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Book Review: Critique of Interventionism

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Critique of Interventionism
by Ludwig von Mises, revised edition (Irvington-on-Hudson, N.Y.: The Foundation for Economic Education, 1996) 122 pages; $12.95.

In the first decade of the 1800s, the French classical-liberal economist Jean-Baptiste Say summarized in his book Treatise on Political Economy what became the general view of the majority of political economists throughout the early and middle decades of the 19th century:

The healthy state of industry and wealth is the state of absolute liberty, in which each [individual] interest is left to take care of itself. The only useful protection [political] authority can afford them is that against fraud and violence.

The ideal was free men, free markets, and free trade, with government limited to the protection of life, liberty, and property.

In the last decades of the 19th century, socialism and the interventionist welfare state began to replace the political-economic philosophy of economic liberty and personal freedom. The center for this counterrevolution against classical liberalism was Imperial Germany. German intellectuals were deeply influenced by socialist and especially Marxian ideas. As a result, by the end of the 19th century, most German political parties and politicians accepted Marx’s ideas about class conflict and the need for the supremacy of the political collective over the individual and his personal interests.

What separated the various political groups and parties in Imperial Germany was the following question: For which political collective was the individual to be sacrificed? The social democrats and Marxian socialists insisted on the triumph of the “working class” over the “bourgeoisie,” accompanied by full nationalization of the means of production under government control. The “state socialists” called for the “class struggle” to be made subservient to the “national interest,” with the established political authority rectifying the supposed abuses of capitalism through regulations and controls imposed over the private sector, along with various welfare-statist redistributive programs.

The German state socialist ideal of the interventionist-welfare state soon became the standard and the inspiration for a growing number of leftist intellectuals in Europe and the Progressive movement in America.

Explaining the historical origins of the interventionist state and analyzing the negative and harmful effects of its implementation is the theme of Ludwig von Mises’s Critique of Interventionism. Originally published in German in 1929, it first appeared in an English translation in 1977. After being out of print for several years, The Foundation for Economic Education has reprinted it in a revised edition, with an introduction by Hans Sennholz, a translated forward by Friedrich A. Hayek, and with corrections of various typographical errors that had appeared in the earlier edition.

In 1922, Mises published Socialism, in which he demonstrated the unworkability of central planning and forcefully criticized the philosophical and sociological foundations of socialist thought. In 1927, Mises published Liberalism, in which he presented the philosophical and political-economic principles for a society of individual liberty and free markets. Critique of Interventionism rounded off his analysis of alternative systems of economic organization and social order.

In the essays “Social Liberalism” and “Anti-Marxism,” Mises explained the process by which Marxian thought came to have such a stranglehold on German intellectuals and the division of these intellectuals into different anticapitalist camps. Looking over the ideological and political terrain of Germany in the middle of the 1920s, Mises argued that the rising force in opposition to Marxian socialism was “national socialism.” The national socialists insisted that “proletarian interests” had to be submerged in the wider interests of the “fatherland.” The strong state would also control and repress the profit motive of the private sector and pursue an aggressive foreign policy. A growing number of people, he warned, were “setting their hopes on the coming of the ‘strong man’ — the tyrant who will think for them and care for them.”

What Mises clearly saw and explained in the 1920s were the political, cultural, and ideological forces at work in Germany that were creating the conditions for the victory of Adolf Hitler and the Nazi movement in 1933.

In the essays “Interventionism,” “The Hampered Market Economy,” “The Theory of Price Controls,” and “The Nationalization of Credit?” Mises demonstrated the harmful and counterproductive consequences that invariably arise from government interference in and regulation of markets and prices.

The central premise of Mises’s critique of the interventionist state is that government regulations and controls over the production or pricing decisions of private market participants distort the normal competitive forces that tend to bring supply into balance with demand and selling price into balance with costs of production. These resulting imbalances then require the political authority to repeal either the regulations and controls and allow the market to freely function once again or to extend the regulations and controls to other parts of the market not initially touched by them in an attempt to counteract the negative effects produced by the first interventions. The cumulative result of the political authority’s introduction of new interventions to compensate for the damage created by earlier interventions is the politicization of an increasing portion of the market, until finally the entire economy is under state control.

Mises concluded, therefore, that the interventionist state was inherently unstable. In the end, the only choice was a free market or the state-managed economy.

The damage resulting from the interventionist state was not only its distorting effects on the relationships between supply and demand, consumption and production, and selling prices and cost-prices. The interventionist state also ate away at the moral foundations of a free society, Mises argued. Corruption, bribery, and the buying and selling of privileges, favors, subsidies, and protections against competition soon become the essence of survival in the politicized market.

The corruptibility of the politicians, representatives, and officials is the very foundation [of] the system. . . . But by constantly violating criminal laws and moral decrees [people] finally lose the ability to distinguish between right and wrong, good and bad. . . . The merchant who began by violating foreign exchange controls, import and export restrictions, price ceilings, et cetera, easily proceeds to defraud his partner. The decay of business morals . . . is the inevitable concomitant of the regulations and controls that were imposed on trade and production.

While many of the forms and types of government intervention have changed since Mises penned the essays in Critique of Interventionism in the 1920s, the fundamental insights of his analysis remain as valid today as when he wrote them 70 years ago. The Foundation for Economic Education is to be thanked for making them available once again.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).