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Dynamics of the Mixed Economy: Toward a Theory of Interventionism by Sanford Ikeda

E.C. Pasour

Routledge • 1997• xiv+296 pages • $69.95

Dr. Pasour is professor of agricultural and resource economics at North Carolina State University, Raleigh.

In Dynamics of the Mixed Economy, a mixed economy is defined as any political-economic system that lies between the extremes of laissez-faire capitalism and pure collectivism. In a critique of interventionism published in 1929, Ludwig von Mises found the mixed economy to be contradictory, illogical, and inherently unstable. This finding, coupled with what we observe throughout the world, poses what is referred to in this book as the “Misesian paradox”—how can a mixed economy subject to these grave defects continue to be the most widespread and persistent form of political-economic system in the world today?

Ikeda extends Mises’s work in light of recent developments in market process theory to provide an explanation of the tendency of the state to expand and contract—swinging back and forth toward either more or less government control. The book draws heavily upon work by F. A. Hayek and Israel Kirzner—especially Hayek’s notion of the spontaneous order and insights about the use of knowledge in society and Kirzner’s concept of entrepreneurial discovery and critique of equilibrium analysis in mainstream economic theory. Readers not familiar with the ideas of Mises, Hayek, and Kirzner will find this book to be a hard read.

Why is it, as Mises argued, that government intervention tends to lead to outcomes that are inferior, as measured by the interventionist’s own standards? Ikeda traces the unintended consequences to three factors—dispersed knowledge (discussed by Hayek a half century ago), radical ignorance, and systemic complexity. The interaction between government and market processes magnifies the problems created by dispersed knowledge and radical ignorance as the relative size of the public sector increases.

Moreover, the act of intervention itself weakens the moral aversion or psychological resistance to statism, further contributing to the growth of the public sector. In the case of direct income transfers, for example, intervention fosters a mentality of dependency and personal irresponsibility.

Further government action is then taken to cope with intervention-spawned problems. When the results of interventionism become sufficiently perverse, the mixed economy reaches the crisis stage and governmental officials must make a radical move—either toward more or less intervention. Despite the contradictions and instability, Ikeda concludes that the mixed economy will tend to be the most prevalent form of political-economic system and is likely to be more enduring than either pure collectivism or capitalism.

What are the implications for controlling Leviathan? While the inner contradictions of interventionism can be eliminated only by eliminating the state, Ikeda holds out some hope for a less drastic approach—the minimal state. The inherent tendency of government to grow in the minimal state can be overcome, he suggests, if the ideological preferences of public choosers for limited government are sufficiently strong.

Decision-makers in the political process face two kinds of problems: incentive problems, the focus of public choice theory; and knowledge problems, Ikeda’s primary concern and that of Austrian political economy generally. In Dynamics of the Mixed Economy, Austrian and public choice approaches are considered to be complementary but independent. This position, however, cannot withstand careful scrutiny.

The likelihood of increases or decreases in government intervention at any particular time is not independent of the institutional framework. The kinds of political structures and procedures in place, as emphasized in constitutional political economy (a public choice subdiscipline), can profoundly affect both the amount of transfer-seeking intervention and the likelihood that political decision-makers will act in ways consistent with the interests of the public-at-large.

Dynamics of the Mixed Economy contains a wealth of insights on the perils and results of government intervention—it also provides some hope for advocates of a free society. A strong ideological commitment of public choosers to limited government—preferences rooted in political philosophy, morality, and religion—can provide an institutional framework conducive to policies consistent with that goal. However, Ikeda is silent on the really important question—how can we achieve a consensus in favor of limited government?

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