The world seems to be moving at an accelerated rate in a more collectivist direction. The potential trade wars set in motion by Donald Trump’s sky-high tariffs are simply the most glaring sign of this dangerous trend. For more than a century, various forms of government intervention, redistribution, and planning have replaced the far more free-market, classical-liberal world that existed before the First World War.What free-market liberalism offers as an ideal and as a goal of public policy, Mises declared, is an equality of individual rights for all under the rule of law, with privileges and favors for none.
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The rise of totalitarian regimes in the period between the two world wars, the increasing growth in government intervention and welfare distribution introduced during the Great Depression years of the 1930s, the massive expansion of government power and intrusion during the Second World War, and then the era of Keynesian macro-management through monetary and fiscal “activism” throughout the postwar period after 1945, all moved America and the world away from that freer epoch before 1914.
Since the financial and housing crises of 2008–2010 and the COVID lockdowns and shutdowns of 2020–2021, the collectivist trend has only gotten worse. Government expenditures and deficit spending in the United States and almost everywhere else have exploded. All restraints on government budgets have been loosened or even abandoned. Among the European Union (EU) countries, especially though not exclusively in France and Germany, the conflict in Ukraine is serving as justification for an implicit war-spending Keynesianism.
Facing sluggish economic growth and rising unemployment, the bugaboo of a Russian military threat against the EU and NATO member nations is being used as a rationale for loosening formal and informal limits on spending and government debt to permit significant increases in defense expenditures by deficit spending, both to arm Ukraine indefinitely and to rearm the military forces of the member countries. War threats have always served as a popular excuse for more and bigger government. After all, who can be opposed to defense spending to protect against potential aggressor neighbors?
War spending and perpetual enemies
In the United States, President Trump may talk about lower taxes and less regulation, but he has called for significant increases in defense spending, with the rationale that even if Russia is not an enemy most certainly China is. He seems to have a pathological hatred and fear of an economically developed China. Every Chinese imported good is a threat to American “greatness.” Every dollar Americans spend in excess of the number of dollars the Chinese spend on American goods “steals” jobs and “weakens” the country. Every American dollar invested in China is a dollar less to bolster some domestic industry he wants to recreate or preserve. All growth in the Chinese military must be matched with an intention to “pivot” more of the U.S. military toward Asia rather than Europe.
The ideology of the warfare state has dominated this thinking in the United States since the end of the Second World War, when the Nazi enemy was replaced by the Soviet and communist enemy, requiring a global American presence and potential military intervention anywhere in the world. The classical-liberal journalist and author Felix Morley (1894–1982) emphasized this focus of American policy in the first issue of the “conservative” quarterly Modern Age (Summer 1957). He argued that more and larger government spending was often made palatable to the American people when cloaked in the
rationale of “national security” against enemies abroad.
Since national defense is generally accepted as the singular responsibility of the central government by virtually everyone, the American people would accept the justification for government spending on roads, industry, and employment creation, Morley explained,
so long as people believe that the national security is menaced by a foreign power which seems to make such outlay necessary. And as Americans are not naturally a belligerent people, a constant propaganda must be exercised to make it appear that the potential foe is the personification of evil, and a dire threat to everything that we traditionally hold dear…. It is impossible to spend a hundred million a day on defense without picturing a perfect enemy.
Matching the warfare state is a huge domestic interventionist-welfare state. In 1960, U.S. defense spending made up 52 percent of all federal government expenditures, while welfare (“entitlement”) spending made up 38 percent of the federal budget. In 2024, defense spending represented 13 percent of federal budgetary outlays, while entitlement spending equaled about 60 percent of federal expenditures. Domestic welfare redistributive programs have ballooned over the last six decades; nonetheless, the actual dollar spending on defense in 2024 came to about $997 billion. This compared to a total of $984 billions of spending on defense by the entire rest of the world! The closest was China, with military expenditures around $315 billion, or not much more than one-third of American military outlays.
To give an idea of how much that almost $997 billion of defense spending represented: It was more than all private-sector spending on residential housing in 2024 ($937.7 billion); it was equal to 40 percent of all private-sector expenditures on food items in 2024 ($2.6 trillion); and it represented 180 percent more than all private-sector spending on clothing purchases that year ($555.5 billion), and over 65 percent of all private-sector buying of automobiles in 2024 ($1.53 trillion). Imagine that the U.S. defense budget was 50 percent less, or 25 percent less, or even just 10 or 15 percent less. Think of all these alternative private-sector goods and services that it would have been possible for Americans to buy as they freely chose, if the warfare state did not absorb so much of the wealth and income produced and earned by the citizenry. The population would be that much better off, reflecting how they wanted to spend their own earned money rather than the government siphoning it off and spending it instead.
Government domestic spending out of control
The same can be said about the vast amount of money spent by the government on domestic welfare and redistributive programs. In 2024, Social Security expenditures totaled $1.52 trillion. Medicare spending came to $839 billion, with Medicaid spending running at a total $914 billion ($584 billion of it as federal and $326 billion in state-level expenditures). Agricultural guaranteed expenditures by the federal government in 2024 came in at almost $50 billion in the form of subsidies and government-guaranteed insurance payouts. The Education Department spent $268.4 billion in 2024 in the form of grants of sundry sorts and special program expenditures. In 2024, the federal government also spent $1.13 trillion on interest payments on the national debt.
All federal spending in the 2024 fiscal year came to $6.75 trillion. State and local governments spent $3.2 trillion in the same year. In other words, all levels of government spent $10 trillion of either taxed or borrowed money extracted from the private sector of American society. Measured Gross Domestic Product (GDP) in 2024 equaled $29.18 trillion. Therefore, total government spending in 2024 was equal to one-third of the value of all final goods and services produced and sold in the United States.
That total U.S. government spending of $10 trillion was larger than the entire GDP of Germany ($4.71 trillion) and Japan ($4.07 trillion) combined ($8.78 trillion). The next largest GDP in the world was China’s at $18.72 trillion in 2024. That means that total government spending in the United States was equivalent to 55 percent of China’s entire national output.
If all government spending were cut by, say, 50 percent, $5 trillion could be returned to the American taxpayer, representing $14,570 per capita for everyone in the United States. Imagine that, more radically, all government spending was reduced 80 percent, to $2 trillion, returning $8 trillion to the American people. That would be a per capita increase in Americans’ take-home income of $23,462. Most Americans, I would suggest, would find plenty of new and alternative uses for $14,570 or $23,462 if left in their pockets to spend according to their personal consumption and investment choices, rather than by the politicians and bureaucrats who arrogantly presume to spend for the “public interest” and “general welfare,” along with the vast network of special-interest groups who feed at the governmental trough, all claiming to be doing so for the good of the country.
Since most Americans do not live alone but in an estimated 132 million “households,” a $5 trillion cut in total government spending would equal $37,878 per household. And if it was an $8 trillion reduction in government expenditures, it would mean an average increase of $60,606 per household. These represent huge increases in the discretionary income of the American people to spend in ways that would demonstrate the personal choices of everyone in the United States. If only government was cut back in size far more in the direction of the spirit and content of the original understanding of the Constitution, this would all be possible.
In addition, according to the Competitive Enterprise Institute’s 2025 Ten Thousand Commandments report on government regulation, the implementation and paperwork compliance costs imposed on private business and industry are estimated to be $2.155 trillion a year. The report points out that this is equal to more than $16,000 per American household, representing the income and wealth that might have been utilized by private enterprises to make more and better and newer goods and services, rather than being dead weight to satisfy the regulatory rules, restrictions, and commands of the federal government.
Government continues to grow under Trump
The Trump administration came into power on January 20, 2025. Almost immediately President Trump appointed Elon Musk as the de facto head of the executive-created Department of Government Efficiency. It was tasked with the job of draining the swamp of fraud, waste, and abuse in the federal government. Musk declared that he was confident that he would be able to flush out as much as $2 trillion from an unnecessarily bloated bureaucracy. As he approached the end of his near full-time responsibility in overseeing this project, even conservative and libertarian think-tanks estimated that, at most, Musk and his team had been able to reduce government spending by a number closer to $150 billion. Nothing to sneeze at from the perspective of the average American taxpayer, but a mere drop in the bucket when compared to $6.75 trillion of actual federal government spending. A minor number on the government’s accounting ledger book that easily could be relegated to the “miscellaneous” column.
Other than President Trump’s proposal to abolish the Department of Education and merging the U.S. Agency for International Development (USAID) into some branches of the State Department, there have been no proposals or suggestions from the administration to abolish or repeal any significant structure of the federal bureaucracy. While the president has either threatened or implemented various cuts in federal grants to institutions of higher learning, those colleges and universities that comply with the White House’s demands on ending Diversity, Equity, and Inclusion (DEI) programs and agendas continue to receive tens of millions of dollars of taxpayer money. The idea is not to end the redistribution of taxpayer money to colleges and universities, as a matter of principle, but merely to dictate different programs and curricula to be taught from the ones that the Biden administration fostered or insisted upon.
The redistributive “elephant in the room” are the “entitlement” programs, especially Social Security and Medicare-Medicaid. Consuming more than half of what the federal government spends, Democrats are adamant that they are “untouchable,” while many Republicans, fearful of being labeled as the enemies of the poor, the old, and the sick in the next election cycle, have little or no stomach to propose and pass legislation that significantly reduces — not to even suggest abolishes — these core welfare-state institutions.
The United States, clearly, is likely to continue on this trend of ever bigger, more intrusive, and controlling government. Even if in some corners of the economic system, the Trump administration lightens up on federal regulatory heavy-handedness and retains the tax cuts introduced during its first term in office, this guarantees nothing for what any future president may do by executive order and proposes to Congress as legislation.
In other words, as long as the government institutions and the accompanying governmental structures remain in place, they will be waiting to be expanded and increased again at the expense of the personal and economic liberty of the citizenry. It is not sufficient to reduce the number of people working for the federal government or cut various categories and types of spending within the existing departments, bureaus, and agencies of the government. These can be reversed and restored or added to, once another president is in office. It is necessary to abolish these government departments, bureaus, and agencies under the premise that their existence is inconsistent with the principles and premises of a free society. That is, to institutionally and structurally reduce the size and scope of government as both unnecessary and inconsistent with individual liberty and the accompanying civil society of voluntary association both within and outside of the marketplace.
Ludwig von Mises on the illogic of government spending
This problem is nothing new. It has been experienced at different times and in different places around the world. We may use Austria as an example during the interwar period of the 1920s and 1930s, and the analysis of the situation and the policy proposals made by the Austrian economist Ludwig von Mises (1881–1973). A reader familiar with Mises might know him as the internationally renowned critic of socialist central planning or the developer of the “Austrian” theory of money and the business cycle, or as the grand social philosopher of the liberal order and the free market. But during those interwar years, he made his living not as an academic but as a senior economic policy analyst for the Vienna Chamber of Commerce, Crafts, and Industry, a position he held for a quarter of a century, from 1909 until 1934, when he accepted his first full-time teaching position at the Graduate Institute of International Studies in Geneva, Switzerland.
Ninety-five years ago, on December 1, 1930, Mises delivered a lecture to the Industrial Club of Vienna entitled, “Adjusting Public Expenditures to the Economy’s Financial Capacity” (translated in: Richard M. Ebeling, ed., Selected Writings of Ludwig von Mises, vol. 2 [2002], pp. 241–250). He explained that the Austrian government was living beyond the financial capacity of the Austrian economy and its people. In the preceding five years, between 1925 and 1929, taxes at the provincial and federal level had increased by nearly 31.5 percent; federal direct taxation, alone, had gone up by 35 percent during this period.
There were duplicative layers of government bureaus and agencies at the federal and provincial levels that placed heavy and costly compliance and paper-work costs on private business and industry. The government-run railway system and government-managed forests operated at huge financial losses that required the Austrian government to make up the difference. In a report that Mises coauthored around the same time on The Causes of Austria’s Economic Difficulties (1931), he showed that the statistical evidence found that rising taxes and related business costs due to labor union wage demands had actually resulted in capital consumption, that is, the financial inability of the private business sector to replace all capital that was used up in production. The country was becoming productively poorer!
Mises said that most people in Austria had come to take it for granted that government expenditures would keep going up year after year. But rising government spending and borrowing could not go on forever. The limits were scarcity and the capacity of the Austrian economy to produce the wealth that could be taxed away and consumed by government at its various levels. The heart of the problem was that when it came to government, it was presumed that constraints and trade-offs did not apply. The politically chosen level of desired government expenditures would be the amount of private income, profits, and wealth that would be siphoned off by the government authorities to meet their “needs.” However, this ignored the fact that every unit of money taxed to cover government expenditures is one less unit of money available in the private sector for capital investments to improve the standard of living looking to the future. Said Mises:
The errors in our fiscal policy stem from the theoretical misconceptions that dominate public opinion about financial matters. The worst of these misconceptions is the famous, and unfortunately undefeated, idea that the main difference between the state’s and the private sector’s budget is that in the private sector budget expenditures have to be based on revenues, while in the public sector’s budget it is the reverse, i.e., the revenue raised must be based on the level of expenditure desired. The illogic of this sentence is evident as soon as it is thought through. There is always a rigid limit for expenditures, namely the scarcity of means. If the means were unlimited, then it would be difficult to understand why expenses should ever have to be curbed.
If in the case of the public budget it is assumed that its revenues are based on its expenditures and not the other way around, i.e., that its expenses have to be based on its revenues, the result is the tremendous squandering that characterizes our fiscal policy. The supporters of this policy are so shortsighted that they do not see that it is necessary, when comparing the level of public expenditures with the budgetary expenditures of the private sector, not to ignore the fact that enterprises cannot undertake investments when the required funds are used up instead for public purposes. They only see the benefits resulting from the public expenditure and not the harm the taxing inflicts on the other parts of the national economy.
Furthermore, Mises pointed out that the Austrian Social Democrats had deluded voters into thinking that taxes on business and profits were not harmful to “the workers.” The rich paid more and the ordinary citizen paid less. This ignores the fact, Mises said, that business and profit taxes leave less in the hands of private enterprisers and entrepreneurs to invest in more and better capital, which makes workers more productive and improves the quantities and qualities of goods available to those workers in the future in their role as consumers.
The need to abolish agencies to limit government
In the Austria of this time, there were proposals for cutting government expenses by firing significant numbers of government employees, not much different than what Musk’s efficiency boys proposed to do to eliminate fat and waste in the government. However, Mises argued that, “Unfortunately, it was forgotten that if a dismissal of public servants is to be financially effective in the long run, it has to be preceded by a reduction in public responsibilities and by administrative reform.”
In other words, it is not enough to terminate the employment of some or many of those currently working for the government, if the bureaucratic and related institutions are left in place. For one thing, this perpetuates the presumption that there are duties and responsibilities expected from the government that need to be performed. When these bureaus, agencies, and departments fail to do what “on the legislative books” they are expected and required to do, the case will be made that the personnel in question were irresponsibly let go and government cannot do what it is supposed to do. This will rationalize and justify restoring the very government employees removed.
The only answer, Mises was saying, is to abolish and repeal these departments, bureaus, and agencies on the premise that these are tasks government cannot or should not perform. This more permanently closes the door on such rationales and justifications for more government “public servants” to regulate and intervene because the government institutions previously doing such tasks would no longer exist and viewed as a role for government.
Furthermore, Mises pointed out that as for those state-owned or managed enterprises operating at a loss that are subsidized out of government tax revenues, they should be sold off to private enterprises that are far more competent in running businesses and making them profitable, or they should just be shut down. Said Mises:
None of the austerity measures in the government administration are to any avail as long as public enterprises are run at a deficit. A solution to the political and economic circumstances of the day will not be found in the government administration or in the state-owned enterprises…. It must be understood that not even public authorities are able to continue to run unprofitable enterprises. If these enterprises are in fact unprofitable, or if the government administration does not know how to make them profitable, then they should be gotten rid of by being sold to the private sector. If there is no way to make them profitable, well then, they should be shut down.
To continue operating unprofitable businesses represents an indirect subsidy for interested parties and, therefore, its effect is on a par with any other subsidy policy. It really does not require any further explanation that the direct subsidizing of business ought to be condemned in whatever form it is carried out. After all, the subsidies are not paid for by the state; in the end, they are paid for by the market economy…. One line of production can be subsidized only at the expense of all other industries, as well as of other departments of the state.
The fallacy of untouchable redistributive spending
Taxes needed to be drastically cut, especially on business and industry. Accompanying this, government expenditures needed to be reduced, not merely by letting go large numbers of government employees but by eliminating the need and rationale for them by repealing and abolishing the government bureaus, agencies, departments that are the reason and rationale for those government workers for various interventionist purposes.
Common in Mises’s Austria of 1930 was the same argument often heard today that these government expenditures and “entitlements” must be viewed as untouchable, given the needs and expectations of large numbers of the population who have become accustomed to and dependent on them. Too many believed that “the rich” and business profits were a bottomless bag from which any amount might be taxed away and that somehow, miraculously, the bag was replenished to keep doing it over and over again. Mises explained:
Whenever there is any talk about decreasing public expenditures, the advocates of this fiscal spending policy voice their objection, saying that most of the existing expenditures, as well as the increases in expenditures, are inevitable. Any notion of applying the concept of austerity to the machinery of the public sector is to be rejected. What exactly does “inevitable” mean in this context? That the expenditures are based on various laws that have been passed in the past is not an objection if the argument for eliminating these laws is based on their damaging effects on the economy. The metaphorical use of the term “inevitable” is nothing but a haven in which to hide in the face of the inability to comprehend the seriousness of our situation. People do not want to accept the fact that the public budget has to be radically reduced.
In late 1930, when Mises delivered this lecture, Austria, like much of the rest of Europe and the United States, was starting to fall into the depths of the Great Depression. In his role as senior economic analyst at the Vienna Chamber of Commerce, Mises attempted to influence Austrian economic policy in a more rational direction of smaller government and greater economic freedom to overcome the falling output and rising unemployment in 1931, 1932, and 1933. But to no avail. Then in early 1934, a brief civil war in Austria resulted in the establishment of a fascist-oriented government, which was then eliminated when, in March 1938, Hitler ordered the invasion and annexation of Austria by Nazi Germany.
Demagogy and compromise will not win freedom
Shortly after Mises’s arrival in the United States in the summer of 1940, he wrote a Memoir that was published only after his death in 1973. Looking over his policy work in the Austria between the two World Wars, Mises forlornly said, “Occasionally I entertained the hope that my writings would bear practical fruit and show the way for policy…. I set out to be a reformer, but only became the historian of decline.”
So, how shall friends of freedom advance the cause of liberty and avoid the abyss of economic catastrophe and political crisis? Mises was adamant about how not to do it. As he argued in his 1927 book Liberalism, political subterfuge and rhetorical demagoguery are not the avenues to making the case for (classical) liberalism and winning the ideological conflict between the market economy versus collectivism. Mises did not believe that you could lie or manipulate your way to liberty:
All the tricks and lies of demagogic politicians may well be suited to promote the cause of those who, whether in good faith or bad, work for the destruction of society. But the cause of social progress, the cause of the further development and intensification of social bonds, cannot be advanced by lies and demagogy. No power on earth, no crafty stratagem or cleaver deception could succeed in duping mankind into accepting a social doctrine [classical liberalism] that it does not acknowledge, but openly spurns….
If liberal principles once again are allowed to guide the policies of great nations, if a revolution in public opinion could once more give capitalism free rein, the world will be able gradually to raise itself from the condition into which the policies of the combined anti-capitalist factions have plunged it. There is no other way out of the political and social chaos of the present age.
What free-market liberalism offers as an ideal and as a goal of public policy, Mises declared, is an equality of individual rights for all under the rule of law, with privileges and favors for none. It speaks for and defends the freedom of each individual and therefore is the voice of liberty for all. It wants every person to be free to apply himself in the pursuit of his own goals and purposes, so he and others can benefit from his talents and abilities through the peaceful transactions of market exchange. Classical liberalism wants the elimination of government intervention in human affairs, so political power is not abusively applied at the expense of anyone in society.
This is the shining vision that can and should guide friends of freedom today, as much as Mises tried to be such a voice in the Austria of that earlier time. It is only the principles of the free society, not pragmatism or compromises with the existing institutions of the interventionist-welfare state, that can successfully reduce the size and scope of bloated government in America and around the world.
This article was originally published in the August 2025 issue of Future of Freedom.
