Mises Daily Articles

Home | Mises Library | Keynesianism and Socialism

Keynesianism and Socialism

Tags 글로벌경제세계역사간섭주의기타 학파

01/05/2010Vervon Orval Watts

[Chapter 2, Away From Freedom]


Since Keynesians advocate so many forms of government intervention in the name of "full employment," it is not surprising to find them favoring it for other purposes. If government should take a man's earnings because he wants to save too much, why should it not take them on the ground merely that someone else needs or wants them? If government should build power plants to give employment, why not also railways and steel mills? Economists of the new order can only echo, "Why not?"

Theodore Morgan says that, "Probably, majority opinion agrees with our own national policy that the right of a man to engage in business for himself is not a basic freedom." All modern economies, he continues, are mixtures of government and private enterprise, and the proper dividing line between the two can be fixed only by time and experience, which "will serve to correct our social judgments." This is typical of the attitude of Keynesian economists, as well as of many scholars who are neither Keynesians nor economists.

Is this attitude consistent with constitutional safeguards for individual rights, or liberty? Time is "the stuff life is made of," said Poor Richard. The time government takes in an experiment with the properties and jobs of individuals can never be put back into the lives of those whom its policies affect. Repeal of an unjust law can never undo the injustices inflicted by it. Dislodging the vested interests in a government activity is even more difficult than dispossessing private owners.

Socialism Not a Menace to Freedom?

According to [Paul A.] Samuelson, a "survey of history shows" that the degree of political freedom and civil liberty which citizens may possess has little or nothing to do with the extent of government control over the economy. For example, he says, "Britain, Scandinavia, and other socialist countries have retained all of the familiar civil liberties and individual political freedoms that are guaranteed by our own Constitution." But are not property rights among the most important of all civil liberties which constitutions and representative institutions are designed to protect? Is not protection of property rights necessary in order to give value and meaning to "political freedom"?

Instead of dealing with such questions as these in his discussion of the "-isms" (fascism, communism, and socialism), Samuelson plunges on into a long section entitled, "The use of an overall pricing system under socialism and capitalism." In it, the author analyzes "the problem of pricing in a planned socialist state."

From such a study of socialism, he says, "we are in a position to see what friendly and unfriendly critics think is wrong in our present system…" and "We gain an introduction to problems of 'welfare economics,' i.e., to the study of what is considered right and wrong concerning any economic system." Thus, he continues, "the economist, as disinterested observer, may help to throw light upon how successfully an economic system realizes any suggested ethical goals."

As it turns out, the only "ethical goals" he considers are those of the socialist: equality of income and "social dividends" to the needy.

What Is Missing from This Picture?

When an author uses socialism as his standard for judging capitalism, and when he concludes that capitalism is the system to be reformed, does he not run the risk that readers may think he regards socialism as the ideal system?

The one system which Samuelson flatly rejects and condemns is laissez-faire, to which he attributes various widespread evils: "wasteful exhaustion of irreplaceable natural resources," "periodic business crises," "extremes of poverty and wealth," "corruption of government by vested interest groups," and "too often … all-consuming [sic] monopoly."

Yet, when the same author discusses government regulation and ownership in the American "mixed" economy or elsewhere, he finds only abuses of what liberty may remain and little or nothing of abuses or evils of government intervention.

Nothing, for example, of government waste of resources, human and material.

Nothing of political corruption among those with a vested interest in government spending and government subsidies.

Nothing of the restrictions and inefficiency of government monopolies, government price controls, and government allocations.

Nothing of the huge losses already inflicted upon savers and investors by interventionist policies, only a mild warning of possible, future dangers.

Nothing of the frauds and character destruction among recipients of social security.

Nothing of the decline in levels of living and work under socialism in Britain, or the growing shortage and high cost of venture capital in the American "mixed" economy.

Nothing of the fact that fascism was a development of the Keynesian managed economy, full employment idea, an attempt to subject the individual to the "collective conscience" which Samuelson sets up as arbiter for our own government's policy.

In order to judge the impartiality of a book or its probable effect on the mind of a student, one must know what the author leaves out as well as what he includes. In Samuelson's text, the bestseller among all elementary textbooks in economics, one finds little or no mention of the many uneconomic results which competent economists attribute to government intervention in the American "mixed" economy. Instead, he says:

I should like to conclude on a note of profound optimism. The American economy is in better shape in the 1950s than it ever was in the past…Our mixed economy — wars aside — has a great future before it.

Collectivism vs. Individualism

Not only do the authors of the "new economics" largely ignore the evils which some of us believe flow from government intervention; not only do they attribute the imperfections of the mixed economy to capitalism rather than to governmentalism; but one looks in vain for any principle by which to distinguish between individual right and government authority.

The only guide that they recognize is not a principle but "social preferences," "society's appraisal," "correct social planning," "democratic decisions," or a "collective conscience."

Nordin and Salera typify this Keynesian tendency to ignore notions of individual right when they casually remark that government "means all of us in the community." Thus these writers set up "Society" — the collective — as an entity in which the individual submerges and dissolves. In this view, justice means whatever "the collective conscience" dictates.

Is it fair to call this a collectivistic point of view? Let us contrast it with the individualist view. The individualist considers "society" to mean those relations which individuals enter into with one another as they seek to satisfy their individual wants. Justice means protection of each individual's liberty, or right, to work out his destiny free from interference or expropriation by others. The function of government is to administer justice, that is, to preserve freedom, not to dictate activities. And government means, not "society" or "all of us," but those persons designated to prevent each individual from interfering with the liberty of any other.

What Everyone Owns, No One Owns

To the individualist, therefore, there is a serious fallacy in Professor Samuelson's statement that "socialism, almost by definition, means a society in which most land and capital goods or nonhuman resources of all kinds are owned collectively by society…" (Italics supplied.) Society in the sense of relations between individuals is not people but certain ways persons act, or certain aspects of their actions. In this sense, society cannot own anything because it is an abstraction, not persons. Neither can society in the sense of "all the people" own anything. What everyone possesses, like a view of the sun, no one owns, for no one can appropriate it for his own use to the exclusion of others, and such appropriation for exclusive use is the essence of property rights, or ownership.

What Socialism Means

What socialism really means is that government officials administer wealth taken from, or donated by, private owners. These officials may set up in business with this wealth and trade it (or the services of it) for other goods produced by private enterprise. Even to call this government administration of wealth "government ownership" is a loose use of terms, but not so misleading as to call it "social ownership," or "collective ownership."

Similarly revealing is the passage in Samuelson's book in which he presents as a paradox the fact that fascist regimes "have often passed socialistic measures." This is not a paradox at all, for fascism was (or is) a form of socialism similar to British socialism or to the managed-currency, welfare state proposed by American Keynesians.

Frequently, especially in his 1951 edition, Samuelson puts his criticisms of capitalism in the third person:

And so on.

  • "Social reformers attach great importance to…"
  • "Society now rules that…"
  • "Friendly and unfriendly critics think…"
  • "Democratic countries are not satisfied with…"
  • "The collective conscience of the American people…"

Whether or not these imaginary authorities express the author's own opinions, the reader may judge for himself. In reaching that judgment, he must consider whether the author chooses his spokesmen mainly from one side of the argument, and whether, when he fails to quote an opposing view, he himself gives an effective answer to the "critics" or "social reformers" he professes to quote.

At one point, however, one may be excused, perhaps, for suspecting that his disguise slipped a little. That is where he refers to his socialist spokesmen as "perfectionists."

Again, I should like to ask, is it not fair to call this "social" point of view a "collectivist" one? Or even "socialist"?

Of course, this label does not necessarily mean that the point of view is unsound; but classification of anything is a step toward appraisal.

The "New Economics" and Marxian Socialism

From the foregoing, one may see that Keynesianism has several points in common with Marxian socialism. Among these are:

  1. The theory that the rate of return on investments tends to decline and unemployment tends to increase in a free-enterprise, capitalistic economy;

  2. Emphasis on the depressing influence of savings in a "mature" capitalistic economy;

  3. Theories of an irresistible tendency to monopoly, increasing concentration of wealth, and the doom of free markets in free enterprise, or laissez-faire;

  4. Disparagement of individual enterprise and responsibility in favor of government control over savings and provision for old age, unemployment, and other emergencies in an elaborate "social security" program;

  5. Proposals for "progressive" income and inheritance taxes;

  6. Proposals for government management of the currency and banking, for government ownership of certain industries, and for liquidation ("euthanasia") of the rentier (bondholding and fixed income) classes;

  7. A collectivistic view of property rights as privileges from the State, to be given or taken away at the will of the State;

  8. A tendency to identify government with "all of us," or with "society," in the democratic socialist state and in the democratic Keynesian "mixed" economy;

  9. A tendency to deal with persons and economic activity in terms of "classes," "averages," "aggregates," and technological or economic "forces";

  10. A mechanistic view of human behavior as predictable and controllable by government, through study and manipulation of interest rates, money, government lending and spending, taxation, and technological developments.

The Keynesian Theories Are Skillfully Presented

Yet, despite the similarities between Marxian socialism and Keynesianism and despite growing hostility to Russian Marxists, the Keynesian national income approach makes rapid headway in American colleges and universities. Why? Is it because of the attractive wrappings in which economists of the Keynesian persuasion present their package of ideas?

First, they claim, no doubt sincerely, that they come, not to destroy capitalism, but to save it. Consequently, they get a hearing in places which would be closed to professed socialists.

Second, they support their theory with charts and diagrams that make it look scientific and exact. They use technical terms and mathematical formulas, as a professional magician uses his stage props, to produce conclusions that disbelieving laymen are unable to refute. They make liberal use of government statistics on national income, savings, investment, consumer spending, and the like. Many people regard these figures as precise and highly significant, so that the proposal to use them as guides for "compensatory fiscal and monetary policy" appears simple and practicable.

Third, by representing government spending and deficits as keys to prosperity, "the new economics" gives aid and comfort to everyone who wants government to do something for him or to his neighbor. For example, Samuelson writes that "to the extent that taxes come out of the income of the more well-to-do and thrifty and are used to make payments to the needy and ready-to-spend — to that extent the total purchasing power is increased."

Furthermore, the appeal of certain Keynesian authors is greater because they write with the dash and vigor that come from a feeling of mission. True, in order to appear merely as disinterested observers, they often use devices such as Samuelson's third-party spokesmen (e.g., "most people will feel that this is only as it should be"). This makes a textbook appeal to teachers who favor the Keynesian point of view but prefer to appear disinterested.

By appropriate labeling or emphasis, a teacher or writer may sway students and readers without seeming to commit himself to any definite position. For example, one may more readily get approval for subsidies by calling them "social dividends," as Samuelson does, than by calling them "doles" as an opponent might do. He may attribute a government policy to "society" or to "the collective conscience of the people" rather than to "government" or to certain "politicians and officials."

Moreover, as I pointed out above, an author creates an effect by what he leaves out as well as by what he puts in. He may himself believe that he is presenting "both sides" fairly, while he leaves out of consideration or pays little attention to the most telling arguments of one side or the other. Or he may treat objections to his views as "problems" to be solved, rather than as possible invalidations. Professor Richard Ruggles, in An Introduction to National and Income Analysis, uses this method in dealing with difficulties that might be met in applying the Keynesian theory.

Yet, although these writers may adopt a pose of nonpartisanship on details of theory or practice, they boldly urge the main outlines of a program that must have far-reaching results in every phase of human affairs. Toward the beginning of his text, Samuelson flatly asserts that

it is part of the government's function to alleviate one of the most important causes of acute and chronic cycles in unemployment or inflation. Especially in communities like our own, individuals as a whole may try to save much more or much less than the private enterprise can profitably or usefully invest in new real capital goods… Clearly the government must try to use its constitutional fiscal and monetary powers to enable private enterprise to maintain a steady level of high employment…

Thus in a few words he sets forth a government policy that must reach into the minutest details of the life and work of every citizen.

For government can control total savings, investment, and income only by interfering with myriads of individual acts which make up the totals. An overall restriction of bank credit, for example, or a tax increase, directly coerces individual citizens into changing their plans and conduct in countless ways.

In general, moreover, Keynesian proposals for "compensatory" policies follow Marxian socialism in seeking to force individuals to obey the rule, "From everyone according to his abilities, to everyone according to his needs." Arguments and theories used to support these proposals are essentially Marxian.


Vervon Orval Watts

Vernon Orval Watts was one of the leading free-market economists of the World War II and postwar eras. Watts was hired by Leonard Read in 1939 to be the economist for the Los Angeles Chamber of Commerce, of which Leonard was executive director. Watts thereby became the first full-time economist to be employed by a chamber of commerce in the United States. Read later made Watts the leading economist at the Foundation for Economic Education (FEE). See Murray Rothbard's memorial in Making Economic Sense.

Shield icon library