TGIF: Socialism with a Fig Leaf

What work does democratic perform in the phrase democratic socialism? It's a fig leaf intended to conceal what would presumably be repugnant to most people: the coercive regimentation inherent in socialism, whether international (Marxist) or national (fascist).

Socialism has a nasty record dating back to 1917, so socialists have felt compelled to clean up its image. Democracy is supposed to do the cleaning up. But does it? Could it?

Before we get to that, we should remind ourselves that no single conception of socialism exists. In one version, socialism denotes central economic planning, the top-down command economy. However, other socialists envision a collection of operations governed locally and democratically by workers, perhaps with input from other so-called stakeholders. That used to be called syndicalism.

These visions do not blend readily. If each firm, factory, and farm is run by its workers, who have seized it from the creator/owner, whence the central plan?

In the market, individual productive entities do not exist in a vacuum. They buy and sell along a vertical structure of production ranging from extraction to retail. For example, a steel processor buys iron ore from a mining company and sells its products to manufacturers of producer and consumer goods. Global supply chains are so complex that no one could grasp the whole. Conditions and prices often change, requiring flexibility, foresight, intuition, improvisation—in a word, entrepreneurship. And don't get me started on transportation. Raw materials and semifinished products must move expeditiously from one place to another, often over long distances, in bad weather as well as good. Business is the original worldwide web. (See Leonard E. Read's "I, Pencil.")

Thus, coordination is indispensable if billions of people with diverse needs and tastes are to have access to the most goods at the lowest possible expenditure. The more that scarce resources are economized, the more stuff we can have. How can the coordination of diverse plans be achieved? Ludwig von Mises and F. A. Hayek, along with other sound economists, long ago demonstrated that what permits coordination is the market—that is, the price system and its institutional requirements. Prices are constantly updated guides to producer and consumer action, carrying critical, dispersed, and often unarticulated information about supply and demand. Prices are not magic. They require 1) private property in the factors of production and consumer goods, 2) markets, in which unencumbered trade of private property can take place, and 3) money, a medium of exchange, the less subject to political manipulation the better. Without these things, economic calculation, coordination (mostly with strangers), and general prosperity cannot take place.

That's how it works in a market economy, even a government-hampered one such as ours. How could this seeming miracle be accomplished under socialism, which is hostile to the market and its requirements?

A central planning board, nominally acting on behalf of society, would presumably have the power to issue orders to its personnel; everyone would be a state employee. Well, it could try, but the results would be a disaster, as history shows, because of the aforementioned coordination and knowledge problem (and incentive problem) long documented by economists and economic historians. Getting to vote for the members of the planning board, which wouldn't last long even if it began that way, could not save the system.

What about an "economy" of autonomous democratic plants, offices, and farms? We can imagine an answer. First, at the lowest level, the workers (and perhaps other stakeholders) would vote not only for their managers, but also for representatives to a council of firms at the next level up. In turn, the members of that council would vote for delegates to an ever-higher council, and so on until the pinnacle is reached, where a comprehensive plan would be promulgated and then imposed.

How could it work otherwise? If it sounds rigidly hierarchical, that's because it is. But things could hardly be expected to go smoothly. Where does the information that market prices convey come from under socialism? Moreover, even if everyone in society wants some kind of central plan, the odds of everyone wanting the same plan are precisely zero. And if everything is to be decided by majority rule—we're talking about democracy, right?—there will be no avoiding election campaigns for people and plans, campaign promises, and dubious efforts to convince voters to a point of view. In other words, there will be no escaping "the manufacture of consent," the essence of the democratic procedure, which self-styled dissidents condemn today. Ironic.

Such an arrangement has no prospect of creating or sustaining a modern industrial economy that could properly cater to billions of people worldwide.

That's the economics of the matter. The descriptor democratic before socialism, remember, is to give state regimentation a smiling face. Being able to vote within a socialist system is supposed to make all the difference. But having a mere one vote—when (at best) your whole life is to be subordinated to majority rule—is nothing compared to the sovereignty one has in the unhampered competitive market, or even in today's sea of government intervention. Mayor-elect Zohran Mamdani's signature theme of dignity through pervasive democracy is exposed as so much snake oil.

The idea that the key to dignity and liberty is voting on everything was stripped of its romance by the 19th-century Swiss/French classical liberal Benjamin Constant (1767-1830) in his must-read essay, "The Liberty of Ancients Compared with that of Moderns (1819)." His title is self-explanatory. Here's how Constant described the modern notion of liberty:

For each [person] it is the right to be subjected only to the laws, and to be neither arrested, detained, put to death or maltreated in any way by the arbitrary will of one or more individuals. It is the right of everyone to express their opinion, choose a profession and practice it, to dispose of property, and even to abuse it; to come and go without permission, and without having to account for their motives or undertakings. It is everyone’s right to associate with other individuals, either to discuss their interests, or to profess the religion which they and their associates prefer, or even simply to occupy their days or hours in a way which is most compatible with their inclinations or whims. Finally it is everyone’s right to exercise some influence on the administration of the government, either by electing all or particular officials, or through representations, petitions, demands to which the authorities are more or less compelled to pay heed.

Yes, Constant included democratic participation in his description. But note that he put it last. The rights that he lists first, if respected, would limit what the voting public, acting as the state, could do to the individual. (Keeping the system limited is the problem that has proved insurmountable. That's why the state must go.) Democratic socialism could not be expected to observe limits. How could it? It's touted as rational social engineering.

What about the ancient idea of liberty?

[It] consisted in exercising collectively, but directly, several parts of the complete sovereignty; in deliberating, in the public square, over war and peace; in forming alliances with foreign governments; in voting laws, in pronouncing judgments; in examining the accounts, the acts, the stewardship of the magistrates; in calling them to appear in front of the assembled people, in accusing, condemning or absolving them.

Constant emphasized the narrowness of the ancients’ notion of liberty: “[T]hey admitted as compatible with this collective freedom the complete subjection of the individual to the authority of the community.... All private actions were submitted to a severe surveillance. No importance was given to individual independence, neither in relation to opinions, nor to labor, nor, above all, to religion.” (Emphasis added.)

Isn't having one vote real power? Constant said no. "Lost in the multitude, the individual can almost never perceive the influence he exercises," he wrote. Can you think of one election whose outcome would have changed had you done something different on election day?

We can see that Zohran Mamdani and his fellow democratic socialists, like the conservative populists, reject liberal modernity and the individual freedom it delivered. They may style themselves "postmodernists," but in fact they are reactionaries.

(For a full discussion of democratic socialism, see Stephen Hicks's Open College podcast, episode 36, "Democratic Socialism for Beginners.")

What's Wrong with Young People?

A former Obama speechwriter faulted young people for having the faculty of abstraction when thinking about the Holocaust, genocide, Israel, and the Palestinians.

 

TGIF: The Capitalist-Socialist Asymmetry

Free-marketeers have long pointed out a particular asymmetry between capitalism and socialism (whether of the international or national variety). While anyone in a capitalist society would have a right to engage in socialism (as anyone can do now in our hampered market economy), the reverse would not hold: under socialism—that is, a centrally planned economy, democratic or not—no one would be free to engage in "capitalist acts between consenting adults" (to use Robert Nozick's phrase from Anarchy, State, and Utopia). It would upset the plan.

In other words, in a fully free society, no legal barriers would prevent people from setting up communes, worker and consumer co-ops, etc., but in a socialist society, money exchanges of land, producer goods, and labor services (and perhaps even consumer goods) would be outlawed. Goodbye, entrepreneurship, free private enterprise, and economic calculation via trade-generated market prices.

That asymmetry speaks volumes, does it not? It ought to end the debate between the proponents and opponents of capitalism. Do you wish to live as a socialist with a clear conscience? Embrace the free market.

But socialists will have none of that. For them, individual choice is unimportant, if not destructive. In their view, voluntary capitalist relations are exploitative regardless of how the participants see them. So they must be forbidden. Socialist planners and their court intellectuals know better. Thus, for their own good, mere people must be controlled.

That is the height of presumptuous and arrogant elitism. The appropriate question for the socialist is that quintessential American retort: "Who asked you?"

How do the socialists know that transactions are exploitative? We can be sure that at the time of the transaction, the parties demonstrably prefer what they give up to what they receive. "No, no!" cry the socialists. One party is weaker because he must eat, work, obtain shelter, etc. What socialists refuse to acknowledge is that market relations are how we cope with a world of natural scarcity, a world in which resources—that is, natural stuff for which human ingenuity has found uses—are finite, costly to obtain, and usable in a variety of ways. (By all means, see this video from Stephen Davies and the Institute of Economic Affairs.) Scarcity is not a capitalist plot. On the contrary, the combination of the division of labor, technology, and trade is the only way to push back the constraints of scarcity. Most of today's eight billion people live much better now than one billion did in 1800.

How do the socialists know that employees are exploited? Apparently, they just do. It has something to do with the market return on goods sold being greater than the wages employees are paid. The "surplus" collected by employers is seen as stolen. That actual employees value their wages more than the effort they expend to earn them is irrelevant as far as the socialists are concerned. But again, who asked them?

Those with only a scant acquaintance with economics often find Marx's exploitation theory plausible. However, they overlook a critical factor: time. When something happens matters to us as much as what happens. Eugen von Böhm-Bawerk, the second-generation Austrian economist who delved into this matter, put the point rather nicely:

The completely just proposition that the worker is to receive the entire value of his product can be reasonably interpreted to mean either that he is to receive the full present value of his product now or that he is to get the entire future value in the future. But … the socialists interpret it to mean that the worker is to receive the entire future value of his product now.

People value present and future goods differently. Other things equal, we prefer the results of our actions sooner rather than later. Asked if you'd want a dollar today or a dollar in a month, you'll take it today. But asked if you'd want a dollar today or two dollars next month, you may choose to wait if the extra dollar will make the wait worthwhile. If two dollars won't do it, maybe three dollars will. The time element is what explains interest. I'll let you use my money for a period if you promise to compensate me later. It's perfectly legitimate. (For more, see this.)

The employment relationship involves time too. Employees typically don't want to wait until the consumer or producer goods they work on have been sold. Most prefer to be paid regularly, predictably. Nothing wrong with that. But in that case employers who advance (lend) their employees wages out of previous savings will have to wait for the sales—which may not take place if no buyers are interested. Why shouldn't employers be compensated for doing what their employees are unwilling to do: namely, assume the risk and uncertainty of waiting? If socialists don't like it, let them start businesses. (Gene Epstein points out that unions are flush with money from their members' dues. Why don't they start worker-owned firms? Why don't the union members demand it?)

In market-oriented but not fully free economies, we see few if any worker-owned businesses. Why? Probably because most people don't want the risk and responsibility of ownership. So they forgo some money in return for the relative security of employment. That's their right. But employees should not begrudge employers because the latter earn profits (which comprise both interest on the loans to employees and entrepreneurial rewards for spotting price discrepancies that others overlooked).

Socialists who dislike conventional enterprise should stop complaining and set up worker-owned firms. On the other hand, it's easier and less risky to complain about capitalism. Admittedly, in one respect, socialists would not be free to engage in socialism. They could not force anyone to go along.

Orwell on Socialists

"The truth is that, to many people calling themselves Socialists, revolution does not mean a movement of the masses with which they hope to associate themselves; it means a set of reforms which ’we’, the clever ones, are going to impose upon ’them’, the Lower Orders." —George Orwell, The Road to Wigan Pier, 1937

TGIF: Benevolent Self-Interest

The most famous sentence in Adam Smith's 1776 treatise, An Inquiry into the Nature and Causes of the Wealth of Nations, appears in Book I, Chapter 2:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.

It's a beautifully written sentence (except that he should have twice written "his" instead of "their"). He might have written, "It is not from the benevolence of producers that we expect consumer goods, but from their attending to their businesses." Ho hum. Who would have remembered it?

More importantly, however, Smith's sentence pointed to a core truth of full liberalism, or what he called the "obvious and simple system of natural liberty": namely, you cannot properly own other people and should not act as if you do. That's the pro-freedom, anti-slavery premise, written about 30 years before Great Britain would begin to stop the slave trade between African chieftains and Europeans, among others. Let's never forget that while the West did not invent slavery (far from it), the West, uniquely, did invent anti-slavery both in theory and practice. The first anti-slavery organization was founded by Quakers in 1774-75 in Philadelphia, my hometown. English Quakers followed in 1787. No known anti-slavery societies in Africa, Arabia, or Asia have come to our attention.

In his sentence Smith was saying that if you want someone (other than, say, a loved one or friend) to do something for you, you offer money or some product he wants in return. You transact business. The person behind the counter does not exist for your sake, and you should not expect him to work long hours out of duty. He has a life precious to him and need not justify his existence. He is an end in himself, as John Locke had written in the previous century. (Yes, Kant said it too, but for him it was not connected to the pursuit of happiness.)

Smith continued:

We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens....

Here I differ with Smith. Self-love, that is, concern with one's interests, is part of our humanity. No conflict exists between making the most of the one life one lives and goodwill toward others. We are engaged in a common challenge—living—and empathy naturally flows from that fact. It is a pernicious doctrine, indeed, that holds otherwise. Clearly, a merchant or manufacturer prospers by attending to his customers' preferences. Real liberals have always emphasized the fundamental harmony of interests in the market. The great libertarian journalist John Stossel calls this the "double thank you" that consummates transactions.

I suspect that the word selfish acquired its unfortunate and exclusively negative sense as a consequence—emanating from Jerusalem, not Athens—of a hidden agenda aimed at acquiring power. Smith regretted that moral philosophy had become detached from the Greek notion of the pursuit of happiness. The Wealth of Nations (Book 5, Chapter 1, Part III) includes this passage:

Ancient moral philosophy proposed to investigate wherein consisted the happiness and perfection of a man, considered not only as an individual, but as the member of a family, or a state, and of the great society of mankind. In that philosophy, the duties of human life were treated of as subservient to the happiness and perfection of human life. But, when moral as well as natural philosophy came to be taught only as subservient to theology, the duties of human life were treated of as chiefly subservient to the happiness of a life to come. In the ancient philosophy, the perfection of virtue was represented as necessarily productive to the person who possessed it, of the most perfect happiness in this life. In the modern philosophy, it was frequently represented as almost always inconsistent with any degree of happiness in this life, and heaven was to be earned by penance and mortification, not by the liberal, generous, and spirited conduct of a man.... By far the most important of all the different branches of philosophy became in this manner by far the most corrupted. [Emphasis added.]

He must have had a premonition about Kant, who developed his duty-based moral theory in the following decades. How Smith's passage relates to his first book, The Theory of Moral Sentiments, I will leave to others. We don't need to explain empathy in terms of sentiment or impartiality. Rational self-interest will get us where we want to go.

Continuing with Smith's point about market transactions (Book IV, Chapter 2):

But it is only for the sake of profit that any man employs a capital in the support of industry; and he will always, therefore, endeavour to employ it in the support of that industry of which the produce is likely to be of the greatest value, or to exchange for the greatest quantity either of money or of other goods.... [E]very individual ... intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.

Then Smith goes a step further:

Nor is it always the worse for the society that it was no part of [his intention]. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

People who dislike market-oriented society seem to despise what Smith celebrated. "It's not enough to provide wanted goods and services to strangers," they'd say, "You should do it because you love them." Profit is seen as a spoiler. In this view, the profit seeker lacks moral worth because he benefits from serving customers. However, that's a feature, not a bug: in the broader context, the pursuit of self-interest in a free society ultimately benefits us all.

Abolish the Corporation Tax and All Other Taxes on Investment

Corporate taxes and other taxes on investment constitute double and sometimes triple taxation. That's more unjust than taxation of labor or consumption. Businesses can't pay taxes; only people can. But who pays business taxes need bear no relation to whom the lawmakers targeted. The corporate tax has been known to reduce wages and dividends (to retirees of moderate wealth) and indirectly to increase prices to consumers. How's that help anyone? Capital accumulation is what raises labor productivity and wages. Thus, taxes on capital steal from workers, among others. As economist Roy Cordato writes:

Corporate taxes are hidden and fraudulent. The people who pay them do not know they pay them, and thus such taxes help mask the actual cost of government. If it is true that companies are finding ways to avoid these taxes and less revenue is being generated, then we should cheer those companies on. Ultimately corporate taxes should be abolished. Lovers of big government have no better friend than a tax that everyone thinks someone else pays.

Latest Interview

Michael Liebowitz and I had a conversation recently on his podcast, The Rational Egoist. Enjoy!

TGIF: Envy, Ignorance, Barbarism Triumph in New York

Democratic socialist Zohran Mamdani's mayoral victory in New York City is a triumph of moral barbarism, economic illiteracy, illogic, and just plain envy. Mamdani's campaign had a double pitch: billionaires should not exist, and "the people" deserve free stuff.

At first I thought his supporters did not understand the old free-market meme, TANSTAAFL: There Ain't No Such Thing As A Free Lunch. Nature provides only raw materials, which are useless in their original state. Ingenuity turns them into resources. But then I realized that while Mamdani used the word free, he also said he would get the money for the free stuff by further taxing the rich. The people who voted for him heard that, so they couldn't have thought that bus rides, daycare, and whatever else he has plans for would really be free—just free to them.

The demand that other people should pay—whether they want to or not, under threat of imprisonment—for what you want is monstrous on many levels. The economic harm from the variants of this demand has been documented theoretically and empirically many times over many years. You can look it up. Begin with Henry Hazlitt's Economics in One Lesson. Then read up on the Soviet Union, pre-1979 China, pre-1991 India, Cambodia, North Korea, Cuba, or Venezuela.

Like the laws of physics, the laws of human action (economics) cannot be repealed; if they are ignored, the consequences are catastrophic, especially for the most vulnerable, who are the ostensibly intended beneficiaries of giveaways. When bus rides are free, how long will it be before civilized people find them unusable? When rents are frozen, which Mamdani's supporters robotically demand, how long before apartments deteriorate even further or are taken off the market?

When the state forces other people to pay for what you want, that's slavery. Mamdani and his ilk insist on the right to medical care, housing, education, "affordable" groceries, etc. But how can such rights exist? Each of those services must be provided by individuals. Don't they have the right to life, liberty, property, and the pursuit of happiness? If A has a right to B's labor or the fruits thereof, then B must be A's slave. I thought good people were against slavery. Did I miss the memo?

Ayn Rand taught us that people's extraordinary achievements and resulting financial success do not justify declaring open season on them. They have the same rights as those who achieve less or nothing at all. Treating them as sacrificial animals is unjust (and self-defeating). Great producers of wealth have no duty to serve those who produce little or nothing, just as no one has a duty to serve the great producers. Each life is an end in itself requiring no justification. Respecting all people's rights, that is, living by reason not force, is constitutive of the self-interested life. (Selfishness, as most people use that word, is actually myopia, that is, under-concern, not over-concern, with self.) The code of self-sacrifice, as Rand pointed out, is incoherent because if applied universally, no one would be entitled to receive the booty. In practice, when someone preaches self-sacrifice, she said, someone is planning on collecting the sacrifices..

The oppressive bigotry against the "rich" is unseemly because it is a resentment of achievement in itself. The exploitation claim is long-demolished nonsense. (Making a fortune off the taxpayers is another kettle of fish.) Moreover, it ought to be obvious that punishing people for their success will discourage the thought and effort that make success possible. Incentives matter. Considering that innovators earn only a small fraction of the value that they make possible for others, how does punishing success help the people Mamdani says he cares about? Thanks to innovators—in the technological and management senses—the "poorest" Americans are actually among the richest people who ever walked the earth. Extreme poverty has been plummeting for decades. The rest of the world has been catching up with the bourgeois West thanks to technology, increasing liberty, and global trade. What has Mamdani and the Democratic Socialists of America done to benefit anyone?

A final word about that qualifier democratic in "democratic socialism." It is meant to dupe the naive; that is, it is intended to dissociate socialism from the Marx-inspired tyrannies that produced a hundred million corpses beginning in 1917. Communist East Germany was officially the German Democratic Republic, just as communist North Korea is the Democratic Republic of Korea.

That this PR trick fools anyone anymore is hard to believe. Even if elections were held under socialism, how would that change it into something benign? Democratic or not, socialism is government planning of people's lives, in contrast to capitalism—the competitive market economy in which people make their own plans and peacefully coordinate with others through the price system and mutually beneficial free exchange. Periodically casting one vote among many for those who will formulate and carry out the plan would not fix what's wrong with socialism. Even under majority rule, the minority must obey or starve, as the nice Bolshevik Trotsky so charmingly put it. Any individual is a potential threat to the plan and therefore must not be tolerated. Central planning and social cooperation through individual freedom cannot coexist.

Either Mamdani does not know this or he won't acknowledge it. That destroys his claim to care about people. For him, the people are mere stage props (as are the Palestinians). His ideology would oppress them. Despite the democratic sales pitch, this child of the elite aspires to implement the most elitist of oppressive systems. Fanatic or grifter? You decide.