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The Planning States of the 1940s

January 11, 2010

Tags Free MarketsU.S. HistoryWar and Foreign PolicyInterventionismOther Schools of Thought

Planned Chaos

The 1940s seemed like the worst of times.

You might not know this, based on documentaries, or at least the kind of documentaries favored by cable history or public-broadcast channels, which depict that decade's world war as a difficult but glorious triumph of American will over tyranny. In such venues, despots were stopped; countries were liberated, and a united United States and its "greatest generation" defined itself to a grateful world as a force of peace through strength. Freedom triumphed in the forties — if you ignore that, as the decade progressed, we saw the United Nations, the Marshall Plan, and the identification of a new threat to freedom in what would be called the Cold War.

Such is the dominant, civics-text narrative of the 1940s, and needless to say there is a counternarrative that draws different conclusions. From this perspective, the 19th-century liberal ideal, which focused on the individual, was replaced by the 20th-century Progressive Era, which married science with government and proclaimed that with that combination, the peace and prosperity so lacking in previous generations would now be claimed in abundance. It was as if John Stuart Mill left the room, to be replaced by Irving Fisher. All it would take was trust, taxes, and (above all) subservience to the intellectuals and planners who populated the emerging, consolidating nation-states.

In the United States, Progressives brought in the senseless Spanish–American War, the National Park System, antitrust laws, the income tax, the Federal Reserve, World War I and postwar reparations, eugenics, credit bubbles in the 1920s followed by the Wall Street crash, and then the Hoover and Roosevelt economic policies that prolonged recovery, buttressed by Keynesian imprimaturs starting in 1936. Such rampant centralization and socialism often lead to war, if only to draw attention away from failed domestic policies. In this case, they made inevitable a second world war and the death of 60 million souls.

If war is the health of the state, World War II provided it with steroids. In the postwar portion of the 1940s, nation-states reasserted their relevance to avoid having to ratchet down the increases in their size and influence initially justified by the war. In the United States, — make no mistake — this size and influence were hardly lacking. This was to be expected after 12 years of the New Deal, to say nothing of New Dealers like FDR's confidant, Harry Hopkins — of "tax-tax, spend-spend, elect-elect" fame — who argued in the early 1940s that in order to defeat the Nazis, the United States had to become like them.

Harry S. Truman tried to defend the state's advances by promoting (1) his Fair Deal programs, (2) organized labor, by vetoing the Taft-Hartley Act (a veto that was eventually overridden by Congress), and (3) various wealth-redistribution schemes such as the G.I. Bill and the Housing Act of 1949 (with overwhelming support from Congress). Meanwhile, many wartime measures constituting significant encroachments on the marketplace were made permanent.

But in other ways, the 1940s were the best of times for advocates of political and economic freedom. One primary reason was the arrival of Ludwig von Mises in the United States in 1940.

Mises had witnessed similar trends, and their consequences, in previous decades in Europe. He might have considered the forties a time of déjà vu. Mises arrived in New York City after a harrowing ordeal fleeing the Nazis. He was 59 years old, an age when many men, in our age of inflation and intergenerational wealth transfers, start to look forward to long retirements. His assets in Europe were frozen, and he and his wife Margit traveled mainly with whatever they could fit in their luggage.

Some great men — flame keepers like Henry Hazlitt and Leonard Read — with private funding and a shared vision of a free society, welcomed him and helped set him up at New York University and the Foundation for Economic Education. Mises, in turn, continued his writing, especially expanding his Nationalökonomie (published in 1940) into the English-language book that would prove so influential when it was eventually published in 1949. We know it today as Human Action.

Producing such a work would on its own constitute a significant lifetime achievement for any scholar. Nonetheless, in the midst of this project, Mises also published three important shorter works addressing more specific topics, all explaining the destructive elements of the reigning statist orthodoxies. Of these, Planned Chaos was published in 1947.

Part Cold War commentary, part economic primer, Planned Chaos is a simple and still very timely book based on the premise that socialist expansion is based on the failure of previous expansions. By replacing market forces and the interaction of free individuals, government planners force a specific outcome on society. Think in terms of the establishment of a minimum wage, or of policies meant to embolden organized labor.

Mises argues here that such interventions always lead to a state of affairs worse than that which existed prior to the intervention. Faced with this situation, the planners have two options. Either they can repeal the intervention and allow the previous relationships to reassert themselves, which would happen when (for instance) workers made unemployed by minimum-wage legislation are able to sell their labor again once that intervention in the labor market is abolished, or, faced with unforeseen problems resulting from their intervention in the market, they can respond with new levels of bureaucracy and compulsion designed to mitigate them. Sadly, planners often choose the second option, setting into motion a cycle that, taken to its logical extreme, results in the complete socialization of society, the necessity of a police state, and the repeal of the rule of law.

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In the extreme, this process explains the move to war, as such societies misuse resources and promote scarcity, thus requiring them to access resources not through trade but through conquest. Mises applies this process to explain the expansion of power — first internal, then external — of Soviet Russia, Nazi Germany, and Fascist Italy.

Mises's message is relevant in any society with an overweening state, and especially today, when many intellectuals, heralding the return of "depression economics" (and their important place in it), again condemn capitalism for social problems as if the state never intervened in, say, housing or finance or labor markets. To them, Mises has this message: Further interventions will prolong and worsen existing problems. The only genuine, long-term solution is to force the state to retrench and allow the essential characteristics of free enterprise to reassert themselves in the market, especially in the realm of market prices and private property. There is no middle way. To plan otherwise is to plan for chaos.

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