is not to be interpreted as a call for further government intervention in our economic lives. On the contrary, the previous intervention that caused the deplorable conditions in man’s environment cannot be improved through more radical intervention. The prior intervention must be removed step by step so that its destructive consequences can be gradually assimilated by nature.

First of all, government itself must cease to damage the environment. As owner of some 24 percent of the land within the limits of the continental United States, as operator of many thousands of installations that span the continent, the United States Government probably is the worst polluter (Cf. Dennis Farney, “Meet a Prime Polluter: Uncle Sam,” Wall Street Journal, Sept. 23, 1970). If it is unable to manage its property without harming the environment it should dispose of land and installations that lack significance for national defense. The economic services it renders free or at minimal costs should be left to the market place where economic costs and benefits are efficiently compared by the price system. For no matter who renders a service free or at minimal charges, misuse, abuse, and waste are invited. Governmental services are no exception.

This basic knowledge of human action points toward a solution to many pollution problems. If government would cease to subsidize the polluters, the condition of the environment would instantly improve. The interstate and intercity highways, for instance, provided at little or no cost to users, could be improved overnight if they were treated as scarce resources, that is, as economic goods. Road use charges that fully cover the costs of construction, maintenance, and administrative services would greatly reduce their wasteful use and thereby the pollution.

It is true, use charges that cover the expenses of government services would probably be extraordinarily restrictive as governmental costs usually are excessive. Many government investments probably are malinvestments, made without economic considerations but for political objectives. Use charges that fully cover all expenses would reveal the dreadful waste of resources and thus hopefully discourage government from rendering a service that can be provided much more efficiently by the market.

Deficient Property Rights

Most pollution problems would soon be solved or at least alleviated if all governments would halt their own pollution and cease to subsidize other offenders. It is true, some pollution undoubtedly would remain even after this clean-up. After all, individuals as producers and consumers add smoke, soot, noise, waste, and other effluents to the environment. But no matter who the offender should be, pollution that measurably detracts from the property of other individuals or denies their rights to healthful living must be discouraged.

This pollution by producers and consumers reveals unfortunate legal deficiencies in the protection of private property. The law has always been and continues to be inadequate in its treatment of property rights, in particular, the liability and indemnification for damages caused by the owner’s use of property. Ideally, the right of property as a market phenomenon entitles the owner to all the advantages of a given good and charges him with all the disadvantages which the good may entail.

Over the centuries governments have again and again restricted or even abolished the rights of private property. At other times the law, either by design or default, shielded the owner from some disadvantages of his property and charged other people with some of the costs, the external costs. Obviously, if an owner does not reap all the benefits of his property, he will disregard such benefits in his actions; and if he is not charged with all its costs, he will ignore such costs.

During the nineteenth century, legislation and adjudication reflected enthusiasm for the rapid industrial and commercial development. Legislators and judges understood the great importance of capital investment for economic betterment. They favored investments in industry and transportation and the productive employment of property. Unfortunately, they decided to hasten the economic development through tariffs, subsidies, land grants, and relief from some external costs. Thus, as the tariffs and subsidies encouraged some production, so did the relief from externalities. Some investments were made and some consumption took place just because part of the costs was shifted from the owners to other people and their property. The pollution of air and water was overlooked as a “public price” for economic progress, that is, some costs were shifted from one owner to another to encourage economic activity favored by government.

To remove this cause of pollution, no property owner — whether public or private — must be shielded from the costs and disadvantages of his property. Damaged parties must have their day in court and find relief from any harmful effect of someone else’s property. They must be able to claim and collect damages for losses suffered, and obtain court injunctions, that is, restraining orders that protect their rights.

Popular Solutions

The growing awareness of environmental problems is laudable indeed. But the explanations given by “experts” today are taken straight from the armory of political and economic radicalism. The private property order is summarily condemned, and government is hailed as the only savior from our self-destruction. More taxes and regulations, or better yet, comprehensive government planning and control, are to correct a deplorable situation.

Many environmentalists would like to “ration the use of the environment” so that the quantity and type of effluents discharged into the environment are reduced to a level where the social costs are assumed to be equal to social benefits (Cf. Schreiber, Gatons, Clemmer, Economics of Urban Problems, Houghton Mifflin, 1971, p. 104 et seq.). Three basic methods of intervention are to achieve a short-run solution: direct controls, taxes or fines, and subsidies. Direct controls set minimum emissions standards for various classes of effluents. No polluter is permitted to emit more than a certain quantity of effluents, such as fly ash, sulfur dioxide, carbon monoxide, and the like per time period. Federal standards of emission by automobiles, for instance, were imposed on auto manufacturers. But unfortunately, such standards cannot achieve an efficient level of pollution abatement because the environmental conditions in various parts of the country vary considerably. The car that adds its hydrocarbons and carbon monoxide to the pollution of New York City would have no visible effect on the environment of Farmers Mills in Pennsylvania. And the car that rarely leaves its garage in Big Horn, Montana, can hardly be likened in its environmental effects to the Los Angeles taxi that is cruising the streets day and night. And yet, under the Federal standards many billions of dollars must now be spent on abatement equipment by all automobile owners regardless of social costs and benefits.

Subsidies to Curb Production

To abate pollution, some writers urge the government to subsidize polluters so that they may reduce production and thereby harmful emission. Such subsidies are likened to the “soil bank” that pays farmers to reduce their land under cultivation and thus production. But as the soil bank has not achieved its stated objectives, so must the pollution subsidy be expected to fail. After all, the potential demand for such payments is unlimited, while the reduction in pollution would tend to be negligible.

Effluent emission may also be attacked by fines and taxes. At first, government levies taxes in order to provide the facilities that are used free or at minimal cost by the polluters. It thus subsidizes the polluters, and then proposes to tax them for the pollution. Would our environment not be cleaner if government had not entered the scene from the outset?

It is true, a tax levied on the polluter may make him consider the external costs of his activity. But it offends one’s sense of equity that government should pocket tax revenues as a compensation for losses suffered by other individuals. If I am victimized by pollution, government will reap more revenue. A government in urgent need of revenue merely needs to promote more pollution through free services to polluters in order to derive more tax revenue from the polluted public. A strange and yet so popular method of government intervention in our economic lives!

Employ Space-Ship Technology

As a long-run solution, we are urged to develop a “space ship” technology which recycles all waste and makes it reusable for future production, or to develop a technology that leaves no waste matter.

Unfortunately, we do not know what the technology of the future will be. But we do know that the inventive genius of man that may bring forth a new technology cannot assure its use and application. History records countless examples of great inventions that failed to benefit man because a static society would not permit any change, or at least lacked the capital resources needed for such changes. Inventions spring from individual freedom, and their application from competition in a private property economy. This is why one may be skeptical about a new technology that is chosen and enforced by government.

But the ultimate solution, according to more radical ecologists, must be sought in population control. After all, it is man’s production and consumption that is polluting the environment. A growing population must be expected to add to the waste that results in pollution, although the social costs per person may be reduced through technological advances. These environmentalists would provide financial incentives for refraining from having children, such as an exemption of $3,000 on Federal income taxes to couples without children, or the payment of subsidies to every woman in child-bearing age who does not give birth during a given year. (Schreiber, Gatons, Clemmer, ibid., p. 115).

Man or Environment?

Man or environment, that is the choice. As one is not compatible with the other, we are told, the radical ecologists choose the environment. They prefer grass and tree, ant and beast of the forest over man. They would preserve nature undisturbed and in a natural condition, as in a jungle.

However, the role of man on this earth is radically different from that of plant and animal. Although man is part of nature, his intelligence permits him to wisely use environmental resources for his best interests. He is like a steward in the use of natural resources who responsibly manages his environment in order to survive. His right to life embodies his right to manage the resources of nature.

But how can he best manage his environment? What are the proper means to this end? As in all other human pursuits, freedom works best in releasing man’s creative energy. In freedom, man economizes his use of scarce natural resources and strives to safeguard his life with the least possible waste. Merely to preserve nature as man found it when he first set foot on this earth may appear to be easier, indeed, than the wise use of environment for the best interests of man. And yet, mere preservation denies not only the nature of man but also the very laws of nature. (Cf. Leonard E. Read, “A Conservationist Looks at Freedom” in Then Truth Will Out, The Foundation for Economic Education, Inc., Irvington-on-Hudson, New York, 1971, pp. 74-83.)



A Word of Caution

We undoubtedly need some preservation. But it cannot be the answer to the control of man’s environment, for we are an ecological part of that environment, and to preserve it makes us a museum-piece as well.

Weyerhaeuser World, April 1970 

  • Hans F. Sennholz (1922-2007) was Ludwig von Mises' first PhD student in the United States. He taught economics at Grove City College, 1956–1992, having been hired as department chair upon arrival. After he retired, he became president of the Foundation for Economic Education, 1992–1997.