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

2.

The Procurement of Funds for Public Expenditure

Hunger can only be satisfied with bread which is already available; future bread does not satisfy anyone today. It would seem superfluous to reiterate such self-evident statements were it not necessary to refute fallacies with regard to the procurement of funds for public expenditure.

War, it is frequently said, is fought not only in our interest, but also in the interest of our children and grandchildren. It is only just that they should bear part of the war costs. Therefore, only part of the war expenditures should be paid out of taxes; the rest should be paid out of borrowing; the interest payments and the amortization of the loans should be the problem of future generations.

This is plain nonsense. A war can be fought only with weapons which are today already available. Material and labor which are placed in the service of armaments, therefore, are withdrawn from our presently available means and diminish the supply of other goods for people living in the present. They are taken out of present income and present property. The grandchildren are concerned only insofar as they will inherit less. This fact cannot be altered by any method of financing.

Even if part of the war expenditures is covered by borrowing, that means resources which otherwise would be devoted to the production of other goods are now used for war purposes. It is only for the man who happens to be secretary of the treasury today that borrowing means a postponement of the payment. For the citizens, borrowing means they pay the bill immediately by forgoing consumption in the present. What one man borrows is, for the duration of the loan, not available to the lender.

An individual may buy a refrigerator on the installment plan if someone grants him the necessary credit. The totality of the citizens of the world or of a closed economy cannot buy anything on credit. Neither can those who are not yet born make loans to us. In this connection, we may disregard foreign loans; they are out of the question for the United States today [1940].

Equally erroneous is the opinion that government borrowing is a measure in favor of the rich. Were we to tax the rich even more than we do now we would have to take away their businesses, that is, we would have to adopt socialism. Because we do not want to go that far and because we do not want to impose higher taxes on the masses, we choose the seemingly painless way of borrowing.

“This,” says the socialist, “is precisely the point. You do not want to adopt socialism. Germany, however, proves that socialism is superior in the production of armaments. The German army is the best equipped in the world. The crux of the world problem today is that the Nazis have superior equipment.”

This argument, too, misses the point. Germany is well equipped because for at least eight years it has restricted the consumption of the whole population and has placed her entire productive system in the service of armaments. With unbelievable shortsightedness, England, France, and the small democracies failed to arm themselves for defense. Even after the war started they did not take it seriously. The fight against war profiteering seemed to them more important than the fight against the Nazis.

For the armaments industry the same principle holds true as for all other production: Private enterprise is more efficient than public enterprise. A hundred years ago guns and rifles were mostly produced in government arsenals and by small craftsmen. Private entrepreneurs found the production of arms unattractive. It was not until they realized that the nations were only interested in exterminating each other that they took up armament production. Their success was overwhelming. The arms produced by large-scale private industry stood up far better in actual combat [in wars] than the products of state-owned arsenals. All the improvement and perfection of the implements of war have originated in private enterprise. The state-owned arsenals were always backward in accepting new techniques, and the military experts have always been reluctant in accepting the improvements which the entrepreneurs furnished.

Contrary to popular belief, nations do not fight wars in order to make it possible for the arms factories to make money. Arms factories exist because nations fight wars. The entrepreneurs and capitalists who produce arms would manufacture other goods if the demand for arms was not stronger than it is for other goods. Germany’s war industry, too, developed as a private enterprise. As a nationalized industry it may be able to maintain for a certain time the advantage it has gained as a private industry.

In England today it is frequently said: If England’s workers make the heavy sacrifices which the war imposes on them they have a right to demand that their noble attitude should be rewarded by the abolition of capitalism and the adoption of socialism after the war. There is hardly anything more confused than this argument.

If the workers of England defend their country, their freedom, and their culture against the onslaught of the Nazis and Fascists, and against the Communists, who for all practical purposes are the allies of the Nazis,* they are doing it for themselves and for their children, not for the interests of some other people from whom later on they may demand rewards. The only reward which the great sacrifices may bring them is victory and with it the safeguard that they will not get into the same position in which the German and Russian masses find themselves. If the English workers were of the opinion that this prospective success did not warrant taking the burden upon themselves which the war imposes, they would not fight; they would capitulate.

If we believe that socialism is a better system and secures a better existence for the great majority of the population than does capitalism, then we should adopt socialism regardless of war or peace, and irrespective of whether the workers have been brave in the war or not. If we believe, however, that the economic system, which Messrs. Hitler, Stalin, and Mussolini call “plutocracy,” guarantees a better life for the masses than socialism, it will not occur to us to “reward” the workers by lowering their standard of living to the level of the Germans, Italians, and Russians.

[* ][Recall that when Mises wrote these lines, Germany and the Soviets were allies under their 1939 nonaggression treaty until June 22, 1941, when Germany violated that treaty and attacked Soviet Russia.—Editor]