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Wednesday, September 21, 2011

Walter Lippmann: The Impossibilities of Social Planning

At the beginning of the twentieth century, observed historian A. J. P. Taylor, a law-abiding Englishman’s conscious relations with the government were limited to his contacts with the post office and the policeman. He could live where he liked and as he liked, and if he wanted to travel abroad he could do so without a passport and without asking anyone for permission. There were no limits on his ability to exchange his pounds sterling into some other currency, and he could buy goods anywhere in the world on the same terms that he bought them at home. He could enlist in some branch of the service if he chose, but he was also free to spend his entire life without any time in the military. He had no official number or identity card, and his tax obligations were exceedingly modest.

What was true for an Englishman was true also for a citizen of the United States. There were unfortunately many in both countries who thought that freedom was not enough. They believed that in addition to liberty, people had also the right to a large measure of protection from the struggles and uncertainties of human existence. In America the crusade for a government large and powerful enough to offer such protection was led by the so-called Progressives. One of them, Walter Lippmann (1889–1974), later observed that the older faith was that human rulers’ limited moral and intellectual capacities could not safely be trusted with unlimited power. The Progressives believed, by contrast, that there were no limitations on man’s ability to rule others and therefore no need to limit the powers of government. They had renounced the wisdom of the ages, he said, in order to embrace errors that the ages had renounced.

That’s what Lippmann believed in 1937, when he was America’s most popular journalist. His “Today and Tomorrow” column was in 155 daily papers and would soon be in 200. At the height of his popularity he would have over 10 million readers, many of whom, it has been said, did not know how they should think about the issues of the day until they had read his comments. A lady in a New Yorker cartoon told a friend, “A cup of coffee and Walter Lippmann are all I need.”

His credentials as a libertarian were less than impeccable. As a student at Harvard he developed a fondness for the British Fabians, who believed they could overcome the prejudices and inefficiencies of popular democracy with a small core of selfless leaders. In 1914 he published Drift and Mastery, in which Frederick W. Taylor’s principles of scientific management were used to draw up a blueprint for the rational arrangement of society. (Editor’s note: See “Taylorism, Progressivism, and Rule by Experts,” by Kevin A. Carson, The Freeman, September 2011.)

Applying this blueprint, he said, would lead to an America in which the role of private entrepreneurs would be taken over by salaried bosses, government commissioners, and labor leaders. His Public Opinion appeared in 1922 and quickly became the subject of college courses, articles in scholarly journals, master’s theses, and even a few dissertations; it was described by John Dewey as “the most effective indictment of democracy as currently conceived ever penned.”

Lippmann spent most of his life, both before 1937 and afterward, writing things of which someone like Dewey would approve. His conversion to free-market principles was brief and fleeting. Still, it was sincere for as long as it lasted. It seems to have begun with his frustration over the blundering statism of Herbert Hoover. News of the stock market crash was still in the headlines when the President began a series of conferences in which he told industrial leaders that they must promise not to reduce wages. His Agricultural Marketing Act gave farmers a half-billion dollars in 1929 and another hundred million early in 1930. In 1931 he offered a nine-point program of government intervention, which broadened the range of those eligible for assistance of this kind.

As things grew worse Hoover justified himself with words remarkably similar to those of another troubled administration 80 years later: “We might have done nothing. That would have been utter ruin.” Instead of allowing things to take their course, he said, his administration had devised American history’s greatest program of economic defense. He blamed the problem on investors, criticized their interest in profit, and was amazed to see stock market prices continuing to fall.

Lippmann’s patience with all of this sagged rapidly and finally snapped when Hoover put his name to the Tariff Act of 1930 (aka the Smoot-Hawley Tariff), which raised the rate on some 20,000 imported goods to record levels. Hoover signed this despite the more than one thousand economists who endorsed a petition urging a veto. He could not, he said, go back on party pledges: “Platform promises must not be empty gestures.” The words were for Lippmann simply Hoover’s confession that his policies, far from being intended for the general good, were actually an appeal to special-interest groups.

Although he would later become what someone has described as “one of the Roosevelt administration’s most important journalistic assets,” he had no initial enthusiasm for Hoover’s replacement. Franklin Roosevelt, he said, was “a pleasant man without any important qualifications for the office, who would very much like to be president.” The New Deal, he observed, was little more than an extension of policies begun under Hoover, and it was in every way as much of an appeal to special interests. The Agricultural Adjustment Act, for example, helped large landowners at the expense of sharecroppers and agricultural laborers. Lippmann later attacked Roosevelt’s plan to pack the Supreme Court and found himself assailed by the left-wing press as a reactionary.

For the first (and only) time in his life he was excluded from the inner circle of “the intellectual elite.” Upset and a little angry, he sat down to apply his wide reading and literary talents to a defense of ideas he had once opposed and a reconsideration of ideas he had once espoused. The result, The Good Society, was for the most part a brilliant examination of the intellectual, logical, and moral impossibilities of economic planning.

Social Planning: The Intellectual Impossibility

The intellectual problems with social planning are illustrated by Colbert’s troubles in managing the economy of Bourbon France. The regulations for the textile industry, to take one case, filled four volumes of 2,200 pages and three supplementary volumes. It was discovered in 1718 that planners had in spite of this neglected to include the number of threads appropriate for use in the cloth of Langogne, “a matter which must be attended to without fail.” The information for attending to it could be obtained only by means of reference to existing procedures, which was available only from established manufacturers, who were thus empowered to use the law for preventing innovative competitors from introducing new methods.

This points to the dark truth behind every “plan” for “improving society.” Governments, Lippmann said, are made up of people who meet to make speeches and write resolutions, of people who study papers, listen to complaints, and shuffle paperwork. These people suffer from indigestion, asthma, boredom, and headaches, and all of them would rather be making love than passing laws. They know whatever they have happened to learn, are aware of what they have happened to observe, and are interested in whatever has happened to catch their imagination. A power-holder may sometimes have high ideals, but he is in the end no more than a human being, “a little man in trousers, slightly jagged,” as William Vaughan Moody put it.

Such a person cannot possibly know enough to devise wide-ranging schemes for society as a whole. No matter what the source of their authority human rulers are human beings, and as such have only a severely limited understanding of the world in which they find themselves. The social planner sits down to a breakfast that is the final link in a chain stretching far beyond his comprehension. Society goes on as it does because of processes that are habitual and unconscious, and it is only because people can take so much for granted that they have the time to attend to anything. Anyone who attempts to plan everything is immediately trapped in a web of details. “The real, rather than the apparent, policy of any state will be determined by the limited competence of finite beings dealing with unlimited and infinite circumstances,” Lippmann wrote.

In his efforts to manage this complexity every ruler must imitate Colbert in calling on the expertise of those whose industry he hopes to regulate. In attempting to plan the production of cloth in eighteenth-century France the government got its advice from existing manufacturers and passed decrees that would protect them from competition. This led to laws against the production of printed calicoes, which then were all the rage. Attempting to regulate health care in early twenty-first-century America, the Obama administration accepted the advice (and contributions) of the American Hospital Association and the Federation of American Hospitals. These represent the interests of large community hospitals, whose dominance is threatened by the emergence of smaller hospitals offering superior service in particular physician groups’ areas of expertise. With its provisions against the creation of any additional doctor-financed hospitals, the Patient Protection and Affordable Care Act might have been better named the Large Hospital and Inferior Service Protection Act.

Earlier in his life Lippmann had endorsed a policy of gradual collectivism. He had never admitted to being a socialist, but he had argued that the government should gradually assume control of the economy, if not through outright ownership, then at least by means of detailed regulations. There should be a survey of all the available resources, and then national authorities should put together a plan for developing them. By the time he wrote The Good Society he had come to realize that such a plan would be flawed from the outset. The planners’ limited information must necessarily put them under the influence of such organized interests. “In practice,” he wrote, “gradual collectivism is not an ordered scheme of social reconstruction. It is the polity of pressure groups.”

Though they demand different things, these pressure groups agree in asserting that their interest is identical to the national interest. Those who believe the national interest is best served by means of cheap steel for the automobile industry, however, and those who believe it is best served by fixed and protected prices for the sake of the steel manufacturers, cannot both be right. Every new regulation, Lippmann said, is a decision in favor of some interest and against others.

Those who believe they have been harmed will react by seeking to protect their interests as well as they can. New laws lead to new violations, and these in turn to more new laws. In early eighteenth-century France lawsuits over methods for the production of cloth were endless. Observing that smuggling and bootlegging had become standard business practices Colbert decided to put the power of the State behind his decrees. An estimated 16,000 people were killed in his war on printed calicoes. A much larger number were punished somewhat less severely, though still with great cruelty. On one occasion 77 were hanged, 58 were broken on the wheel, 631 were sentenced to the galleys, one was set free, and none were pardoned. One assumes the Obama administration’s attempts to regulate health care will be less violent.

Social Planning: The Logical Impossibility

During the twelfth century there were 19 stations at which merchants travelling along the Rhine had to stop and pay a toll. Twenty-five more stations sprang up during the thirteenth century and 20 more during the fourteenth, all backed by the firepower of fortresses built for the purpose. Many of these were in the Duchy of Cleves, where they were referred to as the “treasure.” They were a treasure, though, only to the people involved in collecting the tolls. They added nothing to the peace or prosperity of Europe. They were merely a means for the forcible transfer of wealth. That, Lippmann said, is the real meaning of “economic planning.” The government does not produce anything. All it does is take from one group and give to another.

Even as he wrote, the policy of handing out money to appease the farm lobby, first planted by Hoover, was blossoming under Roosevelt. At the beginning of the twenty-first century’s second decade it has spread even beyond our shores. The Department of Agriculture gives American cotton planters about $3 billion a year. These handouts encourage overproduction, lower world cotton prices, and ruin small farmers in many Third World countries. In 2005 the World Trade Organization upheld a Brazilian challenge to these subsidies, but the United States ignored the ruling. When Brazil was granted the right to impose punitive tariffs and lift patent protections on a wide range of U.S. nonfarm products, Congress responded with a proposal to offer over $147 million a year to Brazilian farmers. Rather than eliminate a ruinous and unjust policy, our representatives wanted to expand the list of those who could make claims on it. In terms of Lippmann’s illustration, they decided that instead of abolishing the toll stations and tearing down the castles, they would “turn every cottage into a castle with a toll station of its own.”

The problem with such policies lies in the fact that the owners of these toll stations are the beneficiaries of a government-backed guarantee that they will receive additional income in exchange for reduced effort. Each is promised that his share of the national wealth will increase even though his contribution to that wealth has declined and perhaps even if he makes no contribution at all. This works for each of the stations for as long as there are only a few of them. Unfortunately they multiply. The granting of special treatment in one case is soon followed by the demand for similar grants to others, as in the case of the Brazilian farmers. There cannot in the end be more for everyone if everyone has been granted the privilege of producing less. Soon everyone, perhaps even the average toll station owner, is poorer than he would otherwise have been.

Social Planning: The Moral Impossibility

Specific economic contradictions may be eliminated by changing specific policies. Deeper and more difficult to eliminate is the effect of such policies on the character of the people. It is evident in the case of the cotton subsidy that it is gigantically helpful to the fewer than 20,000 planters who benefit from it. Nonbeneficiaries see this and come to the conclusion that the government has a magical power to create wealth. They forget about the iron chain that binds prosperity to production. They forget that wealth is the result of thought, effort, innovation, and thrift, and are gradually convinced that the path to abundance lies in the power of the State. They once understood that they could advance themselves only by increasing their service. They now believe that they must do it by imposing their will on those around them.

The greater the extent to which this idea is accepted, the more intense the struggle for power becomes. It goes on and must go on because the members of contending factions have been tempted to ignore the logic of their own beliefs. If power allows them to disregard other people’s preferences, their own preferences may be similarly disregarded by some third faction that has more power than they do. If they think about it, they will begin to see that their own liberty is ultimately dependent on their willingness to allow others similar freedom. In Lippmann’s terms, each man’s right to freedom from arbitrary treatment at the hands of his neighbor has an “inescapable corollary . . . the duty of man not to deal arbitrarily with others.”

Lippmann said he had been brought up to believe there was no such thing as a self-evident truth, but this seems to be one. It is also the most ancient axiom of morality. “What you do not want done to yourself,” Confucius told his followers, “do not do unto others.” Mohammed said, “Not one of you truly believes until you wish for others what you wish for yourself.” A Buddhist text says, “Treat not others in ways that you yourself would find hurtful.” The same truth appears even more tellingly in the Upanishads, in the teaching of Hillel, and of course in the words of Jesus: “Therefore all things whatsoever ye would that men should do for you, do ye even so unto them.”

Adam Smith’s notoriously self-interested butcher and baker understood this. They understood that they would have to close their shops if they did not succeed in delivering something their customers would like. The Golden Rule of morality is the golden rule of economics, and it works because it respects the free choices of everyone involved. Every economic plan that depends on the coercive power of the State, on the other hand, tends toward disaster because it is in the final analysis immoral. “Though it is momentarily triumphant,” Lippmann concluded, “it is a failure, and it must fail, because it rests upon a radically false conception of the economy, of law, of government, and of human nature.”

  • Harold Jones did his Ph.D. for a mid-life crisis. He served before that as a chaplain on active duty with the United States Army, as a pastor, and as a branch office manager for Investment Management & Research, Inc. (now Raymond, James & Associates). More than a dozen of his articles were written for the Foundation for Economic Education, and he is the author of a book, Personal Character and National Destiny (Paragon House, 2002).