The most evident problems that seem to require the concept of the grant as a basic framework are related to the phenomenon of charity. Whether it is an occasional alms given to a beggar, the establishment or management of a foundation, support for religious, medical, educational and research activities, or even the redistribution of income by the state, this phenomenon is extremely difficult to explain through the conventional theory of exchange. Indeed, it plays no role in conventional welfare economics, the branch of theory that studies the extent to which economists can say whether a given situation is economically better or worse than another.
Economics includes a theory of the firm as it exists in an exchange economy. But, partly because it has abandoned the concept of the grant, it does not include a theory of foundations, nor does it have a very good theory of the state as an economic organization.
The concept of the grant may also be significant in the field of public finance and the provision of public goods. Public finance, which is basically the study of state revenue and expenditure, is a classical branch of economics with a respectable history and a large body of empirical studies since the days of Adam Smith. However, it has never had a truly satisfactory theoretical basis. I suspect this is because it has been studied by economists trained mainly in the theory of exchange, who have tried to fit public finance into that mold under the assumption that, if taxes are paid, the taxpayer must receive something in return.
The concept of the grant frees public finance from its dependence on the concept of exchange and allows us to perceive the whole system as one of related one-way transfers, rather than as a system of exchanges.
Closely related to the problem of public finance is that of public goods, which in recent years has aroused great interest among economists. A public good is one that cannot be privately appropriated and, if provided by the community, can be enjoyed by any member, whether or not that person contributes to its provision.
Therefore, if public goods are to be provided, there must be something like a grants economy. The individual must transfer resources from their private account to the public authority without receiving any specific benefit. Or, viewed from the other angle, the individual may enjoy a good provided by others without having to pay for it or make any sacrifice.
Thus, public goods will not be provided at all unless there is something like a grants economy, whether public or private, whether in the form of gifts, tributes or a mixture of both. Consequently, the theory of public goods cannot be separated from the theory of the grants economy.
Another field in which the concept of the grants economy is important is the theory of organization. We have already noted that internal transfers of resources from one part of an organization to another, and from one level of the hierarchy to another, are a crucial element in the functioning of organizations of all sizes, from the family to the socialist state.
Grants, therefore, are an especially significant element of what might be called “political economy”; that is, the processes through which functions are created and things are done by instruments other than the market, whether in corporations, churches, defense departments or international organizations. Indeed, without the concept of the grant, any kind of organization would be incomprehensible.
Finally, the concept of the grant sheds considerable light on some of the political controversies of our time, especially the socialist controversy. At its core, this controversy is really about the legitimacy of market organizations as opposed to organizations based on grants.
To organize society and perform its essential functions, capitalism relies more heavily on the market, especially on capital markets. Socialist countries rely much more on a political economy of grants. In any case, the concept of the grant highlights the existence of a considerable area of overlap between the socialist and capitalist worlds.
It also shows that the organization of any major capitalist enterprise is similar to that of a socialist country, since both must rely extensively on a system of grants and direct allocations in their internal organization.
Although it may be too much to expect the concept of the grant to resolve the current debate over the relative merits of socialist and capitalist economies, we can at least expect the study of the grants economy to clarify problems and bring many of the real issues in dispute into sharper focus.
