Robert Murphy Should have Read his Mises

Robert Murphy attacks Obamacare and implies that the US is headed for nationalised healthcare system, but then states:

“Ludwig von Mises argued that the “mixed economy” was an unstable system, because each new government intervention would lead to undesirable consequences that would then invite further interventions.”
Robert Murphy, “ObamaCare Is Just a Stepping Stone to Nationalized Health Care,” Free Advice, 26 September.

Yet, in Human Action: A Treatise on Economics. The Scholar's Edition, Mises explicitly denies there is any such thing as a “mixed economy,” in a remarkable passage:

“The market economy must be strictly differentiated from the second thinkable—although not realizable—system of social cooperation under the division of labor: the system of social or governmental ownership of the means of production. This second system is commonly called socialism, communism, planned economy, or state capitalism. The market economy or capitalism, as it is usually called, and the socialist economy preclude one another. There is no mixture of the two systems possible or thinkable; there is no such thing as a mixed economy, a system that would be in part capitalistic and in part socialist. Production is directed by the market or by the decrees of a production tsar or a committee of production tsars.

If within a society based on private ownership by the means of production some of these means are publicly owned and operated—that is, owned and operated by the government or one of its agencies—this does not make for a mixed system which would combine socialism and capitalism. The fact that the state or municipalities own and operate some plants does not alter the characteristic features of the market economy. These publicly owned and operated enterprises are subject to the sovereignty of the market. They must fit themselves, as buyers of raw materials, equipment, and labor, and as sellers of goods and services, into the scheme of the market economy. They are subject to the laws of the market and thereby depend on the consumers who may or may not patronize them. They must strive for profits or, at least, to avoid losses. The government may cover losses of its plants or shops by drawing on public funds. But this neither eliminates nor mitigates the supremacy of the market; it merely shifts it to another sector. For the means for covering the losses must be raised by the imposition of taxes. But this taxation has its effects on the market and influences the economic structure according to the laws of the market. It is the operation of the market, and not the government collecting the taxes, that decides upon whom the incidence of the taxes falls and how they affect production and consumption. Thus the market, not a government bureau, determines the working of these publicly operated enterprises.

Nothing that is in any way connected with the operation of a market is in the praxeological or economic sense to be called socialism. The notion of socialism as conceived and defined by all socialists implies the absence of a market for factors of production and of prices of such factors.” (Mises 2008: 259–260).

According to the logic of this passage, a nationalised healthcare system would not even cause the US to have a “mixed economy” or cease to have a market economy, even if it were a non-profit system and subsidised from taxes.

Of course, maybe Murphy was thinking of Mises’s theory of the “hampered market economy” (Mises 2008: 712–857). Here Mises says that certain oppressive types of taxation, restriction of production, price distortions (such as price controls or minimum wage laws), central banking and credit expansion, confiscation and redistribution of income and total war hamper the market economy.

But even in these chapters Mises is often vague in the details: for example, Mises says that government taxes are appropriate when they take a “modest” amount of people’s income, but when they “grow beyond a moderate limit, they cease to be taxes and turn into devices for the destruction of the market economy” (Mises 2008: 733–734). But at what level of taxes does the transition occur?

In reality, the “hampered market” section of Human Action is one of the most incoherent and stupid set of arguments Mises ever made.

The overwhelming proof of this was given to us in the remarkable success of command economies in the West during both World War I and World War II. In these wars, Western nations like the UK, the US, Canada, Australia and New Zealand had moderate command economies with massive government planning of production, price controls, high taxes, and even monetisation of budget deficits. According to the logic of Mises, all Western command economies should have quickly simply descended into utter chaos and collapsed in WWI or WWII. The allied governments should have been incapable of planning production and winning the war. Needless to say, Mises’s theory of the “hampered market economy” and its inevitable collapse is totally and completely refuted by history. (And, notably, even the losing sides such as Germany and Japan had considerable success with command economies during the time when they had early military victories and access to resources.)

Yet, according to Mises, even moderate interventions that create a “hampered market” outside of wartime are unstable and will lead to chaos from which either socialism or capitalism will emerge. Mises’s whole theory sounds like a libertarian version of vulgar Marxism, where history is governed by “iron laws” and “historical necessity,” and in which historical contingency is thrown to the wind.

But history also shows us many examples in peacetime of what Mises called “hampered market” economies that never descended into totalitarian socialism and chaos, and either were stable (e.g., the UK in the 19th century even thought it had a central bank and credit expansion, post-WWII mixed economies, the high interventionists states of South Korea, Taiwan, Singapore, etc.) or even changed in ways that made them more laissez faire (e.g., the transition from mercantilist economies to those with free trade, the transition from mixed economies of the 1940s-1970s to neoliberalism).

And, above all, we can only notice how Mises’s comments in original passage above denying that there is any such thing as a “mixed economy” bizarrely contradict his comments on the “hampered market” economy.

How is it that nationalised industries run for profit or subsidised with taxes do “alter the characteristic features of the market economy,” but other interventions lead inevitably to socialism or chaos?

BIBLIOGRAPHY
Mises, L. 2008. Human Action: A Treatise on Economics. The Scholar's Edition. Mises Institute, Auburn, Ala.

Economic Systems are Best Conceptualized on a Continuum

Of the various ways of organizing economic systems, one can see two extremes: anarcho-capitalism and communist command economies. Anarcho-capitalism would privatise everything and abolish the state. A communist command economy would abolish most private property and plan production of commodities centrally. In the middle, we have the modern mixed economy, where there is a very large space for private production of commodities and private property, but where regulation restricts production and property rights, and where the state intervenes with monetary and fiscal policy, as well as social security and other public goods.

The modern neoliberal/neoclassical system we have had since the early 1980s would be to the left of centre. I would put the neoclassical synthesis Keynesian system many countries had from 1945–1979 in the middle. A Post Keynesian system would probably be slightly right of centre.

Some nations like Japan, South Korea and Taiwan after 1945 had a higher degree of planning than even mixed economies, through their highly successful industrial policy, and would be even more to the right of the centre on the line below.