Freedom and Economic Order

by Linda C Raeder

  Indeed government in the United States massively intervenes in the market process. It attempts to control the direction of resources not by outright abolition or confiscation of private property but rather tax and regulatory policy and other forms of legislation. It encourages the production of certain goods and services by means of subsidies, bailouts, and tax credits and discourages other types of production by imposing taxes or regulations on the industry in question. Firms regard both taxes and regulatory mandates as a cost of production. An increase in tax rates and regulation thus raises costs of production, costs which firms attempt to pass on to the consumer in the form of higher prices. Ceteris paribus, the higher the price, the lower the demand. By raising costs of production, taxes and regulation discourage both production and consumption. Such is yet another reason for the existence of Washington lobbyists. Even firms and industries that do not attempt to gain special privileges realize that they must be either represented in the federal legislative process or its victims—the lambs slaughtered by voracious taxes on the goods and services they produce or draconian regulation of their production. For such reasons, many corporations, in mere self-defense, contribute significantly to candidates of both major political parties. By so doing, they hope to win favor with the powers-that-be, of whichever party happens to win an election.

  Political privilege and favoritism toward special-interests are routinely bought and sold in the “market” of contemporary American politics. The result is a most uneven “playing field,” where organized and politically influential interests gain economic advantage over their unorganized and less-influential competitors. Unorganized interests, including those which are generally impossible to organize—small businesses, individual entrepreneurs, taxpayers, and consumers—pay the costs of such cronyism. Woodrow Wilson once remarked, “I have always in my own thought summed up individual liberty, and business liberty, and every other kind of liberty, in the phrase that is common in the sporting world, “A free field and no favor."[44] The “special-interest liberalism” embodied in the contemporary American corporate-welfare state bears little resemblance to the constitutional political order and free-market economic order characteristic of traditional American ideals.

  In conclusion, political intervention in the market process suffers from the same flaw that proves fatal to any form of planned or command economy—the fact that government officials in any complex society do not and cannot know how resources “should” be utilized any better than central planners in the former Soviet Union. The only way such knowledge can be gained is by reading the language of relative prices and acquiescing to their guidance. Economic intervention by government, however, generally consists precisely in overriding or ignoring market-generated prices, that is, substituting political will for a rational allocation of scarce resources in the production of items most valued by consumers. Political actors intervene in the market process for various, and related, reasons—to reward political supporters; gain votes by providing economic benefits to particular groups; gain control over the direction of resources through tax and regulatory policy; protect certain politically influential industries (often major donors to electoral campaigns) from competition; ensure that certain favored groups maintain their historical standard of living; redistribute income and wealth from one group to another; and so on. In all cases of political intervention in the price system, however, politicians substitute their own will or the will of their contributors or constituents for the facts of reality. To disregard or override a price signal, whether by subsidy, legislative enactment of price and wage controls, manipulative tax policy, regulatory edict, or other such devices, is to defy the actual conditions of existence. Freely forming market prices embody truth, that is, the actual conditions of supply and demand that exist at a given time. To willfully override such facts is to misallocate scarce resources. Crony capitalism or political privilege is wasteful and wrong from any economic point of view beyond those of its direct beneficiaries.

  Economic intervention by political authority, moreover, violates not only economic rationality but also the traditional American sense of justice. Justice within the Western and Anglo-American tradition, as we have seen, has long been bound to the moral demand for equality under law or equal treatment under the law. Economic privileges, however, cannot uniformly be provided to every individual and every profession, firm, or industry in society. Obviously only some individuals or groups can be granted “privileges”—special advantages or immunities.[45] It would clearly be impossible to subsidize every failing individual, firm, and industry with taxpayer funds. Some individuals, firms, and industries must be earning sufficient profit to pay the taxes necessary to subsidize their failing counterparts; the former must pay the cost while the latter receive the benefits. Crony capitalism and other forms of political intervention in a market economy always involve winners and losers; one person or group gains at the expense of others. Such is to violate the principle of equality under law and the rights of the “losers.” “Justice,” said James Madison, “is the end of government.” Political intervention in the price system necessarily violates that end.

  Nine

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  The Marxist Critique of Capitalism

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  . . . [M]odern bourgeois private property is the final and most complete expression of the system of producing and appropriating products, that is based on class antagonisms, on the exploitation of the many by the few. ―Karl Marx

  The theory of Communists may be summed up in the single sentence: Abolition of private property ―Karl Marx

  Previous chapters examined the essential differences between capitalism and socialism principally from an economic point of view. Both theory and historical experience clearly demonstrate the superiority of the market process with respect to both the allocation of scarce resources and fulfillment of subjective human values. The free-enterprise system has resulted in the greatest and most far-reaching prosperity ever achieved in human history, while the experiment in economic centralization, wherever implemented, has universally failed to produce the results anticipated by its advocates. The disparity in performance is not accidental but rather stems from the nature of things—from the fundamental fact of scarcity and the fact that no human being or select group of human beings can know more than an infinitesimal fraction of all the relevant facts that must be taken into account in solving the economic problem that arises from scarcity. Planners in a centralized economy have no means of accessing the knowledge and information that daily and spontaneously informs the market process via the price system secured by the rule of law. Both reason and experience, theory and history, conclusively establish the inherent superiority of the market solution to the economic problem that confronts every human society.

  Neither the demonstrations of reason nor the evidence of history, however, have led to the abandonment of socialist aspirations. It is true that pure communism—total government ownership of the means of production and other resources—has been rejected in all but a few nations, such as North Korea. But to the astonishment of those familiar with the catastrophic history of the twentieth century—the Age of Totalitarianism—significant portions of the contemporary American electorate, as well as their political leaders, seem oblivious to such experience. A growing number of Americans, like the millions who pursued a similar dream in the previous century, seem enchanted by the siren song of socialism. In recent years the United States has adopted policy after policy—health-insurance legislation; nationalization of student loans; governmental direction of private industries and financial institutions; so-called “economic stimulus” plans; massive regulatory and other interventionist policies—more typical of a socialized than a free economy. Indeed in 2016 a self-avowed Socialist achieved considerable success in presidential primary elections.[46]

  One would expect heirs of the twentieth century to kno
w better, having gained knowledge and experience unavailable to the initial champions of economic socialization. The results of the collectivist experiment—economic collapse, immiseration of the populace, and tragic destruction of both human life and human values—are not mere theoretical possibilities but documented historical fact. Indeed, the twentieth century was among the most barbaric in human history, if wanton destruction of human life is regarded as barbaric. By conservative estimates, more than one hundred million people were killed as a direct or indirect result of the implementation of the economic plans advanced by political leaders in the Age of Ideology.[47] Millions more experienced terror, deprivation, and hopelessness, not to mention loss of individual freedom.

  Such were not the results intended by the early advocates of economic centralization and collectivization. Their aim was rather pursuit of a grand moral ideal purportedly superior to the traditional ideals embodied in liberal democracy and capitalism. The pursuit of an ideal that results in the death of millions of human beings, however, should give pause. The tragedy that ensued in the wake of the collectivist experiments suggests that their inspiration—their motivating ideal—is somehow false or illusory, in conflict with reality, the nature of things. Ideals are essential guides to human action but fruitful ideals must be inherently capable of actualization. The twentieth century has demonstrated all too clearly that the pursuit of impossible or unrealizable ideals leads not to human flourishing but rather disaster. History, said the American Founders, is the “lamp of experience.” George Santayana warned that “those who cannot remember the past are condemned to repeat it.”[48] The hope remains that the American people are willing to learn and remember the lessons taught by the tragic history of the recent past. The light of human experience, supported by the conclusions of reason, may yet prevent them from sharing the fate of those millions of human beings who so needlessly suffered under the great collectivist experiment that all but defined the twentieth century.

  Such lessons must begin with a thorough examination of the moral ideal pursued by advocates of centralized or socialized economic organization. Social phenomena of any form—economic, political, legal, or cultural—are never self-contained, autonomous, self-generating entities but rather manifestations of the beliefs and values embraced by the individuals who constitute any given society. To paraphrase David Hume’s expression of the basic insight, in the end, “opinion governs all”; as Hayek expressed a similar conception, “values generate facts.” In other words, the rise of the ideological movements over the past century can only be understood in light of the values, beliefs, and ideals that inspired them. We have previously noted Marx’s significant success in winning the moral high ground for the socialist ideal. He and his acolytes successfully persuaded millions of human beings that moral progress entails the replacement of capitalism with economic centralization of one form or another.

  Both capitalism and socialism are generally, and rightly, regarded as economic and not moral constructs. It is impossible, however, to dissociate economic from moral considerations because human action in the face of scarcity, the subject matter of economics, cannot be dissociated from moral considerations. Not only does human nature comprise an inherent moral dimension but, as Hayek suggests, strictly speaking, there are no purely “economic” ends. [49] Human pursuits are ultimately oriented toward fulfillment of abstract or immaterial value—happiness, love, justice, goodness, peace, truth, fame, security, power, and so on. Human beings do not generally desire or value material goods for their own sake but rather to fulfill such nonmaterial values, whether love for a child expressed by the gift of a gold locket or the sense of personal security anticipated by home ownership. Few people covet gold lockets or houses for the sake of mere possession; authentic misers are rare among the human community. The discipline of economics addresses the material means that human beings must necessarily employ to achieve their largely immaterial ends, means that necessarily possess a moral dimension.

  Material goods and services, in other words, are instrumental and not ultimate values. Economic science, which deals with the best means (instruments) by which human beings can fulfill their subjectively valued ends or purposes, has, for that reason, been described, pointedly if unimaginatively, as a science of means and not of ends. Economic theory is not a substantive worldview, religion, or philosophy that advocates for or against the embrace of particular values; it has nothing to say about what people should value. The scope of economics is far more limited and humble. It deals solely with the means by which individuals may obtain the material goods necessary to fulfill their individual values, and especially with the necessity of choice in the face of scarcity. Economic theory per se is silent with respect to the substantive content of human choices. An economic “good” is simply an item or service that is in fact desired by someone, in sharp distinction to an item or service that should be desired, one that is morally or otherwise desirable. The problem to which capitalism and socialism offer divergent solutions concerns how human beings can obtain the means to fulfill their ultimate ends or values, whatever these may be and however they are formed.

  That said, however, the two rival economic systems do embody definite and competing moral ideals. Ultimately, the advocacy of socialism, like that of capitalism, is the advocacy of a particular moral vision of human existence. An exploration of the distinct moral views implicitly and explicitly informing socialist and capitalist economic constructs will bring the grounds of such a conclusion to light.

  The Marxist Critique

  Karl Marx may be the most well-known modern champion of communism and socialism but he was far from the first thinker to advance such views. He was preceded in the late eighteenth and early nineteenth centuries by various socialist thinkers centered largely in France. The term itself was coined by Henri de Saint-Simon (1760-1823), often regarded as the “founder of French socialism,” and propagated by his followers, including the so-called St. Simonians and Auguste Comte (1798-1857), founder of the modern discipline of sociology. Marx, however, proved to be an especially powerful and prolific writer, and his particular ideological constructions would succeed in capturing mind, heart, and soul of countless contemporaries and their descendants. Few persons may actually have read Marx’s extensive corpus but almost every literate person has at least passing acquaintance with Das Kapital or The Communist Manifesto.[50] Indeed, even persons who have never heard of Marx have nevertheless been influenced by his thought. Not only was Marxism explicitly adopted as the theoretical foundation of twentieth-century communist regimes and satellite states, but various Marxist tenets have been widely assimilated by mainstream Western society, including American society. Marxian assumptions and beliefs permeate the consciousness of modern man, informing language, politics, formal education, media, and other forms of cultural expression.

  Marx’s fame undoubtedly rests upon his radical critique of the capitalist order. His economic analysis, however, does not stand in isolation but is rather embedded in a wider critique of Western liberal society, one that involves a sweeping rejection of its fundamental premises, including and especially its self-characterization as a “free society.” Marx’s milieu was of course nineteenth-century Europe—the so-called “Age of Liberalism” marked by widespread embrace of classical liberal values and principles. Classical liberalism, as we have seen, represents a systematic or principled defense of the free society and its constituent elements—limited government, private property and the rule of law, traditional Judeo-Christian moral values, and capitalism, regarded as the only economic system compatible with the preservation of individual liberty and related liberal values. The free society so conceived is an integrated or coherent whole whose social institutions and customs (political, legal, moral, and economic) implicitly and explicitly embody a consistent set of abstract values and principles, including the core value of individual liberty. Marx well understood that fact. He understood that capitalism stands or falls with the values,
beliefs, social institutions and practices requisite to its sustenance; no form of economic arrangement does or can exist in a social vacuum. His critique of capitalism thus necessarily involved a critique of the comprehensive moral and institutional structure of Western society developed over centuries if not millennia of experience.

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  We begin with Marx’s assault on the self-characterization of Western liberal society as the free society. Classical liberal society entails, above all, limits on the coercive power of government. In the American case, such limits are established by the terms of a more or less Lockean social compact. On such a view, as we recall, the principal purpose of government is to secure the rule of law, which itself aims to protect the natural and negative rights to life, liberty, and property possessed by each and every individual. Such a society neither recognizes “positive” rights nor maintains a politically organized “safety net” such as exists in contemporary American society—welfare, food stamps, public housing, Medicaid, and other material entitlements provided by government at taxpayers’ expense.

  According to Marx, the free society so conceived is an illusion, a lie and a sham; no individual, he suggests, is actually free within such a regime. Consider, for instance, the fate of an individual in liberal capitalist society who for one reason or another voluntarily chooses not to work. For the sake of argument, assume that such an individual is without financial savings or support from friends or family. Under such circumstances, an individual who remains unemployed for any length of time, without income or material resources, will not only find his opportunities for achieving personal goals severely circumscribed but, indeed, will probably perish. To put it bluntly, individuals who choose not to work in a putatively free society ordered by market exchange will die. If freedom means the absence of coercion, then it is obvious to Marx that no one in such a society is free. Every member of liberal society, on the contrary, exists under the continual and ominous threat of coercion that, like all coercion, reduces their options to two undesirables, in this case, work or die. Every person is forced or compelled to work, whether he will or not, on penalty of death. Such “choice” as he or she can exercise is not free or voluntary but rather coerced. Marx concludes that true freedom does not and cannot exist within liberal capitalist society.