Interventionism: An Economic Analysis

Introduction

Introduction 1. The Problem We call capitalism or market economy that form of social cooperation which is based on private ownership of the means of production. Socialism, communism, or planned economy, on the other hand, is the form of social cooperation which is based on public ownership of the means of production. The terms state capitalism and authoritarian economy have essentially the same meaning. It is frequently asserted that a third form of social cooperation is feasible as a permanent form of economic organization, namely a system of private ownership of the means of production in which the government intervenes, by orders and prohibitions, in the exercise of ownership . This third system is called interventionism. All governments which do not openly profess socialism tend to be interventionist nowadays , and all political parties recommend at least some degree of interventionism . It is claimed that this system of interventionism is as far from socialism as it is from capitalism, that as a third solution to the social problem it stands midway between the two systems, and that while retaining the advantages of both it avoids the disadvantages inherent in both. In this study the question will be analyzed whether we are justified in considering interventionism as a possible and viable system of social cooperation. We shall attempt to answer the question whether interventionism is able to accomplish what its advocates expect, and whether, perhaps, it does not produce consequences diametrically opposed to those sought by its application. 1. The orthodox Marxists, however, recommend interventionism in full recognition of the fact that it paralyzes and destroys the capitalistic market economy and, thus, in their opinion, leads to socialism. This was the argument advanced as long as a century ago by Friedrich Engels. 2  introduction Such an analysis has more than merely academic value. With the exception of the two socialist countries of Soviet Russia and Nazi Germany , interventionism is today throughout the world the prevailing economic system. Therefore, an understanding of interventionism and its inevitable consequences is an essential prerequisite for a comprehension of present-day economic problems. We intend in this analysis to refrain from value judgments. Consequently we do not ask whether interventionism is good or bad, moral or immoral, to be commended or condemned. We merely ask from the standpoint of those who want to put it into operation whether it serves or frustrates their intentions. In other words, does its application attain the ends sought? In order to answer these questions we have first to clarify the meaning of the terms of capitalism, socialism, government, and intervention. 2. Capitalism or Market Economy In the capitalistic economy the means of production are owned by individuals or associations of individuals, such as corporations. The owners use the means of production directly to produce, or they lend them, for a compensation, to others who want to use them in production. The individuals or associations of individuals who produce with their own or with borrowed money are called entrepreneurs. Superficially, it seems that the entrepreneurs decide what should be produced, and how it should be produced. However, as they do not produce for their own needs but for those of all members of the community , they have to sell the products on the market to consumers, that is, those individuals who want to use and consume them. Only that entrepreneur is successful and realizes a profit who knows how to produce in the best and cheapest way, that is with a minimum expenditure of material and labor, the articles most urgently wanted by the consumers. Therefore, in actuality the consumers, not the entrepreneurs , determine the direction and scope of production. In the market economy the consumers are sovereign. They are the masters, and the entrepreneurs have to strive, in their own interest, to serve the wishes of the consumers to the best of their ability. The market economy has been called a democracy of consumers, because it brings about a daily recurring ballot of consumer preferences. The casting of votes at an election and the spending of dollars in the capitalism or market economy  3 market are both methods of expressing public opinion. The consumers decide, by buying or by refraining from buying, the success or failure of the entrepreneurs. They make poor entrepreneurs rich and rich entrepreneurs poor. They take away the means of production from those entrepreneurs who do not know how to use them best in the service...