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Can the Free Market Wage War?

August 14, 2009

Tags Free MarketsWar and Foreign PolicyOther Schools of Thought

[Interventionism: An Economic Analysis • By Ludwig von Mises, Bettina Bien Greaves, ed. Foundation for Economic Education, 1998 • 98 pages]

 

Interventionism, though written nearly seventy years ago and published in 1998 for the first time, expertly dispatches a scheme popular with a few present-day conservatives. In the view of these professed nationalists, the free market is not good enough. Foreign trade threatens the jobs of American workers. For the good of the nation, tariffs must rise.

But does not elementary economic analysis show the fallacy of trade restrictions? What of the international division of labor? Our new protectionists are not ignorant of economics; but, they aver, economic arguments must take second place to the national interest. If a nationalist explicitly places his ideological convictions above market prosperity, what can be said against him?

Mises offers a ready response. At the time he wrote this short book, arguments of the type just canvassed were very much the order of the day. Nationalist nostrums roused great interest among conservatives in the 1930s and 1940s. Mises was thus thoroughly familiar with the "higher" noneconomic argument for protection.

In response, Mises makes a vital distinction. Tariffs, and similar measures designed to strengthen the nation, "should not be considered as measures of production policy." They aid some citizens at the expense of others; they do not help the economy as a whole.

One might differ as to the advisability of protecting the Prussian Junkers by a tariff on grain imports against the competition of the Canadian farmers who are producing on more fertile soil. But if we advocate a tariff to protect Prussian grain producers, we are not recommending a measure in favor of the production of the supply of grain, but a measure designed to assist the owners of German land at the expense of the German grain consumers. It will never be possible to base an economic system on such assistance privileges. (p. 20)

Mises here completely explodes the nationalist argument for protective tariffs. Since these measures do not benefit the totality of the nation, they cannot be unambiguously endorsed from a nationalist point of view. Commitment to free trade, then, need not rest on utopian commitment to internationalism, as some suppose. Given the goal of nationalism, protection does not follow.

But does not the tariff supporter have here a counter to deploy against Mises? He may grant Mises's point: a tariff will benefit some citizens at the expense of others. Nevertheless, he may say, the national interest dictates that the tariff be instituted. Aid to certain groups, it may be contended, is in the national interest.

Mises appears to concede something to this rejoinder, but his concession does the protectionist little good.

Whether such an expenditure is justified or not is of no concern for economic evaluation. … There are undoubtedly cases in which restrictive measures appear justified to most or all of our citizens. But all restrictive measures are fundamentally expenditures. They diminish the supply of productive means available for the supply of other goods. (p. 20)

Mises's "admission" is in fact a devastating counterargument. Tariffs are never defended by their proponents on the grounds that they privilege some at the expense of others within a nation. Quite the contrary, they are alleged to benefit the nation at the expense of foreigners. Absent an account of the national interest with explicit arguments that justify largesse for special interests, the nationalist defense for tariffs fails utterly.

The case Mises advances against tariffs illustrates the book's dominant theme, one that all readers of Mises will meet as a familiar friend. The proposals advanced by interventionists fail to achieve the goals their advocates have in mind for them, and they thus stand self-condemned. As an example,

[an] attempt by government forcibly to give the national credit money or paper money a value higher than its market price causes effects which Gresham's Law describes. A condition results which generally is called a shortage of foreign exchange. (p. 44)

Should the government attempt to remedy its intervention by further interference, disaster soon impends. The new measure will also fail to achieve the goals of its supporters. Again, the interventionists must confront the basic choice: more intervention or return to the free market. Should the former course entice them on, the result will soon be full-scale socialism. Mises concludes that no third system exists intermediate between the free market and socialism.

Since so many refuse to learn its lesson, Mises's argument against interventionism merits continual repetition. But the details of Mises's case have been often presented in his other works; and Sanford Ikeda, in an interesting work that I have reviewed elsewhere, has gone over the whole argument at length. An unkind reader of the Mises Daily (if such exists) might inquire: must we have this argument repeated once more?

There is justice in this imagined complaint (not, of course, distributive justice, for there is no such thing). With this in mind, let us then turn to a topic that I have found nowhere else in Mises: his analysis of how a free society should wage war.

For one thing, conscription is out. The use of compulsion to man the military characteristically does not stand by itself. Rather, it has formed part of an interventionist scheme to subject the economy to control. As such, it must be rejected for the reason earlier stated: interventionism cannot endure as a stable system.

Mises states the essential point in this way:

The first step which led from the soldiers' war back to total war was the introduction of compulsory military service. … The war was no longer to be only a matter of mercenaries; it was to include everyone who had the necessary physical ability. … But when it is realized that a part of the able-bodied must be used on the industrial front … then there is no reason to differentiate in compulsory service between the able-bodied and the physically unfit. Compulsory military service thus leads to compulsory labor service of all citizens who are able to work, male and female. (p. 69)

But what is the alternative to total war with total state control? Mises's response will surprise no one: he favors reliance on the free market. To support his view that a market economy can effectively wage modern war, Mises advances a surprising claim about the early part of World War II.

He ascribes the fall of France to anticapitalist views. Because of campaigns in the 1930s against "war profiteering," the French (and to a lesser extent the British) refused to rely on the market to provide them with the arms they needed to withstand the German onslaught.

On the basis of such [anticapitalist] reasoning the [Léon] Blum government nationalized the French armament industry. When the war broke out and it became imperative to place the productive power of all French plants into the service of the rearmament effort, the French authorities considered it more important to block war profits than to win the war. (p. 72)

Mises's contention is at once exposed to an obvious objection; but he knows this full well and has his counter ready. The German army in 1940 ranked second-to-none as a fighting force; yet it was hardly a free-market army in the style favored by Mises.

But Mises does not deny this. On the contrary, he acknowledges that the "German army has an enormous superiority in every type of equipment that a fighting army requires" (p. 71). Mises's contention is that, given German power, interventionism and anticapitalism are paltry and insufficient responses. Only capitalism, not half-hearted socialism, can defeat a total state.

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"Since so many refuse to learn its lesson, Mises's argument against interventionism merits continual repetition."

We may readily grant Mises's point that a hampered market economy is a poor bet during wartime. But how does Mises know that an arms procurement policy of the sort he wants would have led to French victory in 1940? Does he not go too far in this self-confident judgment?

No doubt Mises has not proved his case: his suggestion is merely that of a well-informed contemporary observer. But his contention provides us with a stimulating hypothesis for future research. What was the effect of French restrictionist policies on armaments production during the 1930s? Here is a question that cries out for historical research. And we have Mises's unique combination of mastery of economics with historical insight to thank for it. Though written in 1940, this book is essential reading for all Misesians.

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An earlier version of this review can be found in the Summer 1998 Mises Review.

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