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IT IS THE PURPOSE of this essay to analyze the problems of government interference in business from the economic standpoint. The political and social consequences of the policy of interventionism1 can only be understood and judged on the basis of an understanding of its economic implications and effects.

    Ever since the European governments in the last decades of the nineteenth century embarked on this policy, which today frequently is called “progressive” but which actually represents a return to the mercantilist policy of the seventeenth and early eighteenth centuries, economists have persistently pointed out the inconsistency and futility of these measures and have predicted their political and social consequences. Governments, political parties, and public opinion have just as persistently ignored their warnings. They ridiculed the alleged doctrinarism of “orthodox” economics and boasted of their “victories” over economic theory. But these were Pyrrhic victories.

    The inevitable sequence of events which followed upon the application of interventionist measures fully proved the correctness of the economists’ predictions. The predicted political effects, social unrest, dictatorship, and war, also did not fail to appear.

    This essay is not intended to discuss specifically the American New Deal. It deals with interventionism in general, and its conclusions are valid for all instances of interventionism irrespective of the country concerned. There was a considerable amount of interventionism in America long before 1933. The New Deal is merely the present-day, specifically American brand of a policy which began everywhere—including America—several decades ago. To the economist there is nothing new in the New Deal. It differs from the policy of Kaiser Wilhelm II and from the policy of the Weimar Republic only to the extent necessitated by the particular conditions of present-day America. And it places the American people today in the same dilemma in which the German people found themselves ten years ago.

    This essay is economic in character and, therefore, is not concerned with the legal and constitutional aspects of the problem. Laws and constitutions as such are of secondary importance only. They are to serve the people, not to rule the people. They are to be formulated and interpreted in such a way as to make possible an economic development beneficial to the welfare of all groups of the nation. If they fail to reach this aim, the laws and their interpretation ought to be changed.

    There is certainly no lack of literature on this subject; almost every day new contributions appear. But almost all of these studies are concerned exclusively with particular groups of measures and their short-run effects. This method of analysis is woefully inadequate. It merely shows the immediate consequences of individual interventions without considering their indirect and long-run effects. It takes into account only the alleged benefits and disregards the costs and detriments.

    In this way, of course, a comprehensive appraisal of the social and economic consequences of interventionism can never be reached. That certain individuals or small groups of individuals may sometimes be temporarily privileged or benefited by certain interventionist measures cannot be denied. The question is, however, what further effects are caused, particularly if the attempt is made to accord in the same way privileges to large sections of the population or even to the whole nation. It is therefore essential to study the totality of interventionist policy, not only its short-run but also its long-run effects.

    It would be a thorough misinterpretation of my statements to consider them as a criticism of the statesmen and politicians in power. My criticism is not aimed at men, but at a doctrine. No matter what the constitution of the country, governments always have to pursue that policy which is deemed right and beneficial by popular opinion. Were they to attempt to stand up against the prevailing doctrines they would very soon lose their positions to men willing to conform to the demands of the man in the street. Dictators too can only seize and maintain power if they are backed by the approval of the masses. The totalitarianism of our times is the product of the wide acceptance of totalitarian ideology; it can only be overcome by a different philosophy.

    If we are to understand economic problems, we have to keep ourselves free of all prejudices and preconceived opinions. If we are convinced beforehand that the measures which are being recommended to benefit certain groups or classes, for instance laborers or farmers, actually do benefit and do not injure those groups, and if we are determined not to abandon our prejudices, we shall never learn anything. It is the very task of economic analysis to ascertain whether the policies recommended by the various parties and pressure groups actually lead to the results which their advocates desire.

    The problem is not whether the capitalist system (i.e., the market economy) is good or bad. The real question is whether it would be in the interest of the masses of the people to replace the market economy by another system. When someone points out some unfavorable conditions which the market economy has not been able to eliminate he has by not means proved the practicability and desirability of either interventionism or socialism.

    This certainly is still the least objectionable argumentation. As a rule, capitalism is blamed for the undesired effects of a policy directed at its elimination. The man who sips his morning coffee does not say, “Capitalism has brought this beverage to my breakfast table.” But when he reads in the papers that the government of Brazil has ordered part of the coffee crop destroyed, he does not say, “That is government for you”; he exclaims, “That is capitalism for you.”

    An analysis of the problems with which this book is concerned must be conducted strictly according to the rules of logic and has to avoid everything that might disturb the objective judgment by appeal to the emotions. Consequently I have refrained from making this essay more entertaining by including amusing anecdotes about the ridiculously paradoxical measure of contemporary economy policy. I feel certain that this will be appreciated by the serious reader.

    Some people may object that it is insufficient to discuss these problems from an economic standpoint only. They include, it is said, more than merely economic aspects, namely, politics, philosophy of life, and moral values. I definitely disagree. All political arguments of our time center around capitalism, socialism, and interventionism. Certainly there are many more things in life. But our contemporaries—not just the economists—have placed the question of economic organization in the center of their political thinking. All political parties confine themselves to economic aspects; they recommend their programs with the assertion that their execution will make their supporters richer. All pressure groups fight for economic betterment; all parties are today economic parties. Hitler and Mussolini proclaim: “We ‘have-nots’ are out to get a share of the wealth of the plutocrats.” Ownership is the battle cry of the day. We may well approved or disapprove of this fact, but we cannot deny its existence.

    Therefore it is not arrogance or narrowmindedness that leads the economist to discuss these things from the standpoint of economics. No one, who is not able to form an independent opinion about the admittedly difficult and highly technical problem of calculation in the socialist economy, should take sides in the question of socialism versus capitalism. No one should speak about interventionism who has not examined the economic consequences of interventionism. An end should be put to the common practice of discussing these problems from the standpoint of the prevailing errors, fallacies, and prejudices. It might be more entertaining to avoid the real issues and merely to use popular catchwords and emotional slogans. But politics is a serious matter. Those who do not want to think its problems through to the end should keep away from it.

    The moment has come in which our contemporaries have thoroughly to reconsider their political ideas. Every thinking person has frankly to admit that the two doctrines which for the past twenty years have exclusively dominated the political scene have obviously failed. Both anti-fascism and anti-communism have utterly lost their meaning since Hitler and Stalin have ceased to conceal their alliance from the world.[2]

    I hope to render with this book a service to those who seek a clarification of their ideas and a better understanding of the problems of the world today.

    I do not want to close this preface without expressing my sincere gratitude to my two colleagues Drs. Heinrich Bund and Thomas McManus who have aided in the preparation of the manuscript and in its translation.

November 1941

[1]Throughout this essay, the term interventionism is used in the sense ascribed to it by many generations of economists. It covers the domestic policy of governmental interference with business. It is not to be confused with the political term “interventionism” referring to international policy, as contrasted with “isolationism” in the current Ameri­can controversy about the War

[2]I predicted the cooperation between the Nazis and Bolsheviks as early as 1925 in my article “Anti-Marxism” (Weltwirtschaftliches Archiv, Vol. 21, p. 279) reprinted in my 1929 book Kritik des Interventionismus, p. 106. [English translation, Arlington House, 1977, p. 122; 2nd English edition, Foundation for Economic Education, 1996, pp. 81—82. When this book was written Germany and the U.S.S.R. were allies, united through a non-aggression treaty which lasted only from August 1939 until June 22, 1941, when the Germans attacked Russia without warning.—Editor]

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