Socialism: An Economic and Sociological Analysis

Many advocates of interventionism are bewildered when one tells them that in recommending interventionism they themselves are fostering anti-democratic and dictatorial tendencies and the establishment of totalitarian socialism. They protest that they are sincere believers and opposed to tyranny and socialism. What they aim at is only the improvement of the conditions of the poor. They say that they are driven by considerations of social justice, and favour a fairer distribution of income precisely because they are intent upon preserving capitalism and its political corollary or superstructure, viz., democratic government.

What these people fail to realize is that the various measures they suggest are not capable of bringing about the beneficial results aimed at. On the contrary they produce a state of affairs which from the point of view of their advocates is worse than the previous state which they were designed to alter. If the government, faced with this failure of its first intervention, is not prepared to undo its interference with the market and to return to a free economy, it must add to its first measure more and more regulations and restrictions. Proceeding step by step on this way it finally reaches a point in which all economic freedom of individuals has disappeared. Then socialism of the German pattern, the Zwangswirtschaft of the Nazis, emerges.

We have already mentioned the case of minimum wage rates. Let us illustrate the matter further by an analysis of a typical case of price control.

If the government wants to make it possible for poor parents to give more milk to their children, it must buy the milk at the market the loss may be covered from the means collected by taxation. But if the government simply fixes the price of milk at a lower rate than the market, the results obtained will be contrary to the aims of the government. The marginal producers will, in order to avoid losses, go out of the business of producing and selling milk. There will be less milk available for the consumers, not more. This outcome is contrary to the government’s intentions. The government interfered because it considered milk as a vital necessity. It did not want to restrict its supply.

Now the government has to face the alternative: either to refrain from any endeavours to control prices, or to add to its first measure a second one, i.e., to fix the prices of the factors of production necessary for the production of milk. Then the same story repeats itself on a remoter plane: the government has again to fix the prices of the factors of production necessary for the production of those factors of production which are needed for the production of milk. Thus the government has to go further and further, fixing the prices of all the factors of production — both human (labour) and material — and forcing every entrepreneur and every worker to continue work at these prices and wages. No branch of production can be omitted from this all-round fixing of prices and wages and this general order to continue production. If some branches of production were left free, the result would be a shifting of capital and labour to them and a corresponding fall of the supply of the goods whose prices the government had fixed. However, it is precisely these goods which the government considers as especially important for the satisfaction of the needs of the masses.

But when this state of all-round control of business is achieved, the market economy has been replaced by a system of planned economy, by socialism. Of course, this is not the socialism of immediate state management of every plant by the government as in Russia, but the socialism of the German or Nazi pattern.

Many people were fascinated by the alleged success of German price control. They said: You have only to be as brutal and ruthless as the Nazis and you will succeed in controlling prices. What these people, eager to fight Nazism by adopting its methods, did not see was that the Nazis did not enforce price control within a market society, but that they established a full socialist system, a totalitarian commonwealth.

Price control is contrary to purpose if it is limited to some commodities only. It cannot work satisfactorily within a market economy. If the government does not draw from this failure the conclusion that it must abandon all attempts to control prices, it must go further and further until it substitutes socialist all-round planning for the market economy.

Production can either be directed by the prices fixed on the market by the buying and by the abstention from buying on the part of the public. Or it can be directed by the government’s central board of production management. There is no third solution available. There is no third social system feasible which would be neither market economy nor socialism. Government control of only a part of prices must result in a state of affairs which — without any exception — everybody considers as absurd and contrary to purpose. Its inevitable result is chaos and social unrest.

It is this that the economists have in mind in referring to economic law and asserting that interventionism is contrary to economic law.

In the market economy the consumers are supreme. Their buying and their abstention from buying ultimately determine what the entrepreneurs produce and in what quantity and quality. It determines directly the prices of the consumers’ goods and indirectly the prices of all producers’ goods, viz., labour and material factors of production. It determines the emergence of profits and losses and the formation of the rate of interest. It determines every individual’s income. The focal point of the market economy is the market, i.e., the process of the formation of commodity prices, wage rates and interest rates and their derivatives, profits and losses. It makes all men in their capacity as producers responsible to the consumers. This dependence is direct with entrepreneurs, capitalists, farmers and professional men, and indirect with people working for salaries and wages. The market adjusts the efforts of all those engaged in supplying the needs of the consumers to the wishes of those for whom they produce, the consumers. It subjects production to consumption.

The market is a democracy in which every penny gives a right to vote. It is true that the various individuals have not the same power to vote. The richer man casts more ballots than the poorer fellow. But to be rich and to earn a higher income is, in the market economy, already the outcome of a previous election. The only means to acquire wealth and to preserve it, in a market economy not adulterated by government-made privileges and restrictions, is to serve the consumers in the best and cheapest way. Capitalists and land-owners who fail in this regard suffer losses. If they do not change their procedure, they lose their wealth and become poor. It is the consumers who make poor people rich and rich people poor. It is the consumers who fix the wages of a movie star and an opera singer at a higher level than those of a welder or an accountant.

Every individual is free to disagree with the outcome of an election campaign or of the market process. But in a democracy he has no other means to alter things than persuasion. If a man were to say: ‘I do not like the mayor elected by majority vote; therefore I ask the government to replace him by the man I prefer,’ one would hardly call him a democrat. But if the same claims are raised with regard to the market, most people are too dull to discover the dictatorial aspirations involved.

The consumers have made their choices and determined the income of the shoe manufacturer, the movie star and the welder. Who is Professor X to arrogate to himself the privilege of overthrowing their decision? If he were not a potential dictator, he would not ask the government to interfere. He would try to persuade his fellow-citizens to increase their demand for the products of the welders and to reduce their demand for shoes and pictures.

The consumers are not prepared to pay for cotton prices which would render the marginal farms, i.e., those producing under the least favourable conditions, profitable. This is very unfortunate indeed for the farmers concerned; they must discontinue growing cotton and try to integrate themselves in another way into the whole of production.

But what shall we think of the statesman who interferes by compulsion in order to raise the price of cotton above the level it would reach on the free market? What the interventionist aims at is the substitution of police pressure for the choice of the consumers. All this talk: the state should do this or that, ultimately means: the police should force consumers to behave otherwise than they would behave spontaneously. In such proposals as: let us raise farm prices, let us raise wage rates, let us lower profits, let us curtail the salaries of executives, the us ultimately refers to the police. Yet, the authors of these projects protest that they are planning for freedom and industrial democracy.

In most non-socialist countries the labour unions are granted special rights. They are permitted to prevent non-members from working. They are allowed to call a strike and, when on strike, are virtually free to employ violence against all those who are prepared to continue working, viz., the strikebreakers. This system assigns an unlimited privilege to those engaged in vital branches of industry. Those workers whose strike cuts off the supply of water, light, food and other necessities are in a position to obtain all they want at the expense of the rest of the population. It is true that in the United States their unions have up to now exercised some moderation in taking advantage of this opportunity. Other American unions and many European unions have been less cautious. They are intent upon enforcing wage increases without bothering about the disaster inevitably resulting.

The interventionists are not shrewd enough to realize that labour union pressure and compulsion are absolutely incompatible with any system of social organization. The union problem has no reference whatsoever to the right of citizens to associate with one another in assemblies and associations; no democratic country denies its citizens this right. Neither does anybody dispute a man’s right to stop work and to go on strike. The only question is whether or not the unions should be granted the privilege of resorting with impunity to violence. This privilege is no less incompatible with socialism than with capitalism. No social co-operation under the division of labour is possible when some people or unions of people are granted the right to prevent by violence and the threat of violence other people from working. When enforced by violence, a strike in vital branches of production or a general strike are tantamount to a revolutionary destruction of society.

A government abdicates if it tolerates any non-governmental agency’s use of violence. If the government forsakes its monopoly of coercion and compulsion, anarchic conditions result. If it were true that a democratic system of government is unfit to protect unconditionally every individual’s right to work in defiance of the orders of a union, democracy would be doomed. Then dictatorship would be the only means to preserve the division of labour and to avoid anarchy. What generated dictatorship in Russia and Germany was Precisely the fact that the mentality of these nations made suppression of union violence unfeasible under democratic conditions. The dictators abolished strikes and thus broke the spine of labour unionism. There is no question of strikes in the Soviet empire.

It is illusory to believe that arbitration of labour disputes could bring the unions into the framework of the market economy and make their functioning compatible with the preservation of domestic peace. Judicial settlement of controversies is feasible if there is a set of rules available, according to which individual cases can be judged. But if such a code is valid and its provisions are applied to the determination of the height of wage rates, it is no longer the market which fixes them, but the code and those who legislate with regard to it. Then the government is supreme and no longer the consumers buying and selling on the market. If no such code exists, a standard according to which a controversy between employers and employees could be decided is lacking. It is vain to speak of ‘fair’ wages in the absence of such a code. The notion of fairness is nonsensical if not related to an established standard. In practice, if the employers do not yield to the threats of the unions, arbitration is tantamount to the determination of wage rates by the government-appointed arbitrator. Peremptory authoritarian decision is substituted for the market price. The issue is always the same: the government or the market. There is no third solution.

Metaphors are often very useful in elucidating complicated problems and in making them comprehensible to less intelligent minds. But they become misleading and result in nonsense if people forget that every comparison is imperfect. It is silly to take metaphorical idioms literally and to deduce from their interpretation features of the object one wished to make more easily understandable by their use. There is no harm in the economists’ description of the operation of the market as automatic and in their custom of speaking of the anonymous forces operating on the market. They could not anticipate that anybody would be so stupid as to take these metaphors literally.

No ‘automatic’ and ‘anonymous’ forces actuate the ‘mechanism’ of the market. The only factors directing the market and determining prices are purposive acts of men. There is no automatism; there are men consciously aiming at ends chosen and deliberately resorting to definite means for the attainment of these ends. There are no mysterious mechanical forces; there is only the will of every individual to satisfy his demand for various goods. There is no anonymity; there are you and I and Bill and Joe and all the rest. And each of us is engaged both in production and consumption. Each contributes his share to the determination of prices.

The dilemma is not between automatic forces and planned action. It is between the democratic process of the market in which every individual has his share and the exclusive rule of a dictatorial body. Whatever people do in the market economy, is the execution of their own plans. In this sense every human action means planning. What those calling themselves planners advocate is not the substitution of planned action for letting things go. It is the substitution of the planner’s own plan for the plans of his fellow-men. The planner is a potential dictator who wants to deprive all other people of the power to plan and act according to their own plans. He aims at one thing only: the exclusive absolute pre-eminence of his own plan.

It is no less erroneous to declare that a government that is not socialistic has no plan. Whatever a government does is the execution of a plan, i.e., of a design. One may disagree with such a plan. But one must not say that it is not a plan at all. Professor Wesley C. Mitchell maintained that the British liberal government ‘planned to have no plan’.1  However, the British government in the liberal age certainly had a definite plan. Its plan was private ownership of the means of production, free initiative and market economy. Great Britain was very prosperous indeed under this plan which according to Professor Mitchell is ‘no plan’.

The planners pretend that their plans are scientific and that there cannot be disagreement with regard to them among well-intentioned and decent people. However, there is no such thing as a scientific ought. Science is competent to establish what is. It can never dictate what ought to be and what ends people should aim at. It is a fact that men disagree in their value judgments. It is insolent to arrogate to oneself the right to overrule the plans of other people and to force them to submit to the plan of the planner. Whose plan should be executed? The plan of the CIO or those of any other group? The plan of Trotsky or that of Stalin? The plan of Hitler or that of Strasser?

When people were committed to the idea that in the field of religion only one plan must be adopted, bloody wars resulted. With the acknowledgment of the principle of religious freedom these wars ceased. The market economy safeguards peaceful economic co-operation because it does not use force upon the economic plans of the citizens. If one master plan is to be substituted for the plans of each citizen, endless fighting must emerge. Those who disagree with the dictator’s plan have no other means to carry on than to defeat the despot by force of arms.

It is an illusion to believe that a system of planned socialism could be operated according to democratic methods of government. Democracy is inextricably linked with capitalism. It cannot exist where there is planning. Let us refer to the words of the most eminent of the contemporary advocates of socialism. Professor Harold Laski declared that the attainment of power by the British Labour Party in the normal parliamentary fashion must result in a radical transformation of parliamentary government. A socialist administration needs ‘guarantees’ that its work of transformation would not be ‘disrupted’ by repeal in event of its defeat at the polls. Therefore the suspension of the Constitution is ‘inevitable’.2  How pleased would Charles I and George III have been if they had known the books of Professor Laski!

Sidney and Beatrice Webb (Lord and Lady Passfield) tell us that ‘in any corporate action a loyal unity of thought is so important that, if anything is to be achieved, public discussion must be suspended between the promulgation of the decision and the accomplishment of the task’. Whilst ‘the work is in progress’ any expression of doubt, or even of fear that the plan will not be successful, is ‘an act of disloyalty, or even of treachery’.3  Now as the process of production never ceases and some work is always in progress and there is always something to be achieved, it follows that a socialist government must never concede any freedom of speech and the press. ‘A loyal unity of thought’, what a high-sounding circumlocution for the ideals of Philip II and the inquisition! In this regard another eminent admirer of the Soviets, Mr. T. G. Crowther, speaks without any reserve. He plainly declares that inquisition is ‘beneficial to science when it protects a rising class’,4  i.e., when Mr. Crowther’s friends resort to it. Hundreds of similar dicta could be quoted.

In the Victorian age, when John Stuart Mill wrote his essay On Liberty, such views as those held by Professor Laski, Mr. and Mrs. Webb and Mr. Crowther were called reactionary. Today they are called ‘progressive’ and ‘liberal’. On the other hand people who oppose the suspension of parliamentary government and of the freedom of speech and the press and the establishment of inquisition are scorned as ‘reactionaries’, as ‘economic royalists’ and as ‘Fascists’.

Those interventionists who consider interventionism as a method of bringing about full socialism step by step are at least consistent. If the measures adopted fail to achieve the beneficial results expected and end in disaster, they ask for more and more government interference until the government has taken over the direction of all economic activities. But those interventionists who look at interventionism as a means of improving capitalism and thereby preserving it are utterly confused.

In the eyes of these people all the undesired and undesirable effects of government interference with business are caused by capitalism. The very fact that a governmental measure has brought about a state of affairs which they dislike is for them a justification of further measures. They fail, for instance, to realize that the role monopolistic schemes play in our time is the effect of government interference such as tariffs and patents. They advocate government action for the prevention of monopoly. One could hardly imagine a more unrealistic idea. For the governments whom they ask to fight monopoly are the same governments who are devoted to the principle of monopoly. Thus, the American New Deal Government embarked upon a thorough-going monopolistic organization of every branch of American business, by the NRA, and aimed at organizing American farming as a vast monopolistic scheme, restricting farm output for the sake of substituting monopoly prices for the lower market prices. It was a party to various international commodity control agreements the undisguised aim of which was to establish international monopolies of various commodities. The same is true of all other governments. The Union of Soviet Socialist Republics was also a party to some of these intergovernmental monopolistic conventions.5  Its repugnance for collaboration with the capitalistic countries was not so great as to cause it to miss any opportunity for fostering monopoly.

The programme of this self-contradictory interventionism is dictatorship, supposedly to make people free. But the liberty its supporters advocate is liberty to do the ‘right’ things, i.e., the things they themselves want to be done. They are not only ignorant of the economic problems involved. They lack the faculty of logical thinking.

The most absurd justification of interventionism is provided by those who look upon the conflict between capitalism and socialism as if it were a contest over the distribution of income. Why should not the propertied classes be more compliant? Why should they not accord to the poor workers a part of their ample revenues? Why should they oppose the government’s design to raise the share of the underprivileged by decreeing minimum wage rates and maximum prices and by cutting profits and interest rates down to a ‘fairer’ level? Pliability in such matters, they say, would take the wind from the sails of the radical revolutionaries and preserve capitalism. The worst enemies of capitalism, they say, are those intransigent doctrinaires whose excessive advocacy of economic freedom, of laisser-faire and Manchesterism renders vain all attempts to come to a compromise with the claims of labour. These adamant reactionaries are alone responsible for the bitterness of contemporary party strife and the implacable hatred it generates. What is needed is the substitution of a constructive programme for the purely negative attitude of the economic royalists. And, of course, ‘constructive’ is in the eyes of these people only interventionism.

However, this mode of reasoning is entirely vicious. It takes for granted that the various measures of government interference with business will attain those beneficial results which their advocates expect from them. It blithely disregards all that economics says about their futility in attaining the ends sought, and their unavoidable and undesirable consequences. The question is not whether minimum wage rates are fair or unfair, but whether or not they bring about unemployment of a part of those eager to work. By calling these measures just, the interventionist does not refute the objections raised against their expediency by the economists. He merely displays ignorance of the question at issue.

The conflict between capitalism and socialism is not a contest between two groups of claimants concerning the size of the portions to be allotted to each of them out of a definite supply of goods. It is a dispute concerning what system of social organization best serves human welfare. Those fighting socialism do not reject socialism because they envy the workers the benefits they (the workers) could allegedly derive from the socialist mode of production. They fight socialism precisely because they are convinced that it would harm the masses in reducing them to the status of poor serfs entirely at the mercy of irresponsible dictators.

In this conflict of opinions everybody must make up his mind and take a definite stand. Everybody must side either with the advocates of economic freedom or with those of totalitarian socialism. One cannot evade this dilemma by adopting an allegedly middle-of-the-road position, namely interventionism. For interventionism is neither a middle way nor a compromise between capitalism and socialism. It is a third system. It is a system the absurdity and futility of which is agreed upon not only by all economists but even by the Marxians.

There is no such thing as an ‘excessive’ advocacy of economic freedom. On the one hand, production can be directed by the efforts of each individual to adjust his conduct so as to fill the most urgent wants of the consumers in the most appropriate way. This is the market economy. On the other hand, production can be directed by authoritarian decree. If these decrees concern only some isolated items of the economic structure, they fail to attain the ends sought, and their own advocates do not like their outcome. If they come up to all-round regimentation, they mean totalitarian socialism.

Men must choose between the market economy and socialism. The state can preserve the market economy in protecting life, health and private property against violent or fraudulent aggression; or it can itself control the conduct of all production activities. Some agency must determine what should be produced. If it is not the consumers by means of demand and supply on the market, it must be the government by compulsion.

• 1Cf. Wesley C. Mitchell, ‘The Social Sciences and National Planning’ (in: Planned Society, ed. by Findlay Mackenzie, New York 1937), p. 112.
• 2Cf. Laski, Democracy in Crisis (Chapel Hill 1933), pp. 87-8.
• 3Cf. Sidney and Beatrice Webb, Soviet Communism: A New Civilization? (New York 1936), Vol. II, pp. 1038-9.
• 4Cf. T. G. Crowther, Social Relations of Science (London 1941), p. 333.
• 5Cf. The collection of these conventions, published by The International Labour Office under the title Intergovernmental Commodity Control Agreements (Montreal, 1943).