Chapter 36. The Crisis of Interventionism
1. The Harvest of Interventionism
The interventionist policies, as practiced for many decades by all governments of the capitalistic West,
have brought about all those effects which the economists predicted.
There are wars and civil wars, ruthless oppression of the masses by clusters of self-appointed dictators, economic depressions, mass unemployment, capital consumption, famines.
However, it is not these catastrophic events which have led to the crisis of interventionism.
The interventionist doctrinaires and their followers explain all these undesired consequences
as the unavoidable features of capitalism.
As they see it, it is precisely these disasters that clearly demonstrate the necessity of
intensifying interventionism.
The failures of the interventionist policies do not in the least impair the popularity
of the implied doctrine.
They are so interpreted as to strengthen, not to lessen, the prestige of these teachings.
As a vicious economic theory cannot be simply refuted by historical experience, the interventionist
propagandists have been able to go on in spite of all the havoc they have spread.
Yet the age of interventionism is reaching its end.
The system has exhausted all its potentialities, and must disappear.
2. The Exhaustion of the Reserve Fund
The idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population is a fund which can be freely used for the improvement of the conditions of the less prosperous.
The essence of the interventionist policy is to take from one group to give to another.
It is confiscation and distribution.
Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit
of the poor.
In the field of public finance, progressive taxation of incomes and estates is the most
characteristic manifestation of this doctrine.
Purchase the rich and spend the revenue for the improvement of the condition of the poor,
is the principle of contemporary budgets.
In the field of industrial relations, shortening the hours of work, raising wages and a thousand
other measures are recommended under the assumption that they favor the employee and burden the
employer.
Every issue of government and community affairs is dealt with exclusively from the point of
An illustrative example is provided by the methods applied in the operation of nationalized
and municipalized enterprises.
These enterprises very often result in financial failure.
Their accounts regularly show losses burdening the state or the city treasury.
It is of no use to investigate whether the deficits are due to the notorious inefficiency
of the Public Conduct of Business Enterprises, or at least partly to the inadequacy of the
prices at which the commodities or services are sold to the customers.
What matters more is the fact that the taxpayers must cover these deficits.
The interventionists fully approve of this arrangement.
They passionately reject the two other possible solutions.
Raising the enterprises to private entrepreneurs, or raising the prices charged to the customers
to such a height that no further deficit remains.
The first of these proposals is, in their eyes, manifestly reactionary, because the
inevitable trend of history is toward more and more socialization.
The second is deemed anti-social, because it places a heavier load upon the consuming
masses.
It is fairer to make the taxpayers, that is, the wealthy citizens, bear the burden.
Their ability to pay is greater than that of the average people riding the nationalized
railroads and the municipalized subways, trolleys and buses.
To ask that such public utilities should be self-supporting is, say the interventionists,
a relic of the old-fashioned ideas of orthodox finance.
One might as well aim at making the roads and the public schools self-supporting.
It is not necessary to argue with the advocates of this deficit policy.
It is obvious that the recourse to this ability to pay principle depends on the existence
of such incomes and fortunes as can still be taxed away.
It can no longer be resorted to once these extra funds have been exhausted by taxes and
and other interventionist measures.
This is precisely the present state of affairs in most of the European countries.
The United States has not yet gone so far, but if the actual trend of its economic policies
is not radically altered very soon, it will be in the same condition in a few years.
For the sake of argument, we may disregard all the other consequences which the full
The triumph of the ability-to-pay principle must bring about, and concentrate upon its
financial aspects.
The interventionist in advocating additional public expenditure is not aware of the fact
that the funds available are limited.
He does not realize that increasing expenditure in one department enjoins restricting it in
other departments.
In his opinion, there is plenty of money available.
The income and wealth of the rich can be freely tapped.
In recommending a greater allowance for the schools, he simply stresses the point that
it would be a good thing to spend more for education.
He does not venture to prove that to raise the budgetary allowance for schools is more
expedient than to raise that of another department, for example, that of health.
It never occurs to him that grave arguments could be advanced in favor of restricting public
spending and lowering the burden of taxation.
The champions of cuts in the budget are, in his eyes, merely the defenders of the manifestly
unfair class interests of the rich.
With the present height of income and inheritance tax rates, this reserve fund out of which
which the interventionists seek to cover all public expenditure is rapidly shrinking.
It has practically disappeared altogether in most European countries.
In the United States, the recent advances in tax rates produced only negligible revenue
results beyond what would be produced by a progression which stopped at much lower rates.
High surtax rates for the rich are very popular with interventionist dilettantes and demagogues,
but they secure only modest additions to the revenue.
From day to day it becomes more obvious that large-scale additions to the amount of public
expenditure cannot be financed by soaking the rich, but that the burden must be carried
by the masses.
The traditional tax policy of the age of interventionism, its glorified devices of progressive taxation
and lavish spending, have been carried to a point at which their absurdity can no longer
be concealed.
The notorious principle that whereas private expenditures depend on the size of income
available, public revenues must be regulated according to expenditures, refutes itself.
Henceforth, governments will have to realize that one dollar cannot be spent twice, and
that the various items of government expenditure are in conflict with one another.
Every penny of additional government spending will have to be collected from precisely those
people who hitherto have been intent upon shifting the main burden to other groups.
Those anxious to get subsidies will have to foot the bill themselves for the subsidies.
The deficits of publicly owned and operated enterprises will be charged to the bulk of
the population.
The situation in the employer-employee nexus will be analogous.
The popular doctrine contends that wage earners are reaping social gains at the expense of
the unearned income of the exploiting classes.
The strikers, it is said, do not strike against the consumers, but against management.
There is no reason to raise the prices of products when labor costs are increased.
The difference must be borne by employers.
But when more and more of the share of the entrepreneurs and capitalists is absorbed
by taxes, higher wage rates and other social gains of employees, and by price ceilings,
Nothing remains for such a buffer function.
Then it becomes evident that every wage raise, with its whole momentum, must affect the prices
of the products, and that the social gains of each group fully correspond to the social
losses of the other groups.
Every strike becomes, even in the short run, and not only in the long run, a strike against
the rest of the people.
An essential point in the social philosophy of interventionism is the existence of an
inexhaustible fund which can be squeezed forever.
The whole doctrine of interventionism collapses when this fountain is drained off.
The Santa Claus principle liquidates itself.
3.
The End of Interventionism
The interventionist interlude must come to an end because interventionism cannot lead
to a permanent system of social organization.
The reasons are threefold.
First, restrictive measures always restrict output and the amount of goods available for
consumption.
Whatever arguments may be advanced in favor of definite restrictions and prohibitions,
Such measures in themselves can never constitute a system of social production.
Second, all varieties of interference with the market phenomena not only fail to achieve
the ends aimed at by their authors and supporters, but bring about a state of affairs which,
from the point of view of their authors and advocates' valuations, is less desirable
are more valuable than the previous state of affairs which they were designed to alter.
If one wants to correct their manifest unsuitableness and preposterousness by supplementing the
first acts of intervention with more and more of such acts, one must go farther and farther
until the market economy has been entirely destroyed and socialism has been substituted
for it.
Third, interventionism aims at confiscating the surplus of one part of the population and at giving it to the other part.
Once this surplus is exhausted by total confiscation, a further continuation of this policy is impossible.
Marching ever further on the way of interventionism,
First Germany, then Great Britain and many other European countries have adopted Central Planning, the Hindenburg pattern of socialism.
It is noteworthy that in Germany the deciding measures were not resorted to by the Nazis, but some time before Hitler seized power by Brüning, the Catholic Chancellor of the Weimar Republic,
and, in Great Britain, not by the Labour Party, but by the Tory Prime Minister, Mr Churchill.
The fact has been purposely obscured by the great sensation made in Great Britain about
the nationalization of the Bank of England, the coal mines and other enterprises.
However, these seizures were of subordinate importance only.
Great Britain is to be called a socialist country, not because certain enterprises have
have been formally expropriated and nationalized, but because all the economic activities of
all citizens are subject to full control by the government and its agencies.
The authorities direct the allocation of capital and of manpower to the various branches of
business.
They determine what should be produced and in what quality and quantity, and they assign
and to each consumer a definite ration.
Supremacy in all economic matters is exclusively vested in the government.
The people are reduced to the status of wards.
To the businessmen, the former entrepreneurs, merely quasi-managerial functions are left.
All that they are free to do is to carry into effect the entrepreneurial decisions of the
It has been shown that the managerial system, that is, the assignment of ancillary tasks
in the conduct of business to responsible helpers to whom a certain amount of discretion
can be granted, is possible only within the frame of the profit system.
What characterizes the manager as such, and imparts to him a condition different from
from that of the mere technician is that within the sphere of his assignment he himself determines
the methods by which his actions should conform to the profit principle.
In a socialist system in which there is neither economic calculation nor capital accounting
nor profit computation, there is no room left for managerial activities either.
But as long as a socialist commonwealth is still in a position to calculate on the ground
of prices determined on foreign markets, it can also utilize a quasi-managerial hierarchy
to some extent.
It is a poor makeshift to call any age an age of transition.
In the living world, there is always change.
Every age is an age of transition.
We may distinguish between social systems that can last and such as are inevitably transitory
because they are self-destructive.
It has already been pointed out in what sense interventionism liquidates itself and must
lead to socialism of the German pattern.
Most of the European countries have already reached this phase and nobody knows whether
or not the United States will follow suit.
But as long as the United States clings to the market economy and does not adopt the
system of full government control of business, the socialist economies of Western Europe
will still be in a position to calculate.
Their conduct of business still lacks the characteristic feature of socialist conduct.
It is still based on economic calculation.
It is, therefore, in every respect, very different from what it would become if all the world
were to turn toward socialism.
It is often said that one half of the world cannot remain committed to the market economy
when the other half is socialist, and vice versa.
However, there is no reason to assume that such a partition of the earth and the coexistence
of the two systems is impossible.
If this is really the case, then the present economic system of the countries that have
discarded capitalism may go on for an indefinite period of time.
Its operation may result in social disintegration, chaos and misery for the peoples.
But neither a low standard of living nor progressive impoverishment automatically liquidates an
economic system.
It gives way to a more efficient system only if people themselves are intelligent enough
to comprehend the advantages such a change might bring them.
Or it may be destroyed by foreign invaders provided with better military equipment by
the greater efficiency of their own economic system.
Optimists hope that at least those nations which have in the past developed the capitalist
Market Economy and its Civilization will cling to this system in the future too.
There are certainly as many signs to confirm as to disprove such an expectation.
It is vain to speculate about the outcome of the great ideological conflict between
the principles of private ownership and public ownership, of individualism and totalitarianism,
of Freedom and Authoritarian Regimentation. All that we can know beforehand about the
results of this struggle can be condensed in the following three statements.
1. We have no knowledge whatever about the existence and operation of agencies which
would bestow final victory in this clash on those ideologies whose application will secure
for the Preservation and Further Intensification of Societal Bonds and the Improvement of Mankind's
Material Well-Being.
Nothing suggests the belief that progress toward more satisfactory conditions is inevitable
or a relapse into very unsatisfactory conditions impossible.
2.
Men must choose between the market economy and socialism.
They cannot evade deciding between these alternatives by adopting a middle-of-the-road position,
whatever name they may give to it.
3.
In abolishing economic calculation, the general adoption of socialism would result in complete
Chaos and the Disintegration of Social Cooperation under the Division of Labor.