Mises Daily

False Choices and the True Dilemma

Mises Daily Dan Sanchez

In 1789 a group of men gathered in Paris to sound the death knell for the ancien regime, and to inaugurate the modern political world. But there were some differences among them. Some wanted to abolish the old order more completely. Others wanted to retain some vestiges of the old privileges. In this "National Constituent Assembly" of France, the ideological birds of a feather sat together: the more radical members on the left, the more conservative members on the right.

On that day, on the eve of the French Revolution, not only was the modern political world born, but so was its terminology.1 To this day, politics is bisected into a "left wing" and "right wing." Much digital ink is daily spilled in vain on the web over the "best" distinction between "right" and "left." Now, with regard to specific, fleeting political agendas, vague distinctions like this make sense. Movable umbrella terms are necessary, because legislation involves shifting coalitions of people who do not agree on every single point. The trouble starts when the terminology of the political moment is imported wholesale into the language of science, in which precise, fixed distinctions are called for. The left/right divide is downright confusing for social science.

Where this confusion is most pronounced is in intellectual discussion of Western society following World War I. According to common opinion, there are two politicoeconomic extremes: communism (or socialism) on the left, and fascism (or Nazism) on the right. Sound policy, then, is considered a balancing act between two opposite forms of totalitarianism. If one leans too far to the left toward the interests of the poor and weak, one arrives at communism/socialism. Veer too far to the right toward the interests of the rich and strong, and you get fascism. This political taxonomy is entirely unscientific. Neither fascism nor Nazism has ever been scientifically identifiable social orders. They are party platforms, and thus are assemblages of often-contradictory ideas and slogans. Calling fascism a "social order" makes as little sense as calling "Tea Partyism" or "Blue Dog Democrat-ism" a social order.

Moreover, as Ludwig von Mises demonstrated,2 the allegedly "right-wing" social order of Nazi Germany was just as socialistic as was Lenin's Russia. Through economic interventions the German government completely took over the economy. The only "market" left was a sham. Private individuals owned the means of production in name only. Real ownership of the means of production was in the hands of the state. This is what Mises called "socialism of the German or Hindenburg pattern." This variety of socialism is also known as Zwangswirtschaft, which is basically German for "compulsory economy." Those who were once entrepreneurs devolve in a Zwangswirtschaft into mere shop managers (Betriebsfuhrer in Nazi legalese), following the orders of a central command.

The only way in which "socialism of the Russian or Lenin pattern" (as Mises termed the more familiar variant of socialism) is distinct from the Zwangswirtschaft is in the nonessential fact that it has no such veneer of faux-private ownership. Its socialism is simply more overt.

Another way of stating this is as follows. In the populist propaganda of Bolshevism, under "socialism of the Russian or Lenin pattern" the people ostensibly own the state, and the state in turn owns the means of production. While, under the sham capitalism of Nazism and "socialism of the German or Hindenburg pattern," the people ostensibly own the means of production, but the state in turn owns the people.

Thus these occupants of different political "poles" really occupy the same ground and are only separated by a trivial technicality: the existence or absence of a sham market. Each variant of socialism does indeed have its own distinctive path. But it has nothing to do with "left vs. right," "poor vs. rich," or "weak vs. powerful." Rather, it is a matter of "bureaucratization vs. interventionism." Bureaucratization, by forthrightly gobbling up the market bite by bite, leads to the overt socialism of the Russian or Lenin pattern. Interventionism, by subtly crippling the market and replacing it incrementally with a network of government diktats, leads to the sham market of socialism of the German or Hindenburg pattern.3

Revolutionary socialist governments, like the Nazi and the Bolshevist states, will generally adopt one path or the other. But it is by no means necessarily an either/or choice. Gradual approaches toward socialism, like the one the United States is currently taking, often rely on both: overtly socializing an industry via nationalization here and covertly socializing an industry via market interventions there. And one type of socialization often leads to the other. Thus through this gradual, dual approach to socialization, one can imagine what one day might be called "socialism of the American pattern" arising, characterized by a hodgepodge of vast bureaus and sham markets.

Thus it is conceivable that there can be a single socialist system that is a mixture of the two varieties of socialism. However, a mixture of capitalism and socialism is entirely inconceivable, in spite of the fact that most people think that all real-world societies have only ever had "mixed economies."4

As Mises wrote, the mere existence of some bureaus and state-owned firms does not alter the capitalist nature of society and make it a "mixed system" of capitalism and socialism. Defining "economy" as a social system of production, there is no such thing as a "mixed economy." Bureaucracies in society are not an integral aspect of the social system of production. They operate as (basically consumptive) elements within a market economy. But they do not contribute any social coordination to it. Rather, it is the market economy that contributes coordination to bureaucracies, in that the latter wholly depend on market prices to be able to attain even the severely impaired budget rationality characteristic of bureaucratic management. The social system of production can only ever be rationalized by market processes.5 Even the crippled social production that occurred in Lenin's Russia and Hitler's Germany was only possible because recourse could be taken to the prices that formed in the surviving market processes of the outside world. As Mises wrote in Human Action,

Soviet Russia and Nazi Germany … were not isolated socialist systems. They were operating in an environment in which the price system still worked. They could resort to economic calculation on the ground of the prices established abroad.

This is why the actual economies of Lenin's Russia and Hitler's Germany were referred to above as "socialistic" and not "socialist."

Another important distinction is that, according to Mises, bureaucratization is not a form of interventionism.6 Bureaucratization makes people poorer to be sure, but it does so by constraining the ambit of the market, not by interfering in its workings.

Some have said "interventionism" is a system in-and-of itself, and they propose it as a sensible, "middle-of-the-road" policy between capitalism and socialism. Mises exploded this fallacy. Utilizing the findings of classical political economy, as well as the findings of modern economics (including his own original insights), he demonstrated that all economic interventions are, in effect, contrary to the purposes of all, including the purposes of those who advocate them.7 They are thus destructive, not constructive. Interventionism is not a system of social production; it is nothing but a hampering of capitalism. A hampered capitalist order is still a capitalist order. The social system of production in a hampered capitalist order is always rationalized by the sectors of the market that have not yet been crippled by interventions.

When one is confronted by the contrary-to-purpose effects of an intervention, one has two choices in dealing with those effects. One can undo the intervention, in which case one chooses capitalism. Or one can try to eliminate the harm with further intervention. However, further intervention can only lead to still more harm, which would thus call for yet further intervention, leading to a "cycle of interventionism." Thus, if one does not choose capitalism, one must choose ever-increasing interventions, which ultimately will completely destroy the market and culminate in socialism of the German pattern.8 If one does not choose capitalism, one chooses socialism.

Not everybody associates "fascism" with the economic policy of the Nazis. Those who know their history remember that part of the economic policy platform of Benito Mussolini, the founder of fascism, was "corporativism," in which production was directed by "corporatives," each of which represented the participants of a specific industry. Some even call our present economic order "fascist," because they equate "corporatism" with the "corporativism" that they identify with fascism. But corporations lobbying for privileges (corporatism) is not the same thing as whole industries collectively owning the means of production relevant to their industry (corporativism). The two notions are distinct, and must be treated separately.

Corporatism is not a system of social production. Corporations lobby for privileges that hamper capitalism, it is true. But, regardless of who instigates the hampering, hampered capitalism is capitalism nonetheless.

And as Mises explained, corporativism is no more a permanent social order than is interventionism.9 The crux of the matter is the question of who is to determine policy decisions within a given corporative: the landowners, the capitalists, or the workers? If the state adjudicates between them, then it is the state that is essentially disposing of the means of production, and thus corporativism devolves into socialism. If the corporatives operate according to a democratic principle, then it is the majority workers who will dictate policy, and thus corporativism devolves into syndicalism.

Under syndicalism, the means of production of each industry are owned by the workers of that industry. The syndicalist program is distilled by the slogans "the railroads to the railroadmen!" and "the mines to the miners!" Syndicalism too has been put forth as another candidate, as a "third way" between capitalism and socialism. But syndicalism is no system of social production either.10 As soon as the needs of society change in the slightest, how is a syndicalist order to adapt? Under capitalism, shifts in consumer demand adjust prices. In seeking profits, entrepreneurs try to anticipate these price adjustments, and thereby adjust the structure of production to best satisfy consumer wants in the new state of affairs. In the flux of the market, resources shift from one industry to another, in response to consumer demand.

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But, under syndicalism, why would any producer's syndicate acquiesce to a diminution of its importance and wealth in society? Production is for the sake of consumption, never the other way around. Therefore, any system of social production worthy of the name must have some means of at least conceivably adjusting production for the sake of consumption. Even socialism ostensibly fits this bill, because the central administration at least has the authority to adjust production by diktat in order to try to better serve society (if not the intellectual means to do so rationally). But no syndicalist has ever put forth any idea of how a syndicalist state would do so that did not involve becoming, in essence, capitalism or socialism.

Thus, every economic policy decision is a two-pronged fork in the road; there is no third prong. And neither are the two prongs toward the "Left" and the "Right." There is capitalism, and there is socialism.

One is tempted to say that the two prongs are "forward" and "backward." This would be to adopt the strategy of the Marxists who characterized everything they liked as "progressive" (as well as everything they disliked as "reactionary"). But again, this would be eschewing scientific distinctions for political word games. The honest man does not rely on catchwords and slogans in hopes that the gullible public will latch onto his program by dint of its association with words that resound favorably in their ears. The honest man tries to speak to the mind of his listeners, not to their ears, because he is confident in the inherent strength of his ideas. He will even accept unflattering names for his position, and grant flattering names to his opponent's position, if that will but put an end to the distracting word games and allow the true debate to begin.

What is more "social" than the coordinated, ecumenical society of mutual benefactors produced by capitalism? It is true that capitalism progresses via the accumulation of capital. But the upshot of increased capital in proportion to labor is an increase in the marginal productivity of labor, and thus a rise in real wages. And if anything is prejudicial to the vested interests of the already-rich capitalist, is it not pure capitalism — which does not let him rest on his laurels but demands that he never cease putting himself up to the test of the market, lest his fortune gradually dwindle? Thus should not the market order be given a more flattering (and descriptive) name than "capitalism"? Should not socialism, that fundamentally antisocial program, be stigmatized with an ugly appellation?

Such are the distracting games of demagogues, and they would only slow liberalism down. The most direct path to success is to use the terms at hand, as they are found in the best literature in our tradition (which happens to be the oeuvre of Ludwig von Mises), and simply explain what we mean by them. Any sane person who learns what is truly entailed in "that which is called capitalism" and what is truly entailed in "that which is called socialism" will choose the former over the latter. That is because socialism (which, again, is the only direction one can choose besides capitalism) is social suicide. As Mises irrefutably proved as early as 1920,11 the socialist state has no way of rationally directing production. Socialism means discoordination, capital consumption, famine, and death. Thus between capitalism and socialism (which, once more, are the only two choices), the informed chooser could not have an easier choice to make.

And this is the choice that is before everybody. The fact that everybody in their right mind would choose capitalism, if only they knew what the choice really meant, is why there is a harmony of interests. Cognizance of this harmony of interests is what underpinned the scientific liberalism (one might call it "harmonist" doctrine as Mises does12 ) that first arose in the writings of men like Hume, Smith, and Condillac; that intellectually won the field in the days of Ricardo and Say; and that had its greatest impact on policy in the days of Cobden and Bastiat. And it was the denial of this harmony of interests — what amounted to a philosophy of irreconcilable conflict (or, as Mises termed it, an "anti-harmonist" doctrine) — that underpinned the revolt against liberalism that reached its culmination in the 20th century.

This philosophy of irreconcilable conflict is yet another common feature between the totalitarians of the so-called Left and Right. With the overthrow of liberalism, the world once again came to embrace the "Montaigne dogma": the incorrect notion that no group can gain except by another group's loss.13 This was the social philosophy of the mercantalists, which was heroically overthrown by the early liberals. The people of the early-20th-century West came under the sway of the new "anti-harmonism," dominant among the intellectuals of the time. Thus, adherence (or at least acquiescence) to the party programs of the both the "far Right" and "far Left" came naturally to them. They either adopted the Lebensraum doctrine of national conquest promoted by the Nazis, Fascists, and other national imperialists, or the doctrine of class warfare promoted by the internationalist Marxists. As Mises brilliantly characterized it, the only important difference between the two doctrines was that one divided society into irreconcilable camps vertically (along national lines) and the other did the same horizontally (along class lines).24

The sooner classical liberals abandon the sloppy distinctions of party politics and adopt the scientific distinctions of Ludwig von Mises, the better will it be for our efforts in explaining to our fellow human beings the stark choice that lies before them. Right vs. Left, fascist vs. communist, all the alleged "middle ways" (interventionism, syndicalism, corporativism, etc.) — these are all false choices. As Mises demonstrated, ultimately there is one true dilemma in political economy. As he wrote in Liberalism,

There is simply no other choice than this: either to abstain from interference in the free play of the market, or to delegate the entire management of production and distribution to the government. Either capitalism or socialism: there exists no middle way.

This Mises Daily originally ran on March 16, 2011 as "Overt and Covert Socialisms."

  • 1The First Leftist
  • 2Ludwig von Mises, Human Action, chapter 27, section 2.
  • 3Ibid.
  • 4Mises, Critique of Interventionism, section 1.
  • 5Note that the autarkic household production of primitive societies is not "social." And production for barter (which Mises excludes from his definition of "market") is so necessarily ad hoc that it can never be part of a "system."
  • 6"If within a society based on private ownership of the means of production some of these means are publicly owned and operated, this still does not make for a mixed system which would combine socialism and private property. As long as only certain individual enterprises are publicly owned, the remaining being privately owned, the characteristics of the market economy which determine economic activity remain essentially unimpaired." Mises, Interventionism: An Economic Analysis, "Introduction."
  • 7A Critique of Interventionism, Human Action, Interventionism: An Economic Analysis
  • 8"If the government is unwilling to acquiesce in this undesired and undesirable outcome and goes further and further … it eliminates the market altogether. Then the planned economy, socialism of the German Zwangswirtschaft pattern, is substituted for the market economy. " Human Action, chapter 30, section 2.
  • 9Mises, Intervention: An Economic Analysis, section 5.
  • 10 Mises, Ibid.
  • 11Mises, Economic Calculation in the Socialist Commonwealth.
  • 12Mises, Theory and History, chapters 2 and 3.
  • 13Mises, Theory and History, chapter 2.
  • 24Mises, Socialism, part 3, chapter 20.
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