Capitalism died in 1929 according to the esteemed pundits of our day. Since that fateful year, the prominent intellectuals and politicians of our country have been promoting the welfare state as a "safe, responsible, middle ground" between the opposite poles of capitalism and socialism -- the perfect system to preserve freedom, maintain economic stability, and bring about the good life.
Today's chaotic and corrupted America does little, though, to reinforce this notion. What the last seventy years have shown with their epileptic breakdown in socio-economic order, is that the welfare state is not a stable middle ground at all, but a highly unstable mixture of individual freedom and government intervention that is evolving steadily away from freedom toward an all pervasive statism.
It becomes more apparent every year that what Ludwig von Mises repeatedly declared throughout his extensive works is true, that there can never be an inbetween of the two political-economic systems of capitalism and socialism -- that is an inbetween that remains an inbetween. All systems that try to promote a mixture of both free enterprise and state intervention inevitably evolve into some form of authoritarian statism. There are three major reasons why this is so. Let's investigate each of them in detail.
Interventions Bring More Interventions
1) The first reason why the welfare state cannot sustain freedom is the famous Misesian thesis: Government interventions always breed economic dislocations that "necessitate" more government interventions.
For example, no government can pay for the extravagances of welfarism solely with taxes, for the productive members of society will stand for only so much taxation. Thus the politicians in power inevitably turn to the expedient of monetary inflation through manipulation by the Federal Reserve to pay for their extravagance.
Here is where the chain reaction of government interventions and dislocations really begins to play havoc. You can't inflate the money supply through the Federal Reserve without eventually causing higher prices. If you try to stop the rising prices with government price controls and rigging of the markets, you then limit profits; but you can't limit profits without lessening personal production, and you can't lessen personal production without eventually causing product shortages. But product shortages raise prices still further, and if price rigging is in effect, create economic chaos, malinvestment, black markets and corruption. If you attempt to control all the factors of production and the goods and services they produce in an effort to eliminate the chaos and corruption, then you must also control consumer choices and personal ambitions, for they determine what the factors of production are to produce. But you can't control consumer choices and personal ambitions without controlling the human mind; and you can't control the human mind without controlling education, the press, television, movies, books, etc. There is no end to the mania of government intervention except all-pervasive intervention -- i.e., dictatorship.
The Keynesian Revolution
The rationale for government intervention and control of the economy stems from several sources, one of the most important being the Keynesian revolution of the 1930's and its emphasis on "macro" rather than "micro" economic theory. This revolution shifted concern in the field from the interactions of individuals (micro) to the interplay of aggregates or collectives (macro).
Ultimately this meant in practice the subordination of the rights of the individual to allegedly higher "goods," i.e., the good of the economy, the expansion of the GNP, the building of a Great Society. This in turn led to the gradual justification by the Supreme Court of the right of government officials to coercively regulate individuals in greatly expanded areas, so as to promote the construction of such a Great Planned Society.
Because their emphasis is on aggregates, welfare state (or macro) economists automatically think in terms of expanding the economy's supply of money, dispensing the public's revenues, revamping the nation's priorities. Groups, cities, minorities, society, rather than individuals, are the important entities in their theoretical processes. And because of the profound influence that Keynes had, macro economists now seek to co-ordinate the nation's aggregates by manipulating its money supply, wage levels, business profits, and savings from Washington.
Here lies the major flaw of the interventionist paradigm, however: To think in terms of manipulating the profits, consumption, savings and investments of a society presupposes thinking in terms of manipulating human beings. You can't control money, wages, price levels and ratios of private consumption to public expenditures without also controlling people themselves. These phenomena are all merely effects; people and their thoughts, ambitions and actions are the causes.
Since, from a scientific standpoint, it does no good to attempt to alter or plan effects without also controlling causes, our planners in Washington, who wish to control and regulate our nation's economic productivity in an efficient manner, must ultimately try to control and regulate the causes of that productivity -- which are the thoughts, ambitions and actions of the men and women that create it. This will require some form of authoritarian political system.
At this juncture in history, welfare state theoreticians are concerned mostly with sparse and haphazard controls over human actions (through economic regulations), and over human thoughts and ambitions (through educational controls). But the nature of cause and effect relationships in reality will mandate further evolution of control. Our regulators and bureaucrats will gradually be led into an authoritarian system, which will ultimately require the methods utilized in a dictatorship. Of course, it won't be called a "dictatorship," just as nations such as Sweden today avoid the term in favor of a "humane socialist democracy." But if the government's controls are pervasive and arbitrary, and the individual's rights are not objectively defined, the nature of the system will be dictatorial.
The Swedish Nightmare as Prototype
Despite the fact that individual freedom shrivels to the most minimal of levels under Swedish style welfarism, America's "liberal" academic leaders tacitly applaud such a system, considering it to be a theoretical model of what Western nations should strive for.
This, in the face of socialism's collapse in the USSR. This, in face of the fact that government regimentation of the socio-economic order always leads to widespread chaos, stultification and despair.
Several writers in the past three decades have exposed the nightmarish cost of Sweden's massive state welfarism -- Roland Huntford's The New Totalitarians being the most celebrated. Under the benevolent guardianship of an all powerful, centralized state, the Swedes have totally relinquished their independence in exchange for a numbing and somnolent existence of the hive, where soul-crushing bureaucracies stretch their obtrusive tentacles into every nook and cranny of life. Taxes reach to the 90% level, one's children are nurtured as wards of the state, names become numbers, obsequiousness is admired, alcoholism and drug addiction are rampant, and ennui is everyone's constant companion.
Naturally our statist intellectuals here in America solicitously deny that they seek such all-pervasive authoritarian control, maintaining that they want only to intervene a little bit, and "redirect resources," "smooth out disparities," "create a perpetual prosperity." They don't intend to build a monstrous mega-state. But as we have seen, eventually they will have to if they intend to control things from Washington.
Centralized state welfarism must become dictatorial, just as the domestic dog that joins with wolves in the wild must become a feral beast, just as a deadly virus unleashed upon human cells must attempt to snuff out those cells' lives, just as all forces of reality set in motion must move on to the ultimate destiny established by their natures.
In his monumental study of 20th century bureaucratism, The Myth of the Welfare State, Jack D. Douglas analyzes this self-reinforcing nature of statist growth, and why centralized, interventionist governments inevitably evolve into more and more dictatorial forms:
"The megastate ratchets up slowly, always in the guise of 'serving the common welfare' and generally in the pretense of meeting a crisis. Once the bureaucratic regimentation of everyday life has become pervasive," it begins to bring about acute socio-economic crises such as inflation, recessions, shortages, monopolies, etc., which create "alienation and outrage" throughout the country.... "These crises triggered by the higher levels of statist bureaucratization then become the enabling crises of further ratchets-up in statist powers -- it becomes a vital necessity for 'the common welfare' to 'solve' the problems being caused by the drift into statist collectivization by increasing the bureaucratic regulations, which in turn produce new crises that must be solved by further, ratchets-up.
"The drift into statist regimentation of life is, thus, an autocatalytic process -- it reinforces itself, or feeds upon itself. The drift upward into greater regimentation accelerates because the new statist attempts at solutions to problems destroy the old ways of dealing with them, and build ratchets under the dependencies on the new statist 'solutions' as people restructure their life commitments in expectation of continuing those statist dependencies. At the extreme, statist bureaucracies first breed a generalized dependency in individual personalities and then in whole subcultures, whose members transmit this dependency to new generations....
"The drift into the massive regulation of life by statist bureaucracies is partially hidden from its victims by massive self-deceits and by massive political deceits.... The slowness of the drift allows the people to adjust to each step into submission, hardly noticing it and easily excusing it as merely a small encroachment. It also allows those who remember what life was really like before the drift into the 'iron cage' of bureaucratic regimentation to die off before the contrast is stark, thereby preventing their effective challenges to the agitprop indoctrination of the young." [Transaction Publishers, 1989, p. 24. Emphasis added.]
Thus all Keynesian welfare states, that utilize a mixture of economic freedom and government intervention, must inevitably establish pervasive dictatorial controls over most of the political, economic and educational activities of their people. It might take many, many decades for a nation to work itself into the position whereby its regimentation is widespread and insufferable, but that day will come when there is such socio-economic chaos and stultification resulting from all the "ratchets-up" and "crisis solutions," that the government will finally give up on even the pretense of freedom, and suspend the basic rights of the people.
Special Privileges to Factions
2) The second reason why the welfare state cannot sustain freedom is that government welfarism destroys a limited-objective framework of law, by extending special privileges to certain segments of society at the expense of other segments.
For example, it grants protective legislation to banks at the expense of the depositors; it gives special tax breaks to corporations at the expense of individual earners; it awards job quotas to ethnic minorities at the expense of the better qualified applicants; it conveys welfare subsidies to the less productive at the expense of the more productive; it passes monopoly laws to favor unions at the expense of the employers and workers, etc.
To put it more bluntly, the welfare state destroys the philosophy of "equal rights for all" in favor of "special privileges for factions." It is a doctrine of legalized favoritism that must, by its very nature, lead to dissension, corruption and tyranny.
Our intellectual leaders should consider the following: What possible hope for peace and good will can there be when some men and women (by joining into a large enough protest group) are allowed to use government coercion and intervention to gain their desires, while all other men and women are required to use only their own productive effort?
What possible kind of life can people live when the degree of their freedom is determined, not equally by the prestipulated law of the Constitution, but unequally by the variable whims of bureaucrats -- whims that can descend upon one at anytime in order to pacify the demands of the Wall Street banks, or the mega-corporations, or the AFL-CIO, or the welfare recipients, or the environmentalists, or the gay advocates, or Jesse Jackson and the Rainbow Coalition? What kind of social climate develops when people are penalized for their ability and self-reliance, and rewarded for the power of their lobbies on Capitol Hill and their protest marches in the streets? What kind of individual freedom and economic stability can we have when men and women are subjected to such injustice? What type of country will evolve from such a nonsensical and arbitrary rule?
The last four decades of political-economic turmoil in America have shown us what type of country -- a totally chaotic assemblage of special interest groups all protesting for and squabbling over whatever privileges, controls and subsidies they can extract from the Federal Government. And none of them willing to contemplate the destruction of individual freedom they are perpetrating in the process.
It is here in the nature of the welfare state and its evolution that we get a glimpse of one of the most important issues of political philosophy: Governments can be organized under one of two types of law: limited and objective, or open-ended and arbitrary. Which type we choose determines our way of life. The first leads to individualism and freedom; the second to collectivism and tyranny.
LIMITED, OBJECTIVE LAW means that the statutes enacted by the governing power are predetermined to do only certain things for the people, and they are equally applicable to everyone. In other words, there are no special privileges conveyed to any citizens or institutions (e.g., entitlements, subsidies, controls, tariffs, monopolies, etc.). The laws passed do not favor any individual or group over another in the processes of life. They do not help or hinder one in relation to another. Whatever they do, they do for everyone, and they are contained by constitutional mandate.
OPEN-ENDED, ARBITRARY LAW means that the statutes enacted by the governing power are haphazard and unequally applicable to the citizens of a country. They are up-for-grabs so to speak, concerned with dispensing preferential treatment to powerful interest groups in order to "buy votes." They are not predetermined, but based upon whim of the rulers (whether the rulers are one man, a council of men, or a majority of voters). Such laws can be all things to all men, some things to a few, or whatever happens to strike the present governing power as "desirable." There are either no limits, or poorly defined limits placed upon the expansion of such laws.
Throughout history all governments have been organized, to some degree or another, upon an open-ended, arbitrary basis. There has never been a country with a truly limited, objective system of law. America came close in 1787, but even she allowed for certain "special privileges" to be enacted into law, which set a precedent for their expansion. Naturally there are gradations of open-endedness and arbitrariness. Some systems are more open-ended and arbitrary than others in their exercise of governmental power, and thus more despotic than others.
This then is the second major fallacy of the welfare state vision of government. It is based totally upon open-ended, arbitrary law (i.e., the conveyance of special privileges according to the whims of the rulers and pressures of factions, with poorly defined limitations). The fact that the welfare state is democratic does not convey legitimacy to its arbitrary legislative power, nor does it justify the vast array of privileges that its factions and majorities vote for themselves. Tyranny is still tyranny, whether it is one man, ten men, or millions of men usurping the rights of the individual. The welfare state, despite its democratic implementation, is just another form of despotism that, if left unchecked, will steadily evolve into a more centralized tyranny.
The Moral-Philosophical Shift
3) The third reason why the welfare state cannot sustain freedom is rooted in the moral-philosophical shift this country has made since the turn of the century.
Prior to 1913, America was predominantly an unmixed, laissez-faire society, and definitely a much freer society. I say predominantly here, for America has never been a total laissez-faire society. Even from the start in 1787, the government arbitrarily exercised its power to dispense special privileges to various sectors of the country (it passed protective tariffs, subsidized canals and railways, sanctioned various public works bills, and until 1865 allowed the practice of slavery, etc.). But such interventionist favoritism was basically minimal throughout the 19th century, with the determination of most human action left up to the people themselves according to their own desires.
Thus what is important is that the great bulk of what was achieved by individuals during this period had to be done with their own peaceful effort and voluntary trade among themselves. The use of physical coercion to gain life's values was a crime, whether such coercion took the form of overpowering a traveler to take his purse, or union picketing to shut down a factory, or street riots to gain state welfare, or lobbying in Washington to seek subsidies for a failing business.
The law of the land was simple and just. No man could force another man to give him the basic economic necessities of life (either directly through robbery or indirectly through the taxman of the government). This was the beauty and strength of America -- the key to her freedom. Young people were raised to expect protection, never provision from their government. And thus they grew up as individuals in search of achievement, not as protestors in search of guaranteed incomes.
The passage of the Federal Reserve Act and the federal income tax in 1913, followed by a surge of government intervention into the economy, which brought on the Great Depression and the rise of FDR in 1932, dramatically changed all this. The New Dealers opened wide the floodgates of government coercion in men's lives by establishing the right of the government to take the wealth of some and give it to others. In this way, they altered the entire conception of what government's role in life should be. America was formed and built upon the idea of government being an objective preserver of the peace. The New Dealers made government an arbitrary manipulator of the people.
FDR and the statists of the thirties rose to power by establishing what they termed an "Economic Bill of Rights," which stated that all men have certain economic needs (housing, food, medicine, income, security, etc.); and if they won't provide themselves with those needs, it is the duty of the state to step in and do it for them through higher taxation and redistribution of all men's property.
This in essence established morally and philosophically that whatever a person "needs" he has a "right" to. Thus our legislators have been feverishly taxing and spending for seventy years now, to try and accomplish the impossible task of gratifying those "needs." As a result, a whole new generation of Americans has come to believe that their government is not just their protector but also their provider. Thus they think nothing of now demanding more government favors and handouts every year as a "right," rather than producing their own economic needs.
And why shouldn't they? The prevailing morality of our society has told them that all men deserve not just the right to produce, but now the right to confiscate the economic "necessities" of life, the right to use the power of the state in the confiscation process, and the right to define those "necessities" by majority vote. It has established that men have a right not just to pursue security and happiness on their own, but to possess security and happiness by seizing the earnings of their fellow men.
The endless protest movements, wars on poverty, ever higher taxes, inflation, regulation and special interest legislation, that have come to be such prominent factors in our lives in America today, are the inevitable long range results of the moral-philosophical shift we made at the turn of the century -- from a country built upon self-reliance and individual freedom, to a country dependent upon government handouts and state control.
Government growth has to first have a moral rationale. If we were never to furnish such a rationale, we would be immune to state dictatorships. We have provided that rationale, though, by conditioning the younger generation that their "needs" are "rights," and that the redistribution of private wealth is a legitimate policy.
Once such a redistributionist philosophy is accepted, then all protest group demands for more government granted privileges (when met by Congress) only bring more demands the following election year and an ever mushrooming deluge of taxes, bureaucracy, deficit spending, and inflation to lavish on still more government regulations, agencies, committees, programs, subsidies, services and handouts.
Added to all this, must come more legislative favors granted to whatever minority protest groups happen to be in vogue, more arbitrary interpretation of the Constitution, increased bureaucratic arrogance, political demagoguery, market manipulation, boom/bust markets, escalating unemployment, and widespread corruption. Ultimately the existing party in power will be forced, by sheer necessity of sifting order out of chaos into some form of dictatorship.
The absurdity of it all is that the collectivists will approve of every step in this destructive process by vote. (Remember, Hitler came to power through a democratic vote.) "It's the least disastrous of our alternatives," they will cry, not bothering to contemplate that it was their government controls in the first place that brought on the very chaos that they will then use as a justification to institute all pervasive government control. But collectivist mentalities are not concerned with getting at the actual causes of our problems. They are concerned only with increasing the power of the government to feed their delusions.
The Path We Refuse to Take
These then are three of the most important reasons why the welfare state philosophy must ultimately lead to tyranny: 1) government interventions lead to more and more interventions, 2) the dispensing of special privileges leads to arbitrary law, and 3) freedom's moral base is subverted with redistributionist tax policies.
The solution to this insidious drift of our welfare state system is a path our intellectual and political leaders have so far refused to consider: restoration of a true capitalist economy. This would mean a society where no special privileges are dispensed by the government to anybody, where men and women are taxed equally, where the government is strictly controlled by the Constitution, and where the productive peaceful people are left alone to build their lives to whatever level they are capable. It would be a society where we help those who can't make it through the many church and voluntary charitable organizations that did at one time (and would again) spring from the American people's abundant compassion and good will. Such a system worked splendidly for 125 years here in America, and only began to fizzle as the government began to intervene.
This is not a plea to return to the simplicity of the horse and buggy age. This is an urging to restore the principles of a free-market and a strictly limited constitutional government, for they are the only principles that are proper for humans, and the only system of social organization that will provide freedom, prosperity and dignity in a stable manner.
The lessons of history are clear. If a country will not respect the concept of private property, allow freedom in the marketplace, and refrain from dispensing favors and subsidies to special interest groups, then it is on its way to economic deterioration, mob rule, and an arrogant overweening form of government.
At present, all countries of the world are marching like lemmings over the philosophical precipice to collectivism. Sadly America has thrown her Constitution to the wind and has joined in the death march. As the coming meltdown of the world's economies unfolds over the next two decades, we as a people will need all the rationality and courage we can muster to turn our country away from a descent into total despotism.