It is true, many people believe that economic policy should not bother at all about long-run consequences. They quote a dictum of Lord Keynes: "In the long run we are all dead." I do not question the truth of this statement; I even consider it as the only correct declaration of the neo-British Cambridge school. But the conclusions drawn from this truism are entirely fallacious. The exact diagnosis of the economic evils of our age is: we have outlived the short-run and are suffering from the long-run consequences of policies which did not take them into consideration. The interventionists have silenced the warning voices of the economists. But things developed precisely as these much abused orthodox scholars had predicted. Depression is the aftermath of credit expansion; mass unemployment prolonged year after year is the inextricable effect of attempts to keep wage rates above the level which the unhampered market would have fixed. All those evils which the progressives interpret as evidence of the failure of capitalism are the necessary outcome of allegedly social interference with the market. It is true that many authors who advocated these measures and many statesmen and politicians who executed them were impelled by good intentions and wanted to make people more prosperous. But the means chosen for the attainment of the ends aimed at were inappropriate. However good intentions may be, they can never render unsuitable means any more suitable.
It must be emphasized that we are discussing means and measures, not ends. The matter at issue is not whether the policies advocated by the self-styled progressives are to be recommended or condemned from any arbitrary preconceived point of view. The essential problem is whether such policies can really attain the ends aimed at.
It is beside the mark to confuse the debate by referring to accidental and irrelevant matters. It is useless to divert attention from the main problem by vilifying capitalists and entrepreneurs and by glorifying the virtues of the common man. Precisely because the common man is worthy of all consideration, it is necessary to avoid policies detrimental to his welfare.
The market economy is an integrated system of intertwined factors that mutually condition and determine one another. The social apparatus of coercion and compulsion, i.e., the state, certainly has the might to interfere with the market. The government or agencies in which the government, either by legal privilege or by indulgence, has vested the power to apply violent pressure with impunity, are in a position to decree that certain market phenomena are illegal. But such measures do not bring about the results which the interfering power wants to attain. They not only render conditions more unsatisfactory for the interfering authority. They disintegrate the market system altogether, they paralyze its operation, they bring about chaos.
If one considers the working of the market system as unsatisfactory, one must try to substitute another system for it. This is what the socialists aim at. But socialism is not the subject matter of this meeting's discussion. I was invited to deal with interventionism, i.e., with various measures designed to improve the operation of the market system, not to abolish it altogether. And what I contend is that such measures must needs bring about results which from the point of view of their supporters are more undesirable than the previous state of affairs they wanted to alter.
Taken from 'Planning for Freedom'