Freeman

ARTICLE

Prelude to the Total State

SEPTEMBER 01, 1992 by NELSON HULTBERG

Mr. Hultberg is a freelance writer in San Diego.

The enslavement of man usually begins in the economic sphere.

—Edward Gibbon

Capitalism died in 1929, according to the esteemed pundits of our day. Since that fateful year, the prominent intellectuals and politicians of our country have been promoting the welfare state as a “safe, responsible, middle ground between the opposite poles of capitalism and socialism”—the perfect system to preserve freedom, maintain economic stability, and bring about the good life.

Today’s chaotic and corrupted America does little to corroborate that notion. What the last 60 years have shown is that the welfare state is not a stable middle ground at all, but a highly unstable mixture of individual freedom and government coercion that is evolving steadily away from freedom toward an all-pervasive statism.

It becomes more obvious each year that what Ludwig von Mises repeatedly declared throughout his extensive writings is true, that there can never be a third way between capitalism and socialism—that is, a third way that does not degenerate into socialism or progress to capitalism. The Herculean task confronting us today is to convince the public, in clear-cut terminology, why this is so. What cogent arguments can we articulate to warn America about the dangers of adopting the policies of welfare statism, and expose as well its tendency to evolve into some form of tyranny?

The purpose of this essay is to examine three of the primary reasons why unchecked welfarism is only a “prelude to the total state.” These arguments have been expounded in the past by numerous insightful advocates of freedom, but they must be repeated and rearticulated by different minds and voices for new generations of Americans.

 

Interventions Bring More Interventions

The first reason why the welfare state cannot sustain freedom is the famous Misesian thesis: Government interventions always breed economic dislocations that “necessitate” more government interventions.

For example, no government can pay for the extravagances of welfarism solely with taxes, for the productive members of society will tolerate only so much taxation. The politicians in power inevitably turn to the expedient of monetary inflation, and through manipulation of the Federal Reserve System pay for their extravagance.

Here is where the chain reaction of government interventions and dislocations really begins to play havoc, for one cannot inflate the money supply through the Federal Reserve without eventually causing higher prices. If government then tries to prevent prices from rising through price controls, it eliminates profits, slows production, and causes shortages. The lower supply of goods, combined with monetary expansion, tends to raise prices still further. What was intended to stop rising prices, price controls, causes prices to rise. if price controls remain in effect, the results will be more severe shortages, malinvestment, black markets, and corruption. If government then attempts to control all the means of production and distribution in an effort to eliminate the chaos and corruption its actions have caused, it must also control consumer choices and personal ambitions, for they determine what goods are to be produced. Government cannot control consumer choices and personal ambitions without attempting to control the human mind through education, the press, movies, and books. The logical consequence of government intervention is totalitarianism.

 

The Keynesian Revolution

The rationale for government intervention stems from many sources, one of the most important being the Keynesian revolution of the 1930s and its emphasis on “macro” rather than “micro” economic theory. This revolution shifted concern from the actions of individuals to the interplay of aggregates or collectives.

In practice this meant the subordination of the rights of the individual to allegedly higher “goods,” e.g., the good of the economy, the expansion of the GNP, and the building of a Great Society.

Because their emphasis is on groups and aggregates, welfare state (or macro) economists think in terms of expanding the economy’s supply of money, dispensing the public’s revenues, revamping the nation’s priorities, and using the nation’s resources. Groups, cities, minorities, society—rather than individuals—are the important entities. Because of the profound influence that Keynes had, macro-economists now seek to coordinate the nation’s aggregates by manipulating its money supply, taxation, wage levels, business profits, and savings from Washington.

Here lies the major flaw of the interventionist program: To think in terms of manipulating profits, consumption, savings, and investments of a society presupposes thinking in terms of manipulating human beings. You can’t control money, wages, price levels, and ratios of private consumption to public expenditures without also controlling people themselves. These phenomena are all merely effects; people and their thoughts, ambitions, and actions are the causes.

Since it does no good to attempt to alter or plan effects without also controlling causes, our planners in Washington, who wish to control and regulate our nation’s economic productivity in an efficient manner, must ultimately try to control and regulate the causes of that productivity—which are the thoughts, ambitions and actions of the men and women who create it. This will require some form of authoritarian political system.

Welfare state theoreticians are now concerned mostly with relatively haphazard controls over human actions (through economic regulations), and over human thoughts and ambitions (through educational controls). But the laws of human action will mandate further evolution of control.

 

A Model for the West?

Despite the fact that individual freedom shrivels to minimal levels under Swedish-style welfarism, America’s “liberal” academic leaders subtly applaud such a system, considering it to be a model for the West. As The Los Angeles Times recently reported in reference to the “Swedish Model”: “Concerned Swedish economists are questioning whether the welfare benefits are still worth what they say is the cost: the overwhelming taxes, economic slowdown, high inflation, falling productivity, lowering worker morale, and rising unemployment that seem now to characterize this nation of 8.6 million people.”[1]

Several writers in the past two decades have exposed the nightmarish cost of Sweden’s state welfarism, Roland Huntford’s The New Totalitarians being the most celebrated. Under the benevolent guardianship of an all-powerful, centralized state, the Swedes relinquished their independence for the numbing existence of the hive, where soul-crushing bureaucracies stretch their tentacles into every nook and cranny of life. Taxes exceed 90 percent of income, children become wards of the state, names become numbers, obsequiousness is admired, alcoholism and drug addiction are rampant, and anxiety is everyone’s constant companion.

Naturally, statist intellectuals here in America solicitously denounce such a development, maintaining that they want only to intervene a little bit, and just “redirect resources,” “smooth out disparities,” “create a perpetual prosperity.” They don’t intend to regiment all of life. They don’t intend to build a monster bureaucracy. But, eventually they must, if they intend to control things from Washington.

In his monumental study of 20th-century bureaucratism, The Myth of the Welfare State, Jack D. Douglas analyzes this self-reinforcing nature of statist growth, and why interventionist governments tend to evolve into more and more dictatorial governments: “The megastate ratchets up slowly, always in the guise of ‘serving the common welfare’ and generally in the pretense of meeting a crisis. Once the bureaucratic regimentation of everyday life has become pervasive, it begins to trigger” acute socio-economic crises (inflation, recessions, shortages, monopolies, corruption, etc.), which create “alienation and outrage” throughout the country. “These crises triggered by the higher levels of statist bureaucratization then become the enabling crises of further ratchets-up in statist powers—it becomes a vital necessity for ‘the common welfare’ to ‘solve’ the problems being caused by the drift into statist collectivization by increasing the bureaucratic regulations, which in turn produce new crises that must be solved by further ratchets-up.

“The drift into statist regimentation of life is, thus, an autocatalytic process—it reinforces itself, or feeds upon itself. The drift upward into greater regimentation accelerates because the new statist attempts at solutions to problems destroy the old ways of dealing with them, and build ratchets under the dependencies on the new statist ‘solutions’ as people restructure their life commitments in expectation of continuing those statist dependencies. At the extreme, statist bureaucracies first breed a generalized dependency in individual personalities and then in whole subcultures, whose members transmit this dependency to new generations.”[2]

Thus all welfare states, utilizing a mixture of economic freedom and government intervention, tend to establish pervasive controls over most of the political, economic, and educational activities of their people. It might take many, many decades for a nation to work itself into the position whereby its regimentation is widespread and insufferable, but that day will come when there is such socio-economic chaos and stultification resulting from all the “ratchets-up” and “crisis solutions,” that the government will finally give up on even the pretense of freedom, and suspend the basic rights of the people.

 

Special Privileges to Factions

The second reason why the welfare state cannot sustain freedom is that government welfarism destroys a limited and objective framework of law by extending special privileges to certain segments of society at the expense of other segments.

For example, it conveys welfare services to the less productive at the expense of the more productive, protective legislation to various corporations at the expense of consumers and other businesses, job preferences to some at the expense of better qualified applicants, and labor laws passed to favor unions at the expense of employers and workers. To put it more bluntly, the welfare state destroys the philosophy of “equal rights for all” in favor of “special privileges for factions.” It is a doctrine of legalized favoritism, that must by its very nature lead to dissension, corruption, and tyranny.

Our intellectual leaders should consider the following: What possible hope for peace and good will can there be when some men and women (by joining forces with a large enough group) are allowed to use government coercion and intervention to gain their desires? What possible kind of life can people live when the degree of their freedom is determined, not equally by the law of the Constitution, but unequally by the variable whims of bureaucrats and voters? What kind of social climate develops when people are penalized for their ability and self-reliance, and rewarded for throwing tantrums en masse? What kind of individual freedom and economic stability can we have when men and women are subjected to such injustice? What type of country will evolve from such nonsensical and arbitrary rule?

The last three decades of political-economic turmoil in America have shown us what type of country we can expect—a chaotic assemblage of special interest groups (such as labor unions, ethnic minorities, welfare recipients, and activists working to promulgate the “rights” of women, homosexuals, and others) all demanding special privileges, controls, and handouts from the federal government. None of them is willing to contemplate the destruction of individual freedom they are perpetrating in the process. In fact, many feel they are enhancing freedom.

It is here in the nature of welfarism and its evolution that we get a glimpse of one of the most important issues of political philosophy: Governments can be organized under one of two types of law: limited and objective, or open-ended and arbitrary. Which type we choose determines our way of life. The first leads to individualism and freedom; the second to collectivism and tyranny.

Limited and objective law means that the statutes enacted by the governing power are predetermined to do only certain things for the people, and they are equally applicable to all citizens. In other words, there are no special privileges conveyed to some citizens, e.g., entitlements, subsidies, controls, tariffs, and monopolies. The laws passed do not favor any individual or group over another. They do not help or hinder one in relation to another. Whatever they do, they do for everyone.

Open-ended and arbitrary law means that the statutes enacted by the governing power are haphazard and unequally applicable to the citizens of a country. They are up-for-grabs, so to speak, concerned with dispensing preferential treatment to powerful interest groups. They are not predetermined, but flexible, and their meaning and application are based upon the whim of the rulers (whether the rulers are one man, a council of men, or a plurality of the voters). There are either no limits, or poorly defined limits, placed upon the application of such laws.

Throughout history all governments have been organized, to some degree or another, upon an open-ended and arbitrary basis. There has never been a country with a truly limited and objective system of law. America came close in 1787, but even she allowed “special privileges” to be enacted into law. Naturally there are gradations of arbitrariness. Some systems are more arbitrary than others in their exercise of governmental power, and thus more despotic than others.

The welfare state vision is based totally upon open-ended and arbitrary law (i.e., the conveyance of special privileges according to the whims of the rulers and the pressures of factions, with poorly defined limitations). The fact that it is democratic does not change the arbitrary nature and poorly defined limits of its statutes, nor does such a fact convey legitimacy to the arbitrariness and openness of its power, nor does it justify the vast array of privileges that its factions and majorities vote for themselves. Tyranny is still tyranny, whether it is one man, ten men, or millions of men usurping the rights of the individual. Welfarism, despite its democratic implementation, is just another form of despotism, and will, unchecked, evolve into a more despotic form.

 

A Moral-Philosophical Shift

The third reason why the welfare state cannot sustain freedom is rooted in the moral-philosophical shift this country has made since the turn of the century.

Prior to 1913, America was predominantly a laissez-faire society, and definitely a much freer society. I say predominantly here, for America of course has never been a completely laissez-faire society. Even from the start in 1787, the government arbitrarily exercised its power to dispense special privileges to various sectors of society (it passed protective tariffs, subsidized canals and railways, sanctioned various public-works bills, and until 1865 allowed the limited practice of slavery). But such interventionist favoritism was minimal throughout the 19th century, with the determination of most human action left up to the people themselves, according to their own desires.

Thus what is important is that the great bulk of what was achieved by individuals during this period had to be done with their own peaceful effort and voluntary trade among themselves. The law of the land was simple and just. No man could force another man to give him the basic economic necessities of life, either directly through robbery or indirectly through the government’s power to tax. This was the beauty and strength of America—the key to her freedom. Young people were raised to expect protection, never provision, from their government. And thus they grew up as individuals in search of achievement, not as protesters in search of guaranteed incomes.

The ratification of the 16th Amendment and the enactment of the Federal Reserve Act in 1913 changed all this. They established the Federal income tax and a central bank, which led to a surge of government intervention into the economy, which led to the Great Depression and the New Deal. The New Dealers opened wide the floodgates of government coercion in men’s lives, by establishing the right of the government to take the wealth of some and give it to others. In this way, they altered the entire conception of what government’s role in life should be. America was formed and built upon the idea of government being an objective preserver of the peace. The New Dealers made government an arbitrary manipulator of the people.

President Franklin Roosevelt and the statists of the 1930s rose to power by establishing what they termed an “Economic Bill of Rights,” which stated that all men have certain economic needs (housing, food, medicine, income, security); and if they won’t provide themselves with those needs, it is the duty of the government to step in and do it for them through higher taxation and the political redistribution of property.

This in essence established morally and philosophically that whatever a person “needs” he has a “right” to. As a result, a whole new generation of Americans has come to believe that their government is not just their protector but also their provider. Thus they think nothing of now demanding more government favors and handouts every year as a “right.”

And why shouldn’t they? The prevailing morality of our society has told them that all men deserve not just the right to produce, but now the right to confiscate the economic “necessities” of life, the right to define those “needs” by majority vote, and the right to use the power of the state in the confiscation process.

 

From Self-Reliance to Dependency

The endless protest movements, wars on poverty, ever higher taxes, inflation, regulation, and special interest legislation that have come to be such prominent factors in our lives in America today are the long-range results of the moral-philosophical shift we made at the turn of the century—from a country built upon self-reliance and individual freedom, to a people dependent upon government handouts and state control.

Government growth requires a moral rationale. If we were never to furnish such a rationale, we would be immune to state dictatorships. We have provided that rationale, though, by teaching the younger generation that their “needs” are “rights,” and that the redistribution of private wealth is a legitimate policy.

Once such a redistributionist philosophy is accepted, all factions’ demands for more welfare, better housing, guaranteed incomes, special subsidies, loans, and favors provoke more demands and an ever-growing deluge of taxes, bureaucracy, deficit spending, and inflation.

Collectivists will approve of it by vote. “It’s the least disastrous of our alternatives,” they will cry, not bothering to contemplate that it was their government controls in the first place that brought on the very chaos that they will then use to justify all-pervasive government control. But collectivist mentalities are not concerned with getting at the actual causes of our problems. They are concerned only with increasing the power of the government to feed their delusions.

These then are three of the more important reasons why the welfare state philosophy will ultimately lead to tyranny: (1) government interventions lead to more and more intervention; (2) dispensing special privileges leads to arbitrary law; and (3) freedom’s moral base is subverted with redistributionist tax policies.

The alternative to this insidious drift of our welfare state system is the one course our intellectual and political leaders refuse to face—restoration of a true capitalist economy, where no special privileges are dispensed by government to anybody, where men and women are taxed equally, where government is strictly controlled by the Constitution, and where productive peaceful people are left alone to build their lives to whatever level they are capable, while helping those who can’t through the many voluntary charitable organizations that spring from the American people’s abundant compassion and goodwill. Such a system worked splendidly for 125 years here in America, and only began to fizzle as the government began to intervene.

This is not a plea to return to the simplicity of the horse and buggy age. This is an exhortation to restore the principles of a free market and a strictly limited constitutional government, for these are the only proper principles, and the only system of social organization that will provide enduring freedom, prosperity, and dignity.

The lessons of history are clear. If a country will not respect the concept of private property, allow freedom in the marketplace, and refrain from dispensing favors and subsidies to special interest groups, then it is on its way to economic deterioration, mob rule, and an arrogant, overweening form of government.

The countries of most of the rest of the world have already dropped over the philosophical precipice to collectivism, and are gradually evolving into various forms of “benevolent authoritarianism.” America remains as a bastion of individual freedom, but even she is under severe attack, and faltering. America still has a chance because she still has a choice. But her people must identify the nature of the ideological struggle and make the right choice.


  1. “The Swedish Model Doesn’t Seem Quite So Lovely These Days.” The Los Angeles Times, June 18,1991.
  2. Jack D. Douglas, The Myth of The Welfare State (New Brunswick. New Jersey: Transaction Publishers, 1989). p. 24.

Freeman Editor Awarded Prize

The Foundation for Economic Education is delighted and proud to announce that Edmund A. Opitz, a member of the Foundation’s Senior Staff since 1955 and a contributing editor of The Freeman, has been awarded a $5,000 prize in the Amy Foundation Writing Awards for 1991.

Mr. Opitz’s award-winning essay, “Biblical Roots of American Liberty,” appeared in The Freeman in July 1991. Its thesis is that “Nations of the West were founded on biblical principles of justice, freedom, and a work ethic.” Mr. Opitz is an ordained Congregational minister, the founder and coordinator of The Remnant, a fellowship of conservative and libertarian ministers, and a founder and secretary of The Nockian Society.

He has published more than one hundred fifty articles and reviews in a score of publications. He has written two books, The Powers That Be and Religion and Capitalism: Allies, Not Enemies and co-authored a third, The Kingdom Without God. Mr. Opitz has lectured widely and participated in more than two hundred FEE seminars.

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