Does government intervention in the economy lead inexorably to tyranny? So it
would have us believe, the doughty
Austrian school.
This essay is not a frontal assault against
the Austrian School . It attacks a theory that is
popular among Austrians, but is by no means central to Austrian methodology. On
the contrary. what I have called the Hayek Effect plays a minor role in Austrian thinking, and
its abandonment would do little damage to the structure of its ideas.
Although I direct my criticism against two
of the Austrians’ main thinkers, I do not reject wholesale the theoretical
contributions of either Ludwig von Mises or Friedrich Hayek. On the contrary, I
find that von Mises’ critique of socialism was prescient and has been confirmed,
among others, by the a posteriori observations of the foremost homegrown critic
of East European communist rule, Janos Kornai.. Although I criticize Hayek’s
noted wok The Road to Serfdom, I sympathize with the aversion he expresses to excessive state domiation
of society.
Von Mises theories of socialism and of
interventionism
Von Mises distinguishes between socialism =
economic planning, where the state takes over running firms, from
interventionism, where property reains in private hands, but the state places
restrictions of various types on the private capitalist’s decision-making. The
difference between socialism and interventionism, according to von Mises, is that interventionism leads
inevitably to socialism. So once a country has embarked on the road of
interventionism, the last astop is always socialism, which implies complete
lack of civil liberties, democracy, etc. thus restrictions of economic freedom
lead to restrictions on political freedom.
See Ludwig von Mises
and Interventionism
Von Mises lists a number of arguments
against socialism which have stood the test of time and were prominently
noticeable in the planned economies of eastern Europe between 1948 and
1988. His objections are principally
that in socialism no one would have an incentive to work because they would all
get paid anyway, etc. I won't go into detail of his arguments, since I agree
with them on the whole.
Von Mises then goes about proving that
interventionism leads to socialism. His exhibit A is price controls. Cite von
Mises, Wilensky on price controls in health insurance. Harold Wilensky: Rich
Democracies: Political Economy, Public Policy and Performance, University of Californis Press , 2002, pages 600 et
seq.
I accept von Mises’ theory of how price
controls lead to comprehensive regulation. However von Mises provides no
evidence that other sorts of interventionism likewise have the dreaded snowball
effect. In any case he provides no examples, but instead concludes triumphantly
that his conclusions for price controls are also valid for other controls.
It is by no means obvious why that should
be so. I have cudgeled my brains to contrive some kind of model where this
necessity takes place, but in vain, alas.
Consequently we must conclude that von Mises
not only fails to prove his point, but actually seems to be arguing himself
into a trap, which he then adroitly avoids by simply ceasing to discuss the
issue at all.
Hayek took over von Mises’ thesis in The
Road to Serfdom and provided a number of extremely feeble arguments to back
up the price control argument presented by von Mises. I go into detail on this subject in my essay Why
Hayek Sucks.
But suffice it to say that no persuasive
argument is presented to back up the Hayek effect. Indeed, Hayek proves that he
has no viable theory of the relative between politics and economics.
I now proceed to empirical verification of
the Hayek Effect.
I shall argue firstly synchronically,
comparing political liberties in two small eurn countries that have dramatic
difference in economic structure, but not very big ones in political freedom.
Then I proceed to a diachronic analysis of Sweden .
My argument is simple:
See Close Call on the
Road to Serfdom
Von Mises simply declares dogmatically that
all government intervention is bad. He nowhere attempts to prove it, except
with respect to a single sector of interventionism, namely price controls.
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