Conventional understanding views economic history as some kind of big battle between unfettered capitalism on the one hand (as supposedly demonstrated by the late nineteenth to early twentieth century United States) and full blown socialism on the other (as the Soviet Union was supposed to have been). Allegedly, both extremes have their positive aspects but are, individually, weighed down by their supposed negative ones. So capitalism, for example, is able to raise the standard of living by several-fold in a person’s lifetime and showers us with more goods than we could possibly imagine. On the other hand, so this conventional belief goes, it promotes a consumerist, materialist and greedy “sink or swim” society that has no regard for the unfortunate and the least well off. Hence the vision of the US as the kind of place where you can buy whatever you want but if you happen to be poor or become afflicted with an illness then you are on your own. Socialism, however, stagnates and reverses the standard of living to the extent that nothing ever works and the population is mired in permanent poverty. On the other hand, so this conventional wisdom dictates, everyone is apparently more equal and the goods that they do manage to produce are distributed “fairly” across society. (Curiously this understanding of economic history seldom tends to acknowledge the tyrannous nature of socialism which, in the Soviet Union, resulted in the deaths of tens of millions of people – one might ask whether this negative feature is so off the scale that it would completely obliterate the chance of socialism being taken seriously as an ethical proposition at all?). Thus, in order to create the best society, we allegedly have to try and combine the economic growth of capitalism with the supposed equality and fairness of socialism, discarding the negative aspects of those two systems in order to arrive at we have today – a social democracy, the “third way”, an economic order that is “somewhere in the middle” between greed and need.

The first problem with this conventional thinking is that neither of the two polar opposites have ever really existed, or at least not in the manner that their proponents imagine them. Capitalism has never existed because government interference in the economy has always been present, simply in lesser or greater quantities at different points in history. Often the interferences at lesser points have provided the catalyst for more intense government activity in later periods, such as the booms and busts and the stop-start flirtation with centralised banking in the last half of the nineteenth century paving the way for the Federal Reserve System that dawned in 1913 just in time to print enough money to pay for World War One. Socialism has never existed because, as Ludwig von Mises so convincingly told us nearly one hundred years ago, it is, quite literally, impossible to build a socialist commonwealth without economic calculation. The Soviet Union survived to a large extent because it could refer to international markets for prices for the factors of production which enabled it to provide at least some kind of functioning economy, albeit at a vastly reduced rate of output compared to the rest of the world.

The real polar opposites that we have endured in the post-Renaissance era are not unfettered capitalism and unfettered socialism at all, but, rather, state corporatism and state socialism. State corporatism, the alignment between government and business, has its epitome in fascist economies such as Nazi Germany and Fascist Italy, but it describes also the imperialism of nineteenth century Britain and the evolution of the United States, which received corporatist boosts during the War between the States, World War I and the New Deal, the latter of which, modelled on Fascist Italy, has successfully sealed the fate of the US as a permanent “corp-tocracy”. State socialism, on the other hand, is not the ownership and use of the productive assets by all for the benefit of all. Rather, it is their ownership by the government and the bureaucracy with productive capacity devoted to their ends, such as missile parades in Red Square, rather than the ends desired by the people, with the people themselves treated as expendable public slaves whose disobedience warrants a one way trip to the gulag.

Second, the blend that has actually been achieved in modern government is not between capitalism on the one hand and socialism on the other. Rather, it is between state corporatism and a democratised form of state socialism. On the state corporatist side, we have central banks printing massive quantities of money, dishing it out to Wall Street which expands credit, creating artificial booms and busts and lining the pockets of the financiers. At the same time large swathes of industry are subject to government patronage and privilege to the extent that in sectors such as energy, transportation, finance, healthcare, and so on there is no genuine free competition. To top it all off, armaments manufacturers profit from the continued proliferation of invented and unjustified foreign wars. On the state socialist side, however, we have politicians bribing voters with other people’s money, and demands for social justice, fairness and equality, anti-discrimination are met through the forced redistribution of wealth and income.

The fissure between these two extremes has not produced any kind of successful mixed economy that selects the best aspects of each system at all. Rather, it has resulted in some kind of bifurcated system that is based on antagonism and resentment. Those clamouring for state corporatism, fake privatisations and government support for business simply want to line their pockets while leaving everyone else to foot the bill. Those wanting state socialism, noting that state corporatism seems to do nothing except make the rich richer and the poor poorer, want to end the anti-democratic structure of state corporatism and return key industries to “public ownership”.

Third, if the two dominant social systems have been state corporatism and state socialism and the postulated “third way” of blending the two has failed, then what, we might ask, is the real third way? There are only three possibilities. First, unfettered socialism; second, unfettered capitalism; and third, a mixed economy of genuine socialism and genuine capitalism (what we might call “interventionism”).

The first option, socialism, is clearly a non-starter as its inability to perform economic calculations means that it is suitable only for bringing chaos out of order. A socialist economic order is no order at all; it is a disaster that would quickly relegate the human race to the Stone Age. The third option, interventionism, is also a non-starter as it produces distortions that must either lead to further interventions or to a complete abandonment of the intervention altogether. For example, if the government intervenes to set a price ceiling on a certain good that is below the market price the result, all else being equal, will clearly be a shortage of that good. The government therefore has one of two options in order to restore supply – to intervene further and take over the supply chain; or to abandon the price control. If it takes the first option, this requires further interventions in other industries which will create similar distortions and disarrays which will breed further interventions all the way until there is full government control over everything – i.e. socialism. Socialism, however, is impossible as so will collapse almost immediately. If it takes the second option, then capitalism is simply restored. In the opinion of the present author we are now reaching the apex of the so-called mixed economy where this decision will have to be made. Decades of excessive money printing and perpetuated malinvestment through the resulting credit expansion has driven financial markets to a zombie-like existence bathing in a sea of insolvency. We are now close to the point where governments will either have to completely socialise financial markets or abandon their policy of cheap credit and restore sound money and credit.

This leaves, then, only capitalism, the genuine free market, as the only prospective and sustainable economic order. Only capitalism, based upon voluntary trade resulting from each individual peacefully pursuing his purposes, is able to avoid the pitfalls of socialism, of the pseudo-capitalism in state corporatism, and of the pseudo equality and fairness of state socialism, all of which are based on force, fraud and antagonism. As we discussed before, all of the alleged pitfalls of capitalism – inequality, greed, selfishness, and so on – are not part of the capitalist system at all and are more appropriately assigned to one of the other systems where everyone attempts to live at the expense of everyone else. Only the restoration of a genuine free market capitalism can therefore lead to a peaceful and prosperous society.

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