Mises on “interventionism” as a third way between the free market and socialism (1930)

In 1922 Mises had written a detailed attack on fully fledged socialism as it was being practised in the new Soviet Union. He joined with Hayek in pointing out the vital role played by free market prices in telling producers and consumers what goods and services were in highest demand, and what were the most appropriate raw materials to use in creating those goods and services. In the absence of free pricing and the possibilities of “price discovery” by entrepreneurs, rational economic production was impossible. However, as the economic crises of the 1920s got worse many supporters of capitalism thought the socialist critique of it was partly true and thus capitalism needed to be reformed by a variety of government directed interventions in the economy. The hope of the “interventionists” was to preserve the productive powers of pure capitalism with the possibilities of more “rational planning” offered by socialism. In 1930 Mises turned his sites on this “third way” in this essay in order to show that the hope of the interventionists was a false one because each intervention disrupted the operations of the market causing either surpluses or shortages. These in turned required further interventions in order to solve the problems caused by the first intervention, and so on, and so on, until a system of nearly complete socialism would be reached. Thus, for Mises the “third way” was just socialism introduced gradually rather than in one hit. Mises returned to this topic again in 1940 with his book Interventionism: An Economic Analysis.