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Don’t Blame the Termometer for the Fever

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When communism collapsed a few years ago, people thought the last grand ideological debate over political economy had finally ended. Supposedly, we were all capitalists now.

But this is clearly not the case. The world’s political leaders show no signs of a commitment to capitalism, if by that term we mean truly free markets and individual liberty. On the contrary, President Clinton and his colleagues are embarked on a course of global economic intervention such as has never before been attempted.

The economic woes in Asia and Latin America are the pretext for this power grab. But make no mistake about it: the control of our economic activities contemplated by the bureaucrats has long been on the political agenda. These folks have never been comfortable with free markets and have yearned for the elusive “third way” between capitalism and full socialism. The current downturn gives them the opportunity to realize their long-held ambition – egged on by the usual gang of anticapitalist intellectuals who absurdly blame today’s economic problems on “market worship.” (See the recent newspaper blather from Robert Kuttner and William Greider.)

Let’s take a moment to consider this concept, “the third way.” It is not widely recalled that the third way had another name in the 1920s and 1930s: fascism. Its exemplar was Benito Mussolini’s Italy. Before this word became merely an all-purpose insult, it functioned as a label for what was seen as a legitimate middle course between revolutionary Marxian socialism, which promised violent upheaval of the established social order, and laissez-faire capitalism, which was believed to be intrinsically unstable and biased against labor. The Marxists and their sympathizers portrayed the liberal defenders of private property, such as Ludwig von Mises, as fascists, but that was laughable. The fascists had their roots in a variation of socialism known in Bismarck’s Germany as state socialism. This conservative variation of collectivism maintained a façade of private property in the means of production.

But it was just that, a façade. In many respects, government set the terms of use of that property so that it would serve the state’s rather than the individual’s purposes. That principle underlay the program of Mussolini, who, it should be born in mind, had been a Marxian socialist before World War I. State socialism, or fascism, was long in the air when an obscure Austrian artist formed a small political party in Germany and devised a program to govern that outcast nation. Unsurprisingly, Adolf Hitler called his program National Socialism, of which the word “Nazi” is a shortened form.

Hitler set forth his position on private property clearly in 1931:

“What matters is to emphasize the fundamental idea in my party’s economic program clearly – the idea of authority. I want the authority; I want everyone to keep the property he has acquired for himself according to the principle: benefit to the community precedes benefit to the individual. But the state should retain supervision and each property owner should consider himself appointed by the state. It is his duty not to use his property against the interests of others among his own people. This is the crucial matter. The Third Reich will always retain its right to control the owners of property.”

Does this not describe the economic position of Bill Clinton and virtually any other political leader worldwide you can name? They may not put it in quite such terms. But it is exactly on point. They act as though the owners of property are appointed by the state and serve at its pleasure. Is Bill Clinton not acting as though Bill Gates was appointed by the state to run Microsoft?

If you want to see this Hitlerian doctrine in action, observe: In early October, President Clinton led 20 other countries in endorsing new restrictions on the international movement of capital. This is a typical case of blaming the thermometer for the fever. The premise of the new restrictions is that the sudden withdrawal of capital from a particular country’s stock or bond market wreaks economic havoc in that country. But this reasoning reverses cause and effect. Capital flees a country to avoid real or impending havoc, which occurs when government pursues irrational economic policies, such as monetary inflation, credit expansion, confiscation, regulation, and subsidy. The policies, not the capital exodus, are to blame. Why would investors take money out of a country that had a sound economy?

A free worldwide capital market is a vital check on governments’ ability to enact bad policies. The agreement to restrict capital movements is designed precisely to thwart that check. It’s an outrageous cartel arrangement whereby governments try to prevent or limit policy competition among themselves. Until now, if a government enacted measures that violated economic freedom and stifled growth, investors could, as a last resort, take their money elsewhere. That might at least moderate the intensity of a government’s intervention. Tomorrow that won’t be the case. Capital will be locked in place. This step toward the worldwide centralization of government power must not be taken lightly.

Policymakers never seem to learn. If an investor cannot take his money out of a country, that will certainly influence his decision to put it in . To the policymakers, the producer is no different from a cow that they think will give milk day in and day out no matter how they treat it.

A day after the cartel agreement was announced, President Clinton went further and called for worldwide economic regulations similar to those imposed during the New Deal of the 1930s. He said that such a global regime is necessary to “temper the volatile swings of the international marketplace.” It is hard to think of a more ridiculous proposal. First, volatility is not intrinsic to the marketplace. Like the Great Depression itself, big fluctuations result from government mismanagement of money and credit. Let it not be forgotten that the Great Depression occurred 16 years after the Federal Reserve was set up. (I’m sure a majority of people think that the Fed was created to prevent a repeat of the Great Depression.) Thus, central banks are the problem, and the solution is a full free market in money, including competitive banking and private currency.

Second, the original New Deal did not rescue America from depression. Five years after Franklin Roosevelt became president, the economy was nearly as bad off as it was under Herbert Hoover. As economic historian Robert Higgs has documented, the economy did not recover until after World War II.

The New Deal, of course, was America’s first formal experiment with the third way. Roosevelt’s Brain Trust had watched Mussolini’s Italy closely. And Il Duce admired Roosevelt’s handiwork. To take one example, the National Recovery Administration compelled each industry to band together to establish formal codes to govern its activities, including labor relations. The rare maverick businessman, for example Sewell Avery (the head of Montgomery Ward) and Henry Ford, was taught a lesson. (The NRA was struck down by the U.S. Supreme Court, but successive piecemeal measures accomplished much the same thing.)

Strangely, in his speech calling for a global New Deal, President Clinton warned against international capital controls – the very thing he had endorsed the day before. Is something interfering with his concentration?

Capital controls and a new New Deal are terrible ideas, pure economic fascism. In light of the real causes of inflation and depression, what we need is the repeal of central banking everywhere, deregulation of capital, and full respect for property rights, without which no human rights are possible.

The world today suffers not from too much capitalism, but from far too little.

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    Sheldon Richman is vice president of The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.