Freeman

ARTICLE

Socialism Through the Back Door

MAY 01, 1960 by WILLIAM HENRY CHAMBERLAIN

Mr. Chamberlin is a skilled observer and re­porter of economic and political conditions at home and abroad. He has written a number of books, has lectured widely, and is a contributor to The Wall Street Journal and many nation­ally known magazines.

 

Socialism through the front door, the passing by Congress of a law transferring to public ownership some or all of our basic industries, would not stand the slightest chance of adoption in the United States today. Indeed, this old-fashioned socialist dogma of na­tionalization of means of produc­tion is visibly losing its appeal in Europe, where Marxism has been more widely accepted than in the United States.

Both the Labor Party in Eng­land and the Social Democratic Party in Germany have lost three elections running to the Conserva­tive Party in Great Britain and to Chancellor Konrad Adenauer’s Christian Democratic Union in Germany. As a consequence, the German Social Democrats have drawn up a new program in which nationalization of industry does not figure. The retention of the clause in the party program which calls for public ownership of all means of production, distribution, and exchange has become a subject of sharp internal debate in the British Labor Party.

There are die-hards who see be­trayal in changing one comma of this dogma. But the leader of the party, Hugh Gaitskell, and some of his associates believe that all-out commitment to wholesale nation­alization is an albatross around the party’s neck, come election time. It has now been possible in Britain to judge nationalization by the practical test of how it works. The Labor Government that was elected in 1945 nationalized the railways and the coal mines. Neither coal production nor rail­way service has improved as a re­sult; and the miners and railway workers are just as ready to re­sort to strikes and slowdowns against state boards which are now operating these industries as they formerly were against private owners.

One of the humorous features of the Labor Party conference at the seaside resort of Blackpoll, where the principle of nationalization was hotly discussed, was that the dele­gates and journalists who attended the conference received appallingly bad service on the return trip to London on the (nationalized) Brit­ish Railways. It was even humorously suggested that Mr. Gaitskell had bribed the management to give the worst possible treatment, so as to convince some of the Laborite left-wingers that nationalization was not all they cracked it up to be. Another amusing aside is that the editor of the left-wing New States­man, in theory a hot advocate of more extensive nationalization, plaintively pointed out in his edi­torial columns that it took British Railways longer to get copies of the magazine to Manchester than it took Pan-American Airways to bring the publication to New York.

His ideological blinkers, of course, excluded the possible ex­planation that such a comparative showing was par for the course when a state monopoly was com­peting with a private organization.

Nationalization in Retreat

Nationalization, as a result of experience of its workings, is not an inspiring banner under which to march. It is in retreat in Europe; in Germany there has been a move in some industries which have come under state ownership to dis­pose of shares to the public. Out­right nationalization has no pros­pect of getting to first base in the United States.

But there are indirect as well as direct ways of destroying the sys­tem of responsible private owner­ship within the framework of a competitive free market which, when given a chance, has produced infinitely the best economic results from the standpoint of workers and consumers alike. The most insidi­ous and dangerous of these means is excessive and growing expendi­ture by agencies of government at all levels, federal, state, and mu­nicipal.

For, although America has the biggest educational plant in the world, has by far the largest per capita number of university and college graduates, and the highest per capita expenditure on educa­tion from primary school to univer­sity, Americans are not good at arithmetic when it is a question of government spending. The average individual knows that he cannot buy everything he may want, that he must establish some system of priority in his personal spending, if he is not to go broke.

But a different scale of values is applied to federal and state bud­gets. It is loosely assumed that government, which produces noth­ing, has some miraculous means of creating money painlessly—that the economy which most people know they must practice in their private lives has no proper place when it is a matter of voting higher social security payments, bigger and better pensions, larger subsidies to farmers for produc­ing nothing or less, tariff hand­outs to fat and sleek industries, lavish handouts to veterans for disabilities that have nothing to do with their service in the armed forces.

Indeed there is a widespread campaign under way in the United States to convince the American people that the sovereign remedy for all political, economic, moral, and social ills is to have Uncle Sam write larger checks for support for every conceivable project, from propping up obsolete mines to re­claiming delinquent youths. The manual of this campaign is the book, The Affluent Society, pub­lished two years ago, by the Har­vard professor, John K. Galbraith.

The central thesis of this book, which has exerted a good deal of influence even on those who have not read it, is that private spend­ing is intrinsically bad and public spending intrinsically good; that popular taste and the free market are base and unreliable guides; that public spending should[ be vastly stepped up and private spending sharply curtailed. Argu­ments along this line, in some cases clearly derived from this book, are now the stock-in-trade of left-of-center politicians and com­mentators.

The Painful Tax Burden

One point that should be made clear before considering the ques­tion whether the government or the individual should properly have a prior claim on the individual’s income is that government spend­ing is not and cannot be painless. Such expenditure can be financed in two ways: by higher taxes or by inflationary borrowing. And in­flation, the systematic destruction of the purchasing power of the currency, is the most cruel tax of all.

So, when individuals and organizations come up with spending schemes for defense, welfare, edu­cation, foreign aid, and a score of other purposes, totaling tens of billions of dollars, they are, if they are honest with themselves, ad­vocating that the present burden of taxation on the American citi­zen be made very much heavier. But are Americans undertaxed at the present time?

There has been no reduction in federal taxation since the first years of the Eisenhower Adminis­tration. The trend of state and local taxes is steadily upward. By and large, about one-third of what Americans earn is taken away from them by taxation. How much farther can this process go, espe­cially in the graduated direct taxes which play such a big role in the American financial system, without completely blunting and dulling initiative and the desire to earn and produce more?

One oratorical debating device of the spenders is to represent the American people as rolling in wealth and invariably using that wealth for low and debased ends. How often are tail fins on auto­mobiles scornfully mentioned, or the fact that outlays on liquor, tobacco, and chewing gum exceed spending on symphony concerts, first-rate books, and college endow­ments?

But this type of sermonizing, however effective it may be at com­mencement addresses, does not ap­peal to a typical middle-class American who is struggling to cope with the cost of putting two or three children through college, or meeting a high medical bill for someone in his family, or consider­ing how, after he has met his vari­ous tax obligations, he can save something for his years of retire­ment.

Government Spending Rises

Taxation rates today are fan­tastically high by comparison with those of the years before World War II. The annual intake of fed­eral revenue now is closer to the unprecedented outlay of the war years than to what would have been considered normal in the twenties or the thirties. And the trend of federal spending, even under an Administration more averse to profligate use of public funds than most of its opponents, has been upward, from $67.8 bil­lion in fiscal 1954 to $79.8 billion proposed for fiscal 1961. During the period from fiscal 1954 until fiscal 1960, the public debt has risen from $271.3 to $284.5 billion.

High rates of interest on gov­ernment bond. and the outflow of gold indicate that the state of government credit leaves some­thing to be desired. As Senator Harry F. Byrd of Virginia, one of the outstanding financial ex­perts in Congress, remarked: the government has exhausted its capacity to tax and its capacity to borrow.

It is under such inauspicious circumstances that it has become fashionable to bemoan the sup­posed absence of sufficient govern­ment spending, to insist in strident tones that America will become a second-class power if much larger sums are not siphoned off from the use of those who earned them into the insatiable maw of gov­ernment spending agencies.

If one-third of America‘s na­tional income is already ear­marked for taxes, this proportion would have to rise to one-half, or even more, if the varied plans of the spenders were put into opera­tion. And this would mean such a basic change in the nature of American society and of the American economy, that it should be treated as a great issue and debated up and down the land be­fore a decision is taken.

It is difficult to say at what point the national debt becomes unre­deemable and a hopeless mortgage on future generations. It is hard to say what rate of taxation will prove the last straw that breaks the back of that patient camel, the American taxpayer. But limits, on both these points, there certainly are.

Resignation among Citizens

Excessive government spending and its accompaniment, over taxation, represent the back door to socialism. For the individualist, self-reliant citizen who has been the backbone of the American sys­tem of free enterprise and per­sonal responsibility cannot survive in the role of a cow mercilessly milked by several systems of taxa­tion, federal, state, local. He will lose heart and accept socialism, in the sense of an ever-widening area of substituting state help for self-help, as something inevitable, if not desirable.

I am old enough to remember a time when most Americans con­sidered it a disgrace to receive any kind of public aid. Only recently I learned of a man with a distin­guished record in teaching and academic work who finds, in his period of retirement, that social security payments stand between him and downright penury. Had he belonged to an earlier genera­tion when the quaint idea pre­vailed that what a man earned was his own, he could easily have saved enough to provide for his own re­tirement.

Should present rates of taxation and present costs of medical aid continue to soar, the pressure for some kind of “socialized medicine” may become irresistible. A man who could face a stiff medical bill when what he earned was his own is often in no position to do so to­day. And, as people are taxed more and more to pay for public hous­ing, they become increasingly un­able to provide their own housing on a commercial basis.

Moreover, if the advocates of uninhibited state spending have their way, if the burden of in­dividual taxation is increased 50 per cent or more above present levels, the private capital that is the lifeblood of industrial growth will dry up. Savings will drasti­cally diminish. This would very probably lead to the substitution of state for private capital, which would certainly be socialism by the back door.

In other ways, too, life would become increasingly socialized. Sums available for the support of the private schools and colleges, which make a contribution to American education out of propor­tion to the number of students en­rolled, would fall off drastically. Since the individual would have fewer resources of his own, the clamor for socialized education, along with socialized medicine, would grow stronger. The logical end would be an educational sys­tem supported by and controlled by the federal government from top to bottom. All the beneficial and stimulating diversity, the com­petition in differing approaches to education, and varied emphasis in subjects which are derived from our present system of a multitude of unstandardized private colleges would be ironed out.

The Crucial Issue

State help or self-help? Is the individual entitled to keep the fruits of his labor or is he to be adjudged an incompetent moron who must have a board of state guardians to spend the money which he is not able to spend him­self?

These questions, I believe, point up one of the big and significant issues confronting America in the twentieth century. It would be of immense educational benefit if all the implications of these questions could be threshed out in a nation­wide series of debates of the Lincoln-Douglas type.

The men in public office, in Con­gress and in the Executive Branch, who fight for holding the line against further federal spending are fighting for something even more important than financial stability, although this is certainly a most worthy and necessary cause. They are fighting to pre­serve some of the most important traditional American values against an insidious and dangerous attempt to smuggle in socialism by the back door.

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May 1960

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