9.3 Review: Violent intervention

Lecture 9: Violent intervention
  • All the human action we have discussed so far was cooperative and consensual: Humans interacted on terms that were acceptable to all involved. Nobody imposed their will on another through violence or the threat of violence.
  • The other form of human interaction is coercion: one individual imposing their will on another through violence or the threat of violence.
  • Economics does not assume coercion away, or think that it is irrelevant. It explains it as a form of human action, and examines how its effects are different from consensual exchange. The key difference: All participants in voluntary interaction expect to benefit. Coercive interactions must inconvenience someone, otherwise, they wouldn't need to be coerced into them.
  • Anybody who has to be coerced into doing something will clearly be worse off, as determined by their own subjective measure, which is the only one that matters.
  • It is possible that consensual interactions don't benefit those involved, that their positive expectations were erroneous. But then they learn to stop taking part in them and to act differently.
  • Coercive interaction can continue because the perpetrator does not suffer the negative consequences of their aggression. Coercion thrives without skin in the game.
Rothbard's typology of intervention:

1- Autistic: A violates the property or person of B.

Example: murder, prohibition of speech

2- Binary: A coercively acquires property or service from B.

Example: theft, conscription, slavery, taxation.

3- Triangular: A coercively imposes terms on the interaction between B and C.

Example: Price controls, licensing,

  • Coercion can be done by individuals, or by governments. Individual coercion is just crime; its economic analysis is obvious and trivial: the aggressor benefits at the expense of the victim. Economic analysis of government is more interesting.
  • The most important difference between government action and free exchange is that the latter is always expected to have a positive value to all participants, else they wouldn't choose it. The first is always harmful to someone, or else they would not need to be coerced into it.


Examples of government interventions:

  • Price control does not magically alter the economy valuation of goods and their cost of production. It only makes it criminal to exchange the good at specific prices. If it is to have any effect, it is to stop people from trading and producing. Minimum wage as an example. Makes it criminal for people with low productivity to work.
  • See: Forty centuries of wage and price controls. By Buttler and Schuttinger.
  • Taxation penalizes production. Raises time preference. Lowers profitability, reduces supply, and raises prices. Reduces the DMVP of factors of production and reduces their pay.
  • Land tax discourages the ownership and allocation of land to the highest bidder. Reduces the incentive to rent land, and undermines land rent market.
  • Government spending is not productive, because it does not create value as measured subjectively by individuals spending on products. Since nobody willingly spends on government services, their services are better understood as consumption than investment.
  • Subsidies distort economic incentives and resource allocation. Anything subsidized is strengthened. Subsidies to the poor discourage work and reward indolence.
  • Government provided services do not have prices regulating them, which results in overuse. Traffic jams, water and electricity crises are examples.
  • There is no such thing as public property. Try to sell your shares in it to find out if you are part of the "public" that owns a public property. You can be arrested for trespassing on "public property".
  • Many Austrian Economists believe that government stimulation of growth is not a good thing, even if it actually worked. It diverts consumption from the present to the future beyond what individuals themselves would have desired based on their time preference.
  • Inflation raises prices and distorts markets. But credit inflation causes the business cycle. Austrian business cycle theory will be taught in ECON104: Principles of Austrian Economics II.

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  • Many Austrian economists hold the view that ultimately, even well-intentioned government attempts at improving economic outcomes will have negative consequences, because of the problems of central planning. Or the socialist calculation problem, discussed in last week's discussion session.
Last modified: Monday, July 26, 2021, 2:37 PM