Over 70 years ago, economist F. A. Hayek published his book “The Road to Serfdom” in which he warned the world of the dangers of centralization and planned economies. Today, I revisit some of his warnings. Is America becoming socialist? And if that’s the case, will this be a utopian or a dystopian world? In this article, I explore these questions and discuss whether America is becoming a socialist country and what that would mean.
Karl Marx was arguably the most influential thinker and economist behind modern socialism and communism.
He is most famous for writing the Communist Manifesto, in which he outlines the class struggle and calls for a communist revolution.
According to him, capitalism was an inherently flawed and exploitative system in which one class took advantage of another class. Reforming capitalism wasn’t possible. Only the complete abandonment of capitalism in favor of a classless, communist society, could remedy the flaws of capitalism and set the working class free.
Socialism can be seen as the precursor of communism. In a socialist society, workers get compensated based on their contribution or labor.
In a communist society, workers get compensated based on their needs.
Marx and other communist thinkers viewed socialism as a necessary step before a communist society could be realized. In this sense, socialism can be seen as an imperfect or incomplete form of communism.
Today, many people use the terms interchangeably. Again others use the term socialism to describe a gradual, non-violent transition to a more egalitarian and classless society that is based on democracy and attribute communism to achieving this goal through a violent revolution.
While the worry of a violent communist revolution seems small in the United States, some people are concerned that America is becoming a socialist country.
With the recent controversy surrounding the Great Reset, this concern has been growing.
The Great Reset is an idea popularized by Klaus Schwab and the World Economic Forum, that Covid-19 should be instrumentalized to transition to a more sustainable form of capitalism called Stakeholder Capitalism.
Schwab himself clearly states in his book “Covid-19: The Great Reset” that both free market capitalism and state capitalism, such as seen in China, worked for a while but are outdated models.
He suggests a new form of capitalism which doesn’t just create value for shareholders of profit-producing companies, but all stakeholders in society, including the environment.
Although he doesn’t explicitly call for a communist or socialist society, he certainly downplays the risks of technological surveillance, dystopian societies and increased government control.
Schwab’s vision for a more sustainable Stakeholder Capitalism can be best summarized as a mix between free market capitalism and state capitalism.
A sort of middle ground between the two extremes.
The truth is that in most countries around the world free market capitalism doesn’t exist anymore. With the rise of welfare states, central banks conducting monetary policy to navigate the economy and increased government regulation of industries, we have transitioned to a “Mixed Economy”.
A mixed economy is an economy that is neither completely capitalist nor completely socialist.
In this sense, we are already living in an approximation of Schwab’s “sustainable” capitalism. It seems that for him, it just must become more sustainable. Or to put it differently: Free markets should be reduced in the mix and stakeholder interests, including government control, increased.
Is America Headed for Socialism? If we consider the idea of a mixed economy, capitalism and socialism are on a spectrum. Capitalism, in its purest form is a free market economy. Socialism in its purest form is a centrally planned economy without competition.
Looking at this spectrum, we can certainly make the case that America is becoming more socialist. But will America become a socialist nation? Probably not, or at least not yet.
If America is becoming a socialist country, it is happening gradually by removing free market principles from the mixed economy.
Even though Schwab doesn’t explicitly endorse socialism, and views the real socialist countries just as much as failures as Western free market economies, the demand for more planning and less competition can lead to totalitarianism.
F. A. Hayek describes this in great detail in his book “The Road to Serfdom“. And other economists like Ludvig von Mises and Milton Friedman agree.
Without competition and free markets, there is no price discovery. Prices are important because they transmit information.
Without free markets, competition and prices, supply and demand need to be centrally planned. This is not only extremely inefficient but requires the central planner to make judgments about who receives what, which needs are met, and which needs aren’t, and who works and how.
Dealing with the complexities that markets manage through competition and price discovery, in a socialist or communist economy, requires central planning.
This is the case whether something is “democratically” planned or not. The effect is that freedom to choose ones preferences, tastes, occupation and actions disappears. As shown throughout history, attempts to implement socialist or communist ideals beyond small communities have always resulted in centralization, government control and totalitarianism.
Even though many socialists might have noble motivations, and truly strive for a more egalitarian, just and utopian society, the end result is paradoxically the opposite.
While free markets aren’t perfect, they provide the most amount of freedom and opportunity to the largest number of people.
The Great Reset, and the call for a more regulated, sustainable and stakeholder-based capitalism might not be ill-intended. But the tendency towards socialism coincides with a tendency to totalitarianism.
The Federal Reserve was founded in 1913. Before and after that many central banks opened their doors globally.
Looking at the past century, the attempt to centrally plan monetary policy by setting interest rates and controlling the money supply has illustrated two things:
Let’s begin with the first one.
Arguably, poor policy and planning by central banks around the world have led to several large bubbles including the Dotcom Bubble and the United States Housing Bubble.
The Global Financial Crisis, the biggest crisis in recent history, was the result of loose monetary policy and artificially low interest rates. Today, we are in the midst of a sovereign debt bubble, also known as the Everything Bubble. Just like the two bubbles before it, central banks created it.
Imagine how these distortions, inefficiencies and artificial signals are multiplied if the entire economy were to be centrally planned?
Secondly, the need to control a bit has led to a need to control a lot. In the beginning, central banks barely had to intervene in the economy and mostly did so by setting short-term interest rates.
In the last few decades, central banks had to resort to increasingly extreme monetary policy including Quantitative Easing and Yield Curve Control.
As the market distortions and artificial price signals get magnified, and the problems caused by central planning become more systemic, the need for more nuanced ways to intervene in the economy emerges.
Central bank digital currencies, which all developed nations around the world are starting to implement, allow for nuanced, almost surgical interventions in the economy.
Instead of just setting short-term interest rates, central banks have the ability to give money an expiration date, surveil all transactions and balances, tax money at the transaction level and contract or expand the money supply more easily.
Central planning begets central planning. The escalating need for increased central planning and control can be observed if we look at central banks.
When problems appear with central planning, governments try to solve them with even more central planning. The eventual end result is an economy where most aspects of life, not just monetary policy, are in the hands of central planners.
This is why even if a little bit of “temporary” central planning starts, and even if the intentions behind it are good, it gradually escalates. Just like a drug addict who thinks he can take a small dose of a drug, governments that get a taste of central planning get hooked. Even if they wanted to quit, they become dependent on it to solve problems that were caused by central planning in the first place.
The inefficiencies of central planning lead to the need for more control to fix the inefficiencies. This leads to even more distortions. It’s a vicious circle.
The rise of CBDCs, the talk of a “Great Reset”, lockdown mandates and health passports certainly don’t help to instill confidence that more central planning and government control lead to improved lives for the majority of the population.
It seems that equality, or sustainability, must come at the price of increased government control, technological surveillance and even totalitarianism.
While this slow trend towards a “soft” totalitarianism is barely noticeable, it is real.
Totalitarian tendencies are brought about by the same people that call for more equality and sustainability. Even if those calls come from a pure heart, and a genuine want to move mankind towards better living conditions, they produce a paradoxical result.
Striving for utopia often leads to dystopia. This doesn’t mean that striving for dystopia leads to utopia.
It means that we must carefully examine the economic principles that our society is built on, such as competition, prices and free markets, and determine how changing these principles will impact our lives.
We must look at the intended and unintended consequences. While free market capitalism certainly isn’t perfect, it appears to be the lesser evil, by a large margin, compared to the alternatives.
If that is the case, it also means it is becoming more totalitarian. Just like socialism and capitalism are on a spectrum, so is totalitarianism.
Instead of subscribing to a specific set of ideas, or a political party, we must educate ourselves about the economic principles that govern society and how they impact our lives long-term.
We must be aware that our actions can produce paradoxical results. We can want one thing, but get something entirely different.
We can strive for a more egalitarian, sustainable economy but end up with a 1984-like society. While some people are willing and ready to make this trade off, a growing number of people aren’t.
.jpg){kind=link}