The Economics of Liberty
6. The Communist Crackup
Mises Vindicated
Llewellyn H. Rockwell
If Ludwig von Mises were alive today, he could say: “I told you so.” For in 1920, he wrote a long article on socialism, followed by a book two years later, that crafted socialism’s tombstone.
In all the debates over socialism, he alone cut to the heart of the matter. Socialism doesn’t qualify as an economic system because it seeks to abolish economics, he said. Without private property in the means of production, there can be no economic calculation and no price system. There can only be chaos.
“Whoever prefers life to death, happiness to suffering, well-being to misery,” he said, must fight socialism and defend, without compromise, capitalism: “private ownership in the means of production.”
As syndicated columnist Warren T. Brookes recently pointed out, “the real godfather of communism’s European crackup” is Ludwig von Mises, whose “penetrating mind gave intellectual birth to Hayek, Friedman, and Buchanan, and rebirth to Adam Smith.”
“Yet von Mises was completely shut out of the socialist/fascist-minded Austrian and German universities in the 1920s and 1930s,” Brookes notes, “and was never offered any American post after exile by Nazism. Why? He wrote a book titled Socialism” and “showed with precise logic why socialism could never work.” And “he coined the phrase ‘statolatry’ for the new Western irreligion.”
The Wall Street Journal’s editorial page noted that “At the recent Comecon meeting, the strongest opposition to the communist status quo came from the Czechs—and in particular, their new finance minister Vaclav Klaus. ‘The world is run by human action,’ Klaus told Comecon, ‘not by human design.’ Some readers will note that Mr. Klaus was paraphrasing the famed Austrian economist Ludwig von Mises, whose 1949 book Human Action, is among his classic works on free-market economics. Mises, of course, was also a relentless critic of economic planning. We can’t help but note the many Western intellectuals now proposing to teach the East Europeans how to live and work. It appears that the Czech finance minister has that well in hand.”
And, as Yuri N. Maltsev, late of the U.S.S.R., points out, dissident Soviet economists look to Mises and his followers, not to Paul Samuelson, John Kenneth Galbraith, and other fellow travelers of socialism. And from similar testimonies, we know the same is true in Eastern Europe.
Austrian economics may undergo a second spring because of these emigre economists, who—like Mises—battle socialism and all other forms of statism without compromise.
In this country, we have never been subjected to full-blown socialism, but statolatry has still taken a dreadful toll: a spastic economy, a perverted culture, a swelling underclass, a declining standard of living, and a monstrous government.
As the freedom revolution leapt from country to country in Eastern Europe, some leftists claimed—as they whistled past their own graveyard—that the people were repudiating Stalinism, not Marxism. That’s baloney, of course. People who have lived under Marxism make Joe McCarthy look like a pinko. Look for committees to investigate un-Bulgarian, un-Rumanian, and other activities.
Other leftists still cling to a mythical “third way” between communism and capitalism. But social democracy is inherently unstable. It pretends that some sectors of the economy—such as medicine—can be socialized, while others are left private, with no detriment to the economy. Such systems, as Mises pointed out, must ever trend towards freedom or totalitarianism, while wrecking economic havoc all the while.
Even Sweden—welfare-queen of the social democracies—is learning this lesson. Public opinion polls show that 78% of the people want much more privatization of state child care and socialized medicine. They’re sick of having bureaucrats raise their kids and care for their sick.
In America, events seem to move at an Eastern-European pace, but in the opposite direction. While statism is being dismantled abroad, it is being constructed here at home.
EXHIBIT A: President Bush and the Democrats want to make the Environmental Protection Agency a cabinet department.
The EPA—a quintessential big business welfare agency—was founded by Richard Nixon in 1972 through an unconstitutional executive order. Ever since then, it has achieved bureaucratic success by handing out special-interest construction contracts while catering to the most anti-capitalist, indeed anti-human, forces in our society. The EPA should be dismantled, not exalted.
We have yet to learn that the environmental vision is just as impossible as the socialist one, and just as dangerous in the attempt.
EXHIBIT B: Sen. Joe Biden (D-Plagiarism) and unnamed “White House staff,” not to speak of Drug Shah William Bennett, want to create a cabinet department of drugs, as if more government will win the unwinnable.
EXHIBIT C: The bipartisan S&L bailout will surpass $450 billion, which is a moral outrage. Why should this industry be funded on the backs of the American taxpayer?
If we are to have a bailout, along with picking the executives and directors clean, why not sell government assets for the rest? The feds own 40% of U.S. land. How about auctioning some of it? Taxpayers aren’t responsible for the S&L fiasco, and they shouldn’t pay for it.
EXHIBIT D: The Bush administration attacks Sen. Daniel Patrick Moynihan’s (D-Phony British Accents) Social Security tax cut of $600 per American family as intended to raise other taxes.
Moynihan’s motives may very well be bad (unlike the other senators, presumably), but so what? Any tax cut, any time, is a good idea. If anyone in D.C. had any guts, he’s be calling for a reevaluation of the entire Ponzi scheme.
(Note: if tax cuts can be smokescreens for tax increases, what does one say about the 1981 Reagan cuts that were followed by five Reagan increases, including the monstrous SS increases?)
EXHIBIT E: The Bush administration has put an entire country—Panama—on welfare. The cost, we’re told, is “only $1 billion,” but don’t believe it. We have only begun to pay the costs of Operation Noriega.
Given the way the Bush administration talks here at home, we might think it’s encouraging a Panamanian capital-gains tax cut, privatization, less government, and more free enterprise. Instead, the administration is bilking us for Panamanian welfare checks and a gigantic public works program, plus subsidies to U.S. big business through the egregious Export-Import Bank, founded by FDR as part of the New Deal.
This all looks pretty discouraging, but it could be the final gasp of the securitate. I believe the global revulsion against government will finally reach the country where it all started 200 years ago: America.
Just as the Great Depression set us back decades—because the ideological scam-meisters succeeded in pinning the result of central bank inflation on capitalism—the freedom revolution will advance us decades.
With ideological history, a paradigm seems entrenched, until tossed out overnight through a thought revolution. Now the paradigm has shifted towards our side. Our job is to overthrow the idol of statolatry, and install in its place respect for the free market, for individual liberty, for private property, and for sound money. Ludwig von Mises told us so.
The Freedom Revolution
Murray N. Rothbard
It is truly sobering these days to turn from a contemplation of American politics to world affairs. Among the hot issues in the United States has been the piteous complaint about the “martyrdom” of Jim Wright, Tony Coelho, and John Tower to the insidious advance of “excessive” ethics. If we tighten up ethics and crack down on graft and conflict of interest, the cry goes, how will we attract good people into government? The short answer, of course, is that we will indeed attract fewer crooks and grafters, but one wonders why this is something to complain about.
And then in the midst of this petty argle-bargle at home comes truly amazing, wrenching, and soul-stirring news from abroad. For we are privileged to be living in the midst of a “revolutionary moment” in world history. History usually proceeds at a glacial pace, so glacial that often no institutional or political changes seem to be occurring at all. And then, wham! A piling up of a large number of other minor grievances and tensions reaches a certain point, and there is an explosion of radical social change. Changes begin to occur at so rapid a pace that old markets quickly dissolve. Social and political life shifts with blinding speed from stagnation to escalation and volatility. This is what it must have been like living through the French Revolution.
I refer, of course, to the accelerating, revolutionary implosion of socialism-communism throughout the world. That is, to the freedom revolution. Political positions of leading actors change radically, almost from month to month. In Poland, General Jaruzelski, only a few years ago the hated symbol of repression, threatens to resign unless his colleagues in the communist government accede to free elections and to the pact with Solidarity. On the other hand, in China, Deng Hsiao-ping, the architect of market reform ten years ago, became the mass murderer of unarmed Chinese people because he refuses to add personal and political freedom to economic reform, to add glasnost to this perestroika.
Every day there is news that inspires and amazes. In Poland, the sweep by Solidarity of every contested race, and the defeat of unopposed Communist leaders by the simple, democratic device—unfortunately unavailable here—of crossing their names off the ballot. In Russia, they publish Solzhenitsyn, and a member of the elected Congress of Deputies gets on nationwide TV and denounces the KGB in the harshest possible terms—to a standing ovation. The KGB leader humbly promises to shape up. In the Baltic states, not only are all groups, from top Communists down—calling for independence from Soviet Russia, but also the Estonians come out for a free market, strictly limited government, and private property rights. In Hungary, numerous political parties spring up, most of them angrily rejecting the very concept of socialism.
In the “socialist bloc” covering virtually half the world, there are no socialists left. What all groups are trying to do is to dismantle socialism and government controls as rapidly as possible; even the ruling elites—certainly in Poland and Hungary—are trying to desocialize with as little pain to themselves as possible. In Hungary, for example, the ruling nomenklatura is trying to arrange desocialization so that they will emerge as among the leading capitalists on the old principle of “if you can’t beat ’em, join ’em.”
We are also seeing the complete vindication of the point that Hayek shook the world with in the Road to Serfdom. Writing during World War II when socialism seemed inevitable everywhere, Hayek warned that, in the long run, political and economic freedom go hand in hand. In particular, that “democratic socialism” is a contradiction in terms. A socialist economy will inevitably be dictatorial.
It is clear now to everyone that political and economic freedom are inseparable. The Chinese tragedy has come about because the ruling elite thought that they could enjoy the benefits of economic freedom while depriving its citizens of freedom of speech or press or political assembly. The terrible massacre of June 4th at Tiananmen Square stemmed from the desire by Deng and his associates to flout that contradiction, to have their cake and eat it too.
The unarmed Chinese masses in Beijing met their fate because they made the great mistake of trusting their government. They kept repeating again and again: “The People’s Army cannot fire on the people.” They ached for freedom, but they still remained seduced by the Communist con-game that the “government is the people.” Every Chinese has now had the terrible lesson of the blood of thousands of brave young innocents engraved in his heart: “The government is never the people,” even if it calls itself “the people’s government.”
It has been reported that when the tanks of the butchers of the notorious 27th Army entered Tiananmen Square and crushed the Statue of Liberty, that a hundred unarmed students locked arms, faced the tanks, and sang the “Internationale” as the tanks sprayed them with bullets, and, as they fell, they were succeeded by another hundred who did the same thing, and met the same fate.
Western leftists, however, cannot take any comfort from the contents of the song. For “The Internationale” is a stirring call for the oppressed masses to rise up against the tyrants of the ruling elite. The famous first stanza, which is all the students were undoubtedly able to sing, holds a crucial warning for the Chinese or for any other Communist elite that refuses to get out of the way of the freedom movement now shaking the socialist world:
Arise, ye prisoners of starvation!
Arise, ye wretched of the earth,
For justice thunders condemnation,
A better world’s in birth.
No more tradition’s chains shall bind us,
Arise, ye slaves; no more in thrall!
The earth shall rise on new foundations,
We have been naught, we shall be all.
Who can doubt, any more, that “justice thunders condemnation” of Deng and Mao and Pol Pot and Stalin and all the rest? And that the “new foundations” and “the better world in birth” is freedom?
[Editor’s note: this article was published in June 1989, before the changes in Eastern Europe.]
The Old Right Was Right
Sheldon L. Richman
The pace of change in the Soviet Union and Eastern Europe is so brisk that it is risky to write anything about it. Nevertheless, the virtual dismantling of the Berlin Wall and the beginning of liberalization in East Germany are exhilarating news, the climax of months of historic developments.
One’s natural reaction is: “Incredible! Unbelievable!” But are these things really unbelievable? Shouldn’t we have expected this all along? According to the Cold War orthodoxy, this was not to be expected. We were told that no communist government would ever voluntarily give up power. It was a law.
So the spontaneous disintegration of the communist world should come as a shock to us all, right? It would not have come as a shock to a group of men who predicted exactly what has happened. This was a varied group of journalists, scholars, and politicians that has become known as the Old Right.
The Old Right, whose activities spanned the 1930s to the mid-1950s, was characterized by its immense distrust of concentrated political power. Its members objected to the domestic policies of the New Deal precisely because it concentrated power in the Washington bureaucracy. Just as important, they objected to concentrated power motivated by foreign-policy considerations. For that reason, the Old Right opposed U.S. participation in the Cold War, though they were also bitter enemies of communism.
Among the leading figures of the Old Right were Robert Taft, John T. Flynn, Frank Chodorov, Garet Garrett, Albert Jay Nock, H. L. Mencken, and Felix Morley. Many lesser-known thinkers filled its ranks, qualifying it as a bona fide movement beginning in the interwar period. Looking back at what they counselled for America versus the Soviet Union is instructive and fascinating.
Before examining what the Old Right said about the Cold War, we should be clear on what is happening in the Soviet Union and the Eastern Bloc. In broadest terms, the people there have awoken to what they’ve been missing. Two-thirds of households in the Soviet Union have no running water. Pravda has written that of 276 basic consumer goods, 243 cannot be found in stores. According to Paul Craig Roberts, “Soviet economists speak openly of 40 million people in poverty and on the brink of famine.” The situation is similar in the Soviet Union’s Warsaw Pact allies. These are stagnant economies, more like Third World nations than industrialized countries.
How long could people be expected to live under these conditions if they have an inkling of what people in the West have? In East Germany the answer was plain:
200,000 of the brightest young people fled the country in 1989. Mikhail Gorbachev and his counterparts in Poland, Hungary, and East Germany realized that the stability of their countries, and their own futures, were at risk if things went on as they have been.
Gorbachev seems to understand that big-power status and prestige would be denied a country that cannot grow enough food for its own people. His solution is to begin to integrate the Soviet economy with the world economy. He wants trade and technology, and to get it he must commence, however modestly, market reforms. The people have demanded change, and the rulers could not ignore it.
The Old Right knew this would happen some day. They were skeptical of those who said that the only way to break communism’s hold was a belligerent foreign policy. This, they said, would be expensive and damaging to the U.S. economy, would risk a cataclysmic war, and would fail. Rather than loosen the totalitarian grip, it would probably tighten it.
What could America do, then? The Old Right answered that the best chance the U.S. had to roll back communism and protect its own security was to live up to its ideals and set a good example. American prosperity would make it the envy of the world and cultivate friendships with all nations. Meanwhile, the economic and spiritual shortcomings of communism would create the conditions for internal change. The Old Right grasped intuitively, if not theoretically, Ludwig von Mises’s fatal criticism of socialism as incapable of rational economic activity. A policy that risks war could never have the same results.
As Taft, then-Republican leader in the Senate, put it in 1951, “there are a good many Americans who talk about an American century in which America will dominate the world.” If “we confine our activities to the field of moral leadership we shall be successful if our philosophy is sound and appeals to the people of the world. The trouble with those who advocate this policy,” he said, “is that they really do not confine themselves to moral leadership. They are inspired with the same kind of New Deal planned-control ideas abroad as recent Administrations have desired to enforce at home.”
John T. Flynn, the Old Right journalist and America First Committee organizer, said in 1950 that regarding the Cold War, “the course of wisdom for the American people would be to sit tight and put their faith in the immutable laws of human nature.” To do this, he said, Americans would have to “make an end to the Cold War.”
Frank Chodorov, another Old Right journalist, agreed. In 1954 he wrote “That our culture—the body of ideas, habit, and traditions indigenous to America—is under severe attack there is no doubt. But can we save it by killing off or subjugating the communist natives of other lands?”
“Communism is not a person,” he wrote “it is an idea. But you cannot get rid of the idea that has possessed the communist by killing him, because the idea may have spread and you cannot destroy every carrier of it. It is better, therefore, to attack the idea than to attack the natives.”
The Old Rightists were confident that Soviet domination, left to its own devices, would fade as time went on. This was expressed by the diplomat and historian George F. Kennan, himself not an Old Rightist, but one whose foreign-policy views were largely compatible. In his memoirs Kennan wrote of his years observing the Nazi occupation of Europe:
“I was brought to recognize the continued and undiminished relevance in the world of Gibbon’s assertion that ‘there is nothing more contrary to nature than the attempt to hold in obedience distant provinces.’ Out of this grew my feeling that one must not be too frightened of those who aspire to world domination. No one people is great enough to establish world hegemony. There are built-in impediments to the permanent exertion by any power of dominant influence in areas which it is unable to garrison and police, or at least to overshadow from positions of close proximity, by its own troops.”
How was this Old Right view to be turned into policy? Free trade, without government assistance, was the prescription. The United States and its allies over the years have followed two opposite courses, both of which have delayed the communist disintegration. Liberals tended to favor subsidies and aid, that is, forced trade; the conservatives tended to favor trade restrictions. Shortly after the Bolshevik revolution, the Western countries tried to topple the Soviet Union by refusing to allow trade (and by invasion). Later, in the 1920s and 1930s, Western governments subsidized trade and loans to the communist bloc. At other times they provided foreign aid.
Although embargoes and subsidies seem like contradictory policies, they had one thing in common: they strengthened the communist regimes. The subsidies and transfers helped them cover up the inevitable failures of communism and prolong its life. Since, as Mises first pointed out in 1920, rational economic calculation is impossible under socialism, countries trying to carry out socialism must fail.
The Bolsheviks admitted failure in 1921 when they switched from War Communism to the New Economic Policy, which was essentially a reestablishment of the market. Later, under Stalin, the Soviet Union ended the NEP, but it never returned to a moneyless, trade-less economy. Instead, it put in place a highly bureaucratized, interventionist state that had a veneer of central planning. It too was doomed to failure. But the infusion of Western wealth through government policy camouflaged the core incompetence of the system. The West, at taxpayer expense, bailed out the East.
Mises in 1952 wrote that “the United States is subsidizing all over the world the worst failure of history: socialism. But for these lavish subsidies the continuation of the socialist schemes would have become long since unfeasible.”
The policy of trade restriction fared no better. The rationale was that if trade were forbidden, the East would sink lower into poverty, prompting the people to rise up and overthrow the communist regimes. For several reasons, it didn’t work. First, the deprivation caused by the West made good propaganda for the regimes. They could tell their people that a hostile world wishes them ill and only support for the government could assure their security. The Soviet state would justify its existence, and deflect blame for the misery, by saying that just as it had protected them from the Nazis, now it was protecting them from the aggressive capitalist countries. It could plausibly ask its people for patience until the external threat subsided.
Another reason the strategy did not work is that, as Alexis de Tocqueville pointed out, revolutions do not occur when people are ground into despair. Radical change occurs, rather, when people glimpse what is possible to them from rising expectations. Merely depriving the people subjected to communism of consumer products could not be expected to impel them to overthrow their governments.
V. Orval Watts, an Old Right educator, debunked the embargo strategy. He wrote that government restrictions on private trade with communist countries strengthen the Iron Curtain because embargoing trade also embargoes ideas. In a 1955 article he wrote that “An American, for example, cannot walk down a Moscow street without conveying to passersby certain truths about the outside world—through the quality of his shoes, the cut of his clothes, his unafraid bearing and peaceable manner. Everywhere he goes, and in every contact, he does or says things which teach the meaning of freedom and expose the lies on which the Soviet rulers depend for inculcating fear and hatred of capitalism and of the peoples practicing it.”
We should “work for a revolution behind the Iron Curtain. But for this, we need carriers of revolutionary ideas. In selecting the best means of accomplishing this revolution in Russia, let us not arbitrarily and emotionally reject the effective means of peaceful traders and travelers.”
The meaning of these criticisms, in light of today’s events, is staggering: U.S. policy has prolonged communist rule and delayed the crack-up.
Those who reply that what is happening now is the result of U.S. containment policy and military spending, which forced the communists to spend resources on arms rather than consumer products, miss the point of Mises’s calculation argument. Given the inherent incompetence of bureaucratic economies, it would not have mattered if the Soviets spent no resources on arms. The consumer economy would still have been starkly inferior to the West.
There is another point implicit in this analysis that is contrary to the Cold War orthodoxy. It is a fallacy to believe that public opinion plays no role in communist countries because the regimes rule by brute force. Totalitarian regimes always spend immense resources on propaganda and the promotion of an ideology, which is nothing less than a moral rationalization of the regime. They must do this, as Etienne de la Boetie wrote in The Politics of Obedience, because the people always outnumber the rulers. Without the people’s acquiescence and cooperation, the regime could not last.
The Old Right view is really the traditional U.S. foreign policy view. It was what Washington meant when he warned against “political connection” with foreign countries and what Jefferson meant in his warning against “entangling alliances.” John Quincy Adams put it most eloquently: “America does not go abroad in search of monsters to destroy. She is the well-wisher to the freedom and independence of all. She is the champion and vindicator only of her own.”
As to be expected, many American political leaders and commentators want the U.S. to pour taxpayer money into Eastern Europe and even the Soviet Union in the view that without our help, their attempts at reform will fail. This is mistaken. To the extent the U.S. government transfers the taxpayers’ wealth there, those countries will have less incentive to really reform.
A government transfer is always a give-away of wealth that shields the recipient from its folly. In contrast, a private investor will expect something concrete in return or he will not invest. This is a surer way to encourage true liberalization. If they want Western capital, they will have to do what is necessary to make investment attractive.
As Mises wrote: “Prosperity is not simply a matter of capital investment. It is an ideological issue. What the underdeveloped countries need first is the ideology of economic freedom,” which the United States should send them.
But that means that we ourselves should be clear about what is desirable politically. Until we are, we are not likely to be a good example to those who are groping for solutions in the communist world. If the reform economists there call for anti-trust laws and taxes on “excess profits,” it doesn’t take much imagination to see what they are using for a model.
Most of the talk about reform has been associated with democracy, but democracy in itself will not improve the condition of the subjects of communism. Democracy is a method for selecting rulers. But the problem in these countries is that economic decisions are made by politicians and bureaucrats—not how they got into office. Popular election of commissars would not make the Soviet economy better able to serve consumers. What would change the economy is individual rights, private property, sound money, and the rule of law—in other words, libertarian capitalism. That should be our banner, not democracy.
I do not wish to depreciate the Soviet or East German’s attraction to “popular rule.” When distant rulers have been telling you what to do with your life, it is natural to want a say in one’s governance. I only want to point out that if the reform ends with democracy, it will not have been worth the candle. There is but a small difference between having no say in one’s own affairs and in having one vote out of millions. How the rulers are chosen is far less important than what the rules are. The civility of a democratic country should be measured in how much of life is beyond the reach of the democratic process.
Finally, a related point: Implicit in much discussion about recent events is the belief that East and West are converging toward a system that is neither communist nor capitalist. Advocates of convergence usually believe that this middle position is a good thing, avoiding the “extremes.”
In fact, as Mises taught, the middle of the road is an unstable mixture that must eventually move toward more or less freedom. There is no need to seek a mixture of freedom and slavery because slavery adds nothing of value to the mix.
We will have missed the point of the East’s revolution if we remain complacent about our own situation. Contrary to Francis Fukuyama (author of the acclaimed article “The End of History?”), now that Marxism is dead, we must get on with the main debate, the one between freedom and statism of any form. The objective in this debate is to bring to America a fully free market and voluntary social order.
The Vanishing Spectre of Communism
Doug Bandow
Nine years ago Ronald Reagan based his presidential campaign not only on a pledge to shrink government spending, but also on a promise to expand the Pentagon. For, in Reagan’s view, only a massive military build-up could counter the threat posed by the “evil empire” of Soviet communism.
Evil it was, and remains, but in retrospect we can see that the threat was already fading, though few in the U.S., or probably even the Soviet Union, then realized it. For four decades the U.S.S.R. had been the foe used to justify the most draconian of measures to suppress American liberties—crushing taxation for unending subsidies for an increasingly inept military-industrial alliance, conscription, restrictions on free speech, and government secrecy laws. But now the spectre of totalitarianism on the march—the excuse for the most execrable of Washington’s conduct—has largely disappeared.
The totalitarian structure imposed by the Red Army can no longer hold back people’s freedom impulse in the Eastern bloc. And the repressive system built upon the rubble of the Czarist empire is itself imploding. There, too, when given a choice, people—with no democratic tradition, not one prior opportunity to freely express their opinions—joyously go to the polls to unseat thugs and assorted party hacks.
Almost as satisfying is the disarray spreading through the American Left. As long as the U.S.S.R. claimed it was building a better world, leftists could delude themselves that they had found “the future.” If sometimes they had to shift utopias—going from the Soviet Union to China to Cuba to Vietnam to Nicaragua, etc.—there was always yet another nation where they could look for true socialism. What, however, can they say when virtually every member of the Communist Party leadership—other than in such depressing, cultish states as North Korea. Cuba, and Albania—admits that its system has failed?
Poor U.S. Communist Party Chairman Gus Hall now argues that “much of the Soviet mass media is not pro-socialist” since it spreads “falsehoods and slander about socialism” and paints a “false fairy-tale picture about capitalism.” Former Institute for Policy Studies staffer Michael Parenti warns that decrepit Eastern Europe’s move towards capitalism could result in, yes, a lower standard of living and “rationing of the kind that occurs in this country, by the market.”
But it is not enough to luxuriate in the spread of freedom. We should encourage the spread of this good virus to hasten the collapse of what remains of the communist relic around the world. The most obvious means of doing so is to continue spreading the ideas of liberty. The collapse of communism reflects the ideological triumph of the Western conception of human rights as well as the practical triumph of Western market economies. In countries such as China, it is the idea of liberty, buttressed by the successful model of the U.S. and allied states, that has stolen the younger generation away from the embrace of Marxism.
The U.S. should also issue the sort of policy challenges that will spur change within Eastern Europe and the Soviet Union. President Bush could suggest, for example, that Moscow end conscription. In return, the U.S. would drop draft registration and all “national service” schemes. America’s allies, such as Germany, would abandon their systems of forced military service.
The U.S. government should not, however, flood Poland and Hungary, or any other reforming state, with aid. If foreign aid worked, Tanzania, Bangladesh, Egypt, and a host of other poor states would be rich today; if access to vast amounts of foreign credit guaranteed economic success, Brazil, Mexico, and Argentina, rather than Japan, would be economic powerhouses. Only drastic policy reform can restore economic health to communist states, and American aid would only reduce the pressure for meaningful change. Socialist economics, as well as communist politics, must be allowed to collapse.
A century ago collectivism effectively supplanted classical liberalism as the dominant ideology of the West; statism naturally infused the scores of new nations formed around the globe since then. But the competition between capitalism and communism is now over, and no one, aside from Gus Hall and a dispirited remnant on the socialist left, has any doubt as to which is the winner. It’s time for modern libertarians to celebrate—and then to work even harder to help shape a new, free, social order.
The Socialist Holocaust in Armenia
Llewellyn H. Rockwell
A roar, a shudder, and the end of the world. That was Soviet Armenia on December 7, 1988, when the great earthquake struck. In moments, whole cities disappeared, as nurseries and factories, homes and offices collapsed into rubble, killing 55,000 men, women, and children.
But no matter what seemed to be the case, those people weren’t victims of geologic forces; they were casualties of socialism.
The Armenian earthquake measured 6.9 on the Richter scale. In 1985, Mexico City had two back-to-back earthquakes measuring 8.1 and 7.5, yet they did far less damage, with almost all of the deaths caused by collapsing public housing. In Armenia, all the buildings were public, and they all collapsed.
After the earthquake, Brian Tucker, a California geologist, said the destruction in Armenia was 100 times as great as it would have been in California from a similar-size quake. In fact, the ratio is probably 1,000 to one. The 1989 Northern California earthquake measured 7.1 and the few who died were killed by a collapsed government highway. In 1971, a major San Fernando Valley earthquake, measuring 6.5, did relatively little damage, except to a federal government hospital, which caved in and killed 49 people.
Nature is often blamed for the failure of socialism: bad weather, for example, for 70 years of Soviet crop failure. The Ethiopian famine is blamed on a drought, even though socialist dictator Mengistu has deliberately starved the peasants, Stalin-style, to collectivize them.
Unlike natural disasters, the destructive effects of socialism are not capricious. They are necessary consequences of government control.
In his important book A Theory of Socialism and Capitalism (Kluwer Academic Publishers and the Mises Institute, 1988), Professor Hans-Hermann Hoppe shows that socialism must result in: (1) much less capital formation; (2) a gargantuan waste of resources; and (3) destructive overuse of the means of production. Armenia is an all-too-accurate illustration.
Under socialism, all capital goods are publicly owned. Without individual ownership, as Hoppe explains, under socialism there is almost no incentive to produce new capital goods, let alone to keep up older ones. Control over those capital goods is exercised by bureaucrats, not savers, contractors, and investors.
There is no market for Soviet buildings or building materials. Everything is decided by central government planners, and citizens must live or work in whatever the bureaucrats erect. As a result, builders have no stake in the value of their work. And since the buildings cannot be sold, there is no reason for tenants or managers to try to preserve what little value the structures have.
Making the best use of scarce resources is impossible under socialism. That’s because, as Ludwig von Mises showed in 1920, socialism precludes the possibility of rational economic calculation. There is, to take a simplified example, only a limited amount of steel, which must be allocated to both industry and building. Without market prices, there is no way to tell which is the more highly desired end.
In our relatively free market, we assume that concrete is less valuable than steel and that both are less valuable than marble. But we know this only because the market-generated prices tell us so. Without private property, free exchange, and market-prices, nobody can know what anything is worth.
The Soviets get a rough idea from Western pricing schedules, but that’s not enough for rational economic calculation. To know how, when, and where to use capital and resources, there must be trade so that each good can have a market price.
Without this process, the Soviet economy is necessarily chaotic, with random surpluses and shortages. Even if a builder wanted to build a sturdy apartment house in the Soviet Union, he probably couldn’t get the necessary resources.
Under socialism, government builders must fulfill the Plan no matter what, which results in the overutilization of available resources. Quality, which can’t be bureaucratically quantified, is ignored. In fact, it is an impediment to turning out the ordered amount of production with the least amount of effort. The result is incredibly flimsy buildings.
The efficient production of buildings is an enormously complex process, too complex to be encompassed in a central plan. There is no way that bureaucrats in Moscow can handle it, let alone discover, like the entrepreneur, more effective ways of doing it.
In a free market, consumers ultimately determine the pattern of production. If buyers would rather have brick houses than wooden ones, the structure of production reflects this by bidding up the price of bricks, which pulls them away from alternative uses where they are less highly valued.
We can see the importance of consumer sovereignty in this process, as value is imputed backwards from consumer goods to production goods. Not only socialists misconstrue this. Mainstream economists claim that each stage of production mechanistically “adds value” to the final output, when it is actually the value of the consumed good that determines the value of the capital that goes into producing it.
Under socialism, this process is thwarted. The decisions of consumers have little, if any, connection to the central plan. When goods are produced with little or no consumption value, as is usually the case, resources are wasted and everyone is made poorer.
It is no wonder that in Moscow, buildings come crashing down five or ten years after they are built; even the ones still standing must have nets hung out over the sidewalks to catch falling masonry. In the U.S.S.R.’s internal colonies, standards are even lower—so low that an earthquake that would have minimal effect in the U.S. turns Soviet cities into cemeteries.
The inconceivable death and destruction in Armenia is a vivid illustration that economics is not arcane. Good economics results in prosperity and freedom. Bad economics results in a holocaust.
How To Desocialize?
Murray N. Rothbard
Everyone in Soviet Russia and Eastern Europe wants to desocialize. They are convinced that socialism doesn’t work, and are anxious to get, as quickly as possible, to a society of private property and a market economy. As Mieczyslaw Wilczek, Poland’s leading private entrepreneur, and Communist minister of industry before the recent elections, put it: “There haven’t been Communists in Poland for a long time. Nobody wants to hear about Marx and Lenin any more.” In addition to coming out solidly for private ownership and denouncing unions, Wilczek attacked the concept of equality. He notes that some people are angry because he recently urged people to get rich. “And what was I to propose? That they get poorer perhaps?” And he was rejected by the Polish voters for being too attached to the Communist Party!
Eastern Europeans are eager for models and for the West to instruct them on how to speed up the process. How do they desocialize? Unfortunately, innumerable conservative institutions and scholars have studied East European Communism in the past 40 years, but precious few have pondered how to put desocialization into effect. Lots of discussion of game theory and throw weights, but little for East European desocializers to latch onto. As one Hungarian recently put it, “There are many books in the West about the difficulties of seizing power, but no one talks about how to give up power.” The problem is that one of the axioms of conservatism has been that once a country goes Communist, the process is irreversible, and the country enters a black hole, never to be recovered. But what if, as has indeed happened, the citizens, even the ruling elite, are sick of communism and socialism because they clearly don’t work?
So how can communist governments and their opposition desocialize? Some steps are obvious: legalize all black markets, including currency (and make each currency freely convertible at market rates), remove all price and production controls, drastically cut taxes, etc. But what to do about state enterprises and agencies, which are, after all, the bulk of activity in communist countries? The easy answer—sell them, either on contract or at auction—won’t work here. For where will the money come from to buy virtually all enterprises from the government? And how can we ever say that the government deserves to collect virtually all the money in the realm by such a process. Telling individual managers to set their own prices is also not good enough; for the crucial step, acknowledged in Eastern Europe, is to transform state property into private property. So, some people and groups will have to be given that property? Who, and why?
As Professor Paul Craig Roberts stated in a fascinating recent speech in Moscow to the U.S.S.R. Academy of Sciences, there is only one way to convey government property into private hands. Ironically enough, by far the best path is to follow the old Marxist slogan: “All land to the peasants” (including agricultural workers) and “all factories to the workers!” “Returning” the state property to descendants of those expropriated in 1917 would be impracticable, since few of them exist or can be identified, and certainly the industries could be returned to no one, since they (in contrast to the land) were created by the Communist regime.
But there is one big political and economic problem: what to do with the existing ruling elite, the nomenklatura? As the Polish opposition journalist Kostek Gebert recently put the choice: “You either kill them off, or you buy them off.” Admittedly, killing off the old despotic ruling elites would be emotionally satisfying, but it is clear that the people on the spot, in Poland and Hungary, and soon in Russia, prefer the more peaceful buying them off to pursuing justice at the price of a bloody civil war. And it is also clear that this is precisely what the nomenklatura want. They want free markets and private ownership, but they of course want to make sure that the transition period assures them of coming out very handsomely in at least the initial distribution of capital. They want to start capitalism as affluent private entrepreneurs.
Interestingly, Paul Craig Roberts, whom no one could ever accuse of being soft on communism or socialism, also recommends the more peaceful course: “Historically in these transformations ruling classes have had to be accommodated or overthrown. I would recommend that the Communist Party be accommodated.” In practice what this means is that “ownership of the state factories should be divided between the ruling class and the factory workers, and stock certificates issued.” His solution makes a great deal of sense.
Alternatively, Roberts says that a national lottery could determine the ownership of the means of production, since whoever initial owners may be, an economy of private property will be far more efficient, and “resources will eventually find their way into the most efficient and productive hands.” But the trouble here is that Roberts ignores the hunger for justice among most people, and particularly among victims of communism. A lottery distribution would be so flagrantly unjust that the ensuing private property system might never recover from this initial blow. Furthermore, it does make a great deal of difference to everyone where they come out in such a lottery; most people in the real world cannot afford and do not wish to take such an Olympian view.
In any case, Roberts has performed an important service in helping launch the discussion. It is about time that Western economists start tackling the crucial question of desocialization. Perhaps they might thereby help to advance one of the most welcome and exciting developments of the 20th century.
A Radical Prescription for the Socialist Bloc
Murray N. Rothbard
It is generally agreed, both inside and outside Eastern Europe, that the only cure for their intensifying and grinding poverty is to abandon socialism and central planning, and to adopt private-property rights and a free-market economy. But a critical problem is that Western conventional wisdom counsels going slowly, “phasing-in” freedom, rather than taking the always-reviled path of radical and comprehensive social change.
Gradualism, and piecemeal change, is always held up as the sober, practical, responsible, and compassionate path of reform, avoiding the sudden shocks, painful dislocations, and unemployment brought on by radical change.
In this, as in so many areas, however, the conventional wisdom is wrong. It is becoming ever clearer to Eastern Europeans that the only practical and realistic path, the only path toward reform that truly works and works quickly, is the total abolition of socialism and statism across-the-board.
For one thing, as we have seen in the Soviet Union, gradual reform provides a convenient excuse to the vested interests, monopolists, and inefficient sluggards who are the beneficiaries of socialism, to change nothing at all. Combine this resistance with the standard bureaucratic inertia endemic under socialism, and meaningful change is reduced to mere rhetoric and lip service.
But more fundamentally, since the market economy is an intricate, interconnected latticework, a seamless web, keeping some controls and not others creates more dislocations, and perpetuates them indefinitely.
A striking case is the Soviet Union. The reformers wish to abolish all price controls, but they worry that this course, amidst an already inflationary environment, would greatly aggravate inflation. Unfortunately, the Eastern Europeans, in their eagerness to absorb pro-capitalist literature, have imbibed Western economic fallacies that focus on price increases as “inflation” rather than on the monetary expansion which causes the increased prices.
In Soviet Russia and in Poland, the government has been pouring an enormous number of rubles and zlotys into circulation, which has increased price levels. In both countries, severe price controls have disguised the price inflation, and have also created massive shortages of goods. As in most other examples of price control, the authorities then tried to assuage consumers by imposing especially severe price controls on consumer necessities, such as soap, meat, citrus fruit, or fuel. As an inevitable result, these valued items end up in particularly short supply.
If the governments went cold turkey and abolished all the controls, there would indeed be a large one-shot rise in most prices, particularly in consumer goods suffering most from the scarcity imposed by controls. But this would only be a one-shot increase, and not of the continuing and accelerating kind characteristic of monetary expansion. And, furthermore, what consolation is it for a consumer to have the price of an item be cheap if he or she can’t find it? Better to have a bar of soap cost ten rubles and be available than to cost two rubles and never appear. And, of course, the market price—say of ten rubles—is not at all arbitrary, but is determined by the demands of the consumers themselves.
Total decontrol eliminates dislocations and restrictions at one fell swoop, and gives the free market the scope to release people’s energies, increase production enormously, and direct resources away from misallocations and toward the satisfaction of consumers. It should never be forgotten that the “miracle” of West German recovery from the economic depths after World War II occurred because Ludwig Erhard and the West Germans dismantled the entire structure of price and wage controls at once and overnight, on the glorious day of July 7, 1949.
In addition, the Eastern European countries are starved for capital to develop their economy, and capital will only be supplied, whether by domestic savers or by foreign investors, when: (1) there is a genuine stock market, a market in shares of ownership titles to assets; and (2) the currency is genuinely convertible into hard currencies. Part of the immediate West German reform was to make the mark convertible into hard currencies.
If all price controls should be removed immediately, and currencies made convertible and a full-fledged stock market established, what then should be done about the massive state-owned sector in the socialist bloc? A vital question, since the overwhelming bulk of capital assets in the socialist countries are state-owned.
Many Eastern Europeans now realize that it is hopeless to try to induce state enterprises to be efficient, or to pay attention to prices, costs, or profits. It is becoming clearer to everyone that Ludwig von Mises was right: only genuinely private firms, private owners of the means of production, can be truly responsive to profit-and-loss incentives. And moreover, the only genuine price system, reflecting costs and profit opportunities, arises from actual markets—from buying and selling by private owners of property.
Obviously, then, all state firms and operations should be privatized immediately—the sooner the better. But, unfortunately, many Eastern Europeans committed to privatization are reluctant to push for this remedy because they complain that people don’t have the money to purchase the mountain of capital assets, and that it seems almost impossible for the state to price such assets correctly.
Unfortunately, these free-marketeers are not thinking radically enough. Not only may private citizens under socialism not have the money to buy state assets, but there is a serious question about what the state is supposed to do with all the money, as well as the moral question of why the state deserves to amass this money from its long-suffering subjects.
The proper way to privatize is, once again, a radical one: allowing their present users to “homestead” these assets, for example, by granting pro-rata negotiable shares of ownership to workers in the various firms. After this one mighty stroke of universal privatization, prices of ownership shares on the market will fluctuate in accordance with the productivity and the success of the assets and the firms in question.
Critics of homesteading typically denounce such an idea as a “giveaway” of “windfall gains” to the recipients. But in fact, the homesteaders have already created or taken these resources and lifted them into production, and any ensuring gains (or losses) will be the result of their own productive and entrepreneurial actions.
Mises in Moscow! An Interview with an Austrian Economist From the U.S.S.R.
Jeffrey A. Tucker
Dr. Yuri Maltsev was a professor at the University of Marxism-Leninism in Moscow, a member of the Soviet Academy of Sciences, and an economic advisor to the Central Committee of the Communist Party of the U.S.S.R. He defected during an academic meeting in Finland in 1989 and now lives in Washington, D.C. He is a senior adjunct scholar of the Ludwig von Mises Institute, and this summer, he is a faculty member of our Mises University.
Q: You were recently teaching economics in Moscow, yet you are an advocate of private property and the free market. Shouldn’t we be surprised?
A: No. After decades of enslavement, almost no one in the U.S.S.R. is interested, for example, in the views of John Maynard Keynes. People, both in and out of academics, are looking for freedom, not an alternative method of government control. Even if they haven’t read Mises, Hayek, and Rothbard, they are instinctive libertarians.
Q: People see government as the problem?
A: Everyone knows that the government is responsible for giving them a Third-World economy. We joke that inside the Kremlin walls there is communism (no money, just prosperity); inside the Moscow beltway, there is socialism (money and some goods and services); and outside the beltway, there is feudalism. Three of Marx’s stages, of course.
A lot of intellectuals in the U.S. think there is some sort of plan behind the Soviet system. And there is, but not what they think: it is simple political power. Imagine the U.S. if the Democratic Party ran everything, and I mean everything, down to the tiniest detail, and everybody was a post office employee. That’s the Soviet Union. As Mises demonstrated so many years ago, such a system cannot work because there are no market prices and no profit and loss signals.
Q: What about the morality of central planning?
A: It fails on that ground as well. If you impose a Single Will on the citizenry, everybody who deviates from this Will must be exterminated. Between the 1930s and the 1950s, 40 million people were slaughtered to carry out the Plan. Today, the government seldom shoots people, but it does deprive them of their jobs. And because it is a monopolistic economy, they cannot get another one.
Q: How are prices set?
A: This is the most absurd part of the Soviet economy. They pretend to use a cost-plus basis for pricing. But the profit is planned for you. Say you have a planned profit rate of 15%, and the cost of a good is 1 ruble. The price of the good will be 1.15 rubles. But if you include the costs of your own mismanagement in the base, then you can make a higher profit. So the system favors the maximization of inputs, not outputs, spending not production.
There are 22 million prices in the Soviet Union, most of them are computed on the local level. The State Committee on Prices issues the “methodological materials,” which are rules on what must be included in the price, for example, the costs of material inputs and labor inputs. These costs are based on other costs. Then you have to submit the price to the Committee and they will check it and sometimes revise it. When the price is approved, it is never changed.
One of the strongest points of Austrian economics is the logical theory of the business cycle. You cannot think of a recession as a bad thing. It cleanses the economy of everything it does not need. Everything that is not wanted by consumers goes by the wayside. But imagine this: in 72 years, the Soviet Union has never closed a single enterprise.
Q: But they know they should?
A: Sure, they know they must. But how do you do it? There are too many vested interests. The only thing the Soviet government has left to brag about is that they have no unemployment. Last year, about 40% of all the enterprises could not meet the planned profit target. Theoretically, that means they operated with losses. Say they introduce so-called market socialism—a concept which really has no meaning—then these enterprises must be self-supporting. That means 40% of the enterprises would have to go belly-up. Some good economists say these enterprises are a burden and should be eliminated. But the point is you can’t trust the profit and loss figures. They don’t reflect consumer preferences and they can be miscalculated. There are plenty of enterprises that are essential, like farming, that always operate at losses. The overall agricultural productivity is minus six percent. This shows absolute ignorance of economics and social science.
Q: Who benefits from phony figures?
A: The managers of the Soviet enterprises. The only measure of your success is how you meet the planned target. The output target is the most important, and sometimes it is even nice to pretend you are making a profit.
It is hilarious to attend the annual meetings of the ministers. They rush to the podium to brag about how much they have produced and how they fulfilled the plan. All the while they are looking at the higher-level minister they answer to. But they are faking it. If you have been ordered to produce 10,000 widgets, but you only produce 9,000, you have a very strong incentive to lie about it. And moreover, to say you produced 11,000. It is very difficult to calculate these things, and nobody really cares. That’s why they have to rely on foreign statistics so much.
Gorbachev has admitted that he expects agricultural losses to be about 40% in this year’s harvest. And people there say, oh, how open and honest he is. But I don’t believe these figures. Much of the harvest will never be seen. The numbers are imaginary. When the time comes, they will say the rats ate the harvest, or it was lost in a storm, or fell out on the railway, or whatever.
Q: We’ve heard only recently that the Soviet GNP is much lower than we—and the Soviets—were told.
A: Soviet GNP figures are ridiculous. I have a close friend, a very smart economist, who estimates that the Soviet economy is seventh or eighth in the world. But we can’t say for sure. We do know that the standard of living is Third World.
A main problem is double counting. Say someone wants to produce an irrigation tractor. First they excavate the ore for steel and count that. Then they make pig iron and count that. On and on it goes, with steel, spare parts, etc., until the final tractor. At each stage they have counted the product in its entirety, not just the value that is added. I approximated the value-added cost of the tractor to be 870 roubles. But the enterprise was reporting the cost at 11,870 roubles. That is what goes into GNP calculations.
Q: The CIA has used Soviet statistics on production for years.
A: That’s sheer irresponsibility. But it is not as if the CIA knew the truth. Nobody, including the Soviets, knows the truth. I know people in Washington think-tanks that think the Soviets are tampering with the figures just to fool Americans. They think the Soviets know the true figures. The truth is, they don’t know themselves. Today the CIA and several think-tanks are recalculating Soviet statistics, but they are doing so on the basis of other phony Soviet statistics.
Q: Much concern over the Soviet military threat was based on these figures.
A: Sure. There are groups in the U.S. with a vested interest in showing the Soviet economy as larger than it really is. And some people think you can compare U.S. output with Soviet output on a dollar for dollar basis. You can certainly make up some quotient, but it is absurd.
Q: Our government has long said the Soviet economy doesn’t produce consumer goods because all resources are poured into the military, a sector which is pretty efficient. Socialism can’t produce margarine and soap, but it can make planes and tanks. What do you think?
A: Socialism cannot produce anything efficiently. The reason they can’t produce margarine and soap is not because the resources aren’t there, but because the socialist system doesn’t work. Plenty of Soviet military officials fabricate figures themselves, as I know from my own army experience.
Gorbachev is trying to reduce military spending this year by 15%. When I was in the Soviet Union, I headed the project on the civil service. The final goal is conversion of 40% of the military to the civilian sector by 1993. Gorbachev thinks this will free resources, and prosperity will bloom in the consumer sector. But it will not, thanks to socialism.
Q: What about the state of economics in the U.S.S.R.?
A: Most economists there are trained in practical, not theoretical, economics. But Mises is far more respected in the Soviet Union than Paul Samuelson or J.K. Galbraith. The government’s official propaganda treats libertarians as Enemy Number One because they openly condemn the socialist system. But the more the government criticizes them, the more they appear interesting. Moreover, ideas condemning the Soviet authorities carry more weight than the official pronouncements themselves. That is why Boris Yeltsen is so popular. It is not his charm and charisma. He was singled out as an enemy by the official propaganda and it backfired.
Q: Does the public believe what the Soviet authorities say about America?
A: If I went back to the Soviet Union today and said, “I live in Washington, D.C., and there is widespread street crime, corruption, crack wars, and people without homes,” everybody would assume I was a KGB agent.
No one believes the authorities. If a Soviet official says, the economic plan has achieved and exceeded its goals, people know it has failed as usual. There is a joke that if the government forecasts warm weather, people assume it will be cold.
Q: What do you think about America?
A: I love the American people and American society. Americans are unbelievably good-hearted and generous. This is the most wonderful country in the world. On the other hand, I don’t love government, any place, Moscow or D.C. Thanks to democracy, your government is much less extensive, and much less corrupt, but with a very few exceptions, all politicians and bureaucrats are engaged in the same protection of vested interests through economic and political manipulation. And they issue the same sort of ridiculous orders.
One of the first things I encountered in the U.S. was a Soviet system of newspaper pickup. Here is a newspaper which I have bought and paid for. Under the Constitution, I thought I had the right to eat it, burn it, or dispose of it in any way. In the condominiums where I live, we received an order from the D.C. government. Each week you must surrender this newspaper in special bags, which you must get from the local supermarket. If you do not obey, you can be fined $400. In other words, I am told to surrender my property free of charge to the government according to their irrational standards. And I thought I was escaping socialism!
Q: What do you predict for perestroika?
A: It will be a failure. The overwhelming problem is the monopoly of the Communist Party. They are running the reforms. There are a myriad of vested interests. That is why I am more optimistic about Eastern Europe. They have all but eliminated their Communists. For years, the people living under socialism didn’t know how bad they had it. Only with glasnost did people realize that socialism is built on lies.
Q: Does Gorbachev deserve any credit?
A: Yes, for glasnost. And he went all over Eastern Europe telling the people that the U.S.S.R. would not intervene militarily. That was the signal to throw the governments out. And they did. His foreign policy has been right on target.
In fact, many people in the Soviet Union believe Gorbachev is an anti-communist. If you are General Secretary of the Communist Party, you cannot just say, “This system is baloney.” You must go about it slowly and covertly. If he is not an anti-communist, then he is a fool.
Q: How can the U.S. help the capitalist revolution?
A: Not through foreign aid! It will actually hurt by entrenching bureaucrats. The more money they get, the less eager they are to reform. And diplomatic missions to murderous regimes are disastrous too, both practically and morally. The best thing the U.S. can do is to export good economic thought, as the Ludwig von Mises Institute does, and set a good example by reducing the size of government here.
The Cambodian Catharsis
Lawrence W. Reed
It is always better to kill by mistake than to not kill at all” was the slogan of Pol Pot’s communist Khmer Rouge. From April 17, 1975, until January 7, 1979, the tiny southeast Asian nation of Cambodia endured a nightmare of mass murder, torture, and oppression at the hands of the fanatical Khmer Rouge. In an attempt to brutally reshape society, Pol Pot waged a campaign of genocide. Money was abolished. So was private property. The institution of the family was nearly erased. An all-out assault on religion led to the deaths of thousands of Buddhist monks and worshippers. Churches and pagodas were demolished. Schools were closed down and modern medicine forbidden in favor of quack remedies and sinister experimentation. Even eating in private or scavenging for food were considered crimes against the state.
Mass graves have been unearthed all over Cambodia, giving rise to the title of the movie, The Killing Fields. At one place I visited known as Choeung Ek, a memorial houses more than 8,000 human skulls—all found nearby. Rivers near places like this ran so red with blood that cattle would not drink from them.
Peace talks in Paris in the summer of 1989 convened to find a way to form a coalition government of reconciliation, but broke down over the U.S.-Red China demand that Pol Pot and the Khmer Rouge play a role in the new government. Should these monsters shoot their way back into Phnom Penh, the stage would surely be set for Act Two of the Cambodian Holocaust.
With that awful prospect dangling over this tragic nation, I went to Phnom Penh expecting the worst. A million land mines and other horrors of war have left behind many crippled and legless people. The city’s drainage and sewer systems are in such disrepair that even a moderate rainfall produces flooded and often smelly streets. Peeling paint, crumbling stucco, and filthy walls and floors have taken over what once were glistening and majestic French colonial-style buildings. Routine power outages blacken whole sections of the city from 10 minutes to an hour every day. I visited a military hospital where young men blinded and maimed subsisted on the barest of medical care. Orphans were as prevalent as children with parents.
The Khmer Rouge had forced people to leave the capital. When the city was repopulated after 1979, housing was reclaimed—homesteaded is the word—in a free-for-all. So much had been damaged that the 750,000 people who now live in the capital are crowded into tiny apartments. One house I visited had been home to a family of five; now it is home to 63 people from no less than seven different families. All this was depressing. But it’s not the whole story.
The big news in Cambodia is the revival of life, the reconstruction of markets, and incredible growth of economic activity. The city was humming with vitality and enterprise—with more optimism than any visitor could reasonably have hoped to witness.
Progress is palpable, even astonishing. A French relief worker told me that since the government began implementing “free-market reforms” a few years ago, the progress has come “almost hourly.”
Indeed as the Vietnamese pull out and their influence in the Cambodian government wanes, Cambodians are putting markets in charge of the economy. Agriculture has been largely de-socialized; farms are now chiefly in private hands, by either lease or outright ownership.
There are no wage controls, no price restrictions, almost no controls over the movement of people and capital, no rationing, and no lines in front of stores. Having just visited the Soviet Union for the fourth time, days before arriving in Phnom Penh, I found myself thinking how envious my friends in Moscow would be if they could see the variety and abundance of goods in Phnom Penh’s still officially communist markets.
In the city’s Central Market, one of its many commercial hubs, hundreds of women hawk all sorts of produce from fish to fruit. Others push gold and silver jewelry, watches and calculators and televisions from Japan, bluejeans and T-shirts emblazoned with American logos and city names, a wide array of cosmetics, and all the Pepsi and Seven-Up one needs in the tropical sundrenched land.
Along Phnom Penh’s main thoroughfare, women are having their hair done in several privately owned beauty shops. Restaurants are humming with business and serve a variety of cuisines from “international” to native Cambodian dishes of fried cricket, snake soup, duck feet, sweet and sour chicken, and, of course, white rice. Shops full of automobile and bicycle parts, carpets and mattresses, even tennis rackets and baseballs, dot the city.
The capital now boasts 20 theaters. For the equivalent of 50 cents or less, you can see a movie on the big screen, ride an elephant, play ping pong, or join a small audience of 20 or 30 crowded into a darkened shop to view an American film or a music video. Pleasure boaters ply the city’s large lake, Voeung Kak, while families nearby enjoy a small zoo and amusement park.
Four months ago, there wasn’t a photocopier to be found in Phnom Penh, except for a few in government or private offices. In recent weeks, a half dozen small shops have opened advertising photocopy services. Cambodians love to have their pictures taken, and entrepreneurs have responded by opening photographic studios all over the city. And the country’s first one-hour film developing business has just been inaugurated by a man who committed more than 10 years of his family’s savings to the venture.
People who aren’t on foot get about town via bicycle, motorcycle, bicycle-rickshaws called “cyclos,” or car—and there are now several thousand cars; whereas, six months ago there were barely 200. Gasoline can be purchased from a few government gas stations when they have it, but for about 20% more, you can get it anytime from the free-market vendors along the curbside.
Not even high inflation—which I estimate to be running at 75% plus—has put much of a damper on the business boom. Checkbooks and savings accounts are rarely used, but the cash economy is growing feverishly without them. Though the government fixes the Cambodian currency—the riel—at 150 to the U.S. dollar, it permits a thriving exchange business in the streets where the buck fetches 210 riels.
Service with a smile seems to be the order of the day all over town. I found that little more than eye meeting eye quickly produces a broad, friendly grin from almost every Cambodian. In the markets, even a prospective patron who declines a purchase usually warrants a smile and a polite thank you.
By the end of my stay, I was asking people to tell me just what was “communist” about Cambodia anymore. Aside from the one-party political monopoly, the country is relying substantially on free enterprise to direct everyday life. Even former beggars, I was advised, are getting into business.
To be sure, Phnom Penh has a long way to go before it achieves the level of prosperity it had before the Vietnam War spilled over into Cambodia in the late 1960s. And in the countryside, where conditions are generally harsher than in the capital, the reconstruction of normal life has been painfully slow. A rising tide of political corruption threatens to undermine the regime’s progress in currying favor with the public.
But the advances to date, coming on the heels of near national annihilation, are a remarkable testament to the curative powers of private enterprise and to the determination of the Cambodian people. Three years and nine months of Pol Pot’s horror could not erase the spirit of enterprise in the Cambodian people, or their desire to survive and rebuild.
Mises’s Blueprint for the Free Society
Sheldon L. Richman
The bravery of the masses in China, Russia, and Eastern Europe are an inspiration to lovers of liberty everywhere. They are calling for freedom of speech and assembly and an end to official corruption. These are laudable objectives, but they cannot be guaranteed without more fundamental changes in the communist system. And the most consistent and integrated alternative is classical liberalism, a philosophy and tradition that built Western civilization.
The best place to explore the foundations of classical liberalism is in Ludwig von Mises’s classic work Liberalism. This is Mises’s succinct statement of the meaning of the political philosophy that liberated mankind from the old order of feudalism and mercantilism and raised man’s standard of living such that the noblemen of old would envy the position of today’s poor.
Early in the book, Mises acknowledges that “Liberalism...has nothing else in view than the advancement of [men’s] material welfare and does not concern itself directly with their inner, spiritual and metaphysical needs.” He realizes that classical liberalism has been attacked through the ages for not being concerned with man’s nonmaterial needs, and he answers the charge forthrightly: “It is not from a disdain of spiritual goods that liberalism concerns itself exclusively with man’s material well-being, but from a conviction that what is highest and deepest in man cannot be touched by any outward regulation.” Liberalism seeks “outer well-being because it knows that inner, spiritual riches cannot come to man from without, but only from within his own heart.”
Mises identifies seven tenets that form the foundation of classical liberalism:
1. Private Property. This is the most misunderstood part of liberalism. It is the key that separates advocates of capitalism from its opponents, even those who are otherwise concerned with individual liberty. To the Marxist or Maoist, property is exploitation; to the real liberal it is liberation. Mises says, “the program of liberalism, therefore, if condensed into a single word, would have to read property, that is, private ownership of the means of production.” “All the other demands of liberalism result from this fundamental demand,” he writes.
2. Freedom. Mises is concerned to tie the case for individual liberty to the progress of society and the material advancement of the human race. He writes: “What we maintain is only that a system based on freedom for all workers warrants the greatest productivity of human labor and is therefore in the interest of all inhabitants of the earth.” Freedom for Mises means the right to enter contracts, to move as one pleases, to immigrate, and to emigrate. When we get to Mises’s discussion of limits on government power, we’ll see what else he attaches to this concept.
3. Peace. Classical liberalism from the beginning was associated with peace. When the martial virtues were extolled, it was the liberals who vouched for the superiority of production and commerce. As Mises puts it, “The liberal critique of the argument in favor of war...starts from the premise that not war, but peace, is the father of all things. What alone enables mankind to advance and distinguishes man from the animals is social cooperation. It is labor alone that is productive.... War only destroys; it cannot create.” Mises differentiates the liberal case against war from the “humanitarian” case by pointing out that the liberal “is convinced that victorious war is an evil even for the victor....”
4. Equality. No concept that began with liberalism has been more subject to abuse than “equality.” The various doctrines of egalitarianism ride on the achievements and goodwill created by liberalism, but would destroy them if practiced consistently. For Mises, equality means no more and no less than equal treatment under the law. “Nothing, however, is as ill-founded as the assertion of the alleged equality of all members of the human race,” writes Mises. “Even between brothers there exist the most marked differences in physical and mental attributes.”
5. Limited Government. Under liberalism, government power is to be limited to protecting people and their property from aggression. Anything beyond that makes the individual a slave. “We see that as soon as we surrender the principle that the state should not interfere in any questions touching on the individual’s mode of life, we end by regulating and restricting the latter down to the smallest detail,” he writes. The danger of government’s moving beyond its narrow function is the suppression of the innovators. “All mankind’s progress has been achieved as a result of the initiative of a small minority that began to deviate from the ideas and customs of the majority until their example finally moved the others to accept the innovation themselves,” writes Mises. “To give the majority the right to dictate to the minority what it is to think, to read, and to do is to put a stop to progress once and for all.”
6. Tolerance. Mises makes a poignant plea for tolerance: “Liberalism,” he says, “must be intolerant of every kind of intolerance.” It “proclaims tolerance for every religious faith and every metaphysical belief, not out of indifference for these ‘higher’ things, but from the conviction that the assurance of peace within society must take precedence over everything and everyone.” “Only tolerance,” he says, “can create and preserve the condition of social peace without which humanity must relapse into the barbarism and penury of centuries long past.”
7. Democracy. Mises’s democracy is to be sharply distinguished from other theories of democracy. For Mises, democracy is the method of choosing the “rulers,” not the rules. The difference is critical. Under the latter conception, no one is safe from the whims of the majority or the well-organized minority, as under the absolute democracy of Athens or of Rousseau’s fantasies.
For Mises, democracy is the method of making violent internal political upheaval unnecessary. “There can be no lasting economic improvement if the peaceful course of affairs is continually interrupted by internal struggles,” Mises writes. “Democracy is that form of political constitution which makes possible the adaptation of the government to the wishes of the governed without violent struggles.”
The passionate people of Russia, Eastern Europe, and China, and those who struggle for freedom all over the world, can learn from Mises and his integrated philosophy of a free society.
