3. Direct Effects of Intervention on Utility

In tracing the effects of intervention, we must explore both the direct and the indirect consequences. In the first place, intervention will have direct, immediate consequences on the utilities of those participating. On the one hand, when the society is free and there is no intervention, everyone will always act in the way that he believes will maximize his utility, i.e., will raise him to the highest possible position on his value scale. In short, everyone's utility ex ante will be “maximized” (provided we take care not to interpret “utility” in a cardinal manner). Any exchange on the free market, indeed any action in the free society, occurs because it is expected to benefit each party concerned. If we may use the term “society” to depict the pattern, the array, of all individual exchanges, then we may say that the free market maximizes social utility, since everyone gains in utility from his free actions.³

Coercive intervention, on the other hand, signifies per se that the individual or individuals coerced would not have voluntarily done what they are now being forced to do by the intervener. The person who is coerced into saying or not saying something or into making or not making an exchange with the intervener or with a third party is having his actions changed by a threat of violence. The man being coerced, therefore, always loses in utility as a result of the intervention, for his action has been forcibly changed by its impact. In autistic and binary interventions, the individual subjects each lose in utility; in triangular interventions, at least one, and sometimes both, of the pair of would-be exchangers lose in utility.

Who gains in utility ex ante? Clearly, the intervener; otherwise, he would not have made the intervention. In the case of binary intervention, he himself gains directly in exchangeable goods or services at the expense of his subject.⁴ In the case of autistic and triangular interventions, he gains in a sense of psychic well-being from enforcing regulations upon others (or, perhaps, in providing a seeming justification for other, binary interventions).

In contrast to the free market, therefore, all cases of intervention supply one set of men with gains at the expense of another set. In binary interventions, the direct gains and losses are “tangible” in the form of exchangeable goods or services; in other cases, the direct gains are nonexchangeable satisfactions to the interveners, and the direct loss is being coerced into less satisfying, if not positively painful, forms of activity.

Before the development of economic science, people tended to think of exchange and the market as always benefiting one party at the expense of the other. This was the root of the mercantilist view of the market, of what Ludwig von Mises calls the “Montaigne fallacy.” Economics has shown this to be a fallacy, for on the market both parties to an exchange will benefit.⁵On the market, therefore, there can be no such thing as exploitation. But the thesis of an inherent conflict of interest is true whenever the State or anyone else wielding force intervenes on the market. For then the intervener gains at the expense of the subjects who lose in utility. On the market all is harmony. But as soon as intervention appears on the scene, conflict is created, for each person or group may participate in a scramble to be a net gainer rather than a net loser—to be part of the intervening team, as it were, rather than one of the victims. And the very institution of taxation ensures that some will be in the net gaining, and others in the net losing, class.⁶ Since all State actions rest on the fundamental binary intervention of taxation, it follows that no State action can increase social utility, i.e., can increase the utility of all affected individuals.⁷

A common objection to the conclusion that the free market, in unique contrast to intervention, increases the utility of every individual in society, points to the fate of the entrepreneur whose product suddenly becomes obsolete. Take, for example, the buggy manufacturer who faces a shift in public demand from buggies to automobiles. Does he not lose utility from the operation of the free market? We must realize, however, that we are concerned only with the utilities that are demonstrated by the manufacturer's action.⁸ In both period one, when consumers demanded buggies, and in period two, when they shifted to autos, he acts so as to maximize his utility on the free market. The fact that, in retrospect, he prefers the results of period one may be interesting data for the historian, but is irrelevant for the economic theorist. For the manufacturer is not living in period one any more. He lives always under present conditions and in relation to the present value scales of his fellow men. Voluntary exchanges, in any given period, will increase the utility of everyone and will therefore maximize social utility. The buggy manufacturer could not restore the conditions or results of period one unless he used force against others to coerce their exchanges, but, in that case, social utility could no longer be maximized, because of his invasive act.

Just as some writers have tried to deny the voluntary nature and the mutual benefits of free exchange, so others have tried to attribute a voluntary quality to actions of the State. Generally, this attempt has been based either on the view that there exists an entity “society,” which cheerfully endorses and supports the actions of the State, or that the majority endorses these acts and that this somehow means universal support, or finally, that somehow, down deep, even the opposing minority endorses the acts of the State. From these fallacious assumptions, they conclude that the State can increase social utility at least as well as the market can.⁹,¹⁰

Having described the unanimity and harmony of the free market, as well as the conflict and losses of utility generated by intervention, let us ask what happens if government is used to check interventions in the market by private criminals—i.e., private imposers of coerced exchanges. It has been asked: Is not this “police” function an act of intervention, and does not the free market itself then necessarily rest on a “framework” of such intervention? And does not the existence of the free market therefore require a loss of utility on the part of the criminals who are being punished by the government?¹¹ In the first place, we must remember that the purely free market is an array of voluntary exchanges between sets of two persons. If there are no threats of criminal intervention in that market—say because everyone feels duty-bound to respect the private property of others—no “framework” of counterintervention will be needed. The “police” function is therefore solely a secondary derivative problem, not a precondition, of the free market.

Secondly, if governments—or private agencies, for that matter—are employed to check and combat intervention in society by criminals, it is certainly obvious that this combat imposes losses of utility upon the criminals. But these acts of defense are hardly “intervention” in our sense of the term. For the losses of utility are being imposed only upon people who, in turn, have been trying to impose losses of utility on peaceful citizens. In short, the force used by police agencies in defending individual freedom—i.e., in defending the persons and property of the citizens—is purely an inhibitory force; it is counterintervention against true, initiatory intervention. While such counter action cannot maximize “social utility”—the utility of everyone in society involved in interpersonal actions—it does maximize the utility of noncriminals, i.e., those who have been peacefully maximizing their own utility without inflicting losses upon others. Should these defense agencies do their job perfectly and eliminate all interventions, then their existence will be perfectly compatible with the maximization of social utility.