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VII: THE ECONOMIC, SOCIAL, AND POLITICAL CONSEQUENCES OF INTERVENTIONISM
1. The Economic Consequences
INTERVENTIONISM IS NOT AN economic system, that is, it is not a method which enables people to achieve their aims. It is merely a system of procedures which disturb and eventually destroy the market economy. It hampers production and impairs satisfaction of needs. It does not make people richer; it makes people poorer.
Concededly, the interventionist measures may give certain individuals or certain groups of individuals advantages at the expense of others. Minorities may obtain privileges which enrich them at the expense of their fellow citizens. But the majority, or the whole nation, stands only to lose by interventionism.
Let us, for instance, consider the tariff. It is quite possible to grant privileges to a group of producers, let us say the owners of copper mines; the consumers will suffer while the mine operators will gain. But if every line of production and every kind of labor is to be afforded equal protection, everyone has to give up as consumer what he gains as producer. More than that, everyone suffers because the protection shifts production from the most advantageous natural conditions, and thus diminishes the productivity of capital and labor, that is, it increases production costs. A tariff establishing just one or a few protective duties may serve the individual interests of certain groups; a comprehensive tariff system can only decrease the satisfaction of all.
But these restrictive measures are still comparatively harmless. They reduce the productivity and make people poorer but they permit the process to continue to function. The market can adjust to isolated restrictive measures. The effects are different in the case of measures designed to fix prices, wages, and interest rates at points different from what they would be in the unhampered market. If they are measures which intend the elimination of profits, they paralyze the working of the market economy. Not only do they divert production from the ways which lead to the best and most efficient satisfaction of the consumers’ demand; they cause waste of both capital and labor; they create permanent mass unemployment. They may bring about the artificial boom, but with it they bring in its wake a depression. They change the market economy into chaos.
Popular opinion ascribes all these evils to the capitalistic system. As a remedy for the undesirable effects of interventionism they ask for still more interventionism. They blame capitalism for the effects of the actions of governments which pursue an anti-capitalistic policy.
The case of monopoly is particularly significant. It is possible, even probable, that in a market economy, which is unhampered by government intervention, there will be conditions which temporarily may give rise to the appearance of monopoly prices. We may regard it as probable, for instance, that even in the free-market economy an international mercury monopoly might have been formed, or that there might be local monopolies for certain building materials and fuels. But such isolated instances of monopoly prices would not yet create a “monopoly problem.” All national monopolies and—with a few exceptions—all international monopolies owe their existence to tariff legislation. Were the governments really serious about fighting monopolies they would use the effective means they have at their disposal; they would remove the import duties. If they merely did this the “monopoly problem” would lose its importance. Actually, the governments are not interested in eliminating monopolies; rather, they try to create conditions to enable producers to force monopoly prices on the market.
Let us assume, for example, that the domestic plants working at full
capacity produce the quantity m
of a given good and that
domestic consumption at the world market price p
import duty d
(that is at the price p
amounts to quantity n—n
being larger than quantity m.
Under such conditions the tariff will enable the domestic producers to
obtain for their products a price above the world market price.
The protective tariff is
effective; it accomplishes its purpose.
This is, for instance, the case of the wheat producers in the European
industrial countries. If, however, m
produced) is larger than the domestic consumption at world market
prices, then the import duty does
not give any advantage to
the domestic producers. Thus, an import duty on wheat or on steel in
If, however, the domestic producers want to obtain advantages from the tariff protection even when m is larger than the domestic consumption at world market prices, they have to form a cartel, a trust, or some other form of monopolistic combination and agree to reduce production. Then they are in a position, provided the state of demand (the shape of the demand curve) permits it, to force the consumer to pay monopoly prices which are higher than world market prices, but lower than the world market price plus the import duty. What in the first instance is attained directly by the tariff must in the second case be accomplished by the monopoly organization which the protective tariff makes possible.
Most of the international cartels were only made possible because the totality of the world market was separated into national economic areas by tariffs and related measures. How insincere the governments are in their attitude toward monopolies is most evident in their efforts to create world monopolies, even for articles for which the conditions required to form monopolies call for special measures over and above tariff legislation. The economic history of the last decade shows a number of measures of different governments designed—though not successfully—to create world monopolies for sugar, rubber, coffee, tin, and other commodities.
To the extent that interventionism accomplishes the aims which government is seeking, it also creates an artificial scarcity of goods and price increases. As far as the governments pursue other than these two aims, they fail; rather, effects appear which the governments themselves consider even less desirable than the conditions they tried to remove. Out of this chaos to which interventionism leads, there are only two ways of escape—the return to an unhampered market or the adoption of socialism.
The unhampered market economy is not a system which would seem commendable from the standpoint of the selfish group interests of the entrepreneurs and capitalists. It is not the particular interests of a group or of individual persons that require the market economy, but regard for the common welfare. It is not true that the advocates of the free-market economy are defenders of the selfish interests of the rich. The particular interests of the entrepreneurs and capitalists also demand interventionism to protect them against the competition of more efficient and active men. The free development of the market economy is to be recommended, not in the interest of the rich, but in the interest of the masses of the people.
2. Parliamentary Government and Interventionism
Government by the people is based on the idea that all citizens are linked by common interests. The framers of the modern constitutions did not overlook the fact that in the short run the particular interests of individual groups may conflict with those of the overwhelming majority. But they had full confidence in the intelligence of their fellow citizens. They did not doubt that their fellow citizens would be wise enough to realize that selfish group interests must be sacrificed when they run counter to the welfare of the majority. They were convinced that every group would recognize that privileges cannot be maintained in the long run. Privileges are only of value if they benefit a minority; they lose value as they become more general. When every individual group of citizens is granted privileges, the privileges as such become meaningless; everybody suffers, nobody gains.
Government by the people can, therefore, only be maintained under the system of the market economy. In the market economy only the interests of the citizens as consumers are considered. No producer is granted a privilege, because privileges given to producers diminish productivity and impair the satisfaction of the consumers. No one suffers if the cheapest and best satisfaction of the consumers is accepted as the guiding principle of policy; what producers then fail to gain as producers, because privileges are denied to them, they gain as consumers.
Every technological progress first injures vested interests of entrepreneurs, capitalists, landowners, or workers. But if the desire to prevent such injuries is to prompt measures to prevent the development of new techniques, this would in the long run harm not only the interests of all citizens, but also of those who supposedly were to be benefited. The automobile and the airplane hurt the railway business, the radio hurts the publishing business, the motion pictures the legitimate theater. Should automobiles, planes, broadcasting, and movies have been forbidden in order to spare the interests of the injured entrepreneurs, capitalists, and workers? It was the great achievement of the old liberalism that it abolished the privileges of the guilds and thus opened the way for modern industry. If there are today many more people on earth than 200 years ago and if every worker in the countries of Western civilization lives today far better than his ancestors, in some respects even better than Louis XIV in his palace at Versailles, then this is only due to this liberation of the productive forces.
The idea underlying representative government is that the members of parliament are to represent the whole nation, not to represent individual counties or the particular interests of their constituencies. The political parties may represent different opinions about what helps the whole nation, but they should not represent the particular selfish interests of certain districts or pressure groups.
The parliaments of interventionist countries are today quite different from this old ideal. There are representatives of silver, cotton, steel, farming, and labor. But no legislator feels it his duty to represent the nation as a whole.The democratic form of government which Hitler destroyed in
The failure of parliamentarianism becomes more evident in the practice
of delegating authority. The parliament voluntarily gives up its
legislative power and hands it over to the executive. Hitler,
Mussolini, and Pétain*
govern by such
“delegations of power.” The dictatorship thus assumed a vestige of
legality by a formal link to the democratic institutions. It abolished
democracy and retained the democratic terminology, just as in
system of German socialism it abolished private property while
retaining its nomenclature. The tyrants of the cities of ancient
At the present stage in the development of the means of
communication and transportation no emergency can justify the
delegation of power. Even in a large country like the
Frequently, we hear the assertion that the democratic institutions are
only a disguise for the “dictatorship of capital.” The Marxists have
used this slogan for a long time. Georges Sorel
and the syndicalists
repeated it. Today
Hitler and Mussolini ask the nations to rise up against “plutodemocracy.”
In answer to this it suffices
to point out that in
3. Freedom and the Economic System
The first argument advanced against proposals to replace capitalism by socialism was that in the socialist economic system there could be no room for freedom of the individual. Socialism, it was said, means slavery for all. It is impossible to deny the truth of this argument. If the government controls all means of production, if the government is the only employer and has the sole right to decide what training the individual is to receive, where and how he is to work, then the individual is not free. He has the duty to obey, but he has no rights.
The advocates of socialism have never been able to present an effective counterargument to this. They have merely retorted that in the democratic countries of the market economy there was only freedom for the rich, not for the poor, and that for such freedom it was not worth renouncing the supposed blessings of socialism.
In order to analyze these questions we first have to understand what freedom really means. Freedom is a sociological concept. In nature and with regard to nature there is nothing to which we could apply this term. Freedom is the opportunity granted to the individual by the social system to mould his life according to his wishes. That people have to work in order to survive is a law of nature; no social system can alter this fact. That the rich may live without working does not impair the freedom of those who are not in this fortunate position. Wealth in the market economy represents rewards granted by society as a whole for services rendered to the consumers in the past, and it can only be preserved by continued employment in the interest of the consumers. That the market economy rewards successful activity in the service of the consumers does not harm the consumers; it benefits them. Nothing is taken from the worker by this, but much is given to him by increasing the productivity of labor. The freedom of the worker who does not own property rests on his right to choose the place and the type of his work. He does not have an overlord to whose arbitrariness he is subjected. He sells his services on the market. If one entrepreneur refuses to pay him the wage which corresponds to the market conditions he will find another employer who is willing, out of his (the employer’s) own interest, to pay the worker the market wage. The worker does not owe his employer subservience and obedience; he owes him services; he receives his wage not as a favor, but as an earned reward.
The poor too have an opportunity in the capitalistic society to work themselves up through their own efforts. This is not the case only in business. Among those who today occupy top positions in the professions, in art, science, and politics, the majority are men who have started their careers in poverty. Among the path-breakers and leaders there are men born almost exclusively from poor parents. Those who want great accomplishments, no matter what the social system, must overcome the resistance of apathy, prejudice, and ignorance. It can hardly be denied that capitalism offers this opportunity.
Instances are pointed out where great men were badly treated by their contemporaries. Some of the great masters of the French modern school of painting have experienced great difficulties or were not able to sell their paintings at all. Does anyone believe that a socialist government would show more understanding for an art which appeared to traditional concepts as so much scribbling? The great composer Hugo Wolf* once wrote it was a shame that the state did not provide for its artists. But what Hugo Wolf suffered from was a lack of understanding on the part of the recognized older artists, critics, and friends of art; a socialist government would have had to rely on the judgment of state-appointed experts and it certainly would not have given more recognition to that irritable, unsociable, and mentally unbalanced man. When Sigmund Freud* advanced his theories, the established authorities, doctors, and psychologists, that is the experts whose judgment must be decisive for the government, laughed and called him crazy.
But in the capitalistic society the genius at least has an opportunity to continue his work.
The great French painters were free to paint; Hugo Wolf was in a position to put Moerike’s* poems to music; Freud was free to continue his studies. They would not have been able to produce anything if the government, following the unanimous opinion of the experts, had assigned them work which deprived them of the opportunity to fulfill their destiny.
Unfortunately, it happens not infrequently that, for political reasons, the universities fail to appoint as professors outstanding men in the fields of social science, or they dismiss them after they have been appointed. But are we to believe that the state university of a socialist country would employ men who taught doctrines unpleasing to the government? In the socialist state publishing, too, is a function of the state. Will the state have books and papers printed and published with which it disagrees? Will it make available to the stage dramas which it thinks inappropriate?
Compare the position in which science, art, literature, the press, and
radio find themselves in
The freedom of scientific and artistic creation is actively made use of by only a small minority, but all benefit from it. Progress is always displacement of the old by the new; progress always means change. No planned economy can plan progress; no organization can organize it. It is the one thing that defies any limitation or regimentation. State and society cannot promote progress. Capitalism cannot do anything for progress either. But, and this is achievement enough, capitalism doesn’t place insurmountable barriers in the way of progress. The socialist society would become utterly rigid because it would make progress impossible.
Interventionism does not take all freedom from the citizens. But every one of its measures takes away a part of the freedom and narrows the field of activity.
Let us consider, for instance, foreign exchange control. The smaller a country, the more important the part played in its total trade by foreign transactions. If subscriptions to foreign books and newspapers, foreign travel and study abroad, are made conditional upon the granting of foreign exchange by the government, the entire intellectual life of the country comes under the guardianship of the government. In this respect foreign exchange control is not at all different from the despotic system of Prince Metternich.* The only difference is that Metternich did openly what foreign exchange control effects through disguise.
4. The Great Delusion
It cannot be denied that dictatorship, interventionism, and socialism are extremely popular today. No argument of logic can weaken this popularity. The fanatics obstinately refuse to listen to the teachings of economic theory. Experience fails to teach them anything. They stubbornly adhere to their previous opinions.
To understand the roots of this stubbornness we have to keep in mind that people suffer because things do not always happen the way they want them to. Man is born as an asocial selfish being and only in actual living does he learn that his will does not stand alone in the world and that there are other people too who have their own wills. Only life and experience teach him that in order to realize his plans he has to fit himself into the whole of society, that he has to accept other people’s wills and wishes as facts, and that he has to adjust himself to these facts in order to achieve anything at all. Society is not what the individual would want it to be. The fellowmen of any particular individual have a lesser opinion of him than he has of himself. They do not accord him the place in society which, in his opinion, he thinks he should have. Every day brings the conceited—and who is entirely free of conceit?—new disappointments. Every day shows him that his will conflicts with those of other people.
From these disappointments the neurotic takes refuge in daydreams. He dreams of a world in which his will alone is decisive. In this world of dreams he is dictator. Only what he approves of happens. He alone gives orders; the others obey His reason alone is supreme.
In that secret world of dreams the neurotic assumes the role of dictator. There he is Caesar, Genghis Khan, Napoleon. When in real life he speaks to his fellow men he has to be more modest. He contents himself with approving a dictatorship which someone else rules. But in his mind this dictator is merely his, that is, the neurotic’s, order-taker; he assumes the dictator will do precisely what he, the neurotic, wants him to do. A man who did not apply caution and who suggested that he become the dictator himself would be considered insane by his fellow men and would be treated accordingly The psychiatrists would call him a megalomaniac.
No one has ever favored a dictatorship to do things other than what he, the supporter of the dictatorship, considers right. Those who recommend dictatorships always have in mind the unchecked domination of their own will, even if this domination is to be implemented by someone else.
Let us examine, for instance, the slogan “planned economy,” which today is a particularly popular pseudonym for socialism. Everything that people do must first be conceived, that is it must be planned. Every economy is in this sense a planned economy. But those who, with Marx, reject the “anarchy of production” and want to replace it by “planning” do not consider the will and the plans of others. One will alone is to decide; one plan alone is to be executed, namely the plan which meets with the neurotic’s approval, the right plan, the only plan. Any resistance is to be broken; no one is to prevent the poor neurotic from arranging the world according to his own plans; every means is to be permitted to assure that the superior wisdom of the daydreamer prevails.
This is the mentality of the people who once in the art exhibits of Paris exclaimed on viewing the paintings of Manet*: The police ought not to allow this! This is the mentality of the people who constantly cry:
There should be a law against this! And whether they recognize it or not this is the mentality of all interventionists, socialists, and advocates of dictatorship. There is but one thing they hate more than capitalism, namely interventionism, socialism, or dictatorship which does not conform to their will. How ardently have Nazis and Communists fought each other! How determinedly do the partisans of Trotsky* fight those of Stalin, or the followers of Strasser* those of Hitler!
5. The Source of Hitler’s Success
Hitler, Stalin, and Mussolini constantly proclaim that they are chosen by destiny to bring salvation to this world. They claim they are the leaders of the creative youth who fight against their outlived elders. They bring from the East the new culture which is to replace the dying Western civilization. They want to give the coup de grace to liberalism and capitalism; they want to overcome immoral egoism by altruism; they plan to replace the anarchic democracy by order and organization, the society of “classes” by the total state, the market economy by socialism. Their war is not a war for territorial expansion, for loot and hegemony like the imperialistic wars of the past, but a holy crusade for a better world to live in. And they feel certain of their victory because they are convinced that they are borne by “the wave of the future.”
It is a law of nature, they say, that great historic changes cannot take place peacefully or without conflict. It would be petty and stupid, they contend, to overlook the creative quality of their work because of some unpleasantness which the great world revolution must necessarily bring with it. They maintain one should not overlook the glory of the new gospel because of ill-placed pity for Jews and Masons, Poles and Czechs, Finns and Greeks, the decadent English aristocracy and the corrupt French bourgeoisie. Such softness and such blindness for the new standards of morality prove only the decadence of the dying capitalistic pseudo-culture. The whining and crying of impotent old men, they say, is futile; it will not stop the victorious advance of youth. No one can stop the wheel of history, or turn back the clock of time.
The success of this propaganda is overwhelming. People do not consider the content of alleged new gospel; they merely understand that it is new and believe to see in this fact its justification. As women welcome a new style in clothes just to have a change, so the supposedly new style in politics and economics is welcomed. People hasten to exchange their “old” ideas for “new” ones, because they fear to appear old-fashioned and reactionary. They join the chorus decrying the shortcomings of the capitalistic civilization and speak in elated enthusiasm of the achievements of the autocrats. Nothing is today more fashionable than slandering Western civilization.
This mentality has made it easy for
Hitler to gain his victories. The Czechs and the Danes capitulated
without a fight. Norwegian officers handed over large sections of their
country to Hitler’s army. The Dutch and the Belgians gave in after only
a short resistance. The French had the audacity to celebrate the
destruction of their independence as a “national revival.” It took
Hitler five years to effect the Anschluss
Hitler does not have a new secret weapon at his disposal. He does not owe his victory to an excellent intelligence service which informs him of the plans of his opponents. Even the much-talked-of “fifth column” was not decisive. He won because the supposed opponents were already quite sympathetic to the ideas for which he stood.
Only those who unconditionally and unrestrictedly consider the market economy as the only workable form of social cooperation are opponents of the totalitarian systems and are capable of fighting them successfully. Those who want socialism intend to bring to their country the system which Russia and Germany enjoy. To favor interventionism means to enter a road which inevitably leads to socialism.
An ideological struggle cannot be fought successfully with constant concessions to the principles of the enemy. Those who refute capitalism because it supposedly is inimical to the interest of the masses, those who proclaim “as a matter of course” that after the victory over Hitler the market economy will have to be replaced by a better system and, therefore, everything should be done now to make the government control of business as complete as possible, are actually fighting for totalitarianism. The “progressives” who today masquerade as “liberals” may rant against “fascism”; yet it is their policy that paves the way for Hitlerism.
Nothing could have been more helpful to the success of the National-Socialist (Nazi) movement than the methods used by the “progressives,” denouncing Nazism as a party serving the interests of “capital.” The German workers knew this tactic too well to be deceived by it again. Was it not true that, since the seventies of the last century, the ostensibly pro-labor Social-Democrats had fought all the pro-labor measures of the German government vigorously, calling them “bourgeois” and injurious to the interests of the working class? The Social-Democrats had consistently voted against the nationalization of the railroads, the municipalization of the public utilities, labor legislation, and compulsory accident, sickness, and old-age insurance, the German social security system which was adopted later throughout the world. Then after the war [World War l] the Communists branded the German Social-Democratic party and the Social-Democratic unions as “traitors to their class.” So the German workers realized that every party wooing them called the competing parties “willing servants of capitalism,” and their allegiance to Nazism would not be shattered by such phrases.
Unless we are utterly oblivious to the facts, we must realize that the German workers are the most reliable supporters of the Hitler regime. Nazism has won them over completely by eliminating unemployment and by reducing the entrepreneurs to the status of shop managers (Betriebsfuhrer). Big business, shopkeepers, and peasants are disappointed. Labor is well satisfied and will stand by Hitler, unless the war takes a turn which would destroy their hope for a better life after the peace treaty. Only military reverses can deprive Hitler of the backing of the German workers.
The fact that the capitalists and entrepreneurs, faced with the alternative of Communism or Nazism, chose the latter, does not require any further explanation. They preferred to live as shop managers under Hitler than to be “liquidated” as “bourgeois” by Stalin. Capitalists don’t like to be killed any more than other people do.
What pernicious effects may be produced by believing that the German workers are opposed to Hitler was proved by the English tactics during the first year of the war. The government of Neville Chamberlain* firmly believed that the war would be brought to an end by a revolution of the German workers. Instead of concentrating on vigorous arming and fighting, they had their planes drop leaflets over Germany telling the German workers that England was not fighting this war against them, but against their oppressor, Hitler. The English government knew very well, they said, that the German people, particularly labor, were against war and were only forced into it by their self-imposed dictator.
The workers in the Anglo-Saxon countries, too, knew that the socialist parties competing for their favor usually accused each other of favoring capitalism. Communists of all shades advance this accusation against socialists. And within the Communist groups the Trotskyites used this same argument against Stalin and his men. And vice versa. The fact that the “progressives” bring the same accusation against Nazism and Fascism will not prevent labor some day from following another gang wearing shirts of a different color.
What is wrong with Western civilization is the accepted habit of judging political parties merely by asking whether they seem new and radical enough, not by analyzing whether they are wise or unwise, or whether they are apt to achieve their aims. Not everything that exists today is reasonable; but this does not mean that everything that does not exist is sensible.
The usual terminology of political language is stupid. What is “left”
and what is “right”? Why should Hitler be “right” and Stalin, his
temporary friend, be “left”?*
and who is “progressive”? Reaction against an unwise policy is
to be condemned. And progress towards chaos is not to be commended.
Nothing should find acceptance just because it is new, radical, and
fashionable. “Orthodoxy” is not an evil if the doctrine on
the “orthodox” stand is sound. Who is anti-labor, those who want to
lower labor to the Russian level, or those who want for labor the
capitalistic standard of the
What would have happened to Western civilization if its peoples had always shown such liking for the “new”? Suppose they had welcomed as “the wave of the future” Attila and his Huns, the creed of Mohammed, or the Tartars? They, too, were totalitarian and had military successes to their credit which made the weak hesitate and ready to capitulate. What mankind needs today is liberation from the rule of nonsensical slogans and a return to sound reasoning.
For simplicity’s sake we disregard transportation costs. However, there would be no particular difficulty involved in introducing them into the calculation as well.
*[Henri Philippe Pétain (1856—1951), French World War I hero, Vice Premier in June 1940 when Germany defeated and occupied half of France, became “chief of state” of the fascist unoccupied portion of the country, with its capital at Vichy. After the war he was tried and convicted of collaborating with the Germans.—Editor]
*[Hugo Wolf (1860—1903), Viennese composer and music critic, spent the last seven years of his life in a mental asylum.—Editor]
*Sigmund Freud (1856—1939), Viennese founder of psychoanalysis.—Editor]
*[Eduard Moerike (1804—1875), German Protestant minister and poet.—Editor]
*[Prince Klemens W.N.L. von Metternich (1773—1859), Austrian statesman, relied on censorship, espionage, and repression to control much of Europe.—Editor]
*[Edouard Manet (1832—1883), French impressionist painter.—Editor]
(1879—1940), Russian Communist who opposed Stalin and was forced into
exile. He went to
*[Gregor Strasser (1892—1934), an early supporter of Hitler who later differed with him and was murdered.— Editor]
*[Neville Chamberlain (1869—1940) was British Prime Minister from 1937 to May 1940.—Editor]
*[Remember that when Mises wrote this in 1940, Hitler and Stalin were allies under the terms of their August 1939 mutual non-aggression treaty.—Editor]