Economic Systems and the Fate of Civilization

Not only in Europe and recently in Brazil but also in the United States, political elections have become ideological clashes. The campaigns are not only about the next government but also about a choice between different political cultures. Although the great debate concerns no longer the choice between communism and capitalism, the key question remains: whether society should move to more state intervention or to a market economy. This way, the traditional question of socialism or capitalism is still on the table.

Interventionism

Populist interventionism is the most widespread economic system of our time. The countries differ in degrees in terms of whether their government is less or more active in practicing interventionism. Money is under the control of the state. The state mingles in economic transactions through taxation and regulation. While some sectors are more under state control than others, the consequence of interventionism is visible: the sectors with the persistent crises — such as internal and external security, health care, old-age provision, education, money, and finance — are those  that are under the most comprehensive governmental control. A vast apparatus of subsidies sustains the defense industry, part of the automobile sector, the pharmaceuticals companies, large parts of agriculture, and educational institutions.

The interventionists unite with special interest groups, who cloak their specific concerns as a common good. Under interventionism, market competition is perverted into a struggle for subsidies and bailouts. The winners are no longer those who best contribute to the growth of the economy and serve the consumers;  those who receive the largest share have the best political contacts. In the end, no one is better off. In the long run, everyone is paying the price when the economy falters, including those who got a big share from the government when the economy was still flourishing.

There is a tendency to choose interventionism and move onto the road to socialism without considering which consequences will follow from this choice. Emotions and prejudices are behind the attractiveness of socialism. The socialists dream of a society where righteousness and prosperity rule together with equality of all while they prepare the path for the opposite.

The loss of reason prepares the path for the creed of the socialist utopia. Socialization during adolescence reinforces the biological disposition for socialism because children and youngsters live under the quasi-socialist systems of the family, the school, and the university until they are grown up; they often remain under the socialist spell for the rest of their lives. The longer these pre-adult periods last, the deeper becomes the socialist mentality ingrained into the psyche and minds of the young.

To break free from the socialist faith requires an act of reason, or one will stay captive. One of the first steps to get deliverance from the socialist faith is the rational insight that it’s not redistribution that helps the poor, but economic growth and free capitalism. The path to prosperity is not redistribution but productivity.

Fallacy of Redistribution

Modern democracy suffers from the contradiction that while most citizens mistrust the politicians and the state, and want fewer taxes and less state control, each voter is eager to use their vote in such a way as to get the largest piece of the cake. Such a system is neither democratic nor capitalist; it is corrupt as it produces a political game in which every single voter tries to betray all other voters. The principle of modern democracy is that while the voters try to cheat one another in getting a free lunch, the political establishment deceives all the voters.

Ironically, it was the success of capitalism that created the socialist expectation of a world without scarcity. The capitalist experience showed that a prosperous world was no longer a utopian fantasy. The early socialists were convinced that socialism would increase the productivity of capitalism not despite but because of the equality of distribution under socialism. In the socialist paradise, one could have a greater material abundance than under capitalism along with the eradication of injustices and discriminations.

The driving motif of the early socialist movement was idealism. Today, the drive is materialistic. The state should become the great provider, be it of public transportation, an old-age pension, guaranteed minimum income, free education, or health care of the highest standards for all. The modern state socialists do not recognize that the more comprehensive the welfare state becomes, the more the beneficiaries themselves must pay for what they get.

The wealthy persons of society will care for the poor if redistribution remains small and if the circle of the needy is well-defined. This is the case with voluntary charity. Yet when the state expands into the welfare state, the beneficiaries of the social transfers must de facto assume the costs themselves for what they seem to get free from the state. The more the general population falls into the grip of the welfare state, the more diffuse the definition of need becomes and the larger the number of the contributors will grow. In the end, all pay more than they get.

If the redistribution in modern capitalism does not work, some seem to ponder, only imposing full socialism will solve the problem of injustice. These socialists believe that they are good-hearted when they advocate socialism, yet they do not know that they speak in favor of an inhumane regime whose first victims would probably be themselves. 

The Ideological Battle Continues

While the socialism of the Soviet pattern is not the dominant ideology of our time, the anti-capitalist mentality is still virulent, and this ideology is all over in the media, the schools, and the universities. The great error of the modern socialists, like that of their predecessors, is to believe that poverty originates from capitalism.

History has shown that socialism exists as tyranny. With the choice of interventionism and socialism, economic stagnation comes, while the decision for a free market economy leads to economic progress. Theory and history confirm that socialism is inseparable from stagnation and oppression while capitalism is more productive the freer it is.

A look at the experiences with  Communist rule makes the diagnosis unambiguous. Yet popular discontent runs against the capitalist economic order. There is a widespread illusion that one could have both the wealth of capitalism and the supposed socialist equality and justice.

The modern state has a structure that is very different from the original ideas of classical liberalism, and in some respects it is the opposite. Instead of having less state, liberal democracy comes with more intervention; instead of more individual liberty, the current system has extended its control over the individual. The majority voting system in place leads to interventionism, and from there, socialism is only a step away. Democracy does not protect against folly or tyranny.

Conclusion

History does not have an inevitable path of development, but there are economic laws. The decision of this or that version of the economic system is free, but the consequences are not free to choose. Freedom refers to the choice of institutions, not to their consequences.

In this sense, there is a power of ideas, and at the same time, there is the impotence of ideas in the face of facts. There are situations where, as the saying goes, one cannot change things anymore. Before the wrong decision was made, the path was open as the options were laid on the table. A different choice could have evaded the problems that have surfaced now as a consequence of the wrong decision, and the course of history would have gone in another direction.

The alternatives are clear: on the one hand, free capitalism as an economic order that brings personal liberty and overall prosperity, and, on the other hand, the socialist command economy, leading to poverty and oppression. The 21st century will belong to those nations that choose the path to free capitalism.

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Antony Mueller

Antony P. Mueller is a professor of economics at the Federal University UFS in Brazil where he is also a researcher at the Center of Applied Economics, and Senior Fellow of the American Institute for Economic Research. Antony Mueller earned his doctorate in economics summa cum laude from the University of Erlangen-Nuremberg, Germany. He was a Fulbright Scholar in the United States and a visiting professor at the Universidad Francisco Marroquin (UFM) in Guatemala as well as a member of the German academic exchange program DAAD. Antony Mueller has recently published the book “Beyond the State and Politics. Capitalism for the New Millennium”.