The Austrian Economics Wiki - User contributions [en]

Praxeology

2010-12-13T17:17:05Z

Six: /* Purposefulness of action */ Link to deductive reasoning

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'''Praxeology''' is the science of human [[action]]. The term was coined and defined as "The science of human action" in 1890 by [[Alfred Espinas]] in the Revue Philosophique, but the most common use of the term is in connection with the work of [[Ludwig von Mises]] and the [[Austrian Economics|Austrian School of economics]].

==Purposefulness of action==
Praxeology is the scientific study of human [[action]], which is ''purposeful behavior''. A human acts whenever he uses ''means'' to achieve an ''end'' that he or she subjectively values. Human action is thus [[Teleology|teleological]] or intentional; a person acts for a ''reason''. Therefore not all human behavior is action in the praxeological sense: purely reflexive or unconscious bodily movements (such as coughing when exposed to tear gas) are not examples of action. Praxeology starts from the undeniable axiom that human beings exist and act, and then logically [[deductive reasoning|deduces]] implications of this fact. These deduced propositions are true ''a priori''; there is no need to test them in the way that a physicist might test a proposed "law" of Nature. So long as a praxeological statement has been derived correctly, it must necessarily contain as much truth as the original axioms.<ref name="Study_praxeology">Robert P. Murphy [http://mises.org/rothbard/mes/guidechap1.asp "A Study Guide to Murray Rothbard's Man, Economy, and State, with Power and Market"], online version, referenced 2009-06-15.</ref>

For example, when we throw a ball, we do not reason that it is guided in a ''teleological'' way by some mystical spirit or "prime mover." Instead we use the laws of mechanics and [[causality]] to examine the position, velocity, and forces acting on the ball, in order to predict the future position and velocity of the ball.

On the other hand, one does not reason that there is some sort of direct, causal relation between traffic lights turning green, and bodies beginning to cross the road. These are individuals acting with purpose crossing the road, who, only when the lights turn green, reason that it is safe to cross and then proceed to do so. The reckless individual who is late for work may rush across the road regardless of what the traffic lights show.<ref name="Mallick_example">Abhinandan Mallick. [http://mises.org/story/3731 "How I Found the Austrian School"], Mises Daily, posted on 2009-10-09, referenced 2009-10-10.</ref>

==Categories==
The categories of praxeology, the general, formal theory of human action, as outlined by [[Murray Rothbard]]<ref>Murray N. Rothbard. [http://www.mises.org/rothbard/schuller.pdf "Praxeology: Reply to Mr. Schuller"], ''[[American Economic Review]]'', December 1951, pp. 943-46, referenced 2009-05-20.</ref>"

* A. The Theory of the Isolated Individual ([[Robinson Crusoe economy|Crusoe]] Economics)
* B. The Theory of [[Trade|Voluntary Interpersonal Exchange]] (Catallactics, or the Economics of the Market)
** 1. Barter
** 2. With Medium of Exchange
*** a. On the Unhampered Market
*** b. Effects of Violent [[Intervention]] with the Market
*** c. Effects of Violent Abolition of the Market ([[Socialism]])
* C. The Theory of War--Hostile Action
* D. The Theory of Games (e.g., [[John von Neumann|von Neumann]] and [[Oskar Morgenstern|Morgenstern]])
* E. Unknown

==References==
{{Reflist}}

==External links==
* [[Wikipedia:Praxeology|Praxeology]] in Wikipedia
* [http://praxeology.net/praxeo.htm What the Hell is Praxeology?] on Praxeology.net
* [http://www.lewrockwell.com/rothbard/rothbard38.html Praxeology: The Methodology of Austrian Economics] by [[Murray N. Rothbard]]

Deduction

2010-12-13T17:15:25Z

Six: Redirected page to Deductive reasoning

#redirect [[Deductive reasoning]]

Deductive logic

2010-12-13T17:15:02Z

Six: Redirected page to Deductive reasoning

#redirect [[Deductive reasoning]]

Category:Logic

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Six: Created page with "Category:Articles"

[[Category:Articles]]

Deductive reasoning

2010-12-13T17:13:38Z

Six: Created page with "'''Deductive reasoning''', also known as '''deductive logic''', is the logic used to show that a conclusion necessarily follows from a set of premises (assumptions). {{stub}} [..."

'''Deductive reasoning''', also known as '''deductive logic''', is the logic used to show that a conclusion necessarily follows from a set of premises (assumptions).

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[[Category:Logic]]

Taxation

2010-12-13T17:11:59Z

Six: Bolding taxation

'''Taxation''' is [[money]] [[coercion|coercively]] extracted from the populace by an agent, typically the [[state]].<ref name="Rothbard_Taxation">[[Murray N. Rothbard]]. [http://mises.org/rothbard/mes/chap16a.asp "4. Binary Intervention: Taxation"], [[Power and Market]], online version, referenced 2010-12-13.</ref> It is a form of [[binary intervention]], creating a hegemonic relationship between the state and the citizen.

==Taxpayers and Tax Consumers==
Funds from taxation must be taken from economic actors and then provided to other economic actors. An actor can fall into one of two categories: taxpayers and tax consumers.

*A '''taxpayer''' is a person who pays more tax than he or she receives.
*A '''tax consumer''' is a person who receives more funds from taxation than he or she pays.<ref name="Rothbard_Taxation" /><ref name="Calhoun">John C. Calhoun. [http://www.constitution.org/jcc/disq_gov.htm "A Disquisition on Government"], referenced 2010-12-14.</ref>

Taxpayers and tax consumers necessarily have conflicting interests, as tax consumers benefit from the funds expropriated from taxpayers. Taxpayers may only benefit indirectly from the services that the tax consumers provide, often called "public services". This contrasts with the producer-consumer relationship, wherein two economic actors will exchange if and only if the exchange is mutually beneficial. Because taxpayers cannot choose to decline paying tax, there is no guarantee that tax consumers will confer adequate, or even any, benefit to taxpayers.

==References==
<references />

==Links==
* [http://mises.org/daily/4820 Soak-the-Rich Taxes: Fail!] by Robert P. Murphy, November 2010
* [[Wikipedia:Tax|Tax]] on Wikipedia

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[[Category:Interventions]]

Austrian Economics Wiki:Commons

2010-12-13T14:26:42Z

Six: /* Logic category */ new section

<div class="messagebox" style="width:100%; padding:.5em;">Welcome to '''The Mises Commons''', the central discussion board where you can make announcements, propose new ideas, and ask questions of the entire community.

<p>To add a new item, add a <code><nowiki>==Level two header==</nowiki></code> to introduce it.</p>

<p>For discussion related to long-term planning and development, also see the [https://groups.google.com/a/mises.com/group/wiki/topics Mises Wiki Google Group].</p></div>
__NEWSECTIONLINK__
{{TOC right}}
==Style guide==
I would like to recommend that we use the ''Chicago Manual of Style'' as a basis for a [[MisesWiki:Manual of Style]] rather than the [[wikipedia:WP:MOS|Wikipedia Manual of Style]]. The WP:MOS makes a large number of stylistic concessions in order to appeal to international speakers of English, resulting in a MOS that incorporates a variety of styles. Mises.org uses CMS as its style guide, and I think it makes sense to use it here as well, as most of our readers are Americans. Two things affected are:
*Spelling (use American all the time)
*Punctuation in relation to quotation marks (commas and periods should always appear inside quotation marks)
I'm sure there are others, but these are the ones that come to mind. Thoughts? --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 16:09, 29 November 2010 (CST)

[[Category:Mises Wiki|Commons]]

==New project==
It seems we could use a new project for the organization of small things - checking links, wikification of text, creating stubs, etc. Also needs a way to easily vote on the next page of interest. Ideas? [[User:Pestergaines|Pestergaines]] 18:05, 2 December 2010 (CST)
:Sounds reasonable. I'll set it up with some ideas at [[MisesWiki:WikiProject Cleanup]]. We'll need to develop more cleanup categories. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 09:38, 3 December 2010 (CST)
::Looks nice already! Thanks. [[User:Pestergaines|Pestergaines]] 15:03, 3 December 2010 (CST)

==Most wanted Stub==
Below, let's vote on the most desired stub, that is still missing and really, really should be created, with some good content for a start. Please edit this list: anyone can add more candidates to it, and vote for any number of them - but only once on each. Of course, anyone can create the stub(s) in question, too! Once created, the candidates will be removed from the list. [[User:Pestergaines|Pestergaines]] 15:03, 3 December 2010 (CST)

* [[Free market]]: +2
* [[Karl Marx]]: +1
* [[World War I]]: +1
* [[New Deal]]: +1

==Most wanted update==
Which page badly deserves to be extended? Please edit this list: anyone can add more candidates to it, and vote for any number of them - but only once on each. Of course, anyone can update the page, too! Once sufficiently improved, the candidates will be removed from the list (but can be entered again for another round of updates). [[User:Pestergaines|Pestergaines]] 15:03, 3 December 2010 (CST)

* [[‎John Maynard Keynes]]: +1
* [[Franklin Delano Roosevelt]]: +1
* [[Charity]]: +1
* [[Estate tax]]: +1

== "External links" --> "Links"? ==

Any thoughts on not using WP's convention of calling the links at the end "External links" but instead simply "Links"? My thinking is that in many cases the links are pointing to mises.org pages (such as literature pages, blog posts, etc.) and thus are not strictly "external." Plus, the word is redundant anyway. We could still use "See also" for referring to tangentially related wiki articles. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 10:43, 6 December 2010 (CST)
:I am open to that upon first reflection. I am assuming we would likely continue a "See also" section for other related Mises Wiki article links not mentioned already in the main text. -- [[User:RayBirks|RayBirks]] 10:46, 6 December 2010 (CST)
::Right. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 10:49, 6 December 2010 (CST)
:Actually, that is a good idea! [[User:Pestergaines|Pestergaines]] 11:23, 6 December 2010 (CST)

== Positioning links from Mises Wiki to Wikipedia ==

I have been noticing links to Wikipedia main articles in various locations within the list of links to other resources, articles, etc. Perhaps we might suggest that, if the link to the related main Wikipedia entry is included, we make it the final entry in the list. I am thinking the reader is somewhat more likely to be getting a Classical-Liberal (and similar) point of view in the first links indicated, with the general readership-orientation of Wikipedia best fit for the reader's last choice. If this is already the working style, then perhaps someone might confirm. Thoughts? -- [[User:RayBirks|RayBirks]] 12:02, 9 December 2010 (CST)
:That seems reasonable. Same for other general resources, I suppose. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 12:09, 9 December 2010 (CST)

== Suggested order of closing sections ==

Is there a working rule of thumb for the order of the closing sections? I just added the '''See also''' section on the [[Great Depression#See also|Great Depression]] page, and it seems out of whack.

I am thinking the order should be:

* See also
* Links
* References

Opinions? Input? And are there further sections we should take into account in this discussion? Thanks! -- [[User:RayBirks|RayBirks]] 20:06, 9 December 2010 (CST)
:WP standard is "See also" then "References" then "Links" (see [[wikipedia:WP:FOOTERS]]). I like links to be last because they are least related to the content of the article. References specifically relate to the article itself; links point the reader outside the wiki and thus (IMHO) belong at the end. I'm okay with putting "See also" below or above references; either way makes sense. Other footer section types might be "Works" (i.e., on the page of a person – include a list of books he's written) and "Further reading" (like "Links" but to hard copy books for which links aren't available and which weren't used as references). Regarding those, I say Works first, and Further reading second to last. So:
:*Works
:*References
:*See also
:*Further reading
:*Links
:Or switch 2 and 3. Other ideas? --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 22:57, 9 December 2010 (CST)

== Article # 400 ==

Don't know if anyone noticed, but our 400th article is on none other than [[Taxation]] !! -- [[User:RayBirks|RayBirks]] 13:06, 12 December 2010 (CST)
:Yes, great work everyone! I wonder when we can get to 500. :) [[User:Pestergaines|Pestergaines]] 17:59, 12 December 2010 (CST)
== Guide ==

A guide of articles for newbies to basics of Economics or mises would be great. I don't know where start and it would be great to have that sort of guide/suggestion to start reading some articles. <span style="font-size:smaller;">—''unsigned comment by'' [[User:PLj9N|PLj9N]] ([[User talk:PLj9N|talk]]) {{#if:PLj9N|19:22, 12 December 2010}}.</span>
:An excellent idea! As we build the wiki a "reader's guide" of some sort would be quite helpful for others as well, I imagine. Thanks! --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 21:55, 12 December 2010 (CST)

:I second (third?) this. I would also suggest that there be two introductions: one for those completely new to economics (in a similar vein to Murphy's Lessons for the Young Economist), and one that introduces concepts in Austrian economics to those who are familiar with "mainstream" economics. -- [[User:Six|Six]] 23:59, 12 December 2010 (CST)

== Logic category ==

With the key basis for Austrian economics being deductive logic, and a lacking of articles on deductive logic, I'd like to suggest that logic in its general form should be part of the scope of this wiki, possibly cultivated within a 'Logic' category. Naturally, we can make this relevant to economics through examples (rather than the traditional All Men are Mortal example). -- [[User:Six|Six]] 08:26, 13 December 2010 (CST)

Taxation

2010-12-13T14:16:42Z

Six: /* Taxpayers and Tax Consumers */ Elaboration

Taxation is [[money]] [[coercion|coercively]] extracted from the populace by an agent, typically the [[state]].<ref name="Rothbard_Taxation">[[Murray N. Rothbard]]. [http://mises.org/rothbard/mes/chap16a.asp "4. Binary Intervention: Taxation"], [[Power and Market]], online version, referenced 2010-12-13.</ref> It is a form of [[binary intervention]], creating a hegemonic relationship between the state and the citizen.

==Taxpayers and Tax Consumers==
Funds from taxation must be taken from economic actors and then provided to other economic actors. An actor can fall into one of two categories: taxpayers and tax consumers.

*A '''taxpayer''' is a person who pays more tax than he or she receives.
*A '''tax consumer''' is a person who receives more funds from taxation than he or she pays.<ref name="Rothbard_Taxation" /><ref name="Calhoun">John C. Calhoun. [http://www.constitution.org/jcc/disq_gov.htm "A Disquisition on Government"], referenced 2010-12-14.</ref>

Taxpayers and tax consumers necessarily have conflicting interests, as tax consumers benefit from the funds expropriated from taxpayers. Taxpayers may only benefit indirectly from the services that the tax consumers provide, often called "public services". This contrasts with the producer-consumer relationship, wherein two economic actors will exchange if and only if the exchange is mutually beneficial. Because taxpayers cannot choose to decline paying tax, there is no guarantee that tax consumers will confer adequate, or even any, benefit to taxpayers.

==References==
<references />

{{Stub}}

[[Category:Interventions]]

Talk:Intervention

2010-12-13T13:55:58Z

Six: /* Expanding the "Interventions" category */

==Expanding the "Interventions" category==
Now that the concept of interventions has been clarified (autistic, binary, triangular) on the main page for this topic, perhaps we consider creating sub-categories for the main wiki category of Interventions. No rush, open to thoughts. -- [[User:RayBirks|RayBirks]] 11:40, 12 December 2010 (CST)

I support this. Autistic intervention may be a rather small category, but binary and triangular intervention both have a fairly wide range of types and examples. Like you say, there's no rush now, but in the long-term, dividing up the category will help promote better organisation of the articles. -- [[User:Six|Six]] 11:49, 12 December 2010 (CST)

:Number 6, better organization (no matter how one spells it!) of articles is always worthwhile, though waiting here might be just fine. I was more on the teaching angle, that is, readers could see the differences very early and get those brain pathways opened up. Maybe the sub-category would look something like "Interventions (binary)". -- [[User:RayBirks|RayBirks]] 13:03, 12 December 2010 (CST)

::Yes, that is another benefit of subcategorisation (or, indeed, subcategorization!) As a matter of subjective preference, I'd prefer to see the subcategories labeled like 'Binary Interventions'. -- [[User:Six|Six]] 23:54, 12 December 2010 (CST)

:::"Subjective preference??? But...but...but that's just ''wrong!''" (heh heh) Sorry, I don't get to make economic theory jokes very often. :) -- [[User:RayBirks|RayBirks]] 06:44, 13 December 2010 (CST)

::Just a nitpick, but for consistency in capitalization "Binary interventions" would be better. --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 07:43, 13 December 2010 (CST)

::: Agreed. The capital I in "Interventions" was a typo. -- [[User:Six|Six]] 07:55, 13 December 2010 (CST)

Taxation

2010-12-13T13:28:02Z

Six: Adding taxpayers vs. tax consumers

Tax

2010-12-13T13:02:00Z

Six: Redirected page to Taxation

#redirect [[Taxation]]

Austrian Economics Wiki:Commons

2010-12-13T05:59:45Z

Six: /* Guide */

Talk:Intervention

2010-12-13T05:54:03Z

Six: /* Expanding the "Interventions" category */

Taxation

2010-12-12T18:22:46Z

Six: Created page with "Taxation is money coercively extracted from the populace by an agent, typically the state.<ref name="Rothbard_Taxation">Murray N. Rothbard. [http://mises..."

Talk:Intervention

2010-12-12T17:49:23Z

Six: /* Expanding the "Interventions" category */

User:Six

2010-12-12T16:22:55Z

Six:

Hi! I'm Six, new to Mises Wiki, but not to wikis in general. I've always believed that the best way to learn is to teach, and that's what I'm here to do. Hopefully, I can solidify things in my own mind, while helping the next generation relearn economic (and political) truths.

My particular areas of interest lie in legal theory, intellectual property, and introductory Austrian economics. If you have any articles you'd like me to write (or touch up) in these areas, leave me a message on my talk page and I'll try to get around to it.

Intervention

2010-12-12T13:38:02Z

Six: /* Classification of Intervention: bolding */

{{Stub}}

An '''intervention''' is the intrusion of aggressive physical force into society; it substitutes coercion for voluntary actions.

Private individuals may illegally use force, but empirically, most interventions are performed by States, since the [[State]] is the only organization in society legally equipped to use violence and since it is the only agency that legally derives its revenue from a compulsory levy. Therefore, the analysis mostly concentrates on government interventions.<ref name="Rothbard_Intervention">[[Murray N. Rothbard]]. [http://mises.org/rothbard/mes/chap12a.asp "12. The Economics of Violent Intervention in the market"], [[Man, Economy and State]], online version, referenced 2010-01-16.</ref>

==Classification of Intervention==
Three distinct types of intervention can be identified by the manner in which they affect individuals: autistic, binary, and triangular.

*'''Autistic intervention''' occurs when an intruder restricts a person's use of his body or property in a certain manner.<ref name="Rothbard_Intervention" /> A common example of this is in the prohibition of possession of narcotics. Autistic intervention is also commonly exerted by private individuals in property-destroying acts such as vandalism, battery, and murder.
*'''Binary intervention''' occurs when an intruder forcibly establishes a relationship or compels trade between himself and another person.<ref name="Rothbard_Intervention" /> The most ubiquitous example of this is [[taxation]], where governments coerce citizens into paying [[money]] to them in exchange for public services of the government's choosing. [[Slavery]] is another form of binary intervention.
*'''Triangular intervention''' occurs when an intruder forcibly establishes, or forbids, a relationship between two or more economic actors.<ref name="Rothbard_Intervention" /> Price controls, which restrict trade, and compulsory automobile insurance, which compels trade, are two common examples of this.

==Types of Interventions==
A government can command property owners to use their resources in a different way than these owners would have used them. In this way, the government makes some person or group (for example itself) the uninvited co-owner of other people's property. This is the essence of interventions: institutionalized uninvited co-ownership.

* [[Wikipedia:Tax|Taxation]] means that the government proclaims itself the owner of (a part of) resources belonging to its subjects; and it forces them to eventually hand them over. (If this was voluntary, it would not be taxation, but [[Wikipedia:Donation|donations]] to the government). Today taxation does not concern concrete physical items, but their monetary equivalent; so until the tax is paid, the government imposes itself as the co-owner of virtually all physical assets of the taxpayers.
* [[Wikipedia:Regulation|Regulation]] means that the government proscribes a certain use of certain resources, typically not a use the citizens would have chosen (regulation would be pointless otherwise). Again, the government proclaims itself the co-owner of these resources. An example are [[Price controls|price controls]]. If the government fixes a [[minimum wage]] rate, it effectively proclaims itself the co-owner of workers, because it does not allow them to work under conditions they see fit. And it also proclaims itself the co-owner of the capitalists or, more precisely, of the money that the latter plan to spend on labor.
* [[Wikipedia:Prohibitionism|Prohibition]] means that the government outlaws a certain use of certain resources. Again, it proclaims itself the co-owner of all resources that could be put to the prohibited use. For example, if it can prohibit the production and sale of alcoholic beverages.

The citizens still have ownership and control of their property, but they have to share them to a degree with the government and its agents. Increased interventionism increases the share of government control of resources, without outlawing other people's simultaneous control of these same resources. But the forced nature of the co-ownership itself is not a matter of degree. It is a categorical and essential feature of any intervention.<ref name="Hulsmann_Hazard">Jörg Guido Hülsmann. [http://mises.org/story/2935 "The Political Economy of Moral Hazard"], Mises Daily, April 19 2008, referenced 2010-01-16.</ref>

==Interventions and Moral hazard==
{{See also|Moral hazard}}
Since government interventions always force a separation of ownership and control, they create a [[moral hazard]] for the citizens and for the government. Most importantly, it creates a situation in which each of the parties involved (the citizens on the one hand and the government on the other hand) desires to expropriate the resources subject to interventionism at the expense of the other parties.

As intervention entails forced co-ownership, it follows that the citizens have an incentive to evade it. To avoid taxes, for example, they can choose to invest capital in a country with low taxes rather than in a country with high taxes; they can choose to emigrate to low-tax countries rather than stay in high-tax places; they can choose a profession that is less taxed than other professions; or they can choose to make fraudulent declarations of their income and capital. To evade regulations, they can choose not to buy or sell commodities subject to [[price controls]], or they can choose to buy and sell them on the [[black market]]. To evade prohibitions, they can buy and sell prohibited items on the black market. But these evasions can be risky and very costly. Therefore, there is an incentive to use a greater part of property for personal [[consumption]] rather than [[investment]]. The general tendency of interventions is towards excessive consumption and more expensive production because of the necessity to evade the intervention.

But moral hazard also comes into play on the side of the government. Governments rely on the resources from taxes and regulations. They will therefore tend to tax more and regulate more to neutralize the ways in which the citizens evaded its previous intervention, to "close the loopholes." This is the basic mechanism of government interventions. Interventionist governments have an incentive to extend taxation to all branches of economic life; to regulate industries that have so far escaped regulation; and to beat into submission the countries that serve as [[Wikipedia:Tax haven|tax havens]]. The ultimate result is to reinforce the tendencies that we characterized above: excessive consumption and insufficient production; in short, a general impoverishment of society.

Government interventionism entails [[moral hazard]] both on the side of the government and on the side of the citizens. It cannot be neutralized by choosing appropriate contractual devices, because it has no contractual basis at all; it is imposed. It cannot be sidestepped by choosing to avoid the moral-hazard-prone situation altogether, because the situation itself is imposed. The very meaning of interventionism is to overrule the choices of property owners.

And similarly, the workings of moral hazard cannot be eliminated or diminished by correct expectations, as in the case of moral hazard on the free market. It is precisely when the citizens correctly anticipate how high the next tax will be, and when it will hit them, that a moral hazard will incite them even more to evade the tax.<ref name="Hulsmann_Hazard" />

==Regulatory capture==
According to the Chicago School economist [[Wikipedia:George Stigler|George Stigler]], "as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits."<ref name="ONeill_capture">Ben O'Neill. [http://mises.org/daily/3304#_ftn8 On "Private Tyrannies"], Mises Daily, January 22, 2009. Referenced 2010-07-21.</ref><ref name="Stigler_capture">George J. Stigler. [http://faculty.msb.edu/murphydd/CRIC/Readings/Stigler--Th%20of%20Econ%20Regulation%201971.pdf "The theory of economic regulation"] (pdf), The Universityof Chicago, referenced 2010-07-21.</ref> Under this theory of [[Wikipedia:Regulatory capture|regulatory capture]], an industry or some portions of an industry cultivate government to obtain laws and rules that favor the industry. The government trades favors for what it wants. Politicians gain political contributions, side payments, and votes for being seen to control the industry. The industry captures the regulators.

This analysis can be expanded. The first step of obtaining favors can be called "baiting the trap." But matters do not stop there. The trap is set when the industry becomes comfortable with its subsidy, tax break, tariff, exclusive position, license, or whatever. It then begins to extract monopoly rents and to lower product quality. This then leads to further steps such as public outcry and a government demand for the industry to police itself. Then come crisis, further regulatory intervention, and eventually a government stranglehold over the entire industry via a panoply of boards and price controls. This is when the trap is sprung. The market is replaced by government power and bureaucrats. Government, its aim being control, traps and captures the industry.

In the shorter term, the interest groups use the state against the public. In the longer term, the state and its bureaucrats rule the roost. In the end, the government bureaucracies expand. Paperwork and soft jobs rule the industry, innovation and competition are eclipsed, and the public suffers from poor product quality and high prices.<ref name="Rozeff_regulation">Michael Rozeff. [http://mises.org/daily/2320 "Who Captures Whom? The Case of Regulation"], Mises Daily, September 28, 2006. Referenced 2010-07-21.</ref>

===The trap of regulation===
'''1. "Baiting the Trap" - Extra-Market Benefits'''

The politicians enter an otherwise competitive market situation with an offer to promote certain industrial or professional programs. Taxpayers' money is used to finance this program, but it is rare for the potential short-run beneficiaries to reject the offer on these grounds. There are several possible forms in which the aid may come.

* Industrial groups may receive tariff protection, which is a [[tax]] levied on consumers on both sides of a border. Consumers will pay higher prices. There can be no grants of government economic benefits without someone or some group bearing the costs. A tariff is a tax.
* For professional groups, it is usually in the form of licensing, which is a grant of [[monopoly]] rents to those inside the protected profession. The profession elects representatives who sit on government boards, or who actually make up the whole board. They can police entry into the profession's ranks by unqualified competitors.
* Another way to buy off almost any industry or professional association is by means of direct grants of money. The government may simply buy products from a company. It may establish government research grants. It may subsidize certain industries directly. In the case of the great railroads in the United States which were built in the 1860s and 1870s, the government offered millions of acres of land to the railroad companies as an incentive to begin and complete construction.
* Perhaps the most popular form of subsidy is [[tax]] relief. In an era of growing taxation, this approach has been one of the most effective; the higher the tax level, the more advantageous is tax exemption. The American oil industry was the recipient of multiple tax breaks until quite recently, and they are still substantial.

'''2. "Setting the Trap" - Extra-Market Costs'''

The government is a political organization. Its justification is that it is an agency of the popular will, an agent of the public in its political capacity. The government cannot grant particular groups special favors randomly - unless it is in the public interest to do so. Once the grant has been made, the beneficiaries use it for their purposes. The money is spent. But expenditures are always difficult to reduce, especially in large, bureaucratic organizations. The firms become used to the higher income. The income becomes part of annual forecasts. Managers expect it to continue. The organization is hooked. It has become dependent on the continued favor of the state.

Inevitably, one firm or some individual begins to take advantage of his position. He exercises the monopoly grant of power which the state provided for him. He charges a bit too much. He starts running a "factory." Or the firm or individual cuts quality. In short, someone actually begins to milk the system.

Once the pattern of "exploitation" is detected by citizens or government officials, the response is politically inevitable. Someone calls for the government to do something about the unfair use which is being made of the government's trust. Some firm or some professional must be stopped, and stopped now. The industry or guild must be policed. The consumer must receive protection from the unscrupulous.

The industry leaders naturally resent this intrusion into the semi-free market. They resent the fact that someone is milking the system. That person, for one thing, is trying to get more than his "fair share" of the booty. Also, he is making the government angry. He is threatening the continuation of the subsidy. He is violating professional standards.

The government demands that the industry or professional group police itself. The market as a policeman has been compromised by the original grant of power or money. This compromised policeman — the consumers — cannot enforce its decisions inexpensively, given the government grant. So the government calls on the group to police itself, and it draws up certain standards that should be met. The "partnership" between government and professionals grows strained. So the industry or professional group elects (or more likely accepts) certain spokesmen who will "work with" the other partner. This supposedly will insure that the interests of the government and the favored group will mesh, and that the group will continue to receive its favors.

If government has the industry on a string, it need not have to resort to the policeman. All it needs to do is to cut off the subsidies, and the whole industry is put into a financial crisis. The existence of the subsidies calls forth the "industry's spokesmen."

The professional guild is perhaps the most vulnerable, since the very nature of the "bait," namely, a monopoly position based of guild-policed licensure, creates the very policing organization necessary for the government to impose its will at lowest cost. They can be appealed to on the basis of professional standards and the guild's responsibility to a vaguely defined public, irrespective of the individual professional's ability to satisfy the needs of specific members of the public.

'''3. "Springing the Trap" - Extra-Market Crisis'''

More cheaters are discovered. There are more examples of men or firms that have gouged the public, meaning people who are taking advantage of the very system that the government created. So the reports of cheating and fraud continue. The guild will still be under pressure to do something to stop the causes of the reports. Finally, new laws are called for to clean up the industry, since the industry is seemingly incapable of policing itself. The government wants to set all standards and enforce them.

To clean up the crisis, the government will alter the entire foundation of financing, policing, and pricing of the industry's services. The corruption will escalate, but now it will be a government problem, to be met by even more intervention. More laws can be passed, more penalties handed out, more regulations enforced: the government expands its control relentlessly. The trap has been sprung.

'''4. "Skinning the Victims" - Extra-Market Bankruptcy'''

There are any number of ways that the government can see to it that the former subsidies now become the straitjacket for the former beneficiaries. The most obvious method of control over professional groups is the establishment of government control boards that will enforce standards and price. The government begins to finance the guild more directly. The former monopoly grant now becomes direct payments. The government sets fees, allocates equipment, and assigns consumers (clients). The government directs the operation of the association through its captive agents, the profession's representatives. Members of the profession are told what they will be paid, the kind of service to be offered, and the quantity of service to be dispensed.

The government also establishes some sort of quality-control standards. These are enforced by quality-control boards made up of compliant members of the profession and representatives of the public (pressure groups) and the government (bureaucrats). These quality-control boards do exactly that: control quality. If quality, meaning cost, starts going up, then they step in and control it. They ration equipment. They set lower standards of care, especially in government hospitals or clinics. They make sure that costs are held down, since the government, not the consumer, is paying the bill. No matter what guild is involved, the government makes sure the "irresponsible quality" is avoided, meaning irresponsibly high quality.

The government forces industries to operate at a loss. The classic example in economic history is the American railroad system, created by government subsidy, controlled in the name of protecting the consumer. The [[Wikipedia:Interstate Commerce Commission|Interstate Commerce Commission]] was the first Federal regulatory agency in the United States, established in 1887. It was established in the name of protecting the consumer, but the result was a freezing out of new competition, since the ICC established rate floors as well as ceilings. By the late 1950s, the passenger-carrying railroads were in trouble. By the early 1970s, they were bankrupt. (Long-haul freight railroads are still able to compete.) The government now owns and mismanages many of them (Amtrak, Conrail).

The incomes of the members of the industries and professions that are now directly financed and/or directly policed by the government necessarily fall. The public will not permit "profiteering." The politicians will not permit it. Prices, wages, and fees are controlled, and work loads increase. Regulatory agencies each claim a piece of the action, and the multiplication of paperwork is endless. The formerly independent producers, who answered directly to the formerly independent consumers, now answer to a multitude of bureaucrats and enraged customers who detect the collapse of productivity on the part of the now-controlled suppliers. Most suppliers lose, most consumers lose, and a real crisis is produced.<ref name="North_trap">Gary North. [http://mises.org/daily/2293 "The Snare of Government Subsidies"], Mises Daily, August 31, 2006. Referenced 2010-07-21.</ref>

===Further effects===
If the regulation and control by the state get bad enough, the market may find new ways to provide the same kinds of services. If the railroad industry is killed off, then trucking, buses, private autos, and air transport have incentives to replace rails. If medical practice declines, then home medical devices may spring up. Or the AMA may get competition from other kinds of doctors, domestic and foreign. The competition to meet needs will continue under new forms.

The government has an incentive to stop them or control them. It can do this by extending regulation to these new markets. The regulated industry will itself probably call for regulation of the new competitors so as to maintain its monopoly position. Hence, in the case of railroads, we can predict that truck, bus, and air transport will also come to be regulated. However, the regulators are usually behind the curve in technology and creativity. They are regulating last decade's model. The market leaps ahead at such times, and the public gets a reprieve.

Third, political reform or liberalization movements may occur. There are political profit opportunities for populist reformers who promise to reform an under-performing system. By promising that the state will loosen its grip on the industry, they may gain public support and win election. There may [[Wikipedia:Privatization|privatization]] occur, as under Thatcher in England. Within the seemingly monolithic Communist systems of the [[Soviet Union]] and [[China]], rival factions competed for control. Even Castro's [[Cuba]] has seen a loosening trend because he could not kill the patient altogether. And there are more moderate and more statist factions in [[Iran]].

Fourth, while such reform movements go deep enough to be noticeable, they hardly ever go all the way back to a high degree of freedom. And after a while, enthusiasm peters out and the counter-liberal forces begin to regroup and reassert their dominance. This occurs partly because reform movements are often not radical enough. If they retain large vestiges of the earlier regulatory systems, then they will be blamed when things go badly. And things often do go badly unless a complete deregulation occurs. Statists have had a field day in California because of the botched and partial [[Wikipedia:Deregulation|de-regulation]] in the electricity industry.

Fifth, the government does not find that all industries are equal prey. It has an incentive to control those industries (a) that can't escape as easily from the country and (b) for which there are fewer substitutes. At the time the US government began to control the railroads, autos and airplanes didn't exist. And the large fixed capital investments of the railroads within the continental United States made them good fixed targets. Similarly, medical services have to be delivered to individuals on the spot within the country's borders, and home medical devices like those today were not widespread in 1910 — although there have always been home remedies.

Sixth, when over-regulation occurs and the trap is sprung, the industry may try to escape overseas if it can or the customers will take their business overseas if they can. They will search for lower-cost places to do business. Many clear examples occur under financial regulation because many elements of financial dealings can be transacted overseas. Ceilings on interest rates paid on deposits led at one time to dollars fleeing overseas, whereupon a eurodollar market grew up. [[Wikipedia:Sarbanes–Oxley Act|Sarbanes-Oxley]] regulation leads to overseas listings or even incorporation. Excessive regulations of exchanges leads to lower cost trading venues in London, or else trading shifts to over-the-counter formats.

Seventh, if business escapes the country as in the case of some financial services, the government may again respond in order to maintain its control. One method of control is to form a political cartel with other governments. It is usually called "harmonization." The most heavily regulating government will try to get the other governments to "improve" their regulation, that is, to copy that of the heavy regulator. This occurs in the guise of labor, safety, and environmental standards, for example.

It's worth pointing out that state and local governments can also play the same regulation game. But they can't control those industries that can easily flee the state and do business in another state. This is why states focus on more locally oriented interests like barbers, beauticians, and construction trades, etc. Even so, they face the ultimate threat of depopulation of the state or locality. A small locality, however, such as a university town, can impose rent controls since it can count on the university remaining in the area, and students may not wish to travel or find that travel time and costs are high.<ref name="Rozeff_regulation" />



==References==
{{Reflist}}

==External links==
* Interventionism as a [[Wikipedia:Interventionism (politics)|political]] and [[Wikipedia:Economic interventionism|economical]] concept on Wikipedia
* [http://mises.org/daily/3239 Government Intervention and Market Volatility] by Benjamin Weingarten
* [http://mises.org/daily/1773 Why Intervention Persists] by Ludwig von Mises, March 2005
* [http://mises.org/daily/1662 The Spectrum Should Be Private Property: The Economics, History, and Future of Wireless Technology] by B.K. Marcus, October 2004
* [http://mises.org/daily/4586 Not Exactly Sweet Reason] by Gary Galles, July 2010, about the sugar policy of the USA
* [http://mises.org/daily/4579 The Antiregulation Case] by Eric Perkerson, August 2010

[[Category:Interventions|*]]

Triangular intervention

2010-12-12T13:37:28Z

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Binary intervention

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Six: Redirected page to Intervention#Classification of Intervention

#redirect [[Intervention#Classification_of_Intervention]]

Autistic intervention

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#redirect [[Intervention#Classification_of_Intervention]]

Intervention

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Six: Adding classifications of interventions

{{Stub}}

An '''intervention''' is the intrusion of aggressive physical force into society; it substitutes coercion for voluntary actions.

Private individuals may illegally use force, but empirically, most interventions are performed by States, since the [[State]] is the only organization in society legally equipped to use violence and since it is the only agency that legally derives its revenue from a compulsory levy. Therefore, the analysis mostly concentrates on government interventions.<ref name="Rothbard_Intervention">[[Murray N. Rothbard]]. [http://mises.org/rothbard/mes/chap12a.asp "12. The Economics of Violent Intervention in the market"], [[Man, Economy and State]], online version, referenced 2010-01-16.</ref>

==Classification of Intervention==
Three distinct types of intervention can be identified by the manner in which they affect individuals: autistic, binary, and triangular.

*Autistic intervention occurs when an intruder restricts a person's use of his body or property in a certain manner.<ref name="Rothbard_Intervention" /> A common example of this is in the prohibition of possession of narcotics. Autistic intervention is also commonly exerted by private individuals in property-destroying acts such as vandalism, battery, and murder.
*Binary intervention occurs when an intruder forcibly establishes a relationship or compels trade between himself and another person.<ref name="Rothbard_Intervention" /> The most ubiquitous example of this is [[taxation]], where governments coerce citizens into paying [[money]] to them in exchange for public services of the government's choosing. [[Slavery]] is another form of binary intervention.
*Triangular intervention occurs when an intruder forcibly establishes, or forbids, a relationship between two or more economic actors.<ref name="Rothbard_Intervention" /> Price controls, which restrict trade, and compulsory automobile insurance, which compels trade, are two common examples of this.

==Types of Interventions==
A government can command property owners to use their resources in a different way than these owners would have used them. In this way, the government makes some person or group (for example itself) the uninvited co-owner of other people's property. This is the essence of interventions: institutionalized uninvited co-ownership.

* [[Wikipedia:Tax|Taxation]] means that the government proclaims itself the owner of (a part of) resources belonging to its subjects; and it forces them to eventually hand them over. (If this was voluntary, it would not be taxation, but [[Wikipedia:Donation|donations]] to the government). Today taxation does not concern concrete physical items, but their monetary equivalent; so until the tax is paid, the government imposes itself as the co-owner of virtually all physical assets of the taxpayers.
* [[Wikipedia:Regulation|Regulation]] means that the government proscribes a certain use of certain resources, typically not a use the citizens would have chosen (regulation would be pointless otherwise). Again, the government proclaims itself the co-owner of these resources. An example are [[Price controls|price controls]]. If the government fixes a [[minimum wage]] rate, it effectively proclaims itself the co-owner of workers, because it does not allow them to work under conditions they see fit. And it also proclaims itself the co-owner of the capitalists or, more precisely, of the money that the latter plan to spend on labor.
* [[Wikipedia:Prohibitionism|Prohibition]] means that the government outlaws a certain use of certain resources. Again, it proclaims itself the co-owner of all resources that could be put to the prohibited use. For example, if it can prohibit the production and sale of alcoholic beverages.

The citizens still have ownership and control of their property, but they have to share them to a degree with the government and its agents. Increased interventionism increases the share of government control of resources, without outlawing other people's simultaneous control of these same resources. But the forced nature of the co-ownership itself is not a matter of degree. It is a categorical and essential feature of any intervention.<ref name="Hulsmann_Hazard">Jörg Guido Hülsmann. [http://mises.org/story/2935 "The Political Economy of Moral Hazard"], Mises Daily, April 19 2008, referenced 2010-01-16.</ref>

==Interventions and Moral hazard==
{{See also|Moral hazard}}
Since government interventions always force a separation of ownership and control, they create a [[moral hazard]] for the citizens and for the government. Most importantly, it creates a situation in which each of the parties involved (the citizens on the one hand and the government on the other hand) desires to expropriate the resources subject to interventionism at the expense of the other parties.

As intervention entails forced co-ownership, it follows that the citizens have an incentive to evade it. To avoid taxes, for example, they can choose to invest capital in a country with low taxes rather than in a country with high taxes; they can choose to emigrate to low-tax countries rather than stay in high-tax places; they can choose a profession that is less taxed than other professions; or they can choose to make fraudulent declarations of their income and capital. To evade regulations, they can choose not to buy or sell commodities subject to [[price controls]], or they can choose to buy and sell them on the [[black market]]. To evade prohibitions, they can buy and sell prohibited items on the black market. But these evasions can be risky and very costly. Therefore, there is an incentive to use a greater part of property for personal [[consumption]] rather than [[investment]]. The general tendency of interventions is towards excessive consumption and more expensive production because of the necessity to evade the intervention.

But moral hazard also comes into play on the side of the government. Governments rely on the resources from taxes and regulations. They will therefore tend to tax more and regulate more to neutralize the ways in which the citizens evaded its previous intervention, to "close the loopholes." This is the basic mechanism of government interventions. Interventionist governments have an incentive to extend taxation to all branches of economic life; to regulate industries that have so far escaped regulation; and to beat into submission the countries that serve as [[Wikipedia:Tax haven|tax havens]]. The ultimate result is to reinforce the tendencies that we characterized above: excessive consumption and insufficient production; in short, a general impoverishment of society.

Government interventionism entails [[moral hazard]] both on the side of the government and on the side of the citizens. It cannot be neutralized by choosing appropriate contractual devices, because it has no contractual basis at all; it is imposed. It cannot be sidestepped by choosing to avoid the moral-hazard-prone situation altogether, because the situation itself is imposed. The very meaning of interventionism is to overrule the choices of property owners.

And similarly, the workings of moral hazard cannot be eliminated or diminished by correct expectations, as in the case of moral hazard on the free market. It is precisely when the citizens correctly anticipate how high the next tax will be, and when it will hit them, that a moral hazard will incite them even more to evade the tax.<ref name="Hulsmann_Hazard" />

==Regulatory capture==
According to the Chicago School economist [[Wikipedia:George Stigler|George Stigler]], "as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits."<ref name="ONeill_capture">Ben O'Neill. [http://mises.org/daily/3304#_ftn8 On "Private Tyrannies"], Mises Daily, January 22, 2009. Referenced 2010-07-21.</ref><ref name="Stigler_capture">George J. Stigler. [http://faculty.msb.edu/murphydd/CRIC/Readings/Stigler--Th%20of%20Econ%20Regulation%201971.pdf "The theory of economic regulation"] (pdf), The Universityof Chicago, referenced 2010-07-21.</ref> Under this theory of [[Wikipedia:Regulatory capture|regulatory capture]], an industry or some portions of an industry cultivate government to obtain laws and rules that favor the industry. The government trades favors for what it wants. Politicians gain political contributions, side payments, and votes for being seen to control the industry. The industry captures the regulators.

This analysis can be expanded. The first step of obtaining favors can be called "baiting the trap." But matters do not stop there. The trap is set when the industry becomes comfortable with its subsidy, tax break, tariff, exclusive position, license, or whatever. It then begins to extract monopoly rents and to lower product quality. This then leads to further steps such as public outcry and a government demand for the industry to police itself. Then come crisis, further regulatory intervention, and eventually a government stranglehold over the entire industry via a panoply of boards and price controls. This is when the trap is sprung. The market is replaced by government power and bureaucrats. Government, its aim being control, traps and captures the industry.

In the shorter term, the interest groups use the state against the public. In the longer term, the state and its bureaucrats rule the roost. In the end, the government bureaucracies expand. Paperwork and soft jobs rule the industry, innovation and competition are eclipsed, and the public suffers from poor product quality and high prices.<ref name="Rozeff_regulation">Michael Rozeff. [http://mises.org/daily/2320 "Who Captures Whom? The Case of Regulation"], Mises Daily, September 28, 2006. Referenced 2010-07-21.</ref>

===The trap of regulation===
'''1. "Baiting the Trap" - Extra-Market Benefits'''

The politicians enter an otherwise competitive market situation with an offer to promote certain industrial or professional programs. Taxpayers' money is used to finance this program, but it is rare for the potential short-run beneficiaries to reject the offer on these grounds. There are several possible forms in which the aid may come.

* Industrial groups may receive tariff protection, which is a [[tax]] levied on consumers on both sides of a border. Consumers will pay higher prices. There can be no grants of government economic benefits without someone or some group bearing the costs. A tariff is a tax.
* For professional groups, it is usually in the form of licensing, which is a grant of [[monopoly]] rents to those inside the protected profession. The profession elects representatives who sit on government boards, or who actually make up the whole board. They can police entry into the profession's ranks by unqualified competitors.
* Another way to buy off almost any industry or professional association is by means of direct grants of money. The government may simply buy products from a company. It may establish government research grants. It may subsidize certain industries directly. In the case of the great railroads in the United States which were built in the 1860s and 1870s, the government offered millions of acres of land to the railroad companies as an incentive to begin and complete construction.
* Perhaps the most popular form of subsidy is [[tax]] relief. In an era of growing taxation, this approach has been one of the most effective; the higher the tax level, the more advantageous is tax exemption. The American oil industry was the recipient of multiple tax breaks until quite recently, and they are still substantial.

'''2. "Setting the Trap" - Extra-Market Costs'''

The government is a political organization. Its justification is that it is an agency of the popular will, an agent of the public in its political capacity. The government cannot grant particular groups special favors randomly - unless it is in the public interest to do so. Once the grant has been made, the beneficiaries use it for their purposes. The money is spent. But expenditures are always difficult to reduce, especially in large, bureaucratic organizations. The firms become used to the higher income. The income becomes part of annual forecasts. Managers expect it to continue. The organization is hooked. It has become dependent on the continued favor of the state.

Inevitably, one firm or some individual begins to take advantage of his position. He exercises the monopoly grant of power which the state provided for him. He charges a bit too much. He starts running a "factory." Or the firm or individual cuts quality. In short, someone actually begins to milk the system.

Once the pattern of "exploitation" is detected by citizens or government officials, the response is politically inevitable. Someone calls for the government to do something about the unfair use which is being made of the government's trust. Some firm or some professional must be stopped, and stopped now. The industry or guild must be policed. The consumer must receive protection from the unscrupulous.

The industry leaders naturally resent this intrusion into the semi-free market. They resent the fact that someone is milking the system. That person, for one thing, is trying to get more than his "fair share" of the booty. Also, he is making the government angry. He is threatening the continuation of the subsidy. He is violating professional standards.

The government demands that the industry or professional group police itself. The market as a policeman has been compromised by the original grant of power or money. This compromised policeman — the consumers — cannot enforce its decisions inexpensively, given the government grant. So the government calls on the group to police itself, and it draws up certain standards that should be met. The "partnership" between government and professionals grows strained. So the industry or professional group elects (or more likely accepts) certain spokesmen who will "work with" the other partner. This supposedly will insure that the interests of the government and the favored group will mesh, and that the group will continue to receive its favors.

If government has the industry on a string, it need not have to resort to the policeman. All it needs to do is to cut off the subsidies, and the whole industry is put into a financial crisis. The existence of the subsidies calls forth the "industry's spokesmen."

The professional guild is perhaps the most vulnerable, since the very nature of the "bait," namely, a monopoly position based of guild-policed licensure, creates the very policing organization necessary for the government to impose its will at lowest cost. They can be appealed to on the basis of professional standards and the guild's responsibility to a vaguely defined public, irrespective of the individual professional's ability to satisfy the needs of specific members of the public.

'''3. "Springing the Trap" - Extra-Market Crisis'''

More cheaters are discovered. There are more examples of men or firms that have gouged the public, meaning people who are taking advantage of the very system that the government created. So the reports of cheating and fraud continue. The guild will still be under pressure to do something to stop the causes of the reports. Finally, new laws are called for to clean up the industry, since the industry is seemingly incapable of policing itself. The government wants to set all standards and enforce them.

To clean up the crisis, the government will alter the entire foundation of financing, policing, and pricing of the industry's services. The corruption will escalate, but now it will be a government problem, to be met by even more intervention. More laws can be passed, more penalties handed out, more regulations enforced: the government expands its control relentlessly. The trap has been sprung.

'''4. "Skinning the Victims" - Extra-Market Bankruptcy'''

There are any number of ways that the government can see to it that the former subsidies now become the straitjacket for the former beneficiaries. The most obvious method of control over professional groups is the establishment of government control boards that will enforce standards and price. The government begins to finance the guild more directly. The former monopoly grant now becomes direct payments. The government sets fees, allocates equipment, and assigns consumers (clients). The government directs the operation of the association through its captive agents, the profession's representatives. Members of the profession are told what they will be paid, the kind of service to be offered, and the quantity of service to be dispensed.

The government also establishes some sort of quality-control standards. These are enforced by quality-control boards made up of compliant members of the profession and representatives of the public (pressure groups) and the government (bureaucrats). These quality-control boards do exactly that: control quality. If quality, meaning cost, starts going up, then they step in and control it. They ration equipment. They set lower standards of care, especially in government hospitals or clinics. They make sure that costs are held down, since the government, not the consumer, is paying the bill. No matter what guild is involved, the government makes sure the "irresponsible quality" is avoided, meaning irresponsibly high quality.

The government forces industries to operate at a loss. The classic example in economic history is the American railroad system, created by government subsidy, controlled in the name of protecting the consumer. The [[Wikipedia:Interstate Commerce Commission|Interstate Commerce Commission]] was the first Federal regulatory agency in the United States, established in 1887. It was established in the name of protecting the consumer, but the result was a freezing out of new competition, since the ICC established rate floors as well as ceilings. By the late 1950s, the passenger-carrying railroads were in trouble. By the early 1970s, they were bankrupt. (Long-haul freight railroads are still able to compete.) The government now owns and mismanages many of them (Amtrak, Conrail).

The incomes of the members of the industries and professions that are now directly financed and/or directly policed by the government necessarily fall. The public will not permit "profiteering." The politicians will not permit it. Prices, wages, and fees are controlled, and work loads increase. Regulatory agencies each claim a piece of the action, and the multiplication of paperwork is endless. The formerly independent producers, who answered directly to the formerly independent consumers, now answer to a multitude of bureaucrats and enraged customers who detect the collapse of productivity on the part of the now-controlled suppliers. Most suppliers lose, most consumers lose, and a real crisis is produced.<ref name="North_trap">Gary North. [http://mises.org/daily/2293 "The Snare of Government Subsidies"], Mises Daily, August 31, 2006. Referenced 2010-07-21.</ref>

===Further effects===
If the regulation and control by the state get bad enough, the market may find new ways to provide the same kinds of services. If the railroad industry is killed off, then trucking, buses, private autos, and air transport have incentives to replace rails. If medical practice declines, then home medical devices may spring up. Or the AMA may get competition from other kinds of doctors, domestic and foreign. The competition to meet needs will continue under new forms.

The government has an incentive to stop them or control them. It can do this by extending regulation to these new markets. The regulated industry will itself probably call for regulation of the new competitors so as to maintain its monopoly position. Hence, in the case of railroads, we can predict that truck, bus, and air transport will also come to be regulated. However, the regulators are usually behind the curve in technology and creativity. They are regulating last decade's model. The market leaps ahead at such times, and the public gets a reprieve.

Third, political reform or liberalization movements may occur. There are political profit opportunities for populist reformers who promise to reform an under-performing system. By promising that the state will loosen its grip on the industry, they may gain public support and win election. There may [[Wikipedia:Privatization|privatization]] occur, as under Thatcher in England. Within the seemingly monolithic Communist systems of the [[Soviet Union]] and [[China]], rival factions competed for control. Even Castro's [[Cuba]] has seen a loosening trend because he could not kill the patient altogether. And there are more moderate and more statist factions in [[Iran]].

Fourth, while such reform movements go deep enough to be noticeable, they hardly ever go all the way back to a high degree of freedom. And after a while, enthusiasm peters out and the counter-liberal forces begin to regroup and reassert their dominance. This occurs partly because reform movements are often not radical enough. If they retain large vestiges of the earlier regulatory systems, then they will be blamed when things go badly. And things often do go badly unless a complete deregulation occurs. Statists have had a field day in California because of the botched and partial [[Wikipedia:Deregulation|de-regulation]] in the electricity industry.

Fifth, the government does not find that all industries are equal prey. It has an incentive to control those industries (a) that can't escape as easily from the country and (b) for which there are fewer substitutes. At the time the US government began to control the railroads, autos and airplanes didn't exist. And the large fixed capital investments of the railroads within the continental United States made them good fixed targets. Similarly, medical services have to be delivered to individuals on the spot within the country's borders, and home medical devices like those today were not widespread in 1910 — although there have always been home remedies.

Sixth, when over-regulation occurs and the trap is sprung, the industry may try to escape overseas if it can or the customers will take their business overseas if they can. They will search for lower-cost places to do business. Many clear examples occur under financial regulation because many elements of financial dealings can be transacted overseas. Ceilings on interest rates paid on deposits led at one time to dollars fleeing overseas, whereupon a eurodollar market grew up. [[Wikipedia:Sarbanes–Oxley Act|Sarbanes-Oxley]] regulation leads to overseas listings or even incorporation. Excessive regulations of exchanges leads to lower cost trading venues in London, or else trading shifts to over-the-counter formats.

Seventh, if business escapes the country as in the case of some financial services, the government may again respond in order to maintain its control. One method of control is to form a political cartel with other governments. It is usually called "harmonization." The most heavily regulating government will try to get the other governments to "improve" their regulation, that is, to copy that of the heavy regulator. This occurs in the guise of labor, safety, and environmental standards, for example.

It's worth pointing out that state and local governments can also play the same regulation game. But they can't control those industries that can easily flee the state and do business in another state. This is why states focus on more locally oriented interests like barbers, beauticians, and construction trades, etc. Even so, they face the ultimate threat of depopulation of the state or locality. A small locality, however, such as a university town, can impose rent controls since it can count on the university remaining in the area, and students may not wish to travel or find that travel time and costs are high.<ref name="Rozeff_regulation" />



==References==
{{Reflist}}

==External links==
* Interventionism as a [[Wikipedia:Interventionism (politics)|political]] and [[Wikipedia:Economic interventionism|economical]] concept on Wikipedia
* [http://mises.org/daily/3239 Government Intervention and Market Volatility] by Benjamin Weingarten
* [http://mises.org/daily/1773 Why Intervention Persists] by Ludwig von Mises, March 2005
* [http://mises.org/daily/1662 The Spectrum Should Be Private Property: The Economics, History, and Future of Wireless Technology] by B.K. Marcus, October 2004
* [http://mises.org/daily/4586 Not Exactly Sweet Reason] by Gary Galles, July 2010, about the sugar policy of the USA
* [http://mises.org/daily/4579 The Antiregulation Case] by Eric Perkerson, August 2010

[[Category:Interventions|*]]

Slavery

2010-12-12T13:16:37Z

Six: More complete introduction

Slavery is a system in which one must [[labour]] under the orders of another under the threat of violence.<ref name="violence">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap2a.asp "1. Types of Interpersonal Action: Violence"], Chapter 2-Direct Exchange, ''[[Man, Economy and State]]'', online edition, referenced 2010-12-12.</ref> Slavery is therefore a form of [[binary intervention]] in which the master compels the slave to engage in a certain kind of [[production]].

Slavery is by definition a hegemonic relationship, meaning that it is sustained through violence or threats of violence. The slave himself is an economic [[factor of production]] from the master's perspective.<ref name="violence" /> This is in contrast with a voluntary employer-employee relationship, where the employee's labour, not the employee himself, is a factor of production for the employer.

==Conscription==
Conscription is a specific form of slavery which requires a person to undergo military training and perform military duties (including war). It is commonplace in many countries around the world, such as [[South Korea]], [[Israel]], and [[Singapore]].

==References==
<references/>

{{stub}}

[[Category:Interventions]]

User:Six

2010-12-12T13:06:21Z

Six: Created page with "Hi! I'm Six, new to Mises Wiki, but not to wikis in general. I've always believed that the best way to learn is to teach, and that's what I'm here to do: to put the occasionally ..."

Hi! I'm Six, new to Mises Wiki, but not to wikis in general. I've always believed that the best way to learn is to teach, and that's what I'm here to do: to put the occasionally dry wording of Austro-libertarian thinkers into a far more accessible form. That way, I can solidify things in my own mind, while helping the next generation relearn economic (and political) truths.

My particular areas of interest lie in legal theory, intellectual property, and introductory Austrian economics. If you have any articles you'd like me to write (or touch up) in these areas, leave me a message on my talk page and I'll try to get around to it.

User talk:Six

2010-12-11T17:27:25Z

Six:

'''Welcome!'''

Hello, Six, and welcome to the [[MisesWiki:About|Mises Wiki]]! Thanks for signing up – we're glad to have you! If you need help [[Help:Getting started|getting started]], take a look at our [[Help:Contents|help pages]].

Feel free to ask me any questions you might have, either here or on my talk page. Please sign your messages on talk pages using four tildes (<nowiki>~~~~</nowiki>); this will automatically insert your username and the date. Again, welcome! --[[User:Forgottenman|Forgottenman]] ([[User talk:Forgottenman|talk]]) 09:01, 11 December 2010 (CST)

'''Thanks, Forgottenman.'''

I look forward to contributing articles and edits to MisesWiki. Luckily, I have experience with wiki markup as a casual editor of Wikipedia, but it's a lot more interesting, I think, to experience editing a newer wiki. --[[User:Six|Six]] 11:27, 11 December 2010 (CST)

Slavery

2010-12-11T12:55:57Z

Six: Created page with "Slavery is a system in which one must labour under the orders of another under the threat of violence.<ref name="violence">Murray N. Rothbard. [http://mises.org/rothbard/mes/..."

Labour

2010-12-11T12:40:36Z

Six: Redirected page to Labor

#redirect [[labor]]

Opportunity cost

2010-12-11T12:21:01Z

Six: Redirected page to Cost#Opportunity cost

#redirect [[Cost#Opportunity_cost]]

Time preference

2010-12-11T12:15:20Z

Six: /* Grammatical fixes and clarification */

{{Stub}}

'''Time preference''' is the assumption that all people prefer a given end to be achieved sooner rather than later. In the Misesian school it is derived from the assumption about [[human action]]. If people did not prefer to attain their ends sooner rather than later they would never act. The further in the future the attainment of the end appears to be, the less preferable it is. The less waiting [[time]], the more preferable is the end.

It may be called the preference for present satisfaction over future satisfaction or present good over future good, provided the same satisfaction (or [[good]]) is compared over periods of time.<ref name="Rothbard_Time">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1b.asp "4. Further Implications: Time"], Chapter 1-Fundamentals of Human Action, ''[[Man, Economy and State]]'', online edition, referenced 2010-01-10</ref>

==Preference for future goods==
It is sometimes objected that goods in the future may be preferred to the same good in the present. For example, in winter, a man will care little for ice, but would prefer it in the summer. But a [[good]] is not an item with certain material properties; this is merely a convenient description for goods under most circumstances. However, a good is identified by its function and extent of the satisfaction it provides. As the good "ice-in-the-summer" provides different (and greater) satisfactions than "ice-in-the-winter", they are different goods. In this case, different goods are being compared, even though ice has the same physical composition whether in winter or summer. <ref name="Rothbard_Time" />

==Savings and Time preference==
To enjoy greater [[consumption]], man must extend his [[Production|productivity]] first. Since acquiring the increased productivity comes with a cost — namely, time spent away from using the old method of production and consumption — there must be some means of paying that cost. This is the role of [[saving]]s. Some people have refrained from consumption in the past so that others can be sustained and create the new structure.

Savings remain key to this process of capital construction, and it is the time preference, that manifests itself in savings. Time preference is the extent to which people value current consumption over future consumption. If people enjoy current consumption so much, that the promise of an increased future consumption cannot bring them to save (and sacrifice the current level of consumption), the production will not be improved.

The thrust of the [[Austrian Business Cycle Theory]] is that credit inflation distorts this process, by making it appear that more means exist for current production than are actually sustainable. Since this is in fact an illusion, the endeavors of entrepreneurs to create a structure of production not reflecting actual consumer time preferences (as manifested in available savings for the purchase of producer goods) must end in failure.<ref name="Mahoney_preference">Dan Mahoney. [http://mises.org/story/672 "Austrian Business Cycle Theory: A Brief Explanation"], Mises Daily, May 07 2001, referenced 2010-01-10.</ref>

==References==
{{Reflist}}

==External links==
* [[Wikipedia:Time preference|Time preference]] on Wikipedia
* [http://mises.org/daily/4011 Of Time and Marshmallows] by J. Grayson Lilburne
* [http://www.newyorker.com/reporting/2009/05/18/090518fa_fact_lehrer?currentPage=all Don’t! The secret of self-control.] by Jonah Lehrer. A study on time-preference.
* [http://mises.org/daily/4212 Some Applications of the Time-Preference Theory] by Ludwig von Mises
[[Category:Economic concepts]]

Time preference

2010-12-11T12:09:08Z

Six: Capitalising 'misesian' to 'Misesian'

{{Stub}}

'''Time preference''' is the assumption that all people prefer a given end to be achieved sooner rather than later. In the Misesian school it is derived from the assumption about [[human action]]. If people did not prefer to attain their ends sooner rather than later they would never act. The further in the future the attainment of the end appears to be, the less preferable it is. The less waiting [[time]], the more preferable is the end.

It may be called the preference for present satisfaction over future satisfaction or present good over future good, provided the same satisfaction (or [[good]]) is compared over periods of time.<ref name="Rothbard_Time">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1b.asp "4. Further Implications: Time"], Chapter 1-Fundamentals of Human Action, ''[[Man, Economy and State]]'', online edition, referenced 2010-01-10</ref>

==Preference for future goods==
It is sometimes objected, that future goods may be more preferred. For example, in winter will a man care little for ice, but will crave to have it in summer. But a [[good]] is not an item with certain material properties. The good "ice-in-the-summer" provides different (and greater) satisfactions than "ice-in-the-winter", they are different goods. In this case, different satisfactions are being compared, while the physical property of the thing may be the same.<ref name="Rothbard_Time" />

==Savings and Time preference==
To enjoy greater [[consumption]], man must extend his [[Production|productivity]] first. Since acquiring the increased productivity comes with a cost — namely, time spent away from using the old method of production and consumption — there must be some means of paying that cost. This is the role of [[saving]]s. Some people have refrained from consumption in the past so that others can be sustained and create the new structure.

Savings remain key to this process of capital construction, and it is the time preference, that manifests itself in savings. Time preference is the extent to which people value current consumption over future consumption. If people enjoy current consumption so much, that the promise of an increased future consumption cannot bring them to save (and sacrifice the current level of consumption), the production will not be improved.

The thrust of the [[Austrian Business Cycle Theory]] is that credit inflation distorts this process, by making it appear that more means exist for current production than are actually sustainable. Since this is in fact an illusion, the endeavors of entrepreneurs to create a structure of production not reflecting actual consumer time preferences (as manifested in available savings for the purchase of producer goods) must end in failure.<ref name="Mahoney_preference">Dan Mahoney. [http://mises.org/story/672 "Austrian Business Cycle Theory: A Brief Explanation"], Mises Daily, May 07 2001, referenced 2010-01-10.</ref>

==References==
{{Reflist}}

==External links==
* [[Wikipedia:Time preference|Time preference]] on Wikipedia
* [http://mises.org/daily/4011 Of Time and Marshmallows] by J. Grayson Lilburne
* [http://www.newyorker.com/reporting/2009/05/18/090518fa_fact_lehrer?currentPage=all Don’t! The secret of self-control.] by Jonah Lehrer. A study on time-preference.
* [http://mises.org/daily/4212 Some Applications of the Time-Preference Theory] by Ludwig von Mises
[[Category:Economic concepts]]

Time

2010-12-11T12:06:49Z

Six: /* Action and Time */

{{RightTOC}}{{Stub}}

'''Time''' is present in every human [[action]] as a means that must be economized. All human life takes place in time.<ref name="Rothbard_Time">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1b.asp "Chapter 1-Fundamentals of Human Action"], ''[[Man, Economy and State]]'', online edition, referenced 2009-05-15.</ref> (See [[Wikipedia:Time|here]] for many definitions.)

<blockquote>''"Time is that quality of nature which keeps events from happening all at once. Lately it doesn't seem to be working."''<br />
<small>Anonymous</small></blockquote>

==Action and Time==
All human life must take place in time. When a human being decides to [[Action|act]], his goal, or ''end'', can be finally and completely attained only at some point in the future. If all ends could be reached immediately, there would be no need to act.

For any given action, we can distinguish between three periods of time involved: the period before the action, the time consumed when performing the action, and the period after the action has been completed. The relationship between the three identifiable periods of time - before, during, and after the action - is as follows: an actor attempts to improve his situation '''after''' the action relative to his situation '''before''' the action, by giving up his time '''during''' the action. In other words, the actor attempts to improve future conditions for himself by acting.

A man is not immortal; his time on earth is limited, and in each day of his life has only 24 hours in which he can attain his ends. Thus, time is [[Scarcity|scarce]]. Furthermore, all actions must take place through time. Therefore time is a means that man must use to arrive at his ends. As a means it is particularly unique, as it is required for all action; as discussed above, all action must take place through time. <ref name="Rothbard_action">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1a.asp "Chapter 1-Fundamentals in Human Action"], ''[[Man, Economy and State]]'', online edition, referenced 2009-05-01.</ref>

{{See also|Action}}

==Production and Time==
When a human being decides to act in order to attain an end, it can be completely attained only at some point in the future. A man’s time is always [[Scarcity|scarce]], his time on earth is limited. Whichever ends he chooses to satisfy, there are others that must remain unsatisfied.

For every action there can be defined:
*a period before the beginning of the action
*the point in time when the action begins
*the period during which the action occurs
*the point at which the action ends
*and the period after the end of the action.

The period from the beginning to the end of action is called the period of [[production]]. It is composed of the ''working time'' (when [[labor]] energy is spent ) and ''maturing time'' (where labor is not spent; long maturing periods are for example in agriculture or aging of wine). Production itself can have any number of stages, each taking time.<ref name="Rothbard_Time" />

{{Main|Production}}

==Time preference==
All people prefer a given end to be achieved sooner rather than later. This is the universal fact of '''time preference'''. The further in the future the attainment of the end appears to be, the less preferable it is. The less waiting time, the more preferable is the end.

It may be called the preference for present satisfaction over future satisfaction or present good over future good, provided the same satisfaction (or [[good]]) is compared over periods of time.

It is sometimes objected, that future goods may be more preferred. For example, in winter will a man care little for ice, but will crave to have it in summer. But a [[good]] is not an item with certain material properties. The good "ice-in-the-summer" provides different (and greater) satisfactions than "ice-in-the-winter", they are different goods. In this case, different satisfactions are being compared, while the physical property of the thing may be the same.<ref name="Rothbard_Time" />

{{Main|Time preference}}

==Leisure versus Labor==
Leisure is also a consumer good (and a very desirable one). Man must divide his time between leisure and his productive efforts.

What if an increase in [[production]] is desired? One method to increase production per unit of time is by increasing the expenditure of [[labor]]. Such an expansion is very limited, by the number of people in existence, the number of hours in the day and the (varying) ability of each laborer. And, finally, is the question how satisfying is the labor itself - it may provide additional satisfaction or dissatisfaction, bound to the production process. (Note: there are activities engaged in purely for their own sake, not for labor - they are called ''play'', which is another type of consumers’ goods.)

More production may be achieved with more time spent on it, by sacrificing leisure. The more a man labors, the less leisure he can enjoy. This loss is called the ''disutility of labor''.

Man will expend his labor as long as the [[marginal utility]] of the return exceeds the marginal disutility of the labor effort. A man will stop work when the marginal disutility of labor is greater than the marginal utility of the increased product provided by the effort.<ref name="Rothbard_leisure">Murray N. Rothbard. [http://mises.org/rothbard/mes/chap1c.asp "8. Factors of Production: Labor versus Leisure"], ''[[Man, Economy and State]]'', online edition, referenced 2009-05-01.</ref>

==References==
{{Reflist}}

==External links==
* [[Wikipedia:Time|Time]] on Wikipedia
[[Category:Economic concepts]]

Cost

2010-12-11T07:59:06Z

Six: /*Provides a generalised introduction to opportunity cost.*/

{{Stub}}

In [[action]], a less desirable condition is bartered for a more desirable. That which is abandoned is the [[price]] paid for the attainment of the end sought - and the value of the price paid are '''costs'''.<ref name="Mises_profit">Ludwig von Mises. [http://mises.org/humanaction/chap4sec4.asp "4. Action as an Exchange"], ''[[Human Action]]'', online edition, Chapter IV. A first analysis of the category of Action, [[Mises Institute]]. Referenced 2009-05-14}.</ref>

==Opportunity cost==
The '''opportunity cost''', when performing an action, is defined as the next best alternative foregone. In other words, it is what an actor has to give up to get something else.

===Introductory Example===
As an example, suppose Amy, an economic actor, wishes to purchase a chocolate bar. Her preferences are ordered as follows:

#Crunchie Bar
#Mars Bar
#Snickers

Should Amy choose to purchase a Crunchie bar, she gives up her second highest preference, the Mars Bar. Assuming these bars are priced equally, the opportunity cost of her decision to purchase the Crunchie Bar is the Mars Bar.

===Opportunity cost and trade===
''See also: [[Comparative advantage]]''

For example, Amy can produce either one hundred oranges or ten tires in a day while Chen can produce ten oranges or two tires in a day. It doesn't look like they have anything to gain by trading: Amy is much more productive than Chen.

But compare their opportunity costs. To produce one hundred oranges, Amy gives up the opportunity to produce ten tires. Her opportunity cost of an orange is one tenth of a tire, and her opportunity cost of a tire is ten oranges. Chen's opportunity cost of an orange is one fifth of a tire, and her opportunity cost of a tire is five oranges.

In terms of tires, it is cheaper for Amy to produce oranges because she only gives up one tenth of a tire to produce an orange while Chen has to give up one fifth of a tire. In terms of oranges, it is cheaper for Chen to produce tires because he only gives up five oranges to produce a tire while Amy gives up ten oranges to produce a tire.

They can both have more oranges and more tires if they specialize and [[trade]]. Chen can offer Amy one tire in exchange for seven oranges. Chen would be better off because he would get seven oranges in exchange for one tire, while he would only get five oranges for one tire if he produced them himself. But this is attractive for Amy too, because she can get a tire for only seven oranges, which is fewer than the ten oranges she would have to give up if she produced tires herself. At any "orange price" of tires between five and ten, Amy and Chen are both better off.

The same logic is valid for countries - countries are also better off if they can specialize and trade.<ref name="Caden_Opportunity">Art Caden. [http://mises.org/story/3744 "Tire Trade Tirade"], Mises Daily, posted on Monday, October 12, 2009. Referenced 2009-10-13.</ref>

==Subjectivity of costs==
'''Costs''' are by nature subjective and not objectively measurable by an outside observer. An essential feature of Austrian theory, unlike the neoclassical theory, is that cost is directly related to the act of choice. A summary of the implications follows:
# Most importantly, cost must be borne exclusively by the decision-maker; it is not possible for cost to be shifted to or imposed on others.
# Cost is subjective; it exists in the mind of the decision-maker and nowhere else.
# Cost is based on anticipations; it is necessarily a forward-looking or ex ante concept.
# Cost can never he realized because of the fact of choice itself: that which is given up cannot be enjoyed.
# Cost cannot be measured by someone other than the decision-maker because there is no way that subjective experience can be directly observed.
# Finally, cost can he dated at the moment of decision or choice.

Therefore, there can never be objectively measurable [[Wikipedia:Externality|external benefits]]. Costs (or benefits) are subjective and are inseparably tied to the act of choice. That is, an individual not involved in the economic decision or choice can never objectively measure another individual's costs (or benefits). Thus no statement about either the size or the very existence of external benefits can ever be falsified, and cannot be an argument for government intervention.<ref name="Brownstein_Pareto">Barry P. Brownstein. [http://mises.org/journals/jls/4_1/4_1_6.pdf "Pareto Optimality, External Benefits and Public Goods: A Subjectivist Approach"] (pdf), Journal of Libertarian Studies, Vol. IV. No.1 (Winter 1980). Referenced 2010-05-27.</ref>

==Transaction costs==
Consider the classic example of the beekeeper adjacent to an apple orchard. The benefits accruing to the apple orchard from the beekeeper's production (pollination) are not considered by the beekeeper in determining his [[profit]] maximizing output level. Therefore, from the point of view of the apple grower the beekeeper is "underproducing." Many economists would agree that, since the costs of reaching an agreement are relatively small, this two-person case is not a problem for the government. The apple grower can simply bribe the beekeeper an amount up to the size of his perceived external benefits and thus induce the beekeeper to increase production.

As the number of beekeepers and apple growers increases, the costs of reaching an agreement on the size of the payment from the apple growers to
the beekeepers increase. If the '''transaction costs''' remain less than the possible gains from trading, an agreement will be reached. If, on the other hand, the transaction costs exceed the benefits from any trade, an agreement will not he reached. Under these circumstances many economists argue that the market has "failed" and that government intervention is therefore necessary. However, to argue for the government subsidization of the beekeepers is to ignore the fact that transaction costs are real costs which must be considered when making a trade. In the real world, when collective action does not take place, all that one can conclude is that the benefits of such action are smaller than the costs involved. In no way does this imply that the market has failed.

The existence of transaction costs explains why certain trades do not take place in the market. Asserting that the [[trade]] should have taken place is equivalent to stating that transaction costs are not real costs and somehow should not have been considered by the parties involved.

As an example, all of us have wished many times in our lives that we could be instantaneously transported to our destination, he it for work or recreation. Many times the existence of transportation costs (time and money) has led to a decision to stay at home. However, the existence of transportation costs explains why people make certain decisions, and by no means can be used as an argument for government intervention on the grounds of high transportation costs. That is, it would be incorrect to argue that resource allocation is not optimal because of the existence of these transportation costs. On the contrary, any subsidy payments would alter the pattern of resource allocation, making one course of action seem cheaper than it formerly did.<ref name="Brownstein_Pareto" />

==References==
{{Reflist}}

==External links==
* [[Wikipedia:Cost|Cost]] on Wikipedia
* [http://mises.org/journals/scholar/Thornton8.pdf Richard Cantillon and the Discovery of Opportunity Cost] (pdf) Mark Thornton
* [http://mises.org/journals/rae/pdf/RAE3_1_9.pdf Subjective Cost Revisited] (pdf), by William Barnett II
* [http://libertarianpapers.org/articles/2009/lp-1-39.pdf Austrian Economics and the transaction cost approach to the firm] by Nicolai J. Foss and Peter G. Klein
* [http://www.econlib.org/library/Buchanan/buchCv6c0.html#Preface Cost and Choice: An Inquiry in Economic Theory], Preface, by Buchanan, James M., 1969
* [http://mises.org/daily/4901 What's Cost Got to Do with It?] by Joseph T. Salerno, December 2010
[[Category:Economic concepts]]