For slightly more than four decades after the end of World War II a fascinating intellectual and political conflict played itself out in the western industrial democracies. Based on experience, most people perceived Communism -- whether conspiracies within or aggression from without -- as the great threat to freedom and prosperity in the West. Yet, in spite of the ample historical evidence -- Stalin, the Red Guard, the Khmer Rouge to mention but three examples -- many intellectuals and politicians, horrified as they may have been at socialism's historical record, clung steadfastly to an anti-capitalist bias and a romantic attachment to socialist theory.
With a hubris peculiar to intellectuals and the politicians who expediently latch onto their scribblings, academic and political elites in the West insisted that "socialism prudently applied," by the likes of themselves mostly, could provide a "third path" between pure socialism and capitalism. On this third path, which became known as a "mixed economy," government would selectively and carefully intervene into the free market to "improve" it.
Thus, the so-called "mixed economy," began to be taken for granted. Even average Americans became steeped in an ideological bias that portrayed free markets as fragile, unfair and constantly failing. By the 1960s the academic carrier of this ideology -- the "new economics" or Keynesianism -- had become the official ideology of the U.S. government and a cultural myth of the American people. In 1971, President Nixon professed, "We are all Keynesians now," by which he really meant, "We are all interventionists now."
So, while America's borders were guarded against Communist aggression, many of the central tenets of socialist economic thought became assimilated into textbooks and enacted into law. As the 1980s came to a close, revolutionary socialism collapsed in a heap. Yet its abstract tenets of planning, redistribution and collectivism lived on. In America, government intervention into the economy began to accelerate once again after being on the decline for almost a decade. And, government's voracious appetite for private resources began to grow even larger.
How is it that in the teeth of the evidence, so many Americans appear unaware of the failures of government intervention in the economy? Ludwig Von Mises (1881-1973), long recognized as one of Europe's foremost economists, provides a compelling explanation in Planned Chaos (1947). Von Mises pointed out the dangerous allure of interventionism long before it was popularized and romanticized on America's college campuses and in her legislative halls. In Planned Chaos, Von Mises explains, 40 years before the fact, why the collapse of Communism is unlikely to deter the continued growth of government intervention in the "mixed economies" of the West unless voters themselves revolt against it at the ballot box.
In the first edition of Economic Classics (July 1994, No. 1) the work of another acclaimed European economist, Wilhelm Ropke, was excerpted and reprinted. Of Ropke, The New York Times wrote, "If any person in our contemporary world is entitled to a hearing it is Wilhelm Ropke. "Like Von Mises, Ropke recognized early on (1954) that the greatest threat to the western industrial democracies sprang not from some alien ideology but rather from a cancer growing within the very workings of democracy itself. Ropke pointed to the danger of what he called "malignant chronic diseases" at work in the western democracies, specifically the welfare state and creeping inflation, and how they ultimately undermine freedom and prosperity.
In this second edition of Economic Classics, Von Mises' Planned Chaos is excerpted and reprinted. In Planned Chaos, Von Mises focuses less on the development and consequences of the redistributionist welfare state and more on the effects of economic interventionism to "improve" market outcomes. He sums up succinctly: "All the methods of interventionism are doomed to failure. This means: the interventionist measures must needs result in conditions which from the point of view of their own advocates are more unsatisfactory than the previous state of affairs they were designed to alter."
A recent article by a well-known professor of economics, published in a leading economics journal, illustrates the chief threat to the economy of this and many other nations.
Most of the article was sound in conception and straight-forward in statement. The author began by endorsing private property and capitalism He pleaded for free markets for commodities and services, condemning monopoly by any group, whether "capital" or "labor." He demanded equality under the law, the protection for freedom of enterprise, production, and exchange. Only under such conditions, he said could a people attain maximum prosperity and welfare.
So far, so good.
From that point, however, the author went on to advocate seizure (by government) of property and income from the most productive persons for the supposed benefit of the least productive. In other words, he advocated, not economic liberty, but a so-called "mixed system" for the professed purpose of "socializing" welfare. This system, he said, should be introduced slowly and quietly, by a variety of devices. He condemned the revolutionary socialists on the ground that bloodshed and violence were unnecessary. With patience and quiet perseverance, he contended, the change could be brought about peaceably.
On the surface, events appear to have borne out the contention that this expropriation or "socialization," of property might take place peaceably, that is, without armed revolution and civil war. But a closer view reveals that erosion of liberty throughout the world resulted in the two bloodiest wars of all history. And without violence at home? The destruction of liberty in America as elsewhere has been accomplished both by private violence and by the near irresistible force of the modern state.
This "easy, bloodless and non-violent" transition to socialism is the subject of Planned Chaos. Starting in Germany some 60 years or more ago, this "interventionism" has grown in popularity in one country after another throughout the world. As Sozialpolitik, the Welfare State, a New Deal, or Economic Planning, it is preached and promoted in churches, schools, farm organizations, and business associations as the "non-extremist, reasonable Middle Way." In Planned Chaos Professor Mises tells why the popularity of this policy is not a safe test of its soundness, why it fails in its avowed purposes, and what it does to the nations which pursue it.***
The characteristic mark of this age of dictators, wars and revolutions is its anticapitalistic bias. Most governments and political parties are eager to restrict the sphere of private initiative and free enterprise. It is an almost unchallenged dogma that capitalism is done for and that the coming of all-round regimentation of economic activities is both inescapable and highly desirable.
Nonetheless capitalism is still very vigorous in the Western Hemisphere. Capitalist production has made very remarkable progress even in these last years. Methods of production were greatly improved. Consumers have been supplied with better and cheaper goods and with many new articles unheard of a short time ago. Many countries have expanded the size and improved the quality of their manufacturing. In spite of the anti-capitalistic policies of all governments and of almost all political parties, the capitalist mode of production is still fulfilling its social function in supplying the consumers with more, better and cheaper goods.
It is certainly not a merit of governments, politicians and labor union officers that the standard of living is improving in the countries committed to the principle of private ownership of the means of production. Not offices and bureaucrats, but big business deserves credit for the fact that most of the families in the United States own a motorcar and a radio set. The increase in per capita consumption in America as compared with conditions a quarter of a century ago is not an achievement of laws and executive orders. It is an accomplishment of businessmen who enlarged the size of their factories or build new ones.
One must stress this point because our contemporaries are inclined to ignore it. Entangled in the superstitions of stateism and government omnipotence, they are exclusively preoccupied with governmental measures. They expect everything from authoritarian action and very little from the initiative of enterprising citizens. Yet, the only means to increase well-being is to increase the quantity of products. This is what business aims at.
It is grotesque that there is much more talk about the achievements of the Tennessee Valley Authority than about all the unprecedented and unparalleled achievements of American privately-operated processing industries. However, it was only the latter which enabled the United Nations to win the war.
The dogma that the State or the Government is the embodiment of all that is good and beneficial and that the individuals are wretched underlings, exclusively intent upon inflicting harm upon one another and badly in need of a guardian, is almost unchallenged. It is taboo to question it in the slightest way. He who proclaims the godliness of the State and the infallibility of its priests, the bureaucrats, is considered as an impartial student of the social sciences. All those raising objections are branded as biased and narrow-minded. The supporters of the new religion of statolarty are even more fanatical and intolerant than were the Mohammedan conquerors of Africa and Spain.
History will call our age the age of the dictators and tyrants. We have witnessed in the last years the fall of two of these inflated supermen. But the spirit which raised these knaves to autocratic power survives. It permeates textbooks and periodicals, it speaks through the mouths of teachers and politicians, it manifests itself in party programs and in plays and novels. As long as this spirit prevails there cannot be any hope of durable peace, of democracy,1 the preservation of freedom or of a steady improvement in the nations' economic well-being.
Nothing is more unpopular today than the free market economy, i.e., capitalism. everything that is considered unsatisfactory in present-day conditions is charged to capitalism. The atheists make capitalism responsible for the survival of Christianity. But the papal encyclicals blame capitalism for the spread of irreligion and the sins of our contemporaries, and the Protestant churches and sects are no less vigorous in their indictment of capitalist greed. Friends of peace consider our wars as an offshoot of capitalist imperialism. But the adamant nationalist warmongers of Germany and Italy indicted capitalism for its "bourgeois" pacifism, contrary to human nature and to the inescapable laws of history. Sermonizers accuse capitalism of disrupting the family and fostering licentiousness. But the "Progressives" blame capitalism for the preservation of allegedly outdated rules of sexual restraint. Almost all men agree that poverty is an outcome of capitalism. On the other hand many deplore the fact that capitalism, in catering lavishly to the wishes of people intent upon getting more amenities and a better living, promotes a crass materialism. These contradictory accusations of capitalism cancel one another. But the fact remains that there are few people left who would not condemn capitalism altogether.
Although capitalism is the economic system of modern Western civilization, the policies of all Western nations are guided by utterly anticapitalistic ideas. The aim of these interventionist policies is not to preserve capitalism, but to substitute a mixed economy for it. It is assumed that this mixed economy is neither capitalism nor socialism. It is described as a third system, as far from capitalism as it is from socialism. It is alleged that it stands midway between socialism and capitalism, retaining the advantages of both and avoiding the disadvantages inherent in each.
More than half a century ago the outstanding man in the British socialist movement, Sidney Webb, declared that the socialist philosophy is "but the conscious and explicit assertion of principles of social organization which have been already in great part unconsciously adopted." And he added that the economic history of the nineteenth century was "an almost continuous record of the progress of socialism."2 A few years later an eminent British statesman, Sir William Harcourt, stated: "We are all socialists now."3 When in 1913 an American, Elmer Roberts, published a book on the economic policies of the Imperial Government of Germany as conducted since the end of the seventies, he called them "monarchical socialism."4
However, it was not correct simply to identify interventionism and socialism. There are many supporters of interventionism who consider it as the most appropriate method to realize -- step by step -- full socialism. But there are also many interventionists who are not outright socialists; they aim at the establishment of the mixed economy as a permanent system of economic management. They endeavor to restrain, to regulate and to "improve" capitalism by government interference with business and by labor unionism.
In order to comprehend the working of interventionism and of the mixed economy it is necessary to clarify two points:
First: If within a society based on private ownership of the means of production some of these means are owned and operated by the government or by municipalities, this still does not make for a mixed system which would combine socialism and private ownership. As long as only certain individual enterprises are publicly controlled, the characteristics of the market economy determining economic activity remain essentially unimpaired. The publicly owned enterprises, too, as buyers of raw materials, semi-finished goods, and labor and as sellers of goods and services, must fit into the mechanism of the market economy. They are subject to the law of the market; they have to strive after profits or, at least, to avoid losses. When it is attempted to mitigate or to eliminate this dependence by covering the losses of such enterprises with subsidies out of public funds, the only result is a shifting of this dependence somewhere else. This is because the means for the subsidies have to be raised somewhere. They may be raised by collecting taxes. But the burden of such taxes has its effects on the public, not on the government collecting the tax. It is the market, and not the revenue department, which decides upon whom the burden of the tax falls and how it affects production and consumption. The market and its inescapable law are supreme.
Second: There are two different patterns for the realization of socialism. The one pattern -- we may call it the Marxian or Russian pattern -- is purely bureaucratic. All economic enterprises are departments of the government just as the administration of the army and the navy or the postal system. Every single plant, shop, or farm, stands in the same relation to the superior central organization as does a post office to the office of the Postmaster General. The whole nation forms one single labor army with compulsory service; the commander of this army is the chief of state.
The second pattern -- we may call it the German or Zwangswirtschaft system5 -- differs from the first one in that it, seemingly and nominally, maintains private ownership of the means of production, entrepreneurship, and market exchange. So-called entrepreneurs do the buying and selling, pay the workers, contract debts and pay interest and amortization. But they are no longer entrepreneurs. In Nazi Germany they were called shop managers or Betriebsfuhrer. The government tells these seeming entrepreneurs what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell. The government decrees at what wages laborers should work and to whom and under what terms the capitalists should entrust their funds. Market exchange is but a sham. As all prices, wages, and interest rates are fixed by the authority, they are prices, wages, and interest rates in appearance only; in fact they are merely quantitative terms in the authoritarian orders determining each citizen's income, consumption, and standard of living. The authority, not the consumers, directs production. The central board of production management is supreme; all citizens are nothing else but civil servants. This is socialism, with the outward appearance of capitalism. Some labels of the capitalistic market economy are retained, but they signify here something entirely different from what they mean in the market economy.
It is necessary to point out this fact to prevent a confusion of socialism and interventionism. The system of the hampered market economy, or interventionism, differs from socialism by the very fact that it is still market economy. The authority seeks to influence the market by the intervention of its coercive power, but it does not want to eliminate the market altogether. It desires that production and consumption should develop along lines different from those prescribed by the unhindered market, and it wants to achieve its aim by injecting into the working of the market orders, commands, and prohibitions for whose enforcement the police power and its apparatus of coercion and compulsion stand ready. But these are isolated interventions; their authors assert that they do not plan to combine these measures into a completely integrated system which regulates all prices, wages, and interest rates, and which thus places full control of production and consumption in the hands of the authorities.
However, all the methods of interventionism are doomed to failure. This means: The interventionist measures must needs result in conditions which from the point of view of their own advocates are more unsatisfactory than the previous state of affairs they were designed to alter. These policies are therefore contrary to purpose.
Minimum wage rates, whether enforced by government decree or by labor union pressure and compulsion, are useless if they fix wage rates at the market level. But if they try to raise wage rates above the level which the unhampered labor market would have determined, they result in permanent unemployment of a great part of the potential labor force.
Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other. If government spending is financed by borrowing from the commercial banks, it means credit expansion and inflation. If in the course of such an inflation the rise in commodity prices exceeds the rise in nominal wage rates, unemployment will drop. But what makes unemployment shrink, is precisely the fact that real wage rates are falling.
The inherent tendency of capitalist evolution is to raise real wage rates steadily. This is the effect of the progressive accumulation of capital by means of which technological methods of production are improved. There is no means by which the height of wage rates can be raised for all those eager to earn wages other than through the increase of the per capita quota of capital invested. Whenever the accumulation of additional capital stops, the tendency toward a further increase in real wage rates comes to a standstill. If capital consumption is substituted for an increase in capital available, real wage rates must drop temporarily until the checks on a further increase in capital are removed. Government measures which retard capital accumulation or lead to capital consumption -- such as confiscatory taxation -- are therefore detrimental to the vital interests of the workers.
Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump.
It can hardly be asserted that the economic history of the last decades has run counter to the pessimistic predictions of the economists. Our age has to face great economic troubles. But this is not a crisis of capitalism. It is the crisis of interventionism, of policies designed to improve capitalism and to substitute a better system for it.
No economist ever dared to assert that interventionism could result in anything else than in disaster and chaos. The advocates of interventionism -- foremost among them the Prussian Historical School and the American Institutionalists were not economists. On the contrary. In order to promote their plans they flatly denied that there is any such thing as economic law. In their opinion governments are free to achieve all they aim at without being restrained by an inexorable regularity in the sequence of economic phenomena. Like the German socialist Ferdinand Lassalle, they maintain that the State is God.
The interventionists do not approach the study of economic matters with scientific disinterestedness. Most of them are driven by an envious resentment against those whose incomes are larger than their own. This bias makes it impossible for them to see things as they really are. For them the main thing is not to improve the conditions of the masses, but to harm the entrepreneurs and capitalists even if this policy victimizes the immense majority of the people.
In the eyes of the interventionists the mere existence of profits is objectionable. They speak of profit without dealing with its corollary, loss. They do not comprehend that profit and loss are the instruments by means of which the consumers keep a tight rein on all entrepreneurial activities. It is profit and loss that make the consumers supreme in the direction of business. It is absurd to contrast production for profit and production for use. On the unhampered market a man can earn profits only by supplying the consumers in the best and cheapest way with the goods they want to use. Profit and loss withdraw the material factors of production from the hands of the inefficient and place them in the hands of the more efficient. It is their social function to make a man the more influential in the conduct of business the better he succeeds in producing commodities for which people scramble. The consumers suffer, when the laws of the country prevent the most efficient entrepreneurs from expanding the sphere of their activities. What made some enterprises develop into "big business" was precisely their success in filling best the demand of the masses.
Anticapitalistic policies sabotage the operation of the capitalist system of the market economy. The failure of interventionism does not demonstrate the necessity of adopting socialism. It merely exposes the futility of interventionism. All those evils which the self-styled "Progressives" interpret as evidence of the failure of capitalism are the outcome of their allegedly beneficial interference with the market. Only the ignorant, wrongly identifying interventionism and capitalism, believe that the remedy for these evils is socialism.
Many advocates of interventionism are bewildered when one tells them that in recommending interventionism they themselves are fostering antidemocratic and dictatorial tendencies and the establishment of a totalitarian socialism. They protest that they are sincere believers in democracy and opposed to tyranny and socialism. What they aim at is only the improvement of the conditions of the poor. They say that they are driven by considerations of social justice and favor a fairer distribution of income precisely because they are intent upon preserving capitalism and its political corollary or superstructure, viz., democratic government.
What these people fail to realize is that the various measures they (interventionists) suggest are not capable of bringing about the beneficial results aimed at. On the contrary they produce a state of affairs which from the point of view of their advocates is worse than the previous state which they were designed to alter. If the government, faced with this failure of its first intervention, is not prepared to undo its interference with the market and to return to a free economy, it must add to its first measure more and more regulations and restrictions. Proceeding step by step on this way it finally reaches a point in which all economic freedom of individuals has disappeared. Then socialism of the German pattern, the Zwangswirschaft of the Nazis, emerges.
We have already mentioned the case of minimum wage rates. Let us illustrate the matter further by an analysis of a typical case of price control.
If the government wants to make it possible for poor parents to give more milk to their children, it must buy the milk at the market price and sell it to those poor people with a loss at a cheaper rate; the loss may be covered from the means collected by taxation. But if the government simply fixes the price of milk at a lower rate than the market, the results obtained will be contrary to the aims of the government. The marginal producers will, in order to avoid losses, go out of the business of producing and selling milk. There will be less milk available for the consumers, not more. This outcome is contrary to the government's intentions. The government interfered because it considered milk as a vital necessity. It did not want to restrict its supply.
Now the government has to face the alternative: either to refrain from any endeavors to control prices or to add to its first measure a second one, i.e., to fix the prices of the factors of production necessary for the production of milk. Then the same story repeats itself on a remoter plane; the government has again to fix the prices of the factors of production necessary for the production of those factors of production which are needed for the production of milk. Thus the government has to go further and further, fixing the prices of all the factors of production -- both human (labor) and material -- and forcing every entrepreneur and every worker to continue work at these prices and wages. No branch of production can be omitted from this all-round fixing of prices and wages and this general order to continue production. If some branches of production were left free, the result would be a shifting of capital and labor to them and a corresponding fall of the supply of the goods whose prices the government had fixed. However, it is precisely these goods which the government considers as especially important for the satisfaction of the needs of the masses.
But when this state of all-round control of business is achieved, the market economy has been replaced by a system of planned economy, by socialism. Of course, this is not the socialism of immediate state management of every plant by the government as in Russia, but the socialism of the German or Nazi pattern.
Many people were fascinated by the alleged success of German price control. They said: You have only to be as brutal and ruthless as the Nazis and you will succeed in controlling prices. What these people, eager to fight Nazism by adopting its methods, did not see was that the Nazis did not enforce price control within a market society, but that they established a full socialist system, a totalitarian commonwealth.
Price control is contrary to purpose if it is limited to some commodities only. It cannot work satisfactorily within a market economy. If the government does not draw from this failure the conclusion that it must abandon all attempts to control prices, it must go further and further until it substitutes socialist all-round planning for the market economy.
Production can either be directed by the prices fixed on the market by the buying and by the abstention from buying on the part of the public. Or it can be directed by the government's central board of production management. There is no third solution available. There is no third social system feasible which would be neither market economy nor socialism. Government control of only a part of prices must result in a state of affairs which -- without any exception -- everybody considers as absurd and contrary to purpose. Its inevitable result is chaos and social unrest.
It is this that the economists have in mind in referring to economic law and asserting that interventionism is contrary to economic law.
In the market economy the consumers are supreme. Their buying and their abstention from buying ultimately determines what the entrepreneurs produce and in what quantity and quality. It determines directly the prices of the consumers' goods and indirectly the prices of all producers' goods, viz., labor and material factors of production. It determines the emergence of profits and losses and the formation of the rate of interest. It determines every individual's income. The focal point of the market economy is the market, i.e., the process of the formation of commodity prices, wage rates and interest rates and their derivatives, profits and losses. It makes all men in their capacity as producers responsible to the consumers. This dependence is direct with entrepreneurs, capitalists, farmers and professional men, and indirect with people working for salaries and wages. The market adjusts the efforts of all those engaged in supplying the needs of the consumers to the wishes of those for whom they produce, the consumers. It subjects production to consumption.
The market is a democracy in which every penny gives a right to vote. It is true that the various individuals have not the same power to vote. The richer man casts more ballots than the poorer fellow. But to be rich and to earn a higher income is, in the market economy, already the outcome of a previous election. The only means to acquire wealth and to preserve it, in a market economy not adulterated by government-made privileges and restrictions, is to serve the consumers in the best and cheapest way. Capitalists and landowners who fail in this regard suffer losses. If they do not change their procedure, they lose their wealth and become poor. It is the consumers who make poor people rich and rich people poor. It is the consumers who fix the wages of a movie star and an opera singer at a higher level than those of a welder or an accountant.
Every individual is free to disagree with the outcome of an election campaign or of the market process. But in a democracy he has no other means to alter things than persuasion. If a man were to say: "I do not like the mayor elected by majority vote; therefore I ask the government to replace him by the man I prefer," one would hardly call him a democrat. But if the same claims are raised with regard to the market, most people are too dull to discover the dictatorial aspirations involved.
The consumers have made their choices and determined the income of the shoe manufacturer, the movie star and the welder. Who is Professor X to arrogate to himself the privilege of overthrowing their decision? If he were not a potential dictator, he would not ask the government to interfere. He would try to persuade his fellow-citizens to increase their demand for the products of the welders and to reduce their demand for shoes and pictures.
The consumers are not prepared to pay for cotton prices which would render the marginal farms, i.e., those producing under the least favorable conditions, profitable. This is very unfortunate indeed for the farmers concerned; they must discontinue growing cotton and try to integrate themselves in another way into the whole of production.
But what shall we think of the statesman who interferes by compulsion in order to raise the price of cotton above the level it would reach on the free market? What the interventionist aims at is the substitution of police pressure for the choice of the consumers. All this talk: the state should do this or that, ultimately means: the police should force consumers to behave otherwise than they would behave spontaneously. In such proposals as: let us raise farm prices, let us raise wage rates, let us lower profits, let us curtail the salaries of executives, the us ultimately refers to the police. Yet, the authors of these projects protest that they are planning for freedom and industrial democracy.***
Metaphors are often very useful in elucidating complicated problems and in making them comprehensible to less intelligent minds. But they become misleading and result in nonsense if people forget that every comparison is imperfect. It is silly to take metaphorical idioms literally and to deduce from their interpretation features of the object one wished to make more easily understandable by their use. There was no harm in the economists' description of the operation of the market as automatic and in their custom of speaking of the anonymous forces operating on the market. They could not anticipate that anybody would be so stupid as to take these metaphors literally.
No "automatic" and "anonymous" forces actuate the 'mechanism" of the market. The only factors directing the market and determining prices are purposive acts of men. There is no automatism; there are men consciously aiming at ends chosen and deliberately resorting to definite means for the attainment of these ends. There are no mysterious mechanical forces; there is only the will of every individual to satisfy his demand for various goods. There is no anonymity; there are you and I and Bill and Joe and all the rest. And each of us is engaged both in production and consumption. Each contributes his share to the determination of prices.
The dilemma is not between automatic forces and planned action. It is between the democratic process of the market in which every individual has his share and the exclusive rule of a dictatorial body. Whatever people do in the market economy, is the execution of their own plans. In this sense every human action means planning. What those calling themselves planners advocate is not the substitution of planned action for letting things go. It is the substitution of the planner's own plan for the plans of his fellowman. The planner is a potential dictator who wants to deprive all other people of the power to plan and act according to their own plans. He aims at one thing only: the exclusive absolute preeminence of his own plan.
It is no less erroneous to declare that a government that is not socialistic has no plan. Whatever a government does is the execution of a plan, i.e., of a design. One may disagree with such a plan. But one must not say that it is not a plan at all. Professor Wesley C. Mitchell maintained that the British liberal government "planned to have no plan."6 However, the British government in the liberal age certainly had a definite plan. Its plan was private ownership of the means of production, free initiative and market economy. Great Britain was very prosperous indeed under this plan which according to Professor Mitchell is "no plan."
The planners pretend that their plans are scientific and that there cannot be disagreement with regard to them among wellintentioned and decent people. However, there is no such thing as a scientific ought. Science is competent to establish what is. It can never dictate what ought to be and what ends people should aim at. It is a fact that men disagree in their value judgments. It is insolent to arrogate to oneself the right to overrule the plans of other people and to force them to submit to the plan of the planner. Whose plan should be executed? The plan of the CIO or those of any other group? The plan of Trotsky or that of Stalin? The plan of Hitler or that of Strasser?
When people were committed to the idea that in the field of religion only one plan must be adopted, bloody wars resulted. With the acknowledgment of the principle of religious freedom these wars ceased. The market economy safeguards peaceful economic cooperation because it does not use force upon the economic plans of the citizens. If one masterplan is to be substituted for the plans of each citizen, endless fighting must emerge. Those who disagree with the dictator's plan have no other means to carry on then to defeat the despot by force of arms.
It is an illusion to believe that a system of planned socialism could be operated according to democratic methods of government. Democracy is inextricably linked with capitalism. It cannot exist where there is planning. Let us refer to the words of the most eminent of the contemporary advocates of socialism. Professor Harold Laski declared that the attainment of power by the British Labor Party in the normal parliamentary fashion must result in a radical transformation of parliamentary government. A socialist administration needs "guarantees" that its work of transformation would not be "disrupted" by repeal in event of its defeat at the polls. Therefore the suspension of the Constitution is "inevitable."7 How pleased would Charles I and George III have been if they had known the books of Professor Laski!
Sidney and Beatrice Webb (Lord and Lady Passfield) tell us that "in any corporate action a loyal unity of thought is so important that, if anything is to be achieved, public discussion must be suspended between the promulgation of the decision and the accomplishment of the task." Whilst "the work is in progress" any expression of doubt, or even of fear that the plan will not be successful, is "an act of disloyalty, or even of treachery."8 Now as the process of production never ceases and some work is always in progress and there is always something to be achieved, it follows that a socialist government must never concede any freedom of speech and press. "A loyal unity of thought," what a high-sounding circumlocution for the ideals of Philip II and the inquisition! In this regard another eminent admirer of the Soviets, Mr. T. G. Crowther, speaks without any reserve. He plainly declares that inquisition is "beneficial to science when it protects a rising class,"9 i.e., when Mr. Crowther's friends resort to it. Hundreds of similar dicta could be quoted.
In the Victorian age, when John Stuart Mill wrote his essay On Liberty, such views as those held by Professor Laski, Mr. and Mrs. Webb and Mr. Crowther were called reactionary. Today they are called "progressive" and "liberal. "On the other hand people who oppose the suspension of parliamentary government and of the freedom of speech and the press and the establishment of inquisition are scorned as "reactionaries," as "economic royalists" and as "Fascists."
Those interventionists who consider interventionism as a method of bringing about full socialism step by step are at least consistent. If the measures adopted fail to achieve the beneficial results expected and end in disaster, they ask for more and more government interference until the government has taken over the direction of all economic activities. But those interventionists who look at interventionism as a means of improving capitalism and thereby preserving it are utterly confused.
In the eyes of these people all the undesired and undesirable effects of government interference with business are caused by capitalism. The very fact that a governmental measure has brought about a state of affairs which they dislike is for them a justification of further measures. They fail, for instance, to realize that the role monopolistic schemes play in our time is the effect of government interference such as tariffs and patents. They advocate government action for the prevention of monopoly. One could hardly imagine a more unrealistic idea. For the governments whom they ask to fight monopoly are the same governments who are devoted to the principle of monopoly. Thus, the American New Deal Government embarked upon a thorough-going monopolistic organization of every branch of American business, by the NRA, and aimed at organizing American farming as a vast monopolistic scheme, restricting farm output for the sake of substituting monopoly prices for the lower market prices. It was a party to various international commodity control agreements the undisguised aim of which was to establish international monopolies of various commodities. The same is true of all other governments. The Union of Soviet Socialist Republics was also a party to some of these intergovernmental monopolistic conventions.10 Its repugnance for collaboration with the capitalistic countries was not so great as to cause it to miss any opportunity for fostering monopoly.
The program of this self-contradictory interventionism is dictatorship, supposedly to make people free. But the liberty its supporters advocate is liberty to do the "right" things, i.e., the things they themselves want to be done. They are not only ignorant of the economic problems involved. They lack the faculty of logical thinking.
The most absurd justification of interventionism is provided by those who look upon the conflict between capitalism and socialism as if it were a contest over the distribution of income. Why should not the propertied classes be more compliant? Why should they not accord to the poor workers a part of their ample revenues? Why should they oppose the government's design to raise the share of the underprivileged by decreeing minimum wage rates and maximum prices and by cutting profits and interest rates down to a "fairer" level?
Pliability in such matters, they say, would take the wind from the sails of the radical revolutionaries and preserve capitalism. The worst enemies of capitalism, they say, are those intransigent doctrinaires whose excessive advocacy of economic freedom, of laissez-faire and Manchesterism renders vain all attempts to come to a compromise with the claims of labor. These adamant reactionaries are alone responsible for the bitterness of contemporary party strife and the implacable hatred it generates. What is needed is the substitution of a constructive program for the purely negative attitude of the economic royalists. And, of course, "constructive" is in the eyes of these people only interventionism.
However, this mode of reasoning is entirely vicious. It takes for granted that the various measures of government interference with business will attain those beneficial results which their advocates expect from them. It blithely disregards all that economics says about their futility in attaining the ends sought and their unavoidable and undesirable consequences. The question is not whether minimum wage rates are fair or unfair, but whether or not they bring about unemployment of a part of those eager to work. By calling these measures just, the interventionist does not refute the objections raised against their expediency by the economists. He merely displays ignorance of the question at issue.
The conflict between capitalism and socialism is not a contest between two groups of claimants concerning the size of the portions to be allotted to each of them out of a definite supply of goods. It is a dispute concerning what system of social organization best serves human welfare. Those fighting socialism do not reject socialism because they envy the workers' benefits they could allegedly derive from the socialist mode of production. They fight socialism precisely because they are convinced that it would harm the masses in reducing them to the status of poor serfs entirely at the mercy of irresponsible dictators.
In this conflict of opinions everybody must make up his mind and take a definite stand. Everybody must side either with the advocates of economic freedom or with those of totalitarian socialism. One cannot evade this dilemma by adopting an allegedly middle-of-the-road position, namely interventionism. For interventionism is neither a middle way nor a compromise between capitalism and socialism. It is a third system. It is a system the absurdity and futility of which is agreed upon not only by all economists but even by the Marxians.
There is no such thing as an "excessive" advocacy of economic freedom. On the one hand, production can be directed by the efforts of each individual to adjust his conduct so as to fill the most urgent wants of the consumers in the most appropriate way. This is the market economy. On the other hand, production can be directed by authoritarian decree. If these decrees concern only some isolated items of the economic structure, they fail to attain the ends sought and their own advocates do not like their outcome. If they come up to all-round regimentation, they mean totalitarian socialism.
Men must choose between the market economy and socialism. The state can preserve the market economy in protecting life, health, and private property against violent or fraudulent aggression; or it can itself control the conduct of all production activities. Some agency must determine what should be produced. If it is not the consumers by means of demand and supply on the market, it must be the government by compulsion.
2 Sidney Webb in Fabian Essays in Socialism, first published in 1889 (American edition, New York 1891, p.4).
3 Cf. G. M. Trevelyan, A Shortened History of England (London 1942), p. 510
4 Eimer Roberts, Monarchical Socialism in Germany, (New York 1913).
Endnotes
1 The term democracy, as I use it, means a system of government under which those ruled are in a position to determine, directly by plebiscite or indirectly by election, the mode in which the legislative and executive power is to be exercised and the selection of the supreme executives. Democracy is the very opposite of the Bolshevist, Fascist and Nazi principle according to which a group of self-appointed vanguardists has the right and the duty to seize the reins of government by violent action and to impose its own will upon the majority.
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