Mises, Ikeda and Interventionism

     

Introduction

Ludwig von Mises played a key role in the history of classical liberalism in the 20th century.  Consider his early work in economics and on the philosophy of social science, the impact made by his Private Seminar, and by his argument about the problems of economic calculation under socialism.

What is much more controversial is his work on interventionism.  Mises’s most dramatic claim here was that there was no stable alternative to capitalism and socialism. Mises refers, in material in the Mises archive,[15] to discussions in English in his Omnipotent Government;[16]  Human Action;[17] and Planning for Freedom.[18] (Critique of Interventionism[19] was not available in English at the time).  Mises’s claims are important – not least because he was suggesting a case against governmental intervention that stands independently of Public Choice theory or moral arguments.  What he had to say did not attract much attention from mainstream writers. (But compare Lavoie[20] and Kurrild-Klitgaard,[21] as well as the pieces by Ikeda cited in his contribution.)  It is for this reason that Sandy Ikeda’s review and reconstruction of Mises’s argument is much to be welcomed.

At the center of Ikeda’s analysis he poses what he calls the “Misesian Paradox”: “how, if interventionism is ‘contradictory and illogical,’ ‘unworkable and unsuitable,’ and ‘contradicts economic logic’ has it seemed to endure around the world for so long?”  In Ikeda’s paper, this leads to his careful analysis and reconstruction of Mises’s argument.  My response is much simpler: in broad terms, while Mises’s discussion contains many interesting contributions, it is simply incorrect.

To start with, Mises’s argument is rather more complicated than it seems.  His main contention is indeed that interventionism is unstable, and Ikeda’s reconstruction of his argument here is most useful.  But Mises does not only argue in these terms.

First, he also argues by saying that interventionists share with others certain aims, which their methods cannot achieve.  Mises develops this argument by saying that there is an aim with which all people agree -- the desirability of “those ends which all people consider as the ultimate aim of activities commonly called economic, viz., the best possible supply of useful commodities and services.”[22]  But this is incorrect.  We are all familiar with people who take the view that, for example, some sacrifice of the best possible use of commodities and services would be acceptable if some other goal were achieved; e.g., a reduction in social inequality.  In addition, Mises was himself familiar with work by Alexander Rüstow and Wilhelm Röpke, in which they made out a case for intervention for the sake of certain kinds of social stability.  (I should stress that this is not an argument for the values to which I have referred, simply an argument against Mises’s assumption that his ideas about our goals are shared by all.)

Is, however, Mises right that if one shared the goals to which he refers, then interventionism is clearly incorrect?  It seems to me that there is more of a case to answer than Mises’s writings would suggest.

The first is the argument, which has been pressed by Manuel Castells in his detailed survey of the literature on East Asian development,[23] that a positive economic role was played by governmental intervention.  I can’t evaluate the factual claims that Castells surveys, but if his account is correct, I am, as a classical liberal, concerned by it and would wish to investigate how such a performance could be bettered under conditions of freedom.  But in the face of such claims, we surely can’t simply repeat Mises’s case uncritically.

Next, Mises’s argument depends on there not being macroeconomic problems that require intervention in order to restore normal market behavior.  Here, there are competing research programs on which detailed argument work is needed on an ongoing basis.  It is worth noting that Lionel Robbins, who not only elaborated an “Austrian” view in his Great Depression,[24] but defended it doggedly in person against Keynes, in the end moved over to a Keynesian perspective.  I am not saying that an interventionist perspective is incorrect (and clearly the need here for intervention would be worrying, both from a Public Choice perspective and also because of possible threats to our freedom), but there is again a case to answer, and it is not an issue to be settled by knockdown argument.

Finally, here, if we take account of the limitations of people’s knowledge, the role of tradition and custom, and also the disruptive effects of innovation in a market economy, we may find that things are sometimes rather messier than Mises’s arguments present them as being.  I would suggest that we need to make use of historical evidence alongside abstract, idealizing argument, to make a telling case that the issues which Mises raises hold good in an imperfect world.

A second line of argument in Mises is presented when, in his Critique of Interventionism,[25] he discusses tariffs.  Mises argues that these typically have unanticipated consequences.  I have already discussed the fact that the outcomes which result might be favored even if they do not lead to the best use of resources, because they realize other values.  In addition, Public Choice issues may be relevant here.  Governments may look at, say, issues relating to housing supply largely in terms of political advantage rather than what makes for good market-oriented policy.  In addition, it is worth bearing in mind that if intervention produces problematic unintended consequences, it is in principle possible that these could be addressed through further policy measures with learning by trial and error.  (Compare Karl Popper’s The Open Society and Its Enemies.[26]) While one might be skeptical about how government will in fact perform, it is worth bearing in mind that problems of this kind occur routinely and are addressed within both commercial and noncommercial organizations.

But what of Mises’s main line of argument?  May not those in government be stupid enough to try to control prices, imagining that the result will be both lower prices and adequate supply.  When this does not eventuate, may they not hey impose further controls – leading, in the end and against their initial intentions, to political control of the entire economy.  This is a possibility.  But is it a path that anyone has followed?  Given Mises’s and F. A. Hayek’s arguments about the problems of economic calculation under socialism, I’d have thought that, if any country initially followed this path, it would fairly soon retreat in order that its economy functioned at all.

Hayek was also a critic of interventionism.  But Hayek was himself in some ways an interventionist (including in his The Road to Serfdom (1944), which in other respects could be read as offering his main, and telling, argument against interventionism).  That there was a tension here was noted by reviewers of The Road to Serfdom, and also by Keynes.[27]  Hayek responded by arguing that, if the government’s actions complied with a Rechtsstaat understanding of the rule of law, then while they would not necessarily be wise, they would not call the character of a market economy, and people’s freedom, into question.  It is a matter of controversy whether or not Hayek’s resolution of the problem is successful.  But on the face of it, some way of resolving the problem is needed by all liberals – Mises included – who accord a role to the state.  For it, after all, has to raise money by taxation and to make decisions as to just what goods and services it will purchase (e.g., when employing police and armed forces).  It would thus seem to be engaged in exactly the activity concerning which Ikeda quotes Mises’s description: the ‘“essence of the interventionist policy is to take from one group and to give to another.”

[15.] Mises Archive, Grove City College, Main Sequence, Box 8, General Files “F.”

[16.] Ludwig von Mises, Omnipotent Government (New Haven: Yale University Press, 1944), pp. 58-66. Online version: Ludwig von Mises, Omnipotent Government: The Rise of the Total State and Total War, edited with a Foreword by Bettina Bien Greaves (Indianapolis: Liberty Fund, 2011). Part II: Nationalism. III: Etatism. 1.The New Mentality </titles/2399#Mises_OmnipotentGovt1579_204>.

[17.] Ludwig von Mises, Human Action (New Haven: Yale University Press, 1949), pp. 712-857. Online version: Ludwig von Mises, Human Action: A Treatise on Economics, in 4 vols., ed. Bettina Bien Greaves (Indianapolis: Liberty Fund, 2007). Vol. 3, PART 6: The Hampered Market Economy </titles/mises-human-action-a-treatise-on-economics-vol-3-lf-ed#lf3843-03_label_320>.

[18.] Ludwig von Mises, Planning for Freedom (South Holland, IL: Libertarian Press, 1952), pp.1-35). Online version: Ludwig von Mises, Planning for Freedom: Let the Market System Work. A Collection of Essays and Addresses, edited with a Foreword by Bettina Bien Greaves (Indianapolis: Liberty Fund, 2008). PART 1: The Free Market Economy versus Government Planning </titles/mises-planning-for-freedom-let-the-market-system-work-a-collection-of-essays-and-addresses#lf1459_label_025>.

[19.] Ludwig von Mises, Critique of Interventionism (New Rochelle, NY: Arlington House, 1977 [1929]).

[20.] Don Lavoie, “The Development of the Misesian Theory of Interventionism” (with comment by Murray N. Rothbard), in Method, Process, and Austrian Economics: Essays in Honor of Ludwig von Mises, ed. Israel M. Kirzner (Lexington, MA: Lexington Books, 1982), pp.169–83.

[21.] Peter Kurrild-Klitgaard, ed., Intervention, Regulation and Redistribution in the Mixed Economy (Amsterdam, etc.: Elsevier, 2005).

[22.] Mises, Planning for Freedom, p. 20.

[23.] Manuel Castells, The Rise of the Network Society, 2d ed. (London: Wiley-Blackwell, 2009), pp. 163-215).

[24.] Lionel Robbins, The Great Depression (London: Macmillan, 1934).

[25.] Pp. 5-6.

[26.] Karl Popper, The Open Society and Its Enemies (London: Routledge, 1945).

[27.] See Jeremy Shearmur, “Hayek, Keynes and the State,” History of Economics Review, no. 26, Winter/ Summer 1997, pp. 68-82, available at <http://www.hetsa.org.au/pdf-back/26-A-6.pdf>.