Free Market Economics: A Basic Reader

Capitalism/The Hampered Market/Socialism

Lewis Love

There once lived a king in a distant land—a just and wise old king, for he had observed and learned much about his people and about himself and his power. His people were free to go their way, and were fearful of the king and his soldiers, for his rule granted no privilege to one that was not a privilege to all equally. And they were free to petition their king and seek his wisdom in their affairs.

Thus there came one day to the royal court an artisan, a mason, and a beggar who was lame.

“O great and wise king,” they cried, “we are sorely troubled with our plight.” “I,” said the artisan, “make many useful goods. I use great skill and labor long, and yet when I am finished, the people will not pay my price.”

“And I,” said the mason, “am a layer of stone for houses and fine walls, yet I am idle, for no one gives me work.”

“I am a poor lame beggar,” said the third man, “who seeks alms from those who pass, as they find it in their hearts to do so, but alms are so few as to be of great concern lest I perish.”

“I can see that your trouble is great,” consoled the king, “and what would you ask of me?”

Then, they spoke as a group, the artisan, the mason, and the beggar who was lame: “Your power is very great, our king, and you can make the people see the folly of their ways and aid us in our troubles.”

“Perhaps,” said the king, “perhaps my power is great, but I must use it wisely or it shall be lost.” And he called to the captain of his guard.

“Bring forth three swords,” he commanded, “one for each of these men, and instruct them in their use. These three shall go forth in the land and compel those who will not voluntarily deal with them to obey their command.”

“No! no!” the three men called out, “this we did not ask. We are men of honor and could not set upon our fellow man to compel him to our will. This we cannot do. It is you, O king, who must use the power.”

“You ask me to do that which you would not do because of honor?” questioned the king. “Is honor one thing to a beggar and another to a king? I, too, am an honorable man, and that which is dishonorable for you will never be less dishonorable for your king.”

Karl Marx and Friedrich Engels

EDITOR’S NOTE: We were warned of the general procedure and the specific measures for a successful communist or socialist revolution by Karl Marx, the “father” of communism, in 1848:

We have seen . . . that the first step in the revolution by the working class is to raise the proletariat to the position of the ruling class; to win the battle of democracy. The proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeoisie; to centralize all instruments of production in the hands of the State . . .

These measures will, of course, be different in different countries. Nevertheless in the most advanced countries the following will be pretty generally applicable:

1. Abolition of property in land and application of all rents of land to public purposes.

2. A heavy progressive or graduated income tax.

3. Abolition of all right of inheritance.

4. Confiscation of the property of all emigrants and rebels.

5. Centralization of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.

6. Centralization of the means of communication and transport in the hands of the State.

7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.

8. Equal liability of all to labor. Establishment of industrial armies, especially for agriculture.

9. Combination of agriculture with manufacturing industries: gradual abolition of the distinction between town and country, by a more equable distribution of the population over the country.

10. Free education for all children in public schools. Abolition of children’s factory labor in its present form. Combination of education with industrial production, etc., etc.

Earl Browder

State capitalism leaped forward to a new high point in America in the decade 1939-1949. . . . State capitalism, in substance if not in formal aspects, has progressed farther in America than in Great Britain under the Labor Government, despite its nationalization of certain industries, which is a formal stage not yet reached in America; the actual, substantial concentration of the guiding reins of national economy in governmental hands is probably on a higher level in the U.S.A.

[In appraising a list of 22 specific items of American governmental policy, Mr. Browder states:]

They have the single feature in common that. . . they express the growth of state capitalism. . . . [This is] an essential feature of the confirmation of the Marxist theory. ... It represents the maturing of the objective (material) prerequisites for socialism, the basic factor which makes socialism inevitable. . . .

1. Government deficit financing.

2. Manipulation of bank reserves requirements.

3. Insurance of bank deposits.

4. Guarantee of mortgages.

5. Control of bank credits.

6. Tinkering with the currency system.

7. Regulation of installment buying.

8. Price controls.

9. Price support for farm products.

10. Agricultural credits.

11. R.F.C. loans to business corporations.

12. Social security systems for workers.

13. Various benefits for veterans.

14. Government housing.

15. Public works to provide employment.

16. Many projects for the conservation of natural resources.

17. Juggling of the tax structure.

18. New tariff regulations.

19. Government-organized foreign loans.

20. The Employment Act.

21. The President’s economic committee.

22. Last but by no means least, stimulated war armaments production on a large scale.

Thomas J. Shelly

As a teacher in the public schools, I find that the socialist-communist idea of taking “from each according to his ability,” and giving “to each according to his need” is now generally accepted without question by most of our pupils. In an effort to explain the fallacy in this theory, I sometimes try this approach with my pupils:

When one of the brighter or harder-working pupils makes a grade of 95 on a test, I suggest that I take away 20 points and give them to a student who has made only 55 points on his test. Thus each would contribute according to his ability and—since both would have a passing mark—each would receive according to his need. After I have juggled the grades of all the other pupils in this fashion, the result is usually a “common ownership” grade of between 75 and 80—the minimum needed for passing, or for survival. Then I speculate with the pupils as to the probable results if I actually used the socialistic theory for grading papers.

First, the highly productive pupils—and they are always a minority in school as well as in life—would soon lose all incentive for producing. Why strive to make a high grade if part of it is taken from you by “authority” and given to someone else?

Second, the less productive pupils—a majority in school as elsewhere—would, for a time, be relieved of the necessity to study or to produce. This socialist-communist system would continue until the high producers had sunk—or had been driven down—to the level of the low producers. At that point, in order for anyone to survive, the “authority” would have no alternative but to begin a system of compulsory labor and punishments against even the low producers. They, of course, would then complain bitterly, but without understanding.

Finally I return the discussion to the ideas of freedom and enterprise—the market economy— where each person has freedom of choice and is responsible for his own decisions and welfare.

Gratifyingly enough, most of my pupils then understand what I mean when I explain that socialism—even in a democracy—will eventually result in a living-death for all except the “authorities” and a few of their favorite lackeys.

W. A. Paton

(Adapted from earlier versions)

Early one morning the Little Red Hen was out looking for something to eat, and in the course of her search she came upon several plump, fresh kernels of wheat, spilled by somebody in the road. She was just about to swallow them when the thought occurred to her that perhaps she might instead get into the wheat business in a small way by planting the kernels. So she called to some of her farm friends: “Look, I’ve found some wheat. Who will help me dig up some ground so that we can plant this wheat and raise a crop?”

The “friends” didn’t take kindly to the idea. “Not I,” quacked the duck. “Not I,” honked the goose. “Not I,” grunted the pig.

“Well, I will then,” said the Little Red Hen. She picked out a nice piece of ground near the fence and worked hard scratching it up into good loose soil. Then she made some holes, well spaced, dropped a kernel in each hole, and filled them carefully with dirt.

The Little Red Hen visited her bit of wheat field every day, pulled out the weeds that came up, used her sprinkling can to water the soil when there wasn’t enough rain. Soon the green wheat sprouts broke through the ground and grew into sturdy plants, and finally the stalks and wheat heads appeared and ripened. When the wheat was ready to cut, the Little Red Hen appealed to her “friends” again: “Who will help me cut the wheat and take it to the mill?”

“Not I,” said the duck. “Not I,” said the goose. “Not I,” said the pig.

“Well, I will then,” said the Little Red Hen. She cut the wheat stalk by stalk with her shears, bound it into several bundles and carried each bundle on her back over the hill and down by the river to the mill. The miller spread the wheat out on his threshing floor and pounded the heads with his flail until the kernels were all separated from the husks. Then he blew away the straw and chaff and ground the beautiful red wheat into flour. He put the flour in a sack (after taking out his toll for the work he’d done), tied up the sack, and gave it to the Little Red Hen. She carried it on her back all the way home—a long, hard trip. When she had the sack of flour safely in her house, she went out and called to her “friends” once more. “Who will help me make my flour into dough and bake it into bread?”

“Not I,” said the duck. “Not I,” said the goose. “Not I,” said the pig.

“Well, I will then,” said the Little Red Hen. She bustled about making the flour into dough, and putting it in her round baking pan. After the dough had risen, she put it in the oven and late in the afternoon she took it out (being careful not to bum herself), and there on the table was a round loaf of the loveliest brown bread anyone ever saw or smelled!

The Little Red Hen then went to the door and— with a bit of a glint in her eye—called out: “Who will help me eat this lovely loaf of bread that I have baked?”

“I will,” quacked the duck, very loudly, “I will,” promptly honked the goose. “I will,” squealed the pig. And all three rushed to the door of the Little Red Hen’s house.

But they didn’t get any encouragement from that point on. “No,” said the Little Red Hen. “I found the wheat; I prepared the soil and planted it; I pulled the weeds and watered the ground when it got too dry; I cut the wheat and carried it all the way to the mill; I carried the flour home myself; I made the flour into dough and baked it. None of you would help until it came time to eat. And I’m going to eat my own bread all by myself.” She shut the door with a bang, and sat down to a good meal of hot bread, with plenty of butter on it! And it didn’t bother her a bit that she was not sharing the results of her foresight, initiative, and labor with those unwilling to contribute to production but very eager to consume what someone else had produced.

Unfortunately, the fable’s ending doesn’t square with the facts of life in 1961 America. The duck, the goose, and the pig, constituting a democratic majority, have authorized their income tax collector to take from the very productive little hen up to nine-tenths of the bread she has earned. Added to this ruinous levy there may be a sizable fine to which she is subject for having grown wheat in excess of the quota allowed her under the farm price-support program. Far from enjoying the whole loaf she produced by her own efforts, shell be lucky in 1961 if her “needy” neighbors leave her as much as a crumb.

W. A. Paton

In the cool of the evening, so the story goes, Mr. Beetle and Miss Centipede came out from under the rocks and started to do a bit of gossiping as was the practice among such creatures in the old days.

“Good evening, my dear Miss Centipede,” said Mr. Beetle, in his best voice, and “Good evening to you, Mr. Beetle,” the lady replied in sprightly fashion.

After some discussion of the weather, the food supply, and the hazards recently encountered, the conversation slowed down and in an effort to keep the visit going Mr. Beetle hit upon a new topic.

“Miss Centipede,” he said, “the part of your anatomy that has intrigued me most for a long time—although I don’t think I’ve mentioned it before—is your beautiful array of legs, and I’m also greatly impressed by the marvelous skill you display in manipulating them as you scurry about. I have only six legs to keep track of, but I don’t move very briskly and am regarded as rather awkward by all my friends. You, on the other hand, with fifty legs on the right side and fifty more on the left, handle all this equipment with no apparent difficulty, and travel with speed, and most gracefully, in any direction you choose to go, and change your course as you wish without the slightest hesitation. Tell me, my dear Miss Centipede, how in the world do you do it?”

On hearing this little speech Miss Centipede tossed her head and rolled her eyes coquettishly (the reader may need to use a little imagination here), and replied:

“Good Mr. Beetle, you make far too much of something that is really quite simple. I get about smoothly and gracefully—I admit it, you see—because it is actually very easy for me to keep my legs in order and have them respond to my wishes.”

Mr. Beetle was not satisfied. “It may seem easy to you,” he said, “but your pedal apparatus looks very complicated to me, and I don’t see how you can keep from getting tangled up—getting your wires crossed, so to speak—at least occasionally. I wish you’d tell me how you really go about it. Suppose, for example, that you want to move the sixteenth leg on your left side, just how do you issue the proper instructions to accomplish this?”

“There’s nothing to it,” she said jauntily; “I’ll show you.” Miss Centipede then tackled the prescribed chore. She twisted and squirmed, went through all sorts of contortions, got up quite a sweat in fact, and all without achieving the desired result. Finally, instead of moving the sixteenth leg on the left she managed a pitiful little twitch of the eleventh leg (counting from the front) on the right.

Mr. Beetle now realized that he had started something that should have been left alone, and as Miss Centipede continued her struggle he became genuinely alarmed.

“Please, Miss Centipede,” he begged, “don’t bother your pretty head any longer with my silly inquiry. The matter is of no consequence and I’m afraid you are making yourself ill. We can discuss this some other time.”

But Miss Centipede had her back up and according to all the accounts of the episode she kept on trying desperately for an hour or so until she was completely exhausted. But this wasn’t the worst of it. When she finally gave up she had become so confused that she couldn’t move at all! One writer introduces a dab of verse in telling about this unhappy outcome, somewhat as follows according to my hazy recollection:

She wrought herself to such a pitch

She stretched out, helpless, in the ditch.

And the poor creature was permanently paralyzed thereafter, from all fifty waists down, and finally died of starvation.

This tale has a moral for these days—one that is fairly evident to anyone familiar with and concerned about the impact of the tide of government intervention upon the intricate mechanism of the free market. Among the wonders of human society—perhaps the greatest of them all—is our network of exchange activities and the accompanying mosaic of prices. It is this instrument which has fostered and implemented a truly astonishing degree of specialization in production, and has made available an almost countless array of consumer goods and services. Operating through the price structure, the market acknowledges and integrates the inclinations and choices of millions of individuals, and the system promptly reflects the constantly changing attitudes and circumstances of the host of participants. It is in this connection that the term “miracle” has often been applied to describe the functioning of the free competitive market. Without directives, without government intervention, without central planning, the impersonal forces of the market, acting automatically, direct the allocation of resources, appraise the contributions of the productive factors, and distribute the product. But this marvelous mechanism, not anyone’s invention but the very essence of economic development and activity, can undoubtedly be crippled and finally wrecked altogether by conscious interference and tinkering. Left alone, with the power of the state confined to checking predatory actions, the market performs wonders in guiding economic conduct; loaded with price fixing, government regulation, bureaucratic intervention and planning, the market apparatus falters and eventually becomes ineffective. In his classes years ago Fred M. Taylor laid great stress on the need for a hands-off policy if the price system were to be effective in directing economic activity, and his favorite admonition in this connection was: “Don’t monkey with the thermostat.”

The bad results of present-day interference with the market are everywhere apparent, but there are few signs of any abatement of the socialist trend. The planners are twisting and squirming, like Miss Centipede, and each additional effort to control the economy sets up a chain of new contortions and dislocations. But the dedicated interventionists who are now in the saddle don’t seem to be afraid of the stagnation and paralysis awaiting them—and the rest of us, unfortunately—at the end of the road.

David Crockett

One day in the House of Representatives, a bill was taken up appropriating money for the benefit of a widow of a distinguished naval officer. Several beautiful speeches had been made in its support. The Speaker was just about to put the question when Crockett arose:

“Mr. Speaker—I have as much respect for the memory of the deceased, and as much sympathy for the sufferings of the living, if suffering there be, as any man in this House, but we must not permit our respect for the dead or our sympathy for a part of the living to lead us into an act of injustice to the balance of the living. I will not go into an argument to prove that Congress has no power to appropriate this money as an act of charity. Every member upon this floor knows it. We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress we have no right so to appropriate a dollar of the public money. Some eloquent appeals have been made to us upon the ground that it is a debt due the deceased. Mr. Speaker, the deceased lived long after the close of the war; he was in office to the day of his death, and I have never heard that the government was in arrears to him.

“Every man in this House knows it is not a debt. We cannot, without the grossest corruption, appropriate this money as the payment of a debt. We have not the semblance of authority to appropriate it as charity. Mr. Speaker, I have said we have the right to give as much money of our own as we please. I am the poorest man on this floor. I cannot vote for this bill, but I will give one week’s pay to the object, and if every member of Congress will do the same, it will amount to more than the bill asks.”

He took his seat. Nobody replied. The bill was put upon its passage, and, instead of passing unanimously, as was generally supposed, and as, no doubt, it would, but for that speech, it received but few votes, and, of course, was lost.

Later, when asked by a friend why he had opposed the appropriation, Crockett gave this explanation:

“Several years ago I was one evening standing on the steps of the Capitol with some other members of Congress, when our attention was attracted by a great light over in Georgetown. It was evidently a large fire. We jumped into a hack and drove over as fast as we could. In spite of all that could be done, many houses were burned and many families made houseless, and, besides, some of them had lost all but the clothes they had on. The weather was very cold, and when I saw so many women and children suffering, I felt that something ought to be done for them. The next morning a bill was introduced appropriating $20,000 for their relief. We put aside all other business and rushed it through as soon as it could be done.

“The next summer, when it began to be time to think about the election, I concluded I would take a scout around among the boys of my district. I had no opposition there, but, as the election was some time off, I did not know what might turn up. When riding one day in a part of my district in which I was more of a stranger than any other, I saw a man in a field plowing and coming toward the road. I gauged my gait so that we should meet as he came to the fence. As he came up, I spoke to the man. He replied politely, but, as I thought, rather coldly.

“I began: ‘Well, friend, I am one of those unfortunate beings called candidates, and—’

“ ‘Yes, I know you; you are Colonel Crockett. I have seen you once before, and voted for you the last time you were elected. I suppose you are out electioneering now, but you had better not waste your time or mine. I shall not vote for you again.’

“This was a sockdolager . . . I begged him to tell me what was the matter.

‘Well, Colonel, it is hardly worth-while to waste time or words upon it. I do not see how it can be mended, but you gave a vote last winter which shows that either you have not capacity to understand the Constitution, or that you are wanting in the honesty and firmness to be guided by it. In either case you are not the man to represent me. But I beg your pardon for expressing it in that way. I did not intend to avail myself of the privilege of the constituent to speak plainly to a candidate for the purpose of insulting or wounding you. I intend by it only to say that your understanding of the Constitution is very different from mine; and I will say to you what, but for my rudeness, I should not have said, that I believe you to be honest. . . . But an understanding of the Constitution different from mine I cannot overlook, because the Constitution, to be worth anything, must be held sacred, and rigidly observed in all its provisions. The man who wields power and misinterprets it is the more dangerous the more honest he is.’

“ ‘I admit the truth of all you say, but there must be some mistake about it, for I do not remember that I gave any vote last winter upon any constitutional question.’

“ ‘No, Colonel, there’s no mistake. Though I live here in the backwoods and seldom go from home,

I take the papers from Washington and read very carefully all the proceedings of Congress. My papers say that last winter you voted for a bill to appropriate $20,000 to some sufferers by a fire in Georgetown. Is that true?’

“ ‘Well, my friend; I may as well own up. You have got me there. But certainly nobody will complain that a great and rich country like ours should give the insignificant sum of $20,000 to relieve its suffering women and children, particularly with a full and overflowing Treasury, and I am sure, if you had been there, you would have done just as I did.’

‘“It is not the amount, Colonel, that I complain of; it is the principle. In the first place, the government ought to have in the Treasury no more than enough for its legitimate purposes. But that has nothing to do with the question. The power of collecting and disbursing money at pleasure is the most dangerous power that can be intrusted to man, particularly under our system of collecting revenue by a tariff, which reaches every man in the country, no matter how poor he may be, and the poorer he is the more he pays in proportion to his means. What is worse, it presses upon him without his knowledge where the weight centers, for there is not a man in the United States who can ever guess how much he pays to the government. So you see, that while you are contributing to relieve one, you are drawing it from thousands who are even worse off than he. If you had the right to give anything, the amount was simply a matter of discretion with you, and you had as much right to give $20,000,000 as $20,000. If you have the right to give to one, you have the right to give to all; and, as the Constitution neither defines charity nor stipulates the amount, you are at liberty to give to any and everything which you may believe, or profess to believe, is a charity, and to any amount you may think proper. You will very easily perceive what a wide door this would open for fraud and corruption and favoritism, on the one hand, and for robbing the people on the other. No, Colonel, Congress has no right to give charity. Individual members may give as much of their own money as they please, but they have no right to touch a dollar of the public money for that purpose. If twice as many houses had been burned in this county as in Georgetown, neither you nor any other member of Congress would have thought of appropriating a dollar for our relief. There are about two hundred and forty members of Congress. If they had shown their sympathy for the sufferers by contributing each one week’s pay, it would have made over $13,000. There are plenty of wealthy men in and around Washington who could have given $20,000 without depriving themselves of even a luxury of life. The congressmen chose to keep their own money, which, if reports be true, some of them spend not very creditably; and the people about Washington, no doubt, applauded you for relieving them from the necessity of giving by giving what was not yours to give. The people have delegated to Congress, by the Constitution, the power to do certain things. To do these, it is authorized to collect and pay moneys, and for nothing else. Everything beyond this is usurpation, and a violation of the Constitution.

‘ “So you see, Colonel, you have violated the Constitution in what I consider a vital point. It is a precedent fraught with danger to the country, for when Congress once begins to stretch its power beyond the limits of the Constitution, there is no limit to it, and no security for the people. I have no doubt you acted honestly, but that does not make it any better, except as far as you are personally concerned, and you see that I cannot vote for you.’

“I tell you I felt streaked. I saw if I should have opposition, and this man should go to talking, he would set others to talking, and in that district I was a gone fawn-skin. I could not answer him, and the fact is, I was so fully convinced that he was right, I did not want to. But I must satisfy him, and I said to him:

“ ‘Well, my friend, you hit the nail upon the head when you said I had not sense enough to understand the Constitution. I intended to be guided by it, and thought I had studied it fully. I have heard many speeches in Congress about the powers of Congress, but what you have said here at your plow has got more hard, sound sense in it than all the fine speeches I ever heard. If I had ever taken the view of it that you have, I would have put my head into the fire before I would have given that vote; and if you will forgive me and vote for me again, if I ever vote for another unconstitutional law I wish I may be shot.’

“He laughingly replied: ‘Yes, Colonel, you have sworn to that once before, but I will trust you again upon one condition. You say that you are convinced that your vote was wrong. Your acknowledgment of it will do more good than beating you for it. If, as you go around the district, you will tell people about this vote, and that you are satisfied it was wrong, I will not only vote for you, but will do what I can to keep down opposition, and, perhaps, I may exert some little influence in that way.’ “ ‘If I don’t,’ said I, ‘I wish I may be shot; and to convince you that I am in earnest in what I say I will come back this way in a week or ten days, and if you will get up a gathering of the people, I will make a speech to them. Get up a barbecue, and I will pay for it.’

“‘No, Colonel, we are not rich people in this section, but we have plenty of provisions to contribute for a barbecue, and some to spare for those who have none. The push of crops will be over in a few days, and we can then afford a day for a barbecue. This is Thursday; I will see to getting it up on Saturday week. Come to my house on Friday, and we will go together, and I promise you a very respectable crowd to see and hear you.’

“ ‘Well, I will be here. But one thing more before I say good-by. I must know your name.’

“ ‘My name is Bunce.’

“ ‘Not Horatio Bunce?’

“ ‘Yes.’

“ ‘Well, Mr. Bunce, I never saw you before, though you say you have seen me, but I know you very well. I am glad I have met you, and very proud that I may hope to have you for my friend.’

“It was one of the luckiest hits of my life that I met him. He mingled but little with the public, but was widely known for his remarkable intelligence and incorruptible integrity, and for a heart brimful and running over with kindness and benevolence, which showed themselves not only in words but in acts. He was the oracle of the whole country around him, and his fame had extended far beyond the circle of his immediate acquaintance. Though I had never met him before, I had heard much of him, and but for this meeting it is very likely I should have had opposition, and had been beaten. One thing is very certain, no man could now stand up in that district under such a vote.

“At the appointed time I was at his house, having told our conversation to every crowd I had met, and to every man I stayed all night with, and I found that it gave the people an interest and a confidence in me stronger than I had ever seen manifested before.

“Though I was considerably fatigued when I reached his house, and, under ordinary circumstances, should have gone early to bed, I kept him up until midnight, talking about the principles and affairs of government, and got more real, true knowledge of them than I had got all my life before.

“I have known and seen much of him since, for I respect him—no, that is not the word—I reverence and love him more than any living man, and I go to see him two or three times every year; and I will tell you, sir, if every one who professes to be a Christian lived and acted and enjoyed it as he does, the religion of Christ would take the world by storm.

“But to return to my story. The next morning we went to the barbecue, and, to my surprise, found about a thousand men there. I met a good many whom I had not known before, and they and my friend introduced me around until I had got pretty well acquainted—at least, they all knew me.

“In due time notice was given that I would speak to them. They gathered up around a stand that had been erected. I opened my speech by saying: “ ‘Fellow-citizens—I present myself before you today feeling like a new man. My eyes have lately been opened to truths which ignorance or prejudice, or both, had heretofore hidden from my view. I feel that I can today offer you the ability to render you more valuable service than I have ever been able to render before. I am here today more for the purpose of acknowledging my error than to seek your votes. That I should make this acknowledgment is due to myself as well as to you. Whether you will vote for me is a matter for your consideration only.’

“I went on to tell them about the fire and my vote for the appropriation and then told them why I was satisfied it was wrong. I closed by saying: “ ‘And now, fellow-citizens, it remains only for me to tell you that the most of the speech you have listened to with so much interest was simply a repetition of the arguments by which your neighbor, Mr. Bunce, convinced me of my error.

“ ‘It is the best speech I ever made in my life, but he is entitled to the credit for it. And now I hope he is satisfied with his convert and that he will get up here and tell you so.’

“He came upon the stand and said: “ ‘Fellow-citizens—It affords me great pleasure to comply with the request of Colonel Crockett. I have always considered him a thoroughly honest man, and I am satisfied that he will faithfully perform all that he has promised you today.’

“He went down, and there went up from that crowd such a shout for Davy Crockett as his name never called forth before.

“I am not much given to tears, but I was taken with a choking then and felt some big drops rolling down my cheeks. And I tell you now that the remembrance of those few words spoken by such a man, and the honest, hearty shout they produced, is worth more to me than all the honors I have received and all the reputation I have ever made, or ever shall make, as a member of Congress.

“Now, sir,” concluded Crockett, “you know why I made that speech yesterday.

“There is one thing now to which I will call your attention. You remember that I proposed to give a week’s pay. There are in that House many very wealthy men—men who think nothing of spending a week’s pay, or a dozen of them, for a dinner or a wine party when they have something to accomplish by it. Some of those same men made beautiful speeches upon the great debt of gratitude which the country owed the deceased—a debt which could not be paid by money—and the insignificance and worthlessness of money, particularly so insignificant a sum as $10,000, when weighed against the honor of the nation. Yet not one of them responded to my proposition. Money with them is nothing but trash when it is to come out of the people. But it is the one great thing for which most of them are striving, and many of them sacrifice honor, integrity, and justice to obtain it.”

Gustavo R. Velasco

But is there no third road? Is it not intolerable to attempt to push us into one or the other pigeonhole, that of supporters of economic freedom or of believers in state control? The purpose of the present work is to submit this widely-held belief in a “middle way” to a critical examination.

The name of the third road is interventionism. Its practical importance derives from the fact that in Mexico as in the United States and in those European countries where debate is still possible, there are many people who reject communism, sometimes even with horror because of its excesses and persecutions, but who at the same time, deluded by a persistent and insidious propaganda, are unwilling to declare themselves in favor of capitalism, which they believe to be the cause of poverty, or of crises, or of social injustice, or an order inferior from an ethical point of view. Whatever truth there may be in these strictures, and notwithstanding the fact that I believe each one of them to be the result of misinterpretation or of stark ignorance both of the facts and of economic theory, this is clearly not the occasion to expose and refute them. I would rather inquire into what lies behind such broad but vague labels as “capitalism” or “socialism” and examine and evaluate the essential characteristics of each system.

Characteristics of Capitalism

It will be found, for example, that capitalism is characterized by the existence of the following institutions:

1. freedom of enterprise, that is, freedom to engage in the work, activity, or business desired, to develop it and to reap the benefits which may resuit therefrom, as well as to suffer the losses which it may produce;

2. private ownership, not only of consumer goods, but also of natural resources, capital, and productive goods;

3. competition;

4. a free market, with freedom of choice by the consumers, freedom to make any deal, and a price system.

Once the discussion is undertaken on this more concrete ground, it will gain in clarity and objectivity. When it is realized that planned economy implies that we may be directed to do any work, if necessary as forced labor; that we can be deprived of all right to property; that all of us will become public employees; and that we may even be forbidden to decide what we shall eat, I am sure that believers in this system will be much fewer and that there will be a large number of men resolved to defend the system of economic freedom which has lifted great parts of humanity out of the misery in which they lived until the eighteenth century. Even so, the complexity of modem life, the difficulty presented by economic problems—especially those provoked by a third of a century of mistaken policies (since the First World War and especially since the Great Depression)—the fact that not everyone can analyze them and apply or follow the reasoning of economic theory, and other circumstances to which I shall refer later, leave more than one opportunity for the appearance and espousal of interventionist theories. In fact, in the dispute between the two opposing systems of liberty and regimentation, it is interventionism that has gained ground.

Unlike capitalism and communism, which are well-defined forms of organization readily distinguishable from each other, interventionism does not constitute a third structure different from these two. Interventionism does not seek to destroy the fundamental institutions of a free economy or to displace it. Neither does it have as a declared purpose the establishment of centralized direction of the means of production. Its object is a combination, a solution intermediate between capitalism and communism, in which the disadvantages and abuses of the former would be eliminated without falling into the evils and pernicious consequences of the latter. For this purpose, liberty is restricted and all the resources of the state are put into play, with the threat or the ultimate application of that power which it alone can wield, that is, coercion and violence. Since interventionism and socialism are in agreement insofar as both criticize a free economy, what characterizes and identifies the former is the feature which I have just noted and from which it derives its name: the intervention by the state, the utilization of its apparatus and power in all cases where the functioning of the system of freedom produces a result different from that which the proponents of interventionism consider ethical or desirable.

What a noble purpose! What a neat solution! To preserve the advantages of individual initiative without falling into any of the dangers of collectivism. To couple the energies of society and the unity of the state, and in one single harmonious effort, to attain justice, social peace, and prosperity. It should not be surprising that this beautiful utopia has seduced generous and enlightened minds from the remotest times. In fact, although there are some who present it as the latest novelty, interventionism is as old as history. In the first written legislative compilation which has been preserved, the Code of Hammurabi, we find laws which fix prices; and this form of intervention, together with innumerable others, persisted in Egypt, China, Greece, Rome, the Middle Ages, the Renaissance, the Mercantile Age, and the French Revolution, and emerges in our day with greater pretensions than ever.

The Market in Operation

A complete examination of interventionism, which does not claim to be a substitute for the market system but simply a corrective measure, should start with a study of the operation of the free market. In this way it would be possible to determine the accuracy of the two central arguments of the critics of the free market: the assertion, on the one hand, that even if the system of economic freedom does tend toward the optimum application of productive resources, and therefore toward the largest possible output, conditions never really correspond to the basic assumptions of laissez-faire theory, and so the latter is, to that extent, limited and deficient; and the emphasis, on the other hand, upon those results of the free play of individual interests which are deemed undesirable. But let us grant those points to the opposing side, despite the fact that some are inaccurate and others are greatly exaggerated. In any case, the conclusion which rightly follows when one finds an imperfection in the working of the free market is the need of improving it and of achieving its efficient operation, not of disorganizing and destroying it. Since interventionism bases all its claims on its alleged ability to accomplish better results than a free economy, let us investigate how it operates in its turn and, more concretely, whether it can attain the aims which the governments and the persons who resort to it declare that they pursue.

In case there is any doubt about this, it is sufficient to call attention to the name with which the partisans of the latest brand of interventionism have baptized their creation: they call it the “welfare state,” that is, a political body which has as its objective the welfare of the masses. And the welfare which is promised is, in the first place, economic welfare.

Classes of Intervention

Although official intervention takes extremely varied forms, analysis permits us to classify them into three groups: (1) measures whose principal object is to divert the factors of production from the channels which they would have entered in a free market, toward others preferred by their authors; (2) measures whose object is to modify the data which are a result of the market; (3) measures whose object is to change the distribution of production and, in general, of wealth.

Intervention of the first class can be either direct (prohibition of certain industries, decrees to the effect that enough factories or firms exist in certain lines, production quotas) or indirect (protective tariffs, subsidies). In order to modify the indications of the market, recourse is had to price-fixing (only for the sake of brevity do I use this word, since the figures selected as a result of the decision of an entity with compulsory force cannot be considered as prices, which, by definition, are the result of the interaction of individuals in the market). In practice we find both maximum prices (rents, consumer goods) and minimum prices (parity prices for certain agricultural products, salaries), and we observe that sometimes the government decrees them and imposes them directly, while on other occasions it permits this to be done by private groups (legalized monopolies, labor unions), to which it lends the support of its authority, or permits them the use of physical force and violence (strikes, shutdowns of plants and offices). In the three types of measures which I have mentioned, recourse is had to the fiscal powers of the government; nevertheless, it is in the case of the third group of measures that this kind of official activity (provision of free services, progressive income and inheritance taxes) is resorted to most frequently.

Restriction Invariably Diminishes Production of Goods and Services

Based on this outline of the most frequent forms of interference, let us examine the results to be expected from each one. As I pointed out above, its operation, its yield, are the only criteria with which to judge the so-called third road in the economic field, for it is in precisely this respect that it presents itself as superior to the capitalistic system which it criticizes. In other words, what interventionism has to prove is that it can increase production, raise the general standard of living, and consequently assure greater welfare to all the population.

The deflection of production into channels different from those which it would enter in an unhampered market is so obviously restrictive that it is no exaggeration to speak of restrictionism when designating the totality of measures which the state employs for this purpose. In every case it prohibits a certain kind of production (in the broadest sense of the word and including, therefore, commerce, personal services, banking and transportation), or certain procedures are forbidden, or are made more difficult or more expensive. It could be stated a priori that, given the tendency of the free market to the optimum use of the factors of production and to the maximum satisfaction of the most urgent human needs, these shackles can result only in a deterioration of the productive process and in impoverishment of the community. A detailed examination of any one of the restrictive devices will fully corroborate this.

Let us suppose a restriction of the number of factories dedicated to a certain branch of production or of the quantity of articles which they can manufacture. Let us suppose also that this restriction is complied with or is enforced. Naturally, the price of the product concerned will go up; the profits derived from the industry in question will increase. Those who participate in it, salaried workers, investors, entrepreneurs, will be better off from receiving their respective incomes more surely or even in greater proportion than before. It would seem, therefore, that the measure is beneficial in general and that it should be approved.

Cains Offset by Losses

Whoever believes this suffers from evident myopia. When the consumers find themselves obligated to pay more for the restricted item, they will automatically have less to spend for other articles. Consequently, what the interested parties in industry A gain, those who depend on industries B, C, and D will lose. No net advantage whatsoever exists for society. On the contrary, and since wealth is created through expending a certain quantity of the factors of production and since restriction of that quantity cannot increase but only diminish the amount of goods produced, from the general viewpoint the result is a net loss, equal in amount to that of the production which was prevented. One group gained, but at the expense of the community. Taken as a whole, the latter is poorer and not richer. Interventionism not only did not attain its objective, but produced a result exactly opposite to the one it sought.

Even easier is the demonstration in the case of price fixing, a demonstration which has been given so many times that one feels reluctant to take up the readers time with it. The function of prices is to achieve a balance between supply and demand. When the government immobilizes them at a level lower than the one determined by the market, demand increases, since buyers will feel more inclined to acquire goods and since there will also be a great increase in the number of those who could not do so at the previous price, but who find it possible at the fixed price. If instead, prices are set at levels higher than those established on the market, it will be the sellers who will flock to it, and supply will exceed demand. In either instance, the market fails to fulfill its functions; a new principle for the distribution of available goods becomes indispensable, and queues, rationing, and the black market appear in the one case, and overproduction and chronic unemployment in the other. This is due to the fact that in addition to allocating the articles already produced, prices fill a mediate but even more important function, that of guiding and directing production.

Changing the Signals

Let us consider now what happens in a system in which the signals have ceased to function truthfully, that is to say, in which the government orders buyers and sellers to abide by certain amounts whose only likeness to prices lies in the fact that they are expressed in legal tender currency. If the official figure is lower than the market price, marginal producers—those whose costs are highest— will lose money and will be eliminated. The other producers will continue their activities but will not increase their investments; on the contrary, they will divert to other ends the nonspecific factors at their disposal and will even retire completely as soon as they can do so, in order to engage in the production of goods which offer greater profits. As a result, the supply of the controlled commodity, the more important since it is generally a staple of life, will diminish instead of increasing as the government desired.

Exactly the same thing will happen, except in the opposite direction, in the case of minimum prices or salaries. When the authorities discover that not all the farmers who cultivate a certain crop can earn sufficient money to continue producing it, they set a parity price below which it may not descend. Now, the unsatisfactory former price was not capricious; there was a reason for it and this could only be an excess of supply or a lack of demand. The imposition of minimum prices perpetuates these conditions and prevents production from adjusting itself to consumption, by keeping marginal producers in business and by even attracting new producers who, if they had been confronted with a lower price, would have applied their resources to the production of different goods.

And so, with controlled prices, as with restrictive measures, the real result that is attained is exactly the opposite of the one sought by their proponents. The conditions that are created are not better, but worse, than those which existed prior to their establishment. Some groups may be benefited and enriched, but society as a whole loses and is impoverished.

Not Income, but Expense

I shall not attempt here to discuss the method of redistributing wealth represented by the inflationary and credit expansion policies followed by most contemporary governments. As for the other measures aimed at achieving a distribution different from that determined by the capitalistic order—for example, by organizing gratuitous or semi-gratuitous services (low-cost housing programs, socialized medical services—it is so obvious that they entail an expenditure rather than an income that when attempts are made in their defense the arguments revolve exclusively around the justice of providing them. In other words, the proponents of these measures avoid justifying them in the economic field, in which interventionism boasts of its power to win the argument and in which it is the purpose of this document to examine them. If we do so, it will be easy to verify that, since the state cannot provide anybody with anything which it has not previously, and more or less surreptitiously, taken away from him or which it does not take away from other producers, the net effect of its absorption of all kinds of activities is to transfer from the interested parties to the administration the power to decide and to spend.

On the whole, this must have less efficient results and yield a smaller return for the community, because to the less perfect satisfaction (always from the point of view of the consumer) of the needs which one wants to fill must be added the disturbances originated by politics and the complications, mistakes and immoralities of bureaucracy.

Above all, the social resources available for these purposes do not increase just because the heavy body of the state is interposed between them and their use, but rather diminish through having to bear the high and ever-increasing cost of the services so deceptively called free.

Saving Discouraged

In general and independently, therefore, of the use to which the government puts the funds which it collects, there is no doubt but that taxation beyond certain limits discourages the accumulation of capital, as in the United States, or even has the opposite result of encouraging the dissipation and consumption of existing capital, as in England. Matters are, of course, much worse in the case of expropriations and confiscations, especially when they are not isolated and extraordinary acts, since they can only be compared in their effects to those cataclysms which paralyze even the will to reconstruct and after which recovery is as slow as it is painful.

Again, the failure of the ambitious interventionist program is confirmed; no country can make itself rich by taking away from some people in order to give to others and by terrorizing and demoralizing all of them. It is true that whoever cuts the cake—in this case, the state and, more concretely, professional politicians, their friends, and the groups which support them or which they favor— gets the best share; yet neither does the total distributed become greater nor is the general mass of the population benefited, but rather it becomes more impoverished by such distribution.

As a result of the foregoing, it can be stated with certainty that isolated interventionist measures do not produce wealth, but scarcity—not abundance, but poverty. This is not a value judgment; neither is it a case of condemning these measures because they limit freedom and lead to totalitarianism. In the field which belongs to economic science, that of showing us the consequence of our actions and of enabling us to behave consistently, it can be demonstrated that the results of state interventionism are contrary to the aims that it seeks and that from the point of view of those who want intervention—not from my point of view or in the opinion of the friends of capitalism—it ends in a situation which is worse than the one it set out to improve. Interventionist policies must, therefore, result in failure and frustration, or else go on extending both horizontally and vertically until they end in complete economic control and in socialism of the Nazi type.

This course must offer great temptation to those who have embarked upon interventionist adventures and represents one of the greatest threats of such a policy. Upon observing that the maximum price fixed for milk, for example, causes this product to disappear from the market, let us fix the prices of other activities and commodities, such as pasteurization, milk containers, transportation. If production has been diverted to butter and cheese, let us fix their prices and limit the amount which can be made of them. If this does not produce the desired result either, let us freeze the salaries of such persons as may be engaged in the milk industry or even of those connected with it, and go a step further and prevent the producers by force from abandoning this field. If the supply of milk grows less every day, let us follow the internal logic of interventionism and take the ultimate step: let us control everything, without exception. Then we shall have eliminated the market completely, we shall find ourselves at the opposite extreme from where we started, and we shall have established a system which is indistinguishable from the communism which we began by repudiating.

There is no doubt, therefore, that interventionism constitutes an extremely efficacious instrument in the struggle begun some time ago for the purpose of destroying the liberal society in which, in spite of everything, we still live. In the first place, it lends invaluable support to those who are working to establish communism but who realize that they would meet very strong opposition if they openly advocate that form of economic organization. Perhaps even more serious is the fact that interventionism complicates and aggravates economic problems to such a degree that the majority of people, among them the majority of the classes which previously performed the most important of directive functions, that of supplying the ideas which guide society, are bewildered and perplexed and even come to believe that these problems admit of no perfect solution. But does not this situation cause surprise?

If, in the field of ideas, the failures of interventionism are indisputable, if not only the bankruptcy of this policy but also its catastrophic effects and the danger which it presents are visible on all sides, especially in those countries which have carried it the furthest, why does it not pass forever into oblivion, ashamed of the confusion which it has wrought and of the countless ills which it has brought upon humanity? The explanation is complicated, but in my opinion it should be attempted because it will help to dissipate the mental fog which has descended upon a great number of our fellow men and left them irresolute and deprived of the will to respond to the challenge of our times.

Reasons for Confusion

Let me list briefly some of the reasons for this:

(a) Man is by temperament a compromiser, especially when confronted with matters which he does not understand and which he thinks do not affect him directly. The majority believes that the debate concerns only a mythical class, “the capitalist” or “the bankers,” and the government. What is more natural than to think that each one must be partly right and that as between the freedom demanded by the former and the complete control which everyone instinctively fears, the solution must lie in the golden mean of interventionism?

(b) Both in economic matters and in general, without the aid of science our perception and interpretation of phenomena are rough and misleading. Scientific knowledge aims precisely at broadening our field of vision and our understanding and making them more accurate. But just as an ignorant person does not observe that the world is round, so also in economic matters he sees no further than the near and immediate effects of an act or a policy. The masses are incapable of understanding the secondary consequences which those acts or policies generate in time or space; nor will they follow the long and rather complicated reasoning necessary to explain them. Since interventionist measures seem at first to be successful and may benefit special groups, a man without economic knowledge needs no further proof to be convinced of their efficacy.

(c) In the economic process we all have a dual personality: on the one hand, we are producers; on the other, consumers. Although frequently and with a notorious lack of logic, government intervention is asked against consumers when prices decrease, and protests are made and official aid invoked against producers when prices increase, the predominant interest of the majority of people is their interest as producers. This is more direct and specialized, since the interests that consumers have in common are diffuse and lend themselves but little to the organization of groups which would further them. And thus we see that in the democratic countries the voters cast their ballots in favor of their interests as producers and against the general welfare, which would usually coincide with their interest as consumers.

Whether the explanations which I put forward are accepted or whether other causes are found for the regrettable blindness of our contemporaries in face of the disaster of interventionism, I repeat that this system has won ground since the First World War opened the door to it. Is it to be anticipated that it will continue, as it has up to now, to extend and intensify itself more all the time?

It is not to be believed. Interventionism has lived off the reserves accumulated under capitalism and thus has succeeded in hiding to some extent its excesses; but these reserves have already been dissipated in some countries, while in others their exhaustion is only a question of time. Interventionism is essentially unstable as I believe I have demonstrated, because it is not a real third system but a makeshift which fluctuates between the capitalism from which it starts and the communism which it does not wish to reach. Consequently, either humanity has a lucid moment and holds back at the edge of the abyss, or else it plunges into it and into the new dark age of which a terrifying prelude has been furnished us by Hitler’s Germany and Stalin’s Russia.

What cannot be doubted is the danger in which we live. Let us not forget that interventionism constitutes a seeming, but in fact self-defeating and suicidal solution which does not raise the standard of living but lowers it, which does not create wealth but consumes it. Its basic philosophy is mistaken and pernicious. Like the collectivism to which it believes it is raising an obstacle, it mistrusts the individual and his innate capabilities, and seeks salvation in an entity supposedly free from his limitations and weaknesses, which would be outside of society and superior to it. In practice, interventionism is nothing but statism. Moreover, by attributing to the state an omniscience and an omnipotence which nothing justifies—neither theoretical reasoning nor historical experience— interventionism professes a true idolatry of the state and is even inferior in this aspect to communism, which at least in theory does not exalt the state and even speaks, deludedly, of its fading away.

In the same way, interventionism is inimical to individual liberty. It is not a question simply of the fact that its specific means of action are orders and prohibitions and that it necessarily implies a reduction of liberty and an increase in compulsion. The evil stems from a much deeper source, from the fact that contrarily to the naive thesis that it is possible to separate what is economic from what is not, liberty is indivisible. Since there exist no purely economic motivations which can be separated from the other objectives which we seek in life, any diminution in the sphere of economic liberty results in a loss of freedom in other fields. In other words, there is no economic sector of life inferior to others and clearly marked off from them, in which it would be possible for the state to project itself without resultant ill effects upon personal liberty. All intervention in the means implies an intervention in the ends. Automatically, the decision as to what objectives we must fulfill and as to the relative rank of the values which they tend to realize, is shifted to a great extent from the individual to the state, until it is completely absorbed by the latter in communism, which for this reason, is inescapably totalitarian.

The Greatest Danger: The Statification of Life

What can be surprising, after the foregoing, about the necessary results, observable everywhere, of statism and of the abandonment of liberty? The state grows and hypertrophies until it assumes the proportions of a Leviathan or a Behemoth. Instead of being a center of union and a representative of the general interest, it becomes a cause of conflict and an instrument of private appetites upon which each group brings pressure or which it is anxious to dominate in order to apply governmental compulsion and strength for its own benefit. Political institutions become deformed and corrupt, because, having been conceived for other purposes and in a different atmosphere, they prove inadequate in a state which is impatient of restrictions and hampered by law. Not only in public life and in the administration does immorality increase as a result of the power which the organs of the state acquire over economic matters, but the people as a whole become accustomed to the phenomena which accompany interventionism: smuggling, bribery, black market, governmental favors; they cease to believe in selfreliance and lose their sense of responsibility, seeking prosperity at the expense of others and changing from citizens to subjects and from free men to wards of the government.

Footnotes

1 From Rotagraph, March 16, 1962 (Fort Worth, Texas, Rotary Club). Reprinted from The Freeman, July 1962

2 Clipping of Note No. 25 (FEE, 1950). Reprinted from The Communist Manifesto

3 Clipping of Note No. 28 (FEE, 1950). Reprinted from Keynes, Foster and Marx: State Capitalism and Progress (1950)

4 Clipping of Note No. 36 (FEE, 1951)

5 From The Freeman, November 1961

6 From The Freeman, September 1963

7 From The Life of Colonel David Crockett, compiled by Edward S. Ellis (Philadelphia: Porter & Coates, 1884)

8 From The Freeman, January 1970

9 Syndicalism, with its variant, corporativism, cannot be taken seriously nor has either passed beyond mere words. Whoever believes that I reject them peremptorily may consult, among others, the confutation of the eminent German economist, Wilhelm Röpke, in his book, The Social Crisis of Our Time.

10 Socialism has attracted so many well-intentioned souls who sincerely abhor the fatal consequences which I point out, that my use of the two terms “socialism” and “communism” as interchangeable cannot help provoking an indignant protest. I admit that there exist differences between the two systems, the principal ones being (a) one of scope: socialism would nationalize only basic industries; for communism, in principle, there are no limits to nationalization; (b) another of method: socialism trusts to a gradual and peaceful process; communism believes in revolutionary and violent action; (c) finally, socialism would like to proceed in accordance with accepted standards of morality and preserve freedom, especially civil and political freedom, and democracy; communism rejects traditional morality, and although it speaks, for tactical reasons, of “true liberty” and “popular democracy,” it is fundamentally antiliberal and antidemocratic.

These differences are secondary and are not sufficient to obscure the main question, which is that of the location of control over economic life. Moreover, the last difference, the most important, is no more than a pious hope. The road followed by England, despite the extremely strong liberal tradition of its people and the fact that it has not passed beyond the initial stages of socialization proves this quite conclusively.

11 In all systems, in addition to economic objectives, other ends are sought of a varied nature, moral humanitarian, nationalistic, and so forth. Nobody doubts that many can be attained by means of official action. But it is equally clear that from the economic viewpoint these measures represent an expenditure, not an income. Economic science neither approves nor disapproves of them. It confines itself to throwing light upon their true nature.

12 Obviously, in accordance with the scale of values of the consumers themselves. To this it is objected that the market directs production toward the fields which bring highest profits and not toward those most necessary to society or which are “truly useful.” The fault does not lie with the market system, but with the desires of men. What is needed, therefore, is to instruct and convince the latter so that they will not want things of scant “social utility” (such as chewing gum or bullfights) or which are even harmful or immoral (such as alcoholic beverages or the services of cabaret girls and prostitutes). But whoever criticizes a free economy on this account and shields himself behind supposedly economic arguments in order to impose his personal preferences, reveals very little democratic spirit and a great deal of superiority and paternalism.

13 The Revolt of the Masses. Complete Works (in Spanish). Book IV, page 225.

• 1A KING OF LONG AGO67.*
• 2THE COMMUNIST IDEA (PART I)68.*
• 3THE COMMUNIST IDEA (PART II)69.*
• 4A LESSON IN SOCIALISM70.*
• 5THE TALE OF THE LITTLE RED HEN71.*
• 6THE BEETLE AND THE CENTIPEDE72.*
• 7NOT YOURS TO GIVE73.*
• 8INTERVENTION LEADS TO TOTAL CONTROL74.*
• 9The central problem of our time is the economic organization of society. It is not necessary to adhere to historical materialism in order to recognize this or to realize, as well, that upon the manner in which society solves this problem depends the resolution of many others which today appear to be insoluble, such as the discovery of a way to overcome and transcend present nationalisms, the establishment of peaceful conditions in the world, and the utilization for constructive ends of the latest wonderful discoveries of science. Throughout the course of history we find various types of economic structures; however, humanity cannot, at a given moment, choose an economic system in the same way as a man with unlimited time or money might pick one of the trips offered by a tourist agency. The only alternative that exists for a serious thinker today is that between a free economy and a controlled economy.74.1
• 10On the other hand, what distinguishes socialism and communism is centralized control of the means of production in the hands of the state. The essential thing is that, ultimately, under socialism only one will decides. This demonstrates its inerad-icably dictatorial character, the inanity of attempts to combine socialism with free competition and the price system, and the confusion of those people who imagine that a planned economy is compatible with liberty and democracy.74.2 As a result, every one of the institutions listed above will vanish under socialism, leaving us instead with bureaucrats and policemen behind each street corner, if not inside our very homes, as in George Orwell’s novel, 1984.
• 11In the economic field, these aims cannot but be greater abundance for the greatest possible number of the inhabitants of a country. In other words, the primary aim of interventionism is not different from that of capitalism or even of communism.74.3
• 12Prices are signals, indications, to producers, of the fields in which there exists an unsatisfied demand and in which production should therefore be intensified; and of those others where supply cannot be wholly absorbed and in which future production should consequently be curtailed. Producers respond to these stimuli to the fullest extent possible in each set of circumstances, because of their desire to obtain profits and to avoid losses. And the result for society is the employment of the factors of production in those directions which will satisfy the most important and urgent needs of the consumers.74.4
• 13The problem of interventionism is not, as may be seen, purely economic, but much more general. Although its political and social repercussions are undeniably of the utmost importance, I continue to believe that it is only after subjecting it to economic analysis that one can pass a decisive judgment on it. And I would conclude, with Ortega y Gasset: “This is the greatest danger which threatens civilization today: the statification of life, state interventionism, the absorption of all social spontaneity which, in the final instance, sustains, nurtures, and impels human destinies.”74.5