Keep paying above market rate and face mass unemployment

MICHEL PIREU: ( has contributed the following words of wisdom in his StreetDogs column in BusinessDay today, being extracts from Planning for Freedom: Let the Market System Work, A Collection of Essays & Addresses by Ludwig von Mises:

“The only means to increase a nation’s welfare is to increase and improve the output of products …   the only means to raise wage rates is to raise the productivity of labour … there are those who believe that government has the power to improve the masses’ standard of living partly at the expense of the capitalists and entrepreneurs, partly at no expense at all.

(There is no denying) some of these measures can, in the short run, improve the lot of some groups of the population.   But, in the long run they must produce effects which …   are less desirable than the previous state of affairs.

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 …   but the conclusions drawn from it 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 … 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 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 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, the state, certainly has the might to interfere with the market …   but such measures … only render conditions more unsatisfactory ….

If one considers the working of the market system as unsatisfactory, one must try to substitute another system for it.   (Whereas) measures designed to improve the operation of the market system, not to abolish it altogether …   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”.

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