Interventionism

Interventionism is the economic policy of a government that retains private property and the market economy but intervenes by decree in the operation of particular markets, in an attempt to correct alleged flaws of free market capitalism. Familiar instruments include taxes, price controls, tariffs, licensing, eminent domain, subsidy, and a state monopoly of the money supply through a central bank.

Ludwig von Mises treated interventionism as a distinct third system, to be analysed on its own terms rather than as a mixture of capitalism and socialism. His conclusion was that it is not a stable third way at all.

The interventionist dynamic

Mises's central argument is that an intervention characteristically fails on the terms of those who imposed it, and that the failure creates the political occasion for a further intervention.

The standard illustration is a maximum price on a good below the market price. The lower price raises the quantity buyers wish to purchase and reduces the quantity sellers find it worthwhile to supply, so the good becomes scarce at the controlled price. The shortage is then attributed not to the control but to hoarding or profiteering, and is met with rationing, with controls on the good's inputs, and eventually with controls on the industries supplying those inputs. Each measure disturbs a further set of markets and generates the argument for the next.

The government therefore faces a recurring choice: abandon the original intervention, or extend it. If it always extends, the sphere of decree grows until production is directed by the authorities in substance while ownership remains private in name. Mises regarded the German war economy as the model of that end state and argued that it amounts to socialism in a second form, reached without formal expropriation.

Why the middle is unstable

The claim is not that intervention always makes everyone worse off, nor that every intervention must escalate. It is that intervention cannot achieve what its advocates want it to achieve, because the market phenomena it overrides are the outcome of the same consumer valuations the intervention leaves in place. A price control does not repeal the scarcity that produced the price; it suppresses the signal and the incentive by which the scarcity would have been relieved.

For the same reason Austrians treat the shortages, malinvestments and crises that follow intervention as consequences of the intervention rather than as market failures demonstrating the need for more of it. The disagreement with mainstream policy analysis is largely about which of these two readings the evidence supports.

Distinguished from capitalism

Because interventionism preserves private ownership, its results are commonly attributed to the market, and Austrians insist on the distinction: a regulated, subsidised and cartelised industry is not an instance of capitalism performing badly but of intervention performing as the theory predicts. This is the basis of the Austrian reading of the Great Depression and of the Great Recession, in both of which the prior expansion of credit by a central bank is treated as the cause of the boom whose collapse was then blamed on private enterprise.

See also

• Capitalism
• Socialism
• Price control
• Central bank
• Austrian Business Cycle Theory
• Malinvestment

Links

• Interventionism at Wikipedia