Socialism Seeks Its Own Level; M. Barger

SocialismSeeks Its Own ~~~!!!!lLevell~~~!!!! MELVIN D. BARGER SOME MONTHS AGO, a popular news magazine featured on its cover a cartoon drawing· of a shivering and bewildered Uncle Sam holding an empty Horn of Plenty. The pic ture told the story so well that the explanatory heading wa.s hardly needed. It said, "Running Out of Everything." It is certainly a fact that the United States has been running out of lots of things in recent months. There are growing short ages of energy, plastics, clothing, canned food, paper, furniture well, you name it. In 1973, without experiencing a major war or a dis astrous farm failure, the long-time Land of Plenty was suddenly transformed into the Land of Not Enough - and the problem was getting a lot of attention. But it wasn't getting the kind of attention that is likely to solve the problem of growing shortages. Mr. Barger is a corporate public relations ex ecutive and writer in Toledo, Ohio.

356 Few of the experts who comment ed on the .shortages .were willing to put the blame on government intervention or to suggest that the plans for the planned economy weren't working out so well in practice. The distinguished econo mist Paul Samuelson, for example, said that the "reason for these shortages is the brute fact that (plant) cap·acity wasn't added on." He also noted that "industries like shortages because· it's a seller's market." (One hOJ}es that Mr. Samuelson knows that industries are usually buyers as well as sell ers and thus face problems in any kind of·8 market.) There are, of course, a number of secondary causes behind our present shortages. But the pri mary cause of the trouble is that the United States has finally passed a major turning point in its journey toward socialism. The government's role in' the economy has become so extensive and so de197.1" SOCIALISM SEEKS ITS OWN LEVEL 357 cisive that the country is begin ning to experience the typical problems of other countries that have adopted socialism. Britain has had such troubles for years and continues to stagnate and to decline in world influence. It is not difficult to demonstrate that other countries have had similar difficulties under socialist govern ments.

Are Wean Exception? But what about a country such as the United States t which rose to great heights und-era system' that was largely capitalistic,and con tinued to experience· gre.at growth even after the government brought business and industry und-er fairly tight regulations and control? Why can't the United States main tain its present level of production and prosperity even while convert ing intoa largely socialist system? Even if the rate of growth is slowed down or stopped alto gether, why can't the present standard of living be maintained, with perhaps a few adjustments such as a decrease in the size of automobiles and a reduction in some food supplies? The problem with this kind of wishful reasoning is that social ism tends to establish certain levels of output that have nothing to do with the individual goals and preferences of citizens. In most cases, socialism has the effect of lowering output and destroying the balances between production and consumption. At the same time, it must restrict liberty either by direct threats or by persuading in dividuals to forsake their freedom as a means of "promoting the com mon good." If socialism is adopted in a country that has previously had a relatively free market place, the economy .will gradually tend to sink toa level somewhat close to what it would have reached had the country been socialistic from the very start. At the same timet the government win begin to use various means to curb liberty, so that individuals will eventually think and act in the manner of people who have grown up under socialism. To put it bluntly, social ism alway·s seeks its own level,and our present q.ifficulties are prob ably just a sneak preview of much more trouble to come.

In socialism's early years, its devotees insisted that their pro gram would bring greater efficien cies in production and distribu tion. Early socialists often de plored the seeming duplication of facilities .under capitalism; why have two stores across the street from each other when one outlet could be slightly enlarged to handle the needs of the entire community? It was also alleged that many people performed un358 THE FREEMAN June necessary and worthless tasks un der capitalism, but that under socialism, each person would be assigned duties that fitted his per sonalityand interests~ At long last, it was said,. people would work for the common good rather than for' the narrow interests of capitalistic owners. Production Low, but Other . Benefits C/~'imed But socialism in practice .turned out to be far less productive than privately~ow'ned enterprises. ···.This did not, .however, cause socialists to reexamine their entire philos ophy; instead, they .went on to claim benefits other than efficiency for' socialism. Socialists such .as George Bernard, Shaw thought that socialism would provide com,..

plete equality of incomes, while long-time Presidential candidate Norman Thomas believed it would bring social justice and a more equitable use of natural resources such as petroleum and . minerals. In· recent .years, socialists have tended to deplore the· emphasis on high industrial productivity; they like to say that we have now solved our production problems and should be devoting. our resources and energies to the solutions of urgent social problems. One of the major difficulties with socialism, however, is that it immediately becomes embroiled in practical dilemmas' when it takes steps toward, establishing its program. In the United States and, other Western nations, the electorate is never likely to give socialist-leaning candidates a sweeping mandate to completely convert thecQuntry to socialism in a few months or a· few years. This fact. of life has given. the socialists no choice but to s~ek piecemeal changes, to create a "mixed" economybut.- not a,.com pletely soci~list one. These inter ventionist changes have been in troduced in the United States over the past 40 years un~era number of names.

Every change, however, has brought problems that socialists would prefer to ignore. One major problem has been . caused; py at tempts to tinker with the price system. Socialists have. always hated the idea of free market pric ing and have fervently clung to the belief that a managed system of prices and wages would result in a more just economy and a more balanced distribution of resources. They have argued, quite convinc ingly, that monopolies and oligo polies actually make arbitrqry price administration decisions, while labor unions and companies combine to set wage levels. How much better to bring these proc esses under social control by au thorizing the government to estab1974 SOCIALISM SEEKS ITS OWN LEVEL 359 lish wage and price levels in an order ly manner. But the market place has a way of overlooking such arguments. If the government-administered price is too low, there is a rise in con sumption and·a ·drop in production (or at least a temporary withhold ing of goods from the market). If the price is too· high, there isa decline in consumption and an in crease in production. In either case, the behavior of the market is predictable. There is, in fact, al most no economics textbook worthy of the name that would dispute this. This basic, predictable char acteristic of the market place can be observed in the marketing of everything from eggs to used cars.

Shifting the Blame Unfortunately, the failures of price and wage control do not seem to sway a single socialist from his course. Quite· often, the blame for the evil consequences is transferred to businessmen; the energy shortage, for example, has been blamed on the oil companies who seek higher profits· and also want to drive out 'the independ ents. Another characteristic ex cuse of socialists is that additional controls are needed to make the price control system work prop erly. In most cases, the interven tionists are really saying that nothing will work very well until they have an almost totalitarian control over the entire economy. Why won't the socialists con cede that a free market price sys tem is necessary and that they should modify their own program to include it? This concession would undermine many tenets of the socialist faith. The socialists have long contended that the free market place is unfair and results in an inequitable distribution of goods and services.

The advocates of free enter prise, on the other hand, have in sisted that the price system allo cates goods and services through very complex exchanges based on consumers' choices and priorities. They also argue that any other method is bound to result in either surpluses or shortages, usually the latter. Socialism's bureaucratic price control and goods allocation system tends to red uce the total amount of goods and services; it must also restrict liberty in the long run. In other words, the pub lic must do with less material well being and personal liberty if it chooses the permanent price and wage controls that socialists de sire. Malinvestment Another tendency of socialism is to channel investment funds into ill-advised projects that do not add to the productive capacity of 360 THE FREEMAN June the total economy. Malinvestments occur in any kind of economy, of course, but the privately-owned business system has a built-in way of limiting bad investments. A private company usually can raise funds only through stock issues, earnings, or borrowings. If these funds are subsequently spent on losing ventures, the management is likely to be replaced or the creditors will step in and take con trol. Thus, the managers of private business are under constant pres sure to make profitable invest m.ents and capital improvements that will increase their firm's pro ductive capacities. This process benefits the workers by increasing their productivity and real earn ing power, and it benefits custom ers by giving them better goods at lower prices.

But it doesn't work that way in the so-called public sector. Billions of dollars have been spent on proj ects that have simply disappeared into thin air. Additional billions have been spent on ventures that benefit only a limited number of people, "'and do not increase the number of productive jobs. Public funds have been spent on high-rise apartment buildings that had to be torn down in a few years, moon trips that have now fallen into disfavor, urban renewal projects that leveled whole sections of cities, and subsidized industries that continued to 9.ecline. It is argued that these ventures "put money in circulation," but this dubious objective could· have been met simply by passing out cur rency on any street corner. A healthy, productive economy needs much more than merely "putting money in circulation." The money must also be spent on ventures that add to the total wealth and pro ductivity of the country.

The Market, Or Else . .. The conclusion to be drawn is that socialism and misdirected capital investments apparently go hand in hand. It is unlikely that a completely socialistic government will be able to provide sufficient investment funds for industry or to allocate them in the proper way. In the past, for example, Congress starved the United States Post Office of investment funds while spending billions on other projects of an irrelevant nature. This my opic policy, if applied to the entire economy, would result in a drastic decline in productivity in a very short time. There is little evidence, how ever, that socialism is being dis credited by its failures to work effectively in the American econ omy. If anything, the failures of socialist interventionism seem to provide the basis for new rounds of interventions. The delusion still 1974 SOCIALISM SEEKS ITS OWN LEVEL 361 persists that the Government can solve our economic and social prob lems by appointing a "czar" to supervise an ailing industry or by providing funds to support a cer tain cause. It is still not seen that the effect of this intervention must be to lower output and to inhibit the very market forces that can bring efficiency and order into our economic affairs. Neither is it un derstood that socialism cannot maintain the high· standard of liv ing and freedom that was· devel oped by past generations in America. The price we must pay, in this new world of socialist in tervention, is very high in terms of lost liberty and lowered pro ductivity.

The eminent Ludwig von Mises saw the problem with astonishing clarity: 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 sup ply of goods. It is a dispute concern ing what system of social organization best serves human welfare . . . In this conflict of opinions every body must make up his mind and take a definite stand. Everybody must side either with the advocates of eco nomic freedom or with those of totali tarian 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 com promise between capitalism and so cialism. 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 ...

Men must choose between the mar ket economy and socialism. The state can preserve the market economy in protecting life, health and private property against violent orfraudu lent aggressions; or it can itself con trol the conduct of all production activities. Some agency must deter mine 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 compul sion.* t1 *Mises, Ludwig von, Socialism, Yale Univers ity Press, New Haven, New Edition, 1959 and 1962.. pp.542-543. IDEAS ON LIBERTY The Test THE TEST for any theory of economics is whether it begins with the fact, or ends facing the fact, that what is not produced can not be consumed. It is The Test that will determine if any economic system can succeed or will fail. J. KESNER KAHN AnotherCase History of a GovernmentFailure BERNARD H. SIEGAN WHY would anyone want to in vest in a losing venture? This is a question that should be considered by the proponents of national land use legislation who are willing to have the federal government spend $100 million annually to obtain "better" land use. The government has a uniquely bad record in ac complishing its programs; still Congressmen continually propose new and more costly ones.