Interventionism: An Economic Analysis

I.Interference by Restriction

i. Interference by Restriction 1. The Nature of Restrictive Measures Restrictive measures are those measures undertaken by the authority which directly and primarily are intended to divert production, in the widest meaning of the word, including commerce and transportation, from the ways which it would take in the unhampered economy. Each interference diverts production from the channels prescribed by the market. The peculiar characteristic of restrictive measures lies in the fact that the diversion of production is a necessary and not unintended result of the intervention, and that the diversion of production is precisely what the authority seeks to accomplish by its action. Each intervention has also the necessary effect of diverting consumption from the ways which it would choose in the unhampered market economy. The restrictive measure is no exception in this respect. But the diversion of consumption is not the aim which its originators pursue; they want to influence production. The fact that these measures influence consumption as well seems to them a side effect which they either do not want at all or which they accept as unavoidable. By restrictive measures the authority forbids the manufacture of certain goods, or it forbids the application of certain methods of production , or it makes manufacture by such methods more difficult and more expensive. The authority thereby eliminates some of the means available for the satisfaction of human wants. The effect of the intervention is that men find themselves in a position where they may only use their knowledge and ability, their efforts and their material resources in a less efficient way. Such measures make people poorer. Despite all attempts to invalidate this argument, the fact remains indisputable . In the unhampered market, forces are at work which tend to put every means of production to the use in which it is most beneficial 20  interference by restriction for the satisfaction of human wants. When the authority interferes with this process in order to bring about a different use of the productive factors it can only impair the supply, it cannot improve it. This has been proved in an excellent and irrefutable manner for the most important group of restrictive measures by the extensive discussion dealing with the economic effects of barriers to international trade. It appears superfluous to add anything in this respect to the teachings of the classical school of political economy. 2. Costs and Benefits of Restrictive Measures One might be of the opinion that the disadvantages which restrictive measures cause by diminishing productivity, and thus impairing supply , are outweighed by advantages in other fields. The authority might claim, for instance, that the preservation of a group of less efficient producers is so important that the resulting cut in consumption appears quite justified. It might consider it justified to make bread more expensive for the masses of the people so that owners of less fertile farms might earn higher returns. The authority might also consider it a postulate of wise statesmanship to prohibit the introduction of certain machines in order to protect those enterprises which cannot afford such appliances from the competition of better equipped business units. By outlawing department stores, chain stores, and similar forms of trade organizations, the authority might make it possible for the small retailers to stay in competition even though the interests of consumers suffer. If such measures are undertaken in full recognition of their effects, if the authority is fully aware of what it is doing and what results it will accomplish, one might disapprove of its action only if one does not approve of its aim. But one cannot regard the action of the authority as contrary to purpose or senseless. From the standpoint of its aims and purposes, its action appears correct. To make the farmers better off, it wants to impose a burden on the bread consumers buy; in order to accomplish this purpose it has chosen the proper means when it imposes a protective tariff or an import prohibition on grain and flour. We all know that these things are presented in a different light to the public. It was successfully attempted to convince public opinion that the tariff barriers do not reduce supply, but rather that they increase supply. The protection of the small craftsman against the competition the restrictive measure as a privilege  21 of “big business,” the protection of the small retailer against the competition of department and chain stores, were represented as...