Why Not Socialize Our Economy?

Mrs. Johnson, formerly of the Foundation staff, continues her study of freedom from Torremolinos, Spain.

A Fortune editor, re­porting last year on a visit to Russia, made this comment about his discussions with "the Russian bosses": "The tough proposi­tion to argue with them is our reasons for not socializing large areas of our life and economy…." Sig­nificantly, he noted that the Russians had all the an­swers in any discussions of capi­talism versus socialism.

Although the United States pre­sumes to speak for and defend the "free world" against communism, how many of us can give any good reasons for not socializing our way of life? Large areas of our lives and economy have already been socialized, mostly without our realizing it—perhaps because we didn’t realize.

To oppose an idea effectively, one must first understand what it means. "To socialize" means to turn over to government officials the ownership or control of the means of production and distribution. Theoretically, both socialists and communists aim at eliminating all private property, and all in­come other than wages: no profit, rent, or interest allowed to individuals. Theoreti­cally, too, the State is supposed to "wither away," but all history shows that, as a nation has become more socialized, the State has become more power­ful.

Why not socialize our economy? Here are at least two vital reasons for choosing liberty:

            1.     Socialization restricts free­dom of choice, thus destroying op­portunities for the material, moral, and spiritual development of the individual.

            2.   Socialization keeps the stand­ard of living for all below what it would be under a system of pri­vate ownership with free exchange.

There can be little doubt about the first reason. With government officials owning or controlling an economy, the individuals who make up that society find most—if not all—areas of their lives controlled and directed by their rulers. The freedom of choice left to a person in even the most basic areas diminishes as socialization in­creases.

Choices of food and clothing are limited to what the rulers decide to produce, and are further limited by faulty planning and failures to produce the quotas demanded. Choice of shelter is first limited (public housing goes to those ap­proved by the government), then lost entirely. A man is allotted space which is his on sufferance. Recently, Boris Pasternak, the Russian poet and writer, has been threatened with the loss of his home, apparently because he was offered the Nobel prize for a book his government didn’t like. In Great Britain, the Compulsory Purchase Act has led to such in­justices as forcing owners to sell houses worth up to $5,000 to the government for as little as $1.40 each.

When the means of entertain­ment—magazines, radio, televi­sion, sports—become controlled, even if not owned, by government, then a person’s leisure hours are likewise restricted as to freedom of choice. For example, the Fed­eral Communications Commission has withheld for years permission to the companies that would like to set up Pay Television. This means that a person’s liberty to buy high quality entertainment, or even education, is being restricted. When the State supports or con­trols or actually opposes a Church or religion, one of our most vital choices is restricted to a degree.

Whether or not a person believes that man is a spiritual being, he usually believes in some degree of moral restraint. Most people, most of the time, refrain from lying, cheating, stealing, murdering. They have learned that they will live more comfortably and produce more efficiently if each tends to his own business. Dishonesty and vio­lence are rightly seen to be disrup­tive forces. The materialist is dis­turbed to see the robber unfairly enriched; the religious person sees the robber destroying his own soul.

Limited Choice

Socialization, by planning a per­son’s life for him—housing, job, pay, recreation, insurance, pension—leaves a minimum of opportuni­ties for moral choice. And moral character can be developed only by the choices a man makes when he is free.

The very basis for moral choice is destroyed when there is no pri­vate ownership. If property be­longs to the government, it be­longs to everybody—which means nobody feels responsible for it. Evidence can be given from widely different sources. In the United States, many public schools have been severely damaged by school boys—broken windows, fires, hoses left running inside overnight, or smashed desks. In "public" parks, benches are stolen, statues are de­faced, fountains are broken. A similar attitude toward govern­ment property is exhibited in so­cialized countries behind the iron curtain, and even in Britain. On one nationalized project, workers took home whole sacks of cement with the comment that since it’s nationalized, "it belongs to me as much as anybody."

People Robbing Themselves

The January 1959 East Europe had this to say about crimes against socialized property behind the iron curtain: "Among the `crimes’ now flourishing in East­ern Europe, few are so common or flagrant as those involving the misappropriation of ‘socialist’ property. (Roughly, all the assets owned by or at the disposal of the State, state enterprises, and other public institutions are ‘socialist’ or so-called public property. This would include most of the prop­erty in communist Europe.) In­deed, if it is true, as the com­munists contend, that the abolition of capitalism and the introduction of `socialism’ made the people the actual owners of national property, then it would seem that a virulent form of insanity was spreading like wildfire among the ‘People’s Democracies.’ For, throughout the area, these misguided owners are senselessly robbing themselves of huge amounts of money and ma­terials in state factories, state of­fices, state farms, and all state in­stitutions.

"The obvious conclusion to be drawn from this phenomenon is that most East Europeans do not identify the State’s property or in­terests with their own. On the contrary, they regard this prop­erty as the possession of a hated and privileged minority and, for a variety of reasons and resent­ments, consider it their right to `make use of it’ for their own private purposes whenever the need or occasion arises."

By restricting freedom of choice, an incalculable number of material advances are delayed, dis­torted, or prevented. Inventions may never be developed because the inventor was not free to seek financial backing from those will­ing to take the risk. Or the backers may refuse to go ahead with pro­duction because it is too costly to comply with myriads of licenses and other red tape. Hitler’s Na­tional Socialist Republic of Ger­many reached the point where multiple copies of forty different forms had to be filled out just to import one item. Many business­men in the United States today hire full-time employees just to keep track of the many state and federal labor and tax regulations. U.S. News & World Report prints two columns every week telling businessmen what the government says they can and cannot do.

Other losses, both material and moral, occur when freedom to choose one’s job is affected by gov­ernment control. Subsidies to in­efficient farmers (or featherbed­ding union labor), for example, may cause untold amounts of waste of land, seed, fertilizer, and other resources. Without the sub­sidy, the same men might have become efficient milkmen, chemists, or college professors, thus con­tributing to society instead of withdrawing more than they put in. The subsidized are, in effect, bribed to not develop their own highest potentials.

Now let us examine the second reason for opposing socialization. It keeps the standard of living be­low what it would be under a sys­tem of private ownership with free exchange. This is the inevitable result of bureaucratic, as opposed to profit-and-loss management. Dr. Ludwig von Mises has shown un­answerably (in Socialism, Bureauc­racy, and elsewhere) that the for­mer is the only kind of manage­ment possible with government ownership of property.

The fact that Russian scientists were able to get Sputnik into orbit as soon as they did, provides no evidence as to a high standard of living. A socialized society can build great dams, big bridges, ICBMs. But what of the millions of individuals who become little better than slaves to produce such achievements? The socialists and communists have adopted their form of government in order, they say, to free men from their "ex­ploiters," to bring men "a better life."

Surely a "better life" can be de­fined as one in which men live lives of their own choosing, subject only to the restriction that they not in­terfere with each other’s choices. To call the reverse, which amounts to slavery, a "better life" is an absurdity. A better life depends on being free to earn and own property if men wish, as well as to use it or dispose of it as each sees fit. And by property I mean anything that can be exchanged in trade: goods, ideas, land, wages, services, money, tools.

Profit-and-Loss Management

Granted private property and the opportunity of free exchange, businessmen develop a system of profit-and-loss management. That means that if a producer is able to find buyers for his product at a price that allows him a profit on a transaction, then he is contributing to society, and buyers will sup­port him in that business as long as they are satisfied. He may get very rich; he may expand into a world-wide enterprise; he may be­come the only seller of that par­ticular product; but as long as such a position was arrived at honestly, without any government-granted privileges, then the pro­ducer has earned justly all that he may have.

The "Russian bosses" would, of course, deny that. What do they propose instead? Socialization. And what are the results? They are indicated in the following com­parisons of output between Russia and the United States over the last 43 years, as reported in U.S. News & World Report, March 1, 1957, pp. 52-53.

In nearly every example, the Russians of 1913 were more pro­ductive, relative to the Americans, than were the Russians of the Socialist Soviet Republics in 1955.

Yet, some people would socialize the United States for fear that Russia is getting ahead of us!

Why has the Russian govern­ment fallen so far short of its goals? Is it that the men carrying out the successive Five Year Plans were not clever enough, or not zealous enough, or not experienced enough? They had power—all of it, and enough labor—all the Rus­sian people, and enough time—forty years.

But they also had bureaucratic management. That means they had, and have now, no freely fluc­tuating price system, except in isolated spots where it has been allowed out of necessity. There­fore, the planners had no way of knowing whether or not any given enterprise was making a profit or loss. Which means they had no way to tell how, when, or where scarce raw materials were being wasted. Nor had they any fair way to dis­tribute goods.


Number of Years that Russian Production Lags Behind U.S. Production, 1913, 1937, 1955

1913              1937        1955

Steel   Ingots

21 years

32 years

29 years

Electric Power




Crude Petroleum




Mineral Fertilizers












Boots & Shoes




Woolen & Worsteds





This dilemma of socialization is like sailing the seas without a com­pass.

There is no way out of this di­lemma. A bureaucracy must be run by strict rules. Persons of initia­tive and imagination have no place in office: only blindly faithful servants. That is sufficient if the government is limited to police functions, but economic affairs cannot be run successfully in that fashion.

The Function of Prices

Prices, in a free market, are in­dicators which help the producer plan his course of action. He tries to buy materials at as low a price as possible, and to sell his finished product at as high a price as he can get. Though prices are not de­termined by costs, costs must be recovered in the long run or the producer will be forced out of busi­ness. In a socialized economy, the government does not go out of business, but instead, the standard of living is reduced for all as a consequence of wasted resources.

Without a free market, how can a government official decide what prices to set on all the goods and services? George Shea, referring to the possibility of price controls in the United States, shows what a problem it is even in reference to a few items (Wall Street Jour­nal, April 6, 1959):

"When prices are studied by an agency seeking to control them, it must try to analyze those very eco­nomic forces which if left to them­selves do the setting of prices. The agency cannot act in a vacuum. It must seem to act in a nonarbitrary fashion. But its task is to find an answer different from the one the economic forces have found—or there would be no reason for its ex­istence. Thus, it must take account of the economic forces, but also must render a decision in effect stating that one or more of these forces are wrong, thus in actual fact doing a completely arbitrary thing."

In a purely socialist State, should butter be sold for 5¢ a pound, or $2.00 a pound? Nobody knows what the cow cost: it was allotted to the collective by the State. Nobody knows what the hay cost: it was distributed by the State. Who can tell what the trans­portation cost? The trucks are owned by the State. Nor is there a free market price to reflect the supply-demand situation. The truck driver, dairyman, and farmer are paid partly in produce, partly in housing, and partly in cash. What is the price paid for their labor? The whole problem must remain insoluble.

Without the possibility of profit or loss, the producer cannot dis­cover whether the consumer wants more—or less — of anything. In a free market economy, financial loss is an immediate and powerful in­dicator of waste. No matter what the cause, this fact makes it clear that something has been made which too few, if any, want to buy at the asking price. As an economy is socialized, or controlled, the clues of price and profit are re­moved, so that producers must make their plans blindly.

It is absolutely necessary to know costs and market prices in order to avoid waste and achieve a rising standard of living. Every bit of wasted material signifies wasted human energy. That energy could have gone into pro­ducing something that would have been used instead of being left to spoil. New ideas, new inventions, new processes, discovery of new resources, more efficient use of old resources, are all necessary to maintain an expanding population. These things are achieved auto­matically and naturally when men have freedom of choice.

When men are free to earn, to save money that does not lose its value, to invest in capital equip­ment, to labor or to provide jobs for others as their judgment and ability dictate, then they can pro­duce bounty from the earth. A sense of responsibility will de­velop as each decision is made. During well-earned leisure, men can develop themselves, their minds, and their spirits.

Socialization limits man’s ma­terial comfort, degrades him mor­ally, and may end by breaking his spirit. Those are some of the rea­sons for not socializing our life and economy.

Further Reading


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