False Choices and the True Dilemma

Mises Daily:
Wednesday, September 05, 2012
by Daniel James Sanchez

In 1789 a group of men gathered in Paris to sound the death knell for the ancien regime,
and to inaugurate the modern political world. But there were some
differences among them. Some wanted to abolish the old order more
completely. Others wanted to retain some vestiges of the old privileges.
In this "National Constituent Assembly" of France, the ideological
birds of a feather sat together: the more radical members on the left,
the more conservative members on the right.

On that day, on the eve of the French Revolution, not only was the modern political world born, but so was its terminology.[1]
To this day, politics is bisected into a "left wing" and "right wing."
Much digital ink is daily spilled in vain on the web over the "best"
distinction between "right" and "left." Now, with regard to specific,
fleeting political agendas, vague distinctions like this make sense.
Movable umbrella terms are necessary, because legislation involves
shifting coalitions of people who do not agree on every single point.
The trouble starts when the terminology of the political moment is
imported wholesale into the language of science, in which precise, fixed
distinctions are called for. The left/right divide is downright
confusing for social science.

Where this confusion is most pronounced is in intellectual discussion
of Western society following World War I. According to common opinion,
there are two politicoeconomic extremes: communism (or socialism) on the
left, and fascism (or Nazism) on the right. Sound policy, then, is
considered a balancing act between two opposite forms of
totalitarianism. If one leans too far to the left toward the interests
of the poor and weak, one arrives at communism/socialism. Veer too far
to the right toward the interests of the rich and strong, and you get
fascism. This political taxonomy is entirely unscientific. Neither
fascism nor Nazism has ever been scientifically identifiable social
orders. They are party platforms, and thus are assemblages of
often-contradictory ideas and slogans. Calling fascism a "social order"
makes as little sense as calling "Tea Partyism" or "Blue Dog
Democrat-ism" a social order.

Moreover, as Ludwig von Mises demonstrated,[2]
the allegedly "right-wing" social order of Nazi Germany was just as
socialistic as was Lenin's Russia. Through economic interventions the
German government completely took over the economy. The only "market"
left was a sham. Private individuals owned the means of production in
name only. Real ownership of the means of production was in the hands of
the state. This is what Mises called "socialism of the German or
Hindenburg pattern." This variety of socialism is also known as Zwangswirtschaft, which is basically German for "compulsory economy." Those who were once entrepreneurs devolve in a Zwangswirtschaft into mere shop managers (Betriebsfuhrer in Nazi legalese), following the orders of a central command.

The only way in which "socialism of the Russian or Lenin pattern" (as
Mises termed the more familiar variant of socialism) is distinct from
the Zwangswirtschaft is in the nonessential fact that it has no such veneer of faux-private ownership. Its socialism is simply more overt.

Another way of stating this is as follows. In the populist propaganda
of Bolshevism, under "socialism of the Russian or Lenin pattern" the
people ostensibly own the state, and the state in turn owns the means of
production. While, under the sham capitalism of Nazism and "socialism
of the German or Hindenburg pattern," the people ostensibly own the
means of production, but the state in turn owns the people.

Thus these occupants of different political "poles" really occupy the
same ground and are only separated by a trivial technicality: the
existence or absence of a sham market. Each variant of socialism does
indeed have its own distinctive path. But it has nothing to do with
"left vs. right," "poor vs. rich," or "weak vs. powerful." Rather, it is
a matter of "bureaucratization vs. interventionism." Bureaucratization,
by forthrightly gobbling up the market bite by bite, leads to the overt
socialism of the Russian or Lenin pattern. Interventionism, by subtly
crippling the market and replacing it incrementally with a network of
government diktats, leads to the sham market of socialism of the German
or Hindenburg pattern.[3]

Revolutionary socialist governments, like the Nazi and the Bolshevist
states, will generally adopt one path or the other. But it is by no
means necessarily an either/or choice. Gradual approaches toward
socialism, like the one the United States is currently taking, often
rely on both: overtly socializing an industry via nationalization here
and covertly socializing an industry via market interventions there. And
one type of socialization often leads to the other. Thus through this
gradual, dual approach to socialization, one can imagine what one day
might be called "socialism of the American pattern" arising,
characterized by a hodgepodge of vast bureaus and sham markets.

Thus it is conceivable that there can be a single socialist system
that is a mixture of the two varieties of socialism. However, a mixture
of capitalism and socialism is entirely inconceivable, in spite of the
fact that most people think that all real-world societies have only ever
had "mixed economies."[4]

As Mises wrote, the mere existence of some bureaus and state-owned
firms does not alter the capitalist nature of society and make it a
"mixed system" of capitalism and socialism. Defining "economy" as a
social system of production, there is no such thing as a "mixed
economy." Bureaucracies in society are not an integral aspect of the
social system of production. They operate as (basically consumptive)
elements within a market economy. But they do not contribute any social
coordination to it. Rather, it is the market economy that contributes
coordination to bureaucracies, in that the latter wholly depend on
market prices to be able to attain even the severely impaired budget
rationality characteristic of bureaucratic management. The social system
of production can only ever be rationalized by market processes.[5]
Even the crippled social production that occurred in Lenin's Russia and
Hitler's Germany was only possible because recourse could be taken to
the prices that formed in the surviving market processes of the outside
world. As Mises wrote in Human Action,

Soviet Russia and Nazi Germany … were not isolated socialist systems.
They were operating in an environment in which the price system still
worked. They could resort to economic calculation on the ground of the
prices established abroad.

This is why the actual economies of Lenin's Russia and Hitler's
Germany were referred to above as "socialistic" and not "socialist."

Another important distinction is that, according to Mises, bureaucratization is not a form of interventionism.[6]
Bureaucratization makes people poorer to be sure, but it does so by
constraining the ambit of the market, not by interfering in its
workings.

Some have said "interventionism" is a system in-and-of itself, and
they propose it as a sensible, "middle-of-the-road" policy between
capitalism and socialism. Mises exploded this fallacy. Utilizing the
findings of classical political economy, as well as the findings of
modern economics (including his own original insights), he demonstrated
that all economic interventions are, in effect, contrary to the purposes
of all, including the purposes of those who advocate them.[7]
They are thus destructive, not constructive. Interventionism is not a
system of social production; it is nothing but a hampering of
capitalism. A hampered capitalist order is still a capitalist order. The
social system of production in a hampered capitalist order is always
rationalized by the sectors of the market that have not yet been
crippled by interventions.

When one is confronted by the contrary-to-purpose effects of an
intervention, one has two choices in dealing with those effects. One can
undo the intervention, in which case one chooses capitalism. Or one can
try to eliminate the harm with further intervention. However, further
intervention can only lead to still more harm, which would thus call for
yet further intervention, leading to a "cycle of interventionism."
Thus, if one does not choose capitalism, one must choose ever-increasing
interventions, which ultimately will completely destroy the market and
culminate in socialism of the German pattern.[8] If one does not choose capitalism, one chooses socialism.

Not everybody associates "fascism" with the economic policy of the
Nazis. Those who know their history remember that part of the economic
policy platform of Benito Mussolini, the founder of fascism, was
"corporativism," in which production was directed by "corporatives,"
each of which represented the participants of a specific industry. Some
even call our present economic order "fascist," because they equate
"corporatism" with the "corporativism" that they identify with fascism.
But corporations lobbying for privileges (corporatism) is not the same
thing as whole industries collectively owning the means of production
relevant to their industry (corporativism). The two notions are
distinct, and must be treated separately.

Corporatism is not a system of social production. Corporations lobby
for privileges that hamper capitalism, it is true. But, regardless of
who instigates the hampering, hampered capitalism is capitalism
nonetheless.

And as Mises explained, corporativism is no more a permanent social order than is interventionism.[9]
The crux of the matter is the question of who is to determine policy
decisions within a given corporative: the landowners, the capitalists,
or the workers? If the state adjudicates between them, then it is the
state that is essentially disposing of the means of production, and thus
corporativism devolves into socialism. If the corporatives operate
according to a democratic principle, then it is the majority workers who
will dictate policy, and thus corporativism devolves into syndicalism.

Under syndicalism, the means of production of each industry are owned
by the workers of that industry. The syndicalist program is distilled
by the slogans "the railroads to the railroadmen!" and "the mines to the
miners!" Syndicalism too has been put forth as another candidate, as a
"third way" between capitalism and socialism. But syndicalism is no
system of social production either.[10]
As soon as the needs of society change in the slightest, how is a
syndicalist order to adapt? Under capitalism, shifts in consumer demand
adjust prices. In seeking profits, entrepreneurs try to anticipate these
price adjustments, and thereby adjust the structure of production to
best satisfy consumer wants in the new state of affairs. In the flux of
the market, resources shift from one industry to another, in response to
consumer demand.

But, under syndicalism, why would any producer's syndicate acquiesce
to a diminution of its importance and wealth in society? Production is
for the sake of consumption, never the other way around. Therefore, any
system of social production worthy of the name must have some means of
at least conceivably adjusting production for the sake of consumption.
Even socialism ostensibly fits this bill, because the central
administration at least has the authority to adjust production by diktat
in order to try to better serve society (if not the intellectual means
to do so rationally). But no syndicalist has ever put forth any idea of
how a syndicalist state would do so that did not involve becoming, in
essence, capitalism or socialism.

Thus, every economic policy decision is a two-pronged fork in the
road; there is no third prong. And neither are the two prongs toward the
"Left" and the "Right." There is capitalism, and there is socialism.

One is tempted to say that the two prongs are "forward" and
"backward." This would be to adopt the strategy of the Marxists who
characterized everything they liked as "progressive" (as well as
everything they disliked as "reactionary"). But again, this would be
eschewing scientific distinctions for political word games. The honest
man does not rely on catchwords and slogans in hopes that the gullible
public will latch onto his program by dint of its association with words
that resound favorably in their ears. The honest man tries to speak to
the mind of his listeners, not to their ears, because he is confident in
the inherent strength of his ideas. He will even accept unflattering
names for his position, and grant flattering names to his opponent's
position, if that will but put an end to the distracting word games and
allow the true debate to begin.

What is more "social" than the coordinated, ecumenical society of
mutual benefactors produced by capitalism? It is true that capitalism
progresses via the accumulation of capital. But the upshot of increased
capital in proportion to labor is an increase in the marginal
productivity of labor, and thus a rise in real wages. And if anything is
prejudicial to the vested interests of the already-rich capitalist, is
it not pure capitalism — which does not let him rest on his laurels but
demands that he never cease putting himself up to the test of the
market, lest his fortune gradually dwindle? Thus should not the market
order be given a more flattering (and descriptive) name than
"capitalism"? Should not socialism, that fundamentally antisocial
program, be stigmatized with an ugly appellation?

Such are the distracting games of demagogues, and they would only
slow liberalism down. The most direct path to success is to use the
terms at hand, as they are found in the best literature in our tradition
(which happens to be the oeuvre of Ludwig von Mises), and simply
explain what we mean by them. Any sane person who learns what is truly
entailed in "that which is called capitalism" and what is truly entailed
in "that which is called socialism" will choose the former over the
latter. That is because socialism (which, again, is the only direction
one can choose besides capitalism) is social suicide. As Mises
irrefutably proved as early as 1920,[11]
the socialist state has no way of rationally directing production.
Socialism means discoordination, capital consumption, famine, and death.
Thus between capitalism and socialism (which, once more, are the only
two choices), the informed chooser could not have an easier choice to
make.

And this is the choice that is before everybody. The fact that
everybody in their right mind would choose capitalism, if only they knew
what the choice really meant, is why there is a harmony of interests.
Cognizance of this harmony of interests is what underpinned the
scientific liberalism (one might call it "harmonist" doctrine as Mises
does[12])
that first arose in the writings of men like Hume, Smith, and
Condillac; that intellectually won the field in the days of Ricardo and
Say; and that had its greatest impact on policy in the days of Cobden
and Bastiat. And it was the denial of this harmony of interests — what
amounted to a philosophy of irreconcilable conflict (or, as Mises termed
it, an "anti-harmonist" doctrine) — that underpinned the revolt against
liberalism that reached its culmination in the 20th century.

This philosophy of irreconcilable conflict is yet another common
feature between the totalitarians of the so-called Left and Right. With
the overthrow of liberalism, the world once again came to embrace the
"Montaigne dogma": the incorrect notion that no group can gain except by
another group's loss.[13]
This was the social philosophy of the mercantalists, which was
heroically overthrown by the early liberals. The people of the
early-20th-century West came under the sway of the new "anti-harmonism,"
dominant among the intellectuals of the time. Thus, adherence (or at
least acquiescence) to the party programs of the both the "far Right"
and "far Left" came naturally to them. They either adopted the Lebensraum
doctrine of national conquest promoted by the Nazis, Fascists, and
other national imperialists, or the doctrine of class warfare promoted
by the internationalist Marxists. As Mises brilliantly characterized it,
the only important difference between the two doctrines was that one
divided society into irreconcilable camps vertically (along national
lines) and the other did the same horizontally (along class lines).[14]

The sooner classical liberals abandon the sloppy distinctions of
party politics and adopt the scientific distinctions of Ludwig von
Mises, the better will it be for our efforts in explaining to our fellow
human beings the stark choice that lies before them. Right vs. Left,
fascist vs. communist, all the alleged "middle ways" (interventionism,
syndicalism, corporativism, etc.) — these are all false choices. As
Mises demonstrated, ultimately there is one true dilemma in political
economy. As he wrote in Liberalism,

There is simply no other choice than this: either to abstain from
interference in the free play of the market, or to delegate the entire
management of production and distribution to the government. Either
capitalism or socialism: there exists no middle way.