The fallacy of a "mixed" economy

Friday, Nov 27, 2009

The fundamental dogma... declares that poverty is an outcome of iniquitous social institutions. The original sin that deprived mankind of the blissful life in the Garden of Eden was the establishment of private property and enterprise. Capitalism serves only the selfish interests of rugged exploiters. It dooms the masses of righteous men to progressing impoverishment and degradation. What is needed to make all people prosperous is the taming of the greedy exploiters by the great god called State. The “service” motive must be substituted for the “profit” motive. Fortunately, they say, no intrigues and no brutality on the part of the infernal “economic royalists” can quell the reform movement. The coming of an age of central planning is inevitable. Then there will be plenty and abundance for all. Those eager to accelerate this great transformation call themselves progressives precisely because they pretend that they are working for the realization of what is both desirable and in accordance with the inexorable laws of historical evolution. They disparage as reactionaries all those who are committed to the vain effort of stopping what they call progress.

From the point of view of these dogmas the progressives advocate certain policies which, as they pretend, could alleviate immediately the lot of the suffering masses. They recommend, e.g., credit expansion and increasing the amount of money in circulation, minimum wage rates to be decreed and enforced either by the government or by labor union pressure and violence, control of commodity prices and rents and other interventionist measures. But the economists have demonstrated that all such nostrums fail to bring about those results which their advocates want to attain. Their outcome is, from the very point of view of those recommending them and resorting to their execution, even more unsatisfactory than the previous state of affairs which they were designed to alter. Credit expansion results in the recurrence of economic crisis and periods of depression. Inflation makes the prices of all commodities and services soar. The attempts to enforce wage rates higher than those the unhampered market would have determined produce mass unemployment prolonged year after year. Price ceilings result in a drop in the supply of commodities affected. The economists have proved these theorems in an irrefutable way. No “progressive” pseudo-economist ever tried to refute them *.

The essential charge brought by the progressives against capitalism is that the recurrence of crisis and depressions and mass unemployment are its inherent features. The demonstration that these phenomena are, on the contrary, the result of the interventionist attempts to regulate capitalism and to improve the conditions of the common man give the progressive ideology the finishing stroke. As the progressives are not in a position to advance any tenable objections to the teachings of the economists, they try to conceal them from the people and especially also from the intellectuals and the university students. Any mentioning of these heresies is strictly forbidden. Their authors are called names, and the students are dissuaded from reading their “crazy stuff.”

As the progressive dogmatist sees things, there are two groups of men quarreling about how much of the “national income” each of them should take for themselves. The propertied class, the entrepreneurs and the capitalists, to whom they often refer as “management,” is not prepared to leave to “labor”, i.e., the wage earners and employees, more than a trifle, just a little bit more than bare sustenance. Labor, as may easily be understood, annoyed by management’s greed, is inclined to lend an ear to the radicals, to the communists, who want to expropriate management entirely. However, the majority of the working class is moderate enough not to indulge in excessive radicalism. They reject communism and are ready to content themselves with less than the total confiscation of “unearned” income. They aim at a middle-of-the-road solution, at planning, the welfare state, socialism. In this controversy the intellectuals who allegedly do not belong to either of the two opposite camps are called to act as arbiters. They—the professors, the representatives of science, and the writers, the representatives of literature—must shun the extremists of each group, those who recommend capitalism as well as those who endorse communism. They must side with the moderates. They must stand for planning, the welfare state, socialism, and they must support all measures designed to curb the greed of management and to prevent it from abusing its economic power.

There is no need to enter anew into a detailed analysis of all the fallacies and contradictions implied in this way of thinking. It is enough to single out three fundamental errors.

First: The great ideological conflict of our age is not a struggle about the distribution of the “national income.” It is not a quarrel between two classes each of which is eager to appropriate to itself the greatest possible portion of a total sum available for distribution. It is a dissension concerning the choice of the most adequate system of society’s economic organization. The question is, which of the two systems, capitalism or socialism, warrants a higher productivity of human efforts to improve people’s standard of living. The question is, also, whether socialism can be considered as a substitute for capitalism, whether any rational conduct of production activities, i.e., conduct based on economic calculation, can be accomplished under socialist conditions. The bigotry and the dogmatism of the socialists manifest themselves in the fact that they stubbornly refuse to enter into an examination of these problems. With them it is a foregone conclusion that capitalism is the worst of all evils and socialism the incarnation of everything that is good. Every attempt to analyze the economic problems of a socialist commonwealth is considered as a crime of lèse majesté. As the conditions prevailing in the Western countries do not yet permit the liquidation of such offenders in the Russian way, they insult and vilify them, cast suspicion upon their motives and boycott them.

Second: There is no economic difference between socialism and communism. Both terms, socialism and communism, denote the same system of society’s economic organization, i.e., public control of all the means of production as distinct from private control of the means of production, namely capitalism. The two terms, socialism and communism, are synonyms. The document which all Marxian socialists consider as the unshakable foundation of their creed is called the Communist Manifesto. On the other hand, the official name of the communist Russian empire is Union of Soviet Socialist Republics (U.S.S.R.).

The antagonism between the present-day communist and socialist parties does not concern the ultimate goal of their policies. It refers mainly to the attitude of the Russian dictators to subjugate as many countries as possible, first of all the United States. It refers, furthermore, to the question of whether the realization of public control of the means of production should be achieved by constitutional methods or by a violent overthrow of the government in power.

Neither do the terms “planning” and “welfare state” as they are used in the language of economists, statesmen, politicians and all other people signify something different from the final goal of socialism and communism. Planning means that the plan of the government should be substituted for the plans of the individual citizens. It means that the entrepreneurs and capitalists should be deprived of the discretion to employ their capital according to their own designs and should be obliged to comply unconditionally with the orders issued by a central planning board or office. This amounts to the transfer of control from the entrepreneurs and capitalists to the government.

It is, therefore, a serious blunder to consider socialism, planning, or the welfare state as solutions to the problem of society’s economic organization which would differ from that of communism and which would have to be estimated as “less absolute” or “less radical.” Socialism and planning are not antidotes for communism as many people seem to believe. A socialist is more moderate than a communist insofar as he does not hand out secret documents of his own country to Russian agents and does not plot to assassinate anticommunist bourgeois. This is, of course, a very important difference. But it has no reference whatever to the ultimate goal of political action.

Third: Capitalism and socialism are two distinct patterns of social organization. Private control of the means of production and public control are contradictory notions and not merely contrary notions. There is no such thing as a mixed economy, a system that would stand midway between capitalism and socialism. Those advocating what is erroneously believed to be a middle-of-the-road solution do not recommend a compromise between capitalism and socialism, but a third pattern which has its own particular features and must be judged according to its own merits. This third system that the economists call interventionism does not combine, as its champions claim, some of the features of capitalism with some of socialism. It is something entirely different from each of them. The economists who declare that interventionism does not attain those ends which its supporters want to attain but makes things worse—not from the economists’ own point of view, but from the very point of view of the advocates of interventionism—are not intransigent and extremists. They merely describe the inevitable consequences of interventionism.

When Marx and Engels in the Communist Manifesto advocated definite interventionist measures, they did not mean to recommend a compromise between socialism and capitalism. They considered these measures—incidentally, the same measures which are today the essence of the New Deal and Fair Deal policies—as first steps on the way toward the establishment of full communism. They themselves described these measures as “economically insufficient and untenable,” and they asked for them only because they “in the course of the movement outstrip themselves, necessitate further inroads upon the old social order, and are unavoidable as a means of entirely revolutionizing the mode of production.”

Thus the social and economic philosophy of the progressives is a plea for socialism and communism.

[*](#footnote1ref) These last two sentences do not refer to three or four socialist authors of our time who—very late indeed and in a very unsatisfactory way—began to examine the economic problems of socialism. But they are literally true for all other socialists from the early origins of the socialist ideas down to our day.

The Anticapitalistic Mentality, Ludwig von Mises, Pages 54-59, 1956,