The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword
• Author’s Preface
• Interventionism
• Introduction
• 1.: The Problem
• 2.: Capitalism Or Market Economy
• 3.: The Socialist Economy
• 4.: The Capitalist State and the Socialist State
• 5.: The Interventionist State
• 6.: The Plea For Moral Reform
• I.: Interference By Restriction
• 1.: The Nature of Restrictive Measures
• 2.: Costs and Benefits of Restrictive Measures
• 3.: The Restrictive Measure As a Privilege
• 4.: Restrictive Measures As Expenditures
• II.: Interference By Price Control
• 1.: The Alternative: Statutory Law Versus Economic Law
• 2.: The Reaction of the Market
• 3.: Minimum Wages and Unemployment
• 4.: The Political Consequences of Unemployment
• III.: Inflation and Credit Expansion
• 1.: Inflation
• 2.: Credit Expansion
• 3.: Foreign Exchange Control
• 4.: The Flight of Capital and the Problem of “hot Money”
• IV.: Confiscation and Subsidies
• 1.: Confiscation
• 2.: The Procurement of Funds For Public Expenditure
• 3.: Unprofitable Public Works and Subsidies
• 4.: “altruistic” Entrepreneurship
• V.: Corporativism and Syndicalism
• 1.: Corporativism
• 2.: Syndicalism
• VI.: War Economy
• 1.: War and the Market Economy
• 2.: Total War and War Socialism
• 3.: Market Economy and National Defense
• VII.: The Economic, Social, and Political Consequences of Interventionism
• 1.: The Economic Consequences
• 2.: Parliamentary Government and Interventionism
• 3.: Freedom and the Economic System
• 4.: The Great Delusion
• 5.: The Source of Hitler’s Success
• VIII.: Conclusions
• Reading References

4.

Restrictive Measures as Expenditures

One might consider some restrictive measures as justified if one regards them as a part of the public spending policy rather than as measures aimed at production and supply. If for love of nature or for scientific purposes we want to preserve a piece of land in its natural state as a national park and therefore want to keep it from all productive purposes, we might expect general approval so long as we keep this plan within the limits of the public budget. We might then find it more appropriate not to place the burden of this expenditure on the owners of this land but to distribute it among all citizens by buying the land rather than expropriating it. But this is not important for our analysis. Decisive is the fact that we consider this proposition from the standpoint of expenditure, not of production.

This is the only correct viewpoint to assume with regard to restrictive measures. Restrictive measures, the only possible effect of which can be the impairment of supply, should not be considered as measures of production policy. They work for consumption but not production. Restrictive measures can never bring about economic efficiency, never a system of production of goods and the improvement of the state of supply. One might differ as to the advisability of protecting the Prussian Junkers by a tariff on grain imports against the competition of the Canadian farmers who are producing on more fertile soil. But if we advocate a tariff to protect Prussian grain producers, we are not recommending a measure in favor of the production of the supply of grain, but a measure designed to assist the owners of German land at the expense of the German grain consumers. It will never be possible to base an economic system on such assistance privileges; such measures can only be paid as expenditures from means which are otherwise procured. When Louis XIV granted a sinecure out of public revenues to one of his favorites, this act was spending; it was not economic policy. The fact that restrictive measures do not deserve a consideration different from these royal privileges is obscured by the technique of their execution. But this does not change their essential nature. Whether such an expenditure is justified or not is of no concern for economic evaluation; even the kings of the ancien régime did not always grant favors to unworthy men.

There are undoubtedly cases in which restrictive measures appear justified to most or all of our citizens. But all restrictive measures are fundamentally expenditures. They diminish the supply of productive means available for the supply of other goods. Consequently it would be contrary to logic to represent a market economy, which is hampered by such restrictive measures, as a separate system of social cooperation in contrast to the unhampered market economy. We have to consider the restrictive measure as spending policy, not as a means of increasing the supplies of productive goods.

Once we recognize the true nature of restrictive measures and refuse to be misled by the naive efforts to justify them as “promoting welfare” or even “promoting production,” we discover that the ends sought by these measures can often be accomplished much more cheaply by direct subsidies from public funds. If we do not prevent the producers from achieving the highest possible yield from the available productive resources, we will not impair the productivity of the economy and we will be in a better position to draw from the increased wealth the means necessary for subsidizing those whom we desire to privilege.

II.

Interference by Price Control