Response to Coyne, Higgs, and Shearmer

     

I wish to thank the three scholars who have each made the effort to comment on my essay.  While I may take issue with some of their criticisms, responding to them has deepened my understanding and clarified my thinking on Mises and interventionism.  Unfortunately, space prevents me from addressing in full all of the interesting points they raise.

Everyone, including me, appears to agree that Mises was wrong to suggest that only laissez faire or socialism would emerge after the numerous collapses of interventionist regimes, or that once defeated, an interventionist regime would somehow “disappear.”  Coyne, Higgs, and I agree on the usefulness of Mises’s logic, while Shearmer apparently does not.  However, each commenter takes issue in different ways with its empirical relevance.

Chris Coyne focuses on a core issue of my revision of Misesian interventionism.  He asks how we can know whether transfer dynamics result in greater relative sustainability than regulatory dynamics, and that is a fair point.  He wonders, for example, whether a “fixed monetary rule that is both predictable and credible” might not be less disruptive to the market process than the regime uncertainty that “unpredictable and large-scale transfers” would pose.  Indeed, it is hard to argue that the latter would not be more disruptive than the former.

The theoretical question, I suggest, would probably be: which has greater disruptive potential -- a central bank or a legislature’s redistributive policies?  But the other part of Coyne’s critique is that much of this boils down to empirics: do the facts fit the theory?  To my knowledge no one has looked. I wish someone would.

I fully endorse Coyne’s point about the relative rates of addition and depletion of the “reserve fund,” which is a point I make in my book (1997) and elsewhere, keeping in mind that the reserve fund may become inaccessible long before it actually “runs out” owing to knowledge problems or to the ability of producers to hide their wealth and so on.  And I agree that the mixed economy can “sustain” itself in this fashion until it can’t, but certainly not in the long term.

Again, let’s distinguish between the sustainability of a regime of interventionist policies within the framework of an existing state and the persistence, typically over a greater length of time, of that state, itself.  This I think is more than a semantic point, but it also colors Higgs’s critique.

I am truly gratified that Bob Higgs agrees with “with pretty much everything” that I say, but his charge that my argument “is made are so restrictive that the argument has little ‘oomph’” is a serious one.

In his fourth point Bob observes that Mises was making his argument during a time – the 1920s to the 1950s – when “the great contest that was playing out in many countries during his lifetime between socialism and capitalism” (which is a point relevant to one of Jeremy Shearmer’s criticisms).  But while the debate among intellectuals in that era may have been between capitalism and socialism, the interventionist dynamic Mises analyzed does not depend on public choosers deliberately aiming for either pole of the politico-economic spectrum.  Mises was careful to say that interventionists wanted to preserve the “good” properties of capitalism and not throw the capitalist baby out with the bathwater.  For Mises, the drift toward socialism is an unintended consequence.

Bob’s main criticism of Mises’s critique, however, is that “it leaves out so many factors of critical importance” – specifically ideology and war.  Yes, Mises and I both do.

As I have tried to explain in my other work and very briefly in my essay, the interventionist dynamic relies on public choosers making policy decisions at various “nodal points,” but Mises doesn’t really address why they might choose to go in the direction of more or less collectivism.  That is partly a function of ideology, which I try to integrate into my own formulation.

Regarding war, it might indeed appear to be a damaging omission on Mises’s (and my) part.  Now, Bob is an excellent economic historian, and that means that in the explanation of historical phenomena he must approach his subject-matter thymologically and examine factors beyond the conventionally economic.  Bad economic-policy decisions could contribute to war, but when war is the result of ambitious thugs seeking to dominate the world, it is outside the realm of economic theory – too far evidently for Mises.

But ideology and war, especially war, each exacerbate the destabilizing forces Mises describes, do they not?  And wasn’t Mises simply providing the bones of an analytic framework, the purely economic part, which by itself is sufficient to show that interventionism is unsustainable?

And when Bob argues that “The experiments in Communist China, North Korea, Cuba, Vietnam, the USSR and its satellite countries, and elsewhere have shown as clearly as anything can be shown by historical experience that socialism ‘doesn’t work,’” does this not in fact support Mises’s point about unsustainability?  These examples are not socialist economies but mixed economies. The interventionist regimes within these countries collapsed before they could achieve full-blown socialism.  Thus, as Peter Boettke demonstrates,[28] the USSR was a “mixed economy,” and so were they all.  In my essay I cite these as examples of the unsustainability of interventionism, along with New Zealand and Sweden.

Bob maintains that the idea of interventionism is ancient, dominant, and probably ineradicable.  Interventionism, as a doctrine and as a policy, will pick itself up time and time again.  But that does not mean that it will not fail again and again in practice.  Now, Mises may have been overly optimistic to think that subsequent generations of public choosers would eventually tire of all this, but he was not wrong about the inevitability of the collapse of any given interventionist regime.  Actual systems did plunge headlong into collectivism or radically retrench back to relatively free markets.  It happened!

Jeremy Shearmer dismisses Mises as “simply incorrect.” The trouble is that his dismissal is itself too simple.

When he warns that “we surely can’t simply repeat Mises’s case uncritically,” it makes me wonder to whom is he referring.  Surely not to the contributors in Kurrild-Klitgaard (2005) (which includes Bob Higgs and me), which he cites in his comment?

Indeed, much of what Jeremy’s critique amounts to is either an assertion that “Things aren’t as simple as Mises presents them” or a question: “Yes, but how do we know [that the interventionist dynamic works that way]?”  Such broad criticisms are frankly not very helpful and so are difficult to address, but I will do my best.

He argues that we “need to make use of historical evidence alongside abstract argument, to make a telling case that the issues which Mises raises hold good in an imperfect world.” But is this not what the historical research of Boettke,[29] Robert L. Bradley,[30] and Higgs,[31] to name just a few, have done?  If Jeremy is aware of this research, at whom is he aiming his criticism?  Of course reality is messy, and we do need even more historical investigation, as Coyne also recommends in his comment.  Mises, I think, would not disagree.  And to see where “abstract theorizing” can still take us, Jeremy would profit from a look at the recent conceptual work of Higgs[32] and also of Richard Wagner[33] on the political economy of “entanglement.”

Similarly he suggests that in macroeconomics there are “competing research programs” against Mises (by which I assume he means the Mises-Hayek business-cycle theory) as if unaware of the significant progress in Austrian macroeconomics in the past 20 years.  Again, to name just a few, there is Roger Garrison,[34] Peter Lewin,[35] and Steven Horwitz.[36]

I agree with Jeremy that if Manuel Castells’s account of East Asian development (which I find interesting) is correct then it might pose a challenge to my economic analysis (whether or not I’m a “classical liberal”).  But the remark is frankly too off the cuff to warrant much attention at this time, except to refer back to the empirical and historical work I have cited.

Two final points.  First, Jeremy asserts that “it is worth bearing in mind that if intervention produces problematic unintended consequences, it is in principle possible that these could be addressed through further policy measures with learning by trial and error.”

It struck me as odd that he would offer trial and error as a way of avoiding the interventionist dynamic when my argument is precisely that incentive and knowledge problems generated by interventionism itself throw the feedback mechanism, on which trial and error depend, out of whack.  This comes very close to claiming to “solve” a problem by assuming its solution (an old economist’s trick).  And as Public Choice has shown, the feedback from the political process also works pretty poorly.

Second, Jeremy feels compelled to remind me that “if we take account of the limitations of people’s knowledge … we may find that things are sometimes rather messier than Mises’s arguments present them as being.”  Of course, I have great sympathy with that view, since imperfect knowledge, error, and entrepreneurship are central to my analysis.  Again, whom is he addressing?

[28.] Peter J. Boettke, The Political Economy of Soviet Socialism: The Formative Years  (Norwell, MA: Kluwer, 1990).

[29.] Ibid.

[30.] Robert L. Bradley , Capitalism at Work: Business, Government, and Energy (Salem, MA: M & M Scrivener Press, 2009).

[31.] Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government (New York: Oxford University Press, 1987).

[32.] Peter Kurrild-Klitgaard, ed, Intervention, Regulation and Redistribution in the Mixed Economy (Amsterdam: Elsevier, 2005).

[33.] For example, Meg Patrick and Richard E. Wagner, “From Mixed Economy to Entangled Political Economy: A Paretian Social-Theoretic Orientation,” Public Choice, 164(1) 2015: 103-16.

[34.] Roger W.Garrison, Time and Money: The Macroeconomics of Capital Structure (New York: Routledge, 2000).

[35.] Peter Lewin, Capital in Disequilibrium (New York: Routledge, 1999).

[36.] Steven Horwitz, Microfoundations of Macroeconomics: An Austrian Perspective (New York: Routledge, 2000).