folder Filed in Economics, Essays
We Live in an Interventionist Paradigm
A handful of comments on a Vox socialist/capitalist article.
CJay Engel comment 0 Comments access_time 6 min read

Will Wilkinson interacts with varying sentiments regarding the rising (and horrifically defined) capitalist/socialist debate at Vox, which is not necessarily a free market friendly source. My comments here are swift and lack elaboration.  But his article does provide a decent launchpad to make a few observations.

First of all, as I’ve been discussing in considerable quantity, socialism is a difficult word to define in our day and age. It once referred to the public ownership of the means of production– and various camps would debate on whether state control of the means of production fulfilled that definition, the Orthodox Marxists saying no, the Reformists saying yes. These days, the term is frequently used to refer to an ever-expansive welfare state coupled with a barrage of “pro-worker” regulation. In my opinion, this is a very detrimental definition and merely serves to make the historical issues foggy and confused. Nevertheless, Wilkinson writes:

Current economic arrangements in the US, and throughout the developed world, involve a complex mix of “capitalist” market institutions and “socialist” regulatory and redistributive institutions.

Framing the issue like this confuses the matter. Mises preferred to characterize the Western system as Interventionist. Private ownership of the means of production, under the permission-giving and mandate-creating eye of the state. There is no public ownership or nationalization of industry, therefore it is broadly capitalistic; at the same time, because of the existence of a barrage of interventions, regulations, redistributive institutions, we lack a free market. Capitalism refers to the fact that there is a separation of government and property ownership, and the qualifier “free market” in free market capitalism refers to the condition in which property owners are not prevented from or made to, do certain things with their business efforts.

It is possible to consider redistributive efforts by the government as trending toward socialism or being socialistic, but it is more accurate to see them all as being forms of government interventionism into the decision making process of businesses.

Mises describes the issue as follows:

We call capitalism or market economy that form of social cooperation which is based on private ownership of the means of production.

Socialism, communism, or planned economy, on the other hand, is the form of social cooperation which is based on public ownership of the means of production.

…a third form of social cooperation is feasible: a system of private ownership of the means of production in which the government intervenes, by orders and prohibitions, in the exercise of ownership. This third system is called interventionism.

What is labelled as socialism, so often, is merely interventionism. Bound to fail, of course, but nevertheless better characterized as interventionism than classic socialism. In this case, therefore, the debate is not about the proper mix between capitalism and socialism in a “mixed” economy, but how much interventionism ought to be permitted in a capitalist economy. Should we prefer a free market or a market plagued by interventionist policies.

The point is this: since capitalism and socialism refer to ownership of production factors– and by extension the business entities themselves– a system cannot at the same time be capitalism and socialism; that is, a business cannot be both owned by the public/government and a private owner at the same time. Therefore, when Wilkinson refers to his desire to make “capitalism and socialism friends,” he is continuing the corruption of the terms.

Once we have properly organized the terms, it becomes more clear how to explain the “successes” of “socialist” Scandinavian countries: they aren’t socialist countries. They are capitalistic countries, many of which lean more free market than the United States, but which also have heavily-developed welfare features. And as the Vox article admits, it takes the wealth generating effects of capitalism to make this possible. Capitalism and the wealth produced by it, not socialism, is the reason why the welfare states in Scandinavia are functional. Welfare states might be inefficient, lack the benefits of a flexible price system, and give no entrepreneurial signals, but the only reason they can even be integrated is because the society has first built up wealth due to the private ownership of the means of production.

The key point of analysis, missed by most, is not whether a welfare state is possible, but whether it improves or harms what could have been without it. 

We proponents of free markets, enemies that we are of welfarism and interventionism, don’t doubt that a welfare state can exist, we simply make the case that every instance of interventionism and any attempt to sustain welfarism is a detriment to the situation that would have existed without it.

A society in which all industries and facets of the market are free (lack government intervention) except, say, medical care, is economically preferable to one with double the intervention, but is worse than one that completely lacks all intervention.

The so-called Nordic ideal, functions because of capitalism, but it has been weakened by welfarism compared to what might have been under free market conditions. As is the case with every interventionist society.

Wilkinson praises the recent efforts of Elizabeth Warren to “make markets work for all of us” instead of just for a few. This is a sentiment also heavily prominent in people like Robert Reich. This is a classic case of confusing free markets with our current corporatistic regime in which the financial benefits of being subsidized by or otherwise protected by the Federal government exacerbate conditions of economic inequality. CIA contracts, Federal Reserve monetary expansions, massive subsidies, regulations that prevent competition… all these anti-market features of the current system are the cause of the very problems Warrenites wish to address. But they wish to address them by more intervention! Not by understanding the state-sourced nature of the problems.

Thus, it is a complete corruption of words themselves, when Wilkinson states that:

Warren is a free-market social democrat in the Nordic mold. Her vision is a far cry from the anti-capitalist agenda of the Ocasia-Cortez and the DSA.

Ocasio-Cortez should take a page from Warren and learn to love markets.

This couldn’t be more misleading. Warren is a rank left-interventionist who has learned all the wrong lessons from the so-called Nordic successes and her agenda is merely less radical in rhetoric and action than the rising Ocasia-Cortez faction of left-interventionism. Warren doesn’t love markets– Warren loves bureaucratic approvals and commands of business activity. She loves her own vision of what she can transform the market into. She loves her own specter of a Warren-design economy, implemented and enforced by Warrenite bureaucrats.

Of course, I love this little comment near the end:

No less a classical liberal than F.A. Hayek supported a robust safety net capable of “providing for those common hazards of life against which few can make adequate provision.”

Of course, Hayek’s endorsement doesn’t make these things economically acceptable and there are very good reasons why Hayek is less than ideal libertarian (I wouldn’t even call him one), despite his contributions to Austrian business cycle theory.