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6. The Doctrine of Intervention
To prescientific thinkers, a human society built on private property in the means of production seemed to be naturally chaotic. It received its order, so they thought, only from imposed precepts of morality and law. Society can exist only if buyer and seller observe justice and fairness. Government must intervene in order to avoid the evil that flows from an arbitrary deviation from the “just price.” This opinion prevailed in all remarks on social life until the eighteenth century. It appeared for the last time in all its naiveté in the writings of the mercantilists.
The anticapitalist writers are emphasizing that classical economics served the “interests” of the “bourgeoisie,” which allegedly explains its own success, and led the bourgeois class to its successes. Surely, no one can doubt that the freedom achieved by classical liberalism paved the way for the incredible development of productive forces during the last century. But it is a sad mistake to believe that by opposing intervention classical liberalism gained acceptance more easily. It faced the opposition of all those whom the feverish activity of government granted protection, favors, and privileges. The fact that classical liberalism nevertheless could prevail was due to its intellectual victory, which checkmated the defenders of privilege. It was not new that the victims of privilege favored their abolition. But it was new that the attack on the system of privilege was so successful, which must be credited exclusively to the intellectual victory of classical liberalism.
Classical liberalism was victorious with economics and through it. No other economic ideology can be reconciled with the science of catallactics. During the 1820s and 1830s, an attempt was made in England to use economics for demonstrating that the capitalist order does not function satisfactorily, and that it is unjust. From this Karl Marx then created his “scientific” socialism. But even if these writers had succeeded in proving their case against capitalism, they would have had to prove further that another social order, like socialism, is better than capitalism. This they were not able to do; they could not even prove that a social order could actually be built on public property in the means of production. By merely rejecting and ostracizing any discussion of the problems of socialism as “utopian” they obviously did not solve anything.
Eighteenth century writers then discovered what had already been published by earlier writers on money and prices. They discovered the science of economics which replaced the collection of moral maxims, the manuals of police regulations, and the aphoristic remarks on their successes and failures. They learned that prices are not set arbitrarily, but are determined within narrow limits by the market situation, and that all practical problems can be accurately analyzed. They recognized that the laws of the market draw entrepreneurs and owners of the means of production into the service of consumers, and that their economic actions do not result from arbitrariness, but from the necessary adjustment to given conditions. These facts alone gave life to a science of economics and a system of catallactics. Where the earlier writers saw only arbitrariness and coincidence, the classical economists saw necessity and regularity. In fact, they substituted science and system for debates on police regulations.
The classical economists were not yet fully aware that the private property order alone offers the foundation for a society based on division of labor, and that the public property system is unworkable. Influenced by mercantilist thought, they contrasted productivity with profitability, which gave rise to the question of whether or not the socialist order is preferable to the capitalist order. But they clearly understood that, except for syndicalism which they did not see, the only alternatives are capitalism and socialism, and that “intervention” in the functioning of the private property order, which is so popular with both people and government, is unsuitable.
The tools of science do not enable us to sit in judgment of the “justice” of a social institution or order. Surely, we may decry this or that as “unjust” or “improper”; but if we cannot substitute anything better for what we condemn, it behooves us to save our words.
But all this does not concern us here. Only this matters for us: no one ever succeeded in demonstrating that, disregarding syndicalism, a third social order is conceivable and possible other than that based on private property in the means or production or that built on public property. The middle system of property that is hampered, guided, and regulated by government is in itself contradictory and illogical. Any attempt to introduce it in earnest must lead to a crisis from which either socialism or capitalism alone can emerge.
This is the irrefutable conclusion of economics. He who undertakes to recommend a third social order of regulated private property must flatly deny the possibility of scientific knowledge in the field of economics. The Historical School in Germany did just that, and the Institutionalists in the U.S. are doing it today. Economics is formally abolished, prohibited, and replaced by state and police science, which registers what government has decreed, and recommends what still is to be decreed. They fully realize that they are harking back to mercantilism, even to the canon doctrine of just price, and are discarding all the work of economics.
The German Historical School and its many followers abroad never thought it necessary to cope with the problems of catallactics. They were completely satisfied with the arguments which Gustav Schmoller presented in the famous Methodenstreit and his disciples, e.g., Hasbach, repeated after him. In the decades between the Prussian constitutional conflict (1862) and the Weimar constitution (1919), only three men sensed the problems of social reform: Philippovich, Stolzmann, and Max Weber. Among these three, only Philippovich had any knowledge of the nature and content of theoretical economics. In his system, catallactics and interventionism stand side by side, but no bridge leads from the former to the latter, and there is no attempted solution to the great problem. Stolzmann basically seeks to realize what Schmoller and Brentano had merely suggested. It is a sad commentary, however, that the School’s only representative who really attacked the problem was utterly ignorant of what his opposition was saying. And Max Weber, preoccupied with quite different matters, stopped half way, because theoretical economics was alien to him. Perhaps he would have gone further had he not been cut off by early death.
For several decades there has been talk at German universities of a reawakening of an interest in theoretical economics. We may mention a number of authors such as Liefmann, Oppenheimer, Gottl, et cetera, who ardently denounce the system of modern subjective economics, of which they know only the “Austrians.” We need not here raise the question of whether or not such attacks are justified. But we would like to point out the interesting effect such attacks have had on the discussion of the feasibility of the system of interventionism. Each one of these writers summarily rejects what has been created by theoretical economics—by the Physiocrats, classical writers, and modern authors. In particular, they depict the work of modern economics, especially of the Austrians, as incredible aberrations of the human mind, whereupon they present their own supposedly original systems of theoretical economics, claiming to remove all doubts and solve all problems. The public, unfortunately, is led to believe that in economics everything is uncertain and problematic, and that economic theory merely consists of the personal opinions of various scholars. The excitement created by these authors in German-speaking countries succeeded in obscuring the fact that there is a science of theoretical economics which, despite differences in detail and especially in terminology, is enjoying a good reputation with all friends of science. And in spite of all the critique and reservations, even these writers basically concurred with the theoretical system in its essential questions. But because this was not understood, they did not see the need for examining interventionism from the point of view of economic knowledge.
In addition there was the effect of the argument on the permissibility of value judgments in science. In the hands of the Historical School, political science had become a doctrine of art for statesmen and politicians. At the universities and in textbooks economic demands were presented and proclaimed as “scientific.” “Science” condemned capitalism as immoral and unjust, rejected as “radical” the solutions offered by Marxian socialism, and recommended either state socialism or at times the system of private property with government intervention. Economics was no longer a matter of knowledge and ability, but of good intentions. Especially since the beginning of the second decade of this century, this mix of university teaching and politics became objectionable. The public began to hold the official representatives of science in contempt, because they made it their task to confer the blessings of “science” on the party programs of their friends. And the public would no longer tolerate the nuisance that each political party appealed to its favorite judgment of “science,” that is, to a university professor marching in its footsteps. When Max Weber and some of his friends demanded that “science” should renounce value judgments and the universities should not be misused for political and economic propaganda, they met with almost universal agreement.
Among those writers who agreed with Max Weber, or at least did not dare contradict him, were several whose whole record stood in open contradiction to the principle of objectivity, and whose literary efforts were nothing but paraphrases of certain political programs. They interpreted “absence of value judgment” in a peculiar way. Ludwig Pohle and Adolf Weber had touched upon the basic problems of interventionism in their discussions of the wage policies of labor associations. The followers of the labor-union doctrines of Brentano and Webb were unable to raise any pertinent objections. But the new postulate of “value-free science” seemed to rescue them from the embarrassment in which they found themselves. Now they could haughtily reject anything that did not suit them, on grounds that it did not square with the dignity of science to interfere with the squabbling of political parties. In good faith, Max Weber had presented the principle of Wertfreiheit for a resumption of scientific inquiries into the problems of social life. Instead, it was used by the Historical-Realistic-Social School as protection from the critique of theoretical economics.
Again and again, perhaps intentionally, some writers refuse to recognize the difference between the analysis of economic problems and the formulation of political postulates. We make no value judgments when, for instance, we investigate the consequences of price controls and conclude that a price ceiling set below that of the unhampered market reduces the quantity offered, other conditions being equal. We make no value judgments when we then conclude that price controls do not achieve what the authorities hoped to achieve, and that they are illogical instruments of policy. A physiologist does not indulge in value judgments when he observes that the consumption of hydrocyanic acid destroys human life and, therefore, is illogical as a “nutritional system.” Physiology does not answer the question of whether or not a man wants to nourish or kill, or should do so; it merely determines what builds and what destroys, what the nourisher should do and the killer should do in order to act according to his intentions. When I say that price controls are illogical, I mean to assert that they do not achieve the objective they are usually meant to achieve. Now, a Communist could reply: “I favor price controls just because they prevent the smooth functioning of the market mechanism, because they turn human society into a ‘senseless chaos’ and all the sooner lead to my ideal of communism.” Then, the theory of price controls cannot answer him, as physiology cannot answer the man who wants to kill with hydrocyanic acid. We do not resort to value judgments when we demonstrate, in similar fashion, the illogicality of syndicalism and the unrealizability of socialism.
We destroy economics if all its investigations are rejected as inadmissible. We can observe today how many young minds, who under other circumstances would have turned to economic problems, spend themselves on research that does not suit their talents and, therefore, adds little to science. Enmeshed in the errors described above, they shun significant scientific tasks.