Interventionism: An Economic Analysis

Author’s Preface

author’s preface It is the purpose of this essay to analyze the problems of government interference in business from the economic standpoint. The political and social consequences of the policy of interventionism can only be understood and judged on the basis of an understanding of its economic implications and effects. Ever since the European governments in the last decades of the nineteenth century embarked on this policy, which today frequently is called “progressive” but which actually represents a return to the mercantilist policy of the seventeenth and early eighteenth centuries, economists have persistently pointed out the inconsistency and futility of these measures and have predicted their political and social consequences . Governments, political parties, and public opinion have just as persistently ignored their warnings. They ridiculed the alleged doctrinarism of “orthodox” economics and boasted of their “victories” over economic theory. But these were Pyrrhic victories. The inevitable sequence of events which followed upon the application of interventionist measures fully proved the correctness of the economists’ predictions. The predicted political effects, social unrest, dictatorship, and war, also did not fail to appear. This essay is not intended to discuss specifically the American New Deal. It deals with interventionism in general, and its conclusions are valid for all instances of interventionism irrespective of the country concerned . There was a considerable amount of interventionism in America long before 1933. The New Deal is merely the present-day, specifically American brand of a policy which began everywhere—including 1. Throughout this essay, the term interventionism is used in the sense ascribed to it by many generations of economists. It covers the domestic policy of governmental interference with business . It is not to be confused with the political term “interventionism” referring to international policy, as contrasted with “isolationism” in the current American controversy about the War. xiv  author’s preface America—several decades ago. To the economist there is nothing new in the New Deal. It differs from the policy of Kaiser Wilhelm II and from the policy of the Weimar Republic only to the extent necessitated by the particular conditions of present-day America. And it places the American people today in the same dilemma in which the German people found themselves ten years ago. This essay is economic in character and, therefore, is not concerned with the legal and constitutional aspects of the problem. Laws and constitutions as such are of secondary importance only. They are to serve the people, not to rule the people. They are to be formulated and interpreted in such a way as to make possible an economic development beneficial to the welfare of all groups of the nation. If they fail to reach this aim, the laws and their interpretation ought to be changed. There is certainly no lack of literature on this subject; almost every day new contributions appear. But almost all of these studies are concerned exclusively with particular groups of measures and their shortrun effects. This method of analysis is woefully inadequate. It merely shows the immediate consequences of individual interventions without considering their indirect and long-run effects. It takes into account only the alleged benefits and disregards the costs and detriments. In this way, of course, a comprehensive appraisal of the social and economic consequences of interventionism can never be reached. That certain individuals or small groups of individuals may sometimes be temporarily privileged or benefited by certain interventionist measures cannot be denied. The question is, however, what further effects are caused, particularly if the attempt is made to accord in the same way privileges to large sections of the population or even to the whole nation. It is therefore essential to study the totality of interventionist policy, not only its short-run but also its long-run effects. It would be a thorough misinterpretation of my statements to consider them as a criticism of the statesmen and politicians in power. My criticism is not aimed at men, but at a doctrine. No matter what the constitution of the country, governments always have to pursue that policy which is deemed right and beneficial by popular opinion. Were they to attempt to stand up against the prevailing doctrines they would very soon lose their positions to men willing to conform to the demands of the man in the street. Dictators too can only seize and maintain power if they are backed by the approval of the masses. The author’s preface  xv...