Socialism by Seduction; W. H. Chamberlin

antagonism between two classes, exploiters and exploited. So socialism in America was an inteUectual import; it was no ac cident that of the two socialists elected to Congress one came from New York's East Side, the other from a district in Wisconsin with a substantial population of Ger man origin. Both in Eastern Eu rope and in Germany socialism was a creed with a considerable following, and it was natural that immigrants from these areas in many cases joined the American Socialist Party. As the children and grandchil dren of these immigrants beca,me assimilated and lost touch with conditions in their parents' home lands, interest in socialism waned. The American Socialist Party reached its highest proportion of 17 18 THE FREEMAN June the popular vote (about 6 per cent) with one of its hardy peren nial candidates for President, Eu gene V. Debs, in 1912. Then its vote tapered off steadily, with only one upsurge, in 1932, for Debs's successor as regular candi date, scholarly and personally lik able Norman Thomas. Finally the vote became such an infinitesimal percentage that the party ceased to nominate candidates for nation al office and now carries on merely as an educational and propaganda organization.

Americanizing the Ideas Although socialism as a political movement for all practical pur poses has ceased to exist, socialist proposals and ideas, from the time of the New Deal, have been taken over and put into effect by politi cians of other parties. On many counts there is little difference to day between European socialists, who have become more moderate because of the secession of the communists, and the stronger American advocates of govern ment intervention and expanding social legislation. A prominent German Social Democrat once told the writer that his party was in substantial agreement with the "New Deal" and "New Frontier" Democrats, and the "Great So ciety" is the sort of blueprint for heightened government spending for supposed welfare aims that might be expected to win the hearty endorsement of a British or continental socialist. A proposal to give .the govern ment authority to take over and operate key industries in the United States, should it come to a vote, would be overwhelmingly de feated. But socialism by a mixture of seduction and pressure is a horse of another color. This proc ess is much farther advanced than most people realize and with re markably little visible awareness or resistance from the business men, large and small, who might be expected to offer opposition.

Benevolent Intervention An important element in the process of seduction is repeated affirmation by the highest govern ment officials of devotion to the principles of free enterprise. Then comes the alluring suggestion that government wants and intends to be a benevolent partner of busi ness. By this time resistance in the business community has been softened to a point where govern ment bureaucrats, with little ob j ection, take over some of the most important functions of the free market, such as the level of prices and the direction of invest ment. Price control and directed investment would have an ominous warning sound. So such expres1966 SOCIALISM BY SEDUCTION 19 SiODS as government guidelines and voluntary restraints are pre ferred. Professor Hayek once observed that, if any individual had in vented the free market, he could have been considered an outstand ing genius. But this system, like Topsy, "just growed" in response to the age-old needs for exchange of goods. Its service. as an impar tial regulator of prices is unique and unrivaled. In response to in creased demand, actual or poten tial, prices rise. The contrary sig nal of falling prices indicates that demand has declined or is likely to decline.

All sorts of rulers, from despot ic emperors of the past like Dio cletian to communist dictators and computer-equipped bureaucrats of the present, have tried to cheat the free market by employing decrees or artificial means to push prices up or hold them down. But the usual end result of such efforts is about as successful as King Canute's order to the waves and tides to stand still. (Perhaps Canute was rebuking some of the eager-beaver would-be planners in his entourage). The Reins 01 Control Slowly, gradually, almost imper ceptibly, "guidelines" have re placed the impersonal mechanism of the market in determining the level of prices. When a price in crease, however well justified by a rising trend in wages and other costs, draws a protesting whistle from the government official in charge of the guidelines, the cor poration almost invariably backs down. Stockholders in steel com panies, a.t a time when the general trend in profits and wages has been upward, are still looking for a restoration of the 40 per cent cut in earnings which they took some years ago when the larger steel companies reduced their div idends in this proportion. But government intervention has twice blocked steel price hikes. There has been the same experience in the aluminum and copper and tobacco industries. And against this growing interference of gov ernment with the verdict of the market place there have been re markably few audible protests.

When the president of the Chase Manhattan Bank, George Cham pion, last year urged businessmen to oppose wha t he called govern ment-by-guideline, his stand was taken as amazing, although there was a time when almost no banker or industrialist would have taken a different attitude. The threat of more open and direct controls has induced banks to accept sweeping limitations on their right to lend and invest abroad. Again, few voices have 20 THE FREEMAN June been raised in public protest, al though private comment on this subject has often been sulphurous. As Alan L. Otten summed up the subject in a thoughtful article in The Wall Street Journal of Janu ary 13: A threat of more direct controls on overseas investments has per suaded business to accept, with scarcely a murmur, a very complex system of very real "voluntary" con trols. For the sake of "civil rights" businessmen have put up practically no fight against deep government in tervention in their hiring practices.

The Federal Trade Commission points to a sharp increase in "volun tary compliance" by businessmen with FTC rules on permissible trade practices. The Justice Department looks for widespread industry ac ceptance of its forthcoming "advi sory guidelines" spelling out what will and won't violate the antitrust laws. Auto firms readily acceded to Senate prodding for more safety equipment in new cars. The Penalty of Resisting Why are businessmen submit ting to so much substitution of government judgment for their own with so little protest? The answer is partly in a process that may be called seduction. It is an old adage that the customer is always right and the government, thanks to expanded military and social welfare programs, is far and away the biggest single cus tomer. Few business representa tives look beyond the prospect of immediate profit, and the benefits to aircraft companies and engi neering and electronics firms from enlarged war spending are ob vious. Other types of firms stand to gain from "Great Society" ex penditures, hospital suppliers from medicare, textbook, school, and laboratory manufacturers from higher educational outlays.

]doreover, the government is a customer equipped with teeth and claws not available to the individ ual buyer. It is in a position to blacklist firms that incur its dis pleasure, to shift its buying to those which are cooperative in ac cepting dictation. Given the vast complexity of the personal and cor porate taxation system and of the antitrust laws and the large shadowy area between legality and illegality, the defiant head of a business firm faces the dreary pros pect of tax harassment, with simul taneous damage to his pocketbook and to his public relations image. It is an old familiar political trick to use patronage, appoint ments to public office, to help pass legislation on the-Federal and state levels. But this kind of pa tronage is peanuts compared with the financial power that has ac crued and is accruing to Big Brother in Washington as a result 1966 SOCIALISM BY SEDUCTION 21 of steady expansion of govern ment functions and the parallel growth of public spending. Abil ity to approve or withhold Federal grants in aid has given Federal agencies unprecedented power to control and overrule the judg ment of the local school boards which have hitherto been the back bone of the public educational sys tem. And the government's posi tion as the biggest single buyer lends a good deal of muscle to its demands that its guideline direc tions be obeyed.

Two Standards In theory, wages -like prices are subject to government influ ence and control. But in practice the government has proved less willing, perhaps less able, to em ploy sanctions against big concen trations of trade-union power than against business firms. A good example was the illegal tran sit strike that paralyzed transpor tation in New York City during the first weeks of January. The demands of the leader of the strike, the late Michael Quill, who tore up a court injunction against the strike with a degree of im, munity from consequences not shown to Southern governors who opposed educational integration, were wildly in excess of the sup posed wage increase limit of 3.2 per cent. But the White House was very gingerly in its handling of Mr. Quill; he was not subjected to any of the pressures brought against firms seeking much more modest price increases. And the New York state authorities were positively abject in their reaction.

The strike was in clear violation of the state Condon Wadlin Act, which forbids strikes by state em ployees and, among other penal ties, forbids wage increases to vio lators for a term of years. The strike was settled on terms of virtp.al unconditional surrender, involving a settlement amounting to about a 15 per cent wage and frin.ge benefits increase. When judgment was given that this in crease was illegal, the legislature hastily passed a law exempting transit workers from its opera tion. The problem of how to deal with stoppages of labor that hold up a large community to ransom, on pain of intolerable disruption of normal services, remains as far from settlement as ever. As in Britain There has been a parallel ex perience in Great Britain, where the Labor Government has been much more successful in holding down prices than in holding down wages, thereby storing up infla tion and balance-of-payments trou ..

bles for the future. Even jf it 22 THE FREEMAN June were desirable to substitute for the working of the free market a system of government fixing of prices and wages, with all the artificialities, inequities, and dis tortions which this involves, it would be almost impossible for a government to operate such a sys tem in an evenhanded manner. There are more votes represented in trade-unions than in manage ment; and it is the temptation of politicians to follow what seems to be the trail leading to the votes, regardless of the effect on the welfare and viability of the na tional economy. One reason why the business community, traditionally devoted to a free enterprise economy with a minimum of government inter ference, has accepted so meekly the growing incursions of govern ment bureaucracy into the sphere of business decisions is the argu ment that inflation is a·· serious danger in the wake of a prolonged boom and that the government should possess some latitude in try ing to forestall and avert this disaster.. On the harmfulness of inflation there can be no reason able difference of opinion. But it is contrary to all the teachings of experience and of sound economic theory to believe that inflation can be curbed by shadow boxing with its symptom,s, rising prices and wages.

Curb the Spending The only hopeful way of fight ing inflation is to get at the roots, to cut down the creation of new money through Federal Reserve open market operations, to tighten credit and, above all, to cut down government spending. It is fan tastic to be preparing the ground for a new raid on the harassed Federal income taxpayer when there are such promising targets for economy as the current $46 billion for welfare spending, over $3 billion for foreign aid, $3 bil lion for farm subsidies, $4 billion for an excessively expensive road building program, and $4 billion for the project of putting a man on the moon and bringing him back - a project without military, scientific, or any other justification commensurate with its cost. No doubt the war in Vietnam will be alleged as an excuse for levying supplementary taxes. But the true cause of a probable bud get deficit may be found in the spendthrift growth of nondefense taxation, much of it with no jus~ tification except the desire to at tract votes from groups that are "consumers," not "producers" of social security. In the last six years, nondefense spending has grown by the enormous total of $32 billion. If a sum of $5 billion or even $10 billion is needed to put the budget in balance, an Ad1966 SOCIALISM BY SEDUCTION 23 miniBtration or a Congress gen uinely bent on economy could easily find it in these swollen ex penditures.