A Critique of Interventionism

The problem of interventionism must not be confused with that of socialism. We are not dealing here with the question of whether or not socialism in any form is conceiv­able or realizable. We are not here seeking an answer to the question of whether human society can be built on public property in the means of production. The problem at hand is, What are the consequences of government and other in­terventions in the private property order? Can they achieve the result they are supposed to achieve?

A precise definition of the concept “intervention” is now in order.

1. Measures that are taken for the purpose of preserving and securing the private property order are not interventions in this sense. This is so self-evident that it should need no special emphasis. And yet it is not completely redundant, as our problem is often confused with the problem of anarchism. It is argued that if the state must protect the private property order, it follows that further government interventions should also be permissible. The anarchist who rejects any kind of state activity is said to be consistent. But he who correctly perceives the impracticability of anarchism and seeks a state organization with its apparatus of coercion in order to secure social cooperation is said to be inconsis­tent when he limits government to a narrow function.

Obviously, this reasoning completely misses the point. We are not here discussing the question of whether or not social cooperation can do without the organization of coer­cion, which is the state, or government. The sole point under discussion is whether there are only two conceivable possi­bilities of social organization with division of labor, that is, the public property order and the private property order—disregarding syndicalism—or whether there is yet a third system as assumed by interventionists, namely, a private property order that is regulated through government inter­vention. Incidentally, we must carefully distinguish be­tween the question of whether or not government is nec­essary and the question of where and how government authority is in order. The fact that social life cannot do with­out the government apparatus of coercion cannot be used to conclude also that restraint of conscience, book censor­ship, and similar measures are desirable, or that certain economic measures are necessary, useful, or merely fea­sible.

Regulations for the preservation of competition do not at all belong to those measures preserving the private property order. It is a popular mistake to view competition between several producers of the same product as the substance of the ideal liberal economic order. In reality, the central no­tion of classical liberalism is private property, and not a cer­tain misunderstood concept of free competition. It does not matter that there are many recording studios, but it does matter that the means of record production are owned pri­vately rather than by government. This misunderstanding, together with an interpretation of freedom that is influenced by the natural rights philosophy, has led to attempts at preventing the development of large enterprises through laws against cartels and trusts. We need not here discuss the desirability of such a policy. But we should observe that nothing is less important for an understanding of the economic effects of a certain measure than its justification or re­jection by some juristic theory.

Jurisprudence, political science, and the scientific branch of politics cannot offer any information that could be used for a decision on the pros and cons of a certain policy. It is rather unimportant that this pro or that con corresponds to some law or constitutional document, even if it should be as venerable and famous as the Constitution of the United States of America. If human legislation proves to be ill-suited to the end in view, it must be changed. A discussion of the suitability of policy can never accept the argument that it runs counter to statute, law, or constitution. This is so obvious that it would need no mention were it not for the fact that it is forgotten time and again. German writers sought to deduce social policy from the character of the Prussian state and “social royalty.” In the United States, economic discussion now uses arguments that are derived from the Constitution or an interpretation of the concepts of freedom and democracy. A noteworthy theory of interven­tionism set forth by Professor J.R. Commons is largely built on this rationale and has great practical significance because it represents the philosophy of the La Follette party and the policy of the state of Wisconsin. The authority of the Ameri­can Constitution is limited to the Union. But locally the ideals of democracy, liberty, and equality reign supreme and give rise, as we can observe everywhere, to the demand for abolition of private property or its “limitation.” All this is insignificant for our discussion and, therefore, does not concern us here.

2. Partial socialization of the means of production is no intervention in our sense. The concept of intervention as­sumes that private property is not abolished, but that it still exists in substance rather than merely in name. Nationaliza­tion of a railroad constitutes no intervention; but a decree that orders an enterprise to charge lower freight rates than it otherwise would is intervention.

3. Government measures that use market means, that is, seek to influence demand and supply through changes of market factors, are not included in this concept of interven­tion. If government buys milk in the market in order to sell it inexpensively to destitute mothers or even to distribute it without charge, or if government subsidizes educational in­stitutions, there is no intervention. (We shall return to the question of whether the method by which government acquires the means for such actions constitutes “interven­tion.”) However, the imposition of price ceilings for milk signifies intervention.

Intervention is a limited order by a social authority forcing the owners of the means of production and entrepreneurs to employ their means in a different manner than they otherwise would. A “limited order” is an order that is no part of a socialist scheme of orders, i.e., a scheme of orders regulating all of production and distribution, thus replacing private prop­erty in the means of production with public property. Par­ticular orders may be quite numerous, but as long as they do not aim at directing the whole economy and replacing the profit motive of individuals with obedience as the driv­ing force of human action they must be regarded as limited orders. By “means of production” we mean all goods of higher order, including the merchants’ inventories of ready goods which have not yet reached the consumers.

We must distinguish between two groups of such orders. One group directly reduces or impedes economic produc­tion (in the broadest sense of the word including the loca­tion of economic goods). The other group seeks to fix prices that differ from those of the market. The former may be called “restrictions of production”; the latter, generally known as price controls, we are calling “interference with the structure of prices.3

• 3There may be some doubt about the suitability of a third group: interference by taxation which consists of expropriation of some wealth or income. We did not allow for such a group because the effects of such intervention may in part be identical with those of production restrictions, and in part consist of influencing the distribution of production income without redirecting production itself.