In 1944, Friedrich von Hayek, one of the greatest economists and political philosophers in modern history; published his magnum opus entitled The Road to Serfdom. In his book, Hayek warned free societies about the dangers of government intervention. He argued that government intervention leads to totalitarianism. The Great Depression and World War II were the two main factors that encouraged most first world countries to embrace government intervention and central-planning to solve problems. Today, most countries in the world, and especially developed nations, including the United States; have adopted a mixed economy in which the free-market policies and socialist policies must coexist in order to advance the common good.
Many intellectuals argue that a mixed economy a better economic system than laissez-faire economy or command economy because it alleviates economic and social inequalities between classes. For example, the policy of affordable housing, which enables those at the bottom of social hierarchy to find housing, is a concrete result of a mixed economy in which the government plays a substantial role in social affairs although the market economy is promulgated by private initiatives. Notwithstanding, the main predicament of a mixed economy is that government intervention in economic and social affairs amplifies government’s authority over the lives of individuals. The more the power of government expands, the more individual liberties are reduced. The minimum wage law is a perfect illustration of government’s control over the economy as Hayek predicted. On the social aspect, the minimum wage law seems legitimate because it allows the worker to receive an adequate pay for the production of his labor. On the economic aspect though, the minimum wage law is essentially a deficient factor of a mixed economy. Indeed, the implementation of the minimum wage law is a problem in the market economy because it penalizes low-skilled individuals to find employment and it, therefore, impedes the utility of human capital. The minimum wage law compels the employer to discriminate against low-skilled individuals and also forces the employer to increase the price of his products or services in order to remain competitive on the market. Each time the government increases the minimum wage, the employer or business owner is obliged to reduce his workforce in order to maintain his business. It subsequently becomes a waste of human capital. If the government did not impose a minimum wage law, many low-skilled individuals would find employment whereas it is part-time or even temporarily; which would enable them to meet end needs.
A mixed economy is actually the steppingstone that leads to central-planning. And this is the real danger for classical liberalism because it subverts individual freedoms, and the free exchange of good and services between individuals and businesses. The reason a mixed economy is pernicious to the development of the free-market is because the government has redundant powers over public affairs. This implies that the government is actually used as the great equalizer whom alone has the power and authority to uphold economic and social equality through compulsive and coercive methods such as progressive income taxation, and the creation of social programs like Food Stamps, TANF or Medicare and Medicaid. The only way for the state to maintain its role as a great equalizer, is by the enforcement of central economic planning, wherein the government has control over the mechanism of economic and social operations. Central-planning is an inherently defective and an unsustainable system. Ludwig von Mises is his book entitled Socialism: An Economic and Sociological Analysis published in 1922, demonstrated that central-planning is rationally impossible to adequately work. He explicitly stated that:
“The fundamental objection advanced against the practicability of socialism refers to the impossibility of economic calculation. It has been demonstrated in an irrefutable way that a socialist commonwealth would not be in a position to apply economic market prices for factors of production because they are neither bought nor sold, it is impossible to resort to calculation in planning future action and in determining the result of past action. A socialist management of production would simply not know whether or not what it plans and executes is the most appropriate means to attain the ends sought. It will operate in the dark, as it were. It will squander the scarce factors of production both material and human (labour). Chaos and poverty for all will unavoidably results.” [1]
This powerful quote of Ludwig von Mises extracted from Socialism can be clearly exemplified with the current situation of socialized medicine in the United Kingdom where its healthcare system is completely under central-planning of the British government. The National Health Services (NHS), which is the government agency that regulates and controls medicine in the United Kingdom. The NHS has proved to be a detrimental and flawed program for the British healthcare system for two main reasons. The first reason is that although more people have access to the healthcare in the UK, they do not have the freedom to choose the medical plan that would fit their needs, nor the doctor of their choice, They are forced to go alone with the medical plan that the government offers them, which is a plan with limited options. The government imposes on the patients what it believes is best for them without knowing their needs nor the signals that would stimulate innovation in the medical industry. The second reason is the mismanagement of the central-planning in the medical industry. The government controls the prices of drugs and the cost of medical treatment. Although patients pay nothing when they are receiving treatments, the British government yearly increases taxes so it could maintain its medical supply. But the problem is that government increase taxes, but the medical supply is still of low quality. Through the 1960s and 1970s, the NHS has begun to malfunction. Demand exceeded supply, and the system faced a shortage of doctors, nurses, and medical treatments because the government failed to maintain the equilibrium necessary to sustain the stimulus. The National Institute for Health and Care Excellence (NICE) is responsible for approving new drugs and treatments for the NHS [2]. The drug infliximab for example, is used to treat ulcerative colitis, but it was not prescribed for those with Crohn’s disease—why? Because there are more Crohn’s patients and the treatments would cost more [3]. Even when treatments are available for some conditions, the NHS often does not act in the best interests of patients [4]. The NHS was built on the mantra that treatment is available to all, free at the point of use, regardless of the patient’s ability to pay [5]. What the NHS does not publicize is that the best treatments available to patients in other countries are not necessarily available in the United Kingdom [6]. If the healthcare system was privatized, the medical industry would have thrived three times faster than the current one. It would have thrived faster because individuals would have brought innovation since they have the knowledge through prices, production, and capital; of what is necessary to foster and betterment the healthcare system.
Mixed economies are fallacious because they are explicitly mixed. On the contrary, they are progressively moving towards more government intervention, therefore, towards more central planning; that is to say towards absolute control of the state over economic and social affairs, It is important and even wise that the authority of the state be substantially reduced in economic and social affairs so that individuals can prosper without interventionist and coercive force.
1. Ludwig von Mises, “Ludwig von Mises on the Impossibility of Rational Economic Planning Under Socialism (1922)”, Online Library of Liberty, https://oll.libertyfund.org/quotes/233, Quotation.
2. Allison, Andrew, “The NHS’s Flaws Are Killing Us”, Comment Central, (2018), http://commentcentral.co.uk/the-nhss-flaws-are-killing-us/. Article. Web.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
