Von Mises and the Position of the State in the Market

August 3rd, 2015
in Op Ed

by Dirk Ehnts, Econoblog101

I am preparing a course in Origins of Political Economy and look for writings on money and credit. One of the first texts I encountered has been von Mises with his "The Theory of Money and Credit".

Follow up:

Chapter four titled Money and the State starts with §1 The Position of the State in the Market:

THE position of the State in the market differs in no way from that of any other parties to commercial transactions. Like these others, the State exchanges commodities and money on terms which are governed by the Laws of Price. It exercises its sovereign rights over its subjects to levy compulsory contributions from them; but in all other respects it adapts itself like everybody else to the commercial organization of society. As a buyer or seller the State has to conform to the conditions of the market. If it wishes to alter any of the exchange-ratios established in the market, it can only do this through the market's own mechanism. As a rule it will be able to act more effectively than anyone else, thanks to the resources at its command outside the market. It is responsible for the most pronounced disturbances of the market because it is able to exercise the strongest influence on demand and supply. But it is none the less subject to the rules of the market and cannot set aside the laws of the pricing process. In an economic system based on private ownership of the means of production, no government regulation can alter the terms of exchange except by altering the factors that determine them. Kings and republics have repeatedly refused to recognize this.

While this is quite interesting as a provocative statement, I am not sure whether this counts as (modern economic) science. Von Mises does not look into the balance sheets of central bank, government, banks and private sector, but instead writes down claims that he does not give any justification for (perhaps he does so later). Given that the state is the monopoly issuer of the thing that discharges tax liabilities I don't think that the above paragraph is correct. Given that states engaged in economic policy, often determined by powerful business lobbies, the state hardly "has to conform to the conditions of the market". Just the opposite, it creates them through regulation. Here is an excerpt from an article by the New Yorker:

Since the death-spiral session, utilities around the country have sought to slow the growth of solar: by supporting laws and regulations that would reduce targets for renewable energy; by ending "net metering" laws that force utilities to pay solar customers retail prices for the surplus energy they put back on the grid; by imposing "connection fees" to make up for lost revenues. Much of the campaigning has been spurred by the right-wing American Legislative Exchange Council and funded by various groups linked to the Koch brothers and their fossil-fuel fortune.

The state is not external to the people, enterprises and other institutions. I think that it is wrong to divide state and market. In modern states, they are intertwined. Maybe this topic should go in my course to create a debate about what terminology to use (dichotomy of state and market) and what we recognize as (economic) "science" over the centuries. Of course, the view that science has on reality influences that reality, which makes it a reflective mechanism. And that is also where the power of economics lies.

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