WorldSys: Austrian Home Study Course, Week 28

READINGS: “Middle-of-the-road Policy Leads to Socialism” by Ludwig Von Mises, Chapters 11 and 12 of Gene Callahan’s “Economics for Real People”

1 What is interventionism?

A third-way system meant to stand equidistant between communism and capitalism, retaining the advantages and avoiding the pitfalls of each.

Interventionism essentially calls for having a market and a State, with the latter heavily involved in the operation of the former, issuing orders, controlling prices, wages, and interest rates, and otherwise meddling in the free economic choices made by individuals.

2 How does interventionism differ from full socialism?

Interventionism allows quite a lot of ostensively free economic activity, and lacks anything so nasty as socialism’s full public ownership of the means of production.

For a while, anyway.

3 Name some examples of typical interventions?

Price and wage controls, tariffs on imports to “support” domestic industries, taxes, establishment of governing bodies like the American Medical Association and the Food and Drug Administration, new “there oughta be a law” laws, subsidies…

4 Describe the “dynamics of intervention”.

Some enterprising bureaucrat spots an opportunity to garner public favor by offering to subsidize some industry or erect a tariff to make imports more costly. Then they pass their laws. But these laws have unintended consequences — not allowing inefficient firms in the subsidized industry to fail means higher prices, as do the tariffs. So now, to remedy this mess, more laws are passed fixing prices. Alas, this just moves the problem further afield, and now we must fix prices in more remote industries to forestall further increases in costs.

And this merry-go-round of nightmares continues to spin and spin, crushing everyone as goes.

5 Why does Mises think an initial price control will lead to more such interventions?

Because interventions generally always lead to more intervention to mitigate whatever unforeseen consequences the original intervention caused.

Mises illustrates with the example of a price control on milk. Say the government caps the price of milk at a certain level, the better to make it available to the poor so that their children can have decent nutrition.

The marginal producers of milk, those for whom the venture was just barely profitable, now take their cows, machines, and skills elsewhere and do something that makes more economic sense. This reduces the supply of milk, making it harder for anyone, including the poor who were to be the target of the State’s largesse, to get any.

To avoid this, the State now institutes further price controls on the various factors of milk production so that those marginal producers don’t face a prohibitively steep rise in their business costs.

But the result of this meddling is that the supply of the factors required to produce the factors required to produce milk drops. At this point does the State see the trend and usher in a program of sweeping free-market reforms, drastically cutting itself down to a size consilient with liberty?

Mayhap it would in a world like Narnia; not, in fact, in this one.

6 How might a government intervention lead to results that even its proponents consider worse than the initial state of affairs?

See the previous question. In this scenario, if price control schemes are allowed to metastasize eventually you end up with economy-wide shortages in all sorts of things. This is not what the original fixers of milk prices had in mind. In theory, if they had understood where their path would take them they would not embark upon it in the first place.

7 Isn’t it best to adopt a moderate position, which avoids the excesses of pure socialism and pure capitalism?

Mises contends that this cannot be done. Only the poles of socialism and capitalism are stable over the medium term, and only capitalism is stable over the long term (socialism eventually collapsing under the mis-signaling of distorted prices).

8 If interventions fail to achieve their official goals, why do politicians continue to propose them?

They are popular with the electorate, and can gain shallow, immediate results which increase the chances of being re-elected.

9 If interventions fail to achieve their official goals, why do voters continue to support them?

Most people simply don’t understand how the economic consequences play out.

10 What are the “two roads to socialism” described by Mises?

The first is by elevating the proletariat to the status of ruling class and then encroaching by steady degrees into the operation of the market; the second is to let capitalism reach full maturity, at which point it will ineluctably evolve into socialism.

So the first sees a need for the State to take an active role in the development of socialism, but the second takes the view that the natural forces of history will take us to socialism whether we will it or no.

11 Is interventionism a viable economic system?

No, either it is abandoned in favor of capitalism or it continues to expand into socialism.

12 Does the history of the U.S. validate Mises’s views on the trends of interventionism?

Most certainly. Our once stalwart allegiance to individualism and economic freedom has given way to gradually more and more statism, collectivism, and interventionism, as Mises said it would.

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