I hope this paper I wrote for a class interests someone out there. There has been a lot of things that have been occurring from idiotic diversity initiatives (aka: modern minority oppression initiatives) to “word campaigns” which I hope to get back to writing about as soon as this semester ends next week.
Throughout the course of human events, battles have been fought and wars decided, but none have been so long enduring as the battle of ideas. A feud, which has entered into the marketplace of ideas, has been brewing for many years during the progression of our modern world: individualism or collectivism? Is it the individual who holds the power to dictate personal decisions or is it the collective whole acting together towards a common purpose the best way to better the human condition? The development of economic ideas in the Great Depression, the impact of Friedrich von Hayek’s The Road to Serfdom on economics and politics, the many implications of George Orwell’s Animal Farm, and a view of the market system in terms of a benefit and cost perspective will be explored. As the state, the market, individuals, economics, and behavior is explored, the fundamental discussion which lie beneath these topics is whether it is the individual or the collective which hold supreme in holding power over human life.
In order to better introduce the discussion, economic ideas developed during the Great Depression in the United States will better illustrate the principles behind the battle of the ideas. In the early 1900’s, when large amounts of money had been printed and wealth had been created at unprecedented levels, the economy was booming and people like Irving Fisher were declaring that the markets were at a permanently high plateau. Life was good for the capitalist, and the standard of living for all appeared to be dramatically increasing. However, an indelible blow in the form of economic depression slammed the country with high prices, high unemployment, and a drastically reduced quality of life. The faith in free markets had all but been destroyed as people’s scornful attitudes toward these unfettered markets swept the country. A general attitude rose that markets were inherently unstable, profits became disdainful, greed was rampant, and the solution to such social problems was government activism.
A man by the name of John Maynard Keynes answered the call as he proposed an economic theory which justified government action in the marketplace. Revolutionizing the subject of economics, Keynes proposed one of the first macro-oriented theories which presumed that with the proper tools, an economy could, and should, be managed by a sovereign entity. This is not to say Keynes inherently found market forces to be the enemy of the people as Marx had proposed. Indeed, he embraced individualism and the efficiency of markets, but observed that in a mature capitalist system, the sustainability of unregulated markets to hold full employment was dubious at best. His proposal held that capitalism needed to be maintained through the socialization of investment powered by government intervention in order to steady these otherwise unpredictable and unreliable markets. It presumed “that in the normal state of modern industrial Communities, consumption limits production and not production consumption”, where market systems tend to lead to a permanent glut, which lead to substantial and enduring unemployment (Hansen).
If this was not enough to embolden the government to manage the economy, Keynes expanded his theory which deemphasized monetary policy and instead emphasized fiscal policy. Through a series of introduced rules, treatises, and systems, Keynes wrote his magnum opus, The General Theory of Employment, Interest, and Money, which established many precedents. It was a relativist, event driven proposal which sought to destroy the classical model by discrediting Say’s Law of supply creating demand. It attempted to do so by establishing that it is instead aggregate demand which drives microeconomic activity. If there was insufficient aggregate demand, unemployment rose to reach equilibrium. He proposed that wages were rigid and that markets were inherently unstable. To Keynes, capitalism was a frightening prospect which needed to be settled down in order to stabilize investment, halt the disruptions of unemployment, and increase inflation in order to decrease unemployment.
In order to accomplish this, plans for major government intervention were in order. Keynes’s predecessors, known as the Keynesians, interpreted his ideas and developed a wide range of strategies to manage the economy. One of the plans they founded was to further expand and emphasize upon monetary policy. By altering the money supply and changing the interest rate, they claimed that aggregate demand could be altered. They argued that by substituting the lack of private demand, public demand could step in and fill the gaps thus creating a countercyclical economic force to stabilize markets and reduce unemployment. Another plan they expounded upon was the fiscal policy. By utilizing the marginal propensity to consume, they established that by either increasing government spending or reducing taxes, everyone would be better off. Using their formula, it was determined that although reducing taxes positively affected the economy, increasing government spending had a multiplier effect attached to it which made its effect far more beneficial than merely reducing taxes.
As time progressed and such policies were adopted, Keynes’s idea spread across the country. Keynes was king, and the discussions of ideas were closed. It was not until the early 1970’s did the ideas of the Keynesians observably begin to be proven false. One of the biggest things that happened was that a curious situation arose: both unemployment and inflation began to rise. Stagflation under the Phillips curve was not possible under Keynesian economic theory because the rise of both unemployment and inflation was thought to be impossible. Although this observation alone was enough to cause an idea shift, many other fundamental observations were made against the idea as well. Keynesian economics were implemented under the assumption that the fluctuations in the market could be stabilized if they were to be controlled by the state. However, fluctuations continued in this postwar period. Also, with such control over the economy, the government claimed they could solve all social issues and even declared a war on poverty. However, this was also proven to be unrealistic. The collapse of the pseudo-fixed exchange rates of the Breton Woods system proved that government could not properly manage prices, including exchange rates. Finally, the socialist economies throughout one-third of world were having major problems or were even collapsing.
It was with these realizations where people began to reevaluate the theory, and a critic by the name of Friedrich von Hayek was rediscovered. Hayek, a rejected economist and critic of Keynes during the era of Keynesianism, wrote a novel in 1944 entitled The Road to Serfdom which proved to make him a significant force in political debate. Although many topics are covered in this book, the one which took up nearly half of it was economic planning. He begins the discussion by quickly pointing out that, “The effect of the people agreeing that there must be central planning, without agreeing on the ends, will be rather as if a group of people were to commit themselves to take a journey together without agreeing where they want to go: with the result that they may all have to make a journey which most of them do not want at all.” (P. 65, Hayek) This comment was especially significant during this time due to grinding unemployment and inflation which was a journey nobody wanted to go. He continues on the general idea when he established himself from Keynes by asking if, “… it is better that the holder of coercive power should confine himself in general to creating conditions which the knowledge and initiative of individuals is given the best scope so that they can plan most successfully; or whether a rational utilization of our resources requires central direction and organization of all our activities according to some consciously constructed “blueprint””.
By establishing his viewpoint from the political mainstream, Hayek begins the intellectual assault against the Keynesians. Some key points Hayek shows in this book is that he defends the operation of markets, criticizes government’s arrogance in claiming they can manage something as complex as the economy, illustrates how government can only result in a loss of freedom and a misallocation of recourses, and how direct taxes lower economic growth and inflation is probably the most destructive hidden tax on wealth known to man. Defending the operation of free markets was imperative in defeating the Keynesian’s theory that markets must be controlled through government. He showed that the cutthroat and unpredictable behavior of competition in a free market is a good thing, where it is not only the “…most efficient method known…” but it was also the only method in which coercion and arbitrary decision making by authorities are unneeded (P. 37, Hayek). He continued by saying that when individual human beings are given a chance to decide their own lives, this outweighs the disadvantages and risks associated with choosing one’s own life. He further qualified the need for more freedom when he described how regulation is bad. Not only could most regulation be substituted by the price mechanism, but the direct regulation by authority should not suppress competition when it can function by itself. The markets can regulate themselves, and do it more fairly, accurately, and more effectively than any government department.
After outlying the framework for free market capitalism, he begins dispelling the many myths associated with it. He agreed with the consensus that monopolies were bad, but he showed that they can only arise when government is involved. He said that “… monopolists regularly seek and frequently obtain the assistance of the power of the sate to make their control effective…” and that it is not free market innovation which causes monopolies, but merely policies pursued by governments (P. 48, Hayek). Governments, by definition, are authorities which direct a whole economic system. What can be more powerful of a monopoly than that?
Hayek blasted the Keynesian’s with their unwavering support of government management of the economy. He showed that this attitude generally starts with the arrogance of people who consider themselves smart, such as engineers and scientists, which find themselves being some of the first to support the idea that an economy could actually be managed. However, “… it is impossible for any man to survey more than a limited field…” and for someone to claim that they can comprehend the “infinite variety of different needs of different people”, who interact with one another for resources in complex ways, was a task that could only result in failure (P. 62, Hayek). To attach weights and prices to such resources is an act of arrogance and futility which can only lead to a loss of economic freedom for the individual. Before continuing his argument, Hayek defines and defends the individual and individualism. By showing that individualism is not a philosophy which embraces that man as egoistic and selfish as what many believed, but rather the fact that nobody should have power over other human beings caused a realization that the values that one man holds cannot be imposed upon another man through force was founded. People have different value systems and have a right to hold their own value system. With this realization, people only have the right to pursue their own values and preferences rather than someone else’s, and that only the individual’s value system can hold supreme and not be subjected to another person’s. Therefore, the individual is the “ultimate judge of his ends” and his ends only.
This viewpoint of the individual is a powerful one which can illustrate that government command over the economy will invariably result in a loss of freedom. Economic freedom is a prerequisite for any other kind of freedom, because “… the individual … becomes a mere means, to be sued by the authority in the service of such abstractions as the ‘social welfare’ or the ‘good of the community’.” (P.100, Hayek) Controlling economic activity controls the means to ends, where in such a case freedom cannot exist. He uses this example to illustrate the means of production: take, for example, a multimillionaire who may be an employer or even a neighbor. This person has much less power over his fellow man than the smallest regulator who holds the coercive power of the state and whose discretion it depends whether how one is allowed to live or to work. “Who will deny that a world in which the wealthy are powerful is still a better world than one in which only the already powerful can acquire wealth?” (P. 108, Hayek) He argues that with such arbitrary decision making, human dignity also suffers. “Inequality is undoubtedly more readily borne, and affects the dignity of the person much less, if it is determined by impersonal forces, than when it is due to design.” (P. 110, Hayek) Granted, even individualistic societies have degrading experiences, such as getting fired or being unable to get hired. However, the experience is far bitterer in a planned society, argued Hayek. One of the final things regarding a loss of freedom is the security of the bureaucracy one is placed in a planned society. Comparing job security one finds in a planned society to the security a soldier finds in military barracks, Hayek shows that one may be “… economically secure so long as he satisfies his superiors, but this security is bought at the price of the safety of freedom and life.” (P. 130, Hayek) Only people who work towards the state’s goals and social conscience will be considered members of this type of society. Dignity is derived only from this membership and not from simply being a human being as on would be considered in a free society.
One of the final problems a planned society experiences as discussed by Hayek is that there is a misallocation of resources. When one forcefully takes money from people without real accountability in order to achieve an end which cannot be benchmarked, the end will always result in an inefficient allocation of resources. Centrally planned governments are doomed to fail because they lack true monetary accountability (as opposed to stockholders of a company), they attempts to achieve an end which cannot be easily benchmarked without the price mechanism, and they are ridden with apathetic bureaucrats, who for the good reason, have no incentive to perform well because performance is not measured. Instead, these bureaucrats are hedonistic, rational calculators of pleasure and pain and max utility subject to whatever constraints they face in a form no different an individual in the market place would act.
Governments do all of this while taking money from productive individuals at gunpoint. There is not a single action government does which is completely voluntary; there is always some type of method implemented, may it be through taxes, force, or both, which compel or manipulate people to behave in involuntary ways. How can such an institution preserve human liberty when it operates in such a way? Hayek argues that the lust of power to too tempting in such a society. “It is even more the outcome of the fact that in order to achieve their ends collectivists must create power – power over men wielded by other men – of a magnitude never before known, and that their success will depend on the extent to which they achieve such power.” A system which deprives people of power they possess over themselves inevitably extinguishes and transfers individual power to the leaders. Only a competitive system is capable of minimizing tyranny by decentralizing the power exercised by people over other people.
This type of power experienced in collectivist societies are also demonstrated in George Orwell’s Animal Farm. Taking place on a farm full of animals who desire freedom from oppression, they find themselves in a situation where they embrace a collectivist approach towards freedom but find that they would have been better off embracing an individualistic approach. After achieving freedom from their original human oppressors through a violent revolution, they establish a government in which all animals are equal. Using a collectivist approach, they decide to pool their resources and labor in order to benefit society as a whole. Each animal contributes depending on what they are capable of producing, and each takes what is necessary to live.
As described by Hayek, a government’s tendency and ability to encroach on freedom is substantially improved in a collectivist society and it took no time for a ruling class of pigs and dogs in the novel to establish a government which begins to manage the economy for the benefit of the society as a whole. Many notable events occurred during the transformation of their government. One of the many things that occurred is that only the people who worked towards the state’s goal were considered members of the community. It was no longer good enough for Mollie, the mare who loved eating sugar cubes and wearing ribbons, to be a member simply because she was a fellow animal with four legs. Instead, she was an individual who couldn’t conform to the goals and was ostracized to the point where she left the farm. Another event which occurred during the progression is that they started with reason, but ended with tyranny. Hayek stated that “The tragedy of collectivist thought is that while it starts out to make reason supreme, it ends by destroying reason because it misconceives the process on which the growth of reason depends.” (P. 169, Hayek) The pigs, which began by creating a constitution which would ensure all animals fairness and equality finished with document and system which allows itself to inflict unlimited tyranny to the animals by declaring that “All animals are equal, but some animals are more equal than others”.
The progression of the pig’s government was characteristic of any collectivist society: there was a centralization of power, action was justified with the needs of the community and not by individual morality, and political greed and exploitation was rampant. The centralization of power grew quickly. The pigs separated themselves from the animals, the dogs became the enforcers, critics were silenced, and all negotiations both foreign and domestic were performed by the pigs themselves. Power was quickly shifted and diluted from the individual animals and compressed into the few pigs. Individual morality was thrown out as the needs of the society were replaced. Decisions such as rationing the already starving animals, slaughtering the injured animals, and lying to the masses in order to benefit the society as the whole easily became justifiable and necessary in the eyes of the planners. The “… individual would more than ever become a mere means, to be sued by the authority in the service of such abstraction as the “social welfare” or the “good of the community” (P. 100, Hayek). The political greed was very obvious as the pigs lived well while the rest lived on the brink of death. As Hayek noted, it is easy to take from the rich as much as possible, but when “… it comes to the distribution of the spoils, the problem is the same as if the formula of “greater equality” had never been conceived.” (P. 114, Hayek)
It is with these facts we conclude that the problems experienced with having too much freedom are far more tolerable than the problems experienced by having too little. Humanity deserves better than a coercive entity which robs the common man of wealth and freedom in order to achieve a social end determined by some bureaucrats. If society can accept that our social framework is merely a collection of individual human beings, and not some faceless, autonomous “being” acting as a collective unit, the maladies experienced from the collectivist creed could finally set us free from the planners and allow the individual to pursue their separate ends without force and fraud provided they do not pursue their endeavors at the expense of another.
