Chapter 5: The Socialism of Conservatism

In the two preceding chapters the forms of socialism most commonly known and identified as such, and that are indeed derived from basically the same ideological sources were discussed: socialism Russian-style, as most conspicuously represented by the communist countries of the East bloc; and social-democratic socialism, with its most typical representatives in the socialist and social-democratic parties of Western Europe, and to a lesser extent in the “liberals” of the United States. The property rules underlying their policy schemes were analyzed, and the idea presented that one can apply the property principles of Russian or social-democratic socialism in varying degrees: one can socialize all means of production or just a few, and one can tax away and redistribute almost all income, and almost all types of income, or one can do this with just a small portion of only a few types of income. But, as was demonstrated by theoretical means and, less stringently, through some illustrative empirical evidence, as long as one adheres to these principles at all and does not once and for all abandon the notion of ownership rights belonging to nonproducers (nonusers) and noncontractors, relative impoverishment must be the result.

This chapter will show that the same is true of conservatism, because it, too, is a form of socialism. Conservatism also produces impoverishment, and all the more so, the more resolutely it is applied. But before going into a systematic and detailed economic analysis of the peculiar ways in which conservatism produces this effect, it would be appropriate to take a short look at history, in order to better understand why conservatism indeed is socialism, and how it is related to the two egalitarian forms of socialism discussed previously.

Roughly speaking, before the eighteenth century in Europe and throughout the world, a social system of “feudalism” or “absolutism,” which was in fact feudalism on a grander scale, existed.⁵⁴ In abstract terms, the social order of feudalism was characterized by a regional overlord who claimed ownership of some territory, including all of its resources and goods, and quite often also of all of the men placed upon it, without having originally appropriated them himself through use or work, and without having a contractual claim to them. On the contrary, the territory, or better, the various parts of it and the goods standing on it, had been actively occupied, used, and produced by different people before (the “natural owners”). The ownership claims of the feudal lords were thus derived from thin air. Hence, the practice, based on these alleged ownership rights, of renting land and other production factors out to the natural owners in return for goods and services unilaterally fixed by the overlord, had to be enforced against the will of these natural owners, by brutal force and armed violence, with the help of a noble caste of military men who were rewarded by the overlord for their services by being allowed to participate and share in his exploitative methods and proceeds. For the common man subject to this order, life meant tyranny, exploitation, economic stagnation, poverty, starvation, and despair.⁵⁵

As might be expected, there was resistance to this system. Interestingly enough though (from a present-day perspective), it was not the peasant population who suffered most from the existing order, but the merchants and traders who became the leading opponents of the feudal system. Buying at a lower price in one place and traveling and selling at a higher price in a different place, as they did, made their subordination to any one feudal lord relatively weak. They were essentially a class of “international” men, crossing the borders of various feudal territories constantly. As such, in order to do business they required a stable, internationally valid legal system: a system of rules, valid regardless of time and place, defining property and contract, which would facilitate the evolution of the institutions of credit, banking and insurance essential to any large-scale trading business. Naturally, this caused friction between the merchants and the feudal lords as representatives of various arbitrary, regional, legal systems. The merchants became feudalism’s outcasts, permanently threatened and harassed by the noble military caste attempting to bring them under their control.⁵⁶

In order to escape this threat the merchants were forced to organize themselves and help establish small fortified trading places at the very fringes of the centers of feudal power. As places of partial exterritoriality and at least partial freedom, they soon attracted growing numbers of the peasantry running away from feudal exploitation and economic misery, and they grew into small towns, fostering the development of crafts and productive enterprises which could not have emerged in the surroundings of exploitation and legal instability characteristic of the feudal order itself. This process was more pronounced where the feudal powers were relatively weak and where power was dispersed among a great number of often very minor, rival feudal lords. It was in the cities of northern Italy, the cities of the Hanseatic league, and those of Flanders that the spirit of capitalism first blossomed, and commerce and production reached their highest levels.⁵⁷

But this partial emancipation from the restrictions and the stagnation of feudalism was only temporary, and was followed by reaction and decline. This was due in part to internal weaknesses in the movement of the new merchant class itself. Still too much ingrained in the minds of men was the feudal way of thinking in terms of different ranks assigned to people, of subordination and power, and of order having to be imposed upon men through coercion. Hence, in the newly emerging commercial centers a new set of noncontractual regulations and restrictions—now of “bourgeois” origin—was soon established, guilds that restrained free competition were formed, and a new merchant oligarchy arose.⁵⁸ More important, though, for this reactionary process was yet another fact. In their endeavor to free themselves from the exploitative interventions of the various feudal lords, the merchants had to look for natural allies. Understandably enough, they found such allies among those from the class of feudal lords who, though comparatively more powerful than their noble fellows, had the centers of their power at a relatively greater distance from the commercial towns seeking assistance. In aligning themselves with the merchant class, they sought to extend their power beyond its present range at the expense of other, minor lords.⁵⁹ In order to achieve this goal they first granted certain exemptions from the “normal” obligations falling upon the subjects of feudal rule to the rising urban centers, thus assuring their existence as places of partial freedom, and offered protection from the neighboring feudal powers. But as soon as the coalition had succeeded in its joint attempt to weaken the local lords and the merchant towns’ “foreign” feudal ally had thereby become established as a real power outside of its own traditional territory, it moved ahead and established itself as a feudal super power, i.e., as a monarchy, with a king who superimposed his own exploitative rules onto those of the already existing feudal system. Absolutism had been born; and as this was nothing but feudalism on a larger scale, economic decline again set in, the towns disintegrated, and stagnation and misery returned.⁶⁰

It was not until the late seventeenth and early eighteenth centuries, then, that feudalism came under truly heavy attack. This time the attack was more severe, because it was no longer simply the attempt of practical men—the merchants—to secure spheres of relative freedom in order to do their practical business. It was increasingly an ideological battle fought against feudalism. Intellectual reflection on the causes of the rise and decline of commerce and industry that had been experienced, and a more intensive study of Roman and in particular of Natural Law, which had both been rediscovered in the course of the merchants’ struggle to develop an international merchant law and justify it against the competing claims of feudal law, had led to a sounder understanding of the concept of liberty, and of liberty as a prerequisite to economic prosperity.⁶¹ As these ideas, culminating in such works as J. Locke’s “Two Treatises on Government,” 1688, and A. Smith's “Wealth of Nations,” 1776, spread and occupied the minds of a steadily expanding circle of people, the old order lost its legitimacy. The old way of thinking in terms of feudal bonds gradually gave way to the idea of a contractual society. Finally, as outward expressions of this changed state of affairs in public opinion, the Glorious Revolution of 1688 in England, the American Revolution of 1776, and the French Revolution of 1789 came along; and nothing was the same after these revolutions had occurred. They proved, once and for all, that the old order was not invincible, and they sparked new hope for further progress on the road toward freedom and prosperity.

Liberalism, as the ideological movement that had brought about these earth-shattering events came to be called, emerged from these revolutions stronger than ever and became for somewhat more than half a century the dominating ideological force in Western Europe. It was the party of freedom and of private property acquired through occupation and contract, assigning to the state merely the role of enforcer of these natural rules.⁶² With remnants of the feudal system still in effect everywhere, however shaken in their ideological foundation, it was the party representing an increasingly liberalized, deregulated, contractualized society, internally and externally, i.e., regarding domestic as well as foreign affairs and relations. And as under the pressure of liberal ideas the European societies became increasingly free of feudal restrictions, it also became the party of the Industrial Revolution, which was caused and stimulated by this very process of liberalization. Economic development set in at a pace never before experienced by mankind. Industry and commerce flourished, and capital formation and accumulation reached new heights. While the standard of living did not rise immediately for everyone, it became possible to support a growing number of people—people, that is, who only a few years before, under feudalism, would have died of starvation because of the lack of economic wealth, and who could now survive. In addition, with population growth leveling off below the growth rate of capital, now everyone could realistically entertain the hope of rising living standards being just around the corner.⁶³

It is against this background of history (somewhat streamlined, of course, as it has just been presented) that the phenomenon of conservatism as a form of socialism and its relation to the two versions of socialism originating in Marxism must be seen and understood. All forms of socialism are ideological responses to the challenge posed by the advance of liberalism; but their stand taken against liberalism and feudalism—the old order that liberalism had helped to destroy—differs considerably. The advance of liberalism had stimulated social change at a pace, to an extent, and in variations unheard of before. The liberalization of society meant that increasingly only those people could keep a given social position once acquired who could do so by producing most efficiently for the most urgent wants of voluntary consumers with as little cost as possible, and by relying exclusively on contractual relationships with respect to the hiring of factors of production and, in particular, of labor. Empires upheld solely by force were crumbling under this pressure. And as consumer demand to which the production structure now increasingly had to adapt (and not vice versa) was changing constantly, and the upspring of new enterprises became increasingly less regulated (insofar as it was the result of original appropriation and/or contract), no one’s relative position in the hierarchy of income and wealth was secure anymore. Instead, upward and downward social mobility increased significantly, for neither particular factor-owners nor owners of particular labor services were any longer immune to respective changes in demand. They were no longer guaranteed stable prices or a stable income.⁶⁴

Old Marxist and new social-democratic socialism are the egalitarian, progressive answers to this challenge of change, uncertainty, and mobility. Like liberalism, they hail the destruction of feudalism and the advance of capitalism. They realize that it was capitalism that freed people from exploitative feudal bonds and produced enormous improvements in the economy; and they understand that capitalism, and the development of the productive forces brought about by it, was a necessary and positive evolutionary step on the way toward socialism. Socialism, as they conceive it, shares the same goals with liberalism: freedom and prosperity. But socialism supposedly improves on the achievements of liberalism by supplanting capitalism—the anarchy of production of private competitors which causes the just-mentioned change, mobility, uncertainty, and unrest in the social fabric—at its highest stage of development by a rationally planned and coordinated economy which prevents insecurities derived from this change from being felt at an individual level. Unfortunately, of course, as the last two chapters have sufficiently demonstrated, this is a rather confused idea. It is precisely by making individuals insensitive to change through redistributional measures that the incentive to adapt quickly to any future change is taken away, and hence the value, in terms of consumer evaluations, of the output produced will fall. And it is precisely because one plan is substituted for many seemingly uncoordinated ones that individual freedom is reduced and, mutatis mutandis, government by one man over another increased.

Conservatism, on the other hand, is the anti-egalitarian, reactionary answer to the dynamic changes set in motion by a liberalized society: It is anti-liberal and, rather than recognizing the achievements of liberalism, tends to idealize and glorify the old system of feudalism as orderly and stable.⁶⁵ As a postrevolutionary phenomenon, it does not necessarily and outrightly advocate a return to the prerevolutionary status quo ante and accepts certain changes, however regretfully, as irreversible. But it is hardly ruffled when old feudal powers that had lost all or parts of their estates to the natural owners in the course of the liberalization process are restored to their old position, and it definitely and openly propagates the conservation of the status quo, i.e., the given highly unequal distribution of property, wealth, and income. Its idea is to stop or slow down the permanent changes and mobility processes brought about by liberalism and capitalism as completely as possible and, instead, to recreate an orderly and stable social system in which everyone remains securely in the position that the past had assigned to him.⁶⁶

In order to do so, conservatism must, and indeed does, advocate the legitimacy of noncontractual means in the acquisition and retention of property and income derived from it, since it was precisely the exclusive reliance on contractual relations that caused the very permanence of changes in the relative distribution of income and wealth. Just as feudalism allowed the acquisition and upholding of property and wealth by force, so conservatism ignores whether or not people have acquired or retain their given income-and wealth-position through original appropriation and contract. Instead, conservatism deems it appropriate and legitimate for a class of once-established owners to have the right to stop any social change that it considers a threat to their relative position in the social hierarchy of income and wealth, even if the various individual owner-users of various production factors did not contract into any such agreement. Conservatism, then, must be addressed as the ideological heir of feudalism. And as feudalism must be described as aristocratic socialism (which should be clear enough from its above characterization), so must conservatism be considered as the socialism of the bourgeois establishment. Liberalism, to which both the egalitarian and the conservative versions of socialism are ideological responses, reached the height of its influence around the mid-nineteenth century. Probably its very last glorious achievements were the repeal of the Corn Laws in England in 1846, accomplished by R. Cobden, J. Bright and the anti-corn law league, and the 1848 revolutions of continental Europe. Then, because of internal weaknesses and inconsistencies in the ideology of liberalism,⁶⁷ the diversions and the divisiveness which the various nation states’ imperialist adventures had brought about, and last but not least because of the appeal that the different versions of socialism with their various promises of security and stability had and still have for the public’s widespread distaste for dynamic change and mobility,⁶⁸ liberalism’s decline set in. Socialism increasingly supplanted it as a dominating ideological force, thereby reversing the process of liberalization and once again imposing more and more noncontractual elements on society.⁶⁹ At different times and places, different types of socialism found support in public opinion to varying degrees, so that today traces of all of them can be found to coexist in different degrees everywhere and to compound their respective impoverishment effects on the process of production, the upkeep of wealth and the formation of character. But it is the influence of conservative socialism, in particular, that must be stressed, especially because it is very often overlooked or underestimated. If today the societies of Western Europe can be described as socialist, this is due much more to the influence of the socialism of conservatism than to that of egalitarian ideas. It is the peculiar way in which conservatism exerts its influence, though, that explains why this is often not recognized. Conservatism not only shapes the social structure by enacting policy; especially in societies like the European ones where the feudal past has never been completely shaken off but where a great number of feudal remnants survived even the peak of liberalism. An ideology such as conservatism also exerts its influence, very inconspicuously, by simply maintaining the status quo and letting things continue to be done according to age-old traditions. What then are the specifically conservative elements in present-day societies, and how do they produce relative impoverishment?. With this question, we turn to the systematic analysis of conservatism and its economic and socio-economic effects. An abstract characterization of the property rules underlying conservatism and a description of these rules in terms of the natural theory of property shall again be the starting point. There are two such rules. First, conservative socialism, like social-democratic socialism, does not outlaw private property. Quite to the contrary: everything—all factors of production and all of the nonproductively used wealth—can in principle be privately owned, sold, bought, rented out, with the exception again only of such areas as education, traffic and communication, central banking, and security production. But then secondly, no owner owns all of his property and all of the income that can be derived from its utilization. Rather, part of this belongs to the society of present owners and income recipients, and society has the right to allocate present and future produced income and wealth to its individual members in such a way that the old, relative distribution of income and wealth is preserved. And it is also society’s right to determine how large or small the income and wealth-share that is so administered should be, and what exactly is needed to preserve a given income and wealth-distribution.⁷⁰

From the perspective of the natural theory of property, the property arrangement of conservatism again implies an aggression against the rights of natural owners. Natural owners of things can do whatever they wish with them, as long as they do not uninvitedly change the physical integrity of someone else’s property. This implies, in particular, their right to change their property or to put it to different uses in order to adapt to anticipated changes in demand and so preserve or possibly enhance its value; and it also gives them the right to reap privately the benefits of increased property values that stem from unanticipated changes in demand—from changes, that is, that were lucky for them, but which they did not foresee or effectuate. But at the same time, since according to the principles of the natural theory of property every natural owner is only protected against physical invasion and the noncontractual acquisition and transfer of property titles, it also implies that everyone constantly and permanently runs the risk that through changes in demand or actions which other owners perform with their property, property values will fall below their given level. According to this theory, however, no one owns the value of his property and hence no one, at any time, has the right to preserve and restore his property values. As compared with this, conservatism aims precisely at such a preservation or restoration of values and their relative distribution. But this is only possible, of course, if a redistribution in the assignment of property titles takes place. Since no one’s property values depend exclusively on one’s own actions performed with one’s own property, but also, and inescapably so, on other peoples’ actions performed with scarce means under their own control (and beyond that of another’s), in order to preserve given property values someone—some single person or some group of persons—would have to rightfully own all scarce means (far beyond those that are actually controlled or used by this person or group of persons). Furthermore, this group must literally own all persons’ bodies, since the use that a person makes of his body can also influence (increase or decrease) existing property values. Thus, in order to realize the goal of conservatism, a redistribution of property titles must occur away from people as user-owners of scarce resources onto people who, whatever their merits as past producers, did not presently use or contractually acquire those things whose utilization had led to the change in the given distribution of values.

With this understood, the first conclusion regarding the general economic effect of conservatism lies at hand: with the natural owners of things fully or partially expropriated to the advantage of nonusers, nonproducers and noncontractors, conservatism eliminates or reduces the former’s incentive to do something about the value of existing property and to adapt to changes in demand. The incentives to be aware of and to anticipate changes in demand, to quickly adjust existing property and to use it in a manner consistent with such changed circumstances, to increase productive efforts, and to save and invest are reduced, as the possible gains from such behavior can no longer be privately appropriated but will be socialized. Mutatis mutandis, the incentive is increased to do nothing in order to avoid the permanent risk of one’s property values falling below their present level, as the possible losses from such behavior no longer have to be privately appropriated, but will also be socialized. Thus, since all these activities—the avoidance of risk, awareness, adaptability, work, and saving—are costly and require the use of time and possibly other scarce resources which at the same time could be used in alternative ways (for leisure and consumption, for instance), there will be fewer of the former activities and more of the latter, and as a consequence the general standard of living will fall. Hence, one would have to conclude that the conservative goal of preserving existing values and existing distributions of values among different individuals can only be accomplished at the expense of a general, relative drop in the overall value of newly produced and old, maintained goods, i.e., reduced social wealth.

It has probably become apparent by now that from the point of view of economic analysis, there is a striking similarity between the socialism of conservatism and social-democratic socialism. Both forms of socialism involve a redistribution of property titles away from producers/contractors onto nonproducers/noncontractors, and both thereby separate the processes of producing and contracting from that of the actual acquisition of income and wealth. In doing this, both make the acquisition of income and wealth a political affair—an affair, that is, in the course of which one (group of) person(s) imposes its will regarding the use of scarce means onto the will of other, recalcitrant people; both versions of socialism, though in principle claiming full ownership of all of the income and wealth produced on behalf of nonproducers, allow their programs to be implemented in a gradual fashion and carried through to varying degrees; and both, as a consequence of all this, must, to the extent that the respective policy is indeed enacted, lead to relative impoverishment.

The difference between conservatism and what has been termed social-democratic socialism lies exclusively in the fact that they appeal to different people or to different sentiments in the same people in that they prefer a different way in which the income and wealth extracted noncontractually from producers is then redistributed to nonproducers. Redistributive socialism assigns income and wealth to nonproducers regardless of their past achievements as owners of wealth and income recipients, or even tries to eradicate existing differences. Conservatism, on the other hand, allocates income to nonproducers in accordance with their past, unequal income and wealth-position and aims at stabilizing the existing income distribution and existing income differentials.⁷¹ The difference is thus merely one of social-psychology: in favoring different patterns of distribution, they grant privileges to different groups of nonproducers. Redistributive socialism particularly favors the have-nots among nonproducers, and especially disadvantages the haves among the producers; and, accordingly, it tends to find its supporters mostly among the former and its enemies among the latter. Conservatism grants special advantages to the haves among the group of nonproducers and particularly damages the interests of the have-nots among productive people; and so it tends to find its supporters mainly in the ranks of the former and spreads despair, hopelessness, and resentment among the latter group of people.

But although it is true that both systems of socialism are very much alike from an economic point of view, the difference between them with respect to their socio-psychological basis still has an impact on their respective economics. To be sure, this impact does not affect the general impoverishment effects resulting from the expropriation of producers (as explained above), which they both have in common. Instead, it influences the choices that social-democratic socialism on the one hand and conservatism on the other make among the specific instruments or techniques available for reaching their respective distributional goals. Social-democratic socialism's favorite technique is that of taxation, as described and analyzed in the preceding chapter. Conservatism can use this instrument, too, of course; and indeed it must make use of it to some extent, if only to finance the enforcement of its policies. But taxation is not its preferred technique, and the explanation for this is to be found in the social-psychology of conservatism. Dedicated to the preservation of a status quo of unequal positions of income, wealth, and status, taxation is simply too progressive an instrument for reaching conservative goals. To resort to taxation means that one lets changes in the distribution of wealth and income happen first, and only then, after they have come into existence, does one rectify things again and restore the old order. However, to proceed in this way not only causes bad feelings, particularly among those who through their own efforts have actually improved their relative position first and are then cut back again. But also, by letting progress occur and then trying to undo it, conservatism weakens its own justification, i.e., its reasoning that a given distribution of income and wealth is legitimate because it is the one which has always been in effect. Hence, conservatism prefers that changes do not occur in the first place, and it prefers to use policy measures that promise to do just this, or rather, promise to help make such changes less apparent.

There are three such general types of policy measures: price-controls, regulations, and behavior controls, all of which, to be sure, are socialistic measures, as is taxation, but all of which, interestingly enough, have generally been as neglected in attempts to assess the overall degree of socialism in different societies, as the importance of taxation in this regard has been overrated.⁷² I will discuss these specific conservative policy schemes in turn.

Any change in (relative) prices evidently causes changes in the relative position of the people supplying the respective goods or services. Hence, in order to fix their position it would seem that all that need be done is fix prices—this is the conservative rationale for introducing price controls. To check the validity of this conclusion the economic effects of price-fixings need to be examined.⁷³ To begin with, it is assumed that a selective price control for one product or one group of products has been enacted and that the current market price has been decreed as the price above or below which the product may not to be sold. Now, as long as the fixed price is identical to the market price, the price control will simply be ineffective. The peculiar effects of price-fixing can only come about once this identity no longer exists. And as any price-fixing does not eliminate the causes that would have brought about price changes, but simply decrees that no attention be paid to them, this occurs as soon as there are any changes in demand, for whatever reason, for the product in question. If the demand increases (and prices, not being controlled, would go up as well) then the fixed price turns into an effective maximum price, i.e., a price above which it is illegal to sell. If the demand decreases (and prices, without controls, would fall), then the fixed price becomes an effective minimum price, i.e., a price below which it becomes illegal to sell.⁷⁴

The consequence of imposing of a maximum price is an excess demand for the goods supplied. Not everyone willing to buy at the fixed price can do so. And this shortage will last as long as prices are not allowed to rise with the increased demand, and hence, no possibility exists for the producers (who assumedly had already been producing up to the point at which marginal costs, i.e., the cost of producing the last unit of the product concerned, equaled marginal revenue) to direct additional resources into the specific line of production, thus increasing output without incurring losses. Queues, rationing, favoritism, under-the-table payments, and black markets will become permanent features of life. And the shortages and other side effects which they bring along will even increase, as excess demand for the price-controlled goods will spill over to all other noncontrolled goods (in particular, of course, to substitutes), increase their (relative) prices, and thereby create an additional incentive to shift resources from controlled into non-controlled lines of production.

Imposing a minimum price, i.e., a price above the potential market price below which sales become illegal, mutatis mutandis produces an excess of supply over demand. There will be a surplus of goods produced that simply cannot find buyers. And again: this surplus will continue as long as prices are not allowed to drop along with the reduced demand for the product in question. Milk and wine lakes, butter and grain mountains, to cite just a few examples, will develop and grow; and as the storage bins fill up it will become necessary to repeatedly destroy the surplus production (or, as an alternative, to pay the producers not to produce the surplus anymore). Surplus production will even become aggravated as the artificially high price attracts an even higher investment of resources in this particular field, which then will be lacking in other production lines where there is actually a greater need for them (in terms of consumer demand), and where, as a consequence, product prices will rise.

Maximum or minimum prices—in either case price controls will result in relative impoverishment. In any event they will lead to a situation in which there are too many (in terms of consumer demand) resources bound up in production lines of reduced importance and not enough are available in lines of increased relevance. Production factors can no longer be allocated so that the most urgent wants are satisfied first, the next urgent ones second, etc., or, more precisely, so that the production of any one product is not extended above (or reduced below) the level at which the utility of the marginal product falls below (or remains above) the marginal utility of any other product. Rather, the imposition of price controls means that less urgent wants are satisfied at the expense of reduced satisfaction of more urgent wants. And this is to say nothing else than that the standard of living will be reduced. That people waste their time scrambling for goods because they are in artificially low supply or that goods are thrown away because they are held in artificially high supply are only the two most conspicuous symptoms of this reduced social wealth.

But this is not all. The preceding analysis also reveals that conservatism cannot even reach its goal of distributional stability by means of partial price control. With only partially controlled prices, disruptions in the existing income and wealth position still must occur, as producers in uncontrolled lines of production, or in lines of production with minimum product prices are favored at the expense of those in controlled lines, or lines with maximum product prices. Hence there will continue to be an incentive for individual producers to shift from one line of production into a different, more profitable one, with the consequence that differences in the entrepreneurial alertness and ability to foresee and implement such profitable shifts will arise and result in disruptions of the established order. Conservatism then, if it is indeed uncompromising in its commitment to the preservation of the status quo, is driven to constantly enlargening the circle of goods subject to price controls and actually cannot stop short of complete price controls or price-freezing.⁷⁵ Only if the prices of all goods and services, of capital and of consumer goods alike, are frozen at some given level, and the production process is thus completely separated from demand—instead of disconnecting production and demand at only a few points or sectors as under partial price control—does it seem possible to preserve an existing distributional order in full. Not surprisingly, though, the price that has to be paid for such fullblown conservatism is even higher than that of only partial price controls.⁷⁶ With all-around price control, private ownership of means of production is in fact abolished. There can still be private owners in name, but the right to determine the use of their property and to engage in any contractual exchange that is deemed beneficial is lost completely. The immediate consequence of this silent expropriation of producers then will be a reduction in saving and investing and, mutatis mutandis, an increase in consumption. As one can no longer charge for the fruits of one’s labor what the market will bear, there is simply less of a reason to work. And in addition, as prices are fixed—independent of the value that consumers attach to the products in question—there is also less of a reason to be concerned about the quality of the particular type of work or product that one still happens to perform or produce, and hence the quality of each and every product will fall.

But even more important than this is the impoverishment that results from the allocational chaos created by universal price controls. While all product prices, including those of all cost factors and, in particular, of labor are frozen, the demand for the various products still changes constantly. Without price controls, prices would follow the direction of this change and thereby create an incentive to constantly move out of less valued lines of production into more valued ones. Under universal price controls this mechanism is completely destroyed. Should the demand for a product increase, a shortage will develop as prices are not allowed to rise, and hence, because the profitability of producing the particular product has not been altered, no additional production factors will be attracted. As a consequence, excess demand, left unsatisfied, will spill over to other products, increasing the demand for them above the level that otherwise would have been established. But here again, prices are not allowed to rise with the increased demand, and again a shortage will develop. And so the process of shifting demand from most urgently wanted products to products of secondary importance, and from there to products of still lesser relevance, since again not everyone’s attempt to buy at the controlled price can be satisfied, must go on and on. Finally, since there are no alternatives available and the paper money that people still have to spend has a lower intrinsic value than even the least valuable product available for sale, excess demand will spill over to products for which demand had originally declined. Hence, even in those lines of production where a surplus had emerged as the consequence of declining demand but where prices had not been allowed to fall accordingly, sales again will pick up as a consequence of unsatisfied demand elsewhere in the economy; in spite of the artificially high fixed price surpluses will become saleable; and, with profitability thus restored, an outflow of capital will be prevented even here.

The imposition of all-around price controls means that the system of production has become completely independent of the preferences of consumers for whose satisfaction production is actually undertaken. The producers can produce anything and the consumers have no choice but to buy it, whatever it is. Accordingly, any change in the production structure that is made or ordered to be made without the help offered by freely floating prices is nothing but a groping in the dark, replacing one arbitrary array of goods offered by another equally arbitrary one. There is simply no connection anymore between the production structure and the structure of demand. On the level of consumer experience this means, as has been described by G. Reisman, “... flooding people with shirts, while making them go barefoot, or inundating them with shoes while making them go shirtless; of giving them enormous quantities of writing paper, but no pens or ink, or vice versa;... indeed of giving them any absurd combination of goods.” But, of course, “... merely giving consumers unbalanced combinations of goods is itself equivalent to a major decline in production, for it represents just as much of a loss in human well-being.”⁷⁷ The standard of living does not simply depend on some total physical output of production; it depends much more on the proper distribution or proportioning of the various specific production factors in producing a well-balanced composition of a variety of consumer goods. Universal price controls, as the ‘ultima ratio’ of conservatism, prevent such a well-proportioned composition from being brought about. Order and stability are only seemingly created; in truth they are a means of creating allocational chaos and arbitrariness, and thereby drastically reduce the general standard of living.

In addition, and this leads to the discussion of the second specifically conservative policy instrument, i.e., regulations, even if prices are controlled all-around this can only safeguard an existing order of income and wealth distribution if it is unrealistically assumed that products as well as their producers are “stationary.” Changes in the existing order cannot be ruled out, though, if there are new and different products produced, new technologies for producing products are developed, or additional producers spring up. All of this would lead to disruptions in the existing order, as the old products, technologies, and producers, subject as they are to price controls, would then have to compete with new and different products and services (which, since they are new, cannot have been price-controlled), and they would probably lose some of their established income-share to the newcomers in the course of this competition. To compensate for such disruptions, conservatism could once again make use of the instrument of taxation, and indeed to some extent it does. But to let innovations occur first without hindrance and to then tax the gains away from the innovators and restore the old order is, as was explained, too progressive an instrument for a policy of conservatism. Conservatism prefers regulations as a means of preventing or slowing down innovations and the social changes that they bring about.

The most drastic way of regulating the system of production would be simply to outlaw any innovation. Such a policy, it should be noted, has its adherents among those who complain about others’ consumerism, i.e., about the fact that today there are already “all too many” goods and services on the market, and who wish to freeze or even reduce this present diversity; and also, for slightly different reasons, among those who want to freeze present production technology out of the fear that technological innovations, as labor-saving devices, would “destroy” (existing) jobs. Nonetheless, an outright prohibition of all innovative change has hardly ever been seriously attempted—perhaps with the recent exception of the Pol Pot regime—because of a lack of support in public opinion which could not be convinced that such a policy would not be extremely costly in terms of welfare losses. Quite popular, though, has been an only slightly more moderate approach: While no change is ruled out in principle, any innovation must be officially approved (approved, that is, by people other than the innovator himself) before it can be implemented. This way, conservatism argues, it is assured that innovations are indeed socially acceptable, that progress is gradual, that it can be introduced simultaneously by all producers, and that everyone can share in its advantages. Compulsory, i.e., government-enforced, cartels are the most popular means for achieving this effect. By requiring all producers, or all producers of one industry, to become members of one supervisory organization—the cartel—it becomes possible to avoid the all-too-visible excess supply brought about by minimum price controls—through the imposition of production quotas. Moreover, the disruptions caused by any innovative measure can then be centrally monitored and moderated. But while this approach has been gaining ground constantly in Europe and to a somewhat lesser degree in the United States, and while certain sectors of the economy are indeed already subject to very similar controls, the most popular and most frequently used conservative-socialist regulatory instrument is still that of establishing predefined standards for predefined categories of products or producers to which all innovations must conform. These regulations lay down the kind of qualifications a per son must fulfill (other than the “normal” ones of being the rightful owner of things and of not damaging the physical integrity of other peoples’ property through one’s own actions) in order to have the right to establish himself as a producer of some sort; or they stipulate the kinds of tests (as regards, for instance, materials, appearance, or measurements) a product of a given type must undergo before being newly allowed on the market; or they prescribe definite checks that any technological improvement must pass in order to become a newly approbated method of production. With such regulatory means innovations can neither be completely ruled out, nor can it be altogether avoided that some changes might even be quite surprising. But as the predefined standards to which changes have to conform must of necessity be “conservative,” i.e., formulated in terms of existing products, producers, or technologies, they serve the purpose of conservatism in that they will indeed at least slow down the speed of innovative changes and the range of possible surprises.

In any case, all these types of regulations, the first mentioned ones more and the latter less, will lead to a reduction in the general standard of living.⁷⁸ An innovation, to be sure, can only be successful, and thus allow the innovator to disrupt the existing order of income and wealth distribution, if it is indeed more highly valued by the consumers than the competing old products. The imposition of regulations, however, implies a redistribution of property titles away from the innovators and onto the established producers, products, and technologies. Hence, in fully or partially socializing possible income and wealth gains stemming from innovative changes in the process of production and mutatis mutandis by fully or partially socializing the possible losses from not innovating, the process of innovation will be slowed down, there will be fewer innovators and innovations, and instead, a strengthened tendency will emerge to settle for the way things are. This means nothing else than that the process of increasing consumer satisfaction by producing more highly evaluated goods and services in more efficient, cost-saving ways is brought to a standstill, or is at least hampered. Thus, even if in a somewhat different way than price controls, regulations will make the production structure fall out of line with demand, too. And while this might help safeguard an existing distribution of wealth, it must once again be paid for by a general decline in the overall wealth that is incorporated in this very same production structure.

Finally, the third specifically conservative policy instrument is behavioral controls. Price controls and regulations freeze the supply side of an economic system and thereby separate it from demand. But this does not preclude changes in demand from coming into existence; it only makes the supply side irresponsive to it. And so it can still happen that discrepancies not only emerge, but that they also become appallingly apparent as such. Behavioral controls are policy measures designed to control the demand side. They aim at the prevention or retardation of changes in demand in order to make the irresponsiveness of the supply side less visible, thereby completing the task of conservatism: the preservation of an existing order from disruptive changes of any kind.

Price controls and regulations on one side, and behavioral controls on the other are thus the two complementary parts of a conservative policy. And of these two complementary sides of conservatism, it might well be argued that it is the side of behavioral controls that is the most distinctive feature of a conservative policy. Though the different forms of socialism favor different categories of nonproductive and noninnovative people at the expense of different categories of potential producers and innovators, just as much as any other variant of socialism conservatism tends to produce less productive, less innovative people, forcing them to increase consumption or channel their productive and innovative energies into black markets. But of all the forms of socialism, it is only conservatism which as part of its program interferes directly with consumption and noncommercial exchanges. (All other forms, to be sure, have their effect on consumption, too, insofar as they lead to a reduction in the standard of living; but unlike conservatism, they leave the consumer pretty much alone with whatever is left for him to consume.) Conservatism not only cripples the development of one’s productive talents; under the name “paternalism” it also wants to freeze the behavior of people in their roles as isolated consumers or as exchange partners in noncommercial forms of exchanges, thereby stifling or suppressing one’s talent to develop a consumer lifestyle that best satisfies one’s recreational needs, too.

Any change in the pattern of consumer behavior has its economic side effects. (If I let my hair grow longer this affects the barbers and the scissors industry; if more people divorce this affects lawyers and the housing market; if I start smoking marijuana this has consequences not only for the use of agricultural land but also for the ice cream industry, etc.; and above all, all such behavior disequilibrates the existing value system of whoever happens to feel affected by it.) Any change could thus appear to be a disruptive element vis à visa conservative production structure, conservatism, in principle, would have to consider all actions—the whole lifestyle of people in their roles as individual consumers or noncommercial exchangers as proper objects of behavioral controls. Full-blown conservatism would amount to the establishment of a social system in which everything except the traditional way of behaving (which is explicitly allowed) is outlawed. In practice, conservatism could never go quite this far, as there are costs connected with controls and as it would normally have to reckon with rising resistance in the public opinion. “Normal” conservatism, then, is characterized instead by smaller or greater numbers of specific laws and prohibitions which outlaw and punish various forms of nonaggressive behavior of isolated consumers, or of people engaging in noncommercial exchanges—of actions, that is to say, which if indeed performed, would neither change the physical integrity of anyone else’s property, nor violate anyone’s right to refuse any exchange that does not seem advantageous, but which would rather (only) disrupt the established “paternal” order of social values.

Once again the effect of such a policy of behavioral controls is, in any case, relative impoverishment. Through the imposition of such controls not only is one group of people hurt by the fact that they are no longer allowed to perform certain nonaggressive forms of behavior but another group benefits from these controls in that they no longer have to tolerate such disliked forms of behavior. More specifically, the losers in this redistribution of property rights are the user-producers of the things whose consumption is now hampered, and those who gain are nonusers/nonproducers of the consumer goods in question. Thus, a new and different incentive structure regarding production or nonproduction is established and applied to a given population. The production of consumer goods has been made more costly since their value has fallen as a consequence of the imposition of controls regarding their use, and, mutatis mutandis, the acquisition of consumer satisfaction through nonproductive, noncontractual means has been made relatively less costly. As a consequence, there will be less production, less saving and investing, and a greater tendency instead to gain satisfaction at the expense of others through political, i.e., aggressive, methods. And, in particular, insofar as the restrictions imposed by behavioral controls concern the use that a person can make of his own body, the consequence will be a lowered value attached to it and, accordingly, a reduced investment in human capital.

With this we have reached the end of the theoretical analysis of conservatism as a special form of socialism. Once again, in order to round out the discussion a few remarks which might help illustrate the validity of the above conclusions shall be made. As in the discussion of social-democratic socialism, these illustrative observations should be read with some precautions: first, the validity of the conclusions reached in this chapter has been, can, and must be established independent of experience. And second, as far as experience and empirical evidence are concerned, there are unfortunately no examples of societies that could be studied for the effects of conservatism as compared to the other variants of socialism and capitalism. There is no quasi-experimental case study which alone could provide one with what is normally considered “striking” evidence. Reality is rather such that all sorts of policy measures—conservative, social-democratic, Marxist-socialist, and also capitalist-liberal—are so mixed and combined, that their respective effects cannot usually be neatly matched with definite causes, but must be disentangled and matched once more by purely theoretical means.

With this in mind, though, something might well be said about the actual performance of conservatism in history. Once more, the difference in the living standards between the United States and the countries of Western Europe (taken together) permits an observation that fits the theoretical picture. Surely, as mentioned in the previous chapter, Europe has more redistributive socialism—as indicated roughly by the overall degree of taxation—than the United States, and is poorer because of this. But more striking still is the difference that exists between the two with respect to the degree of conservatism.⁷⁹ Europe has a feudal past that is noticeable to this very day, in particular in the form of numerous regulations that restrict trade and hamper entry and prohibitions of nonaggressive actions, whereas the United States is remarkably free of this past. Connected with this is the fact that for long periods during the nineteenth and twentieth centuries, Europe had been shaped by policies of more or less explicitly conservative parties rather than by any other political ideology, whereas a genuinely conservative party never existed in the United States. Indeed, even the socialist parties of Western Europe were infected to a notable extent by conservatism, in particular under the influence of the labor unions, and imposed numerous conservative-socialist elements (regulations and price controls, that is) on the European societies during their periods of influence (while they admittedly helped abolish some of the conservative behavioral controls). In any case then, given that Europe is more socialist than the United States and its living standards are relatively lower, this is due less to the greater influence of social-democratic socialism in Europe and more to the influence of the socialism of conservatism—as indicated not so much by its higher overall degrees of taxation, but rather by the significantly higher numbers of price controls, regulations, and behavioral controls in Europe. I should hasten to add that the United States is not richer than it actually is and no longer exhibits its nineteenth century economic vigor not only because they adopted more and more of redistributive socialism's policies over time, but more so because they, too, increasingly fell prey to the conservative ideology of wanting to protect a status quo of income and wealth distribution from competition, and in particular the position of the haves among existing producers, by means of regulations and price controls.⁸⁰

On even a more global level, another observation fits the theoretically derived picture of conservatism causing impoverishment. For outside the so-called Western world, the only countries that match the miserable economic performance of the outrightly Marxist-socialist regimes are precisely those societies in Latin America and Asia that have never seriously broken with their feudal past. In these societies, vast parts of the economy are even now almost completely exempt from the sphere and the pressure of freedom and competition and are instead locked in their traditional position by regulatory means, enforced, as it were, by outright aggression.

On the level of more specific observations the data also clearly indicate what the theory would lead one to expect. Returning to Western Europe, there can be little doubt that of the major European countries, Italy and France are the most conservative, especially if compared with the northern nations which, as far as socialism is concerned, have been leaning more toward its redistributive version.⁸¹ While the level of taxation in Italy and France (state expenditure as part of GNP) is not higher than elsewhere in Europe, these two countries clearly exhibit more conservative-socialist elements than can be found anywhere else. Both Italy and France are studded with literally thousands of price controls and regulations, making it highly doubtful that there is any sector in their economies that can be called “free” with some justification. As a consequence (and as could have been predicted), the standard of living in both countries is significantly lower than that of northern Europe, as anyone who is not traveling exclusively in resort towns cannot fail to notice. In both countries, to be sure, one objective of conservatism seems to have been reached: the differences between the haves and the have-nots have been well-preserved—one will hardly find as extreme income and wealth differentials in West Germany or the United States as in Italy or France—but the price is a relative drop in social wealth. As a matter of fact, this drop is so significant that the standard of living for the lower and lower-middle class in both countries is at best only a bit higher than that in the more liberalized countries of the East bloc. And the southern provinces of Italy, in particular, where even more regulations have been piled on top of those valid everywhere in the country, have just barely left the camp of the third world nations.

Finally, as a last example that illustrates the impoverishment caused by conservative policies, the experience with national-socialism in Germany and to a lesser degree with Italian fascism should be mentioned. It is often not understood that both were conservative-socialist movements.⁸² It is as such, i.e., as movements directed against the change and the social disruptions brought about by the dynamic forces of a free economy, that they—other than Marxist-socialist movements—could find support among the class of established proprietors, shop owners, farmers and entrepreneurs. But to derive from this the conclusion that it must have been a pro-capitalist movement or even the highest stage in the development of capitalism before its final demise, as Marxists normally do, is entirely wrong. Indeed, fascism's and Nazism’s most fervently abhorred enemy was not socialism as such, but liberalism. Of course, both also despised the socialism of the Marxists and Bolshevists, because at least ideologically they were internationalists and pacifists (relying on the forces of history that would lead to a destruction of capitalism from within), while fascism and Nazism were nationalist movements devoted to war and conquest; and, probably even more important regarding its public support, because Marxism implied that the haves would be expropriated by the have-nots and the social order thus would be turned upside-down, while fascism and Nazism promised to preserve the given order.⁸³ But, and this is decisive for their classification as socialist (rather than capitalist) movements, to pursue this goal implies—as has been explained in detail above—just as much a denial of the rights of the individual user-owner of things to do with them whatever seems best (provided one does not physically damage another’s property or engage in noncontractual exchanges), and just as much an expropriation of natural owners by “society’ (that is, by people who neither produced nor contractually acquired the things in question) as does the policy of Marxism. And indeed, in order to reach this goal both fascism and Nazism did exactly what their classification as conservative-socialist would have led one to expect: they established highly controlled and regulated economies in which private ownership was still existent in name, but had in fact become meaningless, since the right to determine the use of the things owned had been almost completely lost to political institutions. The Nazis, in particular, imposed a system of almost complete price controls (including wage controls), devised the institution of four-year plans (almost like in Russia, where the plans spanned the period of five years) and established economic planning and supervising boards which had to approve all significant changes in the production structure. An “owner” could no longer decide what to produce or how to produce it, from whom to buy or to whom to sell, what prices to pay or to charge, or how to implement any changes. All this, to be sure, created a feeling of security. Everyone was assigned a fixed position, and wage-earners as well as owners of capital received a guaranteed, and in nominal terms, stable or even growing income. In addition, giant forced labor programs, the reintroduction of conscription, and finally the implementation of a war economy strengthened the illusion of economic expansion and prosperity.⁸⁴ But as would have to be expected from an economic system that destroys a producer’s incentive to adjust to demand and avoid not adjusting to it, and that thereby separates demand from production, this feeling of prosperity proved to be nothing but an illusion. In reality, in terms of the goods that people could buy for their money the standard of living fell, not only in relative but even in absolute terms.⁸⁵ And in any case, even disregarding here all of the destruction that was caused by the war, Germany and to a lesser extent Italy were severely impoverished after the defeat of the Nazis and fascists.