3.3 The instability of interventionism

Ludwig von Mises argued that interventionism, the supposed middle road between capitalism and socialism, is inherently unstable. Price controls, minimum wages, subsidies, and other interventions alter market coordination and may produce shortages, surpluses, unemployment, or other unintended effects.

When an intervention produces such effects, the State must choose whether to repeal it or introduce further controls. For example, a price ceiling that creates a shortage may lead to rationing, production subsidies, or government direction of supply. Each additional measure can interfere with other market relationships and create pressure for still more intervention. In Mises's account, repeatedly choosing further controls causes political direction progressively to replace the market and may ultimately culminate in central planning.

Democracy can reinforce this process because voters may support a measure for its immediate intended benefit while opposing the costs or shortages that follow. When those consequences appear, the politically attractive response may be another measure promising to correct them rather than repeal of the original intervention. A succession of individually popular decisions can therefore produce a cumulative economic order that no majority chose at the outset.

This is Mises's argument, not an uncontested economic law. An intervention may achieve its purpose without producing an escalating sequence of controls, and democratic governments can revise or repeal unsuccessful policies. Nevertheless, the argument identifies another possible conflict between democracy and a free market: political pressure to correct particular outcomes may expand State control one decision at a time.