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Broader Lessons from Venezuela’s Cartoon Character Ruler

By: Javier Garay - @Crittiko - Nov 14, 2013, 3:47 pm

EspañolThis week, Nicolás Maduro’s socialist administration went one step further towards consolidating the totalitarian regime I mentioned in last week’s column. Simply intervening in the economy was not enough; Venezuela has become a battlefield where the state fights together with the police and the armed forces against alleged abuses made by businesspeople and shopkeepers.

This situation has stirred up plenty of criticism. However, even though Maduro is behaving like an unsavory cartoon character with totalitarian tendencies — like his entire government — people in most societies today press their governments to take similar measures.

Of course, a president that encourages the population to take a chain store by force, arguing that their prices are “unfair,” can only come from some fiction. Hence the prompt criticism and ridicule of Maduro’s measures.

However, have we not heard from most countries around the world about the need to set drug prices? Isn’t there a strong pressure to control the price of money — that is, the interest rate? Is it not deemed necessary and normal to control gas prices? We could ask whether the same is the case for the goods that comprise everyday consumption.

What is happening in Venezuela is a caricature of what can happen anywhere in the world if people keep making two conceptual errors when participating in the market as consumers:

  • the value of goods, what their price is based on, is the result of production costs and not subjective preferences;
  • the market is not a set of mutually-beneficial relationships, but rather an arena for zero-sum game, dog-eat-dog competition and exploitation.

The authors from the Austrian School of economics, such as Carl Menger (Principles of Economics, 1871), unlike classical economists such as Adam Smith and David Ricardo, proved the subjective nature of value and the existence of a universal benefit for all market agents. However, their evidence has been ignored within the field of economic science, and even most academics are not aware of it.
It is because of these basic misconceptions that people demand intervention from the state, since consumers deem prices unfair.

Sometimes, as in Venezuela, the coming to power of characters whose only obsession is power itself combines with this sort of popular demand — and the consequences are self-evident.

This is why Maduro’s decision is so like a caricature: it demonstrates, to the point of absurdity, the problems that arise when, due to ignorance, a society demands higher intervention from a state that resolves to satisfy that wish without any kind of restraint.

Since the Venezuelan government has had enough time to intervene in every sector of the economy, it has succeeded in bringing about scarcity and inflation. As a response to scarcity, the state believes it must force producers to produce. If that doesn’t work, though, there is always expropriation. Regarding inflation, prices must be controlled. If that doesn’t work, there is always expropriation. Both are happening in Venezuela.

The private sector is shrinking little by little as everything gradually becomes “public.” That is, everything is either part of the state or owned by the current leader, his family, or friends. But, despite everything that the society has lost, neither scarcity nor inflation — which were non-existent when the market was relatively free (as in Venezuela) — has been solved.

As a result, today’s Venezuela, rather than being the object of criticism or mock, should become a case study. On the one hand, it is an example where even the smallest misconceptions can have devastating effects on social organization. On the other, it demonstrates why we cannot relax our vigilance in the defense of freedom as the supreme value.

Price controls for gas, drugs, or a food basket may look like a good idea in the short term. They might even look like a matter of humanity. Nevertheless, giving in on these matters opens the door to snowballing excesses that not only do not fulfill the objectives initially established, they create many other problems whose sole consequence is the loss of freedom, with no other gain for society.

Javier Garay Javier Garay

Javier Garay is a professor at the Externado University of Colombia. He has written two books on international issues, such as development, after his doctoral dissertation focused on the same topic. Follow him on Twitter @crittiko and through his personal blog, Crittiko.