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Ludwig von Mises' timeless insight on interventionism

By Evan Chow
web posted October 4, 2010

To remedy the current economic crisis, the U.S. government has begun to involve itself more and more in public affairs. Many applauded President Barack Obama's stimulus package, and to garner public support, dredge up treasured and time-honored memories of Roosevelt's "New Deal" program in the 1930's. Some recall that his economical revival plan called for wide scale government spending. Even fewer, though, know about a certain short treatise that appeared just after the post-Depression recovery period in response to the Deal.

In 1940, Ludwig von Mises had just fled war-torn Europe to the United States. In reply to the political events in Germany, Italy, and America of the 1930's, this scholar from the Austrian school of economists wrote Interventionism: An Economic Analysis (PDF format). In this short treatise, he discusses the doctrine of interventionism, which some countries had adopted as a trade-off between the laissez-faire of capitalism and the state planning of the other. The theory defines as moderate government regulation over certain sections of the free market. Instead of proposing value judgments, von Mises instead evaluates this economic policy by how well it achieves what the government aims for. Juxtaposing astute and thorough reasoning with then-recent historical examples, he shows why interventionism cannot exist permanently, and will inevitably develop into either the capitalist or the socialist system. After reading Interventionism: An Economic Analysis, I agree with von Mises about the impossibility of such a policy lasting, which well addresses our national situation.

Permanent interventionism does not seem plausible to me. I would suspect that a government would find itself increasingly dissatisfied with any degree of power less than fascism. A politician on Capitol Hill, with just a hint of corruptness and isolated from real citizens, can easily sway to temptation and pressure. I would say that complete regulation has not occurred quite yet in the U.S. because of constitutional limits (the Bill of Rights, for example). It seems of late that the government has been discovering loopholes in the Amendments and the Constitution. I would not be surprised if the State soon did away with the Bill of Rights altogether, similar to the commandments abolished in Orwell's Animal Farm.

In Europe's history, which I studied last year, I found support for von Mises' point. The best known example of interventionism's failure happened in pre-WWII Germany, where mass unemployment and inflation had flooded the nation following the Weimar Republic. To solve these, the German government, which included Hitler and his regime, initiated work programs and promised benefits, including social healthcare. This was interventionism. However, it quickly led to Hitler's fascist regime; Hitler could assume more and more power, since the people hoped for these benefits and gave it to him. A similar situation occurred in Italy. Starting with the country's unification, Italy's government proved weak, allowing disorder, riots, and strikes to occur. People grew disgruntled, and turned to Benito Mussolini, who promised benefits like employment, food, land, universal suffrage, and improvement of working conditions. Starting as a socialist system, his government created work programs, including those for land cultivation, building projects, and irrigation. This solved the problem of unemployment, and Mussolini's party gained support from the proletariats. Soon, this led to fascism, though; Benito, greedy for Italian national glory, instituted restrictive measures in regard to political, economic, and social freedom. Once again, interventionism became unnamed socialism, which became fascism. Similar situations have also happened in Iran recently and in certain Asian countries.

Because Interventionism was written just after and in answer to the New Deal, von Mises prophesized America's current economic situation very well. For example, in the chapter of Interventionism on restrictive measures, he tackles the topic of tariffs to help domestic businesses. In theory, the State would implement high taxes (tariffs) on imports, in order to give its own industries a competitive advantage. This relates heavily to the present situation of the U.S.'s mass importation of foreign-produced goods from places like China and Japan, who churn out these items much more efficiently and quickly. The economist, however, clearly states the point that with the "privileges" granted to a certain party, like the domestic producers, another party must suffer for it. If tariffs were implemented to protect these businesses from foreign competitors, then domestic consumers would suffer from the artificially raised prices. Furthermore, because of the division of labor, each producer is also a consumer (auto mechanics need to buy wrenches and screwdrivers from other producers, grocery store owners need to purchase computers to record sales). More tariffs could lead to a situation where just as a certain producer benefits from the tariffs regarding their industry, they would suffer as a consumer purchasing from a different industry. All would benefit, and thus no one would. Interventionism directly discusses issues like these, as well as other socialistic policies such as benefits. Our government is trying to practice these socialist policies and increase its control over public affairs yet still claims traditional ideals of freedom and laissez-faire. One, the healthcare bill, reflects one facet of the government's increasing control over public affairs, as its required purchasing stifles the freedom of choice for U.S. citizens. If Ludwig were alive today, he would without a doubt point these out.

Although I agree with von Mises' argument against lasting interventionism in regards to the financial and market economy, I believe the government should hold a reasonable amount of power. I generally support the government when it deals with issues of crime and fraud. In many cases, I also often endorse state bureaus like the FDA, which regulate quality and safety for our imported and domestically produced products. And then, the State, rather than individuals, can better handle foreign threats to our economy. You will find Intervention: An Economic Analysis easy enough to read, although it calls for thought and attention. This book reveals much insight regarding today's issues of increasing government control, freedom, social welfare, and economic policies. Ludwig von Mises convinced me that the U.S. cannot stand forever on the fence between capitalism and socialism; it will inevitably succumb to one, and that remains the question. ESR

This is Evan Chow's first contribution to Enter Stage Right. © 2010 Evan Chow

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