Sunday, May 24, 2009

Can a Subjectivist be an Interventionist?

I believe that any kind of interventionism is incompatible with subjectivism. For example, suppose that a cluster of entrepreneurial errors occur in the economy, possibly as a result of the ABCT. The capital structure has become inconsistent with the demands of the consumers and relative prices are out of balance.

What could an interventionist Austrian suggest to deal with this? He could recommend that the government create incentives to invest in industries that would have done well had the cluster of errors not occurred (these would likely be producers of consumer goods). How would the government determine the proper industries to prop up? It could not. To do so would require precise knowledge of a counter-factual state of affairs. Since the correct capital structure is a reflection of consumers’ needs, the only option is to let the entrepreneurs slowly discover their mistaken investments and correct them. Therefore, Lachmann was inconsistent with his own methodology when he advised certain kinds of intervention to alleviate the business cycle.

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