Interventionism vs Capitalism: The Myth of the “Third-way” (4 of 4)

by | Jul 25, 2022 | Economics

The idea that there is a third system — between socialism and capitalism, as its supporters say — a system as far away from socialism as it is from capitalism but that retains the advantages and avoids the disadvantages of each — is pure nonsense.

I want to refer, in a few words, to another example, and that is rent control. If the government controls rents, one result is that people who would otherwise have moved from bigger apartments to smaller ones when their family conditions changed, will no longer do so. For example, consider parents whose children left home when they came into their 20s, married or went into other cities to work. Such parents used to change their apartments and take smaller and cheaper ones. This necessity disappeared when rent controls were imposed.

In Vienna, Austria, in the early ’20s, where rent control was well-established, the amount of money that the landlord received for an average apartment under rent control was not more than twice the price of a ticket for a ride on the city-owned street cars. You can imagine that people did not have any incentive to change their apartments. And, on the other hand, there was no construction of new houses. Similar conditions prevailed in the United States after the Second World War and are continuing in many cities to this day.

One of the main reasons why many cities in the United States are in such great financial difficulty is that they have rent control and a resulting shortage of housing. So the government has spent billions for the building of new houses. But why was there such a housing shortage? The housing shortage developed for the same reasons that brought milk shortages when there was milk price control. That means: when the government interferes with the market, it is more and more driven towards socialism.

And this is the answer to those people who say, “We are not socialists, we do not want the government to control everything. We realize this is bad. But why should not the government interfere a little bit with the market? Why shouldn’t the government do away with some things which we do not like?”

These people talk of a “middle-of-the-road” policy. What they do not see is that the isolated interference, which means the interference with only one small part of the economic system, brings about a situation which the government itself — and the people who are asking for government interference — find worse than the conditions they wanted to abolish: the people who are asking for rent control are very angry when they discover there is a shortage of apartments and a shortage of housing.

But this shortage of housing was created precisely by government interference, by the establishment of rents below the level people would have had to pay in a free market.

The idea that there is a third system — between socialism and capitalism, as its supporters say — a system as far away from socialism as it is from capitalism but that retains the advantages and avoids the disadvantages of each — is pure nonsense. People who believe there is such a mythical system can become really poetic when they praise the glories of interventionism. One can only say they are mistaken. The government interference which they praise brings about conditions which they themselves do not like.

One of the problems I will deal with later is protectionism. The government tries to isolate the domestic market from the world market. It introduces tariffs which raise the domestic price of a commodity above the world market price, making it possible for domestic producers to form cartels. The cartels are then attacked by the government declaring, “Under these conditions, anti-cartel legislation is necessary.”

This is precisely the situation with most of the European governments. In the United States, there are yet other reasons for antitrust legislation and the government’s campaign against the specter of monopoly.

It is absurd to see the government — which creates by its own intervention the conditions making possible the emergence of domestic cartels — point its finger at business, saying, “There are cartels, therefore government interference with business is necessary.” It would be much simpler to avoid cartels by ending the government’s interference with the market — an interference which makes these cartels possible.

The idea of government interference as a “solution” to economic problems leads, in every country, to conditions which, at the least, are very unsatisfactory and often quite chaotic. If the government does not stop in time, it will bring on socialism.

Nevertheless, government interference with business is still very popular. As soon as someone does not like something that happens in the world, he says, “The government ought to do something about it. What do we have a government for? The government should do it.” And this is a characteristic remnant of thought from past ages, of ages preceding modern freedom, modern constitutional government, before representative government or modern republicanism.

For centuries there was the doctrine — maintained and accepted by everyone — that a king, an anointed king, was the messenger of God; he had more wisdom than his subjects, and he had supernatural powers. As recently as the beginning of the 19th century, people suffering from certain diseases expected to be cured by the royal touch, by the hand of the king. Doctors were usually better; nevertheless, they had their patients try the king.

This doctrine of the superiority of a paternal government, of the supernatural and superhuman powers of the hereditary kings gradually disappeared — or at least we thought so. But it came back again. There was a German professor named Werner Sombart (I knew him very well), who was known the world over, who was an honorary doctor of many universities and an honorary member of the American Economic Association. That professor wrote a book, which is available in an English translation, published by the Princeton University Press. It is available also in a French translation, and probably also in Spanish — at least I hope it is available, because then you can check what I am saying. In this book, published in our century, not in the Dark Ages, Werner Sombart, a professor of economics, simply says, “The Führer, our Führer” — he means, of course, Hitler — “gets his orders directly from God, the Führer of the Universe.”

I spoke of this hierarchy of the führers earlier, and in this hierarchy. I mentioned Hitler as the “Supreme Führer.” But there is, according to Werner Sombart, a still higher Führer, God, the Führer of the universe. And God, he wrote, gives his orders directly to Hitler. Of course, Professor Sombart said very modestly, “We do not know how God communicates with the Führer. But the fact cannot be denied.”

Now, if you hear that such a book can be published in the German language, the language of a nation which was once hailed as “the nation of philosophers and poets,” and if you see it translated into English and French, then you will not be astonished at the fact that even a little bureaucrat considers himself wiser and better than the citizens and wants to interfere with everything, even though he is only a poor little bureaucrat, and not the famous Professor Werner Sombart, honorary member of everything.

Is there a remedy against such happenings? I would say, yes, there is a remedy. And this remedy is the power of the citizens; they have to prevent the establishment of such an autocratic regime that arrogates to itself a higher wisdom than that of the average citizen. This is the fundamental difference between freedom and serfdom.

The socialist nations have arrogated to themselves the term democracy. The Russians call their own system a People’s Democracy; they probably maintain that the people are represented in the person of the dictator. I think that one dictator, Juan Perón here in Argentina, was given a good answer when he was forced into exile in 1955. Let us hope that all other dictators, in other nations, will be accorded a similar response.

This article is serialized from Economic Policy: Thoughts for Today and Tomorrow, a book based on six lectures delivered in Buenos Aires in 1959 on Capitalism, Socialism, Interventionism, Inflation, Foreign Investment, and Politics and Ideas by the great 20th century economist who was too good to receive a Noble Prize: Ludwig von Mises (1881-1973). Copyright 1995 by Bettina Bien Greaves. All rights reserved.

Ludwig Von Mises (1881-1973) was the 20th century's foremost economist. He was the author of Human Action, Socialism, and a dozen other works.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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