All Commentary
Wednesday, June 1, 1966

Socialism by Seduction

Mr. Chamberlin is a skilled observer and reporter of economic and political conditions at home and abroad. In addition to writing a number of books, he has lectured widely and is a contributor to The Wall Street Journal and numerous magazines.

Sailing under its own colors, so­cialism never got far in the United States. Native Americans, prag­matic by disposition, were not at­tracted by the dull and ponderous writings of Marx and Engels, with their underpinning of muddy He­gelian metaphysics. They were not inclined to call each other comrade or to take much stock in letters signed “Yours for the rev­olution.” The availability until 1900 of free land, the absence of European class distinctions, the ease with which individuals could move up or down the economic ladder — all these characteristics of American life were against the so­cialist conception of irreconcilable antagonism between two classes, exploiters and exploited.

So socialism in America was an intellectual import; it was no ac­cident that of the two socialists elected to Congress one came from New York’s East Side, the other from a district in Wisconsin with a substantial population of Ger­man origin. Both in Eastern Eu­rope and in Germany socialism was a creed with a considerable following, and it was natural that immigrants from these areas in many cases joined the American Socialist Party.

As the children and grandchil­dren of these immigrants became assimilated and lost touch with conditions in their parents’ home­lands, interest in socialism waned. The American Socialist Party reached its highest proportion of the popular vote (about 6 per cent) with one of its hardy peren­nial candidates for President, Eu­gene V. Debs, in 1912. Then its vote tapered off steadily, with only one upsurge, in 1932, for Debs’s successor as regular candi­date, scholarly and personally lik­able Norman Thomas. Finally the vote became such an infinitesimal percentage that the party ceased to nominate candidates for nation­al office and now carries on merely as an educational and propaganda organization.

Americanizing the Ideas

Although socialism as a political movement for all practical pur­poses has ceased to exist, socialist proposals and ideas, from the time of the New Deal, have been taken over and put into effect by politi­cians of other parties. On many counts there is little difference to­day between European socialists, who have become more moderate because of the secession of the communists, and the stronger American advocates of govern­ment intervention and expanding social legislation. A prominent German Social Democrat once told the writer that his party was in substantial agreement with the “New Deal” and “New Frontier” Democrats, and the “Great So­ciety” is the sort of blueprint for heightened government spending for supposed welfare aims that might be expected to win the hearty endorsement of a British or continental socialist.

A proposal to give the govern­ment authority to take over and operate key industries in the United States, should it come to a vote, would be overwhelmingly de­feated. But socialism by a mixture of seduction and pressure is a horse of another color. This proc­ess is much farther advanced than most people realize and with re­markably little visible awareness or resistance from the business­men, large and small, who might be expected to offer opposition.

Benevolent Intervention

An important element in the process of seduction is repeated affirmation by the highest govern­ment officials of devotion to the principles of free enterprise. Then comes the alluring suggestion that government wants and intends to be a benevolent partner of busi­ness. By this time resistance in the business community has been softened to a point where govern­ment bureaucrats, with little ob­jection, take over some of the most important functions of the free market, such as the level of prices and the direction of invest­ment. Price control and directed investment would have an ominous warning sound. So such expressions as government guidelines and voluntary restraints are pre­ferred.

Professor Hayek once observed that, if any individual had in­vented the free market, he could have been considered an outstand­ing genius. But this system, like Topsy, “just growed” in response to the age-old needs for exchange of goods. Its service as an impar­tial regulator of prices is unique and unrivaled. In response to in­creased demand, actual or poten­tial, prices rise. The contrary sig­nal of falling prices indicates that demand has declined or is likely to decline.

All sorts of rulers, from despot­ic emperors of the past like Dio­cletian to communist dictators and computer-equipped bureaucrats of the present, have tried to cheat the free market by employing decrees or artificial means to push prices up or hold them down. But the usual end result of such efforts is about as successful as King Canute’s order to the waves and tides to stand still. (Perhaps Canute was rebuking some of the eager-beaver would-be planners in his entourage).

The Reins of Control

Slowly, gradually, almost imper­ceptibly, “guidelines” have re­placed the impersonal mechanism of the market in determining the level of prices. When a price in­crease, however well justified by a rising trend in wages and other costs, draws a protesting whistle from the government official in charge of the guidelines, the cor­poration almost invariably backs down. Stockholders in steel com­panies, at a time when the general trend in profits and wages has been upward, are still looking for a restoration of the 40 per cent cut in earnings which they took some years ago when the larger steel companies reduced their div­idends in this proportion. But government intervention has twice blocked steel price hikes. There has been the same experience in the aluminum and copper and tobacco industries. And against this growing interference of gov­ernment with the verdict of the market place there have been re­markably few audible protests. When the president of the Chase Manhattan Bank, George Cham­pion, last year urged businessmen to oppose what he called govern­ment-by-guideline, his stand was taken as amazing, although there was a time when almost no banker or industrialist would have taken a different attitude.

The threat of more open and direct controls has induced banks to accept sweeping limitations on their right to lend and invest abroad. Again, few voices have been raised in public protest, al­though private comment on this subject has often been sulphurous. As Alan L. Otten summed up the subject in a thoughtful article in The Wall Street Journal of Janu­ary 13:

A threat of more direct controls on overseas investments has per­suaded business to accept, with scarcely a murmur, a very complex system of very real “voluntary” con­trols. For the sake of “civil rights” businessmen have put up practically no fight against deep government in­tervention in their hiring practices. The Federal Trade Commission points to a sharp increase in “volun­tary compliance” by businessmen with FTC rules on permissible trade practices. The Justice Department looks for widespread industry ac­ceptance of its forthcoming “advi­sory guidelines” spelling out what will and won’t violate the antitrust laws. Auto firms readily acceded to Senate prodding for more safety equipment in new cars.

The Penalty of Resisting

Why are businessmen submit­ting to so much substitution of government judgment for their own with so little protest? The answer is partly in a process that may be called seduction. It is an old adage that the customer is always right and the government, thanks to expanded military and social welfare programs, is far and away the biggest single cus­tomer. Few business representa­tives look beyond the prospect of immediate profit, and the benefits to aircraft companies and engi­neering and electronics firms from enlarged war spending are ob­vious. Other types of firms stand to gain from “Great Society” ex­penditures, hospital suppliers from medicare, textbook, school, and laboratory manufacturers from higher educational outlays.

Moreover, the government is a customer equipped with teeth and claws not available to the individ­ual buyer. It is in a position to blacklist firms that incur its dis­pleasure, to shift its buying to those which are cooperative in ac­cepting dictation. Given the vast complexity of the personal and cor­porate taxation system and of the antitrust laws and the large shadowy area between legality and illegality, the defiant head of a business firm faces the dreary pros­pect of tax harassment, with simul­taneous damage to his pocketbook and to his public relations image.

It is an old familiar political trick to use patronage, appoint­ments to public office, to help pass legislation on the Federal and state levels. But this kind of pa­tronage is peanuts compared with the financial power that has ac­crued and is accruing to Big Brother in Washington as a result of steady expansion of govern­ment functions and the parallel growth of public spending. Abil­ity to approve or withhold Federal grants in aid has given Federal agencies unprecedented power to control and overrule the judg­ment of the local school boards which have hitherto been the back­bone of the public educational sys­tem. And the government’s posi­tion as the biggest single buyer lends a good deal of muscle to its demands that its guideline direc­tions be obeyed.

Two Standards

In theory, wages — like prices —are subject to government influ­ence and control. But in practice the government has proved less willing, perhaps less able, to em­ploy sanctions against big concen­trations of trade-union power than against business firms. A good example was the illegal tran­sit strike that paralyzed transpor­tation in New York City during the first weeks of January. The demands of the leader of the strike, the late Michael Quill, who tore up a court injunction against the strike with a degree of im­munity from consequences not shown to Southern governors who opposed educational integration, were wildly in excess of the sup­posed wage increase limit of 3.2 per cent.

But the White House was very gingerly in its handling of Mr. Quill; he was not subjected to any of the pressures brought against firms seeking much more modest price increases. And the New York state authorities were positively abject in their reaction. The strike was in clear violation of the state Condon Wadlin Act, which forbids strikes by state em­ployees and, among other penal­ties, forbids wage increases to vio­lators for a term of years. The strike was settled on terms of virtual unconditional surrender, involving a settlement amounting to about a 15 per cent wage and fringe benefits increase. When judgment was given that this in­crease was illegal, the legislature hastily passed a law exempting transit workers from its opera­tion. The problem of how to deal with stoppages of labor that hold up a large community to ransom, on pain of intolerable disruption of normal services, remains as far from settlement as ever.

As in Britain

There has been a parallel ex­perience in Great Britain, where the Labor Government has been much more successful in holding down prices than in holding down wages, thereby storing up infla­tion and balance-of-payments trou­bles for the future. Even if it were desirable to substitute for the working of the free market a system of government fixing of prices and wages, with all the artificialities, inequities, and dis­tortions which this involves, it would be almost impossible for a government to operate such a sys­tem in an even-handed manner. There are more votes represented in trade-unions than in manage­ment; and it is the temptation of politicians to follow what seems to be the trail leading to the votes, regardless of the effect on the welfare and viability of the na­tional economy.

One reason why the business community, traditionally devoted to a free enterprise economy with a minimum of government inter­ference, has accepted so meekly the growing incursions of govern­ment bureaucracy into the sphere of business decisions is the argu­ment that inflation is a serious danger in the wake of a prolonged boom and that the government should possess some latitude in try­ing to forestall and avert this disaster. On the harmfulness of inflation there can be no reason­able difference of opinion. But it is contrary to all the teachings of experience and of sound economic theory to believe that inflation can be curbed by shadow boxing with its symptoms, rising prices and wages.

Curb the Spending

The only hopeful way of fight­ing inflation is to get at the roots, to cut down the creation of new money through Federal Reserve open market operations, to tighten credit and, above all, to cut down government spending. It is fan­tastic to be preparing the ground for a new raid on the harassed Federal income taxpayer when there are such promising targets for economy as the current $46 billion for welfare spending, over $3 billion for foreign aid, $3 bil­lion for farm subsidies, $4 billion for an excessively expensive road-building program, and $4 billion for the project of putting a man on the moon and bringing him back — a project without military, scientific, or any other justification commensurate with its cost.

No doubt the war in Vietnam will be alleged as an excuse for levying supplementary taxes. But the true cause of a probable bud­get deficit may be found in the spendthrift growth of nondefense taxation, much of it with no jus­tification except the desire to at­tract votes from groups that are “consumers,” not “producers” of social security. In the last six years, nondefense spending has grown by the enormous total of $32 billion. If a sum of $5 billion or even $10 billion is needed to put the budget in balance, an Administration or a Congress gen­uinely bent on economy could easily find it in these swollen ex­penditures.

It is high time for thoughtful businessmen, looking beyond the immediate balance sheet, to con­sider what will become of free private economy if government officials are to substitute their judgments more and more for the impartial verdict of the free mar­ket. A few years of outward pros­perity, with ever stronger infla­tionary overtones, will be pur­chased too dearly if the result is some kind of government-run, so­cialized economy derived from a mixture of seduction and stronger pressures.

  • William Henry Chamberlin (1897-1969) was an American historian and journalist. He was the author of several books about the Cold War, Communism, and US foreign policy, including The Russian Revolution 1917-1921 (1935) which was written in Russia between 1922-34 when he was the Moscow correspondent of The Christian Science Monitor.