A Critique of Interventionism

A Critique of Interventionism, by Ludwig von Mises, translated and introduced by Hans F. Sennholz, New Rochelle, NY: Arlington House, 1977, 164 pp., $8.95

One of the little-known difficulties in the development of the contributions of the great Austrian economists has been the unavailability—or delayed availability—of their writings in English. Theorists such as Carl Menger and Eugen von Boehm-Bawerk, for example, were responsible for incredible advances in economic understanding, yet the impact of their contributions was diffused due to delays in translation and distribution to English-speaking academic economists. Even today, as impossible as it may seem, there still remains a vast literature of books, articles, and important essays by renowned Austrian economists that has never been translated, or is only slowly being translated, republished, and made available.

It is in this light that we must greet enthusiastically the recent publishing of six essays written by Ludwig von Mises in the 1920's. Arlington House Publishers and translator Professor Hans Sennholz are to be congratulated for making these essays available to a whole new generation of economists and policymakers who could still profit, apparently, from their insightful analysis.

The central theme of the Mises book is that interventionist policies on the part of government cannot achieve their intended result and must lead to further economic restriction that tends to cripple the market system. Mises' favorite example of interventionism is price fixing, and he repeatedly describes the various consequences of price interference on the part of government. The entire scenario is summed up as follows: "at first price control, then forced sales, then rationing, then regulation of production and distribution, and finally attempts at central planning of all production and distribution."

A subsidiary theme in these essays is that even though the classical liberals and the older Marxists understood the total impracticality of interventionism, the neoclassical economists, state socialists, social democrats, and historians (particularly of the Historical School) did not understand—or chose to ignore—the fundamental nature of the interventionist problem. Indeed, important sections of the book are given over to an examination of the confused views of such Mises contemporaries as J.M. Clark (on interventionism), Lampe (on "free competition"), Schmalenback (on the alleged importance of fixed costs and interventionism), Deumer (on credit nationalization), and Werner Sombart (on Marxism). Mises devastates these positions intellectually yet realizes that these views have (somehow) become the new orthodoxy in political economy—a sad development indeed.

There are many important Misesian insights in these essays, though few are developed at any great length. For instance, Mises continuously berates—and deservedly so—the positivist, empiricist, and Historical School of methodology; to study history without theory or to claim to test the correctness of theory with historical incidents was, for Mises, unpardonable error. It was also error—and here Mises anticipates an important criticism developed by Hayek in the 1940's—to make the case for liberalism depend upon the existence of some ethereal notion of "free competition," that is, "perfect competition." Mises realized then, as many contemporary economists still do not, that to create a "competition that is free and equal" would require massive governmental intervention with private property, and would likely (for Mises) lead to socialism.

In addition, Mises offers an important observation concerning the nature of "social contract" theory. He notes that the formation of free market social organizations was never the direct product of "consciously aimed human effort" but was, instead, the "unconsidered result of specific individual efforts of the members of society." Here we have a hint of the correct vision of the much-maligned "harmony of interests" doctrine and the most important idea of all classical economics: spontaneous order. Yet, we must reiterate—these important notions are tossed up rather casually and are not really elaborated upon in any great detail in these essays.

There are also many important policy insights in this volume. For instance, Mises notes that even in the 1920's, unemployment compensation tended to delay the free flow of workers from labor-surplus to labor-shortage industries and therefore tended to make unemployment a "permanent institution" rather than a temporary disequilibrium. He also notes that almost all cartels owed their existence "not to a tendency in a free economy, but to intervention." Such cartels could be formed because they were sheltered by tariffs and other interventions that restricted competition.

If there can be any criticism of this volume it is that many of Mises' examples, illustrations, and book reviews relate to scholars and historical situations that may not hold great interest for the general reader—though the student of economic thought will probably be fascinated. Also, there are occasional assertions that are not substantiated by prior discussion. It is one thing, for example, to assert that in theory—other things equal—unemployment is a disequilibrium situation that will tend to disappear. It is quite another thing to assert—in the absence of a careful discussion of time and any examination of specific labor markets—that in actual market circumstances "without intervention, [unemployment] neither will last long nor affect many."

In conclusion, the Mises essays are a welcome addition to our literature of liberty and provide insights and historical analysis of government policies that—given the unfortunate state of the world—are still valuable today.

D.T. Armentano's many appearances in REASON date back to January 1970. A revised, paperback edition of his The Myths of Antitrust will be published soon.