The European Communities and the Free Economy

From an address of February ¹3, ¹973, before a group of ministers — The Remnant — and guests in New York City.

Thank you for inviting me to discuss "The European Communities and the Free Economy." I do so the more gladly because I am sure that Britain’s presence in or absence from the European economic communities is going to be one of the central questions in British politics in the coming months and years.

Ten or twelve years ago, when British membership of the European Economic Communities was first raised, I was under the mistaken impression that the EEC was concerned with free trade. I now know that the first important fact to grasp about the EEC is that it has nothing to do with free trade.

Free trade is the absence of barriers — of artificial barriers —to trade between the citizens of the various countries, so that whatever may be the respective circumstances and the types of government under which they live and the follies which those governments respectively commit, nevertheless the citizens on either side of the national frontiers may within those limitations enjoy the best return in exchange for that which they produce. In other words, it enables the citizen to make the best choices and obtain the best reward for what he produces and offers for exchange. That is what free trade is about. It is about helping those who belong to different political units nevertheless to exchange automatically, often unconsciously, and as freely as possible, the produce of their hands and their brains. And that, I repeat, has nothing to do with the EEC.

The object of that organization, as the name denotes, is to create an economic community. Let us put it the other way round; to create a common economy. Paradoxical though it may appear, an economy is not a fact of economics. An economy is not an economic entity. No amount of economic information supplied to a visitor from Mars would enable him to outline on a map of the world the various economies. Of course, he could draw attention to areas where he suspected there would be a maritime economy, a river line economy, and so forth. But "the British economy," "the United States economy," "the European economy" would remain entirely unknown and invisible to him. In order to detect and define those, the information that he would require would be political.

The Essence Is Political

"The British economy" means the economic aspects of a political thing, the nation called Britain or the United Kingdom. "The economy of the United States" is not something derived from nature; it is about a political thing — the United States of America. When we talk about "the American economy," we are viewing from an economic aspect something of which the essence is political. It is not economic facts that make the United States. It is political facts.

Therefore it is not surprising to find that the intention in the Treaty of Rome, as it has been implemented over the past 15 or 16 years, to create a European economic community is a political intention. It is one hundred per cent politics and zero per cent economics. That is not to say that it is right or wrong, wise or foolish, or that its results will be fortunate or unfortunate; but we must not be misled either by the alternative title, "Common Market" — which the British (rather significantly) have hitherto preferred to use — or by the appearance of the word "economic" in the title of this new political entity.

Three months before the due date of British membership on January 1, 1973, the leaders of the nine countries concerned met in Paris and, among other decisions, arrived at the conclusion that they intended to bring about "economic and monetary union" by 1980. I suppose that the political intention behind the EEC could not have been more sharply denoted than by that assertion. Monetary union? A single money, or the automatic convertibility of the respective national currencies? That implies that there is only one government; for the behavior of money is affected or determined by government — and not merely by the direct monetary policies of government, but by all the decisions that government takes, to intervene or not to intervene, to tax or not to tax, to spend or not to spend. All these have their effect on the value of the currency.

One Money — One Government

Therefore an area in which there is a single money — a singleness of purpose in all the ways in which government may influence the value of money — must mean that in that area there is one and only one government, one and only one political will. That is so obvious that it is superfluous to carry through the same proof again in the context of economic union. Indeed, it is hardly an exaggeration to say that economic and monetary union is a tautology: the same degree of political unification is necessary for monetary as for economic union. This, then, is what is aimed at within seven years — so we are told by the representatives of the nine countries of the Community.

Already a very considerable degree of political unification has taken place. Most people in Britain probably don’t know it yet; but since the first of January Britain has had no trade policy. What, no trade policy? Yes, literally, no trade policy! Decisions which fall within the scope and definition of trade policy are no longer within the power of the British Government or Parliament. Those political decisions, that aspect of government, is now exercised elsewhere and is withdrawn from the control of any purely British authority.

So I am not drawing your attention to a speculative, hypothetical, ultimate development, but to a process implicit in the nature of the EEC itself, a process which by the very act of membership is carried a large stride forward, a process which is intended to be mightily accelerated — if not completed — in the years immediately ahead.

What Sort of Government?

The immediate effect of political unification is by no means unambiguous in its economic consequences. One is obliged to examine what may be the policies of the government which is to be set up within this new political unit. Will it be devoted to the free economy? Will it be bureaucratic? Will it be interventionist? The mere fact that there is to be a new political unit does not predetermine what will be its policies and its proclivities. But the effects upon the economic life of the component countries are already more far-reaching than I think they suspect, and I should like to spend a moment on one very important effect, directly connected with the bid to produce political union and uniformity of economic policy within the Community.

Inside a single nation, where there are no trade barriers and not merely the money but the economic policy is the same throughout, the economic balance — which is constantly altering —between the various regions of that nation is restored by the movement of people and of resources. If you could imagine, for example, the United Kingdom divided into three, four, or five separate countries, each with its own government and each with its own money, then the balance between these economies would be maintained by the exchange rate between their respective currencies. But as they are parts of one monetary and political unit, the consequence of economic change is a movement of resources and of people which takes place freely in response to those forces.

Out of this arises what we know as "the regional problem." Even within a single nation people are so attached, for other than economic reasons, to their own area, to their own part of the country, to the historic region to which they belong, that they resent the economic consequences of the national unity which is theirs, and demand that the central government shall take interventionist steps in order to defeat the effects of economic and political union, by making it appear more favorable instead of less to conduct industry in a place which otherwise industry would desert or giving preferences to areas which are economically less advantageous.

The Regional Problem on an International Scale

Bearing in mind that picture of the regional stresses within a unitary nation, let us look at the European Economic Community. We immediately see that the effect is bound to be the same on a larger scale. No longer will economic relations among the members be equilibrated through the exchange of currencies. On the contrary, they will be equilibrated by the free and automatic movement of people and resources; and just because that collides with the fact of the enduring local and national affections of the various parts of the Community, regional policy is one of the big problem areas of EEC politics. It is as though, having decided to achieve economic union, the Community found itself obliged at the same time to undo or counteract what must necessarily be the effects of political union. So we see straight from the beginning a direct political impact on the member countries of the political intention which lies behind the formation and the extension of the EEC.

So I return to my question: what sort of government is this going to be which is implied by the nascent economic and monetary union of the EEC? I’ve already given one indication. I have pointed out that the EEC has felt immediately moved to counteract the very economic consequences at which it purported to aim by using the power of the central authority to redistribute resources again, to falsify the economic data and to divert the economic forces within the enlarged community. But if we look at the character of the Community from the beginning, and at its background, I think we shall have little difficulty in discovering what kind of government there will be, and what kind of policy will be pursued, in this new political entity.

Three Communities

I notice that very accurately, in the specification of my title, the plural was used — "the Economic Communities" — and indeed there are in fact three. There is not only the EEC itself, as it was set up by the Treaty of Rome in 1957. There is the Coal and Steel Community; and there is EURATOM, the atomic community. So let’s have a look at those other two communities that make up the plural.

There is a high authority for the coal and steel industry throughout the European Economic Community. What for? If the intention were the freest possible exploitation, in response to economic forces, of the coal and steel resources of the Community, then the last thing which would be needed is an "authority," to do what the market will do of itself. When an authority is set up, that is a clear sign of intention to ensure that the economic forces do not produce their natural effect but that something else happens instead.

Sure enough, the object of these two communities, the Atomic Community and the Coal and Steel Community, is not to ensure that the exploitation of the potentialities of coal and steel and atomic power occurs wherever and to the extent that it produces the highest return to the resources employed. If that were the object, no authority would be necessary. The object is a political object. It is so to control both the location and the volume of production as to achieve an outcome different from the purely economic — in other words, a political outcome. Already the governments in all the countries of the Community are knee-deep in coal, steel, and atomic energy. If those governments are to be unified within the Community, then the Community is bound to have an "authority" which will stand in relation to coal, steel, and atomic energy for the Community as a whole as the individual governments have been doing hitherto for their respective territories. In other words, it is plainly and wholly interventionist.

Trade Policy

Let us take trade policy as another example. What is meant by saying — and we hear these words on the most respectable lips — that the new European entity will constitute a "powerful" economic bloc, that it will wield economic power comparable with that of such giant economies as the United States or the Soviet Union. What does this mean, this talk of economic power? In what sense would western Europe, with no internal tariff barriers, represent a power or force in the world? Not by trading freely, either inside its limits or across a common tariff against the outside world. The essence of trade is that one party to a transaction exercises no more power than the other party. Trade in itself is of all human relationships the most pure of any taint of the exercise of power; for trade takes place when mutual advantage is equal and opposite.

Yet "economic power" is very much what lies at the heart and intention of the creators and the magnifiers of the European Economic Community. So what do they intend? How do you wield what is called "economic power"? Obviously, not by freeing economic activity and trade or by multiplying the voluntary relationships between individuals in one part of the globe and in another. You do it by exercising political constraint over your own citizens in their trading activities, so that their behavior may in turn bring duress to bear upon the citizens of other countries.

We witnessed in the 1930s what was meant by the exercise of "economic power": the deliberate use of a nation’s ability, by molding the economic actions of its own citizens, to bring leverage to bear upon others. This is not the attitude or the approach of a new government with ambitions for freedom of trade and intercourse. It is the language of a new government with strictly political ambitions, where economic welfare will be subordinated to political intention.

Taxation Policies Uniform Throughout

Turn now to taxation. One of the principles of the European Economic Community is that taxation, and indeed all the other aspects of government which have an economic consequence in the life of the citizen, shall progressively be harmonized throughout the Community. We are at the moment enacting in Britain a Value-Added-Tax. Whether good or bad, this taxation is unparalleled in the course of the last 500 years; it is a tax which we cannot repeal, whether we like it or not; for it is a condition of membership of the European Economic Community that all the countries must have a Value-Added-Tax. In due course, the same logic will require that they shall all have the same Value-Added-Tax.

In every sort of government action which has economic consequences, the European Economic Community aims at attaining uniformity. We are, therefore, engaged in creating a government, a new government, a super government, which will impose upon all the citizens of that area a system of taxation, a system of social welfare and insurance, a system of law wherever it touches economic affairs — uniform throughout.

I ask: is that likely to be minimal or is it likely to be maximal?

Is it likely that harmonization will take place downwards or that it will take place upwards? Will intervention be raised to the level of the maximum which prevails anywhere in the Community or reduced to the minimum which is anywhere to be had? Well, I can tell you that in Britain, when anxious souls inquire, "Is there any truth in the rumor that in the European Economic Community we would have to dismantle the Health Service?", the reply is always confidently given, "Oh, no, no! What we expect will happen will be that in due course the rest of the Community will imitate us." That’s how political harmonization takes place: in the nature of things, it takes place in an upward and not a downward direction.

The Nature of the Animal

Let us now have a look at the animal itself. Thus far, I have discussed in the abstract the political unit, the new political unit, the new government, the new super-government. But who are they who comprise this government? They don’t at all closely resemble the present government, for example, of Britain. Those who make up the present government of Britain, for all their faults and failings, sit in the House of Commons and are answerable to the House of Commons in the sense that they may be called to debate there, and certainly are ultimately answerable to the electorate, in the sense that the electorate can turn them out. The government of the European Economic Community will not be like that at all.

The government of the European Economic Community consists of two parts. One part of this government is the bureaucracy, the bureaucracy which created it, the bureaucracy which inspired its extension and which is already busily engaged, on an ever-increasing, Parkinsonian scale, in working out plans for harmonization. This is a bureaucracy which is not answerable to any democratic authority whatsoever anywhere in the Community. It thus differs from the civil services of the respective governments, which, after all, are the servants of those governments although they may sometimes behave more like masters. The bureaucracy of Brussels, the bureaucracy of the Community, the Commission is entrenched in the Treaty. It is part of the constitution. It has its own inherent power and its own independent source of growth and of authority.

The other part of the government is a combination of the national governments, meeting together in conclave to arrive at bargains among themselves to their common or mutual advantage, a sort of lowest common denominator of the national executives of the respective countries. But when they are together they are not the same as when they are separate. When they are separate, they each return to their makers. The British Government at home behaves as the British Government. Parliament has to explain and to argue; the supporters have to defend their actions to their electors; the electors then have the last word.

The Whole Differs from the Parts

Not so when governments join to become a collective. The combining of nine governments does not leave those nine governments unaltered. They become a tenth thing, something new. The decisions which they take in common are decisions for which none of them is separately and independently responsible. They are all, as individual governments, irresponsible in respect to the decisions which they take together; and each and every one of them can say, "But, of course, this wasn’t our decision. No doubt, if we had been free, we wouldn’t have done exactly this. But you see, we had to agree, because we are a Community."

Both parts, therefore, of the government of the new political entity are irresponsible. And I have to ask you this question: is it more likely that a bureaucracy and an executive which are not democratically responsible will be less or more greedy of power, less or more ready to find new work to do, than national governments, which at least in the last resort, have to render account for their actions to those whose activities and lives are affected?

So, I conclude that the European Economic Community represents the erection of a new government, a new political unit with a new government, and that the whole spirit and trend of this new unit and new government will be to increase the power of government vis-à-vis the citizen and to increase the scope and range of government intervention in the economic life of the citizen throughout the area which is covered. As I said when I started, this is not about free trade. This is not about economic freedom. It is about the regulation of trade and the regulation of economic life.

A National Interest

I want to leave this reflection with you in conclusion. It is a reflection which has been borne in upon me with new sharpness by the many valuable encounters and discussions I have enjoyed here in the United States during the past nine days. Though we hold in common many beliefs and principles, these are seen by each of us in the context of his own national background. We err if we imagine that the laws of economics apply merely to individuals, and that the aggregations of mankind into nations and societies is the mere totaling of individuals. The case for a free economy — the case for which we contend, all of us in our respective situations—the case for economic freedom does not depend upon an artificial picture of humanity. The case consists in what the application of those principles can do in particular societies, the societies into which men are actually organized as sovereign nations; and the story of Britain in the European Economic Community really illustrates this.

The decision that Britain has to make — and we haven’t made it yeti — is essentially a national decision, a national political decision. The question is: By whom are we going to be ruled? So, as one who labors with you in the same field, I find myself opposing Britain’s membership in the European Economic Community — indeed, believing that it cannot be brought permanently to pass — not primarily on the ground that it will operate to increase the power of intervention by government over a great area of humanity, but because of its political unrealism: that it assumes a will to be governed where a will to be governed in the new unit does not exist.

Economic laws, of course, are independent of human volition; but like the other laws of nature which we cannot change, we seek to place a true interpretation and use of such laws at the disposal of our fellow citizens. And we do that — I believe, all of us — not from general and abstract considerations of the welfare of the total of humanity, but because we ourselves enter as members into the fate and destiny of a specific human society. It is in that sense, though only in that sense, that I have always claimed that the economic in human life is subordinate to the political. It is a servant, a servant in the sense that any of the other natural forces is a servant if rightly used. That is why the politician has the duty to his own society to insure that that society understands the necessary consequences of the policies which it adopts or rejects. It is because I want to preserve to the people of Britain the opportunity still to take that kind of decision for Britain, that I, for my part, have said "No" to the creation of this new superstate and super government — at least insofar as Britain is intended to be a part of it.

 

—FOOTNOTES—

¹ At the last general election, Mr. Heath said that such a thing as membership in the Community could not come about without the full-hearted consent of Parliament and people. The measure was forced through Parliament by paper-thin majorities and no one, however enthusiastic for British membership, has ever dared to claim that there is even a bare majority in favor amongst the public outside Parliament. In those circumstances, what has happened must be regarded as provisional and I do not believe that the electorate can be denied the opportunity if it wishes to make this the deciding factor in a decision at a general election.

 

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How Can Europe Survive?

International conflicts are inherent in the systems of interventionism and socialism and cannot be solved unless the systems themselves are abolished. The principles of national welfare as conceived by our progressive planners conflict with the principles of international cooperation and division of production. If international cooperation is to be restored, the policies of government interventionism and socialism must be abandoned.

HANS F. SENNHOLZ

Further Reading

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