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Life and Liberty
Public post

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.
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Life and Liberty
Public post

The Madness of Government Planning

Why Top-Downism Will Always Fail

[This article is excerpted and adapted from an essay published previously on Free Life.]
It can scarcely be denied that the past two years have seen a rapid increase in the centralisation and consolidation of state power. While 2019 was hardly a small-state paradise, the penchant for central planning has gathered pace during the time in which we were all confined to COVID house arrest. Indeed, the whole sorry spectacle of lockdowns, masking, distancing and mass vaccination programmes were themselves uniform, top-down responses to a particular problem. Never matter how disastrous and destructive these policies, governments haven’t wavered from the notion that more of their input is the panacea to every societal ill – most of which, needless to say, are caused by governments themselves. Indeed, there is a pending attempt to harmonise government responses to health “emergencies” under the auspices of the World Health Organisation through a “pandemic treaty”.
It is therefore no surprise to see this attitude continuing with the subsequent problems caused by COVID lockdowns and excess money printing – high inflation, supply change disruption, a growing food and energy crisis, and so on. The UK government alone is presently trotting out grand plans such a “food strategy”, an “energy security strategy”, a “strategic plan for homes”; in the field of transport alone, there is a “transport investment strategy”, a “future of transport programme”, a “transport decarbonisation plan”, and an “inclusive transport strategy” – undoubtedly one of a few amongst many others. Moreover, all of these – some of which, quite literally, are Soviet-sounding “five year plans” – are individually quite modest compared to bigger schemes such as “Net Zero” or the “Great Reset”, although they may all be fashioned from the same mould. All in all, we seem to have given a green light to the zeal for remoulding social and economic systems according “all-encompassing” visions enforced upon society from the top-down.
If, for the sake of argument, we assume that such visions are promulgated with the best of possible intentions, they are, no doubt, built partly on the misguided notion that chaos would reign without such interventionism. In other words, only the steady hand of government on the societal tiller can foster “harmony”, “unity” and “co-operation”. The opposite, however, is really the case. It is this top-down, state planning that will always bring disorder, misery and destitution.
Of course, the most extreme form of top-downism is outright socialism. Such a system is bound to fail owing to the economic calculation problem. If the state owns all of the means of production across the entire economy then there is no trade in machines, tools and equipment. Without exchange markets for these factors, then they cannot command market prices. If there are no market prices then it is not possible for a state controlled planning board to undertake any kind of cost accounting. Without accountancy, there is no way of determining profits and losses. And if there are no profits or losses then you can never know whether scarce factors of production are being deployed efficiently or wastefully. The result is economic chaos as the capital structure deteriorates into a quagmire of wasteful surpluses of some goods and chronic shortages of others. In the former Soviet Union, for instance, fields of crops were left un-harvested because as much as one third of agricultural machinery stood idle owing to a shortage of spare parts.
Ultimately, however, all kinds of top-downism fail because they are fundamentally at odds with the nature of human beings – that we are each individuals with our own ends and desires, and that we each act within a local, limited environment so as to fulfil those desires. In human society (and often, for that matter, in the natural world), anything that can be observed as a complete, harmonious system is not the product of any single cause. No individual designed or moulded the whole thing in the way in which a single architect may design a building or a sole author can write a novel. Rather, social systems are the amalgamation of thousands of individuals striving to fulfil their individual ends in such a way that, nevertheless, manages to mesh them into a coherent whole. Institutions such as culture, language, market prices, customary legal systems and money are of this ilk. No one person ever invented any of these, and yet we can clearly define them as singular entities that exist to fulfil human purposes in a conflict-free manner.
As Leonard Read pointed out in his essay I, Pencil [1], the same is true of all complex economic processes involved in the production of goods and services – whether its food, clothing, construction, automobiles, etc. In building each of these economic systems (or industries, as we tend to call them), each individual producer acts within his own sphere of understanding with means available to him. An individual farmer, for instance, will have intimate knowledge of the layout of his land, the crops that can be supported by the soil type, the local climate, the drainage, the best kind of fertiliser to use, and so on – details that may have taken years of experience to acquire, or even generations for a family business. Moreover, he will also be sensitive to the immediate needs, habits, desires and terms of his suppliers and customers, tailoring his produce accordingly. These people, in turn, may serve to fulfil other, individual steps in the chain of production necessary to place a completed food product on the dining table of a consumer. They too will have a similar purview only over their own, specific area of production.
However, there will be no one individual who has a grasp over the whole system, nor could anyone ever comprehend all of the relevant information that is required to be known at each stage of the process – a factor which, from the point of view of economic planning, we usually summarise as the Hayekian knowledge problem. Any kind of unified “vision” is both unnecessary and impossible to achieve when it comes to ensuring the smooth working of these industries. Indeed, the great accomplishment of the science of economics is to explain how everybody’s individual goals and desires need not lead to zero-sum conflict over a limited supply of nature-given goods, but, instead, to positive-sum, peaceful co-operation in the production of new goods without the need for a controlling arbiter.[2]
A failure to appreciate this and to assume instead that such systems can be built or refashioned in a top-down manner is likely to lead to disaster, as the failures of socialism have already demonstrated. But today’s governments, together with wealthy billionaires and philanthropists, seem equally convinced that, in order to make a positive difference in the world, one must think big and act big, making radical, far reaching changes to whole economic and social systems in the way that an inventor can dismantle a machine before starting over. Thus, we get attempts to revolutionise and control “farming”, “the housing market”, “transport”, “the climate”, “the internet”, “sustainability”, or even human society as a whole.
If, however, you wish to make a contribution to human progress – and, to reiterate, let us assume that all of these grand plans and schemes are designed to promote human flourishing – this is precisely the wrong path to take. Rather than trying to make gargantuan, wholesale changes, you should focus instead on a small area where you can make a specific improvement, the effects of which you can control in a limited environment that you can understand. If you are successful, you will enhance one small part of an economic system, but at no point does your attempt to do so threaten the integrity of the entire edifice. And once everybody strives to make the same kinds of localised improvement then the system as a whole improves as well in immeasurable strides.
For instance, in improving the production of Leonard Read’s pencils, the sawmill may employ a more efficient machine in cutting the wood; the shipping company may purchase a more capacious or speedy freighter in which to transport the wood; the pencil factory may devise a process that saves money on electricity or on packaging materials. The success or failure of these innovations will be determined ultimately by the profit and loss test, with those employing successful innovations profiting ahead of those who employ less successful innovations. These examples may be multiplied many hundreds of times for each and every factor of production involved, and are not (as is commonly supposed) confined to the practice of inventing new technology – simply improving an existing process, or finding a way to market an existing solution better would suffice, as would simply gathering existing factors of production and combining them in a better way. The final, singular result that can be appreciated by the consumer is a greater number and variety of cheaper pencils. It shouldn’t necessarily be assumed, however, that such small improvements are always, on their own, insignificant, consigning their proponents to relative obscurity. Some of them – such as pneumatic tyres, the Ford assembly line and the jet engine – represented great strides in the progress of humanity.
On the other hand, truly big plans – whether it’s the so-called Great Reset, the UN’s Agenda 21, the Green New Deal, or Bill Gates’ bizarre proposal to block out the sun so as to cool the Earth – will be disastrous, as their attempts to remake or refashion the world in a certain basic image through making drastic and far-reaching changes will have ramifications on systems and processes that simply cannot be foreseen by any one person. Such effects are often referred to by economists as “unintended consequences”, outcomes that would occur even if we were to assume that the planners are employing basic premises that are correct. But if (as is more often the case) they were to adopt demonstrably false premises – for example, Malthusian over-populationism, the dubious conclusions of so-called “climate science”, or the disastrous COVID modelling – the effects will be even worse. In fact, it is the gradual accumulation of unforeseen problems coupled with the belief that it is the state’s responsibility to solve all problems that, in the long run, leads to the growth of the state and the strangulation of liberty.
Over the coming years, further crises and problems are going to be used as excuses to increase state control and involvement in every facet of our lives. This is only going get worse given that our economic house has, for the last fifty years, been built on the sand of paper money, and the tide is finally coming in. We must resist the tendency towards greater centralisation in managing this transition, dispersing economic control away from states and global institutions to the most local level possible.


[1] Leonard E Read, I, Pencil: My Family Tree, Foundation for Economic Education (2019).

[2] In the words of Ludwig von Mises:

What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests. For where there is division of labor, there is no longer question of the distribution of a supply not capable of enlargement. Thanks to the higher productivity of labor performed under the division of tasks, the supply of goods multiplies. A pre-eminent common interest, the preservation and further intensification of social cooperation, becomes paramount and obliterates all essential collisions. Catallactic competition is substituted for biological competition. It makes for harmony of the interests of all members of society.

Ludwig von Mises, Human Action: A Treatise on Economics, The Scholars’ Edition, Ludwig von Mises Institute (1998), 669.
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Life and Liberty

Myths about Freedom

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