Two Ways of Life; R. Anderson

IN his 1859 classic, On Liberty, John Stuart Mill observed that, ((The only freedom which deserves the name, is that of pursuing our own good in our own way, so long as we do not at tempt to deprive others of theirs, or impede their efforts to obtain it." The application of this philosophy of freedom to economic affairs sim ply means freedom of choice in the marketplace. It means the freedom, in our dual role as producer and consumer, to conduct our own daily affairs without interference from others. Throughout the world it may be observed that individuals do not have this kind of freedom of choice. Not only communist nations regu late and control the lives of the citi zens, but even in noncommunist Mr. Anderson is executive Secretary, The founda tion for Economic Education. Robert G. Anderson_.....II• •••~. ~ countries these freedoms once en joyed are being rapidly lost. Nowhere, it seems, is freedom de fended as a philosophical absolute.

At best, it is tolerated as a pragmat ic necessity rather than upheld as a sovereign principle. The structure of society is all important in its impact on individ ual freedom. The institutions of so ciety may be designed to maximize individual liberty, or society may be designed to give a ruling elite power over the citizenry. To put the matter more simply-a society may be structured for freedom and produc tion, or it may be structured for slavery and plunder. The extent to which individual behavior is influenced by external forces is far more profound than may first be realized. The so-called u way of life" in India, Russia, Argentina, 579 580 THE FREEMAN October or the United States dramatically affects human action. How the indi vidual lives and acts is ultimately dependent upon values learned from the society in which he lives. While all individuals have a common source in their Creator, our formula tion of values radically differs as each of us is exposed to different living experiences.

This uniqueness of each individ ual possessing values different from all other individuals can be the source of a free society based on peace and harmony. Unfortunately, this condition of differing values can also lead to the structuring of a totalitarian society based on conflict and violence. The great question is why this latter structuring of society has been the most prevalent one throughout human history. Axioms of Economics While it is true that men can impose artificial structures upon so ciety, nevertheless, there exist cer tain universal laws which operate irrespective of these structures. Cer tain economic axioms can be ob served from our very nature. They have guided mankind from the be ginning, and will continue to do so as long as man's nature is un changed. Four of these axioms need to be mentioned. Axiom number one: we live in a world of scarcity. It is true that the general wellbeing of individuals is better today than in the past. But this improvement has in no way eliminated scarcity. It merely reflects a reduction in the degree of scarcity, and could be transient, depending on the decisions we make in the present and future. As long as man exists, the problem of scarce re sources exists.

The condition of perpetual scar city follows from axiom number two: man's insatiable appetite . No matter how many of man's wants are satis fied, there always remain additional wants to be fulfilled. There are never enough resources to supply all of our wants: Unlimited wants, but only limited means for satisfying them. This combination of insatiable wants and scarce resources is a uni versal condition of man's existence. It has always been true, it is true today, and it will remain true as long as man lives. And it is in terms of this condition that the economic questions of production, distribu tion, and consumption must be re solved. The reality of our basic economic problem leads to axiom number three: we must constantly make clwices. The determination of what to produce, by whom, when, where and how much must be made. In addition, these same questions must be answered regarding distribution and consumption. Who gets what, and when, where, and how much.

1979 TWO WAYS OF LIFE 581 What is certainly clear is that not everyone can have everything, now. One final observation about man's nature should also be made. Axiom number four is that we all want more for less. This trait can lead to either good or evil. Perhaps above all else it explains why the path taken by man in the structuring of society has been so consistently au thoritarian. The acquisition of more through plunder under socialism rather than more through produc tion under capitalism has always marked the difference between these two systems of social organiza tion. The present-oriented mentality of individuals has too often con cluded that plunder is the better way because it seems the quicker way to obtain more for less. The Role of Private Property No type of society established by man can in any way avoid these universal economic axioms, though the nature of the system determines how these universal laws will man ifest themselves. The basic problem of allocating scarce economic re sources toward the satisfaction of human wa~ts must be faced in every society.

The rapid decline or total loss of individual freedom throughout the world today may be traced to one major cause. Furthermore, this same cause can also be seen in the rapid growth of socialist societies and the destruction of capitalist societies. The cause of our lost free doms has been the destruction of the institution of private properly. Quite simply, the nature of property own ership determines whether man will be free or enslaved. In order to understand why this is true, an examination and compari son of socialism and capitalism is required. In our world neither capi talism nor socialism exists in its perfect theoretical form. Today's societies are variations of capitalism or socialism. The relationship of property ownership to individual freedom, however, is best under stood by a contrasting of the pure socialist society with the pure capi talist society. Very quickly, it will be seen that these two forms of so cial organization are diametrically opposed in both philosophy and structure.

The first problem we encounter here is that the socialist ideal has never been defined, even by the very people who advanced it. It is true that Marx and other socialists, at various times, did offer glimpses of the socialist fantasy as it would work in some never-never world. The romantic pronouncement: ~~From each according to his abilities, to each according to his needs," has frequently been heralded as the banner of the ulti mate socialist state. The socialist dreams of a wonderland in which 582 THE FREEMAN October scarcity no longer exists and all of our wants can be readily fulfilled. The Socialist Fantasy No better glimpse is available into this fantasy world than Karl Marx's observation of that future socialist state, ~~a society where each one does not have a circumscribed sphere of activity but can train himself in any branch he chooses, society by reg ulating the common production makes it possible for me to do this today and that tomorrow, to hunt in the morning, to fish in the after noon, to carryon cattle-breeding in the evening; also to criticize the food-just as I please-without be coming either hunter, fisherman, shepherd or critic." And it could well be added to such fantasizing, ((but if wishes were horses, beggars could ride."

To analyze socialism by defining it as some imaginary fantasy of a romantic idealist is meaningless. The only definition of socialism that is relevant is the social structure that is in reality advanced. The main characteristic that identifies socialism is the common ownership of the means of production, distribu tion, and exchange. Or, as Karl Marx states it in a single phrase, socialism means ~(the abolition of private property." Sochilism, as a structure of social organization, is therefore recogniza ble by the nature of property ownership. Under socialism the re sources of the society are collec tivized and centrally administered by some form of political bureau cracy. This arrangement of common property ownership inevitably forms a vertically structured society; a political elite establishes itself as the sovereign power over the whole society. The Problem of Production No society, socialist or otherwise, can escape the necessity of produc tive effort. Under socialism, it is the State, as the owner of all economic resources, that determines how the factors of production will be employed. Establishing a socialist society does not nullify the basic economic problems of scarcity and insatiable human wants. The when, where, how, who, and what to pro duce problems must be resolved. By the same token, the problems of dis tribution and consumption are also present. What is different about the socialist society is the manner in which these economic problems are handled.

The socialist theoretician has two complications in his theory: the first is the absurdity of advancing a con cept of common ownership for con sumer goods. It is ludicrous to im agine the whole of society owning the food about to be eaten by some individual or the toothpaste to clean his teeth. In this respect, even the 1979 TWO W AY8 OF LIFE 583 most extreme socialist recognizes that the concept of common own ership of property cannot be univer sally applied. The second complication in the collectivization of property own ership is the realization that not everyone can own everything nor can everything be controlled by everyone. The concept of socialism, the common ownership of property, necessarily requires that someone be in charge. And modem socialism, without exception, has named ttthe State" as this absolute authority. It is this second point that invari ably makes the socialist society authoritarian. The socialist likes to speak of the state as the agency of society, but in reality the State is the sovereign force dominating the soci ety. Property under socialism is not owned in common-it is owned by the State. It cannot be that everyone is in charge. The State is in charge.

The State becomes the owner and the controller of all productive prop erty. The State as Owner State ownership means absolute ownership. That is, the State is not only the legal owner of all produc tive property but the economic owner as well. All decisions relating to property use are the total pre rogative of the State. The State es tablishes a plan for the structuring of society, and as sole property owner, directs all economic activity toward the implementation of its plan. Under such a concept of State ownership of productive property the practice of individual freedom is impossible. There is no private property for use in production, and therefore no economic activity that can be performed privately. Many individuals have a partial understanding of this aspect of socialism. They recognize that at least one factor of production, capi tal, will be owned by the State under socialism. The machines to build cars and tractors no longer will be owned by individuals, but instead will be owned by the socialist State.

Others have recognized that the fac tor of production, land, will also be owned by the State under socialism. The land used for growing crops or raising beef will no longer be owned by the farmers, but instead will be State owned. But many individuals need to be reminded that there are three fac tors of production and that all three are owned by the socialist State. And it is the State ownership of this third factor of production that abso lutely assures the loss of individual freedom. That third factor of produc tion is labor, the labor of individ uals, including you and me. Under socialism the individual is denied a proprietary interest in his own per son. Like the factors of production, capital and land, the labor of each 584 THE FREEMAN October individual is owned and controlled by the State. This State ownership and control of labor precludes free dom of choice to the individual in the directing of his own life.

Enslaving the Individual The collective ownership of labor under the central direction of the socialist State results in the re gimentation of human beings ac cording to the structural plans of the State. Rarely, if ever, do the central plans of the socialist State corres pond to the plans and interests of the individual. Ultimately, the State must resort to the use of force against those individuals whose values are in conflict with the socialist plan. The State ownership of labor is merely a disguised way of subordinating the individual to the sovereign will of the State. The very essence of socialism assures, there fore, the destruction of individual freedom of choice-the freedom of each individual to choose for himself how he will direct his own life. The growth of socialism through out this century has demonstrated this lesson without exception. Wherever the State has replaced the market in the allocation of economic resources, the freedom of individ uals in the employment of their labor has been infringed. This has not been a development just within the Iron Curtain countries; it even occurred under Labor Party rule in England after World War II. When the State owns your labor, the State controls you.

The socialist society can also be critically analyzed from the point of view of economic inefficiency. The absence of a market makes economic calculation impossible. Without a price system there is no way to de termine either the costs of produc tion or the economic value from the output of production. Neither effi ciency nor inefficiency-neither profit nor loss-from productive ef fort can ever be known under socialism. The destruction and waste of scarce economic resources inevitably follows from this di lemma. In addition, the collective own ership of property destroys individ ual motivation. The care and ac cumulation of property is directly related to personal possession. It is in our nature to value our own prop erty more highly than property be longing to others. And the socialist concept of collective property is al ways the property of others to any one individual. The incentive to produce for others can never match the incentive to produce for self.

While such criticisms of socialism are a major indictment against this structure of social organization, they relate primarily to economic improvement and our material wellbeing. The far more over whelming case against socialism 1979 TWO WAYS OF LIFE 585 concerns the loss of individual free dom that inexorably follows from t~e ~!_~te ownership of property. Individual Ownership In contrast to socialism as a struc ture of social organization, the capi talist society advances the concept of private ownership of economic re sources. Both social orders recognize the necessity for property ownership and its control. They differ totally, however, as to who will own and control property. Socialism cen tralizes all ownership in a sovereign State. Capitalism is based on pri vate ownership. The ownership and control of prop ertY by individuals, rather than by the State, leads to a drastically dif ferent society than that which de velops under socialism. Perhaps the most obvious and immediate result is the vast decentralization of own ership and control of property. In stead of a single State owner under socialism, the capitalist society is characterized by millions of individ ualowners.

It is certainly true that under cap italism some individuals own more property than others. It is equally true that some types of property are far more valuable than other types of property. Under capitalism, this inequality of property ownership is accepted for what it is-a given con dition of man and his nature. Invar iably, the statement that inequality is a part of man's nature creates resentment. Inequality of property ownership is particularly offensive to many. But whether we approve or not, it is a reality that persists in every social structure, including socialism. While certain individuals do pos sess more property than others under capitalism, it must be recog nized that even the poorest member of the society at least has a propriet ary interest in himself-he owns his own life. Under socialism the own ership of self is denied to the indi vidual. All productive property, in cluding labor, is owned by the State.

Attacks against inequality of property ownership center largely upon land and capital. Even if equality could be attained with re spect to the ownership of land and capital-and it cannot be-what about inequality of labor ownership? Inborn traits of intelligence and physical abilities differ significantly among individuals, and to deny these inequalities among individ uals is to deny our very being. The important point is that under capitalism the individual ownership of property exploits inequality or dif ferences among individuals in a way that advances freedom and material wellbeing. Inequality is a condition of our nature; it cannot be elimi nated by any social system. And whereas socialism aggravates this iriequality, capitalism creates the 586 THE FREEMAN October beneficent division-of-Iabor society out of these natural inequalities. The capitalist social structure places total sovereignty over prop erty in the hands of the individual who owns it. What each person does with his land, labor, and capital is exclusively his own decision. Each individual owner is free to pursue his own good in his own way. He becomes totally responsible for him self and his possessions. His values, aqd his plans, are the primary force in the directing of his life and the employment of his property.

Government's Role The philosophical framework of the capitalist society requires a sys tem of laws-a government-to as sure that the life and property of individuals are safeguarded. The role of government in a capitalist society is to establish and execute laws designed to keep the peace. As Mill observed, attempts by any to deprive others of their freedom must be prevented, and the force of law is essential to this end. Government in the capitalist society is symbolized by the blindfolded goddess ofjustice. The rule of law equally protecting life and property is fundamental to the development of a capitalist soci ety. When individual life and property are secure, a spirit of social coopera tion will materialize. Individuals quickly discover the personal advantages of specialization and ex change. A nation of traders trans forms itself into a free market econ omy. With market prices as their guide, and motivated by the poten tial of profit, individuals bring their resources into production for the benefit of consumers.

It is the development of this pat-, tern under capitalism that has led to such descriptive synonyms as the free market economy, the private property order, the competitive en terprise system, the consumer sovereign society. All these descrip tions are valid, for each recognizes some important attribute of the so ciety. Undergirding it all, however, is the central point that property ownership must be a sovereign, ab solute right of the individual. Socialist planning is built upon a common social goal executed through the central direction of the State. It represents total planning of societal objectives by political action, and the implementation of these ob jectives by a bureaucratic corps within the socialist State. Under capitalism, however, the planning is done by individuals pursuing their personal goals. Through the signal of market prices, consum ers direct production toward the satisfaction of their individual wants.

Once again the socialist society radically differs from the capitalist society. The structure of socialism is 1979 TWO WAYS OF LIFE 587 a product of State planning with a politically established central goal. The structure of capitalism is mar ket determined by the actions of millions of individual consumers. Under socialism the State decides what society needs, but under capi talism the consumer decides his own needs and acts accordingly. Who Makes the Decision? In any society, it is the nature of property ownership that determines who wields power. Proclamations declaring a right to individual free dom are empty unless the individual is allowed to acquire and possess property and thereby is empowered to exercise his freedom. The suste nance of life is property, and the loss of this sustenance by the individual to the State assures the loss of his personal freedom as well. The own ershi p of self, denied by the socialist State, is fundamental to human freedom. Only under capitalism, where the institution of private property is guarded as a sovereign right, can the individual own him self and be free.

The extent to which individual freedom has been lost throughout the world today can be gauged by the corresponding loss of private property rights. The encroachment by government over the control of property has literally destroyed any concept of absolute private property rights. The use of property has increasingly come under the direction of government, even though nomi nal ownership may still be retained by the individual. In the United States today it is impossible to find a single example of productive property that is not in some way controlled by government. Such interference by government has but a single purpose-to obstruct consumer and producer freedom of choice and substitute therefor the will of the State. The sole end of all such activity is to shift power over the structuring of society away from the individual and into the hands of the State. Loss of con trol over one's property to the State is nothing less than a direct assault on individual freedom.

The perplexing question that con tinually faces the devotee of indi vidual liberty and private property rights is why socialism is so alluring while capitalism generates such hostility? The freedom and pros perity experienced under capitalism has been a demonstrated fact that is in stark contrast to the enslavement and inefficiency of the socialist soci ety. Yet the intellectual allure of socialism dominates social thought throughout the world today. Unless a firm philosophical framework is formulated on spiritual and moral absolutes conducive to a free society, man can quickly succumb to the allure of socialism through the pur suit of base motives.

588 THE FREEMAN October The Critics of Capitalism No better example of the allure of socialism can be observed than by witnessing the intolerance ex pressed against the structure of the capitalist society. Critics of capital ism refer continually to the misallo cation of productive resources under capitalism, and the need to alter the allocation of resources to meet ((no bler" objectives. These critics invar iably call upon government power as the means of forcibly altering the structure of society to achieve their aims. The problem, as they see it, is that the structure of the capitalist society is determined by the be havior of consumers in the mar ketplace. Productive resources are employed to create the goods and services that individual consumers desire. Under capitalism the struc ture of society is determined by market forces in such a way as to provide what everybody wants. The profit or loss from market activities directs privately owned productive resources toward the satisfaction of consumer demands.

Capitalism, therefore, responds to what everybody wants; but herein lies its dilemma. Nobody wants what everybody wants! Our differing indi vidual values will never conform to the values of all consumers. In the absence of tolerance for the values of others as expressed in the market place, it is extremely tempting to impose the State's design upon soci ety. As Friedrich Hayek so aptly observed in The Road to Serfdom, every socialist sees his plan prevail ing over society; he sees himself as planner and not as one of the planned. To the intellectual, the at traction of socialism is in this belief that he will be the planner of soci ety; that he, rather than the de cisions being made by millions of consumers through the market place, will determine its structure. The hostility to the capitalist soci ety as it responds to what everybody wants, rather than to what someone thinks everyone should want, is a prilll:ary reason why many find the socialist society so appealing. Under socialism, the socialist, rather than the consumers, will plan society.

While the capitalist system re wards the productive and thrifty in dividual and motivates everyone to imitate these virtues, such a system generates an inequality of posses sions that can create base feelings of greed, guilt, and envy. Once again, a firm philosophical framework is necessary to temper the urge to fol low such base instincts. Tempta tions to use the State to seize another's property out of greed and envy assures destruction of the capi talist society as the law is trans formed from an instrument ofjustice into a device for legal plunder. By the same token, feelings of guilt from possessing more property than 1979 TWO WAYS OF LIFE 589 others must be replaced with a feel ing of responsibility and steward ship toward the employ~ent of that property for the benefit of consum ers. And finally, what is perhaps the most difficult characteristic to ac cept about the capitalist society is the inevitable change brought about by competition in the marketplace.

No one likes change. Yet the only certainty of a free society is that it will be a society of change. Such change is mandated by the consum ers as they act out their preferences in the market. Productive resources are constantly bidding against one another as the successful displace the unsuccessful in response to the demands of the consumer. These ever-changing values of the consumers keep the market in a constant state of flux. The competi tion of producers responding to such ever-changing values assures that some will profit while others risk loss. The demise of old goods and services from the competitive thrust of new goods and services demands continual adjustment on the part of consumers and producers. This ad justment, brought about by competi tion in a consumer sovereign capi talist society can be overwhelming to many, as the old and familiar is displaced with the new. The socialist society is seen as a way out for such people. While an escape from change is an illusion, the static nature of the socialist so ciety holds appeal. The tragedy, however, is what is not seen. Out of the static structure of the socialist State has come a «graveyard" soci ety of death, slavery, and human misery. A society that promised good, has delivered evil. In the words of Ludwig von Mises, the twentieth century's most outstand ing free market economist, «good intentions aren't enough."

The future of civilization, of man's material progress, and especially his freedom are dependent upon the structuring of a society based on the institution of private property. In the final analysis, the man who is not permitted to own property be comes the property of someone else; man either owns or is owned. @ IDEAS ON UBERTY William Graham Sumner THE accumulation of property is no guarantee of the development of character, but the development of character, or of any other good whatever, is impossible without property.