Mises Was Right: The Hampered Market Is Unsustainable

Ludwig von Mises claimed that any “middle way” between free-market capitalism and pure state socialism was doomed, yet interventionism is as alive and well today as ever.

In 1929 he wrote,

The middle system of property that is hampered, guided, and regulated by government is in itself contradictory and illogical. Any attempt to introduce it in earnest must lead to a crisis from which either socialism or capitalism alone can emerge. (A Critique of Interventionism)

How does this statement square with over 80 years of subsequent interventionist practices around the world?

To understand how interventionism has survived for so long, we must first distinguish between two basic kinds of interventionism. We also need to ask what it means for interventionism to be sustainable.

There’s “Regulatory Dynamics”

The version of “interventionist dynamics” that people who have read Mises’s critique of intervention are most familiar with focuses on the negative unintended consequences of price controls. In that version, the attempt to impose a price ceiling (or price floor) on X creates a shortage (or surplus) of X, which the authorities try to fix by imposing price regulations elsewhere (in the market for inputs for X or in the substitutes for X). Those regulations, in turn, generate negative unintended consequences elsewhere that induce even further interventions.

A country that pursues a pure form of welfare state capitalism might last longer than a country that pursues a pure form of regulatory state capitalism.

Each successive intervention imposes more harm an…