Ludwig von Mises Institute

Intervention

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An intervention is the intrusion of aggressive physical force into society; it substitutes coercion for voluntary ac­tions.

Private individuals may illegally use force, but empirically, most interventions are performed by States, since the State is the only organization in society legally equipped to use violence and since it is the only agency that legally derives its revenue from a compulsory levy. Therefore, the analysis mostly concentrates on government interventions.[1]

Classification of Intervention[edit]

Three distinct types of intervention can be identified by the manner in which they affect individuals: autistic, binary, and triangular.

  • Autistic intervention occurs when an intruder restricts a person's use of his body or property in a certain manner.[1] A common example of this is in the prohibition of possession of narcotics. Autistic intervention is also commonly exerted by private individuals in property-destroying acts such as vandalism, battery, and murder.
  • Binary intervention occurs when an intruder forcibly establishes a relationship or compels trade between himself and another person.[1] The most ubiquitous example of this is taxation, where governments coerce citizens into paying money to them in exchange for public services of the government's choosing. Slavery is another form of binary intervention.
  • Triangular intervention occurs when an intruder forcibly establishes, or forbids, a relationship between two or more economic actors.[1] Price controls, which restrict trade, and compulsory automobile insurance, which compels trade, are two common examples of this.

Types of Interventions[edit]

A government can command property owners to use their resources in a different way than these owners would have used them. In this way, the government makes some person or group (for example itself) the uninvited co-owner of other people's property. This is the essence of interventions: institutionalized uninvited co-ownership.

  • Taxation means that the government proclaims itself the owner of (a part of) resources belonging to its subjects; and it forces them to eventually hand them over. (If this was voluntary, it would not be taxation, but donations to the government). Today taxation does not concern concrete physical items, but their monetary equivalent; so until the tax is paid, the government imposes itself as the co-owner of virtually all physical assets of the taxpayers.
  • Regulation means that the government proscribes a certain use of certain resources, typically not a use the citizens would have chosen (regulation would be pointless otherwise). Again, the government proclaims itself the co-owner of these resources. An example are price controls. If the government fixes a minimum wage rate, it effectively proclaims itself the co-owner of workers, because it does not allow them to work under conditions they see fit. And it also proclaims itself the co-owner of the capitalists or, more precisely, of the money that the latter plan to spend on labor.
  • Prohibition means that the government outlaws a certain use of certain resources. Again, it proclaims itself the co-owner of all resources that could be put to the prohibited use. For example, if it can prohibit the production and sale of alcoholic beverages.

The citizens still have ownership and control of their property, but they have to share them to a degree with the government and its agents. Increased interventionism increases the share of government control of resources, without outlawing other people's simultaneous control of these same resources. But the forced nature of the co-ownership itself is not a matter of degree. It is a categorical and essential feature of any intervention.[2]

Interventions and Moral hazard[edit]

Since government interventions always force a separation of ownership and control, they create a moral hazard for the citizens and for the government. Most importantly, it creates a situation in which each of the parties involved (the citizens on the one hand and the government on the other hand) desires to expropriate the resources subject to interventionism at the expense of the other parties.

As intervention entails forced co-ownership, it follows that the citizens have an incentive to evade it. To avoid taxes, for example, they can choose to invest capital in a country with low taxes rather than in a country with high taxes; they can choose to emigrate to low-tax countries rather than stay in high-tax places; they can choose a profession that is less taxed than other professions; or they can choose to make fraudulent declarations of their income and capital. To evade regulations, they can choose not to buy or sell commodities subject to price controls, or they can choose to buy and sell them on the black market. To evade prohibitions, they can buy and sell prohibited items on the black market. But these evasions can be risky and very costly. Therefore, there is an incentive to use a greater part of property for personal consumption rather than investment. The general tendency of interventions is towards excessive consumption and more expensive production because of the necessity to evade the intervention.

But moral hazard also comes into play on the side of the government. Governments rely on the resources from taxes and regulations. They will therefore tend to tax more and regulate more to neutralize the ways in which the citizens evaded its previous intervention, to "close the loopholes." This is the basic mechanism of government interventions. Interventionist governments have an incentive to extend taxation to all branches of economic life; to regulate industries that have so far escaped regulation; and to beat into submission the countries that serve as tax havens. The ultimate result is to reinforce the tendencies that we characterized above: excessive consumption and insufficient production; in short, a general impoverishment of society.


Government interventionism entails moral hazard both on the side of the government and on the side of the citizens. It cannot be neutralized by choosing appropriate contractual devices, because it has no contractual basis at all; it is imposed. It cannot be sidestepped by choosing to avoid the moral-hazard-prone situation altogether, because the situation itself is imposed. The very meaning of interventionism is to overrule the choices of property owners.

And similarly, the workings of moral hazard cannot be eliminated or diminished by correct expectations, as in the case of moral hazard on the free market. It is precisely when the citizens correctly anticipate how high the next tax will be, and when it will hit them, that a moral hazard will incite them even more to evade the tax.[2]

Regulatory capture[edit]

Main article: Regulatory capture

According to the Chicago School economist George Stigler, "as a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits."[3][4] Under this theory of regulatory capture, an industry or some portions of an industry cultivate government to obtain laws and rules that favor the industry. The government trades favors for what it wants. Politicians gain political contributions, side payments, and votes for being seen to control the industry. The industry captures the regulators.

This analysis can be expanded. The first step of obtaining favors can be called "baiting the trap." But matters do not stop there. The trap is set when the industry becomes comfortable with its subsidy, tax break, tariff, exclusive position, license, or whatever. It then begins to extract monopoly rents and to lower product quality. This then leads to further steps such as public outcry and a government demand for the industry to police itself. Then come crisis, further regulatory intervention, and eventually a government stranglehold over the entire industry via a panoply of boards and price controls. This is when the trap is sprung. The market is replaced by government power and bureaucrats. Government, its aim being control, traps and captures the industry.

In the shorter term, the interest groups use the state against the public. In the longer term, the state and its bureaucrats rule the roost. In the end, the government bureaucracies expand. Paperwork and soft jobs rule the industry, innovation and competition are eclipsed, and the public suffers from poor product quality and high prices.[5]

References[edit]

  1. 1.0 1.1 1.2 1.3 Murray N. Rothbard. "12. The Economics of Violent Intervention in the market", Man, Economy and State, online version, referenced 2010-01-16.
  2. 2.0 2.1 Jörg Guido Hülsmann. "The Political Economy of Moral Hazard", Mises Daily, April 19 2008, referenced 2010-01-16.
  3. Ben O'Neill. On "Private Tyrannies", Mises Daily, January 22, 2009. Referenced 2010-07-21.
  4. George J. Stigler. "The theory of economic regulation" (pdf), The Universityof Chicago, referenced 2010-07-21.
  5. Michael Rozeff. "Who Captures Whom? The Case of Regulation", Mises Daily, September 28, 2006. Referenced 2010-07-21.

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