Freedom – The Real Third Way

The economic history of the twentieth century is often summarised as some kind of big battle between unfettered capitalism on the one hand (as supposedly demonstrated by the United States) and full blown socialism/communism on the other (as the Soviet Union was supposed to have been).

Each extreme is touted to have its unique, positive aspects while being weighed down by equally unique disadvantages. Capitalism, for instance, is able to raise the standard of living by several-fold in a person’s lifetime, showering us with more goods at more affordable prices than previous generations could possibly imagine. On the other hand, it supposedly promotes a consumerist, materialist, “sink or swim” society that has no regard for the unfortunate and less well off. Hence the vision of the US as the kind of place where – if you are lucky enough to have money – you can buy whatever you want; but should you be struck down by poverty or illness then you are on your own.

Socialism, for its part, stagnates and reverses the standard of living, destroying capital and productivity so as to drive the population down to a level of permanent poverty. On the other hand, everyone is apparently more equal, benefiting from a “fair” system of distribution of any goods that are actually produced. (Of course, there is also the small matter of the tyrannous nature of socialism which, in the Soviet Union, resulted in the deaths of tens of millions of people. One might have thought that such a negative feature, being so completely off the scale, would warrant the summary dismissal of socialism as a serious proposition. But we will leave that to one side.)

Thus, if one accepts the nature of these two extremes as we have described them, a better society is seemingly reliant upon combining the economic growth of capitalism on the one hand with the supposed equality and fairness of socialism on the other. Such a path would allow us to discard the negative aspects of each those two systems in order to arrive at we have today: a social democracy, a “third way”, an economic order that is somewhere in the middle between greed and need.

The first problem with this type of thinking is that neither of the two polar opposites of capitalism and socialism have ever really existed, or at least not in the manner that their proponents imagine them. Capitalism – by which we mean here the private ownership of property, voluntary trade and exchange, and the complete absence of state privilege from any economic relations – has never blossomed in this idyllic format. State interference in the economy has always been present, just in lesser or greater quantities at different points in history. Often the interferences at lesser points have provided the catalyst for more intense state activity in later periods. For instance, the booms, busts and stop-start flirtation with centralised banking in the last half of the nineteenth century paved the way for the Federal Reserve System that dawned in 1913, just in time to print enough money to pay for World War One. Pure socialism, on the other hand, has never existed either because – as Ludwig von Mises told us so convincingly a century ago – it is, quite literally, impossible to build a socialist commonwealth without economic calculation, which, in turn, relies upon market prices for capital goods. The Soviet Union always had the benefit of being able to refer to international markets for the prices of factors of production. This enabled the Soviets to provide at least some kind of functioning economy for the seven decades of its existence, albeit at a vastly reduced rate of output compared to the rest of the world. Indeed, a joke at the time told of communism aiming for total world domination, but with the exception of one, single country whose market economy would generate the prices that everyone else could use.

A more accurate description of the two systems we have endured in recent centuries is not unfettered capitalism and unfettered socialism but, rather, state corporatism on the one hand and state socialism on the other.

State corporatism – the alignment between government and private business – has its epitome in economies such as those of Nazi Germany and Fascist Italy. However, it describes also the imperialism of nineteenth century Britain and the evolution of the United States, which received corporatist boosts during the War between the States, World War I and the New Deal, the latter of which was modelled on Fascist Italy. The combination of these has served to seal the fate of the US as a permanent “corp-tocracy”.

State socialism, on the other hand, is not public ownership of productive assets for the common good. Rather, it is ownership by the state and the bureaucracy, with productive capacity devoted to their ends (such as missile parades in Red Square) rather than the ends desired by the people. The latter, far from benefiting from equality and social justice, end up as expendable public slaves whose disobedience warrants a one way trip to the gulag.

As I have explained before, the historical development of these systems has, in fact, served to distort or misrepresent the extremes of “capitalism” and “socialism”. All of the positive aspects of capitalism are generally true; its negative aspects, however, owe themselves to state interference in the capitalist system, not to the capitalist system itself. In particular, the magnification of greed, inequality, and the general trend of the rich getting richer while the poor get poorer are consequences of state control over money. With socialism, it is the other way round: all of the negative aspects are true while the positive are completely false. If the poorest and least well off in society achieve a higher standard of living under socialism, this must always be in spite of the degree of socialisation of the economy, not because of it.

In light of this, the second problem with the “mixed economy” is that the actual blend that has been achieved by modern, social democracies is not one of capitalism on the one hand with socialism on the other. Rather, it is a mixture of state corporatism and a democratised form of state socialism. On the state corporatist side, we have central banks printing massive quantities of money, lining the pockets of the financiers in the midst of creating artificial booms and busts. At the same time, large swathes of industry are subject to state patronage and privilege to the extent that in sectors such as energy, transportation, finance, healthcare, and so on there is no genuine competition. To top it all off, armaments manufacturers profit from the continued proliferation of invented and unjustified foreign wars. On the state socialist side, however, we have politicians bribing voters with other people’s money, with demands for social justice, fairness, equality, and anti-discrimination met through the forced redistribution of wealth, income and political privilege.

The attempted synthesis between these two systems hasn’t produced any kind of successful mixed economy that selects the “best” aspects of each. In fact, the result is the complete opposite. With the lion’s share of state welfare lavished upon the very top, wealth and power is concentrated in an ever dwindling number of elites. Those clamouring for state corporatism, fake privatisations and state support for business simply want to keep their profits flowing through state protection. Rising stock prices and GDP figures – which are really just consequences of monetary inflation – can be trumpeted as proof that the system “works” to produce “sustainable” growth, but it results in very real resentment from those it leaves behind. The crumbs of welfare thrown to the very bottom, however, tend to perpetuate poverty by trapping people in the limbo of welfare dependency. But the response to this is often a clamour for more state socialism. Noting that state corporatism (which they think is “capitalism”) seems to do nothing except make the rich richer and the poor poorer, its advocates want to end the anti-democratic structure of state corporatism so as to return key industries to “public ownership”. If there has been any reconciliation at all, then it is evident in corporate obeisance to “woke” priorities and the left wing bias of “big tech”. Left out of everything is the productive middle classes, who tend to shoulder every bill.

If the two, dominant social systems have been state corporatism and state socialism (with the postulated “third way” of blending the two having failed), then what, we might ask, is the real third way? There are only three possibilities. First, unfettered socialism; second, unfettered capitalism; and third, a mixed economy of genuine socialism and genuine capitalism (what we might call “interventionism”).

The first option, socialism, is a non-starter for the reason we mentioned earlier: its inability to perform economic calculations mean that it is suitable only for creating chaos out of order. Indeed, a socialist economic order is no order at all; it is a disaster that would quickly relegate the human race to the Stone Age.

The third option, interventionism, is also a no-go, as it produces distortions that must lead either to further interventions or to a complete abandonment of the intervention altogether. For example, if the state intervenes to set a price ceiling on a certain good that is below the market price, the result – all else being equal – will be a shortage of that good. In response to this, the state has one of two options in order to restore supply: to intervene further by taking over the entire supply chain, or to abandon the price control. If it takes the first option, this requires further interventions in other industries which will create similar distortions and disarrays which will, in turn, breed even more interventions ad infinitum. If this process continues then we end up with full state control over everything - i.e. socialism. Socialism, however, is impossible, and so will collapse almost immediately. If, however, the state takes the second option of abandoning the price control, then capitalism and freedom are restored.

It’s worth mentioning in this regard that, in our contemporary societies, we are reaching the apex of state interventionism. Decades of excessive money printing and perpetuated malinvestment through the resulting credit expansion have driven financial markets to a zombie-like existence bathing in a sea of insolvency. We are now close to the point where states will either have to completely socialise financial markets – probably through touted “Central Bank Digital Currencies” – or abandon their policy of cheap credit and restore sound money.

This leaves, then, capitalism, the genuine free market, as the only prospective and sustainable economic order. Only capitalism, based upon voluntary trade resulting from each individual peacefully pursuing his purposes, is able to avoid the pitfalls of socialism, of the pseudo-capitalism of state corporatism, and of the pseudo-equality and fairness of state socialism. All of these latter systems – being nothing more than the attempts of some people to live at the expense of everyone else – are based on force, fraud, antagonism, and are ultimately responsible for all of the alleged pitfalls that are ascribed to too much freedom: inequality, greed, selfishness, and so on. Only the restoration of a genuine free market capitalism can therefore lead to a peaceful and prosperous society.