Ludwig von Mises & Interventionism
This essay was written by guest-author Will Porter.
Ludwig von Mises was arguably one of the greatest economists and social philosophers of the 20th century, possibly of all time. He was a fervent defender of the free market and of the classical liberal philosophy of human liberty. His story is one of courage and heroism in the face of immense opposition; as the socialistic and nationalistic currents of Europe clashed, eventually culminating in world war and mass collapse. But despite this greatness of character and intellect, Mises may not have gone far enough in applying one of his (most) valuable insights concerning economic interventions and the path to socialism.
On interventionism, Mises noticed that almost every measure taken by government to intervene into an economy brought along with it ever-more problems. These newly-created problems, of course, would be “solved” with ever-more intervention. (Mo’ intervention, mo’ problems.) This series of failed policy and attempted remedies would bungle along until an essentially socialist economy emerged. This socialism today has become more fascist in nature, but the process and the final result remain essentially the same. This great insight into the nature of state-interventionism showed that no “Third Way” existed. No mixed economy could serve as a happy medium between laissez-faire and socialist planning boards. Any intervention would necessarily fail, and from here one of two things could be done. 1) As said above, new measures could be taken to further intervene in vain attempt to solve the problem, or 2) The program could be repealed and the damage hopefully reversed.
So for Mises, this path of economic regulation and control could only go two places, both of them coming forth as a result of the failed policy. It could return to laissez-faire, the state learning from its failure. This, sadly, rarely happens. Much more likely, the road to socialism would be paved as the problems compounded. Socialism, as Mises discovered in his economic analysis of a collectivist order or a planned economy, could not possibly be a viable option. Socialist economies are planned from the top-down, and in no planned economy of this sort could genuine prices emerge for high-order goods — like capital equipment and raw materials. For any kind of functional price to come about, free trade must exist between various parties. As trades and transactions are made and agreed upon, a certain monetary price emerges as a result of this collective-action, prices which can be reliably used as factors of economic calculation. Entrepreneurs and capitalists dealing in the higher stages of production make these calculations to avoid waste and to maximize production of goods in balance with the supply of and demand for those goods. Eventually, though, the calculations are made by consumers and workers on a personal level, near the lower-order stages of production, consumer products.
This process allows for a network of prices to emerge, generally reflecting the collective-valuation of goods in quantifiable monetary units. Economizing and trimming down waste becomes possible under such a system, but only when it is organic or spontaneous. Socialist governments typically own the means of production in whatever territory they rule, and as only one party it of course cannot trade with itself. No prices can be established that actually reflect real valuation under socialism, and therefore no calculation can be made to avoid producing too much or too little of the right or wrong thing. This is why under Soviet communism tractors filled the fields and rusted, vastly over-produced. Just because we can devote a plethora of energy into producing mountains of shoes at full-production doesn’t mean it’s a good idea to do so. Forcing any industry, artificially, into “full-production” by necessity means that resources and labor will be diverted away from more urgent needs and wants. It means a net loss for society as a whole, who now has more of something they don’t want, and less of something they do. But the results of socialism aren’t merely that some of your desires or wants go unfulfilled – a tolerable sacrifice for the cause — but that your biological needs may go unfulfilled, when the planning board misallocates resources so severely that food is under-produced, and you starve to death.
Mises offered a devastating critique of socialism, so much so that it was, to an extent, ignored or dismissed by many socialist intellectuals of his time (and today). Showing that socialism can’t calculate, thus inevitably condemning it to failure, was an insight and prediction that would render any advocacy for such a system as not only absurd, but clearly against the interests of humanity at large. If socialism is total-intervention into a private economy, then each thrust forward towards interventionist state-policies would be a step more toward outright socialism. To whatever extent there is control by the state over some aspect of the private market, it is the same extent that constant maladies and conflicts and misallocations will take place. This insight has been largely ignored by advocates of both socialism and interventionist policy.
But Mises was right. As each year passes, we can witness this process before our very eyes. Ever-more government regulation is imposed on the private economy, and we continue to see worse-and-worse problems arising, such is the case with the American central banking cartel, the insurance and pharmaceutical industries, the military industrial complex, etc. In light of how accurate this theory is, and has been, can its application be extended beyond Mises’s original intention?
It would seem that if artificial state-intervention into the market necessarily brings problems, then all forms of state-intervention could be said to bring the same kinds of problems. For example, when government intervenes and establishes a monopoly police force,or a monopoly court-system, that these too would yield the kinds of results that would require constant additions of laws, a constant increase of control and regulation. The many monopolies imposed by the state are always in the name of the “common good”, yet they only contribute “bads” for almost everyone, giving special privilege to a small minority.
The courts have exemplified this. What began as a fairly simple, but effective, tradition of precedent-based common-law has now become a monolithic system of immense complexity. The federal government doesn’t even know how many laws, statues, and regulations are on their own books, surely there are thousands, probably tens of thousands.
The mere mention of suing somebody now evokes so much uneasiness that many disputes forego the courts altogether, to avoid the racket they impose. Costs of litigation restrict and hamper both the operation of a business, but also a hasty path to redress when some person or party has been wronged. Can a justice system that’s so complex, inefficient, and expensive that it drives away legitimate disputants be said to be “working”? This doesn’t even consider the endless slew of victimless-crime laws that criminalize peaceful behavior and lead to millions of innocent people being thrown into cages for precious years of their lives. On top of this, when a real crime has been committed, with an aggressor of person or property, the victim is forced to pay to house, clothe, and feed the criminal as an inmate in a government prison or jail. Instead of restitution to victims as the primary job of law and order, punishment of criminals has become their fancy, even if it’s at the total expense of the victims of the crime they seek to punish.
These systems are consistently plagued by corruption, abuse of power, horrendous misallocation of resources (leading to shortages or over-abundance), conflicts of interest, and the general hampering of economic progress, thus requiring a stream of continual state-legislation that only amplifies the issues the law always seeks to remedy. Each time “something is done” by way of law, most common people generally assume it was the correct measure to fix the problem, because the experts in government know best.
I could go on for much longer on the mountainous list of mass injustices done by the monopoly police and court systems, but the point should be clear. State-intervention into any area of the market will bring constant problems, corruption, crime, and waste. The state never wishes to let go of power once attained, so it will always keep on adding new programs to fix the problems of the last ones. No politician wants to be the one who repealed a program, so their only politically-viable route is to legislate in addition to, rather than in replacement of, old programs.
On the possibility of a “limited state”: government that is small may not be a government that is limited. Many Americans assume, because our government was once small, that it must have been limited. I don’t see the limitation occurring. At almost every possible turn, the government – local, state, and federal — has rendered the original “limits” on its power completely useless in actually doing any limiting. No government can possibly be limited, because all governments, by their nature as “lawmakers”, are above their own law. Virtually every government in the world today has some document announcing the rights of the people, and the restrictions on government that are to be imposed. But virtually every government in the world, and in history, has continually violated its own laws and fundamental principles, mostly with no repercussions at all besides some public distaste. The bums are thrown out, replaced by some new guys who will then turn around and do precisely the same things.
The theory that interventionism leads to more interventionism, which sooner-or-later results in a system largely controlled and regimented by the state, is a very similar theory in form to the one I have presented in the above paragraph. Intervention perpetuates itself, as does all government action. The very existence of a state means the existence of an entity who is allowed to exempt itself from its own laws, inevitably leading to a similar cycle of self-perpetuated growth. Whether it concerns economic or social issues, any state intervention will necessarily lead to a larger state, and more problems (which give the state ever-more excuses to intervene). The existence of capitalism and free trade, say after the American Revolution, creates large sums of wealth in society. As this capital-accumulation takes place and society gets richer, the state latches onto this expanded wealth to fuel their own growth, their own libido dominandi.
Mises was correct to the degree he applied his theory, but a consistent application would lead to anarchistic conclusions. The state has no legitimate or effective purpose. Any attempt to force its way into the market will only yield a constant flux of issues, never to be quelled by heavier doses of statism. It is only the position of complete liberty, pure (classical) “liberalism” that can bring a sustainable and prosperous social system. No way of organization will be completely free of problems, but if we wish escape from the institutionalization of such problems, we must ditch the notion of statism altogether. This systematic implementation of problem-creation cannot sustain any society, because statism is the antithesis of society. This is precisely why the state can no longer be tolerated.
“Every step which leads from capitalism toward planning is necessarily a step nearer to absolutism and dictatorship” –Ludwig von Mises “Omnipotent Government” p. 53