Socialism Seeks Its Own Level

Mr. Barger is a corporate public relations executive and writer in Toledo, Ohio.

Some months ago, a popular news magazine featured on its cover a cartoon drawing of a shivering and bewildered Uncle Sam holding an empty Horn of Plenty. The picture told the story so well that the explanatory heading was hardly needed. It said, "Running Out of Everything."

It is certainly a fact that the United States has been running out of lots of things in recent months. There are growing shortages of energy, plastics, clothing, canned food, paper, furniture —well, you name it. In 1973, without experiencing a major war or a disastrous farm failure, the long-time Land of Plenty was suddenly transformed into the Land of Not Enough — and the problem was getting a lot of attention.

But it wasn’t getting the kind of attention that is likely to solve the problem of growing shortages.

Few of the experts who commented on the shortages were willing to put the blame on government intervention or to suggest that the plans for the planned economy weren’t working out so well in practice. The distinguished economist Paul Samuelson, for example, said that the "reason for these shortages is the brute fact that (plant) capacity wasn’t added on." He also noted that "industries like shortages because it’s a seller’s market." (One hopes that Mr. Samuelson knows that industries are usually buyers as well as sellers and thus face problems in any kind of a market.)

There are, of course, a number of secondary causes behind our present shortages. But the primary cause of the trouble is that the United States has finally passed a major turning point in its journey toward socialism. The government’s role in the economy has become so extensive and so decisive that the country is beginning to experience the typical problems of other countries that have adopted socialism. Britain has had such troubles for years and continues to stagnate and to decline in world influence. It is not difficult to demonstrate that other countries have had similar difficulties under socialist governments.

Are We an Exception?

But what about a country such as the United States, which rose to great heights under a system that was largely capitalistic, and continued to experience great growth even after the government brought business and industry under fairly tight regulations and control? Why can’t the United States maintain its present level of production and prosperity even while converting into a largely socialist system? Even if the rate of growth is slowed down or stopped altogether, why can’t the present standard of living be maintained, with perhaps a few adjustments such as a decrease in the size of automobiles and a reduction in some food supplies?

The problem with this kind of wishful reasoning is that socialism tends to establish certain levels of output that have nothing to do with the individual goals and preferences of citizens. In most cases, socialism has the effect of lowering output and destroying the balances between production and consumption. At the same time, it must restrict liberty either by direct threats or by persuading individuals to forsake their freedom as a means of "promoting the common good." If socialism is adopted in a country that has previously had a relatively free market place, the economy will gradually tend to sink to a level somewhat close to what it would have reached had the country been socialistic from the very start. At the same time, the government will begin to use various means to curb liberty, so that individuals will eventually think and act in the manner of people who have grown up under socialism. To put it bluntly, socialism always seeks its own level, and our present difficulties are probably just a sneak preview of much more trouble to come.

In socialism’s early years, its devotees insisted that their program would bring greater efficiencies in production and distribution. Early socialists often deplored the seeming duplication of facilities under capitalism; why have two stores across the street from each other when one outlet could be slightly enlarged to handle the needs of the entire community? It was also alleged that many people performed unnecessary and worthless tasks under capitalism, but that under socialism, each person would be assigned duties that fitted his personality and interests. At long last, it was said, people would work for the common good rather than for the narrow interests of capitalistic owners.

Production Low, but Other Benefits Claimed

But socialism in practice turned out to be far less productive than privately-owned enterprises. This did not, however, cause socialists to re-examine their entire philosophy; instead, they went on to claim benefits other than efficiency for socialism. Socialists such as George Bernard Shaw thought that socialism would provide complete equality of incomes, while long-time Presidential candidate Norman Thomas believed it would bring social justice and a more equitable use of natural resources such as petroleum and minerals. In recent years, socialists have tended to deplore the emphasis on high industrial productivity; they like to say that we have now solved our production problems and should be devoting our resources and energies to the solutions of urgent social problems.

One of the major difficulties with socialism, however, is that it immediately becomes embroiled in practical dilemmas when it takes steps toward establishing its program. In the United States and other Western nations, the electorate is never likely to give socialist-leaning candidates a sweeping mandate to completely convert the country to socialism in a few months or a few years. This fact of life has given the socialists no choice but to seek piecemeal changes, to create a "mixed" economy but not a completely socialist one. These interventionist changes have been introduced in the United States over the past 40 years under a number of names.

Every change, however, has brought problems that socialists would prefer to ignore. One major problem has been caused by attempts to tinker with the price system. Socialists have always hated the idea of free market pricing and have fervently clung to the belief that a managed system of prices and wages would result in a more just economy and a more balanced distribution of resources. They have argued, quite convincingly, that monopolies and oligopolies actually make arbitrary price administration decisions, while labor unions and companies combine to set wage levels. How much better to bring these processes under social control by authorizing the government to establish wage and price levels in an orderly manner.

But the market place has a way of overlooking such arguments. If the government-administered price is too low, there is a rise in consumption and a drop in production (or at least a temporary withholding of goods from the market). If the price is too high, there is a decline in consumption and an increase in production. In either case, the behavior of the market is predictable. There is, in fact, almost no economics textbook worthy of the name that would dispute this. This basic, predictable characteristic of the market place can be observed in the marketing of everything from eggs to used cars.

Shifting the Blame

Unfortunately, the failures of price and wage control do not seem to sway a single socialist from his course. Quite often, the blame for the evil consequences is transferred to businessmen; the energy shortage, for example, has been blamed on the oil companies who seek higher profits and also want to drive out the independents. Another characteristic excuse of socialists is that additional controls are needed to make the price control system work properly. In most cases, the interventionists are really saying that nothing will work very well until they have an almost totalitarian control over the entire economy. Why won’t the socialists concede that a free market price system is necessary and that they should modify their own program to include it? This concession would undermine many tenets of the socialist faith. The socialists have long contended that the free market place is unfair and results in an inequitable distribution of goods and services.

The advocates of free enterprise, on the other hand, have insisted that the price system allocates goods and services through very complex exchanges based on consumers’ choices and priorities. They also argue that any other method is bound to result in either surpluses or shortages, usually the latter. Socialism’s bureaucratic price control and goods allocation system tends to reduce the total amount of goods and services; it must also restrict liberty in the long run. In other words, the public must do with less material well being and personal liberty if it chooses the permanent price and wage controls that socialists desire.

Malinvestment

Another tendency of socialism is to channel investment funds into ill-advised projects that do not add to the productive capacity of the total economy. Malinvestments occur in any kind of economy, of course, but the privately-owned business system has a built-in way of limiting bad investments. A private company usually can raise funds only through stock issues, earnings, or borrowings. If these funds are subsequently spent on losing ventures, the management is likely to be replaced or the creditors will step in and take control. Thus, the managers of private business are under constant pressure to make profitable investments and capital improvements that will increase their firm’s productive capacities. This process benefits the workers by increasing their productivity and real earning power, and it benefits customers by giving them better goods at lower prices.

But it doesn’t work that way in the so-called public sector. Billions of dollars have been spent on projects that have simply disappeared into thin air. Additional billions have been spent on ventures that benefit only a limited number of people, and do not increase the number of productive jobs. Public funds have been spent on high-rise apartment buildings that had to be torn down in a few years, moon trips that have now fallen into disfavor, urban renewal projects that leveled whole sections of cities, and subsidized industries that continued to decline. It is argued that these ventures "put money in circulation," but this dubious objective could have been met simply by passing out currency on any street corner. A healthy, productive economy needs much more than merely "putting money in circulation." The money must also be spent on ventures that add to the total wealth and productivity of the country.

The Market, Or Else…

The conclusion to be drawn is that socialism and misdirected capital investments apparently go hand in hand. It is unlikely that a completely socialistic government will be able to provide sufficient investment funds for industry or to allocate them in the proper way. In the past, for example, Congress starved the United States Post Office of investment funds while spending billions on other projects of an irrelevant nature. This myopic policy, if applied to the entire economy, would result in a drastic decline in productivity in a very short time.

There is little evidence, however, that socialism is being discredited by its failures to work effectively in the American economy. If anything, the failures of socialist interventionism seem to provide the basis for new rounds of interventions. The delusion still persists that the Government can solve our economic and social problems by appointing a "czar" to supervise an ailing industry or by providing funds to support a certain cause. It is still not seen that the effect of this intervention must be to lower output and to inhibit the very market forces that can bring efficiency and order into our economic affairs. Neither is it understood that socialism cannot maintain the high standard of living and freedom that was developed by past generations in America. The price we must pay, in this new world of socialist intervention, is very high in terms of lost liberty and lowered productivity.

The eminent Ludwig von Mises saw the problem with astonishing clarity:

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… 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.

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 aggressions; 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.*

*Mises, Ludwig von, Socialism, Yale University Press, New Haven, New Edition, 1959 and 1962, pp. 542-543 

Further Reading

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