Democracy Or Socialism: The Fateful Question For America In 2024 [1 ed.] 303065642X, 9783030656423, 9783030656430

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Democracy or Socialism The Fateful Question for America in 2024 Sven R. Larson

Democracy or Socialism

Sven R. Larson

Democracy or Socialism The Fateful Question for America in 2024

Sven R. Larson Cheyenne, WY, USA

ISBN 978-3-030-65642-3 ISBN 978-3-030-65643-0 (eBook) https://doi.org/10.1007/978-3-030-65643-0 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To my grandfather Karl R., whose kind heart, unrelenting work ethic and dedication to family taught us all how to be men and good stewards of freedom

Preface

The relationship between the individual and the state has been the subject of theological and philosophical thought almost since time immemorial. It slowly gained momentum in the last millennium and was thrust to the forefront of political and ideological debates in the past three centuries. With the French and American revolutions, the relationship morphed into one between the individual and the state. As it did, political thought and theory on the rights, duties and living conditions of the individual citizen sprawled and came to define political, economic, even constitutional matters. This rich intellectual environment has only grown more active with time, making the twenty-first century an exciting place to be in history for any student of the human condition. Ever since her founding, the United States of America has been home to one of the most active public discourses on political ideas. Our time is no different: like few other countries, America is home to every ideology constructed by man. Thriving under the First Amendment and with the support of a rich body of think tanks, activist groups and individual voices, the American political scene produces more, and more diverse, ideas on how to shape society than any other in the world. With a conversation on politics and political thought as vibrant as this, our country is in a good position for the future. The tense and sometimes upsetting circumstances of the 2020 election campaign notwithstanding, the deeper, more defining issues of our time will not go unanswered. The defining question is, rather, what course our country will take.

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This book is written with that longer perspective in mind. It is not meant as an entry into the daily, even short-term conversation over politics. Focus is instead on the issues that set a goal post on the horizon. It is essential for our country to place more emphasis on this conversation; issues that circulate in daily politics are often symptoms of dividing lines and undercurrents at the ideological level. At the same time as ideologies make themselves known in the current news cycle they are also often treated with casual indifference. Instead of tapping into the solidly informed literature on socialism, liberalism and conservatism, political debates often tend in the opposite direction. Ideologies are treated more as labels than wells of knowledge and analysis. One of the first casualties of a stepmotherly approach to ideologies is the future of our country. Just as legislation in the 1930s continue to affect life and business in our time, political and policy choices made today will have influence on the rest of this century. Therefore, it is of utmost importance that those of us who wish to have a say in shaping the future of our country inform ourselves to a level where the hands of the future are on the grinds of the present. There is no more substantive way to contextualize the present than to place an ideological spotlight on it. It matters what the ideology is, but the first step is always to open the conversation about ideas, ideals and ideologies. It is within the course of that conversation that we shape our vision of what a country can and should be in the future. I have chosen to focus this book on socialism. Being a libertarian myself, I have not made this choice out of disrespect for an ideology I oppose. On the contrary, while flawed in its policy practice, socialism is highly respectable from an intellectual perspective. It is perhaps the most elaborate, the scholarly richest and the most deeply researched of all ideologies. Its proponents are often of formidable minds; no brief list of examples can be even remotely complete, but the wealth of bright socialist thinkers reaches from Karl Marx, Rosa Luxemburg and John Rawls to Gunnar Myrdal, Alexander Dubˇcek and John Kenneth Galbraith. These are among many highly intelligent, well versed and exceptionally analytical minds who have made socialism into the ideology it is today. Their work reaches from the most abstract theoretical levels, where Marx, Luxemburg and Rawls dwelled, to systemic policy reforms by Myrdal, Dubˇcek and Galbraith. Far too many, perhaps even most opponents to socialism disregard the formidability of these contributions, perilously

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choosing to under-estimate both the ideology itself and its far-reaching influence on current policy making. It was, in fact, out of frustration with the intellectual indolence of libertarian and conservative thinkers that I planted the first seeds of this book. Those who claim to be fighting socialism are often sorely inept in their endeavor. My hope to make a contribution for the purposes of educating the right side of the ideological aisle evolved and became a deeper inquiry into socialism itself, and its tentative role in defining America’s future. Focus of the book is on the ideology itself; it is there that the American discourse is most notably in need of added value. A better understanding of socialism qua ideology—not practical policy—can lead to a more informed debate over current legislation. In order to chart a course from the roots of socialism forward, I selected to approach the ideology from the perspective of political economy. This does not turn the current thesis into an economic-theory exercise, although there is a brief encounter with it for purposes that will be apparent; rather, the idea is to distill the core of socialist political theory to a point where it can inform the most pivotal issues of our time, namely those that affect the ability of coming generations to provide for themselves and differentiate poverty from prosperity. A book of this kind has to be selective in other ways than its approach to the subject itself. One of the more contentious aspects is the use of terminology; to dispel at least some controversies the book spends a fair amount of time explaining key terms. In addition to reliance on theory and literature to define those terms, the book also uses some simple yet efficient practices for the terminology discussion, practices that may always not be familiar or apparent. One such technique is to place a term within quotation marks for definitional purposes. Used disparagingly in other contexts, it is done here solely to highlight that the current discussion is about the term itself, not the phenomenon it represents. To this point, the book gives a detailed account of “socialism” and “communism” and the dividing line between them. The purpose is primarily to inform those who are unfamiliar with socialism, or who claim to be opposed to it, of what socialism actually is. As a first step in that direction, one must draw a demarcation line between the socialist and the communist lines of political theory. An essential tool for this distinction is to confront them both with democracy as a form of government (hence the title of the book). As a means to placing socialism in an applicable setting, the book also ties it

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to specific places in time and space: the uprising against communism in Czechoslovakia in 1968, Aleksandr Solzhenitsyn’s account of oppression under the Soviet regime, the human-rights movement again in Czechoslovakia in the late 1970s, and the European political landscape as well as the Swedish welfare state as they stood in the late twentieth century. Many other points in time and place could have been chosen; again, since the thesis of this book is primarily the ideology of socialism and only secondarily its practice, the choice of empirical reference points is guided by the ideological analysis. That is not to say other experiences with socialism are irrelevant; other contributions to the conversation will certainly place a different spotlight on the same subject matter. Last but not least, the discussion of socialism concludes by delving into the present state of the American economy. While cursory in terms of macroeconomic analysis—the focus again is on ideology and not the economy—the purpose is to suggest how socialism is practiced today and what the future of our country would possibly look like should socialism be a decisive factor in it. Cheyenne, WY, USA

Sven R. Larson

Acknowledgments

First and foremost, I would like to thank my friends in the libertarian movement, whose ignorance of socialism is only surpassed by their refusal to study up on said ideology. Without comparison, their hammocking intellects have been my strongest source of inspiration for this book. Had I not spent many years as a front row witness to their comfort-prone approach to ideological adversaries, I would probably never have built the thesis of this book in the first place. My gratitude is considerable to their faith in uninformed conventional wisdom. I have also been inspired—in a productive sense—by ideologically disparate politicians. There is a vibrant conversation among socialists about how to put their ideology to work. It shows the need for a deep, honest and informed debate over the theory and practice of socialism. Their aspirations to shape America’s future is invigorating, but also challenging, to their opponents. On the conservative side, I have been inspired by Representative Liz Cheney (R-WY). As the Republican Conference Chair in the House of Representatives she has raised the discussion about socialism to prominence in the American political discourse. Her aspirations to make an informed difference are respectable, but they are also stronger than her abilities to do the same. The gap in between became another motive for the outline of this book. I am genuinely indebted to my wife, Christina, whose unending patience with my pursuit of this book has been a greater support than

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ACKNOWLEDGMENTS

I can put words on. A recovering journalist by her own definition, she is also a ruthless editor of book manuscripts. Her red pen makes a bigger dent in a writer’s confidence than any professor in a student’s self esteem. I owe considerable analytical clarity to two anonymous referees whose comments on an early draft were very helpful in condensing and distilling my arguments. All remaining flaws are attributable to the author alone.

Contents

Defining Socialism Why the Definition Matters Communism and Intrinsic Tyranny Unavoidable Economic Demise Conclusion References

1 6 11 16 20 20

Economics of Socialism 1: Prices vs. Labor Value Marx and Socialism in Practice Prices vs. Labor-Value Theory The Static Nature of Marxist Theory The Iron Law of Wages Labor Value and Central Planning Central Planning and Human Nature Conclusion References

23 24 26 29 34 38 44 49 50

Economics of Socialism 2: Planning vs. The Market Capitalist Decline: A False Notion The Welfare State: Socialism Without Central Planning? An Unsustainable Blend The Inevitable Conflict

53 53 57 69 73

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Conclusion References

78 78

From Strife to Spring History Is Perfect Hindsight Russia 1917: From Chaos to Lenin Prague 1968: Modest Reforms Passing the Point of no Return Solzhenitsyn’s Challenge A Note on Charta 77 Democratic Socialism Gets a Boost A Penultimate Moment in Sweden An Ideological Lesson Conclusion References

81 82 84 87 92 101 106 110 117 122 123 123

The American Welfare State Today Ideological Metamorphosis Welfare-State Entrenchment Welfare-State Consensus Neoconservative Endorsement Capitalism, Nihilism, and Socialism Conclusion References

125 126 134 139 144 150 153 153

The American Welfare State Tomorrow Expansion Is Inevitable A Note on Government Size and Economic Growth Equality or Solidarity Bipartisanship and Welfare-State Unity Monetized Socialism Hyperinflation: Lighting the Torch US Hyperinflation Conclusion References

155 155 159 166 169 174 179 183 187 187

Index

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List of Figures

Economics of Socialism 2: Planning vs. The Market Fig. 1

Planning models

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The American Welfare State Today Fig. 1

Official U.S. poverty rate, percent of total population (Source of raw data Census Bureau)

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List of Tables

Economics of Socialism 2: Planning vs. The Market Table 1

Economic redistribution and the welfare state; Gini coefficient data for 2014

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The American Welfare State Tomorrow Table 1

Debt as share of GDP; current prices

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Defining Socialism

In the past 150 years, with socialism emerging and rising to prominence, the ideological debate over the state-individual relationship has been sharpened decisively. The state is no longer an instrument for an authoritarian leader, one that would deny his subjects the rights to liberty and property; it has become the political method for the reconfiguration of economies, even societies, in the image of a theoretical ideal. Government was given moral approval to enter the lives of individual citizens under benevolent intentions (or auspices), practicing the ideology in large parts of the world, most notably from Saxony to Sakhalin for almost the entirety of the twentieth century. After the demise of the Soviet Union and an intermission during the 1990s, the socialist ideology has experienced a renaissance. Interest in it has grown gradually in both Europe and America, inevitably leading to an inquiry into how socialism matches up with, or to, the values that underpin the American constitution. However, as a beginning of this inquiry, one must first answer the simple yet profoundly important question: “What is socialism?”. This question is practically as old as the ideology itself. The answers have varied over the centuries, but with time they have coalesced around a cluster of definitions with a common denominator: socialism is commonly

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. R. Larson, Democracy or Socialism, https://doi.org/10.1007/978-3-030-65643-0_1

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perceived as the collectivization of the ownership of the means of production. The term “collectivization” normally refers to state ownership, but it can also refer to cooperatives or employee ownership of various kinds. This definition, best referred to as the property-rights definition, has come to set the tone for the public debate over socialism, a tone that is very much present in the current American political discourse. It is, however, not the only established definition. As interest in socialism increases and intensifies among proponents and opponents alike, the question of how to define socialism will be prominently present in our public conversation for years to come. Logically, with rising interest in the ideology, the question of what socialism is rises to the same relevance, even urgency, making the answer to the question “What is socialism?” quintessential to America’s political, social, cultural, and economic future. Any pursuit of an answer must begin with a recognition of the alternative to the property-rights definition of socialism. This alternative, which centers on economic redistribution, does not rely on collectivized ownership of corporations to transform a country in the socialist image. The redistributive definition has been given only modest attention, especially among opponents to socialism, yet from a practical viewpoint the American left, as it stands on the cusp of the 2020s, has de facto already adopted this redistributive definition of socialism. Their critics, on the other hand, dwell in the realm where socialism is defined by confiscation of private property. This has created a public discourse where the two sides talk past one another, unable to agree even on the definition of the very term at the heart of their debate. Given the prolific references to socialism in recent years, it is curious how the left and the right so openly fail to even agree on the terms of their conversation. As a result, for the most part, there is no coherent debate over whether or not America is, should, or should not become a socialist country. Perhaps the most absurd exhibit of this dysfunctional conversation is the debate over whether or not Sweden is an ideological role model for America to follow. Leading American socialists such as former presidential candidate, Senator Bernie Sanders (I-VT), point to Sweden as a source of inspiration for democratic-socialist reforms. At the same time, Senator Rand Paul (R-KY), a renowned libertarian, has praised Sweden for not being socialist, but in some ways a role model for the American right (Paul 2019). Conservative writer Dinesh D’Souza also attempts to distance Sweden from America’s socialists (D’Souza 2020).

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With the right-of-center idea of socialism being firmly planted in the property-rights definition, they have self-restrained their own efforts at effectively opposing socialism. However, their choice of definition is not surprising; if any random group of Americans were asked spontaneously to define socialism, they would likely point to state ownership of corporations and the elimination of private property. However, the redistributive definition has been given at least some presence, both in the political discourse as in Senator Sanders’ praise for Sweden and in the academic literature. One of the most precise contributions was provided in a debate in The Economic Journal in 1957 over the definition of socialism. British economist Henry Smith of Ruskin College, Oxford, challenged the property-rights definition, explaining1 : The basis of western or democratic socialism, whether it be as empirical as the doctrines of the British Labour Party or pays lip-service to a revision of Marxism like the bulk of the continental parties, is criticism of the justice in distribution and the efficiency in production of unregulated free enterprise.

While the contemporary American conversation about socialism is dominated by the property-rights definition, the redistributive definition that Smith puts forward is rather well known in Europe. For about a century, socialist parties have played an often prominent role in European politics. Rarely if ever do they call for government to seize control over businesses. Instead, they concentrate their political efforts on the pursuit of what Smith calls “justice in distribution.” In other words, by the standard of this definition the means to socialism is not the termination of private property. It is redistribution of income, consumption, and wealth. European socialists have applied this definition in legislation and other forms of policy-making, successfully for the most part. Plainly, they have implemented their ideology wherever given an opportunity. The inescapable example, again, is Sweden, where the social-democrat government in the 1940s and 1950s constructed one of the world’s most elaborate welfare states. Their source of inspiration was a book by Swedish economist Gunnar Myrdal and his wife, sociologist and prominent social-democrat politician Alva Myrdal. Called Kris i befolkningsfrågan in Swedish, it has never been translated into English; Larson

1 Smith (1955, 412).

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(2018) gives a detailed introduction of the book to an English-speaking audience. Notably, both the right and the left in American politics are correct in pointing to Sweden as a case study in the debate over socialism. Any such study must begin with the book by the Myrdals, the title of which is appropriately translated The Demographic Crisis. This suggests that the Myrdals used a decline in birth rates in the early twentieth century as a reason—or pretext—to reconfigure the Swedish economy in the image of socialism. It was, however, a reconfiguration that carefully followed the lines of the redistributive definition; at the time when the Myrdals wrote their book, the Soviet empire had already been up and running for a decade and a half, offering a lively example of socialism in practice under the property-rights definition. The Myrdals sought to develop an alternative, suitable for practice within the framework of a parliamentary democracy. In other words, the theme of the Swedish welfare-state project was egalitarianism without totalitarianism. It preserved corporations in private hands, sought to stimulate a maximum of economic growth based on that private ownership and to maximize the taxation of privatesector economic activity. The tax revenue would then be used for large entitlement-spending programs to minimize and ideally eliminate economic differences between private citizens. Sweden was not alone. Throughout the twentieth century, and in particular through the middle of the century, Western democracies developed welfare states that were designed specifically for economic redistribution. They did so while carefully avoiding systematic government takeover of corporations; social-democrat parties led the efforts to build welfare states for the purposes of redistributing income, consumption, and wealth. The quest to alter the economic outcomes of free-market, capitalist economies by means of taxes, and entitlement programs led to systemic social and economic transformation. By steering clear of direct property confiscation and state takeover of corporations, socialists in Western Europe have established a narrative where their ideology is fully compatible with a democratic government. This has given rise to socialism with a democratic prefix, under the moniker of which the ideology has attracted considerable interest in Europe. It has motivated substantial changes to the socio-economic structure of countries across the continent.

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In America, the conversation on socialism has not evolved quite along the same lines as it has in Europe. That is not to say democratic socialism is unknown to Americans in general; it is certainly established in the current political conversation. In fact, unbeknownst to the vast majority of American conservatives and libertarians, democratic socialism has been practiced here for more than half a century. If one accepts the redistributive definition of socialism, it becomes apparent that President Lyndon Johnson imported democratic socialism to America. It can be contended that the ideology came with the entitlement programs that constituted his War on Poverty. Benefits were no longer paid out exclusively on a dignified, last-resort basis, but made available to gainfully employed adults and their families. Their sole qualifying criterion was the relative size of their household income. In short, if socialism can indeed be defined based on economic redistribution, then it is indisputable that socialism set roots in America already in the 1960s. President Johnson actually relied on the ideological architecture of the Swedish welfare statein order to formulate and execute his Great Society vision (Larson 2018). However, President Johnson notwithstanding, the idea of socialism still has not had nearly the same impact on the American political discourse as the property-rights definition has. By defining socialism as government expropriation of privately owned corporations, the right has built a strikingly negative connotation to the very term itself. The American discourse about socialism remains aligned with this rather crude conventional wisdom, based on which prominent conservative politicians vow to not let socialism come to America. Ironically, these often ardent opponents of socialism have failed systematically to stop the ideology from already reshaping large swaths of the American socio-economic landscape. While conservatives predominantly rely on the property-rights definition, rightfully associating it with the Soviet Union, Cuba, and North Korea, liberals, progressives, and socialists operate under the premise that socialism is a matter of economic redistribution. The discord between the two sides of the ideological aisle is well illustrated by how Senators Sanders and Paul both praise Sweden as representative of their respective ideologies in practice. It is tempting to leave the debate here, with an expectation that the two factions sort out their conceptual differences and take their debate to a higher, more constructive stage. However, one does not need much insight into politics to know the feeble nature of hopes for discord to

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be followed by accord. The American conversation about socialism will continue, and it will only intensify as we approach the 2024 presidential election. Likely, not even that election will mark the end of that debate. Given the quality of the present political conversation, it is unlikely that the parties involved will end their dissonance in terms of how to define socialism. Therefore, seeking an answer to the question “What is socialism?” becomes the responsibility of every politically inclined or interested American. To do so, one must first look beyond rhetorical clichés and find the actual, functional meaning of the terms used. Inevitably, this means sorting out why there are two definitions of socialism. This question can be condensed into the question: Why would government want to seize control over the means of production?

Why the Definition Matters The two definitions of socialism, • By the status of private property, and • By the status of the distribution of income, consumption, and wealth, Are essential to both proponents and opponents of socialism. They all have a history to learn from, one that stretches more than a century back in time, including both experience with the practicing of socialism and a rich body of literature detailing the ideology, including its meaning and implications for future attempts to put it to work. Contemporary conversations often underestimate the significance of the theoretical history of the ideology. This is understandable yet not excusable: lack of theoretical understanding leaves the practitioner of any ideology, but socialism in particular, with a set of tools that do not make sense in the context of each other. Inadequate insight into ideological theory leaves the socialist with an ad hoc approach to social and economic reform; political and policy work based on such premises will never succeed unless by chance. Likewise, unless opponents of socialism learn its theory, they too will stand a only random chance to succeed. This is true in particular so long as they remain trapped by their affinity for the property-based definition of socialism.

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Their preference for this definition is enigmatic, but ostensibly the work of intellectual indolence. That being said, it does have a prominent presence in the academic literature. One of the earliest, most informed debates on how to define socialism was published in The American Economic Review in 1911 (vol. 2, pp. 347–367). On the balance, the contributors leaned toward the property-based definition, condensed by one of the contributors into “the social, collective, common, ownership and management of the great material instruments of production” (ibid., 257–8). This definition has maintained its majority in the literature. For the most part, it is concisely applied (Schneirov 2003) but not all contributions come with entirely stringent analytical sideboards (Feher 1989). The alternative, redistributive definition of socialism was not unknown at the beginning of the last century. Another contribution to the informative 1911 debate over the definition of socialism reported results from a survey of college professors, primarily of the economics profession. John Martin (1911) identifies four postulates that define socialism. The third one is noteworthy: 1. Public ownership of nearly all the means of production. 2. Operation of these means of production by public officials. 3. Distribution of the income according to rules determined by the community. 4. Private ownership of the income so distributed. The redistributive postulate was not dominant in the survey feedback; the answers all came with versions of the first and second postulates. Curiously, while the academic contributions appeared to downplay the postulate about economic redistribution, this feature of socialism was highlighted by the National Executive Committee of the Socialist Party of America of that time. Martin conveys their definition (1911, 350): Socialism is the modern movement of the working class to abolish the private ownership in the social means of production and distribution, and to substitute for it a system of industry, collectively owned and democratically managed for the benefit of the whole people.

The key term here is “distribution,” in particular when it is used in direct connection with public ownership of the means of production. Herein

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lies the clue to why the property-rights definition exists in the first place; the link between ownership of the means of production and the distribution of income reveals the reason why socialist ideology may prescribe government ownership. The connection between corporate ownership and economic (re-)distribution gives socialism a practical policy side: government ownership is one—and not the only—method for reaching the socialist end goal. That end goal is the elimination of economic differences between individual citizens. A debate over government takeover of corporations also opens for a crucial distinction between socialism and communism. This distinction is not to be taken lightly, but is in fact essential to any informed debate over socialism. Proponents of the property-based definition forfeit the means to distinguish between socialism and communism; by not delineating between the two, opponents of socialism inadvertently brand as communists such prominent socialist advocates as Senator Sanders. Even if by implication, they thereby raise obstacles to a civil discourse, but they are also analytically incorrect. As a venue to higher rhetorical ground and theoretical stringency, consider the distinction between socialism and communism embedded in a contribution from 1912. It has stood the test of time as an attempt to separate communism from socialism in pursuit of a productive discourse. Allen approaches the two ideological labels by splitting the definition of socialism into two parts. Communism, he explains (1912, 40), teaches the complete merging of the individual in the society to which he belongs. There is no private ownership whatever. The implements and the results of work are owned in common and distribution is on a basis of perfect and unvarying equality.

The second part of Allen’s definition points out that communism (ibid.), prescribes the paternity and intervention of the State; public organization of the labor of all on the basis of collective ownership of all the working materials of social labor: viz., land, factories, machines, tools, etc., and distribution of the collective output of all kinds of manufacture in proportion to the value and amount of the work done by each worker.

Allen’s definition presents communism as the theoretical goal of socialism, leaving the journey toward that goal to what he characterizes

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as the collectivist method or adaptation of socialism. The ideology itself, then, is both the theory of property confiscation—communism—and the practice of gradual expansion of the state—collectivism—for the purposes of reaching the theoretical end goal. Allen does not provide a solution to the central problem of the modern-day conversation about socialism. He presents communism as the end goal of socialism, symbiotically keeping the two terms together. However, there is also an offering of a functional separation of the two. Such a separation would achieve many goals, one of which is to allow for a dispassionate examination of socialism as an ideology and a political practice. Communism, namely, has for a long time had strong negative connotations. In referencing a survey of popular attitudes to the terms “socialism” and “communism,” White (1966) finds that communism, associated with the Soviet and Chinese systems, is viewed much more unfavorably than socialism, the reactions to which are more ambiguous. White’s survey opens a window for one to understand the appeal of socialism. However, the view toward that appeal can only be appreciated through the lenses of the redistributive definition. The main reason why the survey respondents were more inclined to accept socialism than communism is that they associate socialism with welfare-state entitlement benefits. In short, they de facto define socialism based on economic redistribution, not property confiscation. Although White’s survey, published in Foreign Affairs, is more than half a century old, it is timeless from one important angle: it spotlights the need for opponents of socialism to understand what the two different definitions actually mean. If they maintain that socialism is property confiscation, they end up with Allen’s aforementioned definition of communism as theirs—but applied to socialism. Thereby, they leave the rhetorical field open to socialists to explain their ideology in such terms that it appeals to White’s survey respondents: socialism is all about economic redistribution. It is analytically correct to define socialism as an ideology of economic redistribution. Therefore, opponents of socialism cannot counter by simply using the property-rights definition as a rhetorical counter punch. If they refuse to accept the redistributive definition, they leave it entirely up to the socialists to answer the quintessential question: “What is socialism?” To refuse to entertain the redistributive definition is to deprive

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oneself, and more importantly the political conversation itself of the tools to understand socialism in both theory and practice. To accept the redistributive definition is to redraw the image of socialism as it sits in today’s conventional political wisdom. The next step is to analytically tie the two definitions together. Done correctly it opens a theoretical continuum where everything from the Soviet system to the welfare states in Europe fits under the same ideological label. Doing so can be a daunting experience. Without further examination of socialism, if the answer to the question what socialism is would stop here, opponents to the ideology would be left with only two options regarding the relationship between the Soviet system and the European welfare state. The first is to “diminish the achievements of democratic socialists in the west” (Roberts 2004). By consequence, this compels opponents of socialism to take ideological ownership of the welfare state; the welfare state becomes a conservative project. This is the inevitable consequence of opponents to socialism holding on to their property-based definition; effectively, they paint themselves into a corner where they have to claim that the Western welfare states in fact are not socialist at all. It is in this corner that one can find such critics of socialism as Rand Paul and Dinesh D’Souza. By logical necessity, they have to do exactly what their arguments on Sweden compel them to do: they have to tell Bernie Sanders that he is not a socialist. They even have to suggest that Sanders is wrong in calling himself a socialist. It is hard to exaggerate the feebleness of such a rhetorical expedition. The other option is to develop an analytical relationship between the redistributive and property-rights definitions. This endeavor, which has to make the two definitions work together, starts with the redistributive definition. One of the more elaborate applications is in Lange (1955) who explains that government ownership of corporations in itself does not determine the distribution of goods and services among consumers. It does not even determine “the principles guiding the production of commodities” or the allocation of the workforce across the labor market. In other words, collective ownership of the means of production is a method for socialism, not its end goal. As such, it is sufficient but not necessary for furthering the socialist goal. This goal, in turn, is embedded in the redistributive definition (Smith 1955), namely a society without economic differences between individual citizens. By Marxist terminology, a class-less society. When socialism is defined accordingly,

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state ownership of corporations is reduced to “a means to the end” (Meek 1957). It is here that the redistribution-based definition of socialism steps into its proper analytical role. It becomes the postulate upon which prefixed, democratic socialism and the modern Scandinavian and American welfare states are built. An elaboration of this point must wait until Chapter 2; for a proper understanding of the difference it makes to define socialism along either the property or the redistributive lines of reasoning, it is necessary to first return to the term “communism” and its role as the end goal of socialism.

Communism and Intrinsic Tyranny The seminal question for any exercise in socialism is: “Can socialism and democracy be kept from collapsing into communism and tyranny?” The answer must be a review of communism as an ideology with inextricable ties to the totalitarian form of government. To understand this tie is to understand communism as the end point, but not the synonym, of socialism. This tie, in turn, is best unraveled simultaneously from both ends of the rope: the raw practice of government powers and the theory that motivates it. No writer has captured Soviet governing practices better than Aleksandr Solzhenitsyn. In the chapter “The law becomes a man” of his Gulag Archipelago, Solzhenitsyn explains (2007, 352–354) how criminal justice worked in terms of alleged enemies of the Soviet state. The criminal code made it a crime to express opposition to the Communist government, with that opposition being defined loosely and partly as “propaganda and agitation.” Lenin, the man who led the foundation of the Soviet Union and came to be its most reputable ideologue, wanted these crimes to be punishable by death. Solzhenitsyn quotes a letter from Lenin to Dimitri Kursky, the Soviet attorney general—formally known as the People’s Commissar for Justice—where Lenin says (ibid., 353): In my opinion we ought to extend the use of execution by shooting (allowing the substitution of exile abroad) to all activities of the Mensheviks, SR’s, etc.

The “Mensheviks” and “SR’s” were groups in opposition to the Communist party. The SR abbreviation refers to socialist revolutionaries,

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while the Mensheviks originally was a term for social-democrat reformists. De facto, though, “Menshevik” was often used as a generic label for anyone who disagreed with the Communist party. The idea of a thought crime—opposition to the policies of your government—is reprehensible from the viewpoint of American life and liberty. It is, however, a logical ingredient of communist government and the rigorous, end-point application of socialist theory. As such, it is also well known and integrated into the political conversation over communism. It is less known to the American discourse of the twenty-first century how Lenin and the communist party practiced their theory of government. To part with the independent judiciary was to them a necessary reform to enhance government itself. It was needed alongside the legislative and executive branches, in the service of the communist party. One could dismiss the judicial subordination as expectable usurpation of power under the crude force of totalitarianism. That, however, would be to ignore the ideological theory behind it, and as a result to ignore the connections between socialism and communism. Specifically, the disregard for communism as prescribing a totalitarian government is to overlook how party supersedes the state. Lenin makes clear in his letter to Kursky how the two are ranked. He explains that the process of justice is not an independent venue for arbitration of legal matters. Again, as reported by Solzhenitsyn, Lenin wants to firmly establish that opponents to communism have no home in the Soviet Union (ibid.): The court must not exclude terror. It would be self-deception or deceit to promise this, and in order to provide it with a foundation and to legalize it in a principled way, clearly and without hypocrisy and without embellishment, it is necessary to formulate it as broadly as possible, for only revolutionary righteousness and a revolutionary conscience will provide the conditions for applying it more or less broadly in practice.

Lenin relies on his ideology when he seeks to incorporate the judiciary into communist government practice. According to the ideological theory of communism, society is defined by conflict, and one conflict above all other. By Marxist theory, the defining conflict of all non-communist societies is that between the working class on the one hand and the capitalists and the bourgeoisie on the other. By Leninist theory, in turn, the

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Communist party has the right and the duty to end this conflict by all means necessary. The party is defined as the embodiment, or the avantgarde, of the working class. It is by means of the communist party that the working class can obtain government power. When it does, its government cannot coexist with those who are considered to be the enemies of the working class; hence, there is no place for either the capitalist or his political representation under a communist government. Marxist theory suggests that the class struggle between labor and capital will end only when the capitalist loses his property right over the means of production. This has been taken by some as validation that socialism is an ideology defined by the collectivization of property. From here, the conclusion is drawn that socialism is always totalitarian; that is, it cannot be practiced by any other political method. However, that is a non-sequitur: again, the abolition of private corporate ownership is a means to an end, but not the only means. The general format of that end, namely the elimination of economic differences in general, is purified under communism to be the elimination of income differences between capitalists and labor. So long as the pursuit of economic egalitarianism is held at the general level, it can proceed on reformist, democratic terms. This method, commonly known as democratic socialism, relies on the advancement of society toward the socialist goal within the framework of a democratic government. When this end goal is focused specifically on the capitalist-labor relation, the political method can no longer remain democratic. Parliamentarianism gives way to violent revolution. It was this political method that Lenin and the Soviet Communist Party settled for. A communist revolution has been successful when it has eliminated the capitalist; with that accomplishment on their resume, the Soviet Communist Party could settle in on protecting the class-less society from its enemies. Since the capitalist is defined as the enemy of the working class, and the communist party is the working class, the capitalist is the enemy of the party as well as the state it runs. By necessity, therefore, the revolutionary path to the Marxist end goal means that private property as it is known under free-market capitalism cannot coexist with the Communist state. Ideological pluralism in general is incompatible with communism. The correspondence from Lenin to Kursky is a case in point of what this incompatibility means in practice. Lenin manifests the indisputability of the communist government by calling for the judiciary to be helpful in

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establishing the absolute reign of the party. Those who oppose communism also oppose the achievement of the Marxist end goal. It is necessary for the Communist party to secure its ideological goal by eliminating those who disagree with that goal. Lenin eradicates any nuances: communism and democracy are absolutely incompatible. This is the case not only in terms of the role of the judiciary, but in terms of all branches of government. There cannot be a democratically elected legislature: a democracy would forge a compromise path for the country, an amalgamation of various ideological preferences in parliamentary deliberations and law-making. By contrast, there can be no challenges to or deviations from Communist rule. The repeal of judicial rights for those who disagree with the Communist party becomes logical in this context. If they had legal rights, the law of the land would have to acknowledge the interests of the capitalists or the bourgeoisie, not qua bourgeoisie, but as individual citizens. Any such acknowledgment would necessarily allow fragments of capitalism to coexist with the Communist state. Since Marxist theory characterizes capitalism as built upon conflict, it is not only impossible to unify communism with democracy; it is the very duty of the communist to end democracy itself. That way he cuts off access to power for those who the communist party has listed as enemies of the working class. Lenin wrote the theory of communist government, bringing Marxist conflict theory into government practice. As an example of how zealously Leninism prescribes the practice of conflict theory, it did not even leave the working class untouched. In his foreword to the 1999 Australian edition of Lenin’s Imperialism as the Highest Stage of Capitalism, Doug Lorimer, member of the National Executive of the Democrat Socialist Party of Australia, highlights the level of sophistication with which Leninist government theory prescribes the path to the class-less society. It does not just seek the eradication of the capitalist class, but the leveling of the working class itself. In practice, this means ending income differences not just between capitalists and workers, but between members of the working class itself. This ambition is embedded in Leninist government theory, Lorimer explains, in the form of two “opposing but connected” historical trends of conflict. These trends originate in the stratification of the working class. Workers who earn comparatively high wages, such as those who are skilled in trades, are both a conduit for and an obstacle to the advancement of the communist cause. On the one hand, they tend to organize to protect their

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economic status and advance their interests. In doing so, Lorimer explains (Lenin 1999, 22), workers who make more money thanks to trade skills are also inclined to be more politically active than other workers. They are, Lorimer notes, “drawn toward” the idea of a socialist revolution. On the other hand, their advantageous position makes them susceptible to efforts by capitalists (Lorimer uses the broader term “bourgeoisie”) to keep the workers’ movement fragmented. In their better position, these workers are susceptible to bourgeois manipulation and efforts to “bribe the better-situated workers” into opposing a socialist revolution. The manipulative efforts seek to inject into the layers of skilled workers the notion that they will have the opportunity for “continual improvements” of their lives by supporting the bourgeoisie instead of the communist revolution. A communist government cannot prevail with a working class stratified into a “labor aristocracy” and un-privileged or “unprotected” subsistencelevel workers. Leninist doctrine prescribes a struggle that (ibid., 23). proceeds on two fronts: against the reactionary leaders of the labour aristocracy, against the “labour lieutenants of the capitalist class”, … and to destroy the political influence of the labour aristocrats within the ranks of working-class movement.

As much as this is a call to working-class unity, it is also a statement of conflict. So deep is the conflict dimension of the Leninist theory of government that anyone who is not unequivocally behind the Communist revolutionary effort to forcefully abolish capitalism is explicitly or implicitly, consciously or sub-consciously, against the revolution. Their interests cannot coexist with the Communist state any more than capitalism itself can. A democratic government with free elections could motivate the so-called labor aristocracy to join with the capitalists and put in place a government that aspires to resurrect private property rights as they were under free-market capitalism. Therefore, democracy and communism cannot coexist. It is to eliminate the threat of co-existential competition that Lenin seeks to use all branches of government as instruments in defense of the communist state. In fact, the very essence of government authority is rewritten under communist rule. In the judiciary, cases must be treated not as instances of impartial arbitration, but as opportunities to enforce

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communist ideology. Explains Besançon, with reference to Lenin’s letter to Justice Commissar Kursky (Taylor 2011, 35): The principle of justice, which is the equal and proportional sharing among persons, is repudiated by Lenin because “the other” is not considered by him as a legitimate or respectable party in a legal process but as an adversary whom the revolutionary terrorizes and eliminates at will.

This, Besançon notes, “is an adequate definition of tyranny.” More than that, though, this passage highlights the conflict theorem that is inherent to Communist execution of government powers. The ideological ends justify the means of government. Ideology supersedes the state. By contrast, in a parliamentary democracy, the order of priority is reversed: the means of government justify—and restrict—the ideological ends pursued by politicians and their parties. Only those ideological goals are justifiable, which can fit within a democratic form of government. The state supersedes ideology. It is, of course, essentially a matter of speculation as to what the outcome would have been, had Russia held open, fair, and free elections at the time of the revolution. It is at least possible that it would have formed a democratic government whose policies—to use Marxist-Leninist parlance—would have favored the capitalists, the bourgeoisie, and the so-called labor aristocracy. The election could have produced a reformist social-democrat or even conservative government. As a result, parliament could have preserved or resurrected private property and private ownership of the means of production. This would have been unacceptable to Lenin and to the Communist party.

Unavoidable Economic Demise It is important to keep the ties between totalitarianism and communism confined to that very relationship. Communism, again, is the end point of socialism; many socialists justifiably distance themselves from the totalitarian, Leninist theory of government. In fact, already before the Leninist Russian Revolutionof 1917, leading socialist writers and classical Marxists joylessly anticipated the totalitarian inevitability of communism. They distanced themselves from the dictatorial consequences of a revolution (Czerwinska-Schupp 2017, chapter 5). Besançon (Taylor 2011, 30–35) gives an account of how Rosa Luxemburg and Leo Trotsky already in

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1904, thirteen years before the revolution, raised concerns that “the Bolshevik understanding of power” and “the Leninist formula” were pathways to tyranny. It is important to note, however, that Communists do not see their government practices as tyrannical. This point cannot be given enough spotlight. Communists claim to represent a higher form of democracy than what is embodied in parliamentary governments with free elections. What is cherished as a higher form of governance by conservatives, classical liberals, and social democrats is dismissed by the communists as a conduit for capitalist oppression of the working class. Besançon captures this well (ibid., 38) when he recites Raymond Aron’s five elements of a tyrannical government: • One party has monopoly on government power; • The ideology of the single party is elevated to official state truth; • Coercion and propaganda become integrated means of exercising government power and imposing absolute single-party authority upon the people; • The state usurps control over “most economic and professional activities”; and • Because of the extent of state control over the economy as well as rest of society, “a mistake made in economic or professional activity is simultaneously an ideological fault.” The last element is the key to a proper understanding of Lenin’s theory of government. By the very logic of his theory, the communist party can do no wrong; if it errs, it is not superior to either the state or to competing ideologies; if it is not superior, it cannot be the avant-garde of the working class; its revolution is unjustified. Plainly, Leninist theory prescribes that by seizing power, the communist party has morally validated the methods by which it seized power and by which it governs. It follows that once a Communist government is installed, it neither can nor wants to go back to democratic rule again. Its ideology transcends the state, to the point where government administration itself is ideological. Leninist doctrine prescribes full communist control over government as necessary for the revolution to preserve its accomplishments. At the same time, it also sows the seeds of economic decline. For example, the

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events that took place in Czechoslovakia in 1968—often referred to as the Prague Spring—originated in economic stagnation. That, in turn, resulted from the rigorous practice of Marxist theory, spearheaded by central economic planning. That planning, in turn, was instituted by the Soviet government as part of its ambitions to have total control over all dimensions of society and the economy. As noted in the fifth element of tyrannical government above, total government control is ideologically necessary. Yet it is also the seed that yields the harvest of economic stagnation—to use an American colloquialism, the chickens that come home to roost. Central economic planning, including government micro-management of the economy, must replace private-sector economic activity and, when formal replacement is deemed unnecessary, heavily regulate it and otherwise decisively influence it. According to Leninist government theory, this level of central control is necessary: without it, the communist government risks events that could shed unfavorable light on its cause and its accomplishments. However, it is also necessary from the viewpoint of Marxist economic theory: only government can allocate economic resources under the cardinal Marxist principle of the labor theory of value. The Leninist grip on government becomes a force of cumulative repression. Its theory dictates that the communist government must eliminate all ideological competition. As part of the elimination process, it must also take complete control over the economy. That control, in turn, is the source of long-term economic decline; when the economy stagnates, dissatisfaction grows with the communist government. Since Leninist theory postulates that economic strife under communism is the result of capitalist insurgency, it mandates even harder enforcement of Leninist government methods. The vicious cycle starts again. The effects of this self-propelling decline gradually became visible in the Soviet Union and its satellites in Eastern Europe. Those countries were as notorious for their central planning as they were for supply shortages and rationing. Food production has often been used as an example of these communist economic shortcomings. A hard type of central planning, where government makes or dictates all relevant economic decisions, means that private farmers are replaced with agrarian collectives. According to communist ideology, this organizational form of food production is superior to the alternative that is based on property rights and the pursuit of profits. It is therefore imperative for the communist government that

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food production increases after collectivization; if it does, the communist government can claim its laurels. If, on the other hand, food production declines; if by the same token central planning leads to a decline in the supply of other products, such as medical services, it reflects poorly on that same government. If, plainly, daily life in general is perceived as less comfortable under communism than it was before; if it looks worse than in non-communist countries, then the ideology is perceived as a failure. Since by Leninist government theory the communist party cannot fail, its government must eliminate all institutions that can stand in the way of the full implementation of its ideology. Parliamentary democracy is high on the list of items to abolish, surpassed only by property rights. So long as individuals can claim both resources for economic enrichment and the proceeds of those resources, the property right represents the very socio-economic structure—free-market capitalism—that the Communist ideology is seeking to replace. By simply eliminating it and letting the Communist government seize ownership of the means of production, the party has taken a big step forward, both in theory and in practice, toward remaking the country in the image of its ideology. The property right also represents a venue for future opposition, one that Lorimer points to with his reference to the labor aristocracy. Even though Lenin believed that the upper crust of the working class was more prone to accept communism than their worse-off brethren, he also cautioned that they could be a source of opposition to the communist project, especially if they thought that such opposition would help them preserve their relatively better standard of living. Furthermore, Lenin’s aversion to a well-to-do working class is grounded in the fact that when tradesmen and skilled factory workers can earn a comparatively good paycheck, they set an example for others that personal responsibility, work ethic, and market-set wages and prices form an economic environment that individuals can benefit from. This opens the door for economic differences between individuals which are the function of individual choice. Those differences become attainable and viewed favorably by individuals who believe they can benefit from making the right choices. In other words, when unskilled laborers see the success of others with their background and their circumstances, they are encouraged to pursue those opportunities themselves, i.e., to aspire to become part of the labor aristocracy. In the bargain, they explicitly or implicitly reject communism.

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In other words, one can view the desire of communists to eliminate any status associated with the labor aristocracy as either skilled governance or evidence of ideological rigor. Reasonably, it is both: the former is a derivative of the latter. In short, Communist ideology can only leap from theory to reality if it is protected by a totalitarian government. However, it is an unjustified leap to the conclusion that the same is true for socialism.

Conclusion The two definitions of socialism open two very different paths to the socialist ideological end goal of complete egalitarianism. While the communist, property-rights-based definition places the ideology above democracy, the democratic-socialist, redistributive definition can function under a democratic government. However, the success of the cohabitation between democratic socialism, or the welfare state, and democracy depends on how the economy performs under this version of socialism. It is essential for the choice of socialist political method to understand the economics of the method chosen, and how it affects the ability of the socialist to turn his ideology from theory to practice.

References Allen, M. Socialism. (1912). The Sewanee Review, 20(1), 36–44. Czerwinska-Schupp, E. (2017). Otto Bauer (1991–1938): Thinker and Politician. Brill. D’Souza, D. (2020). United States of Socialism. New York, NY: All Points Books. Feher, F. (1989). Castodiaris and the Re-Definition of Socialism. Revue Européenne Des Sciences Sociales, 27 (86), 393–404. Lange, O. (1955). Marxian Economics and Modern Economic Theory. The Review of Economic Studies, 2(3), 189–201. Larson, S. (2018). The Rise of Big Government: How Egalitarianism Conquered America. Abingdon, Oxon: Routledge. Lenin, V. (1999). Imperialism as the Highest Stage of Capitalism. Resistance. Martin, J. (1911). An Attempt to Define Socialism. The American Economic Review, 1(2), 347–354. Meek, R. (1957). The Definition of Socialism: A Comment. The Economic Journal, 67 (265), 135–139. Myrdal, A., & Myrdal, G. (1934). Kris i befolkningsfrågan. Bonniers. Paul, R. (2019). The Case Against Socialism. New York, NY: Broadside.

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Roberts, A. (2004). The State of Socialism: A Note on Terminology. Slavic Review, 63(2), 349–366. Schneirov, R. (2003). New Perspectives on Socialism II Socialism and Capitalism Reconsidered. The Journal of the Gilded Age and Progressive Era, 2(4), 351– 360. Smith, H. (1955). The Economics of Socialism Reconsidered. The Economic Journal, 65(259), 411–421. Solzhenitsyn, A. (2007). The Gulag Archipelago. Harper. Taylor IV, F (Ed.). (2011). The Great Lie: Classic and Recent Appraisals of Ideology and Totalitarianism. Wilmington, DE: ISI Books. White, R. (1966). “Socialism” and “Capitalism”: An International Misunderstanding. Foreign Affairs, 44(2), 216–228.

Economics of Socialism 1: Prices vs. Labor Value

As noted in the previous chapter, socialism is not synonymous with communism and therefore not with totalitarianism. So far, the dynamic between socialism and various forms of government has been established solely based on socialist theory; since the redistributive definition of socialism is economic in nature, a full understanding of the dynamic between the ideology and forms of government is attainable only by including a detailed analysis of socialist economic theory. Another name for this theory is Marxism. Its core is an analysis of capitalism with the conclusion that capital does not add any value to the production of goods and services. Therefore, the capitalist share of production value is without merit; the purpose of socialism is to eliminate the capitalist share of production value. The question is how the socialist would go about his replacement project and secure a functioning economy based on Marxist theory. If he does not want to resort to communism, the socialist must find a political method that fits within the framework of parliamentary democracy. Technically, the democratic socialist must determine how to bring the so-called marginal efficiency of capital “in the vicinity of zero” (Smith 1957; see also Keynes 1936). The intricacies of macroeconomics notwithstanding, it is worth noting that a macroeconomic effort to eliminate capital income would require such a vast expansion of the means of production—capital—that it was in perennial, abundant excess supply. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. R. Larson, Democracy or Socialism, https://doi.org/10.1007/978-3-030-65643-0_2

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Only then would the price of capital, and its marginal efficiency, become zero. From a policy viewpoint, this is not attainable. When applied under central economic planning, as seen in the Soviet-sphere economies it also results in widespread misallocation of resources. The alternative route is to use the welfare state and fiscal policy to redistribute income, consumption, and wealth; the logic of this alternative is best understood in the context of socialist economic theory.

Marx and Socialism in Practice The economic content of socialism is not always recognized. As a representative example of the less stringent approach, Schneirov (2003) suggests that socialism is “a set of social relations… against capitalism.” This type of intangible definition contributes nil to any effort at understanding how socialism is transformed from theory to policy practice. By contrast, the redistributive definition in tandem with the policy imperative of minimizing the profit share opens for two concrete methods of putting socialism to work: taxation of profits and the termination of private property rights. These two methods are perfectly aligned with, respectively, the reformist and the revolutionary paths to socialism. The reformist path relies on a welfare state as the method to put socialism to work; the revolutionary path is based on the creation of a Leninist government. The choice between reform and revolution depends in good part on how the socialist views history: organically or deterministically. Marx, and even more so Henri de St. Simon, his most prominent predecessor, saw history through deterministic glasses, with human society inevitably evolving toward socialism. If this is true, political intervention to govern history is unadvisable; a Communist revolution is not only unnecessary but may even be counter-productive. It has been suggested—though never firmly established—that Marx so steadfastly believed in the inevitability of socialism that he did not bother with the problem of how socialism be implemented. Regardless of whether or not this is true, Sowell (1963) explains that Marx “studiously avoided” giving prescriptions on “the operation of a socialist economy.” Kolakowski elaborates in his essay The Marxist Roots of Socialism (Taylor 2011); he highlights the “end point” of historical evolution as the state

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where individuals “will directly identify their own lives, abilities, and activities” and there will be no need for “political institutions or traditional national ties.” Kolakowski then explains that from Marx’s viewpoint, the notion of achieving the end state of history misses the key element of socialism. Instead, the essential element in understanding socialism is the isolation of “the social forces” that bring about the end goal of socialism (ibid., 169). The question of whether or not socialism is the inevitable end state of human evolution is not just theoretical. It has direct implications for how socialists go about their political craftsmanship: by means of peaceful, democratic reforms or a violent revolution. The former follows the deterministic interpretation of Marxism; the latter relies on a Leninist government to put Marxism to work. In short, the reformist and revolutionary interpretations are two sides of a sharp dividing line between two strains of socialist political methodology. The reformist suggests that socialism should be left to the evolution of human society. By virtue of their very actions, humans take microscopic steps that eventually will make socialism happen. There is no need for socialists to radically reconfigure society. In practice, though, the reformist socialist sees it as virtuous to nudge socialism forward by means of gradualist growth of the welfare state. The second strain suggests that socialism is a socio-economic structure that not only can but should be engineered into existence by means of political fiat. Perhaps unsurprisingly, this strain implies that it is the duty of every socialist to make socialism happen. This strain ignores the ideological spectrum from democracy through socialism to communism. For non-Leninist socialists, there is a related, but perhaps more pressing conundrum: For how long can their ideology coexist with competing ideologies? The answer is essential to the ability of the socialist to retain his democratic prefix. It is equally essential for the critic of socialism, whose inability to understand socialism is a gift that keeps on giving the socialist the upper hand. To both the socialist and his opponent, the path to an answer runs through the study of Marxist economic theory. Kolakowski is representative of how the conversation about socialism can complete its course without proper attention to Marxist theory. He misunderstands Marxist economics as the “ready-made doctrinal body” that carries socialism to its highest stage where, Kolakowski explains, the

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“class-consciousness of the proletariat” has fully matured. This means that they are ripe for a socialist revolution. Logically, Kolakowski’s argument ends with the conclusion that the practice of Marxist economic theory inescapably leads to communism. If this is a correct account of socialism, then Leninism is the only available political method for putting the ideology to work. This in turn means that socialism can and should be brought about by means of a violent remake of society in the Marxist-Leninist image. However, Kolakowski is wrong: it is not the case that socialism automatically leads to its end station. Although the idea that socialism deterministically collapses into communism is widely shared, it is still incorrect. To understand where Kolakowski’s argument fails, one has to understand the depth of the core of Marxist economic theory. That core, which is known as the labor theory of value, underpins Marx’s entire economic analysis. An economy can only operate based on the labor theory when the proletariat—the workforce—is collectively and fully aware of the proceeds that, according to Marxist economics, await them once the labor-value theory has been put to practice. In other words, Marxism is essential to socialism: by deduction, the more purified the practice of Marxist theory is, the higher a stage of socialism a country will reach. However, this is not akin to the conclusion that Kolakowski draws: putting socialism to work is not an immediate, inevitable route to Leninism. He is correct, however, in that socialism is practiced more properly the more rigorously Marxist economic theory is applied. That is not to say, however, that socialism and democracy can coexist without tensions. The extent to which such cohabitation is possible is determined by how the socialist approaches two deficiencies inherent to Marxist economic theory: the allocative distortions associated with Marx’s labor theory of value and the static nature of its economic analysis. These two obstacles are connected and are best approached sequentially.

Prices vs. Labor-Value Theory The labor theory of value confines Marxist economic theory to purely static economic analysis. It is not only unsuitable for the analysis of the process of economic evolution (Bronfenbrenner 1967; Beach 1975), but by consequence it is also unsuitable as a platform for the prescription

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of any policy beyond strict, static economic redistribution. By traditional economic terminology, Marxist theory cannot explain the transition from one general equilibrium to the next, nor can it explain economic growth. On the contrary, when applied rigorously, Marxist theory leads to the conclusion that there is actually no need for the economy to grow. At the heart of the problem is Marx’s analysis of the means of production. Capital, as it is also called, has no intrinsic value under Marxist theory; the technology used for any form of production is merely the accumulated value of the labor that went into producing it. As a result, capital helps in creating production value that belongs to those who use it and those who built it. The labor theory of value says that the surplus belongs to labor precisely because capital has no inherent value. Herein lies an essential ideological message: the surplus must be redistributed from the capitalist to labor. At the same time, by virtue of its exclusive focus on the distribution of value, Marxist theory confines itself to static economic analysis. The theory can be used for comparative statics, i.e., the analysis of one state of the economy relative another state. However, by virtue of the labor-value theory, it excludes incentives and economic behavior that can drive growth; there is no room for labor productivity to rise, but also no need for that to happen. Due to its static nature, Marxism runs into problems when applied to real-world economies. Foremost among those problems is the hostility toward technological evolution. Beach notes (ibid.) that Marx underestimated the role of technology in his own time, specifically with regard to the mechanization of industrial and agricultural production. According to Marx, technological evolution, such as mechanization, is not associated with increased productivity. Therefore, technological advancement is not an improvement to the economy but a cause of labor displacement: more advanced machinery reduces the demand for labor. Rather than seeing the rise in prosperity that has come with technological evolution, Marx used his hypothesis of labor displacement as leverage against capitalism. He concluded that technological progress creates a “reserve army” of labor, purposely left idle in order to depress wages of those who are still employed. In reality, technological evolution has a stimulating effect on the economy: while the use of technology expands in one sector, statically reducing demand for labor, other sectors benefit from rising demand. The industry undergoing a technology leap can pay more, sell its products for less—or offer better products without raising prices—and thereby add

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purchasing power to the economy. This in turn injects more money into the economy, leading to more spending and more investments in other industries. In Keynesian economic terminology, these are the multiplier and the accelerator effects at work. To this point, the economic history of the Western world over the past two centuries is one of rising productivity, wages, salaries, and quality of life. The standard of living of the average worker in an industrialized country today would be unimaginable to the average worker of the time when Marx wrote Das Kapital. It is true that no economist of his time could have foreseen, even with remote accuracy, the global economic evolution since then, but it is also true that competing economic theories are better suited than Marxism for explaining dynamic processes in the economy. At the heart of the static problem in Marxist economics is, again, the labor theory of value. It excludes market prices from its theory—or, to be exact, it prevents Marx from tying product value to price. Under the labor-value theory, the value of a product is determined by the amount of labor that goes into its manufacture. By contrast, a market price is determined by the interaction between supply and demand. These two theories for establishing economic value are mutually exclusive. A market price emerges from gainful trade on free markets; when consumers believe they are not getting enough value for the price, they shun one product and seek out another. The price drops to reflect the lower consumer value. By the same token, the seller earns less value as sales drop. When on the other hand consumers see more value in their products, the price will be pushed upward, and the seller will earn more as a result. The price is based on the value that the buyer places in the product. Marx had a very different view of market prices. He saw them as appearances and phenomena inaccurately representing “the underlying social reality of value” (Sowell 1963, 298). Others have played down Marx’s critique of prices (Nove 1967) but that is a mistake. The distinction between prices and labor value is essential to Marxist economics, the proponents of which take the critique of market prices quite seriously. It is, in fact, brought to the point where Marxists can accuse the mainstream of economists of engaging in the study of “fetishes,” i.e., supply, demand, and market prices (Leontief 1938; Shove 1944).

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Sowell observes (ibid., 302) that “definitional values and empirical prices” by necessity must be different primarily because of the disequilibrium inherent in an unplanned economic system, and secondarily because of equilibrium differences between prices and values.

This highly technical formulation captures the essence of Marxist economic theory, pointing to its two key postulates and a deduced conclusion regarding economic policy: P 1: P 2:

C:

There is only one factor of production, hence all income—all value—belongs to labor; Capitalism creates the capitalist and thereby a conflict between capital and labor, a conflict that is unnatural to human society; therefore, An economy can only operate naturally under central economic planning.

There is a contradiction built into these postulates: if capitalism artificially—and forcefully—alienates workers from the full proceeds of their labor, then once capitalism is eliminated, logically the workers should be able to spontaneously, organically, and without the use of government force gain the full proceeds of their work. In other words, they should be able to obtain one hundred percent of the value of their own labor without having to be guided to it by the hands of central economic planning. Yet the policy implication is unavoidable: workers cannot see their own value but must be guided to it by government.

The Static Nature of Marxist Theory The origins of the labor theory of value go further back in history than is often recognized, being shared by philosophers and political economists normally thought of as antithetical to Marxism. As a telling example, in his Two Treatises on Government, John Locke (1960) used a labor-value theory according to which property rights are established by the use of labor. His classic example is a man who tills previously unclaimed land, thereby mixing his labor with it. As a result, he gains the property right to that land.

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There are profound differences between how Locke and Marx used the labor-theory concept. However, basic concept is similar: value is created by labor and only by labor. Marx, however, takes his concept further, turning it into a systemic economic theory. Once he has established his particular labor-based value theory, the conflict between labor and capital emerges by deduction. This conflict is a zero-sum game where any increase in the earnings of the capitalist must necessarily reduce labor earnings, and vice versa. Suppose, e.g., that • John’s Factory produces a value of $100 per day; • Production consists of 100 items per day, priced at $1 each1 ; • The owner of the factory earns $20, leaving the workers with $80. According to Marxist theory, • If the owner wants to earn more, say $25, he can only do so by shrinking the labor share to $75. Likewise, workers can earn more if and only if the owner—the capitalist—concedes part of his income. In short, capitalism necessarily creates a conflict between labor and capital. This conflict is inherent to Marxist economic theory (Yagi 1986; see also Sau 1978)2 and possible if and only if the economy is static, in other words if it cannot grow. It is not the case that Marxist theory prevents economic growth from happening. It rules out growth by virtue of its labor-value theory, which includes market prices from the process of allocating economic resources. When the market does not set the price of a product, it also lacks the incentives to product innovation. The market price is the buyer’s incentive to make a preferential choice in consumption; it is also the seller’s incentive to innovate and develop a product that earns him more money.

1 For simplicity, it is assumed that inputs and raw materials have been paid for. Marxist theory of capital has its own creative solution to how to define those items under the “capital” concept; that solution is of no consequence to the present example. 2 It is easy to be led astray from the economic core of Marx’s conflict theory. For an example of a dead-end debate, see Nozick (1974, chapter 8) and Smith (1982).

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Entrepreneurs can be inherently driven by the profit motive, but where there is no market price there is no mechanism for them to channel their motive from preference to profit. Since the entrepreneur cannot change his own circumstances in order to make more money, he has no incentive to become better than his competitors. This, in turn, means he has no incentive to offer buyers a better product for less money. Therefore, the entrepreneur has no incentive to improve the quality and productivity of his workforce or the productive organization of his enterprise. Where incentives to technological advancements are absent, the economy will not grow. Replacing market prices with labor value does not help. On the contrary, its incentives are squarely opposite: the labor theory actively disincentivizes technological innovation and thereby economic growth. Its method for valuing a product excludes the dynamic property that comes with the market price: • The price varies with supply, demand, and product quality; • Labor value prices a product entirely based on the number of work hours going into manufacturing the product (or providing the service). If the quality of the product changes, but the number of hours going into production remains unchanged, the labor value of the product has not changed. In a similar fashion, if the product is the same but the number of hours used in production declines, the value of the product falls accordingly. When prices or exchange values are set based on labor value, in both those cases it pays more to preserve static methods for production than to improve productivity. Since Marxist theory inherently excludes economic growth, it also inherently excludes the organic process that is technological innovation. Capitalism and the free market have proven to be a formidable combination, even superior to alternative economic systems, in terms of inspiring technological innovation. The reason is in the market price: the free market leaves the valuation of products to those who are best equipped to make the valuation: those who provide the product and those who use it. Since the decisions on production, consumption, investment, and innovation are left to the individuals, the process of technological innovation becomes spontaneous and organic.

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It is not random, however. It is driven by clear and identifiable incentives, where he who can do more with less is rewarded in proportion to his ability to offer the public exactly that: more for less. By contrast, under the labor-value theory, doing more with less means doing less, and nothing more. In the context of the example with John’s Factory, suppose a technological innovation leads to an increase in production, from 100 items to 120 items per day. Daily production value increases from $100 to $120. The same hours of labor now produce 20 percent more value and revenue. With the same distribution of income as before, the workers will earn $90 and John will take home $30. Everyone makes more without the conflict that Marxist theory suggests is necessary under capitalism. Consider now the same example under the labor theory of value.3 The initial daily production volume is 100 items and the production value is $100. However, unlike the previous example, there is no capitalist involved: workers—or their representatives in the form of the state— collect the entire $100. As before, a technological innovation arrives in the form of new machinery that helps increase production by 20%. The business puts out 120 items per day. However, since the workers are not putting in more hours, the total value of labor going into these 120 items remains unchanged. Therefore, the remuneration to the workers does not change. There is an alternative Marxist explanation suggesting that the value can indeed be said to increase with increased productivity. It is not entirely clear from Marx’s own attempts at algebraically representing the labor value, whether or not there is a positive relationship between productivity and value, but if one accepts this alternative, the extra $20 worth of production value still does not make a difference to the workers who actually produce the output. That money belongs to the workers who produced the machinery that was used to boost production by 20%. Again, according to the labor theory of value, production capital— machinery and other equipment—is an accumulation of the labor that went into producing it. In short: regardless of whether the business continues to use its old machinery or invests in newer, productivity-enhancing equipment, its 3 For simplicity, suppose the labor-based value of the output is identical to the market value. This is a strictly hypothetical scenario; any identity between market-price value and labor-theory value is entirely coincidental.

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workers make the same amount of money. This means, plainly, that the business itself has no motive to improve productivity. In other words, Marxist theory is neutral toward technological progress and thereby economically static. In fact, Marxist theory generally sees technological progress predominantly as a phenomenon in the early stages of capitalism. As the capitalist system “matures,” says Marxist theory, its technological evolution slows down (Robinson 1973; Berliner 1978).4 Furthermore, as the aforementioned example suggested, the laborvalue concept itself gets in the way of technological progress. This is not just a hypothetical example confined to a simple arithmetic exercise, but has profound practical implications. For example, what is a dishwasher worth compared to a knee-replacement surgery? Under mainstream economic theory, the value would be whatever the free market prices the products at. However, as Sowell explains, Marxist theory considers the market price to be an imperfect, even misguided “symptom” of product value. The real value is instead the amount of labor going into a product. Therefore, an economy organized under Marxist theory cannot allocate resources on the same terms as a free-market economy can. Wages will not be set by market forces; a market-based wage would reward workers for being productive or for dedicating themselves to a profession in high demand. The labor-value theory would allocate resources differently, using a “social value” scale based on the number of work hours going into a product. It is here that central economic planning enters the picture. Keeping the free market out of the economy does not solve the allocation problem itself. The economy still needs workers, tools, trains, hairdressers, dairy products, surgeons, homes, and lawyers to be where they are needed, at the time when they are needed. Since there is no free market to communicate the product values, the economy needs another form of communication that can determine product values as well as the allocation of resources based on those values. The only alternative is a government administration, or a centralplanning agency. In a technical sense, not using the term derogatorily, this agency would decree product values. It would do so based on the amount of labor going into production, similarly to what the example above suggested. Among the tasks of this central-planning agency would

4 Empirically, this may not be entirely accurate.

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be to determine how much labor is to be allocated to the production of all goods and services needed in the economy. That determination includes a long series of decisions on what needs the general public have. Since those needs are not communicated through supply, demand and market prices, the central-planning agency must estimate those needs itself. One of the more curious problems here is that Marxist theory does not have a method for determining consumer value, based on consumer preferences. The basis for Marxist consumer theory is actually in the labor value, but it is expressed as aggregate “social value” (Manish and Counter 2018). It is used in central planning to assign a needs-based value to every consumer product. This value is determined not by consumers, but by a formula directly out of Marxist theory. Plainly, the central-planning agency uses a set of consumer-independent values to determine how much a person needs a certain service or consumer good, and what priority that need has. It is important to note that under a strict application of Marxist economic theory there will be no input from consumers as to the needs they may or may not have. An individual’s own valuation of a service or good is immaterial to the determination of the social value. The formula that assigns value to consumer products is directly derived from the labor theory of value. The labor-value theory remains the basis for determining economic value. While consumer needs also go into the central plan, they do not decide the value of production of goods and services in the economy. Beyond a basic set of so-called productive consumer needs, there is no role to be played for consumption in the planning process to determine the distribution of labor across the various industries or products across households. The theory of social value and labor value has its origin in a theory developed by political economist David Ricardo in the early nineteenth century.

The Iron Law of Wages A significant reason why Marxist theory is static in nature is found in Marx’s use of the iron law of wages. He adapted the original version of the law, outlined in the classic On the Principles of Political Economy and Taxation. In this book, Ricardo begins with a distinction between the market wage and the natural wage. The former is the compensation earned by workers based on supply and demand in the labor market.

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The key variable is the natural wage, which became essential to Marx in his configuration of the iron law. The natural wage is the wage a worker needs to earn for so-called subsistence living. This, in turn, is the low standard of living at which a person can cover his most immediate needs in terms of nutrition, clothing, and shelter. In Marx’s version, the term “natural wage” is replaced with “subsistence wage,” but the analytical meaning did not change. To properly understand Marx’s and Ricardo’s use of the two identical concepts, it is important to first recognize the actual meaning of subsistence living. It is not equal to present-day poverty, nor is it an evolving concept. It is static in an almost biological sense: it is the wage a person needs to earn in order to afford to eat the most basic nutrition to survive the next day’s work; to be sheltered from weather; and to be adequately clothed. None of the needs under subsistence living change over time; the modern concept of poverty has nothing in common with either the Ricardian or the Marxist definition of the subsistence wage. The practical meaning of the subsistence wage is absolute and does not change over time. While the Marxist version of the subsistence wage is identical to its Ricardian twin in all logical and analytical aspects, Marx draws vastly different economic conclusions from it. He uses the iron law of wages very differently from how it is used in Ricardian hands. In its pre-Marx context, the iron law stipulates a dynamic between market and subsistence wages. During an economic expansion when demand for labor is high, the rising market wage builds an expanding gap to the subsistence wage. The standard of living rises and, as a result, workers improve their living conditions: they buy better food, live better, and enjoy a healthier lifestyle. Borrowing a page from Malthus, the Ricardian iron law stipulates that this rise in quality of life leads to a lower rate of child mortality (one has to keep in mind that the iron law was formulated in the early nineteenth century) and therefore causes population growth. In other words, the Ricardian iron law theory is dynamic in nature. Its mechanism for allowing this evolving scenario is the free market, specifically supply, demand, and the market wage for labor. As population grows, so does the supply of labor; the free market allows for a sustained period of rising wages, but it also works in the opposite direction. The economic growth generated by a technological leap eventually caps out; there is no further increase in demand for labor. As a result, the money-wage

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increase gradually levels out. Its trend shifts from rising to stagnation and eventually declines. However, this is only the first part of the dynamic scenario. Thanks to his use of the free market, Ricardo can allow for a broader dynamic scenario to unfold—in other words the Keynesian multiplier and accelerator mechanisms. The initial technologically driven growth episode multiplies throughout the economy. It eventually reaches markets for basic consumer items such as food, shelter, clothes, and means of transportation. As workers make more money, they spend more on these items, thereby incentivizing product development as well as increased production. Modern economic theory would explain how the initial multiplier effect is followed by the investment accelerator, new innovations, yet another rise in labor productivity, etc. Under normal economic conditions, there is no relapse to more primitive economic conditions. As the evolution of the economy continues, growth in purchasing power, production, technology, and labor skills would keep prices from rising, but under the umbrella of economic theory that was available in the early nineteenth century, it was perfectly reasonable to restrict the analysis as Ricardo did. His conclusion about the rise and fall of the market wage relied axiomatically on the supply of some resources, especially for food and shelter being constant. Since there is a fixed amount of land, Ricardo surmised that the rise in demand for basic consumer items would fairly quickly lead to inflation. When this rise in prices is coupled with the decline in the money wage, the result is a decisive decline in the real wage. From the viewpoint of traditional economic theory, this is in no way controversial. The Marxist line of interpretation of the iron law changes that. However, in order to see how, it is important to first see the core of the iron law for what it is, and what it is not. Specifically, in Ricardo’s original version, it is not what Marxist theory morphed it into, namely a moral statement on the futility of working-class efforts to strive for a better life under capitalism. Ricardo never included any such element in the law. He designed it as an exercise in basic economic analysis in the context of political economy as it stood at that time. It is not until the iron law is reconfigured into a component in Marxist theory that it acquires an ideological dimension. Marx assigns to it the aforementioned morally charged

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futility of working-class life: no matter how they strive under capitalism, their standard of living will never improve. To reinforce this sense of hopelessness, Marx adds an element of deliberate wage suppression: capitalists purposely hold back worker earnings at the subsistence wage, or Ricardian “natural wage.” However, in order to confine workers and capitalists to the two-dimensional space of hopelessness and wage suppression, Marx must first remove Ricardo’s dynamic pathway out of the subsistence wage. Since the core of that pathway is the free market and its prices, Marx replaces the market price with the labor theory of value. This value is static by definition, freezing labor remuneration and excluding technological advancement. By means of the labor-value theory, Marx shuts the door on the mechanisms that set Ricardo’s market wage in motion. Once this is done; once Marx has robbed the economy of its ability to grow, he can turn the subsistence wage into an ideological tool. Capitalists, he says, keep wages at the subsistence level because they can. Since this is the lowest possible standard at which workers can stay just well enough to come back to work the next day, it is also the level where Marxist theory says capitalists maximize profits. Having removed the dynamic dimension from his economic theory, and thereby de facto removed time, Marx places the proletariat at the mercy of capitalist greed. Based on his theoretical surgery, he concludes that capitalism is a system of oppression. His conclusion is nullified by market prices, which in turn allow for technological progress. By excluding the free market, Marx repurposes the iron law of wages from its Ricardian origin and a crude but dynamic economic analysis, to an instrument for static analysis of income distribution between labor and capital. In fairness, Marx does not completely exclude market prices from his theory. He considers them, but only in an ancillary fashion: when wages rise due to rising demand, the capitalist will deliberately try to create unemployment to maintain an excess supply of labor. Thereby, wages are depressed and always kept at their subsistence level. By the same token, Marxist economic theory offers one and only way to elevate workers from subsistence living: by the elimination of capitalism as an economic system. This means the abolition of capitalism and the free market.

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Labor Value and Central Planning By making his theory entirely static, Marx creates an important logical problem for himself. Since he mistrusts market prices, characterizing them as misguided “symptoms” of value, he also has to explain why in a freemarket economy people spontaneously use market prices instead of labor value. There is an ontological dimension to this question: How can individuals and businesses make decisions that allocate economic resources without knowing the true value of those resources? Marxist theory does not offer an adequate answer to this question; the gist of its argument is that buyers and sellers on free markets mistakenly use prices to transmit signals on supply and demand. As a result, Marxism becomes a conduit for state control of the economy. Whether by happenstance or intent, Marxist theory concludes that only the state can identify actual economic value. The state has to be the brain of the economy, using central planning as its nervous system. Therefore, under socialism, the state is the originator of all economic activity. There is a vigorous debate in the literature on Marxist economic theory on what role is actually assigned to the state; see Barrow (2000) for an informative review. When applied with orthodoxy, Marxism necessitates central planning of the whole economy; in a somewhat replaced format, the planning efforts can be restricted to the domains of the welfare state. Either way, though, economic planning by government implements laborvalue theory as the method for allocating economic resources throughout the economy. There is a tendency in the literature to water down the concept of central planning, ostensibly to downplay its consequences for the economy. The prevailing approach is to blur the line between staterun central economic planning and private-industry planning (Galbraith 1973; Lau 2016; Godard 2018). This line of reasoning says that all economic activity is planned in some form or another; since the private sector plans its activity, it is more similar to state central planning than it is different from it. This is a false notion: private businesses and households plan their activities based on free-market terms. If their plans fail, they are the ones who pay the price. State central planning is based on coercion and is void of accountability mechanisms for its failure. The outcomes are fundamentally different in the two respective forms of planning.

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Central economic planning fills three functions under Marxist theory. The first two are well known by now: • It replaces the market-price system, theoretically allowing the economy to function based on the Marxian theory of labor value; and • It eliminates what Marxist theory defines as “labor alienation” (Roberts and Stephenson 1968), a term that simply refers to the workers being paid less than what Marxist theory defines as its full share. The third function of central planning is more pointedly ideological: • It provides a deliberate path away from what Marxism calls the ailments of capitalism. This is an essential ingredient in the Marxist criticism of free-market capitalism, which is said to suffer from systemic weaknesses. Central economic planning is meant to cure these weaknesses. Contemporary Marxist literature rarely articulates precisely what weaknesses the theory identifies in capitalism. This deprives the modern readership of a key tool for understanding why Marxist theory prescribes central planning. However, in an older but essential contribution, Lange accounts for them (1936, 190): • Capitalism will constantly increase the scale of production; as this happens, small businesses and competition will fade away; • Government intervention into, even planning of, the economy will curb and eventually replace the free market; • Global expansion of “the capitalist method of production”; and • Increased instability in capitalist economies. It stands to reason that if capitalism had been associated with these ailments, the centrally planned economies of the Soviet sphere would have handily outperformed the free-market economies in the West. That was not the case: by the time the Berlin Wall came down in late 1989 and the socialist countries began their transition to become free-market-based

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economies, their standard of living was considerably behind their Western competitors. That is not to say central planning left Eastern Europe untouched. It made a noticeable difference, and for some time looked like it was even nudging them ahead of the West. Economic growth under central planning was particularly pronounced in the first 10–15 years after World War II, reaching impressive levels as the central-planning agencies of the respective countries directed major economic resources toward industrialization. However, this very same industrialization effort also illustrated a flaw inherent in any application of Marxist economic theory. As respectable as the economic growth was, it also became the conveyor belt for the very demise of Marxist economic practice, at least as far as Eastern Europe was concerned. The economic decisions that led to the growth spurt were not based on the needs and wants of households and families. Since central planning is based on Marxist theory and since Marxist theory is based on the labor theory of value, the decisions that the central planner makes are based on the maximization of labor input into the economy. Therefore, labor-value-based economic planning never leads to any derived increase in economic activity. Eastern Europe had this very experience. The economic activity that resulted from its centrally planned expansion after World War II generated only a temporary rise in economic activity. It was, in a sense, a growth bubble. It was also an inefficient growth episode, driven as it was not by the desire to do more with less—in other words technological innovation—but by a metric that had nothing to do with meeting consumer needs. Instead, it was simply a “massive mobilization” of resources for production, but with wasteful use and priority on “investment rather than personal consumption” (Bideleux and Jeffries 1998, 529). As Bideleux and Jeffries observe, this industrial policy had only an inferential effect on the standard of living in Eastern Europe. They point specifically to the lack of match between how the planned resources were used and what consumers actually needed (ibid., 530). However, from the perspective of the central planner, the absence of evolution in the standard of living was of no consequence: the value of resource utilization in a socialist economy is not related to the needs of the end user, but to the use of labor. It was, in fact, inevitable that the growth episode be focused on labor-intensive manufacturing; economic growth simply could not have

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happened any other way. Since economic value in Marxian theory is determined by the input of labor—and only by the input of labor—the quickest way to generate value is to concentrate economic inputs to laborintensive industries. With the technology of the mid-twentieth century, it was obvious to the central planners that they should promote so-called heavy industries producing mostly industrial inputs. It was of little relevance to the central planners whether or not there was any demand for the output; they determined demand under their plans based on preferences embedded in their central-planning models. The difference between the free-market economy and its centrally planned competitor is critical to the understanding of how socialism transitions from theory to practice. All other things equal, the free-market economy prices goods and services based on the value they have to the consumer. Where needs are high, prices will rise; where prices rise, resources migrate. Competition benefits he who does more with less; the use of economic resources always tends toward the highest possible efficiency. That is not to say the resource utilization is at all times efficient, either in individual businesses or in the free-market economy as a whole. All it means is that the incentive structure promotes more efficient business activities over less efficient.5 In the centrally planned economy, there are no incentives to do more with less. Economic decision makers—be they in businesses or households—have no reasons to maximize output at a given level of input. Since labor value—de facto labor hours—is the measurement of the use of resources, socialism inevitably dictates a linear more-with-more approach to growing the economy. This leads to larger-scale production facilities and to concentration of economic control and power. In other words, central planning causes the very concentration and centralization problems that Lange lists as ailments of capitalism. By incentivizing or dictating the organization of economic activity based on the postulate that more is more, Marxist theory institutionalizes wasteful industrial production. However, its propensity to inefficiency is not thusly limited: its influence on the economy is reinforced by an often-overlooked component of the labor-value theory that originates 5 It deserves to be noted in this context that efficiency is only partly about the use of energy and natural resources. It is also a matter of using labor, input products, finances, and land and real estate in the least wasteful, most productive way possible.

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in the Ricardian iron law of wages. By means of its reliance on this law, Marxist economic theory limits the economic resources that can go toward consumer demand. The limit originates in the distinction that Marxist theory makes between productive and unproductive consumption. The former is that which labor engages in; the latter is done by capitalists. This is part of the distinction, but not all of it. Consumption is not productive simply because it is done by the proletariat. Only that consumption counts which regenerates the workforce. Productive consumption in Marxist theory is theoretically identical to Ricardo’s concept of subsistence consumption. Central planners will allocate no more labor and means of production to consumer goods and services than what it determines households are in need of. Those needs, again, are restricted to what workers need in order to reproduce their labor force. Thus, when strictly applied, this feature of Marxist theory secures the perfectly even distribution of income, consumption, and wealth. The socialist end goal has been reached. In reality, the socialist countries in the Soviet sphere central-planned their economies based on a moderately higher consumption level. The reason was practical: information seeped through from the West of how much higher their standard of living was. Nevertheless, dedicated application of Marxist theory only permits consumption that the workforce needs to reproduce itself. To reinforce the point about egalitarian economic redistribution, in contrast to productive consumption, all consumption by capitalists is unproductive. By Marxist definition, capital adds no inherent value to the economy (only derived value, i.e., that which is accumulated in it from past labor input). In other words, the distinction between productive and unproductive consumption has an axiomatic origin: it lacks empirical reference but is deduced from the labor theory of value. As such, it is helpful in any effort to understand why the Soviet sphere failed to ever catch up with the capitalist West. A static economic theory informs static economic policy; static policy, in turn, freezes the economy in the state when the static-theory policies were first introduced. Once the economy is frozen, its agency for central planning operated under a bias against new technology. The socialist central-planning model governs resources toward their most cumulatively labor-intensive use. Stagnation is reinforced.

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As an example, consider a locomotive manufacturer. The value of a locomotive is the accumulated labor value of every piece of raw material, every component, and every moment of assembly. Suppose it takes 1,000 labor hours to build a locomotive. Half of that time goes into producing all the inputs, including the machinery used in the manufacturing process. The other half of that labor time is used for the assembly of the locomotive. Suppose new machinery becomes available that makes the assembly process easier and more efficient. It would still take as much time to produce all the inputs but putting all the components together would only require 250 hours. This means a 25% reduction of the hours of labor that are required to build a locomotive. A manufacturer under a free-market capitalist system would see this as an improvement worth investing in. The gains in productivity would be used toward a price cut or an increase in production. This investment decision is made based on: a. An expected increase in production value; and b. The measurement of that value by means of market prices. Under the labor theory of value, the introduction of new, productivityboosting technology actually lowers the value of each locomotive. It falls from 1,000 units of labor value to 750 units. This is not an expected loss upon the point of sale; according to Marxist theory, it is an actual loss of value due to the changes made to the assembly process. For this reason, a Marxist economic planner will determine that it is economically counter-productive to introduce the new technology. There is only one possible exception, namely if in the present example the locomotive manufacturer could use the new technology to increase its output by more than 33%. A 33% increase would just maintain status quo in terms of labor value: the volume of locomotives would have increased just enough to make up for the decline in per-unit value. In other words, the very same technological innovation that • Under market prices incentivizes the business to improve its production methods; • Requires a 33% increase in production under the theory of labor value just to break even.

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In a socialist economy, the central planners will evaluate the technology and ask: “Does the economy need 33 percent more of this product?” The same question would be asked regardless of which product was being produced. Since the central planner defines needs under the labor-value theory, the answer will depend entirely on whether or not there are unsatisfied productive needs in the economy, and to what extent the satisfaction of those needs would be helped by the production increase under consideration.

Central Planning and Human Nature Central economic planning predestines the economy for stagnation. In doing so, it gradually erodes the very foundation upon which its plans are made. However, its inherent flaws extend farther, into the realm of logic itself. Since Marxist theory, by virtue of its static nature, rules out the passage of time, its practice is subject to the implicit axiom that decision makers have perfect foresight when they make economic plans. When time is of no consequence, decisions are always made without the influence of risk and uncertainty. When, on the other hand, the future is less than perfectly foreseeable, every attempt at planning it will fall victim to the passage of time. A central-planning agency commits resources to future use under deterministic premises; since the planning is based on labor values and not market prices, it is rigid and inadaptable to changing circumstances. The flaw with labor value is well illustrated by a comparison between Marxist and Walrasian economic theory. The latter, named after the French economist Leon Walras, has a key property in common with Marxist theory: it is based on the idea that time is not a factor in economic decisions. Unlike Marxism, Walrasian economics assumes that all economic decisions are made by individuals: at all times, the individual can make perfectly rational choices. If individuals are unencumbered by government, the free-market economy will allocate all resources optimally. To make this work logically, Walrasian theory, just like Marxist theory, is explicitly founded on the premise that there is no time. The Walrasian system excludes government by default, leaving economic decisions to consumers, workers, investors, and entrepreneurs. To make perfect decisions, they are assumed to have perfect foresight into the future. Since

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perfect foresight is logically impossible without assuming away time, Walrasian theory shares the static properties of Marxism. Although the economic theories of Marx and Walras share a common methodological platform, their policy implications are not similar. It is not the case that the policy recommendations derived from both theories are equally invalid. The comparison between the two illustrates the role that market prices play, and how their role differs from the role that the labor value plays in Marxist theory. When economic decisions are assumed to be time-independent, there is no cost associated with making errors. Where there is time, there is imperfect foresight; when the future is unknown or uncertain to a sufficiently large degree, Davidson explains (1978, 16) that those actions which are the least costly to reverse may often become the most preferred as the degree of uncertainty increases. In a world of uncertainty, he who hesitates is saved to make a decision another day.

The decision not to commit resources today can be as rational as the decision to commit them. It comes with no commitment for the future (Keynes 1936, chapter 16) but can still be a better one to make. A person’s decision either way is guided by signals of prices and quantities from the free market. The risks that characterize the future are taken into account in prices and decisions on quantities to supply and demand. Similar considerations about the future are made when the outlook on the future is unpredictable beyond risk. Uncertainty cannot be accounted for in a market: it refers to situations where the decision to not spend money is more rational than to spend money. Free markets are dynamic conveyors of information. They let economic decision overcome uncertainty on their own terms, to manage and reduce its impact on the future outcomes of their decisions. Businesses enter into contracts about future trade in order to minimize risk and to reduce as far as possible the uncertainty of the future. Households enter into contracts for the very same reason; an employment contract minimizes as far as possible the uncertainty of the employee as to his future earnings; the business can plan its productive activity knowing with a high-enough level of confidence that it will have a workforce in place. That, in turn, allows the business to make future commitments to customers.

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Contracts for the purposes of managing risk and uncertainty are exhibits of private-sector planning. However, they are a different species of planning than that which is done by government under Marxism. Private-sector contracts build confidence in the future; in their absence, the future is genuinely uncertain. The only economic activity possible would be that which takes place under spot trade—occasional encounters between individuals who happen to be able to agree on a deal. Contracts serve the purpose of overcoming the confinements to spot trade: they allow for the setting of prices and quantities (goods, services, labor, and capital) to a degree where the commitment of resources becomes worth the while. This private-sector planning originates the future in the sense of placing reference points of confidence in an otherwise unknown economic landscape (Shackle 1992). The parties that enter into a contract not only build confidence that the future is foreseeable, but by virtue of that confidence they also increase current economic activity (Larson 2002). A contract is not only explicit, but also implicit (Okun 1981). A supermarket that alters its prices violently from one day to the next rapidly loses customers to a competitor that keeps its prices generally fixed. When prices change within small, foreseeable margins, the supermarket enters into an implicit contract with its customers. It hopes that customers become regular shoppers in return for a predictable shopping experience. Theoretically, central economic planning is supposed to deliver the same, even a superior level of confidence. However, this is the case only under illogical circumstances, namely that time stands still. Wherever explicit or implicit private contracts exist, they are designed to accommodate changing market and macroeconomic conditions. An employer will have a clause that allows the firing of employees when business activity declines; an employee can leave under certain conditions to pursue a better opportunity. A mortgage loan comes with stipulations on how key variables can be changed, or the debtor be released from the payments (such as the sale of the property). These dynamics are built into contracts based on an amalgamation of historic experience and expectations of the future, the purpose again being to create predictability where otherwise uncertainty would reign. Over time, prices signal changes in market conditions, motivating adaptations in existing and new contracts. Expectations, the basis of both explicit and implicit contracts, are proven to be wrong by varying margins and directions; organically, buyers and sellers in free markets react to expectational disappointments. They re-shape expectations, evolve

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contracts, and make new commitments to future economic activity. With rare exceptions, this free-market interaction keeps the economy growing within the boundaries of the regular peaks and troughs of the business cycle. By contrast, central economic planning based on Marxist economic theory assumes away uncertainty. Since uncertainty exists in real life, the axiomatic exclusion of it from Marxist theory sets up the central planner for failure. At the moment a central plan for the economy is put to work, it has locked in the entire economy into relations of quantities and (labor-based) values that cannot change in response to evolving economic conditions. The central planner only has one instrument by means of which he can escape the impact of uncertainty. That instrument is to make the central plan mandatory. The allocation of resources that goes into the plan is the only pattern of allocation allowed. Workers cannot change workplace; consumers cannot change consumption; enterprises cannot alter their production plans—without it having been accounted for in the central plan. This is indeed a rigid representation of central economic planning, but it is accurate in all its theoretical and practical aspects. That central plans never work exactly as intended is not a merit of planning itself, but a sign that the plan is affrontational to human nature. It is inherent to the human condition to seek betterment, to grow, solve problems, improve, and enhance our own existence. As a result, the unpredictable happens: solutions, innovations, and new challenges emerge over time, upsetting existing economic conditions and inspiring people and capital to relocate, physically and economically. In other words, human nature is conditioned to handle an uncertain future. We exist in historical time, where the future cannot be known with any certainty (only varying degrees of likelihood and probability). We are equipped to take it on within the confinements of our imperfections; if given the conditions of individual and economic liberty, we learn to respond to the change that comes with the passing of time. Human ingenuity and adaptation to social and economic evolution make it increasingly difficult to foresee the economy over time. Central economic planning is based on the notion that the plan, and only the plan, can determine resource allocation. To succeed, the central planner must eliminate the organic evolution that is born from the passage of time; central planning is successful if and only if the planner can outlaw

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time. Since that is not possible, the central planner has to target the symptoms of time. These include all changes to human society that originate in spontaneous individual action, from family size to technological innovation. In tightly planned economies, families are allotted time slots when they can have children; when they have filled their slots, they are banned from having more. The purpose is not primarily to control population per se, but to match the size of the workforce with the needs that the central planner identifies throughout the economy.6 Spontaneous changes in population disrupt central planning, so do technological and entrepreneurial innovations. To eliminate the unpredictability that comes with individual ingenuity, the central planner must take control over these aspects of human behavior. Advancements in technology that would elevate the quality of life under a free-market economy are by default banned until they can be included in a central plan. There, on the other hand, they will appear if and only if government considers there to be a need for them. As a prosaic but telling example of how central planners controlled technological evolution, when the Berlin Wall came down in 1989, the East German auto industry still built the Wartburg 353. It was a staple of the planned socialist economy, with such primitive technology as a twostroke engine requiring a gasoline-oil mix. By contrast, in the western half of Germany, the VW Golf GTI—far from the most advanced car built in Germany at the time—had a modern four-stroke, dual overhead-cam engine with direct fuel injection. Population growth and engineering prowess are two prominent examples of how human nature can upset even the best laid central plans. Even when individuals enter into contracts in order to create a predictable future, the future remains open-ended. The real world does not offer the confinement of perfectly predictable outcomes; explains Alchian (1950, 212):

6 Notably, the demographic aspect has often made its way into central planning as a corollary to strict economic planning. In the 1930s, when the Swedish social democrats laid the foundations for their welfare state, they saw a need to use indicative central planning to grow the population. In, e.g., China and India, central economic planning in various forms has been coupled with demographic control for the opposite purpose, namely to curb or prevent population growth. More recently, central-planning overtures have been coupled with arguments to limit global population for environmental purposes.

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by definition, each action that may be chosen is identified with a distribution of potential outcomes, not with a unique outcome … only one of which will materialize if the action is taken.

The decision on which action to take is, again, made by the individual at a time appropriate for him. Likewise, if he chooses to enter into a contract it is because he wants to elevate one outcome over another. Depending on how circumstances change during the course of the contract, the desired outcome may or may not happen. The central planner aspires to do what the private sector does, but to elevate the desired outcome above the influence of circumstance. In Alchian’s terms, the difference between the privately managed economy and its centrally planned alternative would be the difference between an “outside” and an “inside” economic system. In the former, Alchian explains, “incomplete information and uncertain foresight” are permitted as axioms of economic behavior. In the latter, they are ruled out by decree. Schackle refers to the process of forming expectations under the open, outside system as “the exercise of imaginative conjecture.” Alchian likens it to evolutionary biology: evolution can spur species or subcategories of a species that are successful or unsuccessful in surviving under the conditions of its natural environment. By the same token, some expectations successfully lead a consumer to a satisfied need, or an entrepreneur to profit, while other expectations leave the consumer unsatisfied and the entrepreneur with a loss. In the closed, inside system, information must be complete, or else the state-executed central plan fails. The only method by which the central planner can make this happen is by enforcing his plan. In doing so he also confines the economy in time: no change will happen unless it is beforehand properly included and accounted for in a plan.

Conclusion Economies that are subject to Marxist theory become stagnant. The reason is in their lack of a price mechanism, a mechanism that is excluded by virtue of the definition of economic value that Marxist theory applies. With labor hours as the base for economic value, Marxism provides no incentive for economic growth. Marxism is static in nature, which means that its application to a real-world economy by necessity is static. Where

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applied, Marxist theory has led to economic stagnation, again by virtue of its inherent theoretical construct.

References Alchian, A. (1950). Uncertainty, evolution and economic theory. Journal of Political Economy, 58(3), 211–221. Barrow, C. (2000). The Marx problem in Marxian state theory. Science & Society, 64(1), 87–118. Beach, E. (1975). Marxian analysis. Industrial Relations, 30(4), 772–775. Berliner, J. (1978). Innovation and central economic planning. Il Politico, 43(1), 47–62. Bideleux, R., & Jeffries, I. (1998). A history of Eastern Europe: Crisis and change. London: Routledge. Bronfenbrenner, M. (1967). Marxian influences in “bourgeois” economics. The American Economic Review, 57 (2), 624–635. Davidson, P. (1978). Money and the real world. London: Macmillan. Galbraith, J. (1973). Economics and the public purpose. Boston: Houghton Mifflin. Godard, S. (2018). The Council for Mutual Economic Assistance and the failed coordination of planning in the socialist bloc in the 1960s. In M. Christian et al. (Eds,), Planning in cold war Europe: Competition, cooperation, circulations (1950s–1970s ). Boston, MA: De Gruyter. Keynes, J. M. (1936). The general theory of employment. Interest and Money: Harcourt. Lange, O. (1936). On the economic theory of socialism: Part one. The Review of Economic Studies, 4(1), 53–71. Larson, S. (2002). Uncertainty, macroeconomic stability and the welfare state. Aldershot, UK & Burlington, VT: Ashgate. Lau, L. (2016). “As planning is everything, it is good for something!” A Coasian economic taxonomy of modes of planning. Planning Theory, 15(3), 255–273. Leontief, W. (1938). The significance of Marxian economics for present-day economic theory. The American Economic Review, 28(1), 1–9. Locke, J. (1960). Second treatise on government: Cambridge texts in the history of political thought. Cambridge: Cambridge University Press. Manish, G., & Counter, C. (2018, May 29). Labor and capitalist exploitation: Böhm-Bawerk and the close of Marx’s system. Mises Wire. Nove, A. (1967). Marxist economic theory today. The World Today, 23(12), 493–505. Nozick, R. (1974). Anarchy, state and Utopia. New York: Basic Books. Okun, A. (1981). Prices and quantities. Washington, DC: Brookings. Robinson, J. (1973). Marxian economics today. Social Scientist, 1(8), 43–48.

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Roberts, P., & Stevenson, M. (1968). Alienation and central planning in Marx. Slavic Review, 23(3). Sau, R. (1978). On Marxian economics. Social Scientist, 7 (5), 3–12. Schneirov, R. (2003). New perspectives on socialism II socialism and capitalism reconsidered. The Journal of the Gilded Age and Progressive Era, 2(4), 351– 360. Shackle, G. L. S. (1992). Epistemics and economics. Transaction. Edinburgh: The University Press. Shove, G. (1944). Mrs. Robinson on Marxian economics. The Economic Journal, 54, 213. Smith, H. (1957). The definition of socialism: A rejoinder. The Economic Journal, 67 (265), 139–142. Smith, A. (1982). Robert Nozick’s critique of Marxian economics. Social Theory and Practice, 8(2), 165–188. Sowell, T. (1963). Marxian value reconsidered. Economica, 30(119), 297–308. Taylor IV, F. (Ed.). (2011). The great lie: Classic and recent appraisals of ideology and totalitarianism. Wilmington, DE: ISI Books. Yagi, K. (1986). ‘Ownership in capital’ in Marxian economics. Kyoto University Economic Review, 56(1), 50–63.

Economics of Socialism 2: Planning vs. The Market

A ban on alternative outcomes is not only a ban on the impact from demographic and technological changes. It is also a complete confinement of every individual to the economic, and thereby in large part social, activities and outcomes that government has decided on. This can have some absurd consequences which in good part emanate from the ban on expectational failure.

Capitalist Decline: A False Notion In his General Theory of Employment Interest and Money, Keynes captures the role of expectations in his example of the “decision not to have dinner to-day” (1936, chapter 16). When people decide not to go out to dinner tonight, it is a decision that is not followed by any decision to spend the dinner money elsewhere in the economy. It is simply a “net diminution” of spending, a net withdrawal of purchasing power from the economy. The motive behind Keynes’s dinner decision is uncertainty: consumers lose some of their confidence in the future and decide to build up cash for contingency purposes. The reason for their decision is a change for the worse in their outlook on the future; they have reasons to believe their expectations may fail, hence their rational decision to accommodate by reducing spending.

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When consumers cut back on expenses, entrepreneurs experience similar disappointment in their expectations. A multiplier effect ripples through the economy, causing a recession. Under regular economic circumstances, the recession is temporary and the economy recovers when households and businesses have made the appropriate accommodations to the new situation. Under irregular circumstances, the economy enters a protracted recession and possibly a depression, though those are rare. Under central economic planning, Keynes’s dinner decision is supposedly impossible. The restaurant will not experience a decline in sales. It will be allotted a production quota and the inputs needed to produce those dinners. By the same token, consumers will be given dinner spots when they can eat out, and where. If the central plan does its job, there will be no reasons for consumers to eat dinner according to any other schedule than what the central plan prescribes. The goal for the central planner is to turn that theory into practice, which in its most rigorous form means controlling where people eat dinner, when, and what they have on their plates. In other words, to guarantee the success of central economic planning in the face of uncertainty and human nature, government must resort to a micro-management level of control of the economy that invades even the sphere of mundane, daily decision making. In other words, it is impossible to unite individual freedom at an everyday level with central economic planning; the higher the orthodoxy in the planning effort, the smaller the scope for individual freedom (Hauser 1955). It could be said that this implementation of socialism comes with an upside: no reasons and therefore no risk for unemployment. Indeed, the central planner abhors the prospect of idling labor; it represents a loss of labor value. This is consistent with the observations that Bideleux and Jeffries make regarding the uneven economic expansion in Sovietcontrolled Eastern Europe. When the central planners of a socialist economy decide that they want more economic growth, their policy recommendations will be based on incentives as they are manifested in the labor theory of value. Therefore, central planning is not immune to business cycles, even on its own terms. Furthermore, the supposed protection against uncertainty is coupled with the virtual eradication of individual freedom. The closer the central planner tries to move to expectational certainty, the more freedom the people must sacrifice. By contrast, in the free-market economy, the cyclical episodes of growth periods and recessions subject life to some degree of

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uncertainty. Individuals are able to manage it on the terms of the free market and to mitigate its impact on the outcomes of their economic decisions. They can also adapt to the organic evolution of the free-market capitalist economy. To return to the locomotive manufacturer, a labor-saving innovation leads to labor being freed up, either to increase production or to be hired in more productive positions in other industries. The increased income for workers leads to higher demand for consumer products, both goods and services. Growth inspires innovation and technological advancement, which in turn generate more growth. Over time, the incentives for entrepreneurs and investors to do more with less lead to higher earnings for all, the workforce included. The pursuit of positive profits—a term less rigorous than often misused “profit maximization”—reinforces free-market capitalism as an economic system. In other words, the dynamics of the capitalist economy create opportunities that further dampen the impact of uncertainty. As mentioned, Marx predicted a very different future for capitalism. He did so based on a combination of two features of his theory, the first of which is the postulate of falling profits. This is the only dynamic element in his theory; as wrong as it is, it has inspired many a doomsday forecast about the demise of capitalism. According to Marx, capitalism would inevitably enter into a destructive spiral where more and more capital is accumulated and business profits decline. The technical reason is in the term “constant capital,” a form of business assets that Marx deemed unproductive (Dickinson 1957). Again, this is the labor-value theory at work: the only capital that can add value is, literally, the capital that is used for the recruitment and employment of more labor. All forms of business assets that do not fall into this category are considered unproductive. If a business expands its capital stock without a proportionate expansion of its workforce, since labor is the sole source of value in Marxist economics, by logical necessity this means a decline in production value. Since new technology requires investment in capital—be it heavy machinery or computer software—putting it to work necessarily diminishes the labor value that the business contributes. Herein lies the origin of Marx’s erroneous prediction of the future of capitalism. Based on his belief that productivity is falling, he concludes that the rate of profit is falling as well. This leads to increasing tensions between labor and capital over the distribution of income (tensions that

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in the eyes of the socialist are politically exploitable). These tensions, in turn, are exacerbated by the Marxist definition of productive consumption. Since only productive or subsistence consumption has any value, consumption cannot increase; since consumption is necessarily constant, an increase in the capital stock under capitalism diminishes profits per unit of capital. Plain and simple, Marx failed to understand the interaction between investment and consumption. While he concisely distinguished between the two (Bronfenbrenner 1967), he was unable to comprehend the dynamic where consumption growth inspires growth in investments. Since consumption was confined to subsistence, it was logically impossible for Marx to allow for any such growth to take place in the capitalist economy. As a result, he reached the false conclusion that under capitalism, capital accumulation—investment for short—will always outpace private consumption (Foster 1982). Eventually, by Marxist theory, this leads to a systemic decline in capitalism. In reality, this very process is intrinsic to the centrally planned Marxist economy. Strict application of the labor theory of value spells doom for a planned socialist economy. Its only path to growth is through labor expansion. Over time, a discrepancy necessarily emerges and expands between consumption, held constant by its limitation to productive needs, and the expansion of the use of labor. That expansion has to produce something, and it has to use capital that favors a high level of labor input; laborintensive production methods, for short. Since new production cannot be for consumer needs, an imbalance emerges between consumption and capital accumulation. Since by central planning mandate only subsistence consumption is permitted, over time productivity declines in the economy. In short, the decline that Marx foresaw in capitalism is inevitable under socialism.1

1 Any attempt to put Marxist theory to work also runs into an egg-or-chicken problem, alluded to by Samuelson (1967, 619). Scarce resources are by necessity priced by the market; to shift away from market prices onto labor-value exchange rates, the centralplanning agency must first overcome the scarcity, or else market prices will supersede the labor value. The only way out is for government to suspend the free market by force.

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The Welfare State: Socialism Without Central Planning? With central economic planning and labor-value theory leading to inferior economic performance compared to free-market capitalism, socialism as an ideology appears to have hit a proverbial dead end, its applicability having been doomed by the failure of central economic planning. However, socialists of the twenty-first century rarely if ever quote central planning as a political method of theirs. They rely on another political method for advancing their goal, namely the welfare state. Central economic planning is the practice of socialism under the property-rights definition: the path to the socialist end goal of complete economic egalitarianism is paved with government corporate takeovers and the elimination of all income differences through the practice of labor-value theory. This socialist method serves the purpose of forcefully removing the capitalist from the economy. However, since that requires a dictatorship to work, democratic socialists have developed a pathway to their ideological end goal under the redistributive definition of socialism. The ambition is to make socialism cohabit with parliamentary democracy. Instead of confiscating private property, this method seeks to end economic differences by hollowing out the practical economic meaning of corporate ownership and higher income in general. In a practical sense, the democratic route to socialism is not free of the ailments of central economic planning. It requires its own form of government intervention into the economy, a less heavy-handed form of economic planning that steers economic resources away from private property. This planning model, a.k.a., indicative planning, is better known as the welfare state. It is the political method of choice for America’s socialists of the twenty-first century, raising the key question whether or not socialism is an attainable goal by means of economic redistribution, or if socialism in all its forms ultimately must operate above and outside any democratic form of government. To the socialist, the dilemma lies in a situation where a democratic election results in a non-socialist majority. Does the democratic socialist at that point accept that his political adversary rolls back his accomplishments?

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The presumption is reasonably affirmative; until the opposite has been proven, it is only reasonable to assume that democratic socialists respect democracy. The problem is not in their intent, where they differ vastly from those who pledge allegiance to the Leninist theory of government. The problem is instead the very goal of socialism itself: the eradication of economic differences between individual citizens. Will the pursuit of this goal compel the democratic socialist to drop his prefix, regardless of his initial democratic intentions? This question has not yet made it to the top of the American political discourse, yet it needs to. Since the democratic socialist has the same end goal as the Leninist socialist—the communist—he is well advised to consider the risk he runs of unintentionally bringing his ideology in direct confrontation with democracy. It is already well known that there is a clear and concise connection from the labor-value theory and central planning to a non-democratic government. So far, the totalitarian end station has unquestionably been reached only under one of the two definitions of socialism, namely the Soviet empire and its brethren in places like Cuba and North Korea. However, Venezuela under the Bolivarian regime founded by Hugo Chavez exemplifies how a continuum can open up from entirely democratic welfare states to unmitigated tyranny. Many a socialist, from Rosa Luxemburg and forward, has rejected the notion that tyranny either is or should be associated with socialism. In response to the dictatorial characteristics of the property-rights-based definition of socialism, a sizable socialist movement has relied on the redistributive definition as the goal post for a long series of policy reforms under the realm of parliamentary democracy. The question whether or not socialism can actually operate under the redistributive definition can be answered only to the extent that the socialist can sever his policy reform efforts from the practice of central economic planning. Specifically, he has to find a way to eliminate all economic differences between individual citizens without relying on the labor theory of value as his vehicle; the socialist must combine his ideology with market prices in order to get to its end station. There is a body of literature that makes this case by means of the comparison between central planning and “planning” in the private sector. The link between the two is said not to be as sharp and contrasting as Marxist theory suggests. Roemer (1980) proposes that Marxist

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economic theory is compatible enough with mainstream economic theory—which uses market prices as its value metric—that it can be understood in terms of general equilibrium. Sherman (1966) takes this proposition in another direction, suggesting that central economic planning can be done by means of Walrasian marginalism and therefore free-market prices. Both these propositions are contradictions in terms: the Walrasian economic theory is premised upon the existence of perfect foresight, where individuals make optimal decisions at every turn. Where that is the case, a central planner cannot under any circumstances improve upon the resource allocation that emerged from Walrasian free-market exchange. Plainly, under perfect foresight, there is no need for central economic planning. A further problem for the effort to make central planning cohabit with market-based prices is the rejection of the labor theory of value. From the viewpoint of logical consistency, this cannot be done without a violation of the core of Marxian economic theory. However, the welfare state offers a possible venue for the technical separation of socialist policy practice from the core of Marxian economic theory. To the socialist, this is a promising endeavor, but it is not without its own formidable challenges. First and foremost, to allow for market prices under the realm of a socialist reform agenda, the socialist must first modify his ideological goal. The modification would be limited to the methods used in order to advance the socialist train to its universally egalitarian end station. In other words, the socialist needs to replace property confiscation and the termination of capitalism with methods of economic redistribution on the basis of a free-market economy. When socialists seek a democratic path to the fulfillment of their ideological goal, they have to tolerate capitalism as well as private property. This is problematic: while leaving capitalism formally intact, for ideological purposes the socialist cannot let it stand untouched. The ideological end goal remains in place: the elimination of differences in income, consumption, and wealth between private citizens. To achieve that goal, the socialist must render capitalism economically meaningless. As noted earlier, the seeds of this democratic strain of socialism emerged in its elements in the early twentieth century as an alternative to the revolutionary, property-rights-based strain. It was present in the academic literature already before World War I, but it did not get its first

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representation in comprehensive policy reform until the 1930s. It was then that Swedish socialists started the work on building a welfare state (Larson 2018). After the social democrats won re-election in 1936, they went to work tirelessly with a plan to reconfigure the Swedish economy. By extension and intention, they also began reconfiguring society as a whole. Over the next 20, years they replaced the private sector with government in health care, child care, elderly care, income security, and housing. They also centralized the education system and effectively eliminated the private sector as provider of poverty relief. With their carefully laid out and executed plan for social and economic transformation, the Swedish social democrats demonstrated that the welfare state is not an ad hoc or unplanned phenomenon. On the contrary, it is a highly sophisticated system of economic activities, designed according to a socialist ideological architecture. It is legislated and funded with a perpetual time horizon in mind, aimed at the complete, eventual materialization of socialism. Bluntly, the purpose of the welfare state is the same as for socialism under the Leninist banner: to minimize and eventually eradicate all economic differences between individual citizens. So far, no welfare state has accomplished this goal; democratic socialists have yielded to democracy when voters have elected a government of a competing ideology. The framework of parliamentary democracy has produced ideological counter-reactions, especially when tax burdens have increased beyond what voters generally perceive as endurable. However, the ideological goal behind the welfare state remains in place, manifested in the gradual expansion of entitlement programs and the slow but long-term increase in taxes and government spending as share of Gross Domestic Product. This is visible in particular in European countries, but it is also laid bare in American politics with the gradual growth of government in health care. As of 2019, two-thirds of the federal government budget was spent on economic redistribution. The Affordable Care Act and Medicaid Expansion stand out as the latest additions. A similar trend is present in income security, where Congress laid out the elements of paid family leave in early 2020.2

2 It is often said that these are minor examples that do not show a consistent ideological trend. However, the very purpose of the welfare state is precisely that: to gradually, by small steps, reconfigure the economy in the image of economic redistribution.

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In other words, the welfare state institutionalizes piecemeal socialist progress. It is also a structure for economic planning, but since it operates within parliamentary democracy, it uses a different metric than Marxist central planning in order to assess the distance between the current state of affairs and the ideological end goal. Where Marxist planning relies on the labor-value theory, roughly but generally accurately using units of labor value created as its yardstick, the welfare state counts its progress in the gradual reduction of economic differences. In order to implement socialism, the welfare state shuns government ownership of the means of production for taxes and government spending on entitlements.3 In doing so, it builds its own place alongside Marxist central planning in the schematic of socialist political methodology. Unfolding in three steps, this methodology compares orthodox Marxist central planning—labeled teleological planning—with planning under the welfare state, a.k.a., indicative planning:

Fig. 1 Planning models

3 Again, socialists who choose the traditional, orthodoxically Marxist method to achieve their ideological goal, do not do so because ending capitalism is their end goal. They see it simply as the most effective policy method to eliminate economic differences between individual citizens.

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Just as teleological central planning was institutionally manifested in the Soviet economic model, indicative central planning has its own distinct application format, primarily in the form of the Scandinavian welfare state. It is important to not unnecessarily clutter the terminology. Some have referred to the indicative-planning model as “associational market socialism” (Hirst 1988; Swilling 1992; Taylor 2011; Baer 2020). Kornai (2000) tries to dissociate the welfare state entirely from the concept of socialism, accepting instead the label “social market economy.” Both terms, verbalizations of the same idea, provide some analytical distinction between the practice of socialism under the welfare state and under teleological planning. At the same time, they add unnecessary complexity: whether the term is “associational market” or “social market,” it gives the impression that socialism and free markets are ideologically compatible. They are not: the welfare state and its indicative-planning model force free-market capitalism into cohabitation with its principled antagonist: socialism. The relationship is not a successful roommate agreement; compared to the teleological planning model, the welfare state is a détente of sorts where the defense of private property and the pursuit of socialism strive for larger shares of the same economic, social, and political space. Economic performance is better under the welfare state than under the teleological planning model, but only over a limited period of time. Larson (2014) reports considerable data showing that the marriage between the free market and socialism is a weight around the ankle of the economy. Gradually, it sinks into a marinade of stagnation, high unemployment—especially among the young—and a stagnant standard of living. This phenomenon, termed industrial poverty, appears to be inevitable under indicative economic planning. It is expectable that the welfare state would delay economic stagnation compared to a teleologically planned economy. Since it retains space for the free market, it also preserves an opportunity for economic growth. The free market, being more efficient at making microeconomic decisions, is also an efficient system for resource allocation. Market prices are good at bringing supply and demand in balance in response to the ebb and flow of economic activity. They channel the profit motive, allowing for entrepreneurship to flourish. The theory behind the welfare state is that government should leave the microeconomic level of the economy alone and concentrate instead

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on achieving its ideological goal by means of fiscal policy at the macroeconomic level. It is here that redistributive socialism is put to work: the fiscal policy thus designed consists of progressive income taxes that reduce the standard of living of higher-income households, and entitlements that elevate the standard of living of lower-income households. In other words, government lets the free market work with all its incentives, organically allocating—distributing—income, consumption, and wealth. After the fact, government uses its redistribution measures go to reallocate—redistribute—the standard of living that the free-market economy has generated. The welfare state makes a substantial difference in this regard. As a prominent example, the effects of the redistribution of income are statistically visible in data on the so-called Gini coefficient: • When the Gini coefficient value is 1, income is concentrated to an absolute maximum; at least in theory, this means that one person makes all the money and nobody else makes a penny; • When the coefficient is 0, everyone makes the exact same amount of money. In other words, the lower the coefficient number, the closer the country is to eliminating income differences by means of the welfare state. In Europe, the welfare state makes major alterations to income distribution. Eurostat, the statistics agency of the European Union, tracks the Gini coefficient for the EU member states, reporting numbers both for the distribution and for the re-distribution of income. In other words, the data visualize the redistributive impact of the welfare state. Table 1 reports these numbers for the EU as a whole (after Brexit), for the eurozone which consists of 19 EU member states, and for all these countries individually. The table also adds a small set of non-EU countries for reference.4 In the “before” column are Gini numbers for the distribution of income; in the “after” column are the same numbers with the re-distribution of income taken into account:

4 Comparable numbers for the United States with the same statistical meaning are not available.

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Table 1 Economic redistribution and the welfare state; Gini coefficient data for 2014

Economic redistribution

EU-27 Euro-19 Belgium Bulgaria Czechia Denmark Germany Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden UK Norway Switzerland N. Macedonia Serbia Source Eurostat

Before

After

Pct drop

0.507 0.51 0.469 0.548 0.424 0.49 0.564 0.441 0.476 0.57 0.487 0.509 0.498 0.485 0.476 0.481 0.511 0.519 0.491 0.44 0.466 0.463 0.463 0.565 0.546 0.425 0.372 0.488 0.571 0.546 0.51 0.524 0.47 0.57

0.304 0.306 0.256 0.396 0.24 0.278 0.311 0.306 0.289 0.323 0.332 0.285 0.297 0.334 0.291 0.356 0.369 0.332 0.287 0.287 0.274 0.268 0.278 0.321 0.351 0.234 0.209 0.259 0.27 0.342 0.248 0.297 0.319 0.356

−40.0% −40.0% −45.4% −27.7% −43.4% −43.3% −44.9% −30.6% −39.3% −43.3% −31.8% −44.0% −40.4% −31.1% −38.9% −26.0% −27.8% −36.0% −41.5% −34.8% −41.2% −42.1% −40.0% −43.2% −35.7% −44.9% −43.8% −46.9% −52.7% −37.4% −51.4% −43.3% −32.1% −37.5%

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The welfare state substantially alters the distribution of income in the economy. In eighteen of the 32 countries, this indicative-planning structure eliminated more than 40% of all income differences. In Sweden, the welfare state reduced income differences by more than half. Despite its well-documented ideological success, the welfare state is often overlooked as an instrument toward implementing socialism. In this regard, the public discourse can be almost humorous: on the one hand, proponents of socialism—Senator Bernie Sanders being one of them—will point to the welfare state as a means toward “economic justice,” virtually a synonym for socialism; on the other hand, opponents of socialism rarely pick up on the ideological charge embedded in economic redistribution by means of the welfare state. From a political viewpoint, there is only limited controversy over government providing for consumer needs. Staples of the welfare state enjoy high support even in the circles of American conservatism: entitlement programs such as (but not limited to) Medicare, Medicaid, Social Security, and the Earned Income Tax Credit enjoy solid support across political and ideological aisles. Conservatives tolerate the Affordable Care Act, even accept it as a matter of fact. They are even warming up to new entitlement programs, such as comprehensive tax-paid childcare and universal paid family leave. It is practically impossible to find an explicit ideological critic of the welfare state in the current American conservative movement. As a telling example, at the think tanks that fly under a conservative or libertarian banner, the welfare state is almost universally marginalized. Only about ten percent of their staff resources are dedicated to research and education with any bearing on the welfare state.5 There is no doubt that economic redistribution, and with it indicative socialist economic planning, has set deep roots in American society and its economy. Its success is attributable to a slowly expanding welfare state and its gradually more tense cohabitation with the free market. Yet despite the incompatibility of socialism and capitalism, support for a big, redistributive government has only grown stronger with each passing presidential term. One reason is the absence of teleological planning: with conservatives and libertarians being almost unanimously convinced that the goal 5 To even reach this volume, one has to define their welfare-state work broadly, including published material that is not even aimed at reforming welfare-state spending, only to describe and explain it.

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of socialism is to eliminate private property, socialism enjoys a fair amount of de facto support among the American right. So strong is this support that the American welfare state is not only guaranteed perennial life, but also continued expansion. In addition to a program for paid leave, by means of which Congress will socialize the need for financial security among America’s families, it is only a matter of time before the same legislative body replaces the current private-public mix for financing and delivering health care with a universal, single-payer model. It is noteworthy how socialism under indicative economic planning has made more strides and covered more land with more lasting results than it has done anywhere under teleological planning. The different political method allows those who are otherwise opposed to socialism to see the trees but ignore the forest. As a political method, it also shifts the conversation from ideology to technical, fiscal matters. Once a conservative has accepted the idea that government should provide a good or a service, the rest is a matter of designing the most effective entitlement program for the purpose. The healthcare industry is a compelling example of how an ideology makes a difference when put into practice. A classic example is singlepayer health care, where the well-established argument is that a person’s access to treatment will be based on medical evaluations and needs, not the conditions of the market. A market-based model with private insurance plans and healthcare providers offers models for both insurance and medical services. Insurance plans neutralize income differences between individuals; the need among insurance providers to account for risk is balanced against the need among the public to have access to affordable health plans. Competition among insurance providers and the freedom to innovate insurance products conspire to keep the risk-cost balance in line with the balance between coverage and affordability. A government single-payer model does not risk-pool the population; instead, it is constructed entirely to redistribute healthcare services, with tax funding being determined for that same purpose. Technically, the mechanisms that lead to healthcare rationing are approximately similar to the mechanisms that bring about failure in teleological economic planning. Borrowing a page from the labor-value theory, the government agency operating the single-payer system creates a portfolio of healthcare services the supply of which is then planned and locked in as the only portfolio of medical services allowed. The allocation of healthcare

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resources is based, generally, on two criteria, both of which are imported from teleological central planning. The first criterion is an adaptation of the productive-consumption concept in Marxist economic theory. Technically, it is a standard-deviation profile of the healthcare needs of the population. This profile is then used to determine what health services government should provide, in what proportions and what locations. Unlike a private system, these production and funding decisions are decided centrally in the same fashion as a traditional, teleological planning agency would plan the supply of goods and services for the entire economy. The second criterion is the value to be produced from providing health care. Since labor value is not used—nor are market prices—the singlepayer agency must place a different type of value on each unit of health care produced. That value is based on an assessment of the health services provided and of the patients who receive them. This valuation method serves the same purpose as the labor value in Marxist-based economic planning, namely to guide resource allocation in general and in health care specifically. Herein lies a problem: the government budget is limited to its tax revenue, and the ability of the economy to fund the healthcare system is independent of the health needs of the population. As a result, government needs a tool with which to allocate its limited healthcare resources between patients. That tool must be independent of the patient’s preferences; the ideological goal with the single-payer system is the redistribution of health care among patients. To prioritize, government needs a metric that is independent of the individual patient, in other words a social value. As in Marxist central planning, the single-payer healthcare agency then seeks to maximize that value; the policy decisions in pursuit of maximization are therefore comparable to the decisions made by the central-planning authority as it seeks to maximize labor value. Focus is not on the needs of the population, but an aggregate value where needs are only one component: according to the labor-value theory, the social value pursued by the central planner includes but it is not limited to the productive needs of the workforce. Under a single-payer healthcare system, government determines a list of productive health needs, delisting other needs as less productive or non-productive.

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Health needs that, according to government, will not produce enough social value, i.e., are not deemed productive, will be left uncared for. They are not prioritized by the single-payer system. To distinguish between productive and un-productive health care, the single-payer agency uses a formula for how the medical services create social value. The key component is the excludability in treatment: a hospital bed and a physician’s services can only be on one patient at a time. Therefore, the social value that the single-payer agency seeks to pursue must be calculated based on how one patient responds to treatment compared to another. To determine what patient should be paired up with what treatment method, the healthcare system needs an external variable that allows government to measure who will benefit the most. This external variable must be independent of the patient’s own perception of the treatment; if Jack and Joe both need a knee replacement, and if they are asked to assess the utility they will experience from the procedure on a scale from zero to one, they will likely give the same answer. Therefore, government needs to separate them by independently assigning a utility value to each of them. There is an established concept for these utility assessments, namely the Quality Adjusted Life Years formula (Tilling et al. 2016). Better known under its QALY acronym, it allows for an estimate of how a specific treatment of a specific patient will or will not create social value. If the government agency determines that it produces more social value to give Jack a knee replacement instead of Joe, then regardless of what the two individual patients have to say, Jack will be given priority in the healthcare system. In practice, the QALY method is less rigid than presented here, but the underlying formula and the method for healthcare prioritization are accurately accounted for. The social value maximized under QALY is based on the expected economic contributions from a patient, once he or she has been cured. In harsher but not inaccurate language, the single-payer system would assess whether or not a patient can be expected to pay enough taxes over his or her remaining life years in order to de facto reimburse government for the cost of the treatment. Where employed (Larson 2018, chapter 5), the QALY formula is used vigorously as a planning instrument for the allocation of healthcare resources. Since the healthcare system itself exists in an economy based on market prices, all the resources that the system needs are purchased

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under free-market conditions. This creates growing tensions over time, with a gradually growing gap between what resources the economy could provide the healthcare sector with, and what the sector plans to have use for. The result is an economic hybrid where the dynamics of the free market march in imperfect sync with the rigidities of indicative central planning. It is also a hybrid that is not static, but where the tensions gradually increase between the two value systems: market prices and social values.

An Unsustainable Blend Two errors are common in the ideological debate over socialism and capitalism. The first is to fall for the temptation to contrast the theoretical ideal of one ideology against existing, imperfect examples of its alternative (Stiglitz 1993). That is not the way to approach public policy: to find the best option in, e.g., healthcare reform, one must always compare actual, imperfect single-payer systems with actual, imperfect market-based models. Then, the debate can proceed to discuss how each imperfect alternative can be improved—if at all—to function at its best. This debate method will force proponents on all sides of the ideological conversation out of their rhetorical comfort zones and bring out the best policy reform options. The second error is to overly generalize isolated examples. The aforementioned references to Sweden illustrate how this error influences the current public-policy discourse. To suggest that Sweden is not a socialist country without comprehensive analytical criteria in place is as uninformative as to suggest that Venezuela is a socialist country based on the same anecdotal method. The need for a proper definition of socialism is further illustrated by the almost universally shared opinion that America is not a socialist country because businesses are privately owned. It is the fallacy of conventional wisdom to adopt the property-rights definition of socialism and conclude that so long as free-market capitalism exists as a legal formality, socialism is absent. As per Fig. 1, the goal of socialism is not to end private ownership of the means of production. To do so is a means to the end, namely the eradication of economic differences between individual citizens; the welfare state and its indicative central planning are a conglomerate of tools with

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which the socialist can gradually reconfigure a country to his ideological liking. During the travel from unabridged free-market capitalism to unabridged egalitarianism, an economy goes through various stages where the two systems are forced into an economic blend of mutual exclusion. To some commentators, this blend seems to work. In fact, it is a widely spread idea that the Scandinavian welfare state—the most elaborate version of indicative economic planning to date—is a success story. It is so pervasive, in fact, that it has become part of popular conservative political culture in America. Reputable economist and former Cato Institute senior fellow Dan Mitchell has referred to the Swedish welfare state as “sensible”6 ; in a column for Townhall Finance, he looks carefully for a positive balance between planning and the free market—socialism and capitalism—in Scandinavia, primarily Sweden.7 Other acclaimed conservative and libertarian writers have followed Mitchell’s example. In 2018, Forbes Magazine columnist and University of Georgia economics professor Jeffrey Dorfman purported that the Scandinavian model is “smart enough not to kill the goose that lays the golden egg.”8 Senator Rand Paul (R-KY) made the same argument at length in his book The Case Against Socialism, as did Dinesh D’Souza in United States of Socialism. D’Souza echoed the same point in a New York Post column coinciding with the release of his book.9 A concurring opinion is dispensed in The Socialist Temptation by Iain Murray with the Competitive Enterprise Institute. The idea that Scandinavia in general, and Sweden in particular, has found a successful formula for cohabiting socialism with free-market capitalism is not only carefully isolated from economic facts (Larson 2014) but also exhibits a fundamental misunderstanding of what the welfare state actually is. None of the conservative writers referred to here attempt to explain the welfare state’s existence; in this regard, they are 6 https://danieljmitchell.wordpress.com/2012/06/10/sweden-the-sensible-and-slowlyshrinking-welfare-state/. Accessed 23 June 2020. 7 https://finance.townhall.com/columnists/danieljmitchell/2019/07/16/socialismand-the-welfare-state-in-nordic-nations-n2550121. Accessed 23 June 2020. 8 https://www.forbes.com/sites/jeffreydorfman/2018/07/08/sorry-bernie-bros-butnordic-countries-are-not-socialist/#5459c58974ad. Accessed 23 June 2020. 9 https://nypost.com/2020/06/20/democrats-socialism-looks-more-like-venezuelathan-scandinavia/. Accessed 23 June 2020.

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highly representative of the right-of-center American political discourse in general. The welfare state is a matter of fact, a structure, the emergence of which in the twentieth century is never subject to intellectual inquiry. The heralds of the conservative narrative on Scandinavia turn a blind eye to the evolution of the welfare state, joining the socialist choir in answering the question “When is government big enough?” with echoing silence. A proper foray into the purpose behind the welfare state inevitably leads to the conclusion that it is an ideological socialist instrument. Once this conclusion is reached, conservatives would be compelled to explore the dynamic nature of that same ideological project. However, expectably Dorfman, Paul, D’Souza, and Murray all discuss the welfare state as a static phenomenon that somehow does not change over time. Therefore, they also infer or implicitly acknowledge that the welfare state can peacefully and harmoniously coexist with free-market capitalism. When one ignores the inherent ideological purpose of the welfare state, the inevitable conclusion is that it is compatible with non-socialist ideology. Furthermore, one has to deduce, in isolation from empirical evidence, that socialism is not economically harmful. If some economic redistribution is acceptable, and not socialism, then more economic redistribution must be equally harmless. This is known in the academic literature as the exogenous theory of the welfare state. Its contrast is the endogenous theory, according to which an economy changes as a result of the welfare state.10 Mitchell moves a bit closer to this theory, pointing to eras in the Swedish economy when the welfare state has been larger or smaller, with varying consequences for economic growth. However, his approach is merely focused on the statistical relationship; like Dorfman, Paul, D’Souza, and Murray, Mitchell fails to explain why the welfare state varies in size over time, let alone its institutional expansion. In doing so, he aligns with the conservative mainstream, giving the impression that the ideological project of the welfare state can be balanced against free-market capitalism.11

10 Larson (2018, chapter 6) discusses these theories at length. 11 It is possible that these four writers, again representative of American conservatism

in general, are of the neoconservative opinion that there is a golden mean to be struck between the welfare state and the free-market economy. The neoconservative ideology is discussed in chapter 6 below.

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It is possible that these writers, again representative of the mainstream in American conservatism, are of the neoconservative opinion that there is a golden mean to be struck between the welfare state and the free-market economy. There is, however, no economic theory and no economic evidence to support that any such golden-mean balance even exists. The reason for its notable absence is to be found in the ideological purpose behind the welfare state. Since the goal of socialism is to eventually eliminate economic differences between individual citizens, its political method for achieving this goal is the very opposite of the goal of conservatism. Where the conservative wants to tie reward to effort, the socialist wants to sever that same tie. The method that the socialist uses to this effect is the economically redistributive welfare state. In addition to having a goal that is directly at odds with the conservative goal, the socialist must also keep his political method in constant motion. Under indicative economic planning, this means a gradual expansion of the welfare state, over time adding new entitlement programs and making more people eligible for existing ones. As the size of the welfare state grows, the economic room shrinks for reward to follow effort. It is not overly problematic to identify the egalitarian, socialist goal behind the welfare state (Myrdal 1960; Rawls 1971; Galbraith 1973), but its purpose can also be seen with abundant clarity in how economic redistribution has grown exponentially over time in America. In the bargain, it has transformed the role of government: when President Kennedy took office, national defense accounted for approximately half of the federal budget; when President Trump was inaugurated that share had fallen below 15%. Two-thirds of all spending appropriated by Congress is now used for economic redistribution in one form or another.12 Any attempt at balancing the central-planning ambitions of the welfare state against the forces of free-market capitalism is based on the false premise that the welfare state is a static political project. In reality, its economic function is contradictory to the free market. The microeconomic activities that allocate resources in the economy—income, consumption, labor, capital—are an organic process of economic evolution. Based on market prices and the preferences of buyers and sellers, this organic process matches needs and wants with availabilities. 12 These numbers are based on pre-coronavirus conditions. It remains to be seen how much the welfare state will grow as a result of Congressional spending bills in response to the epidemic.

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However, the free-market economy does more than that. It motivates progress and innovation; it opens incentives for people to grow and expand their lives. It is an open-ended system where every new initiative is given a chance to run its course, and for the initiator to reap whatever the harvests may be. In doing so, the free-market economy is in a state of endless metamorphosis, with a steady stream of new technological, social, cultural, and moral dimensions exercising their due influence on the organic process. In order to function as a conduit for societal evolution, the freemarket economy must be unrestrained by government. The macroeconomic consequences of the microeconomic activities that generate growth cannot be severed from the market-price system that generates it. Yet the welfare state does just that: by means of taxes, regulations, and redistributive spending, it confines the free market and disincentivizes a growing number of private-sector economic activities. As the welfare state grows, entirely in line with its ideological purpose, it slowly but steadily encroaches on the microeconomic system that proponents of indicative planning rely on as a generator of enough growth to fund an expanding welfare state. That growth in redistributive government also weakens free-market incentives by reconfiguring the outcomes of freemarket, capitalist economic activity. By discouraging higher incomes and limiting the benefits of wealth creation, the welfare state synthetically alters the organically generated outcomes of the free market. As a result, the return on individual economic decisions and commitments is reduced. Economic growth suffers, and tax revenue with it. When growth rates decline, more citizens become eligible for the redistributive entitlement programs that tax revenue pays for. This is not a harmonious coexistence; it is the energy of slowly rising tensions between economic planning and the free market.

The Inevitable Conflict The distinction between a planned economy and one driven by freemarket prices is sharp, but proponents of economic planning often blur it. As a case in point, the architect of the Swedish welfare state, economist Gunnar Myrdal, opened his book Beyond the Welfare State by declaring (1960, 1):

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In the Western countries, one of the last informed and intelligent controversies of our time has concerned the question whether we should have a “free” or a “planned” economy. This controversy has always been unrealistic and is becoming even more so. Life in our national communities and our actual practical problems cannot be dealt with adequately and relevantly in these antithetical terms.

Myrdal explains that the word “economy” itself means the planning of certain human activities, specifically to align the means to achieve a defined goal. To talk about a planned economy, he notes, is to talk in terms of a tautology. Myrdal’s broader point is that if individuals plan their economic activities, then every economy is planned. However, this is rhetorical acrobatics, obscuring—perhaps even obfuscating—the difference between individual planning and government planning. Households and private businesses plan their activities to minimize the impact of uncertainty on the outcomes of their economic activities—government plans in order to achieve an ideological goal. Nevertheless, cursorily we could make the point that if planning by private industries and households is beneficial to the economy as a whole, then planning should be beneficial in the same way when done by government. This is not the case, though, for reasons explored in the previous section; it is helpful to briefly revisit the idea of government-run health care. Under a single-payer system, • Individual patients cannot choose when, where, and how to get medical care, but have to abide by the supply decisions that government has made; if certain services are not available as the patient prefers, whether in terms of time, quality, or location, then the patient has no other choice but to abide by government’s decisions; • Medical practitioners can only work on the organizational, geographic, and financial terms that government decides; if a doctor wishes to open his own practice or provide services on innovative terms, he is not allowed to do so unless government approves.

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By contrast, in a free-market healthcare system, • Individual patients can choose what insurance plans to buy, whether to have a separate health-savings account and seek treatment entirely on private terms; • Medical practitioners can open clinics, even hospitals, and consider where, when, how, and what services to provide based on their professional and business concerns; • Patients can deselect providers they do not want to be treated by, for whatever reasons they consider relevant; this is not possible under a single-payer system. In other words, the values pursued are very different: social value in the case of government; individual value in the case of private health care. The difference is significant to the patient and the medical provider: in the government-run system, they are instruments in the maximization of social value; in the private system, they are subjects, retaining jurisdiction over the value pursued. Myrdal and others who share his view that government and individual planning are essentially interchangeable logically—and sometimes explicitly—make the case that government planning will have no negative impact on the economy. Myrdal takes this route. Further beclouding the distinction between planning by government and the private sector, he blatantly attempts to distance Karl Marx from central economic planning (ibid., 2): The idea of economic planning has commonly been related to Marx and Marxism. This is a factual mistake. I do not even believe that the term “economic planning” or “planned economy,” Planwirtschaft, can be found in Marx’s works.

Semantic sophistry aside, this point has been echoing for a long time throughout the public discourse on socialism. Its persistence does not match its veracity: central planning, whether teleological or indicative, is essential to the systematic practice of socialist ideology. A concise application of Marxist economic theory requires that the allocation of economic resources—in other words the decisions on who gets what and on what terms—is based on the labor theory of value. Since Marxist theory suggests that labor value is undiscoverable to the individual, it can

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only be put to work through government action. Since that action has to be systematic in order to be successful, by definition it can only be central economic planning. The labor-value theory is the lifeblood of Marxist economic theory; therefore, Marxism cannot be practiced without central planning. To cement the inaccuracy in Myrdal’s argument, strict adherence to Marxism in economic policy requires teleological planning; it is only when teleological economic planning is considered impractical or undesirable for other reasons (such as its incompatibility with a democratic form of government) that the pursuit of socialism can be downgraded to indicative planning in tolerable but over time increasingly tense cohabitation with market prices. Returning once more to health care, a single-payer system that provides its services based on socio-economic utility calculations will also compensate its employees accordingly. Since it is a monopolist, it does not have to pay market-based salaries for medical professionals; the compensation instead reflects the socio-economic value of the services they provide. The same happens in terms of procurement and therefore the industry that develops medical technology. Suppose, e.g., that government finds that curing an injury from professional sports produces 100 units of socio-economic utility, but that curing a broken hip for a retired person only produces 20 units. Government will then allocate more healthcare resources into sports medicine and less into hip surgery. By consequence, they will want to buy more medical technology that is useful for sports-related injuries. Businesses developing products for hip surgery and replacement will see their sales dwindle. Incentives are now created for the development of new medical technology products for sports medicine. However, that does not mean they will use cutting-edge technology even within the realm of health care that it prioritizes. Government caps its payments for those products at a level where it still pays for government to provide the treatment; if a med-tech product costs too much, the cost of providing treatment will exceed the socio-economic value of providing treatment. Government will deem it not worth the while to use that product and its treatment methods. If a sports-medicine patient is willing to pay more for his health care in order to get access to the latest technology, government will deny him the right to do so. In other words, there is no price mechanism that can trickle down from the patient to the med-tech producer.

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The situation is even worse for the elderly patient with an injured hip. Demoted by government to a less prioritized tier of health care, this patient is not only locked out from the private market but also confined to older technology. The only technological advancements that can make their way into this part of the single-payer system are those that will first and foremost cut the costs of health care to government. Having government as their sole buyer, the medical-technology industry has to attune its own operations to government’s socio-economic utility model. The hunt for cost-saving technology narrows down the kind of talent they look for, as well as the kind of sub-contracting opportunities they provide. In a manner of speaking, contracts between private businesses become conditioned by the central planning-mechanisms further up the industrial food chain. As government expands its domain of planning, more and more industries are directly or indirectly affected by the welfare state. Growing swaths of the economy operate under planned or semi-planned conditions, with government-imposed utility calculations, not market prices, determining the allocation and growth of resources. When taxes are taken into account, the effects of this indicative central planning can eventually dominate the cumulative effects of market-price-based economic activity. Prices set in industries or markets not directly related to the welfare state are nevertheless affected and thus become a distorted source of economic information. The question of coexistence between market prices and indicative central planning (in the form of a welfare state) cannot be answered affirmatively. Central planning and its use of socio-economic utility values as its allocative metric are enforced by the coercive powers of government. The private sector has no choice but to gradually adjust itself to the synthetic incentives and disincentives that government provides. Over time, simply, the private sector becomes subordinate to the welfare state, resigning itself to an ancillary economic existence. As government planning gradually conditions more and more sectors of the economy, it wedges more and more of a distance in between the growth-generating free market and the redistributive welfare state. The economic base from which government obtains its tax revenue gradually drifts into stagnation. Its growth will be more and more concentrated on the sectors that government favors with tax breaks and more lenient regulatory treatment.

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Conclusion Initially, the welfare state is not intrusive on economic activity the way the Leninist alternative is. However, the tension between macroeconomic redistribution and microeconomic resource allocation gradually becomes problematic. Inevitably, budget deficits and the expansion of a proxy model for labor-value practice intrude on the performance of the freemarket capitalist economy. History from the latter part of the twentieth century suggests that the welfare state—the political practice of democratic socialism—gradually comes to face its own problem of economic stagnation. As a result, fiscal problems emerge, making it increasingly difficult for government to fund the welfare state.

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Samuelson, P. (1967). Marxian economics as economics. The American Economic Review, 57 (2), 616–623. Sherman, H. (1966). Marxist economics and Soviet planning. Soviet Studies, 18(2), 169–188. Stiglitz, J. (1993). Post walrasian and post marxian economics. The Journal of Economic Perspectives, 7 (1), 109–114. Swilling, M. (1992). Socialism, democracy and civil society: The case for associational socialism. Theoria: A Journal of Social and Political Theory, 79(May), 75–82. Taylor IV, F. (Ed.) (2011). The great lie: Classic and recent appraisals of ideology and totalitarianism. Wilmington, DE: ISI Books. Tilling, C., Krol, M., Attema, A. E., Tsuchiya, A., Brazier, J., van Exel, J., & Brouwer, W. (2016). Exploring a new method for deriving the monetary value of a QALY. The European Journal of Health Economics, 17 (7), 801–809.

From Strife to Spring

The previous chapter distinguished between two types of socialist economies. The first type uses the policy method of central economic planning and confiscation of private property. It operates on the premises of the Leninist theory of government and relies strictly on the labor theory of value for the purposes of eliminating all economic differences between individual citizens. The second type is based on private ownership of businesses and free markets at the microeconomic level of the economy. At the macroeconomic level, however, the indicative-planning instruments of the welfare state alter the outcomes of gainful, voluntary economic exchange, in pursuit of the same ideological goal of perfect egalitarianism. As palatable as the welfare state is to a democratic government, the long-term compatibility between the two resembles that between two roommates with very different ideas of how to furnish their shared house. While the choice of democracy over Leninism is simple in theory, history has played out a more complex scenario for socialism and its political methodology. In recent decades, its appeal among socialists has been stronger than the appeal of Leninism, but interest in the Leninist alternative has been stronger than may seem rational from the vantage point of twenty-first-century American liberty. There are valuable lessons to be learned from the places in history where Leninism has conquered a nation in the name of socialism. There © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. R. Larson, Democracy or Socialism, https://doi.org/10.1007/978-3-030-65643-0_4

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are also valuable lessons to be learned from how difficult it is to abolish Leninism once it has set roots. The uprising in Czechoslovakia in 1968 against the Soviet-imposed communist government is one of the best examples. Also known as the Prague Spring, it is a tragic yet critical case study of how socialism, operated under the Leninist theory of government, is essentially a one-way street. The leaders of the Prague Spring made an attempt to introduce economic reforms that would have eased the struggle of the Czech people. They sought to allow market-price-based economic activity reforms that would have eased the rigidity of teleological central planning. Their goal was to formalize a limited presence of market-price-based economic activity, not to systemically roll back central planning. They made repeated assurances that the free market was supposed to be an amendment to the teleological planning model. Yet ideological orthodoxy prevailed: the reform efforts came to a tragic ending when Soviet military forces invaded Czechoslovakia in August of 1968. From its aspirational beginnings to its tragic end under the Soviet tanks, the Prague Spring is a valuable lesson on both the theory and the practice of socialism. It shows how deeply entrenched the Leninist strain becomes, but it also provides compelling insight into the depth and intricacies of the ideological debate that is often resilient within the socialist movement. Last but not least, it presents those same socialists with a range of challenges regarding the demarcation line between their ideology and democracy, challenges that are of high relevance to the debate over socialism in our time. There have been other events of similar moral magnitude, such as the revolt in Hungary in 1956 and the Tiananmen Square protests in Beijing, China, in 1989. However, the Prague Spring stands out for its compelling ideological challenge: its leaders actually sought to preserve socialism by saving it from its own debilitating consequences.

History Is Perfect Hindsight After the Russian Revolutionin 1917, communism and its totalitarian form of government remained in power in Russia. The country was reconfigured in 1922 into the broader and imperial power known as the Union of Soviet Socialist Republics, USSR, or simply the Soviet Union. The

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Leninist government in Moscow lasted for more than seven decades, inevitably falling as the Soviet Union dissolved in 1991. Between the end of World War II and the fall of the Berlin Wall in 1989, the Soviet empire included Eastern Europe, from Estonia to Romania. The totalitarian brand of socialism held firm, withstanding popular uprisings in East Germany in 1953, Hungary in 1956, Czechoslovakia in 1968, and Poland in 1981. Yet in doing so the Leninist form of government also gave its critics prominent examples of how Marxism-Leninism—also known as the property-rights-based definition of socialism—had a rather tense relationship to democracy. At the same time, the communist dictatorships were not the only examples of socialism in practice. Governments in Western Europe began putting its democratically prefixed alternative to work already in the 1930s. While kept separate by the Iron Curtain during the Cold War, the two strains of socialism came into contact with one another from time to time, with the Prague Spring intensifying the interaction. The reform movement in Czechoslovakia came to be a pivotal moment for the practice of socialism in the world in general and in Europe in particular. To understand the ideological significance of the Spring, one must first understand the experience of communism under the Soviet Empire. It is more complex than a cursory discussion in the modern political discourse may suggest; its lesson of the deceptive attractiveness of Marxism is strong enough to supersede conventional wisdom on democracy and freedom. Pointedly, democracy itself is not a bulwark against totalitarian forms of government. The proliferation of an ideology with a totalitarian end point is entirely possible under any democratic form of government. This is especially true where the early and even more mature stages of that ideology are democratically prefixed. Such modifications of the ideology, honest and well-intended as they are, make a democratic society more susceptible to the ideology than otherwise would have been the case. Democratic weakness fuels the appeal of totalitarianism; the weaker a country’s experience with democracy, the more fertile a soil it provides for the totalitarian strain of socialism. This is particularly well pronounced where authoritarian governments have been the norm. In countries with an at best brief encounter with democracy, the transition from one totalitarian form of government to another does not appear as dramatic as when the predecessor is elected by the people. The lesson from the history of socialism is valuable at any time, but even more so to the observer in the early twenty-first century. It is easy at

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first glance to frown at how Russians of the revolutionary time so readily accepted that a Leninist regime was imposed upon them. One could interpret this reaction as reassurance that our time is insulated against tyranny; the observer at some distant point in the future easily forgets that the facts that allow perfect hindsight were not available at the time when a fateful decision was made. When the future is shrouded in uncertainty, decisions can only be made based on experience. However, when those experiences are ignored, the classic, fatal mistake is near where history is made to repeat itself. Willful ignorance is the hand that opens Pandora’s Box of unintended consequences. Plainly, today’s hindsight is not yesterday’s foresight. Hindsight removes the constraints of time in making informed decisions; when time is not an issue, every verdict on history is perfect. Therefore, it is never a good idea to evaluate historic events without due respect for their context. Resistance to context, pervasive as it is in our time, is often motivated by the intellectual error that confuses context with consent. To understand the emergence of tyranny is not to approve of it. On the contrary, context is an instrument for reinforcing the firewall of the future against the resurrection of historic errors. Not only does context provide more accuracy to the evaluation of history, but it also informs the contemporary observer’s own future outlook. Every decision made, every action taken, is defined by the range of possibilities and obstacles as they are seen at the moment the decision is made. Specifically, realizing the circumstances under which communism could become successful at the time and place where Lenin worked, students of our time and our politics, our social evolution, and our economic fortunes and misfortunes can be better prepared to prevent history from repeating itself. It is only where arrogance guides the study of history that arrogance will also guide the future. The unstudied conclusion that the peoples of Russia, and later of communist countries in Eastern Europe, should have made a different decision than to support communism paves the way for the equally rash conclusion that tyranny can never win the day in our time.

Russia 1917: From Chaos to Lenin In the years leading up to the revolution, Czarist Russia was struggling with the existential crisis that was World War I (Wasserstein 2007,

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Chapter 3). Soldiers fighting the war made unimaginable sacrifices, with millions dead, wounded, or captured by the enemy. The economy, supposedly geared for wartime, was inadequately organized, and crippled by the lack of maritime trade routes, supply of energy, and access to raw materials. The infrastructure, critically reliant on coal-powered trains, was locked in a Catch 22: the trains could not operate because of the lack of coal, and the lack of coal was due to the coal trains being inoperable. The national leadership, centered around the Czar, was rapidly losing control over the country. As the war dragged on with no end in sight, the Czar himself decided to personally take leadership of the war effort, despite lacking both adequate battleground information and appropriate military experience. This accelerated the erosion of support among rankand-file military personnel for both the Czar and the war effort. It also had escalating repercussions for the performance of civilian government and for Russia as a whole; the Czar’s involvement in the actual conduct of the war distracted him from the simultaneous disintegration of the nation’s economy. Ironically, by trying to be a stronger leader, the Czar demonstrated the ultimate weakness of a form of government that relies entirely, or even predominantly, on one man. The Czar had shown some understanding of the risks with autocratic government: in 1905, he had created a parliament, the Duma, which was formed as a measure to ease the despotic nature of the state. Its function as an expression of popular will was limited, both in representation and in legislative authority, but it soothed somewhat the hardships that always follow in despotic footsteps. However, the parliament never grew to become a force for democracy; the Czar may have had benevolent intentions with the Duma, but his reluctance to vest any actual constitutional powers in it prevented Russia from learning the virtues and pitfalls of government by the consent of the people. Simply put, the Russian monarchy stood weak and vulnerable when the ruler faced more challenges than he could rise to. After the Czar took direct control over the military in 1915 and the nation’s performance in the war deteriorated, his position as the indisputable leader of Russia rapidly deteriorated. An imploding economy, growing strikes (including a famous one at the Putilov metal works in Petrograd, now St. Petersburg), riots against food shortages, and gradually spreading mutiny among the military, all coalesced into an ungovernable state of anarchy.

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In March 1917, the Czar abdicated, handing the crown over to his uncle. By refusing the throne, his uncle de facto ended the monarchy. Subsequent to the end of the monarchy, politically moderate forces in the Duma tried to form the liking of a democratic government. Effectively in a constitutional limbo, the members of the parliament failed to noticeably improve the situation. They were losing the war and haplessly allowing the country to spiral into anarchy. It was this state of affairs that the communist party entered into. At the time, it could be perceived as a force of order in the midst of chaos. In other words, it is not unfair to suggest that Russia never descended into a totalitarian Leninist dictatorship: roughly but largely on the point, the country transitioned from one state of tyranny to another. Communism came to Eastern Europe under somewhat comparable circumstances. It did not take hold there until after World War II, when the infamous Iron Curtain divided Europe into two ideologically very different spheres. Partly as a result of World War II, communists were able to gain decades-long control over Eastern Europe, but the countries that were folded into the Soviet realm had to varying degrees a history that made them more or less ripe targets for a totalitarian ideology. Bideleux and Jeffries (1998) present a complex political and economic landscape of Eastern Europe from the period between the two world wars. The nations from the Baltic to the Balkan had only moderate experiences with working parliamentary democracies. Some had more of it, others less. In a couple of instances, democracy had performed well; elsewhere, attempts at forming working democratic governments collapsed into “authoritarian, charismatic or personalistic forms of leadership,” bringing the idea of parliamentary democracy “into disrepute” (ibid., 458). In other words, there was not a strong institutional bulwark against a totalitarian takeover. The several countries along Europe’s eastern rim also pursued disparate national interests, engaged in more or less inconsequential trade deals with nations in Western Europe—primarily France—and sometimes even competed with each other. To add to the mosaic of conditions that made them vulnerable to communism, some of them were not even longstanding sovereignties, but fledgling independent nations having emerged from such geographic upheavals as the end of the Habsburg monarchy. It is debatable to what extent a country is protected against nondemocratic ideologies by virtue of a strong economy. It can provide a sense of understanding of what is at stake should liberty fold to tyranny,

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but it can also inspire complacency under the false sense that societal accomplishments from democracy to prosperity are to be taken for granted. In Eastern Europe at the time of the communist expansion, prosperity was limited but, explain Bideleux and Jeffries (ibid., 461), the countries in question also generally lacked governmental focus and direction. They tended to put “regional harmony, stability, peace and prosperity” over national interests. A similar sentiment of sovereignty hampered the evolution of a trade bloc, ostensibly weakening the national economies. On the one hand, this is a valid account of historic events. A country with a weak national government is susceptible to Leninism. On the other hand, it is easy to dismiss the national interests in the countries in question, especially in the early twentieth century, as irrational and even narrow-minded. Given where some of those countries came from, with many having been deprived of self-governance under historic monarchic constellations, their thirst for national independence is understandable. That said, there is little doubt that misguided experiments in more or less non-democratic forms of government prohibited the emergence of democracy and its associated liberties, thus made communism an easier sell. Yet to further complicate the picture, even if they had decidedly sought to build strong democracies, there would only have been limited contemporary experience to draw on. Parliamentary democracy was only in its infancy in the rest of Europe; even such a staple of our time as universal suffrage was a novelty in the early twentieth century. In short, it is unwise to pass verdict on Eastern Europe as a row of sitting ducks in dangerous proximity of the Leninist wolf. A clear view of history, for the purpose of an informed future, requires more insight than selective vision allows for.

Prague 1968: Modest Reforms By the time the first seeds of the Prague Springs were sown, Czechoslovakia had been under communist rule for two decades. It shared this fate with ten other European countries, but it did not become the scene of a comprehensive reform effort out of pure coincidence. A struggling economy catalyzed widespread discontent at a level that some in the Czech Communist Party saw as an existential threat to the status of Czechoslovakia as a socialist country and member of the Soviet Empire. Their response was a deep and dedicated effort to reform—but not reform

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away—socialism as the nation’s political and economic system. The reform agenda that became the Prague Spring was not a given. The economic problems that inspired the reformists only surfaced in the 1960s; the first several years under a Leninist government saw relatively good economic conditions. This was thanks in good part to the centrally planned industrialization of the Soviet sphere, launched in the aftermath of World War II. Under teleological central planning, the Sovieticized economies experienced a surge in capital formation. Industries grew their production capacity, leading to a surge in economic activities that generally lasted well through the 1950s. However, once this surge came to an end, it brought economic growth to an end as well. The reason is found in the strict application of Marxist economic theory and its labor theory of value. The capital formation during this period was concentrated on labor-intensive intermediate industries, whose production was slotted between the extraction of raw materials and the production of consumer products. Yet as prescribed by Marxist theory, there could be no corresponding rise in consumer spending: the productive needs of the workforce were already being cared for. As a result, once the wave of investments ebbed out, economic activity slumped. In other words, it was logical based on Marxist economic theory that the central planners did not follow up with investments in consumerproduct industries. To do so would have been a violation of Marxist doctrine; government guaranteed housing with electricity and plumbing; a steady supply of food, clothing and other basic consumer items; and the basic means of transportation. Theory prohibited the central economic planning agency from allocating labor and capital for anything above that. The standard of living offered families in the Soviet sphere was in reality moderately higher than that. It was not unheard of to have basic home electronics such as a TV set and a radio. A car, however, was up and above the reach of the average family, unless they could save significantly out of their standard paycheck and get on a multi-year waiting list. In short, the very economic theory that came with the Leninist form of government also laid the groundwork for the economic woes that inspired the Prague Spring. To further see the reformist energy in the practice of Marxism, it is worth noting, again, how Marxism freezes the standard of living. The nature of basic needs (or, in Marxist terminology, the basket of productive consumption) remains static over time; decades with teleological central planning saw little if any progress in the standard of

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living. From World War II to the fall of the Berlin Wall in 1989, there was not much overall economic progress in the Soviet sphere, especially not for the average family. The socialist economies did have business cycles of their own (Goldman 1976; Ickes 1990; Smith 2014; see also Feiler 1936), but over time the central-planning model held back technological evolution, creating a growing gap between everyday life in Eastern and Western Europe. While, again, standard of living behind the Iron Curtain offered basic necessities in terms of shelter, transportation, crude (and often highly polluting) energy, and for the most part nutritional supplies, the quality of life lagged increasingly behind that in Western Europe. Long before the Wall came down, though, the tensions inherent to the teleologically planned socialist system rose to the surface, challenging the practice of the ideology itself. Instances of insurrection in Poland, East Germany and Hungary had called the socialist rule into question, but it was not until the Prague Spring in 1968 that the very ideological practice of socialism ended up in the spotlight. In late 1967 and early 1968, a reformist group assumed leadership of the Czech Communist Party. History has depicted their agenda as sweeping, systemic, and almost revolutionary; in reality, their ambitions were economic in nature and explicitly loyal to both socialism and the supremacy of the communist party. Starting in the fall of 1967, the Czech reformists began their work to loosen but not eliminate the grip of central planning on the economy (Wasserstein 2007). The extent of their ambitions was a modest opening of the economy to some free-market dynamics. In the historic rearview mirror, given the extent of the intended reforms, the eventual Soviet response in the form of a heavy military hand seems entirely disproportionate. However, as immoral as it was, the reaction from Moscow gains understandable proportions when viewed through the glasses of socialist ideology. Central planning in Czechoslovakia was based on Marxist economic theory. It was practiced faithfully and in lockstep with the planning system of the Soviet Union and the other economies within the socialist sphere. The practice of Marxist economic theory was essential to the continued practice of socialism in general. So essential was it, in fact, that when the Czech reformists announced their intents to ease the stringency with which the labor-value theory was practiced, Soviet leader Leonid Brezhnev paid a visit to Prague in December of 1967.

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As the Secretary General of the Central Committee of the Communist Party, Brezhnev was the unquestioned authority on the practice of Marxism-Leninism—and on Soviet power. His decision to visit was meant to put the Czech Communist Party on notice. It was a blunt warning to the Czechs against taking their reforms too far. In plain English: keep the socialist system intact and don’t rock the boat. There were two levels to this message. The first and foremost one was the old Leninist adage that any imperfections under socialism reflected poorly on the socialist system. Therefore, they were to be defined as bourgeois remains and exhibits of lingering capitalist influences. In lockstep with Leninist theory, the Soviet response was to call for a reinforcement of ideological rigor in how the Czech government actually practiced socialism. The second level was blunter. Nothing threatened the stability and perpetuation of the socialist system more than sustained economic discontent among the general public. This is not a phenomenon limited to socialist nations: political incumbents in democracies almost invariably face uphill re-election challenges in economic recessions. The difference is that under totalitarian socialism, people cannot elect a government with different economic policies in mind. When Brezhnev visited Prague in December 1967, he did so to manage two mutually exclusive demands on government policy. It was unwise to ignore the economic realities in Czechoslovakia, but Brezhnev also could not compromise on Leninist doctrine. The reforms that the Prague Spring leaders had in mind would have accommodated economic discontent; therefore, Brezhnev needed to point out that such reforms would—to speak with Lenin—put that discontent on full display as imperfections in socialism. Leninist theory says that such imperfections could not exist; therefore, the reforms could not be allowed. In short, the Czech Communist Party needed to show its commitment to orthodoxy and distance its ideology from the economic strife experienced by the people of Czechoslovakia. It is a question for another day whether or not Brezhnev himself actually believed that the Soviet socialist system was perfect. In his dealings with the Czech reformists, he behaved as though he actually held the ideology above imperfections. It was clear that he wanted the Czechs to share his belief: they only needed to practice socialism with more rigor.

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Not only did Brezhnev throw the ideological book at the Czech reformists, but he also brought with him to Prague the clout of Soviet might and its sordid track record of socialist enforcement. In 1953, the Soviets had dispatched their troops to quell riots in East Germany and in 1956 to end the uprising in Hungary. They also strong-armed the East German government into building the Berlin Wall in 1961. With all this in mind, the reformists had cause for concern when Brezhnev touched down in Prague with his particular package of Christmas greetings. At the time, the person at the reformist epicenter, Alexander Dubˇcek, had not yet risen to his eventual prominence. It was not until January 5, 1968, that Dubˇcek assumed the formal position as First Secretary of the Presidium of the Central Committee of the Czech Communist Party. The duty of receiving Brezhnev fell on Dubˇcek’s predecessor, Antonin Novotny, a more orthodox communist and a politician favored by Moscow over Dubˇcek and his reformists. If Brezhnev wanted to make sure that socialism was practiced in Czechoslovakia with due attention to doctrine, he would soon find that his message had fallen on deaf ears. In fact, the rise of Dubˇcek to national leadership so soon after the Soviet leader’s visit could easily be interpreted as an affront to Soviet supremacy. Novotny maintained the essentially ceremonial position as head of state until late March of 1968, but the fact that Dubˇcek replaced Novotny so soon after Brezhnev’s visit was a clear signal that the Czech communists wanted to move ahead with their plans for modest economic reforms. Even if it was not intended as such, its function was an act of ideological defiance of Moscow; the Czech reformists made very clear at every turn that they would remain within the socialist ideological domain, but as evidenced by events unfolded after Dubˇcek’s rise to power, this was not enough to ease tensions with Moscow. A closer examination of the political thought behind the Czech reforms is telling of how tightly controlled the socialist project was under the Soviet Union. At no point did the Czech reformists set out to part with the ideological goal of socialism: they never aspired to reintroduce capitalism, not even to permit any meaningful market-driven economic differences between private citizens. Egalitarianism remained intact as the principle guiding the Czech Communist Party. The extent of their reforms was limited to giving the free market and its private property a minor, closely confined role in the Czech economy.

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That, however, is not to say the reforms were going to be entirely insignificant to the Czech people. While the economic impact would likely have been modest, even if the reforms were implemented vigorously, the very appearance of the communist party being focused on popular policy rather than ideological purity would have given the socialist system a boost in credibility and support. In fact, there was no mistaking the reform goals: to make the socialist system work. In doing so, the reformists wanted to preserve, even reinforce, their own ideological base and its unchallenged position in the constitution, economy, and government of Czechoslovakia. However, herein lies an irony, one that renders merit to the Soviet opposition: if those reforms were successful, they would eventually bring about a deeper challenge to the socialist construct. Whether the Czech leaders knew this or not, they did not give it away in their political thought: quite the contrary, they went out of their way to declare and make known their unwavering commitment to socialism.

Passing the Point of no Return The reform efforts started as soon as Dubˇcek had assumed power. In January 1968, the Czech Communist Party initiated a series of reforms that would modestly relax the heavy grip of government on the economy. The annals of history have labeled the goal of their plan “socialism with a humane face,” a moniker that is perhaps more telling of socialism than of the reform efforts. Yet ideological purity was present from the outset: in its Action Programme, adopted on April 5, 1968, the Communist Party of Czechoslovakia lauds socialism as having saved the country from free-market capitalism. The praise goes further, stating that socialism liberated the country from the “bourgeois order.” This order, the Action Programme explains (Lunghi and Ello 1968, 125), was not able to lay reliable foundations for the lasting prosperity of the new economic entity and to guarantee the workers and employees full employment and a secure existence.

In this Programme, the Communist Party also writes the history of their nation’s transition into socialism with creative vigor. It is noteworthy how they mingle “democratic” with “socialism” (ibid, 126):

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During the national and democratic revolution of 1944–1945 the national and democratic values of socialism were united for the first time. The democratic and national movement began to be socialized and socialism became a really national and democratic affair. The road to socialism taken by Czechoslovakia … is the source of the most progressive traditions of modern Czech and Slovak history.

The pledge of allegiance to socialism continues with an account of how, according to the Communist Party, socialism brought prosperity to Czechoslovakia (ibid, 129): Basic socialist social changes have been accomplished and the socialist order has sunk its roots deeply and firmly into our land. Our society, in which the means of production are mainly in the hands of the socialist state or of workers’ cooperatives, has got rid of capitalist exploitation and the social wrongs connected with it. Every citizen of the Czechoslovak Socialist Republic has the right to work and enjoys basic social security.

They also make clear that the status of Czechoslovakia “among the socialist countries is firmly secured.” It is important to remember that the praise for socialism as having saved the country is a rhetorical product; it is not necessarily an accurate account of what the socialist economy looked like. On the contrary, the Prague Spring would not have gained momentum had it not been for the economic strife of the people of Czechoslovakia in the 1960s. More than anything, it is likely that the picture of socialism as an economic success is meant to keep at a minimum the gap between the reformists and the doctrine in Leninist theory of communist perfection. Nevertheless, a gap was necessary in order to address the problems plaguing the Czech economy; in both function and declared intent, the Prague Spring reforms were written to adjust the socialist project in Czechoslovakia from the dissatisfaction that arose from economic stagnation, and simultaneously to shield it from the image of that same dissatisfaction. Throughout the Action Programme, footprints are aplenty of this ambition of ideological rigor. At the same time, the reformists also needed to motivate their agenda and make a commitment to those who risk repercussions for supporting them. To this effect, the Programme references the centrally planned industrialization of the 1950s (p. 129) pointing to this very central-planning model as ineffective. It is said to have led to a

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serious economic crisis (p. 132) and even a “retardation of the infrastructure in comparison with advanced industrial countries” and housing crisis (ibid., 133). The planning methods, the Programme claims, are outdated and urgently demand changes, i.e., an economic system of management able to enforce a turn towards intensive growth.

Specifically, the politically dictated industrialization (ibid., 131–132): led to a precipitated expansion of heavy industry, to a disproportionate demand on labour power, raw materials and to costly investments. Such an economic policy, enforced through directive administrative methods, no longer correspond to the economic requirements and possibilities of the country and led to exhaustion of its material and human resources. Unrealistic tasks were placed on the economy, illusory promises were made to the workers.

Production and investments failed to match the needs of the population. Alluding to the growing technological gap at the time between the Soviet sphere and the increasingly advanced capitalist West, the reformists also suggest that the country must join “in the scientific-technical revolution in the world.” With their spotlight concentrated on the economy, the reformists carefully avoided making meaningful references to democracy within the mainstream of their program. This is logical given that the strain of socialism practiced in Czechoslovakia at the time was solidly Leninist in its political method. However, the Action Programme does not entirely stay out of democratic waters. One of the goals of the reform agenda is (ibid., 130): a broad scope for social initiative, frank exchange of views and democratization of the whole social and political system.

This, they say, is. the condition for us being able to hold our own in competition with the world, and honourably fulfil our obligations towards the international workers’ movement.

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From a Western perspective in general, and especially from a twentyfirst-century American viewpoint, it is easy to read this as a commitment to freedom of speech, perhaps even parliamentary democracy. That, however, is not what the Programme talks about. If the Prague reformists were referring to democratization of government, they would have opened the political system in Czechoslovakia to non-socialist parties and an effort to reform away socialism itself. To put to rest any doubts, the Czech reformists carefully lay out their definition of democracy. A “socialist democracy” is defined not as popular influence over government, but as the transfer of jurisdiction over business decisions on production and other operational matters, from the centralplanning agency to workers and managers. The point would be to give influence and control over production, investment, and finances to the people within closest proximity of those activities. While logical from the perspective of a liberal democracy and its economic freedom, this would be a major reform under the Leninist system. At the same time, it confines the concept of “democracy”: it is economic in nature, not political. With democracy defined, the Action Programme explains that socialism (ibid., 135–136), can only flourish if scope is given for the assertion of the various interests of the people and on this basis the unity of all workers will be brought about democratically. This is the main source of free social activity and development of the socialist system.

Specifically, the Communist Party shall strive to engage all pertinent organizations, including labor unions, “to strengthen the democratic influence of collective teams of workers in the management of production.” Plainly, socialism sets the scope for democracy, not the other way around as in a traditional parliamentary system. The term “democracy” is separated from the institutions and practices for governing the country; it is solely what the reformists call economic management, a matter of funneling what the Communist Party sees as competence and skills into corporate board rooms and management offices. An oddity in this context is the fact that government, as owner of those corporations, can implement those reforms without much fanfare. That it became their leading policy reform proposal is a testament to the rigidity

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of the communist system of government, but it is also a tribute to their ideological significance. Alexander Dubˇcek made good use of this economic definition of democracy in his speech on April 1, 1968, at the Plenary Session of the Central Committee of the Communist Party (ibid., 104): The main condition for the consistent and rapid implementation of the new system of management is today the institutional adjustment of relationships in the economic sphere and the creation of a new organizational structure in the whole sphere of production.

This, he points out, is akin to the democratization of economic management: Within enterprises, democratic managing bodies will operate to which directors and other leading economic executives will be accountable. In addition to this, the trade [union] will also assert itself in putting through the interests of employees in exercising control over management.

The Action Programme becomes more specific, stressing the same reform goal (ibid., 172), but with the ambition of “ensuring the independence of enterprises and enterprise groupings” from the state. This only pertains to management, not to ownership; it is a matter of establishing “democratic bodies within enterprises with determined rights towards the management of the enterprise” (ibid., 173). In fact, in his report on the implementation of the Action Programme to the Central Committee of the Communist Party on May 29-June 1, 1968, Dubˇcek explains (ibid., 263): The enterprise itself will remain the property of the society, it will not be owned by the collective of the works. A suitable way must be found to safeguard institutionally the interests of the society and the State in establishing the working people’s councils in enterprises.

In short, there will be no free market for ownership of businesses, no stock market, and no incorporation of businesses. Private property shall remain within residual limits, placing the reformed economy within close proximity of Marxist doctrine.

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Bideleux and Jeffries exemplify how this played out in the transformation of agrarian land ownership (1998, 527). Land was seized from large landowners and “many medium-sized farms” and then given to. poorer peasants and landless labourers. In addition, although the redistributed land was received as inheritable personal property, it could not be sold or let or mortgaged without official permission.

The Prague Spring reformists did not want to upset the governmentprivate balance in terms of proprietorship. They simply wanted to shift from the ham-fisted management principles that come with teleological central economic planning to a more localized, yet still ideologically faithful variant. The corporate governing bodies are supposed to be democratically elected from a broad constituency consisting of workers and (Lunghi and Ello 1968, 173). representatives of certain components outside the enterprise ensuring the influence of the interests of the entire society and an expert and qualified level of decision-making.

Faithfully confining reforms to enterprise boardrooms, under the section of the Action Programme, it is made clear (ibid., 178–179): Decision-making about the plan and the economic policy of the State must be both a process of mutual confrontation and harmonization of different interests – i.e. the interests of enterprising, consumers, employees, different social groups of the population, nations, etc. – and a process of suitable combination of views of the long-term development of the economy and its immediate prosperity.

In other words, the state maintains firm control over the macroeconomic aggregate of all the millions of interactions that take place on a daily basis in an economy. However, this control is eroded by the presence of black markets: under central economic planning, consumers are allotted rations of products, including food, equal to their productive— subsistence—needs. When the planning measures fail to meet the needs, black markets, which operate with market prices, shrink or eliminate the shortages.

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Over time, the existence of these illegal markets became crucial to the actual functioning of the economies in the Soviet sphere. They were tolerated and granted a de facto gray-sector status: they were not protected by the law—theft or other crimes were not investigated—but they were also allowed to exist, provided they did so quietly. This has been taken by some (Godard 2018) as evidence that Eastern Europe, especially during the 1960s, was some almost official blend of labor-value central planning and market-price resource allocation. This was true in reality toward the end of the Soviet era, with some countries—such as Hungary—enacting reforms that officially gave market prices and private business more room to operate. In other countries, primarily the Soviet Union itself, the scales tipped in favor of rigorous Marxism. Every step to make official the existence of market prices was seen as a concession of socialist imperfection. Even the tolerance of the black or gray markets was an admission of centralplanning failure. The reformists in Czechoslovakia were aware of the delicacy with which they had to approach market prices. By not challenging the doctrine of labor-value-based central planning, the reformists elegantly connected the economic reform agenda to that of political change—or lack thereof. Placing ideological sideboards on their agenda, the Czech reformists wanted to preserve central economic planning, thus eliminating the possibilities of economic freedom, and to curtail any hopes of individual freedom in the political sphere. Dubˇcek made this clear in his April 1 speech, where he referred to freedom of speech as (ibid., 72): a very important precondition for expressing opinions and interests. These, however, will necessarily clash with each other and with the social reality. Institutional safeguards of their objective appraisal and solution is a further necessity which must be thoroughly elaborated and put into legal form.

In plain English, this means that freedom of speech is to be permitted so long as it is restricted. Where two opinions meet, “objective appraisal”

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will decide who is right and who is wrong; only the right opinion will be permitted.1 Any other ambition would have been confrontational. It is not possible to separate individual freedom from economic freedom: if the Dubˇcek government had not vowed to curtail free speech, the emergence of different opinions would sooner or later establish anti-socialist viewpoints in the public domain. The Czech reformists were determined to not let that happen (ibid.): If we want to make socialist democracy a living thing – and let there be no doubt about that – we must and we shall be guided in our work, by the living theory of Marxism-Leninism and shall actively defend its ideology against various attacks.

All opinions are allowed so long as they are pro-socialist opinions. In a time when opinion censorship on social media platforms is vividly debated, this ambition to curtail freedom of speech may ring a familiar tone. That same tone may also be an alarm call to those who express themselves under the protection of the First Amendment in the US Constitution. Bluntly speaking, there could be no challenge to the supremacy of the Communist Party, nor to the socialist economic system. The Action Programme repeatedly reinforces this, going beyond doubt in a section called “For the development of socialist democracy, for a new system of the political management of society” (ibid., 148–158). From a liberal viewpoint, again, this section appears to be peppered with contradictions between the struggle to allow free—or at least more free—speech and the necessity to protect public opinion from non-socialist views. From a Marxist viewpoint, however, it makes sense. In his April 1 speech, Dubˇcek entrenched the socialist iteration of democracy (ibid., 101–102): Our political system will certainly not revert to the state in which its foundation would be only the relations of the political parties. In the system of socialist democracy, we are concerned with more than a copy of the parliamentarism typical for formal democracies. … Socialist democracy must

1 In his book A Theory of Justice, John Rawls discusses a form of ethics expert panels that would determine what is “moral” and what is not. Their verdicts would have scientific status, a point disputed eloquently by McCoy (1973).

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differ from formal democracy, inter alia, also insofar that it will be the working people who will have the decisive word in the management of the society.

The “working people” is a code term for the Communist Party, which by Marxist-Leninist definition is the leadership of the working class. As if to dispel any uncertainties regarding the supremacy of the socialist system, in his May report on the implementation of the Action Programme, Dubˇcek issues a stern warning (ibid., 278): The Party Central Committee declares that if anti-communist elements should try to attack this historic reality, and if they should try to lead astray the development of our nations, the Party will mobilize all forces of our people and of the socialist state, and will repel and suppress such an adventurous attempt.

While the Prague Spring was a sincere attempt at reforming the socialist economy, it was nothing beyond that. Its leaders wanted to solve the problems of economic stagnation within the very system that brought it about. Since they did not want to let private business ownership replace government ownership, they also could not let the price mechanism work properly. There would, in fact, be no point in doing so unless at the same time private businesses were given the freedom to operate on market terms. A government-owned business cannot operate under market prices: even disregarding the shackles of teleological central planning, the state-owned enterprise has taxpayer financial backing and is therefore immune to the risk environment of the free market. Market prices are set under risk; without exposure to risk, a business cannot engage in gainful trade; only gainful trade on a free market can produce the right price signals. However, despite its limitations, the ambitions of the Prague Spring reverberated through the world. This was as much a matter of the reform agenda per se as it was the result of the violence with which the Soviet Union eventually responded to the reform ambitions. After a long summer of rising tensions with Moscow, the Czech reformists finally reached an impasse with their Soviet overlords. In August of 1968, the Warsaw Pact, led by the Soviet Red Army, invaded Czechoslovakia and stripped socialism of its humane face.

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The repercussions were formidable. They reached well beyond the Czech borders and far into the future. The end of the Prague Spring marked the beginning of decline for the Soviet version of Marxist orthodoxy. Echoes from the tanks were heard far beyond Eastern Europe and the Soviet Empire. Prior to the military response to the Prague Spring, there was considerable ideological support for the Soviet Union among the left in Western Europe. When TV cameras cabled out the pictures of Soviet tanks rolling through the streets of cities in Czechoslovakia, it became impossible for many socialists to unequivocally defend Soviet socialism. As if to add insult to injury, one man, a Russian writer, exposed the unmitigated brutality by means of which the government in Moscow put Leninist state theory to work.

Solzhenitsyn’s Challenge The Prague Spring demonstrated, with soft, theoretical language and technical analysis, that democracy is indeed incompatible with Leninism and the property-rights definition of socialism. Dubˇcek and his fellow reformists had good intentions as far as the Czech economy was concerned, but they went out of their way to make a halt well before their reforms would challenge the socialist system itself. History could not have furnished the future with a sharper contrast than between the academic, almost bureaucratic language of the reformists and the raw power of the invading Soviet military. The brutal end to the Prague Spring provoked a conversation in the West about how socialism actually worked—and did not work—in the real world. For some years after 1968, it was not possible to discern which way the conversation was leaning: were the orthodox Soviet protagonists holding their line, or had the socialist ideology definitively detached itself from its totalitarian end point? The pursuit of an answer to that question would probably have lingered in intellectual limbo for a good long time, attracting interest predominantly from the inner intellectual circles of the socialist movement, had it not been for The Gulag Archipelago. Only a few years had gone by after the Prague Spring when Aleksandr Solzhenitsyn published what Time Magazine called the best non-fiction book of the twentieth century. With it, he dealt a blow to the reputability of Soviet socialism that it never really recovered from.

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Solzhenitsyn did not start his writing career with this book—far from it. Already in 1962, Nikita Khrushchev, Josef Stalin’s successor as the de facto leader of the Soviet Union, wanted to “thaw” the totalitarian oppression. One of his measures was to allow the publication of Solzhenitsyn’s book One Day in the Life of Ivan Denisovich, where the author gives an account of his own life in the Soviet Gulag labor camps.2 In 1970, three years before The Gulag Archipelago was published, he was awarded the Nobel Prize in Literature for his contributions to the great Russian literary tradition. At the time, the Swedish Academy (the Literature Prize Committee) was not known for politicizing its choice of laureates. Its official motivation for giving Solzhenitsyn the Prize was, again, that he had made significant contributions to a tradition laid out by Dostoevsky, Tolstoy, and others. In reality, however, whether the Swedish Academy wanted it or not, the Prize served as a political finger that pointed squarely at the totalitarian methods by which the Soviet government ruled its country. Unsurprisingly, when his Gulag masterpiece was published in English, Solzhenitsyn rose to a new level of political prominence. He de facto issued a challenge to socialists all around the world: would they, or would they not, have to resort to the totalitarian methods of the Soviet system in order to implement their ideology? In hindsight, it may seem remarkable that Solzhenitsyn’s book made such a historic difference as it did. However, it filled a need for information that was otherwise hard to come by. Before Gulag, there were disputes in the socialist movement about exactly how authoritarian the Soviet regime really was. The mid-twentieth century was a time before the Internet, the cell phone, and other means of modern electronic communication. It was much easier back then for a totalitarian regime like the one in the Soviet Union to control the flow of information across its borders. The Soviets had a highly sophisticated apparatus in place to restrict and wiretap landline telephones, to open and censor mail, and to keep track of visitors from abroad. It was difficult for ordinary Soviet citizens to obtain permits for foreign travel, and almost impossible if the goal was to go beyond the borders of the Soviet Empire. 2 The name “Gulag” should actually be written “GULag,” which is the abbreviation of the Soviet government administration that ran the prison labor camps. However, the abbreviation has been absorbed into the English language to the point where it is acceptable, and simply more convenient to write it as a regular name.

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In short, the Soviet government had a tight leash on the flow of information, domestic as well as foreign. The impact of Solzhenitsyn’s book on the world’s view of the Soviet system is comparable to how the last pretenses of decency fell from the Third Reich when Allied troops confirmed the rumors of extermination camps and the Holocaust. The atrocities chronicled by Solzhenitsyn may not have been of quite the same diabolic nature as under the Nazi regime, but that is of no real consequence. When two states imprison innocent citizens on a systematic level, forcing them into prison-camp starvation and slave labor under abominable conditions, any attempt to morally discriminate between them collapses into a futile search for tiers in Hell. As important as the tyranny itself is the motive behind it. The reason for tyranny does, again, not matter for any discriminatory purpose—it is not ethically better to execute innocent citizens with a bullet to the right temple as opposed to the left—but it does matter because it helps explain where tyranny comes from. The ideological context is an essential part of the history lesson. It is here that Solzhenitsyn plays a key role, one that is not spelled out, perhaps not even intended, in his book. He paints a picture in stark colors of the apparent meaninglessness, or “monstrous absurdity,” of the Soviet tyranny (Garrard 1975). It is a picture that stretches from the selection of prisoners to their imprisonment in the camps and the work they were forced to do. For example, Solzhenitsyn explains (2007 reprint, 11): For several decades political arrests were distinguished in our country precisely by the fact that people were arrested who were guilty of nothing and were therefore unprepared to put up any resistance whatsoever.

Among the countless examples in his book, Solzhenitsyn tells of a man at a Communist Party meeting who stopped applauding Stalin earlier than others. In fact, the arrests of innocent people reached what he describes as an epidemic level, where (ibid.): people leaving for work said farewell to their families every day, because they could not be certain they would return at night.

Few examples illustrate the profound randomness of the arrests more bluntly than the case of a woman who

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came to the reception room of the Novocherkassk NKVD to ask what she should do about the unfed unweaned infant of a neighbor who had been arrested. They said: “Sit down, we’ll find out.” She sat there for two hours – whereupon they took her and tossed her into a cell.

The NKVD, the primary state-security agency, had a daily quota for how many arrests they had to make. This woman became the unsuspecting casualty of their need to meet their arrest plan “in a hurry.” Solzhenitsyn cynically notes that since “there was no one available to send out into the city” to find another arrestee, they simply decided to arrest the woman already sitting in their office. Adding yet another chilling point to the roster, he notes (p. 12) that if someone who had been targeted for arrest—and been so “by virtue of chance circumstances”—was not available when the officers showed up, they could just as well arrest one of his neighbors. All these accounts of a terror regime at work beg the question: why? With eloquence, Solzhenitsyn condenses the answer into one short sentence (p. 11): A submissive sheep is a find for a wolf.

When the threat of arrest hangs over every citizen, guilty or innocent, the price of complying with the demands of a totalitarian government is always lower. Compliance is the innocent citizen’s only means to reduce the risk of arrest. And that is precisely the purpose: it is not to punish those who openly oppose the regime, but to stoke fear into the hearts and minds of those who may be fence sitters, or those who simply believe that a wrong must be a wrong that can be righted. When that fear has reached a certain level, compliance—no matter how repulsive—is the least intolerable option. This last point is often under-appreciated in attempts to understand how tyranny can become accepted. If there is no bread to be bought in the stores, the righteous citizen will go to the local government office— the Soviet—and point this out. He will say to the officials that “surely you must understand that we need bread” and only intend to explain to them how things are supposed to work. He is not necessarily opposed to the ideology of the tyrannical government; he may even be a socialist himself. He may not even care about politics. But in expressing concerns

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he shows that he is willing to take action—any action—to seek some sort of change to solve a problem. Anyone willing to voice his concerns, even over practical matters, is the first spark of a fire that inspires more and more citizens to take action outside of government. Such actions jeopardize the supremacy of socialism and the Leninist government, thereby threatening the achievements that the socialist government already has on its resume. It also calls into question the supreme wisdom of the Communist party. A similar doctrine is at work from a Marxist ideological viewpoint. A government faithful to Marxist theory achieved its cardinal ideological goal—the elimination of economic differences between private citizens— when it terminated private ownership of the means of production. Any individual who takes a problem-solving initiative, which is not initiated or sanctioned by the state, is pointing out a problem that cannot exist under Marxism-Leninism. Therefore, the person pointing to the problem becomes the problem. It was in view of this—of Leninist government philosophy and Marxist economic theory—that the Communist Party of the Soviet Union unleashed the terror that Solzhenitsyn describes. It was immaterial that almost no one arrested had any aspirations of opposing the communists. On the contrary, harm to innocent people was acceptable collateral damage, an instrument for the purpose of making fear so prevalent, so vibrant, that people would not even entertain opposition to the socialist system. With his groundbreaking report on the Soviet rule-by-terror method, Solzhenitsyn forced socialists in the West to ask themselves the same question that emerged from the Prague Spring, namely whether or not socialism was possible without tyranny. The more pointed format of that question still pops up occasionally today: Is socialism so good that you have to make it mandatory? Needless to say, there were those who doubted Solzhenitsyn; communist parties in Western countries continued to operate for a good long time after his book was published. They were never significant politically, especially with socialist-minded voters gravitating toward democratic socialism. Some socialist parties with non-communist political platforms continued to use the communist name, mostly for the purposes of brand recognition. Those that openly campaigned for the Soviet system (or the nominally different Chinese system) to be imported to their country retained a marginal but vocal presence on the political fringe.

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It was not until the Soviet Union collapsed in 1991 that many remaining Soviet-loyalist holdouts finally gave in. As if to dispel any doubts regarding the veracity of Solzhenitsyn’s writings, when the Russian government opened the archives of the collapsed Soviet regime, state-security documents confirmed the atrocities. In her foreword to the 2007 Harper Perennial Modern Classics edition to Gulag, Anne Applebaum notes that: what is most extraordinary about re-reading The Gulag Archipelago more than fifteen years after the collapse of the Soviet Union is how much it does get right. Although he did not have access to archival documents or government records, Solzhenitsyn’s general outline of the history of the Gulag … has been correct.

For the most part, Solzhenitsyn’s challenge was honored. While the academic reception of Gulag was mixed (Dunlop 1981), its implications were undeniable. Socialists now had three choices: • Defend tyranny as their political methodology; • Abandon socialism altogether; or • Look for an option where socialism could cohabit with democracy.

A Note on Charta 77 The oppressive hand of government exposed in Solzhenitsyn’s verdict was published after the Prague Spring but accounted for totalitarian state measures predating the Czech reformist movement. It exposed the tyranny of the Soviet regime, but the verdict applied equally to all Leninist governments, especially those that were included in the Soviet Empire. Furthermore, oppression did not end until its collapse in 1989 and 1990. The post-Stalin regime in Moscow was less oppressive in its enforcement of socialist doctrine, but it was not lenient on its opposition: its persecution just shifted to less blatant measures than forced-labor camps. They notoriously used psychiatric diagnoses against its dissidents, declaring those who deviated from official socialist doctrine to be in need of mental care in dedicated facilities. Generally, and especially after the invasion of Czechoslovakia, all of Eastern Europe aligned its ideological enforcement with Moscow. At the same time, the echoes of the Prague Spring did not fall on deaf ears.

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Even as the actual reformist agenda was relatively modest, the violent Soviet reaction and enforcement of official ideological doctrine left a lasting impression, especially in Czechoslovakia. Focus shifted, though, from economic-reform efforts to the pursuit of new forms of freedom of expression. Among the more conspicuous outbreaks of what Americans would call First Amendment rights was creative rock music. Spearheaded by a band named Plastic People of the Universe, the movement was forced away from official, public scenes when government deemed their lyrics politically unacceptable. After the musical director and the band members of Plastic People were sentenced harshly in 1976, the movement for freedom among writers, artists, and other creative workers took notice. The result was the Charta 77 movement. Its three leaders were: • Jan Patoˇcka, a philosopher by training who was removed from his faculty position at Charles University the first time in 1939 by the Nazi occupiers, the second time (after reinstatement in 1945) in 1948 by the Stalinist regime, and the third time (again after reinstatement in 1968) in 1972 by the ideologically orthodox Husák administration; • Václav Havel, a dramatist and playwright whose career, due to his father having been branded a capitalist, began outside of the government-approved theatrical circles; in the 1960s, his work had reached the scenes in London, a respectable achievement given the almost impenetrable iron curtain that at the time segregated the two halves of Europe; • Jiˇri Hájek, a formerly high-ranking functionary in the Novotny regime that preceded Dubˇcek and the Spring reformists; among other achievements, Hájek served as the Czech ambassador to the United Nations for three years in the early 1960s; after speaking out against the Soviet invasion of August 1968, Hájek began a slow, involuntary journey into professional ostracization and early retirement. The Charta 77 movement, which already from the outset had well over 200 signatories, was about more than freedom of artistic expression. The sentences against the Plastic People band members served as a catalyst for their movement, but it had a broader base and a broader goal than

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securing artistic freedom. In the formal declaration of their movement, published on January 1, 1977, the Chartists took departure in the 1975 Declaration of Helsinki on human rights. Czechoslovakia was one of the countries that signed the two covenants from Helsinki. In response, the Chartists called on the Czech government to act as it had vowed to do. With reference to the two specific Helsinki covenants—one on civil and political rights and one on economic, social, and cultural rights—the Chartists officially expressed their appreciation of the incorporation of “human rights and freedoms underwritten by these covenants” into Czech law. At the same time, the group noted in their official Charta 77 Declaration that the formal act of their government (Skilling 1981, 209), serves as an urgent reminder of the extent to which basic human rights in our country exist, regrettably, on paper only. The right to freedom of expression, for example, guaranteed by article 19 of the first-mentioned covenant, is in our case purely illusory.

They explain that “tens of thousands” of people are banned from exercising their profession simply because they have opinions “differing from the official ones.” Harassment by government was common against these so-called dissidents, including the denial of legal means to defend themselves. Furthermore, the Chartists note (ibid.), the Czech government denied young men and women access to education “because of their own views or even their parents’” opinions. This method for turning a person of undesirable opinions into an outcast was widespread, with countless citizens constantly fearing repercussions in terms of lost educational opportunities “if they should ever speak up” in line with their beliefs (ibid, 209–210). Delivering a broadside account of the speech ban, they report on how centralized media outlets suppress the freedom of public expression; how every opinion “that departs ever so slightly” from accepted doctrine is silenced; how there can be no criticism of “abnormal social phenomena.” Opponents of the communist regime are denied the opportunity to publicly defend themselves against accusations “made in official propaganda.” Artists and other independent-minded individuals are even punished (ibid., 210):

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for having legally published or expressed, years ago, opinions which are condemned by those who hold political power today.

As indicting as this account was, it notably refrained from criticizing the economy of the country. It is an open question why they chose to spotlight freedom of speech instead; was it for lack of training in economics or for awareness of the fate that the Spring reformists met? They paid only passing attention to the economy (ibid., 93), noting that the standard of living in Czechoslovakia appeared to be lower than in Western Europe. They also acknowledged that the “grave deficiencies” in the supply of goods and services were due to “bureaucratic centralism, undemocratic decision-making, unqualified management and the alienation of workers.” At no point did the Chartists propose anything vaguely similar to a plan for reforms to the economy. Since economic theory is the raison d’être of Marxism, the foundation for the Czech government and its communism was also essentially economic in nature. Oppression of free speech was ancillary to the enforcement of Marxist economics, well in line with Leninist theory of government. That is not to say the Chartists were without merit in their efforts to widen the band for freedom of expression. They made an impact on domestic policy, even as the regime tried to maintain an information blackout on the charter.3 Their cause had intrinsic value, although it was not ideologically informed to the same degree as the Prague Spring reform program was. At the same time, the resistance the Chartists met from the regime was instrumentally merited: based on Leninist theory and its enforcement against the Prague Spring, the communist government feared that more room for pluralism in the political discourse would establish views that were antithetical to socialism as an economic system. It has been suggested that the movement was not as impactful as history has proposed it to be (Kraus 2007). At the same time, there is a tendency to exaggerate the legacy of the Prague Spring, attributing to it the 1989 Velvet Revolution when communism ended (Stoneman 2019). The downfall of communism across the Soviet Empire started elsewhere; the reforms in Czechoslovakia followed as a necessity. 3 An anonymous article in Economic and Political Weekly of May 21, 1977, gives a detailed account of how the regime in Prague attempted to suppress information about the charter. Available at https://www.jstor.org/stable/4365612. Accessed August 11, 2020.

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While, again, not underestimating the domestic significance of both the Prague Spring and Charter 77, their short-term influence was stronger on the ideological debate over socialism in Western Europe than on the communist grip on power in Czechoslovakia.

Democratic Socialism Gets a Boost Of the three challenges to Marxism-Leninism referenced here, The Gulag Archipelago had the greatest impact on the ideological debate over socialism. The Prague Spring had its influence, but it was also misunderstood as a “liberal democratic project” (Bracke 2008) and therefore dismissed as irrelevant to the socialist ideological discourse. The Chartists were primarily preoccupied with freedom of expression, an issue that in a similar fashion could be taken as more conversational than consequential. Solzhenitsyn’s writings, on the other hand, echoed through the public discourse. For the most part, his contributions were interpreted rightfully as an ideological challenge to socialists, but on occasion it was given an unmerited, broader mission. His work was even portrayed as an indictment of modern civilization itself (Hook 1979). Not all reception of Solzhenitsyn’s work was positive; he was accused of being too deeply trapped in his Russian culture, therefore unable to connect with, let alone understand the West (Confino 1991; Monas 1981). However, regardless of how he was viewed, Solzhenitsyn commanded a large audience and exercised considerable influence on the European socialist movement. In fact, the effects of Gulag on political thought throughout Europe were even greater than anticipated at the time of its publication. Adding to the emerging conversation on the heels of the Prague Spring, it resonated deeply with the New Left movement in the West. This movement was not of the traditional, orthodox Marxist brand, nor did it belong to the social-democrat movement that favored a welfare state. Its distinctive profile was instead its search for ideological nuances in socialism, with roots that went back farther in time than the Prague Spring. Nevertheless, it was here that the reformists from Prague and, especially, Solzhenitsyn would find their most curious audience. Malecki (1977) describes the New Left as a spectrum of influences, with its mainstream shifting with the times. A more prosaic picture would be one of a movement adrift in the fluid and increasingly influential winds of postmodernism. One of its enduring themes was a sense of guilt over

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having been born in the more affluent West, a sentiment captured by singer and songwriter Wolf Biermann. To play on his words, the symbolic question at the time was which half of Germany, East or West, was the “better half” where suffering was also “twice as high.” In short, the postmodernism of the day offered the New Left a comfortable intellectual environment without the challenges of complex, systemic, and pressingly empirical problems to ponder. Solzhenitsyn rang the morning bell, unequivocally forcing the New Left out of its bed chamber and into a discourse with sharp, easily distinguishable and opposite poles. In Gulag, there was right and wrong and no gray zone between or around them. The difference also mattered significantly to how socialism was—and was not—to be practiced. European socialists in general, and the New Left in particular, were forced to rise to Solzhenitsyn’s challenge. Not all of the Western left was receptive to the gauntlet of moral objectivism. The response to Solzhenitsyn’s challenge varied widely, but was perhaps most conspicuous in France, a country with—at the time—a vibrant political culture and an intellectually rich academic environment. Transcending both of them was a small group of highly influential philosophers who essentially defined French socialist thought. At the center stood Jean-Paul Sartre. A world-renowned philosopher and vocal communist, Sartre supported the Soviet system with minor reservations. His views were summarized well in a May 2000 article in The Nation by Daniel Singer: according to Sartre, the Soviet Union was “a socialist state in need of repair.”4 Given the totalitarian nature of the Soviet regime, it was not far-fetched for Sartre and others of the same ideological conviction to celebrate violence as a political tool. Unsurprisingly, in his essay Two Critics of the Ideological “Lie,” Daniel Mahoney reports that Sartre had a penchant for violence.5 The French philosopher, Mahoney explains, personified a form of “unthinking” socialism, committing itself to a “categorical imperative” of some form of revolt. Solzhenitsyn, Mahoney notes, “pilloried” this brand of leftism. Mahoney also points to how, in his Critique of Dialectical Reason, Sartre justified violence “as a liberating end in itself.” 4 Please see https://www.thenation.com/article/archive/sartres-roads-freedom/. Accessed June 10, 2020. 5 Please see https://voegelinview.com/two-critics-of-the-ideological-lie-raymond-aronsencounter-with-aleksandr-solzhenitsyn/. Accessed June 10, 2020.

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That Sartre later changed his totalitarian affiliations from the Soviet Union to Maoist China did little to alleviate his moral culpability, especially in the eyes of those who had suffered at the receiving end of Sartre’s very brand of socialism. In fact, Sartre’s support for the regime that had imprisoned millions of innocent men and women was reason enough for Solzhenitsyn to not associate with the Frenchman. Sartre, living in France as he was, could afford himself to be naively tolerant, even supportive of a tyranny whose claws could not reach him. Yet Sartre, like many other Western socialists to whom the practice of Leninist government theory was a distant abstract, failed to comprehend the limitations that their ideological sophistry placed on their appeal. From his Parisian outlook, Sartre saw himself as Solzhenitsyn’s equal, perhaps even in a position to educate the Russian dissident. Therefore, it is not surprising that Sartre was “bewildered” when Solzhenitsyn refused to meet with him in Moscow, a city Sartre visited on many occasions.6 To Sartre’s credit, though, Solzhenitsyn’s moral clarity gradually swayed him: perhaps reluctantly, but still, Sartre adjusted his political thinking to Solzhenitsyn. He evolved morally, moving away from violence and totalitarianism. It is an open question exactly to what extent this intellectual growth of Sartre’s can be credited to Solzhenitsyn. What is clear, though, is that Sartre was only one of many French socialists who were deeply affected by the moral challenge embedded in Gulag. The process of rethinking socialism is eloquently captured in a film from 1978 by Australian filmmaker and publisher Michael Rubbo. Under the aptly chosen title Solzhenitsyn’s Children,7 Rubbo and FrenchCanadian journalist Louis-Bernard Robitaille document how Gulag reverberated through the French socialist movement in the late 1970s. They brilliantly put the spotlight on how socialists began looking for a way to put a democratic adjective in front of their ideology. Such a prefix already existed in the form of “social democracy,” but most socialists at the time considered it to fall outside of the realm of their ideology. Nevertheless, it is one of history’s ironies that socialists who made great strides to draw a demarcation line between them and the social democrats 6 Please see https://www.latrobe.edu.au/news/articles/2008/opinion/alexander-sol zhenitsyn-is-the-man-who-put-the-writing-on-the-wall-for-leninist-totalitarianism. Accessed June 10, 2020. 7 Please see https://www.youtube.com/watch?v=2yPoEqbIThs. Accessed June 10, 2020.

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were inspired by Gulag and the Prague Spring into moving closer to their ideological stepbrothers. In the aftermath of, and even more so in response to, Solzhenitsyn’s challenge, many socialist parties in Europe folded into traditional social democracy. Others morphed into what became known as the peace and environment—or green—movement. These changes did not come easy, though; first, the repercussions from Gulag had to work their way through the socialist community of Western Europe. It reached Scandinavia. Berntson and Nordin (2017) highlight the influence on the Swedish left from Solzhenitsyn, but also from Charta 77 and the Solidarity movement in Poland. It became difficult for the “Soviet-friendly” movement, including the organizations promoting nuclear disarmament, to maintain their favorable views of the Leninist regime.8 They also note that the changing tunes among French socialist philosophers were picked up in Sweden. Ljunggren (2009) makes a similar observation, noting that the Swedish left made a futile attempt to try to preserve Marxism by separating it from the Soviet Union. The dominant communist party, VPK, moved to distance itself from Moscow, provoking a Leninist minority to break off and form the “Communist Workers Party,” APK. While the splinter group withered away, the VPK prevailed and maintained its communist party platform. In Denmark, the resistance to Solzhenitsyn’s challenge was stronger, at least to begin with. Jensen (2014) explains how, in reaction to the Danish publication of Gulag, the chairman of the DKP, the Danish Communist Party, offered the Soviet Communist Party to launch a smear campaign against Solzhenitsyn in Denmark. However, he also reports a broader reaction in the Danish left, not limited to the communists. A widely read and highly respected magazine called Kultur og Klasse—Culture and Class—even spent a whole issue criticizing Gulag and Solzhenitsyn, whom they referred to as a “right-wing defector.”9 Perhaps the Danish people were quicker to pick up on the Gulag narrative than the communists were: in 1979, the DKP lost its seats in the Danish parliament, the Folketinget. An intra-party debate began over the ideological dividing line that the Prague Spring and Gulag had drawn

8 Author’s translation from Swedish. 9 Author’s translation from Danish.

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up. It continued for three years, whereupon the DKP lost several leading members. One of them was writer and artist Dea Trier Mørch, whose explanation for her decision—published in the socialist daily Information—captures the same search for a democratic prefix to socialism that at the time was well under way in France. In her own words, the prefixing effort was more about political methodology than ideology, but it fell right along the lines drawn up by the Prague Spring and the exposure of totalitarianism in the Soviet Union10 : The doctrine from the late 1960s through the mid-1970s is no longer applicable … Communists in Western Europe must get away from the notion that a so-called dissident immediately is an enemy of socialism.

She then urged the DKP to denounce as unacceptable the measures that the Soviet Union was using against opponents to communism: deportation, forced exile, and incarceration at mental institutions. In other words, she questioned the Leninist government as a political method while still agreeing with the ideological end goal of that same government. For communists like Mørch, the only realistic alternative was to join the social democrats. Based on its parliamentary position in many countries, there was a strong case to be made that it represented a viable alternative to Soviet socialism. The Scandinavian countries have long had well-established social-democrat parties, with the welfare state as their political methodology. Their strong support among voters, especially in the twentieth century, allowed for extended periods of time in government. They have built a long resume of gradualist reform, a resume that to at least some degree has limited the appeal of more radical communist parties. That said, it is worth noting how the Swedish social democrats have relied critically on the communist VPK to inch ahead of the center-right block for parliamentary majority. Germany is home to perhaps the most unrepentant socialist movement in Europe. After reunification in 1990, the old East German Communist Party underwent a reform process where it formally became a more mainstream-style Western Socialist Party. However, ideologically, they remained to the left of traditional social democracy; even 15 years after the 10 Please see https://www.leksikon.org/art.php?n=3129. Accessed June 10, 2020. Author’s translation from Danish.

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fall of the Soviet Union, Die Linke-PDS (the Left – Democratic Socialist Party) and their leader at the time, Sahra Wagenknecht, proposed a strong communist party aimed at bringing the East German flavor of socialist ideology to the rest of the country.11 She expressed her unrepentant allegiance to Leninism in her 2003 book Capitalism in Coma: a Socialist Diagnosis. In a pamphlet by Die Linke-PDS titled Für Eine Anti-Kapitalistische Linke (for an Anti-Capitalist Left), published during Wagenknecht’s chairmanship, they even state that life in a free society is worse than life under the Soviet regime. Since then, the Soviet references have become less pronounced. Today, the party is de facto a coalition of caucuses, harboring both the traditional social-democrat Netzwerk Reformlinke and more or less openly Soviet-socialist Antikapitalistische Linke and Marxistisches Forum. However, the radical strain has remained strong and vocal—so vocal, in fact, that the party has attracted the interest of Verfassungsschutz, the German state-security service. As a whole, Die Linke commands a steady presence in federal German elections. In the past four elections, they have averaged 9.6 percent of the votes. This is a relatively common election performance for a European Socialist Party to the left of the social democrats, but there are those that do considerably better. It is also worth noting that the socialist left is split up between traditional socialist parties and environmentalists. Nevertheless, the legacy of Gulag has been permanent. Outside of the realm of reform-seeking socialists, many doctrinarian Soviet socialist or communist parties struggled in the wake of Solzhenitsyn’s challenge. Their difficulties were visible in parliamentary election results, strikingly coinciding with the publication of Gulag. Starting in the late 1970s, the French communists experienced a dramatic drop in electoral support: while attracting some 20 percent of the votes in the period from 1958 to 1978, they were cut in half during the 1980s. Their decline has continued, with only 2.7 percent support from the electorate in 2017. By contrast, the Parti Socialiste, the French social-democrat party, capitalized on the communist decline. From 1973 to 1981, they expanded from 23.7 percent of the votes to 49.3 percent. It was not until 2017

11 FrontPageMagazine, July 14, 2006. Archived at https://www.freerepublic.com/ focus/f-news/1666966/posts. Accessed June 11, 2020.

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that their electoral base evaporated: after roller-coasting between 31 and 43 percent for several elections, they imploded to only 5.7 percent.12 In Italy, the communist party (PCI) also began a long decline in the 1970s. After a peak in the 1976 election with 34.4 percent of the votes, the PCI slowly withered away until its dissolution in 1991.13 As in France, declining support for the communists benefited the democrat-socialist alternative, PSI. Originally open-minded toward Soviet socialism, the PSI distanced itself from the Soviet Union in the 1980s. Embracing a “liberalsocialist” ideological agenda under the leadership of Bettino Craxi, the PSI gained ground in subsequent elections. It peaked above 14 percent before the so-called Tangentopoli scandal in 1992 put an end to Craxi’s political career.14 Overall, most of the European left has managed to remain relevant. After replacing the Soviet prefix with a democratic one, European socialists have prevailed and maintained strong influence over politics and the economy. Democratic socialists have kept, even solidified their position as the definiens of the continent’s political and economic system. This has amplified the demarcation line between the two definitions of socialism: the Soviet one, which is based on the termination of property rights, and the redistributive one, which relies on the welfare state to advance their ideology. As a result of the shift in voter support from the former to the latter, economic and social policy across Europe has shifted accordingly. The redistribution of income, consumption, and wealth has steadily become more pronounced, even since the European Union was formed. The EU has at times drawn criticism from the left for not being socialist enough, yet since the Maastricht and Lisbon Treaties—the EU constitution— went into effect, the welfare state has continuously expanded its share of European economies. In 1995, on average, 60.1 percent of government

12 It is likely that the 2017 election was more of a verdict on incumbent socialist

president Francois Hollande than an abandonment of the socialist ideology per se. 13 This party is not to be confused with the CSP, Communista - Sinistra Popolar, or the popular-left communist party, founded in 2009. 14 Please see https://www.independent.co.uk/news/world/the-sleaze-factor-cleanhands-team-fails-to-wash-away-tangentopoli-dirt-fiona-leney-looks-at-italys-1444839.html. Accessed June 11, 2020.

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spending in EU member states was dedicated to economic redistribution; in 2018, that share exceeded 67 percent.15 With two-thirds of government spending being devoted to economic redistribution, and with parliamentary democracy as the prevailing political system, the European left has undoubtedly succeeded in reforming its political methodology. It has not abandoned its socialist ideology, but it has heeded—explicitly or implicitly—the calls from both Dubˇcek and Solzhenitsyn to exclude totalitarianism from their ideological toolbox. This has solved their problem in terms of democratic credibility; for now, they have found a recipe for successful cohabitation between socialism and democracy. The question that still begs for an answer is: “When is government big enough?” Can the welfare state grow so large that democracy can no longer be its roommate? The Czech reformists approached the problem with the uneasy cohabitation from the angle where socialism puts a cap on democracy. In Western Europe and America, democracy puts a cap on socialism. The tension between the two has taken many forms. As an illustration of what this cap means in reality, in the 1980s the Swedish government experimented with socialization of large corporations without formally challenging private property or parliamentary democracy. The case of the Wage Earners Trust Funds makes for a good case study of how the line is blurred between the two definitions of socialism.

A Penultimate Moment in Sweden When socialists affix “democratic” to the front of their ideology, they are reluctant to let go of it. While understandable, this also presents the nonLeninist socialist with the pertinent and as of yet unanswered question: What does he do when democracy caps the progress of his ideology? This question calls for an answer under the premise that the welfare state and the Leninist government model are two separate methods for attaining the socialist goal of complete egalitarianism. Further highlighting this question is the historic fact, as well as theoretical conclusion, that it takes more time to reach the socialist end station 15 Calculations based on raw data on government spending published by Eurostat. The welfare-state share is defined as the sum total of spending on housing and community services, health care and health insurance, recreation and culture, education, and social protection. Please see https://ec.europa.eu/eurostat/.

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under parliamentary democracy than it does under the Soviet model. A welfare-state government has to use taxes and entitlement spending to gradually reduce economic differences; in terms of capitalism itself, the political method is to keep it in form but eventually eliminate its economic meaning. What happens when the grinds of ideological pluralism do not work in the socialist’s favor? The 1980s provided an example of what the answer can be. It emerged within the framework of a parliamentary democracy; that is, it did not seem to require the reformist socialist to cross the final line of democratic transgression into Leninism. In reality, though, that line was being blurred to the point where a parliamentary democracy could have slid across, into the communist fold. As a background for the example, it is worth noting that in the 1980s a reform idea showed up on the fringe of the European left, one that was deliberately developed to give democratically minded socialists a tool for the termination of property rights without resorting to conspicuous Leninist government methods. The idea was to eliminate the shareholder institution by means of legislation: corporate stock would be converted into corporate bonds. This idea never gained any noticeable support outside of the more faithful socialist circles, but it illustrates the ambitions with which the left continuously strives to expand the reach of its ideology. Another example, much more promising from a socialist viewpoint, was implemented in Sweden in the 1980s. After their election victory in 1982, the Swedish social democrats, supported by the communist party, VPK, passed into law a system of government-run trust funds. The purpose was to purchase stocks in large corporations so that ownership would gradually shift from private hands to government. Funding would come from a special corporate income tax (in addition to the existing corporate income tax). The funds, which went into effect in 1983, were formally known as Wage Earners Trust Funds, or WET Funds—löntagarfonder in Swedish. The WET Funds were the culmination of a 12-year-long effort by the social-democrat party and its labor union affiliates. Viktorov (2009) reports the ideological motive as a combination of discontent “with undemocratic order in working life” and “concentration of economic power.” These are interesting terms in view of how the leaders of the Prague Spring formulated their ambitions to reinvigorate socialism. Under Dubˇcek’s leadership, the Czech reformists sought to revitalize

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democracy, but their definition of the term had nothing to do with how the country was governed. They were focused entirely on corporate governance. The Swedish WET Funds were cut from the same ideological cloth. During the Prague Spring, the Czech leaders also made clear that they had no intention to reintroduce private ownership of the means of production. Under the socialist definition of democracy, private property is not democratic. There is no room for capitalism. In the eyes of the socialist, capitalism concentrates ownership of capital—hence the term “economic power.” Socialism, it is said, democratizes ownership by transferring it to government. The Swedish trust-fund reform fell within the same socialist concept of democracy: the plan to let government become a growing shareholder in large corporations was long term in scope and clearly ideological in nature. There was no mistaking this long-term goal; during the nine years that the WET Funds existed, they built up substantial stock portfolios. In 1992, they were worth $4 billion, or $7.3 billion in 2020 prices. Despite their might, the funds could still not become a systemic game changer: their ownership was equal to only three percent of the total shareholder ownership among Swedish households at the time. However, that was not for lack of will on behalf of the left: thanks to concerted conservative opposition the social-democrat government refrained from expanding the funds. When the center-right coalition won the 1991 election, it made it a priority to dissolve the WET Funds. This was a logical consequence of their persistent opposition to the funds, an opposition that stretched back all the way to the early 1970s when the WET Funds first surfaced in the Swedish political discourse. During that decade, a dedicated campaign from the national Swedish employers’ federation, Svenska Arbetsgivareföreningen, and other right-of-center organizations forced the social democrats to water down their WET Funds model. In a significant illustration of the tension between socialism and democracy, voter support for the WET Funds remained lukewarm throughout the 1970s. The social democrats even lost two elections, in 1976 and 1979, partly because of the debate over their ambitions to socialized corporate ownership. Determined to win in 1982, the social democrats offered a lighter version of its WET Funds model. It worked: despite the headwind from the right-of-center opposition to the funds (Viktorov 2009, 13), the left prevailed.

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Once they had regained parliamentary majority, the social-democrat party and the VPK, their communist auxiliary, created the WET Funds but otherwise maintained a low ideological profile. This helped them win again in 1985 and 1988. They lost in 1991 in good part because of a deep recession and the macroeconomic fallout from a badly botched tax reform (leading to a brief but painful episode of double-digit inflation). Upon taking office, the center-right coalition began an arduous process to dismantle the trust funds. Despite the socialists winning again in 1994 (after which Sweden shifted to four-year parliamentary terms), there was no mention of the WET Funds again. Their failed attempt to shift socialist political method, from economic redistribution to the confiscation of private property, was a valuable lesson not only for them, but for socialists in general. Parliamentary democracy stood in the way, this time. It is, again, inherent to socialism to grow government until the question “When is government big enough?” has been answered with the elimination of all meaningful economic differences between individual citizens. To be clear, even though democracy has put the brakes on socialism, it has not stopped the expansion of the ideology, let alone eased the tension between democracy and socialism. To stick to the Swedish example, the WET Funds idea remains alive as an ideological ambition. Several socialist political organizations still advocate it in one form or another. For example, the social-democrat party’s youth league, the SSU, demand in their political-principles program that the party recreate the funds and make government overall take a more active role in corporate ownership.16 The communist party, VPK, now known as the Left Party, is more explicit in its ideological ambitions. Socialism, they say, cannot be achieved unless capitalism gives way. As if to drive home the point that this means abolishing private corporate ownership, the Left Party wants to create a new system of WET Funds and expand their influence and corporate ownership. The purpose is to “strengthen worker power and socially productive influence over production and finance.”17

16 Please see https://issuu.com/ssu1917/docs/politiskt-handlingsprogram. Accessed June 11, 2020. 17 Please see https://www.vansterpartiet.se/app/uploads/2017/06/Partiprogram_V1jun2017.pdf. Accessed June 11, 2020.

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The terminology echoes of Marxist economic theory, where labor value produced at the microeconomic level is aggregated into macroeconomic social value. The Left Party youth league, creatively named “Young Left,” goes even farther, stating openly that corporate profits should be subjected to “long term economic planning.” They also make clear that they are revolutionary, with their roots in the communist workers’ movement.18 So far, elections have stood in their way, limiting their political influence to a support function for social-democrat governments; they won eight percent of the votes in the 2018 election. This again illustrates the dilemma faced by the democratic socialist left: What do they do if elections do not give them the majority they seek? This question is more than purely theoretical. The Left Party envisions fundamentally reforming away the economic system that is built on shareholder ownership of corporations. In their platform of ideological principles, the party declares that a socialist economy is “fundamentally a different system” from free-market capitalism. To ease anxiety over what the ideological end station they may be bound for, they also explain that various forms of business ownership are permissible. It is worth noting those ownership forms19 : • • • •

Employee proprietorships; Cooperatives; Public, i.e., government; and Private ownership.

The last one appears innocuous, but it does not include shareholder corporations. In other words, this list resembles the ideological realm within which the Prague Spring reformists placed their vision of a less rigorous form of central economic planning. Another parallel between, on the one hand the Swedish Left Party and other European socialists, and on the other hand Czechoslovakia of 1968, is in the Left Party’s declaration that a “democratized economy

18 Please see https://ungvanster.se/wp-content/uploads/2018/02/PrincipprogramUng-Vänster-2017.pdf. Accessed June 11, 2020. 19 Please see https://www.vansterpartiet.se/app/uploads/2017/06/Partiprogram_V1jun2017.pdf. Accessed June 11, 2020. Author’s translation from Swedish.

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makes it possible to … focus production on what is necessary and desirable, as opposed to what produces the largest and fastest profits.” This is an unspoken reference to labor-value theory as a replacement for market prices and to the Marxist notion of productive or subsistence consumption. Furthermore, the term “democratized economy” is closely reminiscent of formulations during the Prague Spring: the idea is to move away from capitalism (Sweden) or prevent its reintroduction (Czechoslovakia).

An Ideological Lesson Again, democratic elections have kept this vision of property-rights eliminating socialism from materializing in Sweden. That, however, does not mean that socialism has not advanced there. It has just taken a different path, namely one of high taxes and widespread economic redistribution by means of a welfare state. From a formal viewpoint, this means that property rights are intact; in reality, taxation compromises those rights by forcing the property owner to surrender part of it to government. To this point, it is important to note that a tax on income is also a tax on property; in this case, the property is a man’s labor and what he earns from putting it to work. To use the Marxist notion of labor exploitation, an income tax means that a person works part of his workday not for himself but for government; the tax lays claim to part of his workforce, thus taking ownership of that part. The comparison to the labor-capital relationship is even more compelling given that the worker-employer relation is voluntary, while taxes are not. Therefore, the tax infringes on the worker’s property right in a way that profits do not. The higher the tax, the larger the infringement. Taxes have a similar effect on corporate ownership. A shareholder earns dividends in return for his risk-based investment in the corporation. When a tax claims part of that dividend, it diminishes the right that the shareholder has to his investment, i.e., the shares he owns. In other words, the practical meaning of his property right is weakened but not formally abolished. The lessons from the Prague Spring and Gulag were for the socialist movement to refrain from demanding the abolition of property rights. The pursuit of corporate socialization was, at least generally, a counterproductive strategy, and the experience has helped put in front of

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the socialist movement the dilemma illustrated by the Swedish WET Funds example. Parliamentary democracy puts a cap on the expansion of socialism. When socialists try to break through the cap, tensions rapidly rise between democracy and their ideology.

Conclusion The Prague Spring proved that economic reforms are de facto impossible under Leninist socialism. However, together with Solzhenitsyn and to some degree the Charta 77 movement, it inspired a broader, international debate over the relationship between socialism and democracy. The debate inspired reforms to the socialist movement in Western Europe. It has been less recognized that a similar debate took place in Sweden during the 1980s, over a proposal to slowly socialize corporate ownership. The accumulated experiences from Czechoslovakia to Sweden show how uneasy the cohabitation can be between socialism and democracy.

References Berntson, L., & Nordin, S. (2017). Efter revolutionen. Stockholm: Natur & Kultur. Bideleux, R., & Jeffries, I. (1998). A history of eastern Europe: Crisis and change. London: Routledge. Bracke, M. (2008). French responses to the Prague spring: Connections, (mis)perception and appropriation. Europe-Asia Studies, 60(10), 1735–1747. Confino, M. (1991). Solzhenistyn, the west, and the new Russian nationalism. Journal of Contemporary History, 26(3–4), 611–636. Dunlop, J. (1981). Important points missed. Slavic Review, 40(3), 457–460. Feiler, A. (1936). The Soviet union and the business cycle. Social Research, 3(3), 202–303. Garrard, J. (1975). Things left unsaid: Solzhenitsyn’s “Gulag Archipelago”. Books Abroad, 244–248. Godard, S. (2018). The Council for Mutual Economic Assistance and the failed coordination of planning in the socialist bloc in the 1960s. In M. Christian et al. (Eds,), Planning in cold war Europe: Competition, cooperation, circulations (1950s–1970s ). Boston, MA: De Gruyter. Goldman, M. (1976). The Soviet economy is not immune. Foreign Policy, 21(Winter), 76–85. Hook, S. (1979). Solzhenitsyn and Western Freedom. World Literature Today, 53(4), 573–578.

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Ickes, B. (1990). Do socialist Countries Suffer a Common Business Cycle? Science & Society, 72(3), 397–405. Jensen, B. (2014). Ulve, får of vogtere: den kolde krig i Danmark 1945–1991. Copenhagen: Gyldendal. Kraus, M. (2007). Did the Charter 77 Movement Bring an End to Communism? New England Review, 28(2), 134–146. Ljunggren, J. (2009). Inget land för intellektuella. Lund: Nordic Academic Press. Lunghi, H., & Ello, P. (Eds.) (1968). Dubˇcek’s blueprint for freedom: His original documents leading to the invasion of czechoslovakia. London: William Kimber. Malecki, E. (1977). A Marxian Interpretation of the New Left. The Western Political Quarterly, 30(1), 35–59. McCoy, T. (1973). Comment on John Rawls’ “A theory of justice”. Soundings: An Interdisciplinary Journal, 506(3), 349–358. Monas, S. (1981). GULag and Points West. Slavic Review, 40(3), 444–456. Skilling, G. (1981). Charter 77 and human rights in czechoslovakia. London: George Allen & Unwin. Smith, J. (2014). Agricultural Involution in the Postwar Soviet Union. International Labor and Working-Class History, 85(Spring), 59–74. Solzhenitsyn, A. (reprint 2007). The Gulag Archipelago. New York: Harper. Stoneman, A. (2019). Socialism with a human face: The leadership and legacy of the prague spring. The History Teacher, 49(1), 103–125. Viktorov, I. (2009). The Swedish employers and the wage-earner funds debate during the crisis of Fordism in the 1970s and 1980s. Department of Economic History, Stockholm University. Wasserstein, B. (2007). Barbarism and civilization: A history of Europe in our time. Oxford: Oxford University Press.

The American Welfare State Today

The dilemma with the tension between socialism and democracy is underscored by the support that the welfare state enjoys, both in Europe and in North America. This support, universal of course as it is within the left, reaches far and wide outside socialist circles. European conservatives and classical liberals surrendered to it a long time ago, and their American ideological peers have accepted the welfare state as a matter of fact. Without a doubt, socialists have been successful in establishing economic redistribution, with its taxes and entitlement spending, as the unrivaled socio-economic structure in Western economies. They have galvanized it as their democratic path to socialism and their ultimate, albeit distant, ideological end goal. Their success is evidenced by how the welfare state has gradually grown, both in Europe and in America, as the ideological mission of government. In the European Union, taxes claim north of 40% of the total economy in 16 of the 28 member states.1 This level appears to be widely tolerated, as there is little variation in the tax-to-GDP ratios both across nations and over time. The US economy is not far behind, with a 34-percent total tax-to-GDP ratio in 2019.

1 Calculations based on raw data on government spending published by Eurostat. Please see https://ec.europa.eu/eurostat/.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. R. Larson, Democracy or Socialism, https://doi.org/10.1007/978-3-030-65643-0_5

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The welfare state was well established already in the 1970s: many leading European politicians praise it as having struck a sustainable balance between socialism and democracy (Esping-Andersen 1990; Castles 2004; van Kersbergen and Vis 2014). In his book from 1984, The Welfare State and Beyond, Gunnar Heckscher, former leader of the Swedish conservative party, acknowledges that his political adversaries in the Swedish social democracy had won the battle against free-market capitalism. The problems that remained to be solved in order to make the welfare state work, said Heckscher, were limited to technical solutions to the delivery of entitlement benefits. Experience from the past few decades has proven Heckscher wrong: the welfare state won an ideological victory, but it came at the price of widespread economic stagnation (Larson 2014). With industrial poverty following in the footsteps of the welfare state, the democratic socialist’s answer to the essential question has never been more important: how far is he ready to advance his ideology before the realm of a traditional, democratic government proves to be too small? For the past 40 years, the American answer has been fiscally schizophrenic: • On the one hand, the welfare state has grown steadily, enjoying bipartisan support in the expansion of existing and addition of new programs; • On the other hand, on three occasions since the start of the War on Poverty, Americans have voted for Congressional majorities and presidents (Reagan, Bush Jr., Trump) whose primary fiscal contributions have been to cut taxes. Those tax cuts have, if not prevented, at least slowed down America’s foray into socialist ideological territory. Yet the tension between support for the welfare state and opposition to taxes—crudely representing the tension between socialism and democracy—is as vibrant as ever in American politics.

Ideological Metamorphosis The American welfare state did not emerge from a vacuum. It was built gradually, over an extended period of time. Regardless of where in time one places it first cornerstone, two years are of critical importance to its

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evolution: 1935 and 1964. In 1935, Congress passed the Social Security Act and created a package of programs aimed at making poverty a dignified experience. In 1964, President Lyndon Johnson presented his Great Society vision and declared War on Poverty. It is sometimes suggested that the Social Security Act of 1935 was an ideological game changer for the role of government in America. This is incorrect: while the Act allowed government to take a step forward, especially economically, it was not written to codify redistributive socialism. If anything, it reinforced social conservatism as the ideological architecture of the American welfare state. The Social Security Act, a.k.a., H.R.7260 of the 73rd Congress, created five new entitlement programs:2 Title I Old-Age Assistance Grants to States, providing benefits “to aged needy individuals”; Title II Federal Old-Age Benefits Reserve Account, which was the beginning of the OASDI or “Social Security” entitlement system as it is known today; Title III Grants to States for Unemployment Compensation; Title IV Grants to States for Aid to Dependent Children, a program that later became Aid to Families with Dependent Children, subsequently reformed into Temporary Assistance to Needy Families; Title V Grants to States for Maternal and Child Welfare, which laid the groundwork for modern-day programs such as WIC. The common denominator for these programs was their focus on providing a last-resort financial safety net for those who, for no fault of their own, had lost the means to provide for themselves. It is here that the Act reveals its ideological architecture; the fact that it forcefully redistributed money is not to be ignored, but the entitlements it created bore

2 Please see https://www.ssa.gov/history/35act.html. Accessed June 26, 2020.

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a compelling resemblance to private charity. Of equal importance is the fact that with the Act, Congress did not create programs that paid out cash or provided in-kind benefits to gainfully employed individuals. The history of the American welfare state can, broadly speaking, be understood in terms of a welfare-state typology and the transition between the three types within it (Myrdal and Myrdal 1934; Myrdal 1960; Kunze 1971; Titmuss 1974; Esping-Andersen 1990; Castles 2004; van Kersberger and Vis 2014; see also Trattner 1999): • Subsistence. This welfare state provides residual benefits, sometimes compared to the British Poor Laws of the sixteenth century. EspingAndersen (1990) has referred to it as the “liberal” welfare state, though he gives the term a European meaning. The American equivalent of Esping-Andersen’s “liberal” welfare-state type would fall under the banner of Goldwater conservatism. The benefits provided under this type are below last-resort: they are essentially subsistence, akin at best to what would be required for survival under the Ricardian iron law of wages. A key purpose behind the low level of benefits would be to preserve incentives toward workforce participation. • Dignification. A step up from the subsistence welfare state, this type has also been labeled “socially conservative.” Benefits are provided on the basis of last resort, but they are more comprehensive than under the subsistence welfare state, above the iron-law minimum. The Social Security Act of 1935 joins the British Beveridge Report of 1946 in laying out the structure for a dignifying welfare state. • Redistribution. Colloquially this is known as the Scandinavian welfare state. It has also been called the social or social-democratic welfare state. Here, the goal is no longer to alleviate poverty but to redistribute income, consumption and wealth. Benefits are no longer available on a contingency basis, but in the form of morally motivated entitlements. If the Social Security Act planted the American welfare state in the Dignification category, the implication being that it started out under Subsistence (a debatable proposition), the War on Poverty promoted it to the Redistribution category. However, President Johnson did not spring

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this new type of welfare state on his nation based on some whim. His “Great Society” vision followed logically from the evolution of thought at the time within philosophy and political economy. On the philosophical side, John Rawls developed a moral theory defending economic redistribution as just and fair (1957, 1971). He began his quest for justice by identifying liberty and justice as two sides of the same coin. He then defined liberty as a zero-sum game: there is, Rawls suggests, only a constant amount of liberty. If one man has more of it, another man must have less. Therefore, Rawls assumes (not proves), justice is the instrument by which liberty is distributed equally among citizens. Essentially applying Marxist theory to liberty and justice, Rawls provided a moral argument for economic redistribution. It aligned well with the work being done during the same period of time by Harvard economist John Kenneth Galbraith, who outlined the case for a Scandinavian welfare state in America (1958, 1973). As an advisor to President Johnson, Galbraith had strong influence on the formulation of the War on Poverty and the president’s Great Society vision (Larson 2018). While Galbraith and Rawls originated a great deal of thought that eventually motivated the leap of the American welfare state from dignified to redistributive, it was President Roosevelt who actually planted seeds of the same ideological strain. What was a dignifying, socially conservative welfare state by ideological intent, in reality became a staging ground for a welfare state of socialist architecture. In itself, Roosevelt’s New Deal was not Marxist; in some limited ways it was even “fundamentally hostile to Marxism” (Rogin 1938, 14). To the extent the New Deal was guided by an identifiable ideology, evidence points more toward social conservatism than socialism. In a comprehensive literature review, Kidd (1988) presents the New Deal as transforming the role of government in American society and its economy, but not beyond economic role of a socially conservative state. This role is exemplified in the deliberations of the Roosevelt administration over unemployment benefits. Initially, it emphasized cash benefits over public works (Garraty 1973) and created a system of basic entitlement benefits that formed a last-resort level of existence (Larson 2018, Chapter 2). In other words, government did not engage in socialist economic redistribution, i.e., it did not provide benefits on a permanent basis to working adults.

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With that said, in line with Joseph Schumpeter’s theory of democracy, the New Deal has been seen as a bridge leading America closer to democratic socialism (Medearis 1997). Schematically, the journey from the social conservatism to democratic socialism is a trade-off with dynamic implications. Despite the ideological intent being socially conservative and the entitlement programs under the Social Security Act being restrained to last-resort duty, they worked as an institutional platform for an ideological metamorphosis. As government expands with new programs; over time the ideological design of their shifts from socially conservative (Franklin Roosevelt) to socialist (Lyndon Johnson). Consequently, socialism enters the ideological realm of the welfare state at the expense of individual and economic freedom. This shift does not come about by happenstance. It is purposeful and often intentional. Even President Roosevelt appears to have been aware of this: there are suggestions that he saw the Social Security Act as only transitional in nature. In his State of the Union address of 1944, Roosevelt explained:3 This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights—among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty. As our Nation has grown in size and stature, however—as our industrial economy expanded—these political rights proved inadequate to assure us equality in the pursuit of happiness.

This passage in his speech is an ideological marker, an opening for socialist economic redistribution. However, Roosevelt also recognized that an ideological shift in the role of government from socially conservative to socialist and redistributive, could be antithetical to the US Constitution. Therefore, in his speech he also proposed a second Bill of Rights: We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.” People who are hungry and out of a job are the

3 Please see http://www.fdrlibrary.marist.edu/archives/address_text.html. Accessed May 29, 2020.

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stuff of which dictatorships are made. In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all

More recently, this has been referred to as a Social Bill of Rights.4 Roosevelt envisioned that it would guarantee • a “useful and remunerative” job; • wages that were “enough to provide adequate food and clothing and recreation”; • a “decent” home; • “adequate” health care and good health; • protection from “the economic fears of old age, sickness, accident, and unemployment; and • education (not specifically defined). This ambition was spelled out in President Johnson’s Great Society project, which revolved around his declaration that the “aim is not only to relieve the symptom of poverty, but to cure it and, above all, to prevent it.”5 Under this banner, numerous entitlement reforms followed: housing programs, Medicaid and Medicare, a substantial expansion of the foodstamp program, to mention a few. The most under-appreciated reform was the change of the official poverty definition, from a concept where poverty was absolute to where it became relative (Larson 2018, 14–17): • Absolute poverty is defined independently of the prevailing standard of living in a society; • Relative poverty redefines the poverty status from an absolute state of existence to earning a certain percentage of median household income.

4 Please see http://www.dsausa.org/a_social_and_economic_bill_of_rights. Accessed May 29, 2020. 5 Please see https://millercenter.org/the-presidency/presidential-speeches/january-81964-state-union. Accessed June 29, 2020.

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These two definitions are of opposing ideological breed and have dramatically different policy consequences. The absolute poverty concept, which limits poverty relief to a dignified last-resort experience, was manifested in the Social Security Act of 1935. By contrast, the relative concept which mandates that benefits be paid out to the gainfully employed has come to define every tax-paid entitlement program going forward from the War on Poverty reforms of 1964. It is here that the American welfare state undergoes an ideological metamorphosis. So long as benefits are contingent upon poverty status and poverty is defined in absolute terms, the benefits provided will remain constant over time regardless of how median household income evolves. By contrast, under a relative poverty concept benefits are provided based on income differences; the term “poverty” only plays the role of an arbitrarily chosen level of eligibility. If median income increases by a certain percentage, the poverty limit increases by as much. Therefore, the relative definition serves no other purpose than to reduce economic differences between individual citizens. To this point, Fig. 1 reports the US poverty rate as measured by the Census Bureau. From 1959 to 1969, the absolute poverty concept first remains the sole concept in use (1959–1964) then is replaced by a gradually modified relative concept. As a direct result, from 1969 on the status of poverty is in a more or less constant relationship to median household income. Therefore, the poverty rate has also become constant; since median income gradually increases, so does the income at which a person is classified as poor. The standard of living at which a family is defined as poor, increases gradually over time. Eligibility for benefits is now tied to a person’s income level, explicitly making benefits available for the purposes of economic redistribution. Again, the practical consequence of this has been a substantial change in the poverty trend in the United States. Before the relative concept was fully implemented, poverty declined steadily; once the relative concept had been put to work throughout the welfare state, the poverty rate stabilized.

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Likewise, during the 1960s the income threshold defining poverty declined steadily as a share of median household income. Since the 1970s that share has remained steady, as intended with the relative poverty concept. For example, in 2019 a family of four living in New York and making 128 percent of the federal poverty-limit (FPL) income, would qualify for the SNAP program (formerly known as food stamps). They could make up to 133 percent of the FPL and still qualify for Medicaid. As of 2020, e.g., in Minnesota and New York the threshold for being entitled to Medicaid is twice the poverty rate. For a family of four, this means they can make $52,400 per year and still qualify for Medicaid.6 In 17 states, the family could make 200 percent of FPL and their children would still qualify for SCHIP (Children’s Health Insurance Program) under Medicaid. Their eligibility for the federal Earned Income Tax Credit would cap out at 217 percent of FPL. Medicaid, SNAP, and EITC are only three of a range of programs available, but they capture the ideological architecture of the American welfare state. Their purpose is to redistribute income (EITC) and consumption (SNAP, Medicaid) from higher-earning taxpayers to those who earn less, but are still gainfully employed. As a reinforcement of this architectural profile, in addition to making working adults eligible, the sum total of entitlement programs offered under the welfare state add up to benefits that compete with gainful employment. As documented by Tanner et al (1995) and Tanner and Hughes (2013), it is possible to earn more on welfare programs than on working full time.

Welfare-State Entrenchment Since the start of the War on Poverty, Congress has expanded the welfare state in many directions. Sometimes the expansion has happened gradually with the growth of existing programs; sometimes it has leapfrogged with new entitlements. The expansion has met little resistance even as the welfare state was ideologically repurposed under the Johnson administration. Contrary to what ideological intuition would suggest, the

6 Based on the federal poverty limit for 2020.

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Republican Party has accepted the welfare state, even made its own additions to it. Explicit concerns over the socialist welfare state are few and far between, a notable exception being the Time for Choosing speech by President Reagan in October 1964.7 Overwhelmingly, Republicans have secured that there be bipartisan support for economic redistribution, with presidents from the party signing entitlement expansions into law much like Democrats have. In 1975, on President Ford’s watch, the Earned Income Tax Credit became law. President Reagan signed bills into law that expanded Medicaid and President Bush Jr. made Medicare expansion one of his signature achievements. A Republican Congressional majority worked closely with Democrat President Clinton to create the State Children’s Health Insurance Program (SCHIP) under Medicaid. It is a rare exception that the welfare state expands without bipartisan support. The Affordable Care Act (ACA), President Obama’s legacy item, met strong resistance from Republicans in Congress. However, while they made great strides in Congressional elections after the enactment of the ACA, they have subsequently accepted it as a matter of fact. Notably, since the War on Poverty began the ACA is only the second entitlement program over which there has been any ideologically motivated controversy; the first was the 1993 Health Security Act championed by President Clinton. With the debate over the ACA subsiding toward the end of the Obama administration, the health care field has instead become one of three venues for further welfare-state expansion. The other two venues are universal basic income and paid family leave. Up until early 2020, neither program existed under the realm of the federal government; with the Families First Act, a.k.a., H.R.6201 of the 116th Congress, private employers are now mandated to provide paid leave to their employees. This mandate resembles the mandate under the Affordable Care Act to provide health insurance, pointing to parallels between historic government expansion in health insurance and future expansion in paid leave. A socialist operating under the reformist banner will accept gradual growth of the welfare state, but it must grow. Its expansion happens according to three basic legislative rules:

7 Please see https://www.youtube.com/watch?v=qXBswFfh6AY. Accessed August 13, 2020.

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1. It is easier to expand an existing entitlement program than to create one; 2. The political opposition to a new entitlement program will be lower if the program is perceived as limited in scope and cost; and 3. Once an entitlement program exists, it is widely accepted that it must expand over time. In compliance with the two first rules, the American left has championed growth of government in health care by virtue of many small steps. Since resistance to single-payer health care has remained strong over time, it was preferable to create Medicaid and Medicare and then expand the programs over time. The addition of SCHIP followed the same gradualist political methodology. Once a program is in place and its benefits are available only on a limited basis, the third rule goes into effect. The amendment of Medicaid Expansion and the Basic Health Program to the existing Medicaid program has met with only moderate resistance. As prescribed by redistributive socialist ideology, these two programs have gradually extended their reach in terms of tax-paid entitlements in health care. The gradualist method does not only rely on slow growth of taxfunded programs: sometimes it is more beneficial to place a mandate on the private sector. When a program begins as a mandate, it can be paralleled or followed by a limited, tax-paid program that provides benefits for low-income earners. Over time, the selective program can then be expanded until, eventually, a universal, single-payer program emerges. As an entitlement program grows, its redistributive effect also increases. The redistributive nature of a provision mandate is limited to government enforcing one consumption pattern over another. By requiring the employer to pay out part of employee compensation in kind—health insurance or the service of financial security for paid leave—government imposes its own preferences for how consumers should spend their money. Although government involvement in the economy is less pronounced under a provision mandate than a formal entitlement program, the regulation is ideologically no less apparent than a formal, tax-paid benefit. The preferences behind a provision mandate are ideologically motivated and deemed to morally supersede the choices made by private citizens. As such, they build the stepping-stone for formal entitlement programs to be introduced in the future.

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Once the ideological dividing line has been crossed in compliance with the first and second rules of government expansion; once the practice of economic redistribution has been established in yet another area; the third rule of gradualist government expansion is activated. It is inherent to the socialist quest for an egalitarian end goal to move through the three rules at a pace that eases opposition without losing sight of the ideological horizon. The absence of an ideological debate over the welfare state makes such expansion even more likely, again not just in terms of health care. There is growing support across the ideological spectrum for both a universal basic income and a paid-leave program. Congress opened the continuum to a paid-leave program with the aforementioned Families First Act. The provision mandate included in the Act defines an entitlement to paid sick leave and “expanded” family and medical leave under three criteria:8 1. Two weeks of paid sick leave, with a benefit equal to 100 percent of the person’s regular wage or salary; 2. Another two weeks of paid sick leave at 67 percent of regular wage or salary; 3. Ten weeks of paid leave on stricter eligibility terms, at a benefit of 67-percent of regular wage or salary. This new program expands an already existing provision mandate. It moves the federal government from guaranteeing unpaid leave under the Family and Medical Leave Act—passed in 1993—to mandating that private employers provide paid leave to all their employees. In line with government expansion in health care, the next step will be a tax-paid program for low-income earners and for employers who cannot afford to comply with the paid-leave mandate. In association with this program, paid-leave tax breaks or formal subsidies will be introduced resembling those that are offered for health insurance under the Affordable Care Act. Eventually, the provision mandate, the subsidies and the selective entitlement program will give way to a universal, single-payer program for general, family income security. This program will cover all working adults

8 Please see https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave. Accessed June 30, 2020.

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and be administered under the same centralized model as Social Security. Based on an existing proposal from Senator Marco Rubio (R-FL),9 it may even be integrated into the Social Security structure itself. Some US states already have paid-leave programs, including California, New York, and Washington state, as well as in Washington, D.C. They have a more or less explicit redistributive ideological architecture to them, providing as they do benefits to a limited group while being financed with a tax on all income earners. To further enhance the ideological profile, some programs, such as the ones operated by the city of Washington, D.C., and by the Swedish government, replace a disproportionately large share of lower incomes. By contrast, the California program pays out benefits at approximately 60 percent of a person’s current income, up to a cap ($1,216 per week in 2018). In other words, higher incomes are ineligible in calculating individual benefits. Technically, the program also caps the tax that funds it at the same level as the income that pays for the tax, suggesting that the program is not redistributive in nature. In practice, though it is: the tax is paid by all income earners up to the tax cap, with a smaller population being eligible for benefits. The paid-leave program in New York is expanding, entirely in accordance with the ideology behind it. As of 2020, the tax-paid program offers ten weeks of paid leave at 60 percent of a worker’s earnings, with a benefits cap at the statewide average weekly wage. The benefits are set to expand in 2021 to 12 weeks at 67 percent reimbursement. With a taxfunding model similar to California, the New York program comes with the same redistributive feature. European programs are in general more redistributive in nature. However, it matters less to what degree a program is redistributive, than the fact that it is redistributive in the first place. Once the architecture of economic redistribution is there, the quantity of redistribution is more of a technical legislative matter than a principled one. Again, as the three rules of entitlement expansion prescribe, it is easier to expand an already existing program for economic redistribution than it is to create one.

9 Please see https://www.rubio.senate.gov/public/_cache/files/08934114-895a-4525bcdd-4105215004fa/5C4F75D39ED8D44BF58128208DB426CA.economic-securityfor-new-parents-act-rubio.pdf. Accessed August 30, 2020.

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Welfare-State Consensus Entitlements fall into two categories: • In-kind benefits such as single-payer health care, universal childcare, and tuition-free college; • Cash benefits under the banners of universal basic income or a job guarantee. The American welfare state is split about evenly between the two categories, but that may change. Congress has not yet copied all the in-kind programs that exist in European welfare states—single-payer health care and universal childcare being two of them—but while such new programs are likely, the debate also continues regarding cash benefits. In addition to paid family leave, the idea of a universal basic income has gained considerable momentum in recent years. This entitlement has been proposed under different labels, one of them being a job guarantee (Murray and Forstater 2013). In this format, every person in America would be entitled to a government job: since the job is guaranteed—the person is entitled to it—government cannot deny to put anyone on its payroll. Even if government has no projects to do for a person applying for the job guarantee, it must employ that person and put him or her on its payroll. This, however, is only a formality; since there does not have to be a need for the labor that the person provides, the job guarantee is in reality an income guarantee in disguise. While the job-guarantee idea enjoys support exclusively from the left, an income guarantee—a cash benefit without a formal job mandate attached to it–is viewed favorably by a broader audience. Curiously, its transparently redistributive nature has not deterred libertarian support. Gary Johnson, former governor of New Mexico and a 2016 libertarian presidential candidate, is said to have expressed openness to the idea.10 In 2019, Matthew Feeney with the libertarian Reason Foundation presented what he saw as a libertarian argument for a basic-income 10 Please see http://thelibertarianrepublic.com/gary-johnson-is-open-to-universal-basicincome/. Accessed June 30, 2020. This is a second-hand source, with a first-hand source that does not provide irrefutable evidence of Governor Johnson’s alleged position. However, given the widespread references to the claim that Johnson supports basic income, it should be possible to find a refutation from him, had the original reference been incorrect. In the context of this book, however, Governor Johnson’s supposed openness to the basic-income idea is used for illustrative purposes only.

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entitlement program.11 A similar argument comes from Matt Zwolinski at Libertarianism.org.12 Hemel and Fleischer (2017) make a scholarly effort at establishing the libertarian case for an income guarantee. Their contribution is telling of how there is consensus on the welfare state across formal ideological boundaries. Growing, nominally non-socialist support for a basic-income entitlement reveals how pervasive the idea of the socialist end goal has become; it is widely accepted that government ought to engage in economic redistribution. Instead of discussing the ideological nature of the welfare state, Hemel and Fleischer offer a conversation about the best design of an entitlement program for an income guarantee. This approach aligns well with the overall right-of-center approach to economic redistribution, namely that the welfare state is a matter of fact. In an opinion piece for the Libertarian Republic, Brett Linley proposes a basic income as replacement for all existing entitlement programs, including Social Security and Medicare.13 Charles Murray, an established, moderately conservative scholar with the American Enterprise Institute, has echoed the same sentiment. In an op-ed for the Wall Street Journal in 2016, Murray suggested that libertarians could accept a basic-income program “if it replaces all other transfer payments and the bureaucracies that oversee them.”14 Astute libertarians will point to the difference between a basic income on top of existing entitlements and one that replaces them all. This, they will say, illustrates the ideological divide between socialism and libertarianism. However, as superficially effective as this dichotomy may seem to be, it does not remove the libertarian from socialist territory. A basicincome program, regardless of format, solidifies the welfare state as the conduit for economic redistribution. To replace existing entitlements is

11 Please see https://reason.com/2013/11/26/scrap-the-welfare-state-give-peoplefree/. Accessed June 30, 2020. 12 Please see https://www.libertarianism.org/columns/libertarian-case-basic-income. Accessed June 30, 2020. 13 Please see https://thelibertarianrepublic.com/gary-johnson-is-open-to-universalbasic-income/. Accessed June 30, 2020. 14 Please see https://www.wsj.com/articles/a-guaranteed-income-for-every-american1464969586. Accessed June 30, 2020. Subscription required.

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to simply reform the welfare state for more efficiency. It is illogical of libertarians to endorse the idea. In terms of amending the welfare state with a basic-income entitlement, it is a classic socialist reform that inches forward the journey to the egalitarian end point. One of the most telling, recent examples of this gradualist socialist advancement bore the signature of 2020 Democrat presidential candidate Andrew Yang.15 His proposal was ideologically consistent with the practice of economic redistribution. There is yet another outcrop on the body of proposals for an income guarantee. Known primarily as a living wage, it relies on regulations of private contracts rather than a tax-paid entitlement. Resembling the health-insurance mandate in the ACA and paid-leave mandate in the Families First Act, the living-wage regulation would force private employers and their employees into a compensation contract that is not based on free-market conditions. By taking the form of a regulation, the living-wage mandate would enter the provision-mandate end of the spectrum through which an entitlement program expands over time. The formula used in estimates of the living wage is based on the notion that every individual is entitled to a specific standard of living; to maintain this standard, every employed person needs to make a certain amount of money per week. The livingwage mandate would force employers to pay that amount, regardless of what value the employee adds to his employer. Ideologically, the living wage belongs in the thick of socialism. Its proponents do not explicitly use Marxist terminology, but their idea is in all its essence a modified version of the labor-value theory and its corollary, productive consumption. In other words, it is stipulated that all employees by definition produce a minimum of labor value equal to their own productive needs—a value that is completely detached from the market value of the output (good or service) that they produce. The notion that labor deserves compensation unrelated to its creation of market value is a direct adaptation of Marxist economic theory for contemporary American policy reform. Its motivation in terms of consumer needs is just the flip side of the same coin: productive needs and labor value are the input and output sides of the same identity.

15 Please see https://www.libertarianism.org/columns/libertarian-case-basic-income. Accessed June 30, 2020.

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All basic-income versions, from the job guarantee through the basicincome concept to the living wage, have the same ideological architecture. They serve the purpose of removing the market price from economic transactions, introducing instead the Marxist value method upon which the Soviet Empire built its centrally planned economies. That is not to say the basic-income concept is transformative in the same sense as central planning would be. Its role is instead to expand the realm of administrative, or indicatively planned value in the economy—the value that is produced under government where market prices are absent—and thereby also expand the practice of economic redistribution. In the bargain, basic-income programs in all their forms reduce the scope for the free market. It is noteworthy how this slow shift of domains in the US economy commands respectable support in prominent libertarian circles. A particularly noteworthy example was penned by Vernon Smith, winner of the 2002 Nobel Memorial Prize in Economics and board member of the Mercatus Center, a reputable libertarian think tank. In an outbreak of ideological welfare-state creativity, Smith has presented a reform plan that would bring the Swedish Wage Earners Trust Funds to America. It is a plan that in size, pace and ideological fervor dwarfs the proposals for income-guarantee programs. His WET Fund model starts with the federal government selling its highway system to private investors.16 This libertarian thought is then ideologically crossbred with a neoconservative idea of public-private partnership and a socialist proposal for economic redistribution. As an isolated proposition, the privatization of highways rests on the sound notion that the private sector is better suited for matching cost with revenue and consumer preferences with the standard and capacity of the highway system. Furthermore, it is rational for a libertarian to bring this idea to life at a time when government spending in the United States is close to the same GDP share as in decidedly socialist welfare states. That said, reasonable arguments notwithstanding, it is noteworthy how Smith’s high privatization ambitions descend on infrastructure, not on health care, retirement security or education. Without context, it is presumable that Smith’s proposal is a thought experiment aimed at inspiring libertarian analytical prowess and ideological purity. However, context is never an afterthought; by intention, Smith sets his eyes on 16 Please see https://www.wsj.com/articles/trumps-best-deal-ever-privatize-the-inters tates-1498605231/. Accessed July 1, 2020.

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infrastructure privatization as a measure that does not advance libertarianism but solidifies the socialist welfare state. The sales revenue from highway privatization would be placed in what Smith refers to as a “Permanent Citizens Fund.” Faithfully copying the Swedish WET Funds, the PCF would invest its money in the stock market, thus making government a significant corporate owner. Dividends would be used to pay a basic income to every American. Everyone, Smith explains, “would hold an equal share” and get cash-paid dividends every year. This is the real purpose behind Smith’s highway privatization proposal: to create a basic income without having to raise taxes. In other words, the premise behind the entire reform idea is that an income guarantee is desirable and inevitable; the only remaining question is how to create that entitlement program. In his ambition to avoid pressing the tax button, Smith would place government at the center of the stock market. Its precise position depends in part on the impact that Smith would like the dividends to have on American family budgets. Under the very conservative assumption that this equals $500 per month, the fund would have to pay out just over $1.9 trillion per year to the American people. An income guarantee at this level would require considerable investment prowess; at five percent return, the Permanent Citizens Fund would have to have a portfolio of $38 trillion. With that capital at its disposal, based on stock market statistics in early 2020 (before the market volatility resulting from the coronavirus epidemic) the Fund would have been big enough to buy every corporation traded on the New York Stock Exchange, and almost half of NASDAQ. It would de facto have transformed the American economy in a way that the Swedish social democrats could not have hoped for when they created the WET Funds. The United States would have de facto ceased to be a traditional free-market capitalist economy cherishing the shareholder institution for corporate ownership. Instead, the country would have morphed into state-capitalist, neoconservative hybrid. The question that remains unanswered is to what extent Vernon Smith’s idea should be taken as anything beyond an exercise in ideological intersectionality. A sale of the federal highway system would fall significantly short of what would be needed in order to create a basic-income guarantee as envisioned by Smith. Generously, his reform idea is a thought experiment showing how deeply entrenched the socialist welfare state is in the American political discourse.

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At the same time, one has to wonder what reform models bright libertarian minds could produce if they parted with the premise that all public policy revolves around the welfare state. If their point of origin was libertarian ideological theory, the end result would ostensibly be very different, even clearly distinguishable from what the reform-minded socialist would muster. In its present shape, American libertarianism bears a closer resemblance to neoconservatism than the ideological foundation provided by John Locke and Robert Nozick.

Neoconservative Endorsement So far, the socialist welfare state has been a one-way project: once a country constructs a system of taxes and spending programs for the purposes of economic redistribution, the decision has de facto been made to not go back again. The welfare state enjoys unwavering support across the political spectrum; its backing from conservatives in general would seem curious from a general ideological viewpoint, given that conservatism is supposedly antithetical to socialism. However, European conservatives willingly participated in the evolution of the welfare state; in America there is a strain of conservatism that not only tolerates but actually endorses the welfare state, including its advanced redistributive form. Called neoconservatism, it is an often-misused label for an ideological brand that has had profound impact on American politics and public policy in the past several decades. In an essay series in 2011 for the Cato Institute, titled The Rise and Fall of Neoconservatism, Clemson University political scientist Bradley Thompson explained that neoconservatism, by the words of its proponents, is a “syncretic intellectual movement influenced by thinkers as diverse as Plato, Trotsky, and Hayek.”17 This characterization is not without merit. The Economist once noted that leading neoconservative Daniel Bell, the “sociologist of capitalism,” defined his own views as spanning most of the political spectrum: he was “a socialist in economics, a liberal in politics, and a conservative in culture.”18 In other words, a

17 Thompson (2011). 18 Please see https://www.economist.com/schumpeter/2011/02/03/daniel-bell-non-

neocon. Accessed May 29, 2020.

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spectrum not unlike what Vernon Smith covered with his proposal for highway privatization and a Permanent Citizens Fund. The issue of economic redistribution is more defining of neoconservative thought than is often recognized. Specifically, neoconservatives have no problem promoting a large welfare state; as Thompson notes, there is a disdain among neoconservatives for traditional American conservatism. He observes that this brand, sometimes referred to as Goldwater conservatism, is attached “to individual rights, limited government, and laissez-faire capitalism, and its rejection of the modern welfare-regulatory state.” By contrast, Thompson explains, neoconservatives believe they can master the welfare state by finding a golden mean between altruism and self-interest, duties and rights, regulation and competition, religion and science, socialism and capitalism.

In this short observation, Thompson provides a powerful explanation of why there is little if any resistance to the welfare state in American politics. The practical meaning of the neoconservative “golden mean” is to expand the welfare state to the very balance point where incentives to work just barely edge out the disincentives that come with the welfare state. Irving Kristol, often recognized as the founder of the neoconservative ideology as well as its movement, alluded to this in a 2003 Weekly Standard article,19 where he cites President Franklin Roosevelt as a twentieth-century neoconservative front figure. Starting with the Social Security Act of 1935, Kristol is favorable to the welfare state in all its evolution, notably also to its ideological metamorphosis in the 1960s. In their belief in a “golden mean,” neoconservatives ignore the inherent expansion of the welfare state. Kristol actually makes no effort to identify it; there is no aspiration to recognize, let alone analyze, the transition from Franklin Roosevelt’s socially conservative welfare state to Lyndon Johnson’s socialist sequel. On the contrary, Kristol makes a point of how he is not alarmed by “the growth of the state” in the way traditional conservatives are. If anything, neoconservative doctrine sees the growth of the state as both natural and inevitable. While it is easy to distinguish between libertarian thought and neoconservatism, it is difficult to tell neoconservatism from socialism. This task 19 Please see https://www.washingtonexaminer.com/weekly-standard/the-neoconservat ive-persuasion. Accessed July 1, 2020.

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grows increasingly arduous as one delves deeper into the intricacies of government spending and economic redistribution. There is, really, only one point where neoconservatism and socialism stand in visible contrast to one another, namely where the welfare state provides its benefits. Here, Kristol explains, neoconservatives “are happy to study alternative ways of delivering these services”: private providership under single-payer systems for health care, child care, and other in-kind entitlements will supposedly allow the welfare state to operate more efficiently than under the socialist model. While neoconservatives make a distinction between themselves and socialists on the matter of delivering welfare-state benefits, their model for public-private partnerships audibly echoes of the same line of thinking that can be found in libertarian contributions to the basic-income debate. Whether the benefit is in kind, as in the neoconservative model, or financial, as in the libertarian proposal, the method for delivering the benefit is the same: entirely paid through taxes but with private-sector latitude to shape the benefit at the end-user stage. Both Bradley Thompson and Irving Kristol see neoconservatism as first and foremost a pragmatist approach to the welfare state. It is in fact easy to perceive neoconservatism as a political method rather than an ideological vision. When viewed in this context, the “golden mean” between work incentives and disincentives becomes logical. It formulates an implicit ambition to negotiate a truce between socialism and democracy in order to give the democratic socialist peace of mind. As such, however, the golden-mean project also rests on the static notion that the welfare state is a matter of fact: whatever it is today, is what it will be tomorrow. Therefore, once government strikes the work-benefit balance; once constitutional democracy (the American form of government, not to be mistaken for parliamentary democracy) and economic redistribution have learned to be amicable roommates; the welfare state is optimized and all that remains is to secure efficient delivery of its services. To pursue this ideological armistice is to hinge one’s political theory on the assumption that socialism is static in its political practice. This is not the case: the socialist ideology is defined, in theory and in policy, by its end goal. So long as that end goal is not attained, the practitioners of socialism will always strive to reach it. Their efforts materialize in the form of expanding entitlements, rising taxes (or, in lieu of those, a growing budget deficit) and a slow but relentless approach of the point where

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the welfare state and private property rights lock horns. That is the point where democracy will eventually lose and socialism drop its prefix. As exemplified by the Swedish WET Funds model and Vernon Smith’s Permanent Citizens Fund proposal, that point is never farther away than one expansion of government. In their dedication to pragmatism, neoconservatives refuse to adopt a principled ideological platform. Thereby, they deny themselves the ability to identify the ideological architecture of the welfare state. That is where the socialist ambitions are encoded, the ambitions that cause the welfare state to expand over time. Insight into this architecture would help the neoconservative—and any other observer—understand why the welfare state cannot remain in any golden-mean balance. To further underscore the problem with neoconservative pragmatism, the absence of a systemic analysis of the welfare state places the neoconservative welfare-state narrative on the same basis as its socialist alternative. Neoconservatives accept the theory of economic redistribution, in other words the ideological, socialist architecture of the welfare state. The only part missing is the understanding of the socialist end goal; without an analytical comprehension of the welfare state, neoconservatives de facto adopt the Marxist economic theory that continuously expands the economic role of government. By practically accepting Marxism, neoconservatives share the socialist view that the economy is static. Therefore, it is concluded that the economy will not respond negatively to political efforts at altering economic outcomes: in both neoconservative and socialist thought, focus is on reconfiguring that static formation, and to do so in the image of an ideology. That ideology, in turn, is socialism; since neoconservatism lacks a political theory of its own—being entirely pragmatic as it is—it also lacks analytical independence. Its proponents and political advocates appear to not have noticed the Marxist theory that constitutes the foundation of the welfare state. It is this theory that presents the economy as static, luring neoconservatives into the belief that there is a goldenmean balance. This belief is proven false by one party to the balance being driven by a dynamic ideological ambition, the realization of which necessitates upsetting the golden-mean balance. As a contrast, libertarian political theory is designed based on the very opposite analytical order. It is dynamic in its economic analysis, leaving the course of the economy to an organic process of free markets and

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the pursuit of gains from trade, while statically confining the role of government to its minimal-state functions. The difference between the static and the dynamic economic analyses can also be viewed in how the underlying ideologies characterize the relationship between government and the economy. In terms of the welfare state, it is the difference between seeing economic redistribution as exogenous or endogenous to the performance of the economy. When the economy is viewed as static, the conclusion is that the welfare state is exogenous, i.e., that it will have no impact—especially not negative—on the economy. By contrast, when the economy is viewed as dynamic, the welfare state is endogenous will alter the performance of the economy. In static economic analysis, there are no inherent growth generators in the economy. Consequently, there can be no mechanisms in it for stagnation and depression. The conclusion is that there is no loss in economic activity from policies of economic redistribution. Since neoconservatives do not offer an independent economic analysis, but instead adopt the socialist one, they end up in the precarious situation where they pursue a static policy goal for the welfare state—the golden mean of economic incentives and disincentives—based on a theory that enables, even prescribes, continued welfare state expansion. Neoconservatives have no control over this expansion; it is embedded in the socialist architecture of the very welfare state that neoconservatives advocate. As a result of this architecture, the neoconservative accepts the continuous, gradual expansion of government. He may not do so intentionally, but it is the inevitable companion of entitlement programs designed for the purposes of economic redistribution. Inevitably, this adoption of socialist political methodology—economic redistribution—leads the neoconservative to adopt the socialist ideological end point. As a result, neoconservatives bring about a fundamental transformation of the United States, away from its founding on American liberty to the point of fully implemented egalitarianism. It is worth noting that neoconservative writers appear to be consistently unaware of how their ideology is a carrier wave for socialism. Perhaps this is unsurprising: the differences between socialism and neoconservatism are concealed within the deeper layers of the latter ideology. Yet these differences are exhibited in their pragmatism where they include the idea of allowing private businesses to deliver the services that the welfare state pays for. In education, private schools operate alongside public schools on vouchers or other means of student backpack

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funding; in health care, privately owned and operated hospitals and clinics would be funded by a national health insurance, i.e., a single-payer system under a dedicated government agency. Theoretically, private providers would operate in competition with each other. In practice, that competition would not take place on market terms. There would be no price competition: providers of primary, secondary, even tertiary education; of childcare, elderly care, and medical services; would be reimbursed on a headcount basis. At this point, the neoconservative brings to a halt his ad hoc promenade away from socialism. A reimbursement model based on per-unit usage—number of patients seen per day or number of students taught in a classroom—is an adaptation of Marxist labor-value theory. It operates independently of the influence of market prices. In order to compete, therefore, private providers only have one choice: to deliver the same product at a lower production cost. This is done in either of two ways: • Efficiency in operations: maximize the allocation of given resources to the delivery of the product; minimize overhead costs throughout the organization; or • Deliver lower quality: employ less competent teachers; rely on lowereducated healthcare professionals; have a higher student-to-teacher or patient-to-staff ratio. To the neoconservative, the combination of private providership and a single-payer system makes the welfare state fiscally and macroeconomically more sustainable. However, in companion with the socialist model with government as the only provider, a system of publicly funded, privately delivered entitlements does not fundamentally change the ideological character or the macroeconomic impact of the welfare state. Government still redistributes income, consumption and wealth, weakening or eliminating the financial rewards from responsible stewardship of private economic resources. Since the ideological architecture of the welfare state is the same under both the socialist and the neoconservative ideologies, and since the welfare state is in slow but relentless expansion, indicative economic planning gradually replaces free-market prices. All government spending is designed according to the principles—if not the word—of the labor

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theory of value. Central economic planning, whether teleological or indicative, leads to a less efficient, less productive use of available resources than the free market does. As the economy is transformed, so is the form of government. By necessity, a government that administers a gradually expanding welfare state will eventually have to demote democracy from an instrument for government accountability to a conduit for welfare-state expansion. This is made necessary as a shift takes place in the economy, from its predominant reliance on free markets to being increasingly defined by government planning. This has tangible effects on economic growth and prosperity: personal choice loses its relevance, not only in terms of career choice or entrepreneurship. Taxes to fund the welfare state also affect financial outcomes in other ways and thereby the desire of workers, investors, consumers, and entrepreneurs to build the value that forms future prosperity. A person who takes better care of his home compared to his neighbor and sells it above market price, will be taxed until the extra money he earned is gone. The physician who shows better results with patients than his colleague will not have more left of his income after taxes. On the contrary, under the neoconservative welfare state he may be financially punished for providing higher-quality care. When the only path to a higher-quality product runs through spending more time with the patient, or having fewer children in the classroom, then the single-payer systems for health care and education force private providers to forgo higher quality. As in the locomotive manufacturing example from a centrally planned economy, it pays to do more at similar or inferior quality: when government is the payer, those are rewarded who see more patients per hour and teach more children per classroom.

Capitalism, Nihilism, and Socialism That neoconservatives are trapped in their socialist overcoats has not gone unnoticed. In his essay for the Cato Institute, Bradley Thompson offers his own, somewhat more rustic version of this conundrum. Neoconservatives, he explains, are playing with socialist fire: The neocons preach moderation as a virtue so that ordinary people will accept compromise as inevitable. But a political philosophy that advocates “moderation” and “prudence” as its defining principles is either dishonestly

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hiding its true principles, or it represents a transition stage on the way to some more authoritarian regime – or both.

Stunningly, Irving Kristol himself gives the outside observer good reasons to question where neoconservatism really differs from socialism. In his essay Capitalism, Socialism and Nihilism, Kristol criticizes libertarian ideology for having a vision where there is no room for “distributive justice.”20 This very term is the categorical imperative of redistributive socialism. It was the lead motive for John Rawls’s argument for a society that is defined in all its essence by economic egalitarianism (Rawls 1957, 1971). Distributive justice stands in stark contrast to the definition of justice that underpins free-market capitalism: justice in acquisition. This theory says that the distribution of economic resources is just if it happened through a voluntary-exchange process where no one person’s liberty was violated. Its value-theoretical foundation is natural rights, the same theory that underpins the US Constitution.21 It is not possible for the two theories of justice—distributive and acquisitional—to coexist. This cohabitation mimics the problem of fitting socialism and parliamentary democracy under the same national umbrella. They can coexist under some form of political détente, but over time the egalitarian ambitions of socialism and distributive justice demand an increasing share of the economy for the purposes of rearranging outcomes of free-market economic activity. At some point, the balance of the golden mean breaks down. There is no postulate in socialism that limits its application in public policy. The absence of a political theory in neoconservatism forces its proponents deep into the shadow realm of logical somersaults, even nihilism. Irving Kristol uninformedly suggests that there is no alternative to distributive justice: a society without distributive justice, he says, is nihilistic. Ironically, with this very argument Kristol thrusts himself into nihilism. Claiming to be an ardent spokesman for free-market capitalism he also strips it of its objective advantage over socialism:22

20 Kristol (1973). 21 Larson (2019). 22 Kristol (1995, 255).

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It is absurd to claim that capitalism, anywhere, at any time, is superior to noncapitalism, or vice versa. Any such judgment is bound to be contingent, i.e., based on the particular society’s history and traditions, on the attitudes and social habits of its citizenry, and the like.

This is a textbook case of applied nihilism, to which Kristol adds: There is no point in arguing that a particular society “ought” to be capitalist or socialist if the overwhelming majority of the people are not of a mind to be bound by the different kinds of self-discipline that these different political philosophies require, if they are to work.

In so many words, wherever the majority goes in a country, is the right way to go. Where nihilism paves the way, opportunism will always travel. Socialism is its reliable companion. To suggest that the majority is always right is to invite opportunism to fill the gap where nihilism has voided the political sphere of actual moral values. Notably, the literature on neoconservatism fails to mention either its nihilism or its contradiction between pragmatism and its claim that distributive justice is the only existing moral principle. The neoconservative bottom line is an unequivocal case for redistributive socialism. Together with its influence, this case explains the size and composition of the current American welfare state. It also provides a compelling platform for an excursion into the future of economic redistribution in America. That future begins with Kristol’s verdict that capitalism is morally nihilistic: capitalism, he suggests, can only be saved by its own enemy. Kristol makes the welfare state a key component of the capitalist salvage plan. As if to drive home his point, Kristol makes clear that the welfare state has to be larger and more comprehensive than the one created under the War on Poverty. In his essay Social Reform: Gains and Losses he declares that selective entitlement programs, in other words those that are socially conservative in architecture and aimed at helping low-income families, are undesirable. The only option is a system of universal entitlement programs; rhetorically, Kristol asks how the welfare state would have functioned differently had the Great Society vision been rolled out in the form of just two programs. The first would have been a universal “children’s allowance” useful for expenses related to raising, clothing, feeding,

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housing, and caring for a child; the second would have been a “national health insurance,” in other words a single-payer healthcare system. Kristol firmly believes that this solution would have been superior, with everyone “making progress together” instead of “at the expense of one another.” However, the difference between his approach and the one taken by the Johnson administration is—again—one of execution, not ideological purpose. In fact, it is precisely this universal approach to the welfare state that socialists in Europe have chartered.

Conclusion The advancement of socialism in America has not solely, or even primarily, been the work of dedicated socialists. In good part, it has received support from neoconservatism, an ideology that is in close proximity of socialism. The two ideologies even share elements of political theory and method, to the extent that the implementation of redistributive socialism can be mistaken for neoconservatism, and the other way around. The absence of libertarian criticism of the welfare state has compounded the presence of the neoconservative-socialist consensus, entrenching the welfare state and setting the stage for America’s future.

References Castles, F. (2004). The future of the welfare state: Crisis myths and crisis realities. Oxford: Oxford University Press. Esping-Andersen, G. (1990). The three worlds of welfare capitalism. Princeton, NJ: Princeton University Press. Galbraith, J. (1958). The affluent society. Boston: Houghton Mifflin. Galbraith, J. (1973). Economics and the public purpose. Boston: Houghton Mifflin. Garraty, J. (1973). The new deal, national socialism and the great depression. The American Historical Review, 78(4), 907–944. Hemel, D., & Fleischer, M. (2017). Atlas nods: The libertarian case for a basic income. Wisconsin Law Review 1189. Kidd, S. (1988). Redefining the new deal: Some thoughts on the political and cultural perspectives of revisionism. Journal of American Studies, 22(3), 389– 415. Kristol, I. (1973). Capitalism, socialism and nihilism. The Public Interest. Republished by National Affairs. https://www.nationalaffairs.com/storage/app/ uploads/public/58e/1a4/b75/58e1a4b75772f409116686.pdf. Accessed August 1, 2020.

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Kristol, I. (1995). Neoconservatism: Selected essays 1949–1995. New York: Free Press. Kunze, N. (1971). The origins of modern social legislation: The Henrician poor law of 1536. Albion: A Quarterly Journal Concerned with British Studies, 3(1), 9–20. Larson, S. (2014). Industrial poverty: Yesterday Sweden, today Europe, tomorrow America. London: Gower. Larson, S. (2018). The rise of big government: How egalitarianism conquered America. London: Routledge. Larson, S. (2019). Faith and freedom: The moral case for America. Eugene: Wipf & Stock Publishers. Medearis, J. (1997). Schumpeter, the new deal, and democracy. The American Political Science Review, 91(4), 819–832. Murray, M., & Forstater, M. (Eds.). (2013). Employment guarantee schemes: Job creation and policy. New York: Palgrave Macmillan. Myrdal, A., & Myrdal, G. (1934). Kris i befolkningsfrågan. Stockholm: Bonniers. Myrdal, G. (1960). Beyond the welfare state. London: Duckworth. Rawls, J. (1957). Justice as fairness. The Journal of Philosophy, 54(22), 653–662. Rawls, J. (1971). A theory of justice. Belknap: Cambridge. Rogin, L. (1938). The significance of Marxian economics for current trends of government policy. The American Economic Review, 28(1), 10–16. Tanner, M., Moore, S., & Hartman, D. (1995). The work versus welfare tradeoff: An analysis of the total level of benefits by state. Washington, DC: Cato Institute. Tanner, M., & Hughes, C. (2013). The work versus welfare trade-off: 2013. Washington, DC: Cato Institute. Thompson, C. (2011). Neoconservatism unmasked. Cato Unbound. Titmuss, R. (1974). Social policy. Crows Nest: Allen and Unwin. Trattner, W. (1999). From poor law to welfare state. New York: The Free Press. van Kersbergen, K., & Vis, B. (2014). Comparative welfare state politics: Development, Opportunities and reform. Cambridge, UK: Cambridge University Press.

The American Welfare State Tomorrow

As the previous chapter explained, the welfare state enjoys more support in America than would be expectable given its socialist ideological architecture and function. The question for the future of the welfare state is twofold: • Whether or not the welfare state will expand to its full-scale proportions, as prescribed by its ideology; and • What the consequences would be for the tension between socialism and democracy.

Expansion Is Inevitable As the American political and ideological landscape stands today, the welfare state is without apparent challenge. The only obstacle in the way of its growth is the fiscal status of the US government; so far, since the declaration of the War on Poverty, that status has deteriorated steadily with the growth of the welfare state. Without structural changes to the welfare state, the fiscal erosion of the federal budget will continue. The most apparent reason for this is in the breakdown of the neoconservative golden mean. As the welfare state expands, it gradually tips the balance between incentives and disincentives away from economic growth. Steady growth in the welfare state means © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. R. Larson, Democracy or Socialism, https://doi.org/10.1007/978-3-030-65643-0_6

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steady growth in the burden to taxpayers; even as the federal government cuts its taxes, states and local governments tend to move in the opposite direction, essentially preserving the aggregate tax burden. In addition, even without higher taxes, the welfare state slowly depresses economic growth. Since this slows down growth in tax revenue at any tax-to-GDP ratio, the pursuit of the egalitarian end goal is inherently economically unsustainable. This problem is rarely recognized in the current public discourse. Based in neoconservatism, the Republican Party exhibits almost unanimous support for the existing welfare state. In a rare crop of dissidents, Yuval Levin, editor of the National Affairs, has criticized American conservatives for their feeble response to the “social-democratic vision” of a welfare state. Conservatives, he explains, offer “few viable alternatives” to the linear growth of welfare-state entitlements (Levin 2011, 33). This is an interesting call for a reinvigorated ideological debate; by failing to offer a concise alternative to the socialist welfare state, conservatives de facto secure its further expansion. There is, of course, an element of irony in this, an irony that is amplified by the fact that the welfare state—the brainchild of democratic socialism—eventually brings about its own economic demise. The more the welfare state grows, the deeper it brings the economy into stagnation. However, the irony also works in the opposite direction, as displayed by the Prague Spring. Its ideologues sought to reform the economy in Czechoslovakia and bring it out of its standstill. Their modest goal was to allow free-market prices to mitigate the structural shortages caused by teleological central planning; little did they know that their reforms, had they been implemented, would only have moved the growth needle modestly in their favor. Even if they had come as far as to reconfigure their economy into a Western welfare state—which they never aspired to do—it still would not have given the Czech economy more than a small improvement. The return on the political effort would have been disappointing, especially over time. Evidence is aplenty, namely, that the welfare state gradually puts more weight on the shoulders of the free-market sector, until the burden reaches a point of no return. Statistically, that point appears to be where government spending exceeds 40 percent of Gross Domestic Product (Larson 2014). Above that level, the welfare state becomes a permanent, structural economic problem from which there is no other recovery than a permanent reduction of the size of the welfare state.

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The fact that there is a statistically identifiable breaking point, above which incentives to stagnation overrun incentives to growth, could be seen as evidence of the neoconservative “golden mean.” It is not, first and foremost for reasons related to the political theory behind the welfare state. This theory puts the socialist government on a path to steady entitlement expansion. Until egalitarianism is complete, there will always be constituencies for whom the welfare state can provide more benefits. That, in turn, is a market for political candidates to explore for election purposes. Furthermore, in the eyes of the voter, the existing entitlement programs constitute precedent: the more entitlements there are, the less controversial it becomes to demand more expansion. When past experience blends with future political aspirations, a sufficient condition exists to propel the welfare state to even greater size. It does not need the influence of unmitigated ideology to expand its domain, though political candidates and activists can be inspired by socialist conviction to reinforce their efforts. In other words, the idea of a golden-mean stable balance between forces that grow the economy and forces that freeze it is based on an erroneous understanding of the role that the welfare state already plays. It is never explained in the neoconservative literature how, once America has reached the golden mean, a president or a member of Congress is going to quell the temptation to win the next election courtesy of yet another entitlement expansion. The neoconservative golden-mean argument is also void of pertinent economic analysis, a point that adds another reason why the welfare state will not stay within its golden-mean confinement. It is not the case that the welfare state causes a decline in economic growth only when it exceeds 40 percent of GDP: the growth rate starts tapering off earlier than that. This problem is reinforced by the fiscal mechanics that come with the welfare state’s architecture. Entitlement benefits are designed to be paid out in such a way that they require higher taxes as soon as the economy goes into a recession. Some benefits are supposed to remain steady, with education spending and health care being two of them. Even though spending stays constant over time, the decline in tax revenue that is brought about by a recession causes this type of benefit to become relatively more expensive.

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Other benefits are designed to actually become costlier in a recession. This category consists of entitlement programs aimed at providing for the poor and those without means to support themselves. Since a recession comes with increased unemployment there will be more people seeking assistance from government. The actual cost of the welfare state increases, but the increase is exacerbated by the fact that there is a simultaneous decline in tax revenue. Conventional wisdom in economics suggests that the tax-revenue deficiencies associated with a recession are compensated for during a growth period. When employment is full, tax revenue is supposed to exceed the average cost of government, allowing government to pay off the debt from the previous recession. In reality, this does not happen: entitlement costs rise independently of the taxpayer’s ability to fund those entitlements. Specifically, the cost increases with advancements in the quality of the services provided. This is especially true under single-payer health care, where progress in medical technology allows for treatment and cure of health conditions that previously were seen as incurable, or curable with heavy side effects. Therefore, there is a need to continuously enhance medical expertise, both education and practical experience. Improvements in health care are a steady flow, giving rise not only to improvements in treatment but also to increases in the cost of providing medical services. These cost increases are driven by research and engineering efforts; there is no tie between the growth in healthcare costs and the growth rate in the tax revenue that funds those costs. The unequivocal implication of this discrepancy between cost increases and increases in tax revenue is that a single-payer healthcare system is fiscally unsustainable. If advances in medical technology drive healthcare costs faster than the tax base can grow, then a single-payer system will by necessity make the welfare state more expensive to the taxpayer. In short, if a. The economy as a whole grows at three percent per year, and therefore, tax revenue grows at the same rate; and b. Healthcare costs increase by five percent per year; then c. Government will need to either borrow—fund by deficit—two percentage points of the healthcare cost increase, or raise taxes.

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Historically, in European welfare states, which have single-payer systems, the choice has been to seek a balance between higher taxes and rationed quality. This has over time contributed to the depression of economic growth. In other words, even if the welfare state does not expand its entitlement commitments, offering no new programs and no significant amendments to existing programs, the very nature of its existing entitlement roster is sufficient to slowly depress growth. As this happens, the ratio of government cost to GDP gradually increases: the numerator rises at its own pace, with the denominator rising more slowly as a direct result of the increase in the numerator. When a government tries to avoid the repercussions of tax hikes, it uses deficits to fund what tax revenue cannot cover. Short term, this keeps the economy growing at a higher pace, while long term the burden of debt takes a toll of its own on productive economic activity. In combination, the cost increases caused by the fiscal mechanics and the political incentives toward welfare-state growth constitute a forceful trend of government expansion. Added to this, in turn, is virtually unanimous ideological support for the welfare state. This support, again, is open or tacit, with no organized ideological opposition. The conclusion is inevitable that the welfare state in America will continue to expand, almost by its own volition. As it does, it will inflict increasingly noticeable macroeconomic harm on the US economy.

A Note on Government Size and Economic Growth Although the thesis of this book is concentrated on the theory and practice of ideology, a brief statistical examination is helpful as a backdrop to the discussion of the future of the American welfare state. Specifically, it confirms the point from above about the size of government and economic growth. There is ample empirical evidence in its support (Angyridis 2017), suggesting that as the American welfare state closes the institutional gap to the European equivalents, the economy will suffer accordingly. Numbers from the OECD1 confirm the point that welfare states expand continuously. Governments in Europe have consistently claimed a growing share of their economies: a sample of 15 EU member states 1 Organization for Economic Cooperation and Development, an economic research institution in Paris, France. Please see www.oecd.org.

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for the period 1965–20182 shows that government growth goes hand in hand with a slow but steady rise in taxation. At the beginning of the period, the unweighted average ratio of tax revenue to current-price GDP was 26.9 percent for these 15 countries. The expansion continued: • In 1975, that ratio had increased to 31.2 percent; • In 1985, it reached 36.2 percent; • In 1995, it was 37.3 percent. It has continued to increase since then, reaching its highest ratio to date in 2018, which is also the latest year for which OECD data are available. During the same period of time, the OECD reports a largely constant tax-to-GDP ratio for the US economy, roughly averaging 25 percent for the entire period of time. That is not to say the US welfare state did not expand; when budget deficits play a permanent role in the funding of government spending, it gives an incomplete picture of the cost of government to fix the spotlight on taxes. There is also an incompleteness problem with reference to the EU member-state sample; only just over half of the EU is accounted for. With that said, these numbers do document a difference in policy ambition: Europe has been more inclined than America to grow its welfare state. A review of a shorter time period allows for a more detailed point to be made and for the use of the 19-country eurozone instead of the 15state sample. This not only expands the set of countries but also removes the distortions that can arise from using a sample with a multitude of currencies.

2 The EU was not formally constituted until 1995, when the Maastricht Treaty was ratified in modified form. The sample used here is based on long-term data availability in the OECD national-accounts database. Only a small number of current EU member states reported their national-accounts data to the OECD at an adequate level, going back as far as 1965. The sample consists of: Austria, Belgium, Denmark, Finland France, (West) Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the United Kingdom (which seceded from the EU in 2020).

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In terms of economic growth, starting in 1995—the year the EU was formally constituted—the lower-taxed US economy has almost without exception performed better:3 • From the formation of the EU in 1995 to 2000, just before the Millennium Recession, the eurozone economy grew at 2.8 percent per year, while the US economy averaged 4.3 percent; • For the Millennium Recession, covering 2001 and 2002, the Unites States actually came up short: 1.4 percent vs. 1.6 percent for the eurozone; • From the recovery in 2003 to mid-2008 when the Great Recession began, US GDP grew marginally faster than 2.8 percent per year, compared to 2.1 percent for the eurozone; • The Great Recession took a bigger toll on the eurozone, where the economy declined at a rate of over 1.1 percent per year; the US economy also declined, but only by a quarter of a percent annually; • From 2011, the start of the recession recovery, through 2018 America has outperformed the European currency union by a sizable margin: 2.5 percent per year vs. 1.5 percent per year. Over time, the suppression of economic growth in Europe has had a negative impact on government budgets. Table 1 reports budget balances in 29 European countries over the period 1995–2018, as percent of current-price GDP; the darkened cells represent deficits:

3 Data for the euro zone are sourced from Eurostat; the US data are from the U.S. Bureau of Economic Analysis.

Austria Belgium Bulgaria Cyprus Czech Rep. Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania

Table 1

1996 1997

−3.8% 1.0% −5.9% −5.1% −2.2% −8.7% −8.6% −2.0% −6.6% −1.4% −1.5%

−2.7%−2.6%−2.4% −1.0%−0.6%−0.1% 1.1% 0.1% −0.5% −3.8%−4.0%−2.6% −4.2%−3.1%−3.6%

1998 1999 2000

−2.8%−1.8% −1.1%0.6% 1.7% −0.3%2.1% −0.8%−3.3%−0.1% −3.2%−1.2% 1.6% 1.7% 6.9% −3.9%−3.6% −2.4%−1.6%−1.3% −2.7%−2.1% −8.9%−3.0%−2.4% −6.3%−3.4% −2.1%−1.5%−1.7% −4.5%−5.6% −7.4%−5.2%−3.0% −0.2%1.4% 2.1% 3.5% 4.9% −6.5%−3.0% −3.0%−1.8%−2.4% −0.4%1.4% 0.0% −3.7%−2.7% −3.2%−11.8%−3.0%−2.8%−3.2%

−6.1% −4.5%−2.6% −4.7% −4.1%−2.1% −5.5% −8.1%0.8% −0.7% −3.0%−4.4% −12.4%−3.0%−3.2%

1995 −4.5% −4.1% −2.9% −4.7% −4.2%

2010 −2.6% −4.3% −1.9% −5.7% −2.7%

2011 −2.2% −4.3% −0.3% −5.6% −3.9%

2012

0.5% −0.6%−0.2%2.0% 4.8% 4.8% 5.1% 3.4% −2.4% −2.7% −2.1% −3.5% 0.2% 0.4% 1.8% 2.3% 1.1% 2.9% 2.7% −2.6%−2.2% 0.2% 1.1% −0.3% 5.0% 4.1% 2.4% 2.2% 2.7% 4.0% 5.1% 4.2% −2.5% −2.5% −1.0% −2.2% −1.4%−3.2%−5.7%−3.6%−3.4%−2.4%−2.6%−3.3%−7.2% −15.9%−5.2% −5.0% −2.0%−1.4%1.2% −2.6%−3.2%−3.7%−3.5%−2.9%−1.5% 0.2% 0.1% −2.6% −1.2%−1.4%−5.5%−7.1%−5.2%−5.8%−6.4%−9.2%−15.8%−12.7%−10.2%−8.8% −3.9%−8.8%−7.1%−6.5%−7.7%−9.2%−5.0%−3.7%−4.7% −4.4% −5.2% −2.3% 1.0% −0.5%0.3% 1.3% 1.6% 2.8% 0.3% −7.0%−13.8%−32.1%−12.8%−8.1% −3.1%−2.7%−3.2%−3.5%−4.4%−3.6%−1.3%−2.6%−5.1% −4.2% −3.6% −2.9% −1.9%−2.3%−1.5%−0.9%−0.4%−0.5%−0.5%−4.2%−9.5% −8.6% −4.2% −1.2% −3.5%−1.9%−1.3%−1.4%−0.3%−0.3%−0.8%−3.1%−9.1% −6.9% −9.0% −3.1%

−0.7%3.0% −1.8%−4.8%−2.5%−2.5%−1.4%−1.5%−5.3% 0.2% 0.0% −1.9%−0.2%−2.7%0.2% 0.1% −1.1%−5.4% 1.0% −1.2%−0.4%1.8% 1.0% 1.5% 1.0% 1.6% −4.0% −2.1%−4.1%−5.9%−3.7%−2.2%−1.0%3.2% 0.9% −5.4% −5.5%−6.4%−6.9%−2.4%−3.0%−2.2%−0.7%−2.0%−5.5%

2001 2002 2003 2004 2005 2006 2007 2008 2009

Debt as share of GDP; current prices

−2.7%−1.0%−1.5%−0.7%0.2% −3.1%−2.4%−2.4%−0.7%−0.7% −5.1%−1.6%0.1% 1.0% 1.6% −8.7%−1.0%−0.5%1.7% −4.4% −2.1%−0.6%0.7% 1.6% 1.1%

2014 2015 2016 2017 2018

−1.2% 1.1% −0.8%−0.1%1.5% 0.5% 0.2% 0.7% 0.1% −0.5%−0.8%−0.6% −2.5% −3.0%−2.4%−1.7%−0.7%−0.8% −4.1% −3.9%−3.6%−3.5%−2.8%−2.5% −5.4% −0.5%0.4% 0.1% 0.7% 0.9% −13.1%−3.5%−5.5%0.6% 0.8% 1.0% −2.5% −2.7%−2.0%−1.8%−2.4%−2.3% −6.2% −3.6%−1.9%−0.7%−0.3%0.1% −2.9% −3.0%−2.5%−2.4%−2.4%−2.2% −1.2% −1.4%−1.4%0.1% −0.5%−0.7% −2.6% −0.6%−0.3%0.2% 0.5% 0.6%

−2.0% −3.1% −0.4% −5.8% −1.2%

2013

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1.6% 2.8% −7.7%−7.1% −1.7%−1.0% 6.2% 7.5% −4.5%−4.6% −1.7%−3.7% −3.6%−4.4% −9.8%−6.3% −1.1%−2.3% −7.4%−4.0% −2.6%−1.0% 2.9% −2.1% −3.7%−2.1%

1996 1997

2001 2002 2003 2004 2005 2006 2007 2008 2009

2010

2011

3.2% 3.5% 5.9% 5.9% 2.4% 0.2% −1.3%0.1% 1.9% 4.2% 3.3% −0.7% −0.7% 0.5% −9.3%−6.7%−5.5% −6.1%−5.4%−9.0%−4.3%−2.6%−2.5%−2.1%−4.2%−3.2% −2.4% −2.4% −0.7%0.6% 2.0% 0.0% −1.4%−2.9%−1.6%−0.3%0.5% 0.2% 0.5% −5.0% −5.4% −4.4% 3.2% 5.8% 15.1% 13.2% 9.0% 7.2% 10.9% 14.8% 17.9% 17.1% 18.6% 10.2% 10.9% 13.3% −4.2%−2.2%−3.0% −4.8%−4.8%−6.1%−5.0%−4.0%−3.6%−1.9%−3.6%−7.3% −7.4% −4.9% −4.4%−3.0%−3.2% −4.8%−3.3%−5.7%−6.2%−6.1%−4.2%−2.9%−3.7%−9.9% −11.4%−7.7% −3.2%−4.4%−4.6% −3.5%−1.9%−1.4%−1.1%−0.8%−2.1%−2.7%−5.4%−9.1% −6.9% −5.4% −5.3%−7.2%−12.6%−7.2%−8.2%−3.1%−2.3%−2.9%−3.6%−2.1%−2.5%−8.1% −7.5% −4.5% −2.3%−3.0%−3.6% −4.5%−2.4%−2.6%−1.9%−1.3%−1.2%0.0% −1.4%−5.8% −5.6% −6.6% −2.4%−1.2%−1.2% −0.5%−0.3%−0.4%−0.1%1.2% 2.1% 1.9% −4.6%−11.3%−9.5% −9.7% 1.8% 2.2% 4.6% 2.6% −0.2%0.4% −1.1%0.4% 1.7% 3.4% 2.1% −0.9% −0.3% −0.2% −1.3%−1.6%0.4% 0.3% −1.8%−1.4%−1.4%−0.8%0.8% 1.6% 1.9% 0.5% 0.4% 0.7% −0.3%0.6% 1.4% 0.2% −1.9%−3.1%−3.1%−3.1%−2.8%−2.7%−5.1%−10.1%−9.3% −7.5%

1998 1999 2000

Sources of raw data Eurostat (GDP); Eurostat and OECD (Deficits)

Luxembourg2.7% Malta −3.5% Netherlands −8.3% Norway 3.1% Poland −4.2% Portugal −5.3% Romania −2.0% Slovakia −3.5% Slovenia −8.1% Spain −7.7% Sweden −6.5% Switzerland −1.6% U.K. −5.2%

1995

2013

2014 2015 2016 2017 2018

0.3% 1.0% 1.3% 1.4% 1.8% 1.4% 2.7% −3.5% −2.4% −1.7%−1.0%0.9% 3.4% 1.9% −3.9% −2.9% −2.2%−2.0%0.0% 1.3% 1.5% 13.8% 10.7% 8.6% 6.0% 4.1% 5.0% 8.1% −3.7% −4.2% −3.6%−2.6%−2.4%−1.5%−0.2% −6.2% −5.1% −7.4%−4.4%−1.9%−3.0%−0.4% −3.7% −2.1% −1.2%−0.6%−2.6%−2.6%−2.9% −8.4% −2.9% −3.1%−2.7%−2.5%−1.0%−1.1% −4.0% −14.6%−5.5%−2.8%−1.9%0.0% 0.8% −10.7%−7.0% −5.9%−5.2%−4.3%−3.0%−2.5% −1.0% −2.8% −1.5%0.0% 1.0% 1.4% 0.8% 0.5% −0.4% 0.1% 0.6% 0.3% 1.2% 1.4% −8.2% −5.5% −5.6%−4.6%−3.3%−2.4%−2.2%

2012

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Three countries stand out as relatively solvent, with moderate or no deficits. The first is Norway, where revenue from oil production supplements regular—and still often comparatively high—taxes on income and consumption. Thanks to its oil revenue, the Norwegian government consistently runs a budget surplus. The two others are Luxembourg and Switzerland, which have modest problems with budget deficits. Their comparatively unproblematic government finances are coupled with moderately sized governments. At the same time, it deserves to be noted, the US government has proven consistently since 1969 that a moderately sized government is no guarantee for fiscal sustainability. While being more lenient on the economy today, thus allowing for higher growth rates over the shorter term, the long-term cost picture looks very different. Inevitably, the costs of deficits come due. It is important to note that sustained deficits are not the result of Congressional fiscal complacency. Over the past four decades, federal legislation and the debate around the deficit have dealt with, in various forms, about a dozen budget-balancing measures. (The exact figure depends on how one distinguishes the proposals from each other.) Among them, three stand out as particularly elaborate. In 1982, Lewis Uhler, chairman of the National Tax Limitation Committee, proposed a model for fiscal sustainability. It was a collective effort with economist Milton Friedman and former Cato Institute chairman William Niskanen among the foremost participants. This proposal became known as the Tax Limitation/Balanced Budget Amendment but earned a broader following under the simpler “Uhler Amendment” label. At the heart of this amendment is the following formula: G 0 = T−1 (1 + n −1 ) where G 0 represents government spending for the present fiscal year, T−1 is tax revenue in the past fiscal year, and n −1 is last year’s growth rate in current-price national income. Simply: federal spending “today” is not supposed to exceed total tax revenue “yesterday” and the growth of national income “yesterday.” The problem with a budget-balancing mechanism such as the Uhler Amendment is that it disregards the spending growth that is embedded in a welfare state’s entitlement programs.

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In 1985, an effort was made in Congress to amend the Balanced Budget and Emergency Deficit Control Act to place a somewhat similar restriction on spending growth: 

G 0 = G −1 (1 + (π−1 + Z −2 ))

where the variables are defined as follows: • • • •



G 0 Projected federal spending for the next fiscal year G −1 Federal spending in last fiscal year π−1 Last fiscal year’s change in Consumer Price Index Z −2 Population growth July to July starting a year earlier than π

This is a version of what has become known as a TABOR, or Taxpayers Bill of Rights, restriction on government spending. Its focus is slightly different from the Uhler Amendment model, with focus on a cap on federal spending rather than to outright balance the budget. With a TABOR-style spending restriction on the federal budget, Congress would have had to resort to long-term, structural reforms to its entitlement programs. The same would have been the case under the so-called Cut-Cap-Balance model, introduced in the 112th Congress by Senator Mike Lee (R-UT). The main idea is to specify levels for various functions of government over a ten-year period, but allow for different annual increases for different functions. Cut-Cap-Balance shares the same basic policy idea that underpins the TABOR model, namely to contain spending and not formally demand a balanced budget. However, none of these models, or any other measure passed into law, has curbed government spending enough to close the deficit gap in the budget. Therefore, it is reasonable to conclude that the problem with the deficit does not lie with the lack of a desire to actually align spending with tax revenue. The problem is instead that spending is of such a nature that it does not align itself with tax revenue: it is driven by the ideological architecture according to which the American welfare state has been constructed.

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Equality or Solidarity The problem with the welfare state’s fiscal unsustainability was not unknown to its heralds. Since the American welfare state is an ideological descendant to the Swedish original, it would be valuable for the champions of the former to heed the warnings by the creators of the latter. In their book Kris i befolkningsfrågan [The Demographic Crisis] from 1934, Gunnar and Alva Myrdal combined heavy arguments for widespread entitlements with equally forceful demands for government policies that would guarantee high, sustained levels of economic growth. Their focus was on maximizing labor productivity which, they argued, would lead to sustained, high levels of economic growth. To reinforce their growth ambitions, they exemplified the pursuit of high labor productivity with “prophylactic social policies” (Larson 2018, Chapter 3). Tucked away beneath the term are measures taken to discourage—even prohibit—reproduction by individuals whose workforce abilities government would consider to be subpar. By means of forced sterilizations (a practice used in Sweden over an extended period of time) and abortions, the Myrdals foresaw that government could improve the quality of what they referred to as the “population stock.” This in turn would improve workforce productivity and, again, contribute to a sustained, high level of economic growth. Other measures to secure a highly productive workforce are centralized public education and institutionalized childcare from a very early age. The same argument also promotes a healthcare system run and funded by government. What for good reasons comes across as a version of eugenics is in reality a necessary consequence of the welfare state that the Myrdals propose. They advocate for government to provide essentially all major consumer needs, such as health care, education, childcare, general income security, retirement security, and even housing, but they also carefully point out that these government programs will require high taxes. That revenue could only be available if the private sector were to produce at its very top at all times.4

4 The Swedish government went further. In addition to prophylactic, even eugenic social policy, they created a model for industrial policy. Known as the R-M model (Larson 2018, 23–28), it benefited large corporations with strong export markets over smaller

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Historically, Swedish welfare-state proponents have unanimously endorsed policies to avoid budget deficits. Socialists and non-socialists alike have expressed support for both the idea of economic redistribution and the pursuit of full employment for the very purpose of funding the welfare state. This ambition to tie gainful employment, and its yield in the form of tax payments, to the fiscal sustainability of entitlements, runs deep in the public Swedish discourse. It is even defined by a terminology that may seem alien to American welfare-state proponents. To this point, conservative politician and political scientist Gunnar Heckscher explained (1984) that under the welfare state, government “accepts collective responsibility for its citizens” and “attempts to create equality of opportunities for advancement.” These terms represent the entitlement side of the welfare state, with “opportunity” having a different meaning than what it has in conservative parlance. Under the socialist dictionary, the term “equality in opportunity” has a much more profound meaning, with emphasis placed on equality (ibid., 1984, 4–5). In the context of the twentieth-century redistributive welfare state, this translates into “entitlements” by means of which the socialist aims to reduce and eventually eliminate economic differences. This side of the welfare-state equation is well understood in America, especially among socialists and neoconservatives. There is substantially less insight into the other side, namely the production of the resources that go into the welfare state. In the American literature, there is nary a mention of the means by which the resources for economic redistribution are produced. They are, in a sense, treated as exogenous to the welfare state itself; even the Congressional method for bringing legislative bills to fruition is characterized by a lax attitude toward the funding of government programs. Despite its relatively smaller proportions, the American welfare state has been coupled with a budget deficit almost since its inception. Scandinavia in general, and Sweden in particular, has taken a somewhat sterner approach to welfare-state funding. There is even a dedicated term for it, with a specific meaning in the Scandinavian context. The term solidarity, Heckscher says (ibid.), is to some degree a stand-in for “fraternity” from the French revolutionary era. Unlike “equality,” which refers to the firms oriented toward the domestic market. The purpose was, so to speak, to let the international economy pull the Swedish economy into growth, thus combining high taxes with strong economic growth. The positive outcomes of the R-M model were temporary.

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equal distribution of resources, “solidarity” in the Scandinavian context has a twofold meaning: a. Equal distribution of income, consumption, and wealth, conditioned on everyone contributing at the height of their capacity to the funding of entitlements; and b. An effort-reward-related system where those who do not contribute to welfare-state funding are left with only basic benefits, well behind what they receive who do contribute. The second point is crucial. It is, in essence, a stipulation that if the redistributive welfare state is going to be fiscally sustainable, it must actually be merit-based. This postulate runs afoul with the redistributive ideological architecture of both entitlements and progressive income taxes. To operate purely toward its ideological end goal, the redistributive welfare state must be unmitigated in its ambitions to transfer income, consumption, and wealth from higher-income earners to those with lower incomes. Any element built into the welfare state for the purposes of rewarding contributions—tax payments—shifts the provision of benefits from redistribution to what is at least in theory a non-ideological production model for government-provided services. In practice, one architecture has to trump the other. A welfare state cannot be both ideological and non-ideological at the same time, any more than it can operate according to two different ideologies. In the Swedish case, as per Heckscher’s terminology, the architectural conflict is between “equality” and “solidarity.” Emphasis on solidarity would force government to sacrifice equality; since equality represents the socialist, ideological end goal with the welfare state, it cannot be made subordinate to any other governing premise. When it is time to put the welfare state to practice, the policies to secure its funding will have to make a halt at the line where they otherwise would intrude on the pursuit of complete equality. This means that: • Benefits cannot be tied entirely, or even primarily, to a person’s contributions to the welfare state; • Taxes cannot primarily be designed to promote workforce participation.

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The first point is put to work through the single-payer services that the welfare state provides. Regardless of income and wealth, every citizen has the right to health care; every student has the right to education; every family has the right to childcare; all elderly have the right to nursing-home care. As discussed earlier, this roster of promises becomes increasingly unaffordable; the welfare-state government is forced into the dire straits between Scylla and Charybdis, where higher taxes and budget deficits are equally problematic. There is only limited scope for government to ease this tension under the “solidarity” banner. The redistribution efforts—the pursuit of equality—stretch into tax policy as well: if taxes were to be designed to encourage workforce participation, they would be lower than they are in the Scandinavian countries. Furthermore, there could be no added burden on higher incomes; taxes would have to be moderate and flat. Since equality must supersede solidarity, the welfare state necessarily places a limit on how strongly it can promote economic growth. American neoconservatives propose their golden-mean strategy as a means to balancing equality against solidarity, though they avoid the supersession problem. When the American welfare state has brought the federal government into debt, the neoconservative response—embedded in policies promoted by the Republican party—has been to enact structural, comprehensive tax cuts. As is evident from the US fiscal history since the mid-twentieth century, tax cuts do not help fund the welfare state. They generate more economic growth and thereby reinvigorate the tax base, but since those tax reforms have been isolated from the ideological architecture of the welfare state the growth in revenue that they generate has over time been dwarfed by continuous growth in entitlement spending.

Bipartisanship and Welfare-State Unity Neoconservatives are not alone in proposing that socialism and democratic government can peacefully live under the same roof. Their ideology, pragmatic in its entirety, gives the impression of preserving free-market capitalism in a successful cohabitation agreement with economic redistribution. They are not alone in making this case: renowned Danish welfare-state scholar Gøsta Esping-Andersen has theorized that capitalism, after World War II, enjoyed its success thanks to “its capacity

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to harmonize democracy with private property” (1990, 187). EspingAndersen refers to this harmony as a “synthesis of… institutions” defined by different ideologies. From his vantage point within sociology, Esping-Andersen did not witness the slow, long-term decline in macroeconomic activity throughout Western Europe and—later—North America. The price for the welfare state is not paid by the generation that built it, and at least to some degree not by the generation who consumes its first full-fledged crop of benefits. The bill for its expansion of indicative economic planning comes due in full only when the third generation of welfare-state consumers enter the labor market. In the United States, the three generations began their journeys as taxpayers and recipients of entitlements in the 1960s. The generation that was active on the labor market at the time saw many new benefits come into fruition, among them are Medicare and Medicaid, comprehensive welfare programs and the Earned Income Tax Credit. They were also able to earn pension rights from Social Security already from a young age. The next generation, born immediately after World War II and often referred to as the older Baby Boomers, began their workforce career in a strongly growing economy. It was not until after the economically successful 1990s that GDP growth, and thereby growth in personal income, began slowing down. The US economy has never quite sunk to the same level of stagnation as has the European economy, but it has become increasingly difficult for it to sustain—even reach—three percent real annual growth. As a result, the ability of the American taxpayer to fund the welfare state has weakened; weaker economic growth catalyzes increased dependency on entitlements for education, health care, income security, and retirement. Having spent a good part of their productive lives in a stagnating— but not completely stagnant—economy, the older Baby Boomers have benefited less from the welfare state than the generation before them. A bigger price is paid by their children, whose entry into the workforce came with the new millennium. Their opportunities to build prosperity were hampered already from the beginning of their workforce career: in the first 20 years of the new century, the US economy grew at only 2.1 percent per year, compared to almost 3.2 percent per year in the last 20 years of the previous century. A person who spends his entire workforce career in a three-percent growth economy will cumulatively build considerably more prosperity

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than someone whose opportunities are confined by a two-percent growth average. Correspondingly, the latter person will have to consume more of welfare-state benefits than the former, while having a weaker ability to pay the taxes needed to fund those benefits. Over the longer perspective, the imbalance between benefits and funding becomes the tangible representation of the welfare state’s fiscal unsustainability. The journey there is fueled not only by neoconservatives and the absence of a formulated ideological opposition to the welfare state, but also by the welfare state’s own proponents. Few have illustrated the progress of the welfare state with more fortitude than Senator Bernie Sanders. He is also a talented spokesperson for further growth in entitlement spending: during the primary phase of the 2020 presidential race, his campaign website defined economic redistribution as the great moral, economic, and political issue “of our time.”5 It is important that Sanders did not mention economic growth. Sanders has, in fact, criticized what he has referred to as “unchecked growth” and made clear that income redistribution is of superior importance. According to the Washington Post, Sanders believes that more economic redistribution removes the need for, or “worry about,” economic growth.6 During the same presidential election campaign, Hillary Clinton expressed similarly strong views on growth and economic redistribution. Despite empirical evidence to the contrary, Clinton explained that more entitlements would help the economy grow more strongly.7 Notably, she also referred to “fair growth” as opposed to economic growth proper, a term akin to the one made by Sanders about income redistribution ranking higher than economic growth on the policy priority list. Clinton is not alone in believing that income redistribution leads to a growing economy. In a 2013 paper for the Institute for Policy Studies in Washington, DC, sociology professor Salvatore Babones purported 5 Please see https://berniesanders.com/en/issues/tax-increases-for-the-rich/. Accessed

May 29, 2020. 6 Please see https://www.washingtonpost.com/news/wonk/wp/2015/07/13/whatbernie-sanders-is-willing-to-sacrifice-for-a-more-equal-society/?noredirect=on&utm_term=. bf7496c87e37. Accessed May 29, 2020. 7 Please see http://blogs.wsj.com/washwire/2015/07/13/hillary-clinton-transcript-bui lding-the-growth-and-fairness-economy/. Accessed May 29, 2020. Subscription required.

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that income redistribution actually benefits economic growth.8 Heather Boushey, executive director and chief economist at the Washington Center for Equitable Growth, has echoed the same argument. Boushey has suggested that countries with a high degree of economic redistribution experience “higher rates of growth.”9 More recently, 2020 presidential contender Elizabeth Warren has made the very same argument.10 As mentioned earlier, macroeconomic data suggest the opposite correlation between economic redistribution and growth. In line with preferences for welfare-state expansion, Boushey has proposed universal, tax-paid childcare.11 Barack Obama has made the same argument.12 Paid family leave is another entitlement with longstanding support.13 A suggestion that redistribution is more important than economic growth, or that the former actually leads to the latter, is an exhibit of a socialist ideological preference. It is a moot point to counter such an exhibit with arguments centered on the growth record of capitalist economies. Yet examples are aplenty of such rhetoric; as one of the more prominent examples, in November 2017, Chelsea Follett, managing editor of Cato Institute publication HumanProgress.org, explained that capitalism leads to prosperity while Marxism does not. Attempting to prove a fallacy in Marxist economic theory, Follett noted that Marx and Marxists of his time failed to understand that capitalism “ultimately creates widespread prosperity.”14 Follett provides a lucid example of a commonly shared and universally false notion, namely that Marx developed his economic theory for the 8 Please see http://inequality.org/inequality-growth/. Accessed May 29, 2020. 9 Please see http://equitablegrowth.org/human-capital/economic-inequality-growth-

connected/. Accessed May 29, 2020. 10 Please see https://www.nytimes.com/2019/12/05/business/Elizabeth-Warren-taxincreases.html. Accessed May 29, 2020. 11 Please see http://cepr.net/publications/reports/working-moms-and-child-care. 12 Please see http://nymag.com/daily/intelligencer/2015/02/how-democrats-became-

the-child-care-party.html. Accessed May 29, 2020. 13 Please see http://www.working-families.org/network/pdf/Effects_PFML_Employ ment12.pdf. Accessed May 29, 2020. 14 Please see https://isi.org/intercollegiate-review/do-socialism-and-communism-cre ate-opportunistic-tyrants-like-stalin/. Accessed May 29, 2020.

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purposes of human prosperity. His purpose was exclusively to explain why it was essential to redistribute existing prosperity, regardless of its totality. Notably, while these misunderstandings of Marx continue to make waves in the ranks of America’s right, proponents of socialism—Bernie Sanders and Heather Boushey being among them—successfully argue the expansion of the welfare state. They do so without perturbation and without notice of how their economic theory continues to mystify their opponents. It is, in fact, quite possible that the right shares the comfort with which the left commits to its cause. By continuing to point out that Marx misunderstood his own theory, the right can keep its rhetorical spotlight on economic growth rather than on the welfare state. This would be consistent with neoconservative political theory—such as it is—which, again, makes the case that the welfare state is desirable but must be run with efficiency. If it is, the contention is that America can avoid widespread economic strife. The widespread conservative political literature on socialism speaks to this comfort hypothesis. Conservative writers are unable to identify the economically redistributive welfare state in Sweden as socialist, brightly implying that their analytical minds have been cluttered by the neoconservative narrative. This means that the entire right in American politics views the welfare state through the same glasses: the welfare state is axiomatic; its financing is not. In terms of policy, this leads conservatives and libertarians to one and only one assignment: to find a welfare-state funding model that works. As America moves deeper into the macroeconomic quagmire that is the welfare state, the current political consensus around economic redistribution will only be reinforced. Disagreement over how to fund the welfare state will be replaced with a shared desire to protect it. More than a compromise will be formulated: a fusion of common interests will sweep away arguments over perceived ideological dividing lines. Rather than emerging as the reward for a long journey, it will surface like an air-filled balloon, deliberately concealed below the water surface until its existence is no longer a question for debate. It is important to note in this context that American politicians of different party affiliations do not put divisions on display simply for deceptive purposes. Those differences do exist and are often as deep as they are genuine. However, the need to fund the welfare state will bring those

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differences to an end; their place will be taken by a fusion of interests, a fusion forged in the fire of the national debt. As the US government sinks into urgently unsustainable debt, Congress will abandon its efforts to cut or raise taxes, depending on shifting majorities. Their new-found unity will center in on the politically most expedient solution, namely more debt. However, instead of relying on the international market for sovereign debt, the US Treasury will rely increasingly—perhaps exclusively—on debt monetization. Simply put, the fusion will freeze federal taxes on an as-is basis and then rely on the Federal Reserve to print the money that Congress wants to spend in addition to what it collects from taxpayers. Known formerly as Quantitative Easing, this funding strategy, known as Modern Monetary Theory (MMT), has already gained a prominent place in the American political discourse. Essentially giving theoretical credence to debt monetization, MMT allows Congress to escape politically challenging issues related to government spending and tax policy.

Monetized Socialism At the point where the unity around welfare-state spending has expanded to include welfare-state funding, the perception of ideological disunity will quickly wither away. As it does, the country reaches one of two critical points where socialism will openly be at odds with democracy. The first point consists of the consequences of bipartisanship on debt monetization. Voter cynicism notwithstanding, this will drain the American political system of its democratic lifeblood. With the two major parties already being largely in agreement with the welfare state, democratic socialism has already gained a sizable foothold in the economy and in the lives of Americans in general. Given that the welfare state grows by the volition of its ideological architecture, when political unity extends to both the spending side and the funding side of the budget, there will be no effective means for voters to express their dissent over the size or configuration of government. The completion of the welfare state, including the addition of singlepayer entitlements in health care, childcare, elderly care, and higher education, has been held back by political disagreements over taxes. Once that source of dissent has been eliminated, the welfare state enjoys unmitigated bipartisan support and Congress can concentrate on its expedient

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completion. As Congress bricklayers the welfare state into full compliance with its ideological architecture, America is transformed accordingly. The country will no longer be a free-market, capitalist economy. It will become a democratic, socialist welfare state. Government will promise to provide for the needs of its citizens from cradle to grave. Unity around funding requires the adoption of an MMT-based funding model. It removes the conflict-prone issue of taxes from the political agenda and relaxes remaining disputes over spending. An MMT structure for welfare-state funding is supposed to avoid the second point where socialism conflicts with democracy. This is the point where the risk of credit default would force Congress into harsh austerity measures, crippling cuts in entitlements and perhaps even sharp increases in taxes on both households and corporations. In theory, abundant expansion of the money supply is supposed to guarantee that Congress cannot default on any of its entitlement promises. In practice, if those promises are not broken under austerity (Larson 2014), they will be broken when unrestricted debt monetization causes hyperinflation. America is closer to this point than is recognized in the public discourse. The unity around welfare-state funding has de facto already emerged: in response to the 2020 coronavirus crisis, Congress decided early on to spend more than $2 trillion to help the economy recover from the emergency shutdown. This number is conservative, with the real stimulus number being noticeably higher. It is used here only for illustrative purposes, in order to capture how the ideological unity around welfarestate spending has already spilled over to the funding side of the federal budget. Halfway through 2020, with more stimulus bills pending, Congress reached the point where it would pledge to borrow half of all the money it spends. The actual ratio of deficits to spending is contingent upon the spend-out rate of the stimulus funds, but more important than the actual number is the embedded ideological message: unity around government spending is extended into unity around government funding. At no juncture did the stimulus spending inspire a mainstream ideological debate over the proper role of government. There were contributions from writers in some media and at some think tanks, but their efforts never reached the political mainstream. Part of the reason for this is a lack of ideological fervor among the critics: focus was generally on the lack of economic practicality of stimulus spending. Illustrating this point, in one

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of the more concise, better-authored contributions, Adam Michel of the Heritage Foundation makes it his main point that stimulus spending in recessions actually shrinks the tax base.15 While the fiscal analysis is relevant, without an ideological context it collapses into a technical conversation along neoconservative lines. It leaves open—for others to decide—the question whether or not the spending program itself is acceptable, even endorsable. As an illustration of the profound importance of this context, the initial coronavirus stimulus bills were designed largely to permanently expand federal government spending. According to the Congressional Budget Office (CBO), at the end of May 2020, Congress had decided on:16 • $988bn in increased mandatory, i.e., permanent spending; and • $326bn in increased discretionary outlays. At that point in time, Congress had allocated three-quarters of every dollar of stimulus spending to the permanent expansion of government. It is, again, technically relevant but ideologically unimportant to note that the spend-out rate of the new mandatory outlays will stretch out over several years (theoretically a decade). In fact, consistent estimates of the budget deficit for 2020 suggest that the bulk of the new spending authority will go online during the 2020 fiscal year. This will increase the budget deficit by an estimated $1.6 trillion for a total of $2.6–3 trillion, depending on the impact of the coronavirus-related economic shutdown. A permanent expansion of government spending is an ideological statement of the same nature as the creation of a new entitlement program. The ideological preference is generously sprinkled across the stimulus bills, but notably absent in the CBO estimates of the budget deficit. In their early 2020 forecasts, they expected the budget deficit to normalize by 2022. Aside a quip or two about normalized budget deficits, the main point remains that Congress used the coronavirus crisis to leap further into democratic, socialist territory. Few legislative products illustrate this

15 Please see https://www.heritage.org/markets-and-finance/report/the-false-promisestimulus-spending-lessons-the-great-recession. Accessed August 21, 2020. 16 Please see https://www.cbo.gov/publication/56334. Accessed May 29, 2020.

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better than the Families First Act, a.k.a., H.R. 6201 of the 116th Congress. Not only did it introduce a paid-leave mandate for private employers—entering the benefit at the lower-yield end of the entitlement pipeline—but it also created a new layer of unemployment benefits as a preamble to a basic-income program. In addition to the Families First Act, Congress passed the CARES Act, in which Title III, headlined “Supporting America’s Health Care System in the Fight Against the Coronavirus,” expands Medicare coverage. The CARES Act also increases funding for the Department of Health and Human Services for assorted purposes. As an extension, Medicaid Expansion also grows, exemplified by Nebraska17 and North Carolina.18 Furthermore, the Act pumps $15.5 billion into food stamps, a.k.a., the Supplemental Nutritional Assistance Program, or SNAP. Officially, the idea is to cover extra costs incurred by an increase in applications during the coronavirus economic disruption, but it is entirely expectable that the program retains many enrollees in the same way as it did in the aftermath of the Great Recession in 2008–2010. Another permanent increase in government spending is the $8.8 billion going into the federal school-lunch program. The need for this expansion is curiously questionable: if schools are closed due to the epidemic, their costs for providing school lunches should go down, not up. Overall, these increases in spending, while moderate, follow the gradualist model for government growth. What is technically a Congressional habit of solving temporary problems with permanent spending is in reality characteristic of entitlement expansion under democratic socialism. For every expansion of government spending, it becomes easier to enact the next expansion. The small-step growth in spending under the Families First and CARES Acts fits well within the expansion continuum for entitlements. This continuum, in turn, is an essential part of the welfare state’s ideological architecture, serving also as a conduit for America’s precipitous approach to the point where Congress openly embraces bipartisanship on welfare-state funding.

17 Please see https://www.omaha.com/livewellnebraska/coronavirus-forces-changein-medicaid-expansion-plans-oct-1-still-target-launch-date/article_d0089101-eb55-52d48a1a-4a3f1ba27bdb.html. Accessed May 29, 2020. 18 Please see https://www.newsobserver.com/news/politics-government/article24209 0321.html. Accessed May 29, 2020.

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That point is not far in the distance. The tax cuts and credits enacted under President Trump are set to expire in 2022–2025.19 In anticipation of these expirations, and given the growth in the national debt in the wake of the 2020 stimulus spending, Congress will likely embrace the monetization model as a permanent solution to the welfare state’s selfinflicted funding shortages. The probability of permanent, systematic monetization rises sharply when the prospect of new entitlements is taken into account. At the forefront is a program for paid family leave, one that after its humble beginnings as a provision mandate will become a full-fledged, traditional, tax-paid entitlement system. When completely expanded, this program is capable of adding $400–600 billion per year to the federal budget. Social Security provides a good reference regarding the expansion pipeline through which entitlements travel under the redistributive welfare state. After Social Security was enacted in 1937, Congress raised the tax that funds the program with notable frequency. After 20 increases in the 40 years from 1950 to 1990, the tax rate had risen from two to more than 12 percent. Emerging from the coronavirus bills is another entitlement program now entering the expansion pipeline. Initially known as the temporary $600-weekly bonus for the unemployed during the coronavirus economic shutdown, this program will eventually morph into a universal basicincome (UBI) program. When it does, it can rival Social Security for fiscal profligacy. Impervious to its budgetary impact, House Speaker Nancy Pelosi (D-CA) declared on April 27, 2020, that the UBI is “a solution to some economic woes brought on by the coronavirus pandemic.”20 Some two weeks later, Senators Kamala Harris (D-CA), Bernie Sanders (I-VT), and Ed Markey (D-MA) called for a basic-income program that would pay $2,000 per month, per household member, to “most American families” for the subjectively defined duration of the coronavirus crisis.21 With the eligibility caps included in their proposal, the federal government would pay out $520 billion per month. 19 Boccia and Michel (2020). 20 Please see https://www.realclearpolitics.com/video/2020/04/27/nancy_pelosi_a_g

uaranteed_income_is_worthy_of_discussion.html. Accessed May 29, 2020. 21 Please see https://www.politico.com/news/2020/05/08/monthly-payments-2000coronavirus-243670?fbclid=IwAR3WjBnR2MSiHmBNgUVrdglxwfNM9nDM99u2WVxW LWJ4lskrtpsUUH91sQY. Accessed May 29, 2020.

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For comparison, in 2019, Medicare cost taxpayers $651 billion for the entire year. In two months, this basic-income program would pay out more cash than Social Security does in one year.22 There is only one way to ignore the fiscal relevance of a basic-income program: by explicitly or implicitly proposing that its expenditures be monetized. If the US Treasury sells bonds to the Federal Reserve for the full cost of the UBI, then the central bank simply prints money for each monthly batch of basic-income checks. The prospect of monetary expansion to fund the welfare state has led some libertarian UBI proponents to suggest that the program be used as a replacement for existing welfare programs. Problematically, this proposal is only marginally different from the one put forward by Senators Harris, Sanders, and Markey. In 2019, the total cost of all welfare programs, also known as income security, was $514 billion. This amount pays for federal employee retirement and disability, unemployment benefits, housing assistance, food stamps, and more. Even if Congress terminated every one of these programs, a $200-perweek UBI would still add over $2.1 trillion to the budget. This would make the UBI the largest program in the budget by a hefty margin. Even when put next to the two currently most expensive programs, Social Security ($1 trillion) and national defense ($686 billion), this UBI program would dwarf both of them together.

Hyperinflation: Lighting the Torch When the welfare state expands without tax revenue in tow, the most prevalent unintended consequence is the de facto demise of the price mechanism. In its place emerges a labor-value-based system for distribution of economic resources. The replacement is driven by two forces, one being the planning that naturally takes place under the realm of government. The other force emerges from debt monetization on a large scale and is usually referred to as hyperinflation.

22 Even if the idea from Senator Harris et consortes were scaled back to comparatively modest proportions, such as a third of the $600 in weekly unemployment bonus from the CARES Act, each eligible adult would receive $10,400 annually. The total cost to taxpayers would be $2.65 trillion per year.

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It is considered unthinkable that the US economy would be engulfed in hyperinflation.23 The concept is—rightfully—associated with weaker economies whose currencies do not hold world-reserve status. This is a correct assessment insofar as shielding against monetized inflation is concerned: when the Federal Reserve prints money, it is demanded not just within the economies that use the US dollar, but also by other nations. However, the balance between monetary supply and monetary demand is the same on a global scale as it is at the national level. The ability of an economy to absorb money falls into two categories: transactions and speculation. The transactions demand for money is largely proportionate to the size of Gross Domestic Product,24 while the speculative demand is related to earnings outlooks in the markets for equity and debt. Inflation in the markets that absorb speculative money demand is not a hyperinflation problem. Rapid and substantial price increases on equity can lead to speculative bubbles, but they do not originate hyperinflation in consumer prices. To do that, money supply must vastly exceed the demand that the economy has for transaction purposes. That excess supply eventually opens up when government expands its debt monetization to a large enough scale. Technically, hyperinflation originates in the artificial creation of purchasing power. When government provides entitlements to large segments of the population, the entitlees receive cash and in-kind benefits at values that are not based in market prices. The free-market system balances value production against value consumption: for every dollar of value of purchasing power, there is a dollar of value added in the form of production; for every dollar of value added or produced, there is a dollar earned as income.

23 There are several stages of inflation. Rates below ten percent per year are “inflation”; when prices rise between 10 and 50 percent per year, it is sometimes called “high inflation.” From there up to 50 percent per month, it can be referred to as “strato inflation”; the term “hyperinflation” is reserved for anything above that level. 24 It is sometimes objected that this relationship between money demand and GDP has changed with the evolution of the banking industry. With other means to pay for consumer spending, demand for what is traditionally thought of as money has declined. This is correct, but the concept of money must not be misunderstood as merely covering cash. It is broader and includes various forms of liquidity, all of which allowing its bearer to make purchases and pay bills. Understood accordingly, the transactions demand for money maintains a proportionality to GDP over time.

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In other words, the total absorption of goods and services in the economy always equals the total value of income and production.25 Market prices clear the distribution of all resources: • Excess supply leads to price cuts; when lower prices do not motivate enough spending, supply is intertemporally transferred (inventory investments); • Excess demand leads to price hikes; when demand still exceeds supply, spending is deferred (savings). In the aggregate, the free-market system always matches value absorbed with value produced. When government provides in-kind services, it skews the free-market price system by occupying value-producing resources that otherwise would be used to satisfy private-sector demand. However, so long as the services provision is paid for with taxes, the identity between value produced and value absorbed remains. Government has forcefully reallocated resources compared to the free-market process, but it has not artificially injected absorption demand that the free market did not create. The same holds true for cash benefits: so long as they are tax-funded, they do not corrupt the identity between production and absorption. This changes when government monetizes its entitlement funding: 1. Suppose the total value of absorption, production and income is $1,000; in other words, Gross Domestic Product is $1,000; 2. Government introduces a ten-percent tax to fund a ten-percent cash benefit for select entitlees; $100 is taken out of the income of some households and given to others; the value identity holds; 3. Government now decides to print $100 and give it to the same group of entitled households; production has not increased, nor has income; 4. Income value now exceeds production value, an imbalance that can only be corrected with higher market prices.

25 This identity between absorption (or spending), income, and value added is the basis for Gross Domestic Product statistics. It does not mean that the economy always operates at full employment; all it means is that at any given point in the business cycle, absorption, income, and value will always be equal.

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There is a case to be made for using money supply to fund cash benefits in a recession. Keynesian economics provided the multiplier as an analytical tool for dynamic economic analysis; when unemployment is high, the risk of price increases as a result of debt monetization is low. When, on the other hand, money printing becomes a permanent source of funding for cash entitlements, it permanently infuses more income value into the economy than the production side can keep up with. So far, the transmission mechanism from money printing to higher prices remains moderate. However, as the monetization expands; as monetized entitlements account for an increasing share of household income; as monetization spreads to in-kind services, the imbalance between monetized economic value and produced value becomes more corrupting. Bluntly, more money that is not backed by value chases less value backed by production. To exacerbate the imbalance, the more generous the provision of monetized entitlements, the weaker the incentives will be to join productive economic activity. The welfare state disincentivizes workforce participation and entrepreneurship. Inflation sets roots in the economy. As prices begin to rise consistently, government will increase its monetized spending to protect the monetary value of its entitlements. In doing so, government pours monetary gasoline on the inflation fire. Money-driven inflation is not a linear consequence of the monetization of government spending. Instead, its entry into the economy resembles the old ketchup bottle; it takes time for inflation to set root and for its transmission mechanisms to work their way through the economy. However, once the inflation torch has been lit, like the ketchup that left the bottle, it is hard to undo. Venezuela provides an interesting case study, with astronomical inflation rates in recent years. To be clear, the country had a problem with inflation long before inflation rates ran amok in the mid-2010s. The average annual inflation rates in the 1980s—23 percent—and the 1990s— 47 percent—were staggering by American or European standards.26 However, they were relatively stable and therefore came with a sense of predictability. Within some parameters, high but predictable inflation is no more harmful to the economy than low but volatile inflation.

26 Data on Venezuelan inflation and money supply are sourced from Trading Economics at tradingeconomics.com (subscription required).

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The Venezuelan inflation problems began in the early 2000s with a drastic monetary expansion. It started in 2002 and continued through 2007, with money supply growing at rates of 50–100 percent per year. This foray into excessive monetization did not in itself cause hyperinflation; on the contrary, the rate of price increases actually declined. The main reason was a recession in 2001 and 2002 during which the Venezuelan GDP fell by, respectively, 8.9 and 7.8 percent in real terms.27 After an intermediate term of economic growth, by 2009 the Venezuelan economy joined the world in the global Great Recession. During periods of economic contraction, the inflation stress from monetized government spending subsides. However, the persistent monetization of government spending eventually led to monetary inflation dominating traditional demand-driven inflation. Once the money expansion reached a critical mass; once the welfare state had expanded rapidly enough, inflation accelerated violently, peaking at 350,000 percent. At this rate of inflation, the free-market economy loses its meaning. Regular economic life effectively collapses into a subsistence-level barter system. The people of Venezuela tangibly experienced this state of existence.28

US Hyperinflation It cannot be inferred from the Venezuelan example that America is facing an imminent, or even probable threat of hyperinflation. An experience with extreme macroeconomic conditions in one country is never directly transferrable to another country. The institutional and macroeconomic differences are substantial, and as of yet, the political desire to monetize welfare-state spending has been comparatively limited. At the same time, it is also a rush to conclusion to assume that the American economy is immune to hyperinflation. An often-heard objection to the threat is that the US dollar is a global reserve currency, making it practically impossible for the Federal Reserve to saturate the currency market up to the point where hyperinflation is triggered. While it is technically true that the US currency is in demand like no other, it is also 27 Please see https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations= VE&view=chart. Accessed May 29, 2020. 28 Please see https://nypost.com/2018/02/22/venezuelans-are-starving-amid-eco nomic-crisis-food-shortages/ Accessed May 29, 2020.

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an arithmetic fact that even the dollar has a cap on its demand. All other things equal, not even the Federal Reserve is safe from the risks that come with monetary over-saturation. Furthermore, the very global status depends on the prudence of the bank that manages the currency. So long as the US dollar remains strong vs. other currencies, it can maintain its worldwide status; when money supply exceeds a certain point, it sets in motion a process that weakens the dollar and thereby erodes its global purchasing power. While moderate fluctuations in exchange rates are normal, and large swings are expectable under unusual circumstances, a long-term trend where the value of a currency is weakened eventually leads to a point where it is no longer safe, let alone profitable, to keep that currency for contingency or speculative purposes. At that point, the currency loses its global status. This point exists for all currencies, even the US dollar. It is very difficult to quantify it and predict where it is: an event such as the decline and loss of a global currency is rare, leaving almost no meaningful data for econometricians to use in any projection of the dollar breaking point. However, it is a non-sequitur to conclude from lack of data and the rarity that an event cannot happen in the future. This is a particularly important point when the possibility of the event is in the hands of policy-makers whose policy decisions can affect the likelihood of the event. In addition to the general methodological imperative to never rule out rare events, there is a microeconomic mechanism that is almost universally overlooked as a booster for hyperinflation. Prices in modern economies are set based on explicit or implicit contracts, with an established frequency for price reviews and changes. It is suggested in the price-theory literature that businesses normally consider price changes every six months (although there are variations across industries), with the period between price reviews being based on the expectation that prices of related products will at most change within a small, predictable margin. When inflation increases, the cost increases to sellers for keeping prices steady. They risk seeing their production costs go up intolerably during the period when the price is fixed, but they also risk deteriorating relations to their buyers if they wait so long with price changes that each increase will be disturbingly high. Therefore, in times of inflation the frequency of price changes is shortened: as the frequency shortens, prices will increase faster simply by virtue of the frequency.

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At the heart of the shortening of pricing periods is the loss of confidence that comes with high inflation. Confidence is a flip side of the price-review frequency. The longer the review period, the more confident a business manager is that his prices and his cash flow are predictable and in the right place. This correlation is intuitive: when the price setter waits long periods between taking his prices under review, he exposes himself to uncertainties that may be difficult to compensate for. In keeping his price-review frequency low, he signals expectations that all the prices upon which his own are contingent will remain within predictable brackets until his next review point. Inflation brings uncertainty in future cash flows. Uncertainty is exponentially related to inflation: it does not take hyperinflation to destroy confidence in price contracts. When confidence is weak enough, it shifts footing, from long price contracts to short ones. Under exceptional inflationary conditions, confidence is no longer based on long periods between price changes; on the contrary, such periods become associated with uncertainty. Instead, the brevity of price periods and the ability to raise prices frequently will become the foundations of confidence. When the psychology of price signals has been switched accordingly, inflation has gained self-propelling momentum. Metaphorically, this is the point where the ketchup leaves the bottle. It is also the point beyond which regular economic activity loses its meaning: it is no longer desirable to sign any multi-period contracts of economic interaction, unless the trade is specified in terms independent of the prevailing currency. Plainly, when an economy under inflation switches confidence footing from unchanged prices to changing prices, there is also an imminent risk that the economy loses its currency as a means of trade. Under hyperinflation, it is more reasonable to trade in either foreign currencies or under barter agreements. As the Venezuelan example shows, it is possible for a government to end hyperinflation. The cost to the economy is almost as extreme as hyperinflation itself, requiring regulatory incursions at the level of teleological central planning. Given the widespread deficiencies that follow in the footsteps of such a level of government economic control, it is paramount that Congress recognizes the tremendous risks associated with debt monetization. So far, the legislative process appears to be impervious to the inflation threat. Money printing took a front seat during the 2020 coronavirus crisis, with the Federal Reserve increasing M2 money supply at higher

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rates than any time on record. During the high inflation in 1970s, M2 expanded at an average annual rate of 9.5 percent, with tops just below 14 percent. During the coronavirus crisis, money supply expanded at rates in excess of 23 percent. It is important, again, to note that the US economy is not yet in the vicinity of hyperinflation, and if the exceptional expansion of money supply tapers off, the risk of a crippling price shock will be reduced. However, the Federal Reserve no longer holds control over its money supply—that is effectively in the hands of the US Treasury and its need to monetize ongoing deficits. If deficits prevail, so will the very high levels of monetary expansion. On August 27, 2020, the Federal Reserve de facto acknowledged its loss of monetary control by revising its inflation-target policies.29 Instead of keeping inflation below a specific mark, it intends to target an average inflation rate over a multi-year period. Every small step made by policy-makers reduces the distance between the present and a future of hyperinflation. Under the present political conditions, Congress has made decisions of precisely that kind in order to chart a path of least resistance: deficit monetization is politically more expedient than deficit-reducing spending reform. That expediency is reinforced by the ideological landscape in Congress, effectively meaning that so long as the overlap between neoconservatives and socialists remains, the welfare state will demand sustained levels of funding from the Federal Reserve. In a few short words, Congress will monetize America’s path to socialism. This raises to high relevance the question of what challenges the welfare state will present to the constitutional democracy. Even without the imminent threat of hyperinflation, the American political system is being compromised by the slow but steady growth in the welfare state. With a de facto consensus between the two major parties on continued government growth, the constitution has already to some degree been reduced to an instrument for the practice of socialism. The demotion of democratic governance is not yet decisive, but it hangs in the balance as entitlements expand, the deficit widens, and the monetary printing presses work overtime. America’s future has never been more contingent upon such a clear and unequivocal choice: socialism or democracy. 29 Please see https://www.federalreserve.gov/monetarypolicy/review-of-monetary-pol icy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-str ategy.htm. Accessed August 31, 2020.

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Conclusion A de facto alliance around the welfare state between neoconservatives, proxied by the Republican party, and socialists proxied by the Democrat party, would keep taxes low and let growth in government spending continue. However, it would require monetization of deficits at a level that is unprecedented in American history and has very few parallels globally. There is an apparent theoretical and noteworthy empirical risk that this expansion leads to hyperinflation; to what extent this risk is also empirical remains to be determined. However, the possibility of hyperinflation begs the question what is going to happen to American democracy, should Congress and the President decide to rely on monetization to continue to expand the practice of redistributive socialism.

References Angyridis, C. (2017). Endogenous growth, inequality and the composition of Government expenditures. Proceedings of the Annual Conference of the National Tax Association, 110 (pp. 1–21) Bocchia, R., & Michel, A. (2020). How congress can enable the great American economic recovery. Heritage Foundation Backgrounder 3491. Esping-Andersen, G. (1990). The three worlds of welfare capitalism. Princeton, NJ: Princeton University Press. Heckscher, G. (1984). The welfare state and beyond: Success and problems in Scandinavia. Minneapolis: University of Minnesota Press. Larson, S. (2014). Industrial poverty: Yesterday Sweden, today Europe, tomorrow America. Burlington, VT: Gower. Larson, S. (2018). The rise of big government: How egalitarianism conquered America. London: Routledge. Levin, Y. (2011). Beyond the welfare state. National Affairs, Spring.

Index

B Brezhnev, L.I., 89–91

C Capitalism, 13–15, 19, 23, 24, 27, 29–33, 36, 37, 39, 41, 55–57, 59, 61, 62, 65, 69–72, 92, 118–122, 126, 144, 145, 151, 152, 169, 172 Charta 77, 107, 108, 113, 123 Communism, 8, 9, 11–16, 18, 19, 23, 25, 26, 83, 84, 86, 87, 109, 114 and the Russian revolution, 16, 82 Czechoslovakia, 18, 82, 83, 87, 89–95, 98, 100, 101, 106–110, 121–123, 156

D Denmark, 113, 160 Dubˇcek, A., 91, 92, 96, 98–101, 107, 117, 118

E Economic planning and the welfare state, 24, 38, 48, 57, 61, 62, 65, 72, 73, 81, 150, 170 indicative, 57, 61, 62, 65, 66, 70, 72, 76, 149, 170 teleological, 61, 62, 65, 66, 76, 97, 150 Economic redistribution, 2, 4, 5, 7, 9, 27, 42, 57, 59, 60, 64, 65, 71, 72, 78, 117, 120, 122, 125, 129, 130, 132, 135, 137, 138, 140–142, 144–148, 152, 167, 169, 171–173 Economic stagnation, 18, 50, 62, 78, 93, 100, 126 Economic theory mainstream, 33, 59, 72 Marxism, 18, 25–27, 29–31, 33, 34, 37, 38, 40, 42, 44, 47, 58, 67, 75, 76, 88, 89, 105, 109, 121, 141, 147, 172

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. R. Larson, Democracy or Socialism, https://doi.org/10.1007/978-3-030-65643-0

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INDEX

F France, 86, 111, 112, 114, 116, 159, 160

G Galbraith, J.K., 38, 72, 129 Germany, 48, 83, 89, 91, 111, 114, 160

I Ideology, 1–6, 8–13, 16–20, 23, 25, 26, 57, 58, 60, 66, 69, 71, 75, 82, 83, 86, 89, 90, 99, 101, 102, 104, 112, 114–118, 120, 123, 126, 129, 136, 138, 145–148, 151, 153, 155, 157, 159, 169 Iron law of wages, 34, 35, 37, 42, 128 Italy, 116, 160

J Johnson, L.B., 5, 127–131, 134, 145

K Keynes, J.M., 23, 45, 53, 54

L Leninism. See Communism Lenin, V.I., 11–17, 19, 84, 90

M Marxism and economic reform, 98 and economic stagnation, 18, 50 and the iron law of wages, 34, 35, 37, 42, 128

and value theory, 28–30, 32–34, 37, 38, 41, 55, 61, 76, 122, 141, 149 economic theory, 18, 25, 26, 29–31, 33, 34, 37, 38, 40, 42, 44, 47, 59, 67, 75, 88, 89, 105, 109, 121, 141, 147, 172 Modern Monetary Theory (MMT), 174, 175 and hyperinflation, 175 N Neoconservatism, 144–148, 151–153, 156 and welfare-state consensus, 139, 153 P Prague Spring, 18, 82, 83, 87–90, 93, 97, 100, 101, 105, 106, 109, 110, 113, 114, 118, 119, 121–123, 156 R Ricardo, D., 34–37, 42 Russia, 16, 82, 84–86 Russian revolution, 16, 82 S Sartre, J.P., 111, 112 Socialism and economic redistribution, 2, 4, 5, 7, 9, 57, 65, 71, 117, 120, 122, 125, 129, 140, 145, 146, 152, 169 and political theory, 146, 147, 153 and property rights, 3, 13, 24, 116, 122, 147 and the welfare state, 5, 10, 11, 20, 24, 25, 57, 60–62, 65, 69,

INDEX

72, 78, 81, 110, 114, 116, 117, 125–127, 130, 140, 144, 146–148, 152, 153, 156, 173, 174, 186 definition, 1–9, 11, 20, 23, 24, 57, 58, 69, 83, 101, 116, 117 democratic, 3, 5, 11, 13, 20, 57, 59, 78, 92, 93, 105, 114, 125, 130, 146, 156, 169, 174, 177, 186 European, 111, 115, 126, 144 monetized, 174 Social Security Act of 1935, 127, 128, 132, 145 Solzhenitsyn, A., 11, 12, 101–106, 110–113, 115, 117, 123 Soviet Union, 1, 5, 11, 12, 18, 82, 89, 91, 98, 100–102, 105, 106, 111–116 Sweden, 2–5, 10, 65, 69, 70, 113, 118, 120, 122, 123, 160, 166, 167, 173 V Value theory and Marxism, 26–30, 33, 37, 38, 41, 55, 61, 66, 67, 76, 89, 122, 141, 149

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labor, 26–30, 32–34, 37, 38, 41, 44, 55, 57, 58, 61, 66, 67, 76, 89, 122, 141, 149 market prices, 28, 30, 33, 37, 122, 149

W Wage Earners Trust (WET), 117–120, 123, 142, 143, 147 Wagenknecht, S., 115 Welfare state and the Social Security Act of 1935, 127, 128, 132, 145 and the War on Poverty, 127–129, 134, 152, 155 conservative, 5, 10, 65, 70–72, 125, 126, 129, 130, 144, 145, 152, 156, 167, 173 socialist, 10, 20, 24, 25, 57–61, 65, 69, 71, 72, 81, 116, 117, 125, 126, 129, 130, 134, 135, 140–149, 153, 155, 156, 167, 168, 173, 175, 186, 187 Swedish, 3, 5, 48, 60, 70, 71, 73, 126, 166–168