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Economic Myths #11 - The Mixed Economy

[First published on Free Life]
The world’s political systems today are, generally, neither fully despotic on the one hand nor completely free on the other. Instead, most of us languish under so-called “social democracy”, a curious mixture in which a degree of sovereignty in the form of voting rights reside in the citizenry while political leadership and control remains distinct in the form of various functionaries such as Presidents, Prime Ministers, Congressmen and Members of Parliament.
A libertarian might contend, of course, that such a social democratic system ends up being worse for individual liberty than a dictatorship or monarchy. The important point, however, is that the ideological extremes have been blended into some kind of soup which, at least from the de jure point of view, represent neither total freedom on the one hand nor total despotism on the other.
In exactly the same way, neither do our economic systems represent any ideological purity. We are neither fully capitalist nor are we completely socialised. Instead we have to put up with some kind of “mixed” economy that contains both capitalistic and socialistic elements.
Although the relationship between economic and political systems is one joined at the hip, the justification of social democracy on the one hand and of the mixed economy on the other appears to come from different directions.
Democracy, rightly or wrongly, is believed to a good and noble thing in its own right – a positive and independently justifiable improvement over any other option. The mixed economy, however, appears to be based on little more than the intellectually slothful adage that “the truth lies somewhere in the middle”.
Capitalism will bring us massive economic prosperity and improvement in the standard of living – but, so it is alleged, it leads also to unstable business cycles and encourages greed, selfishness and extensive inequalities in wealth and income. Socialism, on the other hand, may make things “fairer” and more equal; yet, in the face of a hundred years’ worth of evidence, it is difficult not to conclude that it decimates the productive capacity of a nation and the standard of living stagnates or even reverses. The “correct” system “must”, so the argument goes, lie in between these two points so that we can take the best of both systems while avoiding the alleged pitfalls. Hence we end up with the mixed economy.
The first question we might as well ask when tackling this fallacy is that if we adopt a position somewhere in between the two “extremes” then what argument is there to suggest that we will end up with the best aspects of each system rather than the worst? In spite of the socialistic element of our economy income inequality and wealth concentration in the hands of a few elites seems to be worsening, not getting better; and in spite of the capitalistic element we have failed to have any meaningful growth since at least the onset of the global financial crisis ten years ago. May be it is the alleged good parts of each system that are cancelling each other out rather than the bad?
The fundamental flaw, however, is that the assessment of capitalist and socialist economies that identifies their good and bad characteristics is partly wrong. These wrongly diagnosed parts are then exaggerated in making the case for a mixed economic system.
The good aspects of capitalism, private property and free exchange – such as economic progress and marked increases in the standard of living – are, as we know from “Austrian” economics, entirely true; the bad aspects, on the other hand – selfishness, inequality, greed, the business cycle, and so on – are largely false or misstated.
Capitalism does not encourage anyone to be greedy or selfish at all – it just gives you the freedom to be either as greedy or as altruistic as you like, provided that you fulfil those ends through voluntary trade and do not engage in outright theft or fraud. The aspect of capitalism that its opponents do not like is that people, when set free, usually choose to pursue their material welfare as the first priority. However, the resulting increase in productivity confers upon people the wherewithal to be more charitable out of choice. Thus we should not be surprised to learn that many of the great charitable or humanitarian institutions – such as the Salvation Army, the YMCA, the Scout Movement and the Rotary Club – were founded in the nineteenth or early twentieth centuries, the relatively most capitalistic period in history.
Moreover, the business cycle, as we know, is not an inherent feature of a free market economy, but is caused instead by the artificial creation of credit, something that is only sustainable with state central bank sponsorship.
However, in spite of these truths, whenever some justification is made for the “mixed” economy, we will still hear “greed”, “selfishness”, “inequality” and “boom and bust” being cited and emphasised in an attempt to cajole people into accepting a blended economic system.
Turning to socialism, we know that such a system would obliterate all productivity and the standard of living would sink far below that to which we are now accustomed. Its bad aspects are, therefore, all true. Yet the good aspects – greater equality, fairness, and anything that can be categorised under the current, in-vogue term of “social justice” – are all patently false.
Socialism does not create any equality at all; it does not result in every portion of wealth in existence being carved up into equal shares for everyone to then enjoy. Instead, it transfers the power over whole resources from private producers (who must maintain their ability to satisfy consumers in order to retain that privilege) to politicians and bureaucrats. Nationalising an industry does not give you, the average citizen, any greater access to the goods and services tied up in that industry. Rather you are pushed further to the bottom of the heap than before as the political lords and masters decide what that industry will produce, what prices you will pay and what level of service you will receive. You are stuck with whatever they decide to give you – providing that the inefficiency and waste of state run industries has anything left to give.
Nor will you have any greater ability to control how resources are used in a socialised economy compared to in a capitalist economy. The very reason why property rights and exclusive ownership exist is precisely because there is no agreement on how resources should be used. This problem exists under socialism as it does under capitalism and one person’s decision must, at some point, overrule all others. If you are to have any influence in this regard in a socialised system then it will be restricted to a handful of catch-all elections every four or five years or so. In the meantime you have to suffer whatever it is that the electoral victors throw down from their table.
Under capitalism, however, your voting influence is felt all the time in a highly specific manner through your spending habits. If a producer fails to produce what you want at a price that you can pay then he loses you there and then, while resources at his disposal are transferred to other producers who can meet your needs. Not so under socialism where you have to put up with whatever the upper elite, controlling all resources, decides will be produced.
Furthermore, providing social safety nets and welfare states in pursuit of some kind of “social justice” does not result in a society that is more caring and sharing. If anything, the adage “from each according to his means to each according to his needs” completely disintegrates any moral fervour. By separating individual productivity from individual reward, wealth creation is no longer an endeavour in which each person tries to better his own life and the lives of his friends and family. Instead, it becomes an exercise in “stockpiling” – the digging of a communal trough to which a person contributes that which he is able according to his “means” and from which he slurps out according to his “needs”. Unsurprisingly, every person seeks to minimise the amount he has to put in through toil and sweat while maximising that which he can take out in goods and services that he can enjoy in return for minimal effort.
The result of this is a population that fails to cultivate its talents towards increasing wealth such as hard work, responsibility and self-reliance and replaces them with characteristics that make them needy and pitiful, with an added layer of laziness, corruption and freeloading. This is precisely the problem faced by our bloated welfare states today and why they are completely bankrupt – demand has swollen to such an extent while supply has been hopelessly dwindled. None of this is exactly the antidote to “greed” and “selfishness” that advocates of the mixed economy might expect.
Moreover, the resulting shortages in a socialist system usually spawn black markets and underground trade, increasing the scope of legally defined criminality and, in worst case scenarios, penalising the population for attempting to acquire what should be every day goods and services – as has happened in the social democratic paradise of Venezuela.
A further fallacy that is often used to justify the mixed economy is the assertion that private enterprise does some things “better” than the state while the state does other things “better” than private enterprise. Thus we are encouraged to look at the “evidence” to decide who can do what better.
The obvious retort to this is by what standard do you conclude that something is being done “better” by either the state or by private enterprise – and, moreover, by what standard do we judge whether a certain activity should be carried on at all?
Private enterprises make this judgment through the profit and loss test; the quantity and quality of resources devoted to production of a good and service is rationed by its ability to make a profit, indicating the relative height of its demand by consumers. If a service is of low quality or unavailable to certain sections of the population it is simply because consumers are not willing to support a more extensive level of production in that particular industry.
For example, the fact that broadband internet was not, in the UK, extended to all rural communities leads our evidence-obsessed policymaker to conclude that this is a case of “market failure” – an instance where the private enterprise has rendered itself unable to provide something that it “should” provide, and so the state must step in.
This is utter nonsense. If the “free market” has failed to provide broadband internet to rural areas then it simply means that the more extensive resources necessary to do so compared to urban areas were required more urgently to produce other goods and services that people wanted to buy. Any “evaluator” who determines from the “evidence” that the state is needed for rural broadband cabling is necessarily substituting his own value judgments for everyone else’s, denying them the goods that they really demand and giving them those that they do not (or, more accurately, denying resources to one set of people who are willing to pay for them in favour of another set who are not).
Nor can we fall back on the assertion that the state should run “essential” industries for there is no such thing as an “essential” industry. Humans do not evaluate goods and services in whole, homogenous concepts such as “fire services”, “health services”, “electricity”, and so on. Rather, each good or service is demanded in specific quantities in specific times and places.
For instance, while we may think of “medicine” as “important” we can easily imagine ourselves in a situation where we would prefer to do something “unimportant” like watching television rather than produce another bottle of penicillin. Moreover, some people may not want penicillin at all if they maintain their health. The difficult task is not, therefore, determining whether penicillin is generally more “important” than television – it is identifying the precise point at which we stop devoting resources to the production of penicillin (and, thus, the point at which continuing to do so would be a waste) and move them instead towards producing television sets. This is something that can be done only by the profit and loss test of the free market. Any other judgment is necessarily arbitrary and at variance with the demands of consumers.
In any case, as libertarians, we might also ask if an industry is really critical then why on earth would you want it in the hands of the state where it can be royally screwed up? And why would it even need to be under state control? If the good or service produced is heavily in demand then profit opportunities will abound and private entities will have no problem in meeting that demand. It is, in fact, the unessential industries with low demand that struggle to stay afloat without state support.
The real reason why we have ended up with the mixed economy is, in fact, pragmatic rather than principled. Capitalism is the goose that has laid the golden egg and any decimation of capitalism would very quickly destroy the standard of living of the citizenry, prompting a swift revolution. Yet the state yearns for power and control and cannot be content with letting things be; it therefore has to paint capitalism as this necessary evil that must be stewarded and supervised – like a dangerous pet which, if managed “correctly”, will cuddle and comfort us instead of biting us on the backside.
Ironically, of course, it is state interference attempting to inject a socialistic element to the economy that brings about the chaos and injustice that is blamed on capitalism. We have boom and bust precisely because of state-sponsored credit creation, while the rich are getting richer and the poor poorer because the government bails out these cronies from the resulting disarray at the expense of the rest of us. Indeed, having a “safety net” against the alleged “sink or swim” nature of capitalism has turned out very well if you are an investment banker. None of this would happen in a genuine, capitalist economy.
The mixed economy is therefore nothing but an unjustifiable charade, built upon alleged weaknesses of capitalism and supposed strengths of socialism that simply do not exist.  Genuine economic prosperity for everyone in a fair and just society populated by morally healthy individuals can come about only through unfettered private property and free exchange – not through the state’s attempt to meddle with it.
Next week’s myth: The Deflation Danger
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Economic Myths #9 - Social Safety Nets

[First published on Free Life]
It is often trumpeted as a virtue that “civilised”, social democratic countries offer their citizens one or more types of “social safety net” in an attempt to eliminate the most dire effects of, say, unemployment, illness or some other kind of incapacity that could inflict a condition of extreme poverty upon the individual members of the citizenry. The idea is that the most basic wants will always be guaranteed by the state should one be unable to provide them for oneself and no one need have any fear of hunger or lack of shelter – situations that are said to be “intolerable” in a modern, twenty-first century society.
The first problem with this theory is that poverty is not some selectively appearing disease that makes a magical appearance every now and then to infect an otherwise healthy and wealthy society. Rather, poverty is the natural state in which human beings first found themselves. When Adam and Eve were expelled from the Garden of Eden they saw that the world was a barren and harsh place that is capable of providing precious little – may be just air to breathe – without the conscious effort of its inhabitants. The only way to alleviate this terrible situation is for humans to work to produce the goods that they need and, eventually, to bring about capital investment in order to expand the amount of consumer goods that can be enjoyed – whether it’s cheap food, housing, education, holidays or whatever – a process that only really got underway in any significant form in the 1800s.
If, therefore, the individual beneficiaries of a social safety net are not able to produce these goods themselves then it follows that somebody else must do so. Legislating the welfare state into existence does not, unfortunately, create the goods and services it needs to dispense to the poor and needy in order to banish poverty and want. Rather, existing goods have to be forcibly confiscated from those who have produced them and dished out for free to those that haven’t. Social safety nets are compulsory redistribution programmes, not wealth creation programmes and any benefit one receives under them will be at the expense of another person.
The economic effects of this are familiar to economists not only in the “Austrian” tradition but of other free market persuasions also. The most naïve error made by any proponent of redistribution is to believe that people’s behaviour is somehow hermetically sealed from the government intervention that seeks to achieve a certain end – i.e. that increased taxes on a certain activity will not discourage people from carrying out that activity; or that increased funding to eliminate a “dire” situation will not, in fact, exacerbate that situation. Whenever a new tax is proposed the estimations of new revenue to be raked in are often based, incorrectly, on the assumption that people will still wish to carry on doing the taxed event just as they did before, as if the tax makes no difference. And if some new programme to be financed by this revenue is proposed, they will calculate the amount of money needed to cure only the existing problem without considering whether throwing money at it will make that problem worse. All else being equal, if you pay people to do something they will do more of it; if you charge someone to do something they will do less of it.
Applying this understanding to the case of social safety nets, if people are charged to produce wealth in order to fund them then the cost of creating wealth is forcibly raised. Relative to other activities such as engaging in more leisure time, the attractiveness of producing more goods, more capital and more resources is reduced. There will, therefore, be less production, less capital investment and fewer consumer goods at higher prices – hardly the situation that one would expect to be conducive to the abolition of poverty. Similarly, if you grant a guaranteed right to be paid upon the occurrence of a bad event – such as sickness and unemployment – then you lower the cost of that event while the relative cost of preventative measures is raised. All else being equal, you will have more sickness, more unemployment and so on. Indeed, most of the afflictions which may cause a person to fall into hardship are not sudden accidents but are, in fact, a consequence of the lifestyle and environmental choices that a person may make – choices that are influenced by relative costs/benefits.
For instance, children, in particular, appear to be little more than a metaphorical blank cheque that the state writes to “protect” them from poverty and hardship (indeed, the focus of many social safety nets today appears to be on so-called “hardworking families” – never mind the fact that single people or childless couples may also work hard and struggle to make ends meet). Children, however, do not appear out of nowhere and, but for the most exceptional of circumstances, a conscious decision must have been made at some point to have a child – or at least to carry out the act of procreation. The economic effects that we outlined will therefore result from any safety net that benefits parents with children. If you pay people when they have children then all of the existing children will not suddenly be transported to the land of milk and honey. Instead, there will be more children in more families struggling to pay the bills who are desperate for a handout. The resources to feed these hungry, young mouths must be confiscated from those who do not have children – either through inability, a lack of desire or as the result of a financial decision – and redistributed to those who do.
The running theme through all of this, therefore, is that throwing free money at a problem in which people have at least some kind of influence will only aggravate that problem. Indeed, in spite of more than half a century of the welfare state the Western world still seems to be afflicted by the scourge of poverty – although a rather bizarre form of it where those who are poor appear to suffer more from obesity rather than from starvation. Moreover, it is also the case that expenditure on healthcare and other entitlements is shoving most states down the road to bankruptcy. Should it not be the case that “progress” is characterised by a reducing, rather than an expanding social safety net?
A powerful weapon in the arsenal of proponents of the welfare state is the false dichotomy – that the choice is either between a government social safety net motivated by “care” and “compassion” on the one hand or some kind of selfish, greedy, sink-or-swim and dog-eat-dog society on the other. This is plainly ridiculous; the free market exists precisely because people have needs and others are willing to advance the means to fulfil them. The whole edifice of investment and capital accumulation is not to benefit only the well off – rather, its task is mass production of more and more goods and services at lower prices for the ordinary person. Moreover, the purpose of insurance – presently and regrettably distorted by government interference – is to protect you from genuinely catastrophic events that are not your fault in return for a premium paid in advance.
Opting for the alternative of the free market does mean the abolition of care and compassion and the sudden appearance of selfishness and “rugged individualism”. Rather, it gives people the freedom to be caring and compassionate. Indeed it is such private benevolence that is discouraged by the social safety nets as they obliterate the need to cultivate familial and personal relationships upon which you can rely. Real benevolence, selflessness and caring for one another springs from these relationships and from private choice; the forced redistribution demanded by the state, however, leads to the very opposite – bitterness, antagonism and cynicism when your hard earned money is taken to be given to others, all of whom – in spite of whether they are genuinely needy or not – are tarnished as work shy, endless breeders. It is no accident that many of the great charitable foundations and mutual organisations appeared in the nineteenth century, the most relatively free and capitalist period in history – and not in the era of the welfare state. As for the argument that social safety nets are necessary for civilisation, what could be less civilised than wrestling something you want from someone at the point of a gun?
The social safety net therefore needs to be realised for the destructive force that it is; not as a hallmark of economic and societal progress but as one of retrogression of civilisation and as a retarding influence on the very real cure for poverty and illness – more capital, more production and more goods for everyone to be able to buy at cheaper prices.
Next week's myth: Taxes Benefit "Us"
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Rich vs Poor - a False Dilemma


Conventional thinking about social, political and economic matters tends to narrow the options available to a set of policies advocated by two, possibly three political parties of scarcely dissimilar ideologies. Any genuinely radical approach concerning these topics is abandoned given that the fundamentals are deemed to be beyond question. Thus, alternatives to these entrenched matters – such as whether the state should have any positive role at all in anything – are seldom given the light of day, let alone the opportunity of being debated.
This phenomenon, presenting a distinct challenge to anyone with radical views, is known as the “false dilemma”: the illusion that the only choice is between a very constricted range of possible options, preserving the status quo in favour of the state and its cronies while at the same time bestowing the illusion of control on a gullible electorate.
One effect of this ossification is to obliterate a very basic, but critical truth: that all humans are able to flourish while co-existing peacefully. For instance, those pundits and politicians claiming to be either “conservative” (or otherwise leaning to “the right”) may believe that business should be “helped” in order to boost “economic growth”; at the same time, they may say that cuts should be made to welfare and to public services in order reduce the government “deficit” while slimming down the cash cow that the benefits system has become to the allegedly lazy and unproductive. Those identifying with “the left”, on the other hand, may believe that a strong welfare state, heavy taxes on the wealthy and increased government spending are needed to end the scourge of poverty.
Each of these points of view contains a kernel of truth. It is true, for instance, that business needs to flourish if there is to be any economic progress at all, while the need of the state to reduce its profligate borrowing, taxing and wasting with all due haste is beyond question. On the other hand, it does not seem just that a society should apparently produce vast quantities of wealth for a few while leaving others to languish in stagnating poverty. Moreover, even though their own economic prescriptions are dire, the left is correct to point out that wealth creation is not a “top-down” (or, to use the more familiar phrase, “trickle down”) process; prosperity will not result from stocking the tables of the rich with plenty so that everyone else can catch the falling crumbs. But the constraint of these narrow views tends to channel all political choices into being between two broadly defined groups of people in society: those who are “rich” and those who are “poor”, with what is gained by one group necessarily being lost by the other.
This impression is exacerbated by the fact that the political parties whose rhetoric represents these different points of view never end up achieving their aims (assuming they ever intend to do so in the first place, of course). State subsidy, “bailouts” and the cartelisation of businesses will never create any genuine economic prosperity ahead of perpetuating malinvestment and waste (although they do manage to save the politically connected from the consequences of their actions while leaving everyone else to foot the bill). On the other side, increased government spending and a burgeoning welfare state only siphon funds from the productive sector to be equally consumed and wasted by the state. Moreover, by providing a cash cushion for poverty, unemployment and sickness, the welfare state ends up becoming a permanent, industrial scale enterprise. If neither side is able to achieve its stated aims, then they each provide plenty of ammunition for the opposition, leading to a negative feedback loop that ends up exacerbating this apparent basic gulf between “rich” and “poor”.
If we are ever to establish genuine, sustainable prosperity, we must seek for a repudiation of this false choice and a restoration of the understanding that everyone can prosper side by side.
At the heart of the problem is the equally false belief that the state itself has a necessary part to play, and, as such, must do something for somebody in order to create a better world. Each faction tends to deploy a curious mixture of economic and ethical arguments to select whom government should help on the one hand and to whom it should deny that help on the other.
Take, for example, the supporters of big business. They will say that it is right to use taxpayers’ money to, say, bail out the banks in order to avoid a complete financial meltdown. Conveniently their “chums” in the city will reap fat rewards from doing so. But they then deny this very same method – the diversion of taxpayers’ money – to welfare programmes aimed at helping the poor on the grounds that people should work for what they earn without leeching from the productive. In other words, so-called “benefits scroungers” should get off their backsides and find a job. Thus, they emphasise economic arguments in justifying corporate welfare while using ethical ones to deny personal welfare.
Their “lefty” opponents, on the other hand, will argue that throwing cash at the rich who made mistakes is unjust, and that they should be left to foot the bill themselves. Yet they then state that welfare spending is needed to eliminate poverty and fuel growth from the “bottom up”. So they too deny the flowing of taxpayer’s cash to certain groups based on ethical grounds, but then promote it’s payment to others based on economic grounds. Each side, will of course, pepper their ethical arguments with economic ones and vice versa – the “right”, for example, will, as we have said, argue that welfare spending needs to be cut in order to reduce government outlays, while the left will argue that alleviating poverty is a just and noble cause. But the main thrust of each side’s opinion cannot be denied.
If we unscramble all of this by looking at the ethical and economic arguments separately, we will find that there are no grounds whatsoever for any state involvement. If it is unjust to violently confiscate tax revenue from innocent citizens to fund the lifestyle of bamboozling bankers then it is equally unjust to do the same to fund the lifestyles of those who are poorer. The difference is one of degree rather than of kind. Nobody, whether he is a prince or a pauper, a saint or a sadist, or a capitalist or a labourer has the right to wrestle away the property of other people for his own benefit. From the economic side, bailing out bad business will simply perpetuate the moral hazards and malinvestments that need to be eliminated from the economy; at the same time, continuous funding of “the poor” through welfare spending will only exacerbate poverty as it reduces the incentive for people to lift themselves out of that position, while, at the same time, diminishing the role of benevolence and charity for the genuinely needy. And, in any case, the state would do a lot more for the poor if it stopped interfering in wealth creation in the first place; prosperity, not charity, is what truly eliminates poverty.
The real choice, therefore, is not between “rich” and “poor”, “left” or “right”, “employer” and “employee”, “Conservative” or “Labour”, “Republican” or “Democrat”, or whichever other faux division that the establishment throws at us. The real choice we have to face is, on the one hand, continuing with a political and economic system that will only result in a parasitic existence for whomever happens to secure political favour in the moment; or, on the other hand, we could choose a system in which nobody has the violently enforceable right to live at the expense of everyone else, and where everyone is free to trade and produce whatever he wants with his own private property – a system that will raise the standard of living for everyone, not just a select few.
Only by considering radical options, and by overcoming the belief that certain assumptions of our society are beyond debate, can we hope to build a world that is both truly just and economically prosperous.
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Free Choices or Forced Choices?

The “nanny state” is one of the most irritating traits of statism affecting people’s daily lives directly, and one that has been growing ever more matronly over the past generation or so. In fact, if you think it is bad today, The Academy of Medical Royal Colleges (which, apparently, presents a "united front" of the medical profession) was complaining nearly ten years ago that doctors were seeing the consequences of unhealthy diets. Needless to say they recommended whole raft of interventionist measures to curb this apparent problem:
  • A ban on advertising foods high in saturated fat, sugar and salt before 9pm;
  • Further taxes on sugary drinks to increase prices by at least 20%;
  • A reduction in fast food outlets near schools and leisure centres;
  • A £100m budget for interventions such as weight-loss surgery;
  • No junk food or vending machines in hospitals, where all food must meet the same nutritional standards as in schools;
  • Food labels to include calorie information for children.

For the purposes of this article, we will ignore the question whether these medical mandarins have, in fact, managed to identify the “right” choices for people to make with their own bodies. (As we saw with COVID-19, our current, materialist society always seems to hold bodily preservation as the highest possible value; however, it is by no means obvious that a statistically longer life devoid of innocent pleasures should be preferable to a shorter life that is more enjoyable.)
Instead, the problem we wish to address here is rather more grievous: that whenever members of the public make supposedly “bad” choices there is the ever present assumption that, as these choices are made with apparent freedom, that it is the free market that has “failed” in preventing the emergence of the "undesired" outcomes. What is never discussed, or even raised, is the possibility that people's choices are influenced by existing state interferences into that market. If that should be the case, it is impossible to say that the same choices would be made in a genuine free market. Worse still, if the state itself is the ultimate cause of the undesirable choices, then any call for more state intervention is likely to either exacerbate the original problem or lead to the emergence of entirely new problems in the future.
The present author has examined in detail why socialising healthcare will lead to greater ill health in the long run. There is little need to repeat all of this here except to say that people tend to prefer doing that which comes at a lower cost, all else being equal. Lowering or removing the cost of becoming ill will tend to lead to more people leading lifestyles that will result in poorer health. As such, it is state control of healthcare that is causing people to do things that are likely to make them sicker. But the same ignorance of the state’s role can be seen in many other cases where the proximate cause of a problem is people's apparent free choices. Let's examine some of the most popular.
"There is not enough food in the world! If the free market has brought such widespread hunger then states much intervene!"
The allegation here is usually some variant of the rich world refusing to “share” its wealth with the poor world. Leaving aside the fallacious, zero-sum belief that if one person has wealth another person must have gone without it, just why is it that we have widespread poverty in the age of the smartphone?
The plight of poor nations has nothing to do with the absurd suggestion that they cannot “understand” technological development, nor, in most cases, are they unable access to raw materials. Rather it stems from the lack of capital investment per head of the population compared to the developed world. Richer nations have more machines and better tools that can churn out more and better goods per person than can be done in poor nations. So in one sense, it is true that investors and capitalists have not invested in poor countries. But the precise reason why the West has benefited from the wealth produced by capitalist investment is that it has long cherished institutions that have allowed the free market to flourish, in particular, strong legal rights to private property and relative political freedom. These are precisely the conditions that tend to be lacking in poorer nations, conditions that cause entrepreneurs to seek other havens for their investments.
To make matters worse, poorer nations began to model themselves on their Western counterparts just at the point that the latter started to turn away from a social order based on private property towards interventionism, welfare and redistribution. The result is that the wrong lessons are being implemented in poorer nations as they develop policies and institutions that can only retard rather than enable economic progress. This is in addition to direct interventionism, for their own benefit, of large and powerful nations in the affairs of foreign nations, stifling the domestic prosperity of the latter.
The persistence of poverty and hunger is therefore a failure of the state, not of the free market.
"The forests are disappearing! The free market, seeking ever greater profits, is decimating our natural resources! The government must stop it"
Let's go even farther than this complaint by adding to the list of depleting resources fish stocks, elephants, whales, and any other of the countless number of "endangered" species that you like. Yes, there is a tremendous problem, and yes, looking at the issue at face value, it appears that capitalists are running down these resources.
However, if the free market is responsible for having decimated all of these things, then it raises a pretty obvious question: why has the “greed” of capitalists not created similar shortages of other resources? The dairy industry, for instance, exploits cows for profit but we never hear of a shortage of cows, nor do we seem to be in short supply of chickens to supply us with eggs for our breakfast plates. So why is it only some resources that seem to be in danger of depletion? What is the difference between the endangered groups and all the others?
The reason is that people are not permitted to own the capital value of forests, parts of the sea, elephants, tigers, etc. If an entity is able to own the capital value of a resource then exploiting it for present revenue has to be balanced against the loss of capital value in doing so. For instance, extracting copper from a copper mine will reduce the amount of copper left available to be extracted in the future, thus reducing the mine’s capital value. The firm operating the copper mine has to ensure that this reduction is offset by sufficient revenue from selling the mined copper, otherwise it will make a loss. If the copper does not sell for a high enough price, then it indicates that too much copper has been extracted. Thus, a signal is sent to the owner of the mine to reduce its mining operations, conserving more for the future.
If, however, an entity does not own the capital value of a resource then its only concern will be for the present revenue it can extract; there is no cost incurred as a result of exploiting resources to their fullest now. In fact the only cost is that someone else might get to the resource before you can, taking it for himself. Thus, in the absence of any balancing mechanism, resources are depleted far quicker than they otherwise would be. So instead of instituting a myriad of state restrictions and regulations in order to "cure" alleged free market greed, all that is needed is to extend full private property rights to endangered resources, and they will be conserved in line with the present and future preferences of consumers. Once again the problem is not too much free choice but the fact that people have been prevented by the strong arm of the state from having a reason to make the "right" choices.
Finally, let us conclude with the most pertinent of all alleged market failures, the phenomenon of "boom and bust":
"Free market greed has caused capitalists to invest in wasteful projects! Clearly they need the Government to give them speed limits!"
Once again, looking at only the proximate causes of boom and bust will reveal that entrepreneurs invested too heavily in a particular sector, inflated a bubble which, once it pops, leads to widespread misery and unemployment. In the 2007-8 financial crisis – the effects of which have still not been resolved – a summary of the charges is that greedy bankers lent money to people who could not afford to pay it back. End of story. But what is not told by peddlers of this narrative such as Paul Krugman is the moral hazard created by the so-called "Greenspan put" which had the effect of financial institutions expecting their profits to be retained while their losses to be borne by an influx of monetary liquidity during any risk of collapsing asset prices (i.e. paid for by inflation). If one can keep one's profits and socialise one's losses is it any wonder that people took wild risks? If there is only ever an upside then wouldn't you have done the same? This is before we consider the fact that credit expansion is the cause of the business cycle in the first place; by falsifying societal time preference rates, the result is a plethora of unsustainable investment projects that must be rendered wasteful as soon as the inflation stops.
Therefore, next time you read that the "free market" has caused this problem, that problem, or some other societal ill, stop and think as to precisely which options the free market participants were presented with. More often than not you will trace the source of a bad decision to some kind of state interference.
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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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