I am actually pleased that I've gotten so much email -- most of it negative -- about my broadcast Saturday on what the term socialism means. I had wondered if I was wasting my time, that most people were wise enough to know that socialism and what is happening right now in America are sufficiently different so as to make it necessary to call the Obama Administration's current economic policy something different. I had settled on "interventionism" based on one of Mises' shorter works, because it illustrates something I had tried to explain.

There are only two systems of economic order: Planned systems (which we call "socialism") and spontaneous systems ("capitalism"). He says, in this classic reprinted by the Joint Economic Committee back in 1994,

Production can either be directed by the prices fixed on the market by the buying and by the abstention from buying on the part of the public. Or it can be directed by the government's central board of production management. There is no third solution available. There is no third social system feasible which would be neither market economy nor socialism. Government control of only a part of prices must result in a state of affairs which -- without any exception -- everybody considers as absurd and contrary to purpose. Its inevitable result is chaos and social unrest.

Mises argued that socialism takes two forms. Many of you who wrote to me after the show pointed out that socialism did not require direct bureaucratic control of the economy. That, as Mises argued, is one form. The other he characterizes by the German word Zwangswirtschaft, or "economic compulsion". While there are still private owners hiring workers, buying goods and making profits, they are directed by the state:

The government tells these seeming entrepreneurs what and how to produce, at what prices and from whom to buy, at what prices and to whom to sell. The government decrees at what wages laborers should work and to whom and under what terms the capitalists should entrust their funds. Market exchange is but a sham. As all prices, wages, and interest rates are fixed by the authority, they are prices, wages, and interest rates in appearance only; in fact they are merely quantitative terms in the authoritarian orders determining each citizen's income, consumption, and standard of living. The authority, not the consumers, directs production. The central board of production management is supreme; all citizens are nothing else but civil servants.

There is a fair amount of this beginning in the economy today, I agree. GM and Chrysler are but two examples. The directed lending from the Federal Reserve is another. What may happen in health care may be a third. (We don't know yet; they won't show their cards.)

But it is important to be taken seriously: We cannot argue for turning back this policy unless we properly identify it. And what we identify as socialism, in either the bureaucratic or compulsory forms, will demand proof that we don't yet have. And I don't think it helps to create a new term like "liberal fascism" or "fascism with a happy face" to do battle with those who we want to persuade. It's like comedy, as Johnny Carson used to say: Buy the premise, buy the bit. The word is value-laden and perjorative, putting people off before I can even start an argument. I need something different. So...

The interventionists emphasize that they plan to retain private ownership of the means of production, entrepreneurship and market exchange. But, they go on to say, it is peremptory to prevent these capitalist institutions from spreading havoc and unfairly exploiting the majority of people. It is the duty of government to restrain, by orders and prohibitions, the greed of the propertied classes lest their acquisitiveness harm the poorer classes. Unhampered or laissez-faire capitalism is an evil. But in order to eliminate its evils, there is no need to abolish capitalism entirely. It is possible to improve the capitalist system by government interference with the actions of the capitalists and entrepreneurs. Such government regulation and regimentation of business is the only method to keep off totalitarian socialism and to salvage those features of capitalism which are worth preserving.

There is an area in-between which is an unstable equilibrium. Its character is the black line between the two poles:
Many countries find themselves on the black line, including ours. But what do you call it? It's that area that Mises called "interventionism." It's worth noting that Mises did not think we would move inexorably towards Socialism; it's the lie that socialists use to defeat those who advocate market order to call their preference "progressive." Mises was not optimistic that the battle would be won, but he thought it could be.

Even in this country which owes to a century of "rugged individualism" the highest standard of living ever attained by any nation, public opinion condemns laissez-faire. In the last fifty years thousands of books have been published to indict capitalism and to advocate radical interventionism, the welfare state and socialism. The few books which tried to explain adequately the working of the free market economy were hardly noticed by the public. Their authors remained obscure, ... It is a well-known fact that the legitimate stage as well as the Hollywood industry are no less radically critical of free enterprise than are many novels. There are in this country many periodicals which in every issue furiously attack economic freedom. There is hardly any magazine of opinion that would plead for the system that [has made America better off].

...What we need is neither anti-socialism nor anti-communism but an open positive endorsement of that system to which we owe all the wealth that distinguishes our age from the comparatively straitened conditions of ages gone by.

I've used several times this almost offhand comment from Milton Friedman in 1975 as well:

"There's a strong argument to be made that a free society is a fundamentally unstable equilibrium, in the language of the natural sciences....There's a great deal of basis for believing that a free society is fundamentally unstable--we may regret this but we've got to face up to the facts....How often and for how long have we had free societies? For short periods of time. There was an essentially free society in 5th-century Greece. Was it able to survive? It disappeared. Every other time when there's been a free society, it has tended to disappear."

That period in the U.S. was 1789-1929, he later said. Nobody said an unstable equilibrium couldn't last for a long time. But its death began in earnest with FDR, and continues to this day. Once Republicans accepted that you could intervene even on a limited basis, the gravitational pull on my graphic above is all to the left.

It will not do, I argue, to just toss the label "socialist" towards Obama, Pelosi, et al. Et al. includes a LOT of people, not all of whom wear the scarlet D, if you confuse interventionism with socialism. It will do better to argue the positive position that ending intervention will result in a more prosperous and more free society. To do so will win you no friends, now and forever. Daniel Hannan, recalling Margaret Thatcher and the Left's hatred of her:

Anti-Thatcherites tell you that it's because she closed down the old industries. (She didn't, of course: she simply stopped obliging everyone else to support them.) Yet it must surely be obvious by now that nothing would have kept the dockyards and coalmines and steel mills open. A similar process of deindustrialisation has unfolded in every other Western European country [and the U.S. --kb], ...

No, what Lefties (with honourable exceptions) find so hard to forgive is the lady's very success: the fact that she rescued a country that they had dishonoured and impoverished; that she inherited a Britain that was sclerotic, indebted and declining and left it proud, wealthy and free; that she never lost an election to them. Their rage, in truth, can never be assuaged; for it is the rage of Caliban.

Will it do for supporters of free markets to battle rage with rage, epithet with epithet, or shall we instead build a better argument for why our world will be better than theirs? A free society may be unstable, but it isn't accidental.

Labels: economics, Final Word, NARN