Socialism vs. Economic Freedom

I am here in Buenos Aires as a guest of the Centro de Difusión Economía Libre.1 What is economía libre? What does this system of economic freedom mean? The answer is simple: it is the market economy, it is the system in which the cooperation of individuals in the social division of labor is achieved by the market. This market is not a place; it is a process, it is the way in which, by selling and buying, by producing and consuming, the individuals contribute to the total workings of society.

In dealing with this system of economic organization—the market economy—we employ the term “economic freedom.” Very often, people misunderstand what it means, believing that economic freedom is something quite apart from other freedoms, and that these other freedoms—which they hold to be more important—can be preserved even in the absence of economic freedom. The meaning of economic freedom is this: that the individual is in a position to choose the way in which he wants to integrate himself into the totality of society. The individual is able to choose his career, he is free to do what he wants to do.

This is of course not meant in any sense which so many people attach to the word freedom today; it is meant rather in the sense that, through economic freedom, man is freed from natural conditions. In nature, there is nothing that can be termed freedom, there is only the regularity of the laws of nature, which man must obey if he wants to attain something.

I.

In using the term freedom as applied to human beings, we think only of freedom within society. Yet, today, social freedoms are considered by many people to be independent of one another. Those who call themselves “liberals” today are asking for policies which are precisely the opposite of those policies which the liberals of the nineteenth century advocated in their liberal programs. The so-called liberals of today have the very popular idea that freedom of speech, of thought, of the press, freedom of religion, freedom from imprisonment without trial—that all these freedoms can be preserved in the absence of what is called economic freedom. They do not realize that, in a system where there is no market, where the government directs everything, all those other freedoms are illusory, even if they are made into laws and written up in constitutions.

Let us take one freedom, the freedom of the press. If the government owns all the printing presses, it will determine what is to be printed and what is not to be printed. And if the government owns all the printing presses and determines what shall or shall not be printed, then the possibility of printing any kind of opposing arguments against the ideas of the government becomes practically nonexistent. Freedom of the press disappears. And it is the same with all the other freedoms.

In a market economy, the individual has the freedom to choose whatever career he wishes to pursue, to choose his own way of integrating himself into society. But in a socialist system, that is not so: his career is decided by decree of the government. The government can order people whom it dislikes, whom it does not want to live in certain regions, to move into other regions and to other places. And the government is always in a position to justify and to explain such procedure by declaring that the governmental plan requires the presence of this eminent citizen five thousand miles away from the place in which he could be disagreeable to those in power.

It is true that the freedom a man may have in a market economy is not a perfect freedom from the metaphysical point of view. But there is no such thing as perfect freedom. Freedom means something only within the framework of society. The eighteenth-century authors of “natural law”—above all, Jean Jacques Rousseau—believed that once, in the remote past, men enjoyed something called “natural” freedom. But in that remote age, individuals were not free, they were at the mercy of everyone who was stronger than they were. The famous words of Rousseau: “Man is born free and everywhere he is in chains” may sound good, but man is in fact not born free. Man is born a very weak suckling. Without the protection of his parents, without the protection given to his parents by society, he would not be able to preserve his life.

Freedom in society means that a man depends as much upon other people as other people depend upon him. Society under the market economy, under the conditions of “economía libre,” means a state of affairs in which everybody serves his fellow citizens and is served by them in return. People believe that there are in the market economy bosses who are independent of the good will and support of other people. They believe that the captains of industry, the businessmen, the entrepreneurs are the real bosses in the economic system. But this is an illusion. The real bosses in the economic system are the consumers. And if the consumers stop patronizing a branch of business, these businessmen are either forced to abandon their eminent position in the economic system or to adjust their actions to the wishes and to the orders of the consumers.

One of the best-known propagators of communism was Lady Passfield, under her maiden name Beatrice Potter, and well-known also through her husband Sidney Webb. This lady was the daughter of a wealthy businessman and, when she was a young adult, she served as her father’s secretary. In her memoirs she writes: “In the business of my father everybody had to obey the orders issued by my father, the boss. He alone had to give orders, but to him nobody gave any orders.” This is a very short-sighted view. Orders were given to her father by the consumers, by the buyers. Unfortunately, she could not see these orders; she could not see what goes on in a market economy, because she was interested only in the orders given within her father’s office or his factory.

In all economic problems, we must bear in mind the words of the great French economist Frédéric Bastiat, who titled one of his brilliant essays: “Ce qu’on voit et ce qu’on ne voit pas” (“That which is seen and that which is not seen”). In order to comprehend the operation of an economic system, we must deal not only with the things that can be seen, but we also have to give our attention to the things which cannot be perceived directly. For instance, an order issued by a boss to an office boy can be heard by everybody who is present in the room. What cannot be heard are the orders given to the boss by his customers.

II.

The fact is that, under the capitalistic system, the ultimate bosses are the consumers. The sovereign is not the state, it is the people. And the proof that they are the sovereign is borne out by the fact that they have the right to be foolish. This is the privilege of the sovereign. He has the right to make mistakes, no one can prevent him from making them, but of course he has to pay for his mistakes. If we say the consumer is supreme or that the consumer is sovereign, we do not say that the consumer is free from faults, that the consumer is a man who always knows what would be best for him. The consumers very often buy things or consume things they ought not to buy or ought not to consume.

But the notion that a capitalist form of government can prevent people from hurting themselves by controlling their consumption is false. The idea of government as a paternal authority, as a guardian for everybody, is the idea of those who favor socialism. In the United States some years ago, the government tried what was called “a noble experiment.” This noble experiment was a law making it illegal to buy or sell intoxicating beverages. It is certainly true that many people drink too much brandy and whiskey, and that they may hurt themselves by doing so. Some authorities in the United States are even opposed to smoking. Certainly there are many people who smoke too much and who smoke in spite of the fact that it would be better for them not to smoke. This raises a question which goes far beyond economic discussion: it shows what freedom really means.

Granted, that it is good to keep people from hurting themselves by drinking or smoking too much. But once you have admitted this, other people will say: Is the body everything? Is not the mind of man much more important? Is not the mind of man the real human endowment, the real human quality? If you give the government the right to determine the consumption of the human body, to determine whether one should smoke or not smoke, drink or not drink, there is no good reply you can give to people who say: “More important than the body is the mind and the soul, and man hurts himself much more by reading bad books, by listening to bad music and looking at bad movies. Therefore it is the duty of the government to prevent people from committing these faults.”

And, as you know, for many hundreds of years governments and authorities believed that this really was their duty. Nor did this happen in far distant ages only; not long ago, there was a government in Germany that considered it a governmental duty to distinguish between good and bad paintings—which of course meant good and bad from the point of view of a man who, in his youth, had failed the entrance examination at the Academy of Art in Vienna; good and bad from the point of view of a picture-postcard painter, Adolf Hitler. And it became illegal for people to utter other views about art and paintings than his, the Supreme Führer’s.

Once you begin to admit that it is the duty of the government to control your consumption of alcohol, what can you reply to those who say the control of books and ideas is much more important?

Freedom really means the freedom to make mistakes. This we have to realize. We may be highly critical with regard to the way in which our fellow citizens are spending their money and living their lives. We may believe that what they are doing is absolutely foolish and bad, but in a free society, there are many ways for people to air their opinions on how their fellow citizens should change their ways of life. They can write books; they can write articles; they can make speeches; they can even preach at street comers if they want—and they do this in many countries. But they must not try to police other people in order to prevent them from doing certain things simply because they themselves do not want these other people to have the freedom to do it.

III.

This is the difference between slavery and freedom. The slave must do what his superior orders him to do, but the free citizen—and this is what freedom means—is in a position to choose his own way of life. Certainly this capitalistic system can be abused, and is abused, by some people. It is certainly possible to do things which ought not to be done. But if these things are approved by a majority of the people, a disapproving person always has a way to attempt to change the minds of his fellow citizens. He can try to persuade them, to convince them, but he may not try to force them by the use of power, of governmental police power.

In the market economy, everyone serves his fellow citizens by serving himself. This is what the liberal authors of the eighteenth century had in mind when they spoke of the harmony of the rightly understood interests of all groups and of all individuals of the population. And it was this doctrine of the harmony of interests which the socialists opposed. They spoke of an “irreconcilable conflict of interests” between various groups.

What does this mean? When Karl Marx—in the first chapter of the Communist Manifesto, that small pamphlet which inaugurated his socialist movement—claimed that there was an irreconcilable conflict between classes, he could not illustrate his thesis by any examples other than those drawn from the conditions of precapitalistic society. In precapitalistic ages, society was divided into hereditary status groups, which in India are called “castes.” In a status society a man was not, for example, born a Frenchman; he was born as a member of the French aristocracy or of the French bourgeoisie or of the French peasantry. In the greater part of the Middle Ages, he was simply a serf. And serfdom, in France, did not disappear completely until after the American Revolution. In other parts of Europe it disappeared even later.

But the worst form in which serfdom existed—and continued to exist even after the abolition of slavery—was in the British colonies abroad. The individual inherited his status from his parents, and he retained it throughout his life. He transferred it to his children. Every group had privileges and disadvantages. The highest groups had only privileges, the lowest groups only disadvantages. And there was no way a man could rid himself of the legal disadvantages placed upon him by his status other than by fighting a political struggle against the other classes. Under such conditions, you could say that there was an “irreconcilable conflict of interests between the slave owners and the slaves,” because what the slaves wanted was to be rid of their slavery, of their quality of being slaves. This meant a loss, however, for the owners. Therefore, there is no question that there had to be this irreconcilable conflict of interests between the members of the various classes.

One must not forget that in those ages—in which the status societies were predominant in Europe, as well as in the colonies which the Europeans later founded in America—people did not consider themselves to be connected in any special way with the other classes of their own nation; they felt much more at one with the members of their own class in other countries. A French aristocrat did not look upon lower class Frenchmen as his fellow citizens; they were the “rabble,” which he did not like. He regarded only the aristocrats of other countries—those of Italy, England, and Germany, for instance, as his equals.

The most visible effect of this state of affairs was the fact that the aristocrats all over Europe used the same language. And this language was French, a language which was not understood, outside France, by other groups of the population. The middle classes—the bourgeoisie—had their own language, while the lower classes—the peasantry—used local dialects which very often were not understood by other groups of the population. The same was true with regard to the way people dressed. When you travelled in 1750 from one country to another, you found that the upper classes, the aristocrats, were usually dressed in the same way all over Europe, and you found that the lower classes dressed differently. When you met someone in the street, you could see immediately—from the way he dressed—to which class, to which status he belonged.

It is difficult to imagine how different these conditions were from present-day conditions. When I come from the United States to Argentina and I see a man on the street, I cannot know what his status is. I only assume that he is a citizen of Argentina and that he is not a member of some legally restricted group. This is one thing that capitalism has brought about. Of course, there are also differences within capitalism. There are differences in wealth, differences which Marxians mistakenly consider to be equivalent to the old differences that existed between men in the status society.

IV.

The differences within a capitalist society are not the same as those in a socialist society. In the Middle Ages—and in many countries even much later—a family could be an aristocrat family and possess great wealth, it could be a family of dukes for hundreds and hundreds of years, whatever its qualities, its talents, its character or morals. But, under modem capitalistic conditions, there is what has been technically described by sociologists as “social mobility.” The operating principle of this social mobility, according to the Italian sociologist and economist Vilfredo Pareto, is “la circulation des élites” (the circulation of the elites). This means that there are always people who are at the top of the social ladder, who are wealthy, who are politically important, but these people—these elites—are continually changing.

This is perfectly true in a capitalist society. It was not true for a precapitalistic status society. The families who were considered the great aristocratic families of Europe are still the same families today or, let us say, they are the descendants of families that were foremost in Europe, 800 or 1000 or more years ago. The Capetians of Bourbon—who for a very long time ruled here in Argentina—were a royal house as early as the tenth century. These kings ruled the territory which is known now as the Ile-de-France, extending their reign from generation to generation. But in a capitalist society, there is continuous mobility—poor people becoming rich and the descendants of those rich people losing their wealth and becoming poor.

Today I saw in a bookshop in one of the central streets of Buenos Aires the biography of a businessman who was so eminent, so important, so characteristic of big business in the nineteenth century in Europe that, even in this country, far away from Europe, the bookshop carried copies of his biography. I happen to know the grandson of this man. He has the same name his grandfather had, and he still has a right to wear the title of nobility which his grandfather—who started as a blacksmith—had received eighty years ago. Today this grandson is a poor photographer in New York City.

Other people, who were poor at the time this photographer’s grandfather became one of Europe’s biggest industrialists, are today captains of industry. Everyone is free to change his status. That is the difference between the status system and the capitalist system of economic freedom, in which everyone has only himself to blame if he does not reach the position he wants to reach.

The most famous industrialist of the twentieth century up to now is Henry Ford. He started with a few hundred dollars which he had borrowed from his friends, and within a very short time he developed one of the most important big business firms of the world. And one can discover hundreds of such cases every day.

Every day, the New York Times prints long notices of people who have died. If you read these biographies, you may come across the name of an eminent businessman, who started out as a seller of newspapers at street corners in New York. Or he started as an office boy, and at his death he was the president of the same banking firm where he started on the lowest rung of the ladder. Of course, not all people can attain these positions. Not all people want to attain them. There are people who are more interested in other problems and, for these people, other ways are open today which were not open in the days of feudal society, in the ages of the status society.

V.

The socialist system, however, forbids this fundamental freedom to choose one’s own career. Under socialist conditions, there is only one economic authority, and it has the right to determine all matters concerning production.

One of the characteristic features of our day is that people use many names for the same thing. One synonym for socialism and communism is “planning.” If people speak of “planning” they mean, of course, central planning, which means one plan made by the government—one plan that prevents planning by anyone except the government.

A British lady, who also is a member of the Upper House, wrote a book entitled Plan or No Plan, a book which was quite popular around the world. What does the title of her book mean? When she says “plan,” she means only the type of plan envisioned by Lenin and Stalin and their successors, the type which governs all the activities of all the people of a nation. Thus, this lady means a central plan which excludes all the personal plans that individuals may have. Her title Plan or No Plan is therefore an illusion, a deception; the alternative is not a central plan or no plan, it is the total plan of a central governmental authority or freedom for individuals to make their own plans, to do their own planning. The individual plans his life, every day, changing his daily plans whenever he will.

The free man plans daily for his needs; he says, for example: “Yesterday I planned to work all my life in Cordoba.” Now he learns about better conditions in Buenos Aires and changes his plans, saying: “Instead of working in Cordoba, I want to go to Buenos Aires.” And that is what freedom means. It may be that he is mistaken, it may be that his going to Buenos Aires will turn out to have been a mistake. Conditions may have been better for him in Cordoba, but he himself made his plans.

Under government planning, he is like a soldier in an army. The soldier in the army does not have the right to choose his garrison, to choose the place where he will serve. He has to obey orders. And the socialist system—as Karl Marx, Lenin, and all socialist leaders knew and admitted—is the transfer of army rule to the whole production system. Marx spoke of “industrial armies,” and Lenin called for “the organization of everything—the postoffice, the factory, and other industries, according to the model of the army.”

Therefore, in the socialist system everything depends on the wisdom, the talents, and the gifts of those people who form the supreme authority. That which the supreme dictator—or his committee—does not know, is not taken into account. But the knowledge which mankind has accumulated in its long history is not acquired by everyone; we have accumulated such an enormous amount of scientific and technical knowledge over the centuries that it is humanly impossible for one individual to know all these things, even though he be a most gifted man.

And people are different, they are unequal. They always will be. There are some people who are more gifted in one subject and less in another one. And there are people who have the gift to find new paths, to change the trend of knowledge. In capitalist societies, technological progress and economic progress are gained through such people. If a man has an idea, he will try to find a few people who are clever enough to realize the value of his idea. Some capitalists, who dare to look into the future, who realize the possible consequences of such an idea, will start to put it to work. Other people, at first, may say: “They are fools”; but they will stop saying so when they discover that this enterprise, which they called foolish, is flourishing, and that people are happy to buy its products.

Under the Marxian system, on the other hand, the supreme government body must first be convinced of the value of such an idea before it can be pursued and developed. This can be a very difficult thing to do, for only the group of people at the head—or the supreme dictator himself—has the power to make decisions. And if these people—because of laziness or old age, or because they are not very bright and learned—are unable to grasp the importance of the new idea, then the new project will not be undertaken.

We can think of examples from military history. Napoleon was certainly a genius in military affairs; he had one serious problem, however, and his inability to solve that problem culminated, finally, in his defeat and exile to the loneliness of St. Helena. Napoleon’s problem was: “How to conquer England?” In order to do that, he needed a navy to cross the English Channel, and there were people who told him they had a way to accomplish that crossing, people who—in an age of sailing ships—had come up with the new idea of steam ships. But Napoleon did not understand their proposal.

Then there was Germany’s Generalstab, the famous German general staff. Before the First World War, it was universally considered to be unsurpassed in military wisdom. A similar reputation was held by the staff of General Foch in France. But neither the Germans nor the French—who, under the leadership of General Foch, later defeated the Germans—realized the importance of aviation for military purposes. The German general staff said: “Aviation is merely for pleasure, flying is good for idle people. From a military point of view, only the Zeppelins are important,” and the French general staff was of the same opinion.

Later, during the period between World War I and World War II, there was a general in the United States who was convinced that aviation would be very important in the next war. But all other experts in the United States were against him. He could not convince them. If you have to convince a group of people who are not directly dependent on the solution of a problem, you will never succeed. This is true also of noneconomic problems.

There have been painters, poets, writers, composers, who complained that the public did not acknowledge their work and caused them to remain poor. The public may certainly have had poor judgment, but when these artists said: “The government ought to support great artists, painters, and writers,” they were very much in the wrong. Whom should the government entrust with the task of deciding whether a newcomer is really a great painter or not? It would have to rely on the judgment of the critics, and the professors of the history of art who are always looking back into the past yet who very rarely have shown the talent to discover new genius. This is the great difference between a system of “planning” and a system in which everyone can plan and act for himself.

It is true, of course, that great painters and great writers have often had to endure great hardships. They might have succeeded in their art, but not always in getting money. Van Gogh was certainly a great painter. He had to suffer unbearable hardship and, finally, when he was thirty-seven years old, he committed suicide. In all his life he sold only one painting and the buyer of it was his cousin. Apart from this one sale, he lived from the money of his brother, who was not an artist nor a painter. But van Gogh’s brother understood a painter’s needs. Today you cannot buy a van Gogh for less than hundred or two hundred thousand dollars.

Under a socialist system, van Gogh’s fate might have been different. Some government official would have asked some well-known painters (whom van Gogh certainly would not have regarded as artists at all) whether this young man, half or completely crazy, was really a painter worthy to be supported. And they without a doubt, would have answered: “No, he is not a painter; he is not an artist; he is just a man who wastes paint;” and they would have sent him into a milk factory or into a home for the insane. Therefore all this enthusiasm in favor of socialism by the rising generation of painters, poets, musicians, journalists, actors, is based on an illusion. I mention this because these groups are among the most fanatical supporters of the socialist idea.

VI.

When it comes to choosing between socialism and capitalism as an economic system, the problem is somewhat different. The authors of socialism never suspected that modern industry, and all the operations of modern business, are based on calculation. Engineers are by no means the only ones who make plans on the basis of calculations, businessmen also must do so. And businessmen’s calculations are all based on the fact that, in the market economy, the money prices of goods inform not only the consumer, they also provide vital information to businessmen about the factors of production, the main function of the market being not merely to determine the cost of the last part of the process of production and transfer of goods to the hands of the consumer, but the cost of those steps leading up to it. The whole market system is bound up with the fact that there is a mentally calculated division of labor between the various businessmen who vie with each other in bidding for the factors of production—the raw materials, the machines, the instruments—and for the human factor of production, the wages paid to labor. This sort of calculation by the businessman cannot be accomplished in the absence of prices supplied by the market.

At the very instant you abolish the market—which is what the socialists would like to do—you render useless all the computations and calculations of the engineers and technologists. The technologists can give you a great number of projects which, from the point of view of the natural sciences, are equally feasible, but it takes the market-based calculations of the businessman to make clear which of those projects is the most advantageous, from the economic point of view.

The problem with which I am dealing here is the fundamental issue of capitalistic economic calculation as opposed to socialism. The fact is that economic calculation, and therefore all technological planning, is possible only if there are money prices, not only for consumer goods but also for the factors of production. This means there has to be a market for raw materials, for all half-finished goods, for all tools and machines, and for all kinds of human labor and human services.

When this fact was discovered, the socialists did not know how to respond. For 150 years they had said: “All the evils in the world come from the fact that there are markets and market prices. We want to abolish the market and with it, of course, the market economy, and substitute for it a system without prices and without markets.” They wanted to abolish what Marx called the “commodity character” of commodities and of labor.

When faced with this new problem, the authors of socialism, having no answer, finally said: “We will not abolish the market altogether; we will pretend that a market exists; we will play market, like children who play school.” But everyone knows that when children play school, they do not learn anything. It is just an exercise, a game, and you can “play” at many things.

This is a very difficult and complicated problem and in order to deal with it in full one needs a little more time than I have here. I have explained it in detail in my writings. In six lectures I cannot enter into an analysis of all its aspects. Therefore, I want to advise you, if you are interested in the fundamental problem of the impossibility of calculation and planning under socialism, read my book Human Action, which is available in an excellent Spanish translation.

But read other books, too, like the book of the Norwegian economist Trygve Hoff, who wrote on economic calculation. And if you do not want to be one-sided, I recommend that you read the highly-regarded socialist book on this subject by the eminent Polish economist Oskar Lange, who at one time was a professor at an American university, then became a Polish ambassador, and later returned to Poland.

VII.

You will probably ask me: “What about Russia? How do the Russians handle this question?” This changes the problem. The Russians operate their socialistic system within a world in which there are prices for all the factors of production, for all raw materials, for everything. They can therefore employ, for their planning, the foreign prices of the world market. And because there are certain differences between conditions in Russia and those in United States, the result is very often that the Russians consider something to be justified and advisable—from their economic point of view—that the Americans would not consider economically justifiable at all.

The “Soviet experiment,” as it was called, does not prove anything. It does not tell us anything about the fundamental problem of socialism, the problem of calculation. But are we entitled to speak of it as an experiment? I do not believe there is such a thing as a scientific experiment in the field of human action and economics. You cannot make laboratory experiments in the field of human action because a scientific experiment requires that you do the same thing under various conditions, or that you maintain the same conditions, changing perhaps only one factor. For instance, if you inject into a cancerous animal some experimental medication, the result may be that the cancer will disappear. You can test this with various animals of the same kind which suffer from the same malignancy. If you treat some of them with the new method and do not treat the rest, then you can compare the result. You cannot do this within the field of human action. There are no laboratory experiments in human action.

The so-called Soviet “experiment” merely shows that the standard of living is incomparably lower in Soviet Russia than it is in the country that is considered, by the whole world, as the paragon of capitalism: the United States.

Of course, if you tell this to a socialist, he will say: “Things are wonderful in Russia.” And you tell him: “They may be wonderful, but the average standard of living is much lower.” Then he will answer: “Yes, but remember how terrible it was for the Russians under the tsars and how terrible a war we had to fight.”

I do not want to enter into discussion of whether this is or is not a correct explanation, but if you deny that the conditions are the same, you deny that it was an experiment. You must then say this (which would be much more correct): “Socialism in Russia has not brought about an improvement in the conditions of the average man which can be compared with the improvement of conditions, during the same period, in the United States.”

In the United States you hear of something new, of some improvement, almost every week. These are improvements that business has generated, because thousands and thousands of business people are trying day and night to find some new product which satisfies the consumer better or is less expensive to produce, or better and less expensive than the existing products. They do not do this out of altruism, they do it because they want to make money. And the effect is that you have an improvement in the standard of living in the United States which is almost miraculous, when compared with the conditions that existed fifty or a hundred years ago. But in Soviet Russia, where you do not have such a system, you do not have a comparable improvement. So those people who tell us that we ought to adopt the Soviet system are badly mistaken.

There is something else that should be mentioned. The American consumer, the individual, is both a buyer and a boss. When you leave a store in America, you may find a sign saying: “Thank you for your patronage. Please come again.” But when you go into a shop in a totalitarian country—be it in present-day Russia, or in Germany as it was under the regime of Hitler—the shopkeeper tells you: “You have to be thankful to the great leader for giving you this.”

In socialist countries, it is not the seller who has to be grateful, it is the buyer. The citizen is not the boss; the boss is the Central Committee, the Central Office. Those socialist committees and leaders and dictators are supreme, and the people simply have to obey them.

  • Ludwig von Mises is an originator in economic theory, and a prolific author. Mises’s writings and lectures encompassed economic theory, history, epistemology, government, and political philosophy. His contributions to economic theory include important clarifications on the quantity theory of money, the theory of the trade cycle, the integration of monetary theory with economic theory in general, and a demonstration that socialism must fail because it cannot solve the problem of e
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How Does One Apply Rational Egoism in a Mixed Economy, Welfare State? BY JAANA WOICESHYN | JAN 15, 2021 | BUSINESS

While the welfare state cannot be transformed into a free-market system overnight, businesspeople can help by speaking up (in forums open to them) when restrictions on freedom of business are being proposed by government and other groups.

I recently taught a short course introducing business ethics and rational egoism to Executive MBA students. One student observed that it would be easier to apply egoist principles in free markets where acting on such principles, for example, rationality, productiveness, and justice, would be rewarded and profit-making valued. But, the student asked, how does one apply rational egoism in a mixed economy, the prevailing welfare state system?

The student’s question was apt: the welfare state system makes it challenging for business to pursue its (owners’) self-interest—long-term profit maximization—because the rational egoist moral principles are at odds with the dominant moral code on which the welfare state is founded: altruism. It is a code that guides putting others’ interests always ahead of one’s own. This contrasts with the free-market system—capitalism—that is based on in rational egoism. This code advocates the pursuit of self-interest that allows only voluntary and mutually beneficial interactions and renounces the initiation of physical coercion against others.

In a welfare state, many investors, customers, employees, and the government expect business to act altruistically at least some of the time. The business is expected to sacrifice profits for the causes that these stakeholders favor, such as fighting climate change, reducing income inequality, and for various government programs that support them. In contrast, in capitalism, business is expected to focus on creating material values on which people’s lives depend and on trading these values for profit.

The social pressures to conform to others’ altruistic expectations can be significant in a welfare state system and can lead to business appeasing them. As an example, in 2019, the Roundtable of CEOs of 200 major corporations re-defined the purpose of the corporation from creating wealth for its shareholders to serving all its stakeholders equally, including “communities.”

However, if business wants to perform its proper—necessary—role as the creator of material values, such appeasement will not do. It must pursue its long-term self-interest, guided by the rational egoist principles. For that, business must claim the moral high ground. This requires recognizing that business is a tremendous force for good in society. Businesses produce the goods and services that not only make people’s lives possible, but make them better: from food to medicine to energy and beyond. Businesses do this by trading freely with their employees, customers, and suppliers, without violating anyone’s rights.

Understanding that business is a moral endeavor which enhances human life gives businesspeople the courage to defend their companies’ profit-maximization against demands for altruistic sacrifice for the sake of social and environmental goals. A good recent example of moral clarity and courage is Adam Anderson, CEO of Innovex Downhole Solutions in Texas, who wrote an open letter defending his company and industry to North Face. The latter had refused an order of 400 jackets with Innovex logo. North Face did not want to sell branded products to companies in the oil and gas industry because of their CO2 emissions (despite the fact that North Face’s products are derived from oi).

In a welfare state, it may not be always possible for business to pursue self-interest by applying the rational egoist principles, or to benefit from doing so. In such a system, the government controls the economy and business to varying degrees. Governments can prevent the creation of material values altogether, for example, by banning the production of fossil fuels, construction of oil pipelines, or operations of new businesses that disrupt existing industries (such as ride-sharing services Uber and Lyft). In addition, welfare state governments use cronyism to grant favors (exclusive contracts, tax breaks, coercive monopolies, etc.) to some businesses, thus disadvantaging others. Governments also curtail companies’ profits through regulations and welfare programs.

Therefore, business claiming the moral high ground is not enough for it to be able to pursue rational self-interest. It must demand also freedom to operate: being left alone by the government. But once the morality of business has been asserted, this is easier to do. Because the mixed economy welfare state is unstable, always being pulled to the opposite directions of its main elements—government control and freedom, it is possible to help move it to either direction.

While the welfare state cannot be transformed into a free-market system overnight, businesspeople can help by speaking up (in forums open to them) when restrictions on freedom of business are being proposed by government and other groups. This way, business can move the needle towards more freedom, and therefore, towards more value creation, more prosperity, and more human wellbeing.

Poverty

“Capitalism has created the highest standard of living ever known on earth. The evidence is incontrovertible. The contrast between West and East Berlin is the latest demonstration, like a laboratory experiment for all to see. Yet those who are loudest in proclaiming their desire to eliminate poverty are loudest in denouncing capitalism. Man’s well-being is not their goal.” — AYN RAND, “Theory and Practice,” Capitalism: The Unknown Ideal, 136

‘Poverty is not a justification to rob “the rich.”

What about the poor under capitalism? The question accepts the collectivist premise that wealth is a static quantity owned by that amorphous super-organism, the “collective” to be looted from those individuals who create it. The other side of that question is: what about those who are not poor? What of them? Let us not forget that the “rich” are people too with an equal right to their life, liberty, property, and the pursuit of happiness. The fact that one is poor is no justification for robbing someone who is less poor than you. That a man does not have riches, and another does, is no excuse for the first to steal from the latter — neither is it a moral justification for the state to rob the first for the benefit of the latter.

Riches obtained through economic production vs. political plunder

By “rich,” I do not mean cronies who gained their fortunes by political pull, by having the government grant them favors and franchises at the expense of their fellow-men. By “rich,” in this context, I refer to businessmen who achieved their fortunes by economic means — through production and trade.

The poor, like the rich, need economic freedom under a rule of law

As for poverty, under capitalism, no poor man is prohibited from creating a fortune.

Observe that in the late nineteenth and early twentieth-century America how hundreds of poor immigrants came to America and within a generation were America’s newest elite. Even today, in semi-free America, many such immigrants come here starting with nothing and create fortunes — despite the volumes of irrational regulations that punish those who have an urgent need to accumulate capital (the poor).

The “poor” don’t need government handouts — they need government off their backs and off the backs of those who can help them — the “rich.”

“The real problem of poverty is not a problem of ‘distribution’ but of production. The poor are poor not because something is being withheld from them but because, for whatever reason, they are not producing enough.” — Henry Hazlitt

Who is the poor man better off under Mother Teresa or Bill Gates? A Mother Teresa who hands them bowls of slop every day, so they can barely exist — or a genius like Bill Gates who creates a fortune for himself by helping others to create fortunes for themselves, i.e., “where the first feed them for a day, the second helps them feed themselves.” Observe that it is the Bill Gates of the world (until recently) who are not allowed to exist in India — and the Mother Teresas who are.

To answer the question, “What about the poor under capitalism?” one must first answer, “Why are there poor people in the first place?” The source of all poverty is the lack of wealth, which must be produced. The source of production (and thus wealth) is man’s mind, which politically has only one requirement: freedom. Politically, this is the single cause of mass poverty: the lack of freedom. Observe the poorest countries are those where freedom is lacking.

Capitalism did not create absolute poverty, but it inherited it from pre-capitalist systems

Far from being a cause of absolute poverty, laissez-faire capitalism is the only solution to solving it. Observe that the freedom that a rich man needs to maintain and add to his wealth, is the same freedom a poor man needs to create his wealth — and the creation of wealth for both has the same root — reason.

The only requirement of reason from the state is entirely singular in principle: freedom, that is, the banishment of the initiation of force from all social relationships. This is precisely the freedom that the “humanitarians” oppose, since this “right” to freedom and liberty, can only come at the expense of the alleged humanitarian’s “might.” Since all men are free to create wealth under capitalism, no one is forced into poverty, as in non-capitalist countries.

Keep in mind that the moral justification of capitalism is not that it serves the “needs of the many,” but that it protects the rights of every individual — in particular, it protects the individual from the “many” (majority). Capitalism is not egalitarianism ideal of “social justice”; capitalism is for justice.

Capitalism is the best — the ideal — theory, because to the extent that it is allowed to work, it works in practice.

Capitalism.org

Charity vs. Welfare

Welfare is the forcible transfer of wealth by the government from those who produced the wealth to other individuals who “need” that wealth.

Welfare is the forcible transfer of wealth (usually by taxes) by the government from those who produced the wealth to another individual (or group of individuals).

Where private charity is voluntary, the “paternalism” of government welfare is involuntary.

The alleged justification for welfare is altruism: sacrifice of one’s interests for others.

The justification for this expropriation of funds is that those who are receiving the wealth (handouts) “need” it, and those who do not voluntarily give their money have “greed” so their money must be forcibly taken from them.

At the root of the claim that the creators of wealth owe the non-creators is the ethical code of altruism — self-sacrifice of one’s own life for others (‘altru’ meaning other). In Marxist jargon, this means that wealth is plundered “from each according to his ability” and distributed “to each according to his needs.” The producer has the ability, i.e., “greed”—the welfare recipient has a need—the inalienable rights of the producer be damned.

Welfare renders the producers slaves and the “humanitarian” middle-men as their masters. Whether the thief is wearing a ski mask or is a dressed in a pinstripe suit of a congressman, does not change the nature of their actions in principle: both are looters as both are initiators of force. With one exception, the man wearing the ski mask is more honest: he is not a big enough hypocrite to tell the citizen he is robbing him of his hard-earned wealth “for his good,” or “for the good of the people.”

The Voice of Capitalism

The Five Pillars of Capitalism

Capitalism. It’s something you’ve heard of, but do you truly know what it is? In simple terms, capitalism is an economic system where a country’s production and means of operation are controlled by private owners for profit. Most countries nowadays, such as the US, France, and Ireland, practice a form of capitalism that is a combination of free markets and government intervention, called mixed economies. These capitalist economies operate on the pillars of private property, supply and demand, competition, freedom, and incentive. Today we will explore what these entail when it comes to capitalism.

Private Property

Private property allows people to own tangible and intangible assets, with examples of the former being land and houses, the latter stocks and bonds. By having a private property, efficiency in the economy is promoted since owners of resources will be given incentives to maximize property value. Their incentive may be money or any form of profit deemed worthy when an individual exchanges their private property in a mutually beneficial transaction.

Supply and Demand

Supply and demand determine the prices of goods and services. If the good or service you are selling is in high demand, it is worth more. For example, if you want to buy land in the middle of nowhere, it won’t cost that much because it is not close to the best schools, jobs, nor the best places for goods and services. If there is a high supply of land but low demand, you can buy a lot of land for a lot less than, say, land in an area that offers great schools, jobs, and services. Overall, if you would like to purchase land where supply is lower and demand is greater, then the cost of buying that land will also be higher.

Competition

Competition is at the heart of a capitalist system. Competition drives businesses to work at maximum efficiency and offer their products at the best prices with high quality to avoid getting beaten out by competitors that have better prices, efficiency, and quality. Having competition creates more productivity and innovation in the workplace, as each company aims to improve in order to make more desirable / cheaper goods and services for consumers.

Freedom

Freedom in a capitalist economy means that no one can tell you what to do in order to earn money, and no one can tell you how to spend it. Everything is ultimately up to you. You can make your own choices, whether you want to go to college, go straight to the workforce, or become an electrician or lawyer. It’s entirely up to you and what you plan to do with your life.

Incentive

An incentive in economics is the financial motivation for people to take certain actions. It allows businesses to become more creative and inventive, as everyone competes to have products or services that are better than their competitors. As a result, more desirable or cheaper products and services are formed, which is ultimately better for the consumers. Therefore, this is your incentive to make more money than your competitors.

While no country operates on a pure, or “laissez-faire” capitalist economy, the many mixed economies of today’s world rely on these five pillars to drive their markets. Together, we have explored the basics of a system that is very broad, with both good things and drawbacks.

Sharon Lee, Voices of Capitalism

What is Capitalism ?

Capitalism (from the Latin word capta, meaning “head”) is a social system based on individual rights that unleashes the power of the human mind.

The term capitalism is used here in the broader political sense, i.e., a free society, and not in the narrower economic sense, i.e., a free-market.

Capitalism is not just an economic system that can be grafted onto any political structure, but is a complex, integrated social system that depends on a specific ethical, political, legal, economic, and cultural foundation:

1. Morality: Rational Self-Interest

Capitalism is based on the moral philosophy of rational self-interest (rational egoism): a code of morality based on what a rational being requires to achieve happiness living on earth. Such a moral code is part of an integrated philosophy that in Ayn Rand’s words holds up “the concept of man as a heroic being, with his own happiness as the moral purpose of his life, with productive achievement as his noblest activity, and reason as his only absolute”.

2. Politics: Individual Rights

To rationally pursue one’s own happiness (self-interest) in reality requires only one thing from others: freedom from coercion. Capitalism regards the individual as a sovereign being with an inalienable moral right to take the actions necessary to support one’s life, so long as one respects the equal freedom of others to do the same.

3. Legal System: Objective Law

Capitalism operates according to a rule of objective law in both form (a republican government operating with a separation of powers and a written constitution to limit those powers) and function (government’s function is the protection of individual rights by banning the initiation of physical force and fraud).

4. Economics: Free-Market in Goods, Services, and Relationships

Freedom protected by objective law, applied to the sphere of production and trade, results in a free-market in material — and spiritual — values. In such a division of labor society, one pursues one’s own self-interest by specializing in the production of goods and services for mutually beneficial trade with others.

5. Culture: Peace, Prosperity & Progress

Culturally, this freedom in the economic and personal sphere leads to innovation in the arts, technology, and sciences, leading to peace (by banishing force from all relationships), progress (by unleashing the power of the rational mind, the source of all progress), and prosperity (by the ability to create more wealth with less time, work, and resources).

Capitalism Magazine

Words of Wisdom by Ayn Rand

Productiveness is your acceptance of morality, your recognition of the fact that you choose to live–that productive work is the process by which man’s consciousness controls his existence, a constant process of acquiring knowledge and shaping matter to fit one’s purpose, of translating an idea into physical form, of remaking the earth in the image of one’s values–that all work is creative work if done by a thinking mind, and no work is creative if done by a blank who repeats in uncritical stupor a routine he has learned from others–that your work is yours to choose, and the choice is as wide as your mind, that nothing more is possible to you and nothing less is human–that to cheat your way into a job bigger than your mind can handle is to become a fear-corroded ape on borrowed motions and borrowed time, and to settle down into a job that requires less than your mind’s full capacity is to cut your motor and sentence yourself to another kind of motion: decay–that your work is the process of achieving your values, and to lose your ambition for values is to lose your ambition to live–that your body is a machine, but your mind is its driver, and you must drive as far as your mind will take you, with achievement as the goal of your road–that the man who has no purpose is a machine that coasts downhill at the mercy of any boulder to crash in the first chance ditch, that the man who stifles his mind is a stalled machine slowly going to rust, that the man who lets a leader prescribe his course is a wreck being towed to the scrap heap, and the man who makes another man his goal is a hitchhiker no driver should ever pick up–that your work is the purpose of your life, and you must speed past any killer who assumes the right to stop you, that any value you might find outside your work, any other loyalty or love, can be only travelers you choose to share your journey and must be travelers going on their own power in the same direction.”
― Ayn Rand

The Right is Dead, Iceberg on the Left

Black Lives Matter activists and allies descended on the California seaside community of Marina del Rey over the weekend as part of the group’s annual ‘Black Xmas’ protest to disrupt “white capitalism.”

This year, organizers targeted Amazon and its founder, Jeff Bezos, the world’s wealthiest person with a net worth of $182 billion.” [Daily Wire]

Wow. It looks like the Marxist Black Lives Matter is on a collision course with the elite corporate socialists in the Democratic Party. Joe Biden will have a lot of healing to do. By the way, actual, unregulated capitalism lifts the standard of living for everyone. Only a racist would suggest that blacks cannot benefit from economic freedom, while whites can.

Michael J. Hurd, Daily Dose of Reason

Walter Williams: Suffer No Fools – Full Video

Professor Walter E. Williams passed away some two weeks ago. Among other things, he was called “The People’s Economist.” He spent his life trying to enlighten us on our Founding principles, individualism, and the morality of free-market capitalism. One of his last contributions to liberty is the attached YouTube video “Suffer No Fools.”

Its message is universal and transcendent.

The Artful Dilettante

Individualism and the Industrial Revolution

Liberals stressed the importance of the individual. The 19th-century liberals already considered the development of the individual the most important thing. “Individual and individualism” was the progressive and liberal slogan. Reactionaries had already attacked this position at the beginning of the 19th century.

The rationalists and liberals of the 18th century pointed out that what was needed was good laws. Ancient customs that could not be justified by rationality should be abandoned. The only justification for a law was whether or not it was liable to promote the public social welfare. In many countries the liberals and rationalists asked for written constitutions, the codification of laws, and for new laws which would permit the development of the faculties of every individual.

A reaction to this idea developed, especially in Germany where the jurist and legal historian Friedrich Karl von Savigny (1779–1861) was active. Savigny declared that laws cannot be written by men; laws are developed in some mystical way by the soul of the whole unit. It isn’t the individual that thinks—it is the nation or a social entity which uses the individual only for the expression of its own thoughts. This idea was very much emphasized by Marx and the Marxists. In this regard the Marxists were not followers of Hegel, whose main idea of historical evolution was an evolution toward freedom of the individual.

From the viewpoint of Marx and Engels, the individual was a negligible thing in the eyes of the nation. Marx and Engels denied that the individual played a role in historical evolution. According to them, history goes its own way. The material productive forces go their own way, developing independently of the wills of individuals. And historical events come with the inevitability of a law of nature. The material productive forces work like a director in an opera; they must have a substitute available in case of a problem, as the opera director must have a substitute if the singer gets sick. According to this idea, Napoleon and Dante, for instance, were unimportant—if they had not appeared to take their own special place in history, someone else would have appeared on stage to fill their shoes.

To understand certain words, you must understand the German language. From the 17th century on, considerable effort was spent in fighting the use of Latin words and in eliminating them from the German language. In many cases a foreign word remained although there was also a German expression with the same meaning. The two words began as synonyms, but in the course of history, they acquired different meanings. For instance, take the word Umwälzung, the literal German translation of the Latin word revolution. In the Latin word there was no sense of fighting. Thus, there evolved two meanings for the word “revolution”—one by violence, and the other meaning a gradual revolution like the “Industrial Revolution.” However, Marx uses the German word Revolution not only for violent revolutions such as the French or Russian revolutions, but also for the gradual Industrial Revolution.

Incidentally, the term Industrial Revolution was introduced by Arnold Toynbee (1852–1883). Marxists say that “What furthers the overthrow of capitalism is not revolution—look at the Industrial Revolution.”

Marx assigned a special meaning to slavery, serfdom, and other systems of bondage. It was necessary, he said, for the workers to be free in order for the exploiter to exploit them. This idea came from the interpretation he gave to the situation of the feudal lord who had to care for his workers even when they weren’t working. Marx interpreted the liberal changes that developed as freeing the exploiter of the responsibility for the lives of the workers. Marx didn’t see that the liberal movement was directed at the abolition of inequality under law, as between serf and lord.

Karl Marx believed that capital accumulation was an obstacle. In his eyes, the only explanation for wealth accumulation was that somebody had robbed somebody else. For Karl Marx the whole Industrial Revolution simply consisted of the exploitation of the workers by the capitalists. According to him, the situation of the workers became worse with the coming of capitalism. The difference between their situation and that of slaves and serfs was only that the capitalist had no obligation to care for workers who were no longer exploitable, while the lord was bound to care for slaves and serfs. This is another of the insoluble contradictions in the Marxian system. Yet it is accepted by many economists today without realizing of what this contradiction consists.

According to Marx, capitalism is a necessary and inevitable stage in the history of mankind leading men from primitive conditions to the millennium of socialism. If capitalism is a necessary and inevitable step on the road to socialism, then one cannot consistently claim, from the point of view of Marx, that what the capitalist does is ethically and morally bad. Therefore, why does Marx attack the capitalists?

Marx says part of production is appropriated by the capitalists and withheld from the workers. According to Marx, this is very bad. The consequence is that the workers are no longer in a position to consume the whole production produced. A part of what they have produced, therefore, remains unconsumed; there is “underconsumption.” For this reason, because there is underconsumption, economic depressions occur regularly. This is the Marxian underconsumption theory of depressions. Yet Marx contradicts this theory elsewhere.

Marxian writers do not explain why production proceeds from simpler to more and more complicated methods.

Nor did Marx mention the following fact: About 1700, the population of Great Britain was about 5.5 million; by the middle of 1700, the population was 6.5 million, about 500,000 of whom were simply destitute. The whole economic system had produced a “surplus” population. The surplus population problem appeared earlier in Great Britain than on continental Europe. This happened, first of all, because Great Britain was an island and so was not subject to invasion by foreign armies, which helped to reduce the populations in Europe. The wars in Great Britain were civil wars, which were bad, but they stopped. And then this outlet for the surplus population disappeared, so the numbers of surplus people grew. In Europe the situation was different; for one thing, the opportunity to work in agriculture was more favorable than in England.

The old economic system in England couldn’t cope with the surplus population. The surplus people were mostly very bad people—beggars and robbers and thieves and prostitutes. They were supported by various institutions, the poor laws,1 and the charity of the communities. Some were impressed into the army and navy for service abroad. There were also superfluous people in agriculture. The existing system of guilds and other monopolies in the processing industries made the expansion of industry impossible.

In those precapitalist ages, there was a sharp division between the classes of society who could afford new shoes and new clothes, and those who could not. The processing industries produced by and large for the upper classes. Those who could not afford new clothes wore hand-me-downs. There was then a very considerable trade in secondhand clothes—a trade which disappeared almost completely when modern industry began to produce also for the lower classes. If capitalism had not provided the means of sustenance for these “surplus” people, they would have died from starvation. Smallpox accounted for many deaths in precapitalist times; it has now been practically wiped out. Improvements in medicine are also a product of capitalism.

What Marx called the great catastrophe of the Industrial Revolution was not a catastrophe at all; it brought about a tremendous improvement in the conditions of the people. Many survived who wouldn’t have survived otherwise. It is not true, as Marx said, that the improvements in technology are available only to the exploiters and that the masses are living in a state much worse than on the eve of the Industrial Revolution. Everything the Marxists say about exploitation is absolutely wrong! Lies! In fact, capitalism made it possible for many persons to survive who wouldn’t have otherwise. And today many people, or most people, live at a much higher standard of living than that at which their ancestors lived 100 or 200 years ago.

During the 18th century, there appeared a number of eminent authors—the best known was Adam Smith (1723–1790)—who pleaded for freedom of trade. And they argued against monopoly, against the guilds, and against privileges given by the king and Parliament. Secondly, some ingenious individuals, almost without any savings and capital, began to organize starving paupers for production, not in factories but outside the factories, and not for the upper classes only. These newly organized producers began to make simple goods precisely for the great masses. This was the great change that took place; this was the Industrial Revolution. And this Industrial Revolution made more food and other goods available so that the population rose. Nobody saw less of what really was going on than Karl Marx. By the eve of the Second World War, the population had increased so much that there were 60 million Englishmen.

You can’t compare the United States with England. The United States began almost as a country of modern capitalism. But we may say by and large that out of eight people living today in the countries of Western civilization, seven are alive only because of the Industrial Revolution. Are you personally sure that you are the one out of eight who would have lived even in the absence of the Industrial Revolution? If you are not sure, stop and consider the consequences of the Industrial Revolution.

The interpretation given by Marx to the Industrial Revolution is applied also to the interpretation of the “superstructure.” Marx said the “material productive forces,” the tools and machines, produce the “production relations,” the social structure, property rights, and so forth, which produce the “superstructure,” the philosophy, art, and religion. The “superstructure,” said Marx, depends on the class situation of the individuals, i.e., whether he is a poet, painter, and so on. Marx interpreted everything that happened in the spiritual life of the nation from this point of view. Arthur Schopenhauer (1788–1860) was called a philosopher of the owners of common stock and bonds. Friedrich Nietzsche (1844–1900) was called the philosopher of big business. For every change in ideology, for every change in music, art, novel writing, play writing, the Marxians had an immediate interpretation. Every new book was explained by the “superstructure” of that particular day. Every book was assigned an adjective—”bourgeois” or “proletarian.” The bourgeoisie were considered an undifferentiated reactionary mass.

Don’t think it is possible for a man to practice all his life a certain ideology without believing in it. The use of the term “mature capitalism” shows how fully persons, who don’t think of themselves as Marxian in any way, have been influenced by Marx. Mr. and Mrs. Hammond, in fact almost all historians, have accepted the Marxian interpretation of the Industrial Revolution.2 The one exception is Ashton.3“Everything the Marxists say about exploitation is absolutely wrong! Lies! In fact, capitalism made it possible for many persons to survive who wouldn’t have otherwise.”

Karl Marx, in the second part of his career, was not an interventionist; he was in favor of laissez-faire. Because he expected the breakdown of capitalism and the substitution of socialism to come from the full maturity of capitalism, he was in favor of letting capitalism develop. In this regard he was, in his writings and in his books, a supporter of economic freedom.

Marx believed that interventionist measures were unfavorable because they delayed the coming of socialism. Labor unions recommended interventions and, therefore, Marx was opposed to them. Labor unions don’t produce anything anyway and it would have been impossible to raise wage rates if producers had not actually produced more.

Marx claimed interventions hurt the interests of the workers. The German socialists voted against [Otto von] Bismarck’s social reforms that he instituted circa 1881 (Marx died in 1883). And in this country the Communists were against the New Deal. Of course, the real reason for their opposition to the government in power was very different. No opposition party wants to assign so much power to another party. In drafting socialist programs, everybody assumes tacitly that he himself will be the planner or the dictator, or that the planner or dictator will be intellectually completely dependent on him and that the planner or dictator will be his handyman. No one wants to be a single member in the planning scheme of somebody else.

These ideas of planning go back to Plato’s treatise on the form of the commonwealth. Plato was very outspoken. He planned a system ruled exclusively by philosophers. He wanted to eliminate all individual rights and decisions. Nobody should go anywhere, rest, sleep, eat, drink, wash, unless he was told to do so. Plato wanted to reduce persons to the status of pawns in his plan. What is needed is a dictator who appoints a philosopher as a kind of prime minister or president of the central board of production management. The program of all such consistent socialists—Plato and Hitler, for instance—planned also for the production of future socialists, the breeding and education of future members of society.

During the 2,300 years since Plato, very little opposition has been registered to his ideas. Not even by Kant. The psychological bias in favor of socialism must be taken into consideration in discussing Marxian ideas. This is not limited to those who call themselves Marxian.

Marxians deny that there is such a thing as the search for knowledge for the sake of knowledge alone. But they are not consistent in this case either, for they say one of the purposes of the socialist state is to eliminate such a search for knowledge. It is an insult, they say, for persons to study things that are useless.

Now I want to discuss the meaning of the ideological distortion of truths. Class consciousness is not developed in the beginning, but it must inevitably come. Marx developed his doctrine of ideology because he realized he couldn’t answer the criticisms raised against socialism. His answer was, “What you say is not true. It is only ideology. What a man thinks, so long as we do not have a classless society, is necessarily a class ideology—that is, it is based on a false consciousness.” Without any further explanation, Marx assumed that such an ideology was useful to the class and to the members of the class that developed it. Such ideas had for their goal the pursuit of the aims of their class.

Marx and Engels appeared and developed the class ideas of the proletariat. Therefore, from this time on the doctrine of the bourgeoisie is absolutely useless. Perhaps one may say that the bourgeoisie needed this explanation to solve a bad conscience. But why should they have a bad conscience if their existence is necessary? And it is necessary, according to Marxian doctrine, for without the bourgeoisie, capitalism cannot develop. And until capitalism is “mature,” there cannot be any socialism.

According to Marx, bourgeois economics, sometimes called “apologetics for bourgeois production,” aided them, the bourgeoisie. The Marxians could have said that the thought the bourgeoisie gave to this bad bourgeois theory justified, in their eyes, as well as in the eyes of the exploited, the capitalist mode of production, thus making it possible for the system to exist. But this would have been a very un-Marxist explanation. First of all, according to Marxian doctrine, no justification is needed for the bourgeois system of production; the bourgeoisie exploit because it is their business to exploit, just as it is the business of the microbes to exploit. The bourgeoisie don’t need any justification. Their class consciousness shows them that they have to do this; it is the capitalist’s nature to exploit.

A Russian friend of Marx wrote him that the task of the socialists must be to help the bourgeoisie exploit better and Marx replied that that was not necessary. Marx then wrote a short note saying that Russia could reach socialism without going through the capitalist stage. The next morning he must have realized that, if he admitted that one country could skip one of the inevitable stages, this would destroy his whole theory. So he didn’t send the note. Engels, who was not so bright, discovered this piece of paper in the desk of Karl Marx, copied it in his own handwriting, and sent his copy to Vera Zasulich (1849–1919), who was famous in Russia because she had attempted to assassinate the police commissioner in St. Petersburg and been acquitted by the jury—she had a good defense counsel. This woman published Marx’s note, and it became one of the great assets of the Bolshevik Party.

The capitalist system is a system in which promotion is precisely according to merit. If people do not get ahead, there is bitterness in their minds. They are reluctant to admit that they do not advance because of their lack of intelligence. They take their lack of advancement out on society. Many blame society and turn to socialism.

This tendency is especially strong in the ranks of intellectuals. Because professionals treat each other as equals, the less capable professionals consider themselves “superior” to nonprofessionals and feel they deserve more recognition than they receive. Envy plays an important role. There is a philosophical predisposition among persons to be dissatisfied with the existing state of affairs. There is dissatisfaction, also, with political conditions. If you are dissatisfied, you ask what other kind of state can be considered.

Marx had “antitalent”—i.e., a lack of talent. He was influenced by Hegel and Feuerbach, especially by Feuerbach’s critique of Christianity. Marx admitted that the exploitation doctrine was taken from an anonymous pamphlet published in the 1820s. His economics were distortions taken over from [David] Ricardo (1772–1823).4

Marx was economically ignorant; he didn’t realize that there can be doubts concerning the best means of production to be applied. The big question is, how shall we use the available scarce factors of production. Marx assumed that what has to be done is obvious. He didn’t realize that the future is always uncertain, that it is the job of every businessman to provide for the unknown future. In the capitalist system, the workers and technologists obey the entrepreneur. Under socialism, they will obey the socialist official. Marx didn’t take into consideration the fact that there is a difference between saying what has to be done and doing what somebody else has said must be done. The socialist state is necessarily a police state.

The withering away of the state was just Marx’s attempt to avoid answering the question about what would happen under socialism. Under socialism, the convicts will know that they are being punished for the benefit of the whole society.