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SCI LIBRARY

XIII. Is Socialism Dead?

America's Unknown Enemy: Beyond Conspiracy

Editorial Staff of the
American Institute for Economic Research



[1993]


All around the world, socialist policies are on the wane. Experience has at last forced many advocates of socialism to concede that it is not a more efficient system. But many socialists continue to advocate centralized control of economic decisions (which is the essential ingredient of many "isms" besides socialism) on other grounds, such as morality or justice. Other, more doctrinaire, socialists deny that the actual experience of socialism is a valid test of its efficacy, i.e.,/I>, they claim that "genuine socialism has yet to be tried." Neither of these propositions can be disproved intellectually. The irony of this situation is that they are likely to retain their greatest plausibility in countries with the least experience with socialism in practice.

Socialists have been thrown out of office in many of the industrialized democracies of the "first world," and the policies of those who remain, such as President Mitterand in France, have become more moderate. Many of the nations of the "third world" have begun to question and change the socialist policies that have led to their stagnation and bankruptcy rather than their advancement. Even in the "second world" of centrally planned communist societies, the dogmas of Marxism are being rewritten to permit individual rewards, risks, and choices. In short, the practitioners of socialism are on the defensive around the globe.


The Idea of Socialism


We should first attempt to understand what it is that makes a given proposal or policy "socialistic." There are many varieties of socialism and despite entire libraries of gobbledygook concerning the economics of socialism, there is only one basic notion involved. This notion is that the allocation of resources must be guided by an elite group, who must be given the power to override the decisions of ordinary people. Although most socialists probably would be infuriated by reduction of their elaborate analytic and historical arguments to this simple proposition, there really is little else that is essential to the socialists' position.

Socialists share the assumption that allocation of economic resources by a small group is preferable, if not inevitable, with some strange bedfellows -- monarchists, mercantilists, theocrats, and fascists, to name a few. The issues such as the ownership of the means of production, control of the distribution of goods, criteria for admission to the elite, etc. that distinguish socialists from, say, monarchists are less economically fundamental than the belief in centralized control that they share. All such groups, in theory, share the same goals of justice and prosperity (no one advocates a particular system as a way of fostering injustice and misery, after all), and they all reject or ignore the findings of Adam Smith and other students of market processes.

Thus, the central economic issue for socialists is who is to be in charge of the allocation of resources. This explains not only why disputes among socialists tend to be bitter and vicious, but also why socialists had to posit "capitalism as its major rival. But "capitalism" as a doctrine exists only in the minds of socialists.

The main challenge to socialism and the system that socialists wish to supplant is what most of the world continues to call "liberalism." (In the United States, this name has been stood on its head -- U.S. "liberals" today advocate policies, such as wage and price controls, protectionism, regulation, subsidies, etc. that liberals traditionally opposed.) And, as F. A. Hayek observed, "There is nothing in the basic principle of liberalism to make it a stationary creed; there are no hard-and-fast rules fixed once and for all. The fundamental principle that in the ordering of our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion, is capable of an infinite variety of applications."[1]

During the 19th century, liberal policies brought about an unprecedented prosperity in places where they were implemented. At the same time, a new type of individual, the entrepreneur or "capitalist," emerged as the dominant force in economic life. Inasmuch as such persons appeared to be the main beneficiaries of liberalism, in terms of wealth and power, socialists apparently concluded that liberalism was simply the means by which the capitalists had shouldered aside the aristocrats, landlords, and clerics that had previously dominated society.

So it was that classical liberalism was transformed into "capitalism" in the socialists' thinking. What they overlooked or denied was the fact that an individual entrepreneur only acquired or maintained prominence to the extent that he or she served the rest of society, i.e., the position of an individual capitalist was not acquired or maintained by law, custom, a self-perpetuating oligarchy, or by raw force.

Some socialists, notably John Kenneth Galbraith, have addressed this issue by asserting that consumers are simply manipulated by businessmen (via advertising and other means) into purchasing whatever it is that the businessmen decide to produce. But this simply amounts to the assumption that the consumer is incapable of acting in his or her own best interest and a restatement of the notion that, since economic decisions will always be made by an elite, the fundamental issue of economics is how the elite is selected and what its goals are.


The Practice of Socialism


There are many ways in which a small group can assert control over economic decisions. They range from the confiscation of some or all private property, which, despite the rhetoric ("it now belongs to everyone"), means that the control of property is concentrated in far fewer hands, to subsidies and/or "normative" taxation of private transactions ( i.e., taxes designed more to influence private economic decisions than to raise revenue). In between lie an almost infinite variety of regulations affecting who may do what where. What all such measures have in common is that prices will differ from what they would be in their absence. Indeed, the notion that prices should not deviate from levels deemed to be 'lust," "fair," or simply reasonable underlies all forms of official intervention in economic life. In a full-blown "command economy" (with all enterprises owned by the state), nominal prices are set by fiat.[2] Elsewhere, tariffs are imposed and domestic monopolies (e.g., labor unions or the post office) are supported to prevent "unfair" competition from, respectively, foreigners or less favored domestic producers. Rent controls are imposed to prevent "gouging" by landlords, and so forth. In these situations, someone has a notion of what prices should or should not be and the political clout to impose that notion on others.

As long as such measures are the most significant determinants of economic life, socialists probably are correct in their belief in the primary importance of the selection of the elite and its goals. For example, when the British Parliament was dominated by the "landed gentry," it enacted maximum wage laws making it a crime to pay an employee more than a certain amount, in marked contrast to today's minimum wage laws. In this example, liberals (in the sense used by Professor Hayek, above) long ago concluded that proscribing wages above a ceiling reduced the supply of labor (some employers could not obtain workers at the maximum wage that they could have obtained at a higher wage), thereby curtailing economic activity. (By the same token, minimum wages curtail the demand for labor.) In short, when prices are not free to reflect supply and demand, the result is a chronic shortage or an unsalable glut. Either situation indicates that an economy is not performing at its current potential.

It was, to repeat, an increased reliance on what Hayek called the spontaneous forces of society" that produced the greatest and most rapid transformation of economic life in the history of the world. From the beginning there were critics, who opposed this transformation because they believed that they were losing status and/or because they longed for a simpler pastoral society where "everyone knew his place." What distinguished the socialists from other critics was their claim that their proposals would end what they perceived as the "inefficiency and waste of ruinous competition," and promote sound and perhaps even more rapid economic growth with a more equitable distribution of consumption. Central control of the means of production and investment flows, they believed, would facilitate "more rational" planning.

Some socialist economists recognize the importance for economic efficiency of setting prices so that the amount produced equals the amount purchased. But they approach the question as an algebra problem, ultimately solvable with improved "models" and techniques, such as linear programming, high-speed computers, or input-output analysis. The difficulty is that the map is not the same as the territory -- even if the planners were free from political interference, they can never respond to technological innovation, or even to unforeseen circumstances (such as the bugaboo of Soviet agriculture - "bad weather") as quickly or even as "rationally" as free markets.

Despite the theories, "Socialism as a system of political economy has come a cropper wherever it has been tried. It has turned out to be politically oppressive, culturally stifling, and economically disastrous."[3] This accounts for the current retreat of socialists and socialism. As George Gilder has written, "... years of socialist reality, in every partial and plenary form, leave little room for idealistic reverie ... socialist ideals have withered in the shadows of Stalin and Mao, Sweden and Tanzania, gulag and bureaucracy."

The recognition that socialism simply does not work as promised or expected accounts for the political and ideological shifts around the globe. There are some minor holdouts against the trend (such as Fidel Castro, who recently ended an "experiment" with farmers' markets, apparently because some Cubans were making too much money trading to suit him), but it is remarkable and pervasive. The most significant aspect is not specific changes of the past decade, such as the establishment of a stock exchange in mainland China and small businesses in the Soviet Union, the "privatization" of large segments of industry in Great Britain (and elsewhere), or the reduction in the top rate of personal income taxation in the United States from 70 percent to 28 percent. One could have predicted these changes 10 years ago only at the risk of being called a lunatic, but the even more astonishing change that underlies all the rest is that it is now difficult to find a socialist who will argue that the traditional socialist policies will lead to a more efficient and productive economy. In this sense (as a coherent, practical program) socialism seems to have "died."


The Socialist Dream


Nevertheless, there are some who cling to their socialist dreams. These include the (no doubt more comfortable) intellectual heirs of the "old bolsheviks" sent to the gulag, by Stalin himself, who believed that things would be different "if only Stalin knew." For some, no amount of experience can shake the faith in the possibility of socialist perfection. It may be noted that such persons seldom achieve or retain positions of power, in any system, with their illusions intact. A second group continues to advance socialist nostrums in the recognition that they would be costly in terms of economic efficiency, but are desirable nevertheless because they are "moral," "just," or even the "safe" thing to do.

For both groups, in short, socialism would seem to be a matter of religious faith rather than behavioral science. (Indeed, clerics, such as the Catholic Bishops or the hierarchy of most "mainstream" Protestant denominations in this country, seem especially susceptible in this regard.) In this sense socialism will never die as long as people can exercise selective imagination and assume either that society can be improved at not cost and/or that they can better assess the costs than anyone else.


NOTES


  1. The Road to Serfdom, University of Chicago Press, 1944, p.19.
  2. Of course, in such situations the real price usually is the nominal price plus the costs of standing in line, bribing sales clerks, or doing without, and is amply demonstrated in communist countries today.
  3. John Neuhaus, National Review, August 25, 1987, p.44.


SOCIALISM IN THE UNITED STATES




Socialism as an international political movement never made much headway in the United States. Indeed, politicians of an interventionist bent long ago learned never to use the "S-word" in describing their policies.

Nevertheless, many, if not most, of the programs advocated by the U.S. Socialist Party during the early decades of this century have been adopted in one form or another. Moreover many aspects of the taxation and regulation of economic activity in the United States today employ the techniques of socialism even when they are used to advance purposes (such as sectional interests, special privilege, or "environmentalism") that were not incorporated into traditional socialists' goals.

Our progress toward reducing the extent of interventionism in the U.S. economy during recent years has been relatively minor in comparison to that in many other countries. One reason, of course, is that we have had much less to remove. For example, Margaret Thatcher had many more opportunities to "privatize" industry than Ronald Reagan, simply because large segments of British industry already were nationalized when she took office. But another factor may be that the U.S. electorate is less conditioned to recognizing intervention for what it is -- the substitution of the judgment of a small, often unaccountable group, for that of the vast majority of producers and consumers in the marketplace.

If the recent trajectories of change are maintained, it is possible that the U.S. economy could eventually become more socialist in practice than other countries, even those that proclaim themselves to be socialist.



I.
CAPITALIZING ON CONSPIRACY
II.
THE SOCIOLOGY OF CONSPIRACY
III.
THE CONSPIRATORS
IV.
THE FEDERAL RESERVE CONSPIRACY
V.
WHAT DO INTERNATIONAL BANKERS WANT?
VI.
THE TRILATERALISTS' ROAD TO POWER
VII.
THE NEW WORLD ORDER I: MOLDING PUBLIC THOUGHT AND OPINION
VIII.
THE NEW WORLD ORDER II: BEYOND CONSPIRACY
IX.
THE PERSISTENT LURE OF THE FANTASTIC
X.
HOW TO MAKE ENEMIES IN BACKWARD NATIONS
XI.
LORDS OF POVERTY
XII.
THE END OF HISTORY?
XIII.
IS SOCIALISM DEAD?
XIV.
SOCIALISM IN THE BEHAVIORAL SCIENCES
XV.
A NEW EASTERN EUROPEAN ECONOMICS?
XVI.
EARTH DAY FALLOUT: THE TWO CULTURES REVISITED
XVII.
BOOMSTERS 1, DOOMSTERS 0
XVIII.
WHITHER THE NATIONAL INTEREST?
XIX.
GLOBAL WARMING AND OTHER ENVIRONMENTAL MYTHS
XX.
THE COUNTERREVOLUTION