Controls breed controls – part 1 — VOICES for REASON

Ayn Rand was an uncompromising defender of laissez-faire capitalism, which, she held, means “the abolition of any and all forms of government intervention in production and trade, the separation of State and Economics, in the same way and for the same reasons as the separation of Church and State.” In her essay “Doesn’t Life Require Compromise?”, she noted:

There can be no compromise between freedom and government controls; to accept “just a few controls” is to surrender the principle of inalienable individual rights and to substitute for it the principle of the government’s unlimited, arbitrary power, thus delivering oneself into gradual enslavement.

This view would shock most people today. They take it as self-evident that we must have some combination of freedom and government control of the economy. The idea that “just a few controls” would lead to “gradual enslavement” strikes them as dubious, to say the least. But the evidence for this proposition is all around us. A free country doesn’t dissolve into authoritarian rule over night, but by steps–some small and innocuous, others vast and brazen. Today, we’re seeing examples of both.

Here’s a recent example of the former:

Senate Banking Chairman Chris Dodd has been hearing from constituents upset because banks have been raising the interest rates on their credit cards. This week Mr. Dodd decided to do something about it. He proposed a bill imposing an immediate freeze on those rates.

“At a time when families are struggling to make ends meet, jacked up rates can quickly create crushing debt,” Mr. Dodd said in a statement. “People need to be responsible with their money, but they shouldn’t be taken to the cleaners by outrageous rates.”

If customers are being taken to the cleaners, it is because lawmakers like Mr. Dodd sent them there. In May, Congress passed the Credit Card Accountability, Responsibility and Disclosure Act, which bars rate increases without a 45-day notification. To reduce their risk under this law, banks are rushing to raise rates before it takes effect in February. Thus the Senator’s latest political grandstand.

And now the latter:

The U.S. Treasury and the Federal Reserve unveiled Thursday a set of curbs and rules for executive compensation at banks, marking a watershed moment for government intervention in the private sector.

The Fed is proposing that it more aggressively regulate compensation practices at banks under its control, including thousands of U.S. banks as well as the American subsidiaries of overseas firms. . . .

Meanwhile, the U.S. pay czar, Kenneth Feinberg, announced that cash salaries for top executives at seven firms that have received significant government assistance will be limited to $500,000, and their total compensation will be cut by 50%.

In both cases, government intervention into the economy created a problem which was used to justify further government intervention into the economy. Regulations led credit card companies to raise their rates, which led to calls for a freeze on rates. Government bailouts led to outrage over executive bonuses, which led to government regulation of pay.

In economic terms, this process can be summarized as: controls breed controls. As the great economist Ludwig von Mises describes it:

[Government] intervention cannot work as a permanent system of society’s economic organization. The various measures recommended must necessarily bring about results which–from the point of view of their own advocates and the governments resorting to them–are more unsatisfactory than the previous state of affairs which they were designed to alter. If the government neither acquiesces in this outcome nor derives from it the conclusion that it is advisable to abstain from all such measures, it is forced to supplement its first steps by more and more interference until it has abolished private control of the means of production entirely and thus established socialism. The conduct of economic affairs, i.e., the determination of the purposes for which the factors of production should be employed, can ultimately be directed either by buying and abstention from buying on the part of consumers, or by government decrees. There is no middle way. Control is indivisible.

This process, in one form or another, has been going on throughout America’s history. In a series of blog posts, I’m going to catalog some of the ways this process has occurred, and is now occurring. What should become clear is that the choice really is as Ayn Rand said: an absolute commitment to individual rights or a gradual slide into total enslavement.

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