XIII. Is Socialism Dead?
America's Unknown Enemy: Beyond Conspiracy
Editorial Staff of the
American Institute for Economic Research
All around the world, socialist policies are on the wane. Experience
has at last forced many advocates of socialism to concede that it is
not a more efficient system. But many socialists continue to advocate
centralized control of economic decisions (which is the essential
ingredient of many "isms" besides socialism) on other
grounds, such as morality or justice. Other, more doctrinaire,
socialists deny that the actual experience of socialism is a valid
test of its efficacy, i.e.,/I>, they claim that "genuine
socialism has yet to be tried." Neither of these propositions can
be disproved intellectually. The irony of this situation is that they
are likely to retain their greatest plausibility in countries with the
least experience with socialism in practice.
Socialists have been thrown out of office in many of the
industrialized democracies of the "first world," and the
policies of those who remain, such as President Mitterand in France,
have become more moderate. Many of the nations of the "third
world" have begun to question and change the socialist policies
that have led to their stagnation and bankruptcy rather than their
advancement. Even in the "second world" of centrally planned
communist societies, the dogmas of Marxism are being rewritten to
permit individual rewards, risks, and choices. In short, the
practitioners of socialism are on the defensive around the globe.
The Idea of Socialism
We should first attempt to understand what it is that makes a given
proposal or policy "socialistic." There are many varieties
of socialism and despite entire libraries of gobbledygook concerning
the economics of socialism, there is only one basic notion involved.
This notion is that
the allocation of resources must be guided by an elite group,
who must be given the power to override the decisions of ordinary
people. Although most socialists probably would be infuriated by
reduction of their elaborate analytic and historical arguments to this
simple proposition, there really is little else that is essential to
the socialists' position.
Socialists share the assumption that allocation of economic resources
by a small group is preferable, if not inevitable, with some strange
bedfellows -- monarchists, mercantilists, theocrats, and fascists, to
name a few. The issues such as the ownership of the means of
production, control of the distribution of goods, criteria for
admission to the elite, etc. that distinguish socialists from, say,
monarchists are less economically fundamental than the belief in
centralized control that they share. All such groups, in theory, share
the same goals of justice and prosperity (no one advocates a
particular system as a way of fostering injustice and misery, after
all), and they all reject or ignore the findings of Adam Smith and
other students of market processes.
Thus, the central economic issue for socialists is who is to be in
charge of the allocation of resources. This explains not only why
disputes among socialists tend to be bitter and vicious, but also why
socialists had to posit "capitalism as its major rival. But "capitalism"
as a doctrine exists only in the minds of socialists.
The main challenge to socialism and the system that socialists wish
to supplant is what most of the world continues to call "liberalism."
(In the United States, this name has been stood on its head -- U.S. "liberals"
today advocate policies, such as wage and price controls,
protectionism, regulation, subsidies, etc. that liberals traditionally
opposed.) And, as F. A. Hayek observed, "There is nothing in the
basic principle of liberalism to make it a stationary creed; there are
no hard-and-fast rules fixed once and for all. The fundamental
principle that in the ordering of our affairs we should make as much
use as possible of the spontaneous forces of society, and resort as
little as possible to coercion, is capable of an infinite variety of
During the 19th century, liberal policies brought about an
unprecedented prosperity in places where they were implemented. At the
same time, a new type of individual, the entrepreneur or "capitalist,"
emerged as the dominant force in economic life. Inasmuch as such
persons appeared to be the main beneficiaries of liberalism, in terms
of wealth and power, socialists apparently concluded that liberalism
was simply the means by which the capitalists had shouldered aside the
aristocrats, landlords, and clerics that had previously dominated
So it was that classical liberalism was transformed into "capitalism"
in the socialists' thinking. What they overlooked or denied was the
fact that an individual entrepreneur only acquired or maintained
prominence to the extent that he or she served the rest of society,
i.e., the position of an individual capitalist was not
acquired or maintained by law, custom, a self-perpetuating oligarchy,
or by raw force.
Some socialists, notably John Kenneth Galbraith, have addressed this
issue by asserting that consumers are simply manipulated by
businessmen (via advertising and other means) into purchasing whatever
it is that the businessmen decide to produce. But this simply amounts
to the assumption that the consumer is incapable of acting in his or
her own best interest and a restatement of the notion that, since
economic decisions will always be made by an elite, the fundamental
issue of economics is how the elite is selected and what its goals
The Practice of Socialism
There are many ways in which a small group can assert control over
economic decisions. They range from the confiscation of some or all
private property, which, despite the rhetoric ("it now belongs to
everyone"), means that the control of property is concentrated in
far fewer hands, to subsidies and/or "normative" taxation of
private transactions (
i.e., taxes designed more to influence private economic
decisions than to raise revenue). In between lie an almost infinite
variety of regulations affecting who may do what where. What all such
measures have in common is that prices will differ from what they
would be in their absence. Indeed, the notion that prices should not
deviate from levels deemed to be 'lust," "fair," or
simply reasonable underlies all forms of official intervention in
economic life. In a full-blown "command economy" (with all
enterprises owned by the state), nominal prices are set by fiat.
Elsewhere, tariffs are imposed and domestic monopolies (e.g.,
labor unions or the post office) are supported to prevent "unfair"
competition from, respectively, foreigners or less favored domestic
producers. Rent controls are imposed to prevent "gouging" by
landlords, and so forth. In these situations, someone has a notion of
what prices should or should not be and the political clout to impose
that notion on others.
As long as such measures are the most significant determinants of
economic life, socialists probably are correct in their belief in the
primary importance of the selection of the elite and its goals. For
example, when the British Parliament was dominated by the "landed
gentry," it enacted maximum wage laws making it a crime to pay an
employee more than a certain amount, in marked contrast to today's
minimum wage laws. In this example, liberals (in the sense used by
Professor Hayek, above) long ago concluded that proscribing wages
above a ceiling reduced the supply of labor (some employers could not
obtain workers at the maximum wage that they could have obtained at a
higher wage), thereby curtailing economic activity. (By the same
token, minimum wages curtail the demand for labor.) In short, when
prices are not free to reflect supply and demand, the result is a
chronic shortage or an unsalable glut. Either situation indicates that
an economy is not performing at its current potential.
It was, to repeat, an increased reliance on what Hayek called the
spontaneous forces of society" that produced the greatest and
most rapid transformation of economic life in the history of the
world. From the beginning there were critics, who opposed this
transformation because they believed that they were losing status
and/or because they longed for a simpler pastoral society where "everyone
knew his place." What distinguished the socialists from other
critics was their claim that their proposals would end what they
perceived as the "inefficiency and waste of ruinous competition,"
and promote sound and perhaps even more rapid economic growth with a
more equitable distribution of consumption. Central control of the
means of production and investment flows, they believed, would
facilitate "more rational" planning.
Some socialist economists recognize the importance for economic
efficiency of setting prices so that the amount produced equals the
amount purchased. But they approach the question as an algebra
problem, ultimately solvable with improved "models" and
techniques, such as linear programming, high-speed computers, or
input-output analysis. The difficulty is that the map is not the same
as the territory -- even if the planners were free from political
interference, they can never respond to technological innovation, or
even to unforeseen circumstances (such as the bugaboo of Soviet
agriculture - "bad weather") as quickly or even as "rationally"
as free markets.
Despite the theories, "Socialism as a system of political
economy has come a cropper wherever it has been tried. It has turned
out to be politically oppressive, culturally stifling, and
economically disastrous." This accounts for the current
retreat of socialists and socialism. As George Gilder has written, "...
years of socialist reality, in every partial and plenary form, leave
little room for idealistic reverie ... socialist ideals have withered
in the shadows of Stalin and Mao, Sweden and Tanzania, gulag and
The recognition that socialism simply does not work as promised or
expected accounts for the political and ideological shifts around the
globe. There are some minor holdouts against the trend (such as Fidel
Castro, who recently ended an "experiment" with farmers'
markets, apparently because some Cubans were making too much money
trading to suit him), but it is remarkable and pervasive. The most
significant aspect is not specific changes of the past decade, such as
the establishment of a stock exchange in mainland China and small
businesses in the Soviet Union, the "privatization" of large
segments of industry in Great Britain (and elsewhere), or the
reduction in the top rate of personal income taxation in the United
States from 70 percent to 28 percent. One could have predicted these
changes 10 years ago only at the risk of being called a lunatic, but
the even more astonishing change that underlies all the rest is that
it is now difficult to find a socialist who will argue that the
traditional socialist policies will lead to a more efficient and
productive economy. In this sense (as a coherent, practical program)
socialism seems to have "died."
The Socialist Dream
Nevertheless, there are some who cling to their socialist dreams.
These include the (no doubt more comfortable) intellectual heirs of
the "old bolsheviks" sent to the
gulag, by Stalin himself, who believed that things would be
different "if only Stalin knew." For some, no amount of
experience can shake the faith in the possibility of socialist
perfection. It may be noted that such persons seldom achieve or retain
positions of power, in any system, with their illusions intact. A
second group continues to advance socialist nostrums in the
recognition that they would be costly in terms of economic efficiency,
but are desirable nevertheless because they are "moral," "just,"
or even the "safe" thing to do.
For both groups, in short, socialism would seem to be a matter of
religious faith rather than behavioral science. (Indeed, clerics, such
as the Catholic Bishops or the hierarchy of most "mainstream"
Protestant denominations in this country, seem especially susceptible
in this regard.) In this sense socialism will never die as long as
people can exercise selective imagination and assume either that
society can be improved at not cost and/or that they can better assess
the costs than anyone else.
- The Road to Serfdom,
University of Chicago Press, 1944, p.19.
- Of course, in such situations
the real price usually is the nominal price plus the costs of
standing in line, bribing sales clerks, or doing without, and is
amply demonstrated in communist countries today.
- John Neuhaus, National
Review, August 25, 1987, p.44.
SOCIALISM IN THE UNITED STATES
Socialism as an international
political movement never made much headway in the United States.
Indeed, politicians of an interventionist bent long ago learned
never to use the "S-word" in describing their
Nevertheless, many, if not most, of the programs advocated by
the U.S. Socialist Party during the early decades of this
century have been adopted in one form or another. Moreover many
aspects of the taxation and regulation of economic activity in
the United States today employ the techniques of socialism even
when they are used to advance purposes (such as sectional
interests, special privilege, or "environmentalism")
that were not incorporated into traditional socialists' goals.
Our progress toward reducing the extent of interventionism in
the U.S. economy during recent years has been relatively minor
in comparison to that in many other countries. One reason, of
course, is that we have had much less to remove. For example,
Margaret Thatcher had many more opportunities to "privatize"
industry than Ronald Reagan, simply because large segments of
British industry already were nationalized when she took office.
But another factor may be that the U.S. electorate is less
conditioned to recognizing intervention for what it is -- the
substitution of the judgment of a small, often unaccountable
group, for that of the vast majority of producers and consumers
in the marketplace.
If the recent trajectories of change are maintained, it is
possible that the U.S. economy could eventually become more
socialist in practice than other countries, even those that
proclaim themselves to be socialist.