Chapter 2 Fundamentals of Intervention
1 Types of Intervention
We have so far contemplated a free society and a free market, where any needed defense
against violent invasion of person and property is supplied not by the state, but by freely
competitive marketable defense agencies.
Our major task in this volume is to analyze the effects of various types of violent intervention
in society, and especially in the market.
Most of our examples will deal with the state, since the state is uniquely the agency engaged
in regularized violence on a large scale.
However, our analysis applies to the extent that any individual or group commits violent
One of the most lucid analyses of the distinction between state and market was set forth by
Franz Oppenheimer.
He pointed out that there are fundamentally two ways of satisfying a person's wants,
One by production and voluntary exchange with others on the market, and two by violent expropriation
of the wealth of others.
A person may receive gifts, but this is a unitary act of the giver, not involving an
act of the receiver himself.
The first method Oppenheimer termed the economic means for the satisfaction of wants.
The Second Method, The Political Means, The State is trenchantly defined as the organization
of the political means.
A generic term is needed to designate an individual or group that commits invasive violence in
society.
We may call intervener or invader, one who intervenes violently in free social or market
relations.
The term applies to any individual or group that initiates violent intervention in the
free actions of persons and property owners.
What types of intervention can the invader commit?
Broadly we may distinguish three categories.
In the first place, the intervener may command an individual subject to do or not to do certain
In short, he restricts the subject's use of his property when exchange is not involved.
This may be called an autistic intervention, for any specific command directly involves
only the subject himself.
Secondly, the intervener may enforce a coerced exchange between the individual subject and
himself, or a coerced gift to himself from the subject.
Thirdly, the invader may either compel or prohibit an exchange between a pair of subjects.
The former may be called a binary intervention, since a hegemonic relation is established
The Market, complex though it may be, consists of a series of exchanges between pairs of individuals.
However extensive the interventions then, they may be resolved into unit impacts on either
individual subjects or pairs of individual subjects. All these types of intervention,
of course, are subdivisions of the hegemonic relation, the relation of command and obedience,
as contrasted with the contractual relation of voluntary mutual benefit.
Autistic intervention occurs when the invader coerces a subject without receiving any good or service in return.
Widely disparate types of autistic intervention are homicide, assault, and compulsory enforcement or prohibition of any salute, speech, or religious observance.
Even if the intervener is the state, which issues the edict to all individuals in the society, the edict is still in itself an autistic intervention, since the lines of force, so to speak, radiate from the state to each individual alone.
Binary intervention occurs when the invader forces the subject to make an exchange or a unilateral gift of some good or service to the invader.
Highway robbery and taxes are examples of binary intervention, as are conscription and compulsory jury service.
Whether the binary hegemonic relation is a coerced gift or a coerced exchange does not really matter a great deal.
The only difference is in the type of coercion involved.
Slavery, of course, is usually a coerced exchange, since the slave owner must supply his slaves with subsistence.
Curiously enough, writers on political economy have recognized only the third category as intervention.
This is to be inferred from, rather than discovered in explicit form in, their writings.
As far as we know, no one has systematically categorized or analyzed types of intervention.
It is understandable that preoccupation with catallactic problems has led economists to
overlook the broader praxeological category of actions that lie outside the monetary exchange
nexus. Nevertheless, they are part of the subject of praxeology and should be subjected to analysis.
There is far less excuse for economists to neglect the binary category of intervention.
Yet many economists who profess to be champions of the free market and opponents of interference with it have a peculiarly narrow view of freedom and intervention.
Acts of binary intervention, such as conscription and the imposition of income taxes, are not considered intervention at all, nor as interferences with the free market.
Only instances of triangular intervention, such as price control, are conceded to be intervention.
Curious schemata are developed in which the market is considered absolutely free and unhampered despite a regular system of imposed taxation.
Yet taxes and conscripts are paid in money, and thus enter the catallactic as well as the wider praxeological nexus.
A narrow view of freedom is characteristic in the present day.
In the political lexicon of modern America, left-wingers often advocate freedom in the sense of opposition to autistic intervention,
but look benignly on triangular intervention.
Right-wingers, on the other hand, severely oppose triangular intervention, but tend to favor, or remain indifferent to, autistic intervention.
Both groups are ambivalent toward binary intervention.
In tracing the effects of intervention, one must take care to analyze all its consequences, direct and indirect.
Indirect
It is impossible in the space of this volume to trace all the effects of every one of the
almost infinite number of possible varieties of intervention, but sufficient analysis can
be made of the important categories of intervention and the consequences of each.
Thus, it must be remembered that acts of binary intervention have definite triangular repercussions.
An income tax will shift the pattern of exchanges between subjects from what it otherwise would
have been.
Furthermore, all the consequences of an act must be considered.
It is not sufficient to engage in a partial equilibrium analysis of taxation, for example,
and to consider a tax completely apart from the fact that the state subsequently spends
the tax money.
2. Direct Effects of Intervention on Utility
a. Intervention and Conflict
The first step in analyzing intervention is to contrast the direct effect
on the utilities of the participants with the effect of a free society.
When people are free to act, they will always act in a way that they believe
The Federal Reserve will maximize their utility, that is, will raise them to the highest possible position on their value scale.
Their utility ex ante will be maximized, provided we take care to interpret utility in an ordinal rather than a cardinal manner.
Any action, any exchange that takes place on the free market, or more broadly in the free society,
occurs because of the expected benefit to each party concerned.
If we allow ourselves to use the term society to depict the pattern of all individual exchanges,
then we may say that the free market maximizes social utility, since everyone gains in utility.
We must be careful, however, not to hypostatize society into a real entity that means something
Coercive intervention, on the other hand, signifies per se that the individual or individuals
coerced would not have done what they are now doing were it not for the intervention.
The individual who is coerced into saying or not saying something, or into making or
For not making an exchange with the intervener, or with someone else, is having his actions
changed by a threat of violence.
The coerced individual loses in utility as a result of the intervention, for his action
has been changed by its impact.
Any intervention, whether it be autistic, binary or triangular, causes the subjects
to lose in utility.
In autistic and binary intervention, each individual loses in utility.
In triangular intervention, at least one, and sometimes both, of the pair of would-be
exchangers, lose in utility.
Who in contrast gains in utility ex ante?
Clearly the intervener, otherwise he would not have intervened.
Whether he gains in exchangeable goods at the expense of his subject, as in binary intervention,
or as in autistic and triangular intervention, he gains in a sense of well-being from enforcing
regulations upon others.
All instances of intervention, then, in contrast to the free market, are cases in which one
set of men gains at the expense of other men.
In binary intervention, the gains and losses are tangible in the form of exchangeable goods
and services.
In other types of intervention, the gains are non-exchangeable satisfactions, and the
loss consists in being coerced into less satisfying types of activity, if not positively painful
ones.
Before the development of economic science, people thought of exchange and the market
as always benefiting one party at the expense of the other.
This was the root of the mercantilist view of the market.
Economics has shown that this is a fallacy, for on the market, both parties to any exchange
benefit.
On the market, therefore, there can be no such thing as exploitation.
But the thesis of a conflict of interest is true whenever the state or any other agency
intervenes on the market.
For then, the intervener gains only at the expense of subjects who lose in utility.
On the market, all is harmony.
But as soon as intervention appears and is established, conflict is created for each
which may participate in a scramble to be a net gainer rather than a net loser, to be
part of the invading team, instead of one of the victims.
It has become fashionable to assert that conservatives like John C. Calhoun anticipated the Marxian
doctrine of class exploitation.
But the Marxian doctrine holds erroneously that there are classes on the free market whose
These Interests Clash and Conflict
Calhoun's insight was almost the reverse.
Calhoun saw that it was the intervention of the state that in itself created the classes
and the conflict.
Castes would be a better term than classes here.
Classes are any collection of units with a certain property in common.
There is no reason for them to conflict.
Does the class of men named Jones necessarily conflict with the class of men named Smith?
On the other hand, castes are state-made groups, each with its own set of violence-established
privileges and tasks.
Castes necessarily conflict because some are instituted to rule over the others.
Calhoun particularly perceived this in the case of the binary intervention of taxes,
for he saw that the proceeds of taxes are used and spent, and that some people in the
community must be net payers of tax funds while the others are net recipients.
Calhoun defined the latter as the ruling class of the exploiters, and the former as the ruled
or exploited, and the distinction is quite a cogent one.
Calhoun set forth his analysis brilliantly.
Few comparatively as they are, the agents and employees of the government constitute
that portion of the community who are the exclusive recipients of the proceeds of the
taxes.
Whatever amount is taken from the community in the form of taxes, if not lost, goes to
to them in the shape of expenditures or disbursements.
The two, disbursement and taxation, constitute the fiscal action of the government.
They are correlatives.
What the one takes from the community under the name of taxes is transferred to the portion
of the community who are the recipients under that of disbursements.
But as the recipients constitute only a portion of the community, it follows, taking the two
parts of the fiscal process together, that its action must be unequal between the payers
of the taxes and the recipients of their proceeds.
Nor can it be otherwise, unless what is collected from each individual in the shape of taxes
shall be returned to him in that of disbursements, which would make the process nugatory and
absurd.
Such being the case, it must necessarily follow that some one portion of the community must
pay in taxes more than it receives back in disbursements, while another receives in disbursements
more than it pays in taxes.
It is then manifest, taking the whole process together, that taxes must be, in effect, bounties
to that portion of the community which receives more in disbursements than it pays in taxes,
while to the other, which pays in taxes more than it receives in disbursements, they are
taxes in reality, burdens instead of bounties.
This consequence is unavoidable.
results from the nature of the process, be the taxes ever so equally laid.
The necessary result then of the unequal fiscal action of the government is to divide the
community into two great classes, one consisting of those who in reality pay the taxes and
of course bear exclusively the burden of supporting the government, and the other of those who
who are the recipients of their proceeds through disbursements and who are, in fact, supported
by the government, or, in fewer words, to divide it into taxpayers and tax consumers.
But the effect of this is to place them in antagonistic relations in reference to the
fiscal action of the government and the entire course of policy therewith connected.
For the greater the taxes and disbursements, the greater the gain of the one, and the loss
of the other, and vice versa.
Ruling and ruled apply also to the forms of government intervention, but Calhoun was quite
right in focusing on taxes and fiscal policy as the keystone, for it is taxes that supply
All state intervention rests on the binary intervention of taxes at its base, even if
the state intervened nowhere else, its taxation would remain.
Since the term social can be applied only to every single individual concerned, it is
It is clear that while the free market maximizes social utility, no act of the state can ever increase social utility.
Indeed, the picture of the free market is necessarily one of harmony and mutual benefit.
The picture of state intervention is one of caste conflict, coercion and exploitation.
B. Democracy and the Voluntary
It might be objected that all these forms of intervention are really not coercive, but voluntary,
for in a democracy they are supported by the majority of the people.
But this support is usually passive, resigned, and apathetic, rather than eager,
whether the state is a democracy or not.
As Professor Lindsay Rogers has trenchantly written on the subject of public opinion,
before Great Britain adopted conscription in 1939, only 39% of the voters were for it.
A week after the conscription bill became law, a poll showed that 58% approved.
Many polls in the United States have shown a similar inflation of support for a policy
as soon as it is translated to the statute books or into a presidential order.
In a democracy, the non-voters can hardly be said to support the rulers, and neither
can the voters for the losing side.
But even those who voted for the winners may well have voted merely for the lesser of two
evils.
The interesting question is, why do they have to vote for any evil at all?
Such terms are never used by people when they act freely for themselves or when they purchase
goods on the free market.
No one thinks of his new suit or refrigerator as an evil, lesser or greater.
In such cases, people think of themselves as buying positive goods, not as resignedly
supporting a lesser bad.
The point is that the public never has the opportunity of voting on the state system
itself.
They are caught up in a system in which coercion over them is inevitable.
This coercion would exist even in the most direct democracies.
It is doubly compounded in representative republics, where the people never have a chance
of voting on issues, but only on the men who rule them.
They can only reject men, and this at very long intervals, and if the candidates have
the same views on issues, the public cannot effect any sort of fundamental change.
Be that as it may, as we have said, all states are supported by a majority, whether a voting
democracy or not, otherwise they could not long continue to wield force against the determined
and Resistance of the Majority.
However, the support may simply reflect apathy, perhaps from the resigned belief that the
state is a permanent, if unwelcome, fixture of nature.
Witness the motto, nothing is as permanent as death and taxes.
Setting all these matters aside, however, and even granting that a state might be enthusiastically
The Theory of Money and Credit
States, for no minority can for long rule an actively hostile majority. In a certain sense,
therefore, all tyranny is majority tyranny, regardless of the formalities of the government
structure. It is often stated that under modern conditions of destructive weapons, etc., a
A minority can tyrannize permanently over a majority, but this ignores the fact that
these weapons can be held by the majority or that agents of the minority can mutiny.
The sheer absurdity, for example, of the current belief that a few million could really tyrannize
over a few hundred million active resistance is not often realized.
As David Hume profoundly stated,
Nothing appears more surprising than the easiness with which the many are governed by the few,
and the implicit submission with which men resign their own sentiments and passions to
those of their rulers.
When we inquire by what means this wonder is effected, we shall find that because force
is always on the side of the governed, the governors have nothing to support them but
and Opinion. It is therefore on opinion that government is founded, and this maxim extends
to the most despotic and most military governments. This analysis of majority support applies
to any intervention of rather long-standing, carried on frankly and openly whether or not
The groups are labeled states.
But this does not change our analytic conclusion
of conflict and coercion as a corollary of the state.
The conflict and coercion exist
no matter how many people coerce how many others.
C, utility and resistance to invasion.
To our comparative welfare economic analysis of the free market and the state, it might be objected that when defense agencies restrain an invader from attacking someone's property, they are benefiting the property owner at the expense of a loss of utility by the would-be invader.
Since defense agencies enforce rights on the free market, does not the free market also involve a gain by some at the expense of the utility of others, even if these others are invaders?
In answer, we may state first that the free market is a society in which all exchange voluntarily.
It may most easily be conceived as a situation in which no one aggresses against person or property.
In that case, it is obvious that the utility of all is maximized on the free market.
Defense agencies become necessary only as a defense against invasions of that market.
It is the invader, not the existence of the defense agency,
A defense agency existing without an invader would simply be a voluntarily established insurance against attack.
The existence of a defense agency does not violate the principle of maximum utility, and it still reflects mutual benefit to all concerned.
Conflict enters only with the invader.
The invader, let us say, is in the process of committing an aggressive act against Smith,
thereby injuring Smith for his gain.
The defense agency, rushing to the aid of Smith, of course, injures the invader's utility,
but it does so only to counteract the injury to Smith.
It does help to maximize the utility of the non-criminals.
The principle of conflict and loss of utility was introduced not by the existence of the
defense agency, but by the existence of the invader.
It is still true, therefore, that utility is maximized for all on the free market, whereas
to the extent that there is invasive interference in society, it is infected with conflict and
and Exploitation of Man by Man D. The Argument from Envy
Another objection holds that the free market does not really increase the utility of all
individuals, because some may be so smitten with envy at the success of others that they
really lose in utility as a result.
We cannot, however, deal with hypothetical utilities divorced from concrete action.
We may, as praxeologists, deal only with utilities that we can deduce from the concrete behavior
of human beings.
A person's envy, unembodied in action, becomes pure moonshine from the praxeological point
of view.
All that we know is that he has participated in the free market and to that extent benefits
by it.
How he feels about the exchanges made by others cannot be demonstrated to us unless he commits
an invasive act.
Even if he publishes a pamphlet denouncing these exchanges, we have no ironclad proof
that this is not a joke or a deliberate lie.
E. Utility Ex Post.
We have thus seen that individuals maximize their utility ex ante on the free market,
and that the direct result of an invasion is that the invader's utility gains at the
expense of a loss in utility by his victim.
But what about utilities ex post?
People may expect to benefit when they make a decision, but do they actually benefit from
its results?
The remainder of this volume will largely consist of analysis of what we may call the
indirect consequences of the market or of intervention, supplementing the above direct
analysis.
It will deal with chains of consequences that can be grasped only by study and are not immediately
Error can always occur in the path from anti to post, but the free market is so constructed
that this error is reduced to a minimum.
In the first place, there is a fast-working, easily understandable test that tells the
entrepreneur as well as the income receiver whether he is succeeding or failing at the
The Task of Satisfying the Desires of the Consumer
For the entrepreneur who carries the main burden of adjustment to uncertain consumer desires,
the test is swift and sure.
Profits or Losses
Large profits are a signal that he has been on the right track.
Losses that he has been on a wrong one.
Profits and losses thus spur rapid adjustments to consumer demands.
At the same time, they perform the function of getting money out of the hands of the bad entrepreneurs and into the hands of the good ones.
The fact that good entrepreneurs prosper and add to their capital, and poor ones are driven out, ensures an ever smoother market adjustment to changes in conditions.
Similarly, to a lesser extent, land and labor factors move in accordance with the desire of their owners for higher incomes, and more value-productive factors are rewarded accordingly.
Consumers also take entrepreneurial risks on the market.
Many critics of the market, while willing to concede the expertise of the capitalist entrepreneurs,
bewail the prevailing ignorance of consumers, which prevents them from gaining the utility ex post
that they expected to have ex ante. Typically, Wesley C. Mitchell entitled one of his famous essays,
The Backward Art of Spending Money. Professor Ludwig von Mises has keenly
pointed out the paradoxical position of so many progressives who insist that consumers are too
ignorant or incompetent to buy products intelligently while at the same time touting the virtues of
democracy where the same people vote for politicians whom they do not know and for policies that they
They Hardly Understand
In fact, the truth is precisely the reverse of the popular ideology.
Consumers are not omniscient, but they do have direct tests by which to acquire their
knowledge.
They buy a certain brand of breakfast food and they don't like it, so they don't buy
it again.
They buy a certain type of automobile and they do like its performance, so they buy
another one.
In both cases, they tell their friends of this newly won knowledge.
Other consumers patronize consumers' research organizations, which can warn or advise them
in advance.
But in all cases, the consumers have the direct test of results to guide them, and the firm
that satisfies the consumers expands and prospers, while the firm that fails to satisfy them
goes out of business.
On the other hand, voting for politicians and public policies is a completely different
matter.
Here there are no direct tests of success or failure whatever, neither profits and losses
nor enjoyable or unsatisfying consumption.
In order to grasp consequences, especially the indirect consequences of governmental
Decisions, it is necessary to comprehend a complex chain of praxeological reasoning,
such as will be developed in this volume.
Very few voters have the ability or the interest to follow such reasoning, particularly, as
Schumpeter points out, in political situations.
For in political situations, the minute influence that any one person has on the results, as
as well as the seeming remoteness of the actions induces people to lose interest in political problems or argumentation.
Lacking the direct test of success or failure, the voter tends to turn not to those politicians whose measures have the best chance of success,
but to those with the ability to sell their propaganda.
Without grasping logical chains of deduction, the average voter will never be able to discover the error that the ruler makes.
Thus, suppose that the government inflates the money supply, thereby causing an inevitable rise in prices.
The government can blame the price rise on wicked speculators or alien black marketeers.
and, unless the public knows economics, it will not be able to see the fallacies in the ruler's arguments.
It is ironic that those writers who complain of the wiles and lures of advertising
do not direct their criticism at the advertising of political campaigns, where their charges would be relevant.
As Schumpeter states, the picture of the prettiest girl
that ever lived will in the long run prove powerless
to maintain the sales of a bad cigarette.
There is no equally effective safeguard
in the case of political decisions.
Even if that is possible, however, judgment is as a rule
not so easy to arrive at as it is in the case
of the Cigarette, because effects are less easy to interpret.
It might be objected that while the average voter may not be competent to decide on policies
that require for his decision chains of praxeological reasoning, he is competent to pick the experts,
the politicians and bureaucrats who will decide on the issues, just as the individual may
They Select His Own Private Expert Advisor in Any One of Numerous Fields.
But the point is precisely that in government, the individual does not have the direct personal
test of success or failure for his hired expert that he does on the market.
On the market, individuals tend to patronize those experts whose advice proves most successful.
Good doctors or lawyers reap rewards on the free market, while the poor ones fail.
The privately hired expert tends to flourish in proportion to his demonstrated ability.
In government, on the other hand, there is no concrete test of the expert's success.
In the absence of such a test, there is no way by which the voter can gauge the true
expertise of the man he must vote for.
This difficulty is aggravated in modern-style elections where the candidates agree on all
the fundamental issues.
For issues, after all, are susceptible to reasoning.
The voter can, if he so wishes and he has the ability, learn about and decide on the
issues.
But what can any voter, even the most intelligent, know about the true expertise or competence
of Individual Candidates, especially when elections are shorn of virtually all important
issues.
The voter can then fall back only on the purely external, packaged personalities or images
of the candidates.
The result is that voting purely on candidates makes the result even less rational than mass
voting on the issues themselves.
Furthermore, the government itself contains inherent mechanisms that lead to poor choices
of experts and officials.
For one thing, the politician and the government expert receive their revenues not from service
voluntarily purchased on the market, but from a compulsory levy on the populace.
These officials, therefore, wholly lack the pecuniary incentive to care about serving
Voting the Public Properly and Competently
And what is more, the vital criterion of fitness is very different in the government and on
the market.
In the market, the fittest are those most able to serve the consumers.
In government, the fittest are those most adept at wielding coercion and or those most
adroit at making demagogic appeals to the voting public.
Another critical divergence between market action and democratic voting is this.
The voter has, for example, only a one-fifty millionth power to choose among his would-be
rulers, who in turn will make vital decisions affecting him, unchecked and unhampered until
the next election.
In the market, on the other hand, the individual has the absolute sovereign power to make the
The Decisions Concerning His Person and Property
Not merely a distant one-fifty millionth power.
On the market, the individual is continually demonstrating his choice of buying or not
buying, selling or not selling, in the course of making absolute decisions regarding his
property.
The voter, by voting for some particular candidate, is demonstrating only a relative preference
He must do this within the framework of the coercive rule that, whether or not he votes at all, one of these men will rule over him for the next several years.
Thus we see that the free market contains a smooth, efficient mechanism for bringing
anticipated ex-ante utility into the realization of ex-post.
The free market always maximizes ex-ante social utility as well.
In political action, on the contrary, there is no such mechanism.
Indeed, the political process inherently tends to delay and thwart the realization of any expected gains.
Furthermore, the divergence between ex-post gains through government and through the market is even greater than this.
For we shall find that in every instance of government intervention,
The indirect consequences will be such as to make the intervention appear worse in the
eyes of many of its original supporters.
In sum, the free market always benefits every participant, and it maximizes social utility
ex ante.
It also tends to do so ex post, since it works for the rapid conversion of anticipations
into Realizations.
With intervention, one group gains directly at the expense of another, and therefore social
utility cannot be increased.
The attainment of goals is blocked, rather than facilitated, and as we shall see, the
indirect consequences are such that many interveners themselves will lose utility ex post.
The remainder of this work is largely devoted to tracing the indirect consequences of various
forms of governmental intervention.