[ p. 33 ]
IN THE present turmoil of international relations, we hear nation accusing nation in a most peculiar way, the voice of each lifted against the others.
Fascist countries assert that democracy and Communism are one and the same thing, that democracy is only a political corollary of Communism, that a democratic system of government must lead to Bolshevism.
Communists insist that democracy and Fascism are one and the same thing, that both are capitalist, that under both, private capital exploits the workers, that Fascism is the latest and highest form of capitalism, nothing hut a device of reactionaries to destroy socialism.
Democratic countries emphasize more and more frequently that Fascism and Communism are one and the same thing, that both are totalitarian dictatorships oppressing the peoples by means of a ruthless police, destroying all liberties and reducing the individual to the status of a serf.
A grain of truth can be found in each of these triangular cross-charges. But actually, each expresses a superficial and worthless point of view. Mankind is [ p. 34 ] engaged in an unprecedented life and death struggle, in a world-wide civil war waged around these social, political and economic conceptions. If it is to survive, these vital issues must be clarified, these conflicting notions must be separated and defined objectively.
Individualist capitalism, the system of free enterprise and free competition, was the dominant economic philosophy at the birth of industrialism. At the beginning of the nineteenth century, when the industrial revolution began, the liberating political revolutions of the late eighteenth century had been consolidated, their aims achieved. Democratic nationstates, republics and constitutional monarchies, were firmly established in the Western world. It was only natural that the political ideals which had triumphed should also become the prevailing basic principles of the economists, manufacturers and traders of the early industrial age.
Free enterprise, free trade and free competition were the obvious economic corollary of political liberty. On the basis of these principles, Adam Smith, David Ricardo and John Stuart Mill constructed a system of economic laws, a doctrine unchallengeable in the abstract even today.
But there is a fundamental difference between political freedom as embodied in English common law and proclaimed by the encyclopedists of the French Revolution—and the fathers of American Independence and economic freedom as understood by the classical economists of the early nineteenth centuiy.
The founders of modern political democracy understood [ p. 35 ] that freedom in human society is relative, and that freedom in the absolute is bound to lead to anarchy, to violence—to the exact opposite of freedom. They realized that the freedom for which man had been struggling for five thousand years, means in practice only the proper regulation of the interdependence of individuals within a society. They saw that human freedom can be created only by limiting the free exercise of human impulses through generally applied compulsion—in other words, by law.
Freedom is an ideal that appeals to everyone. The only trouble is that one’s own longing for freedom is somewhat upset by a similar longing for freedom in others. What slightly complicates the eternal problem of freedom is the not quite negligible fact that hundreds of millions of human beings are dominated by the same subjective desire—freedom—the full exercise of which by every one of the hundreds of millions of individuals would necessarily impinge upon the freedom of all others.
So it was obvious to the makers of modern democratic constitutions that freedom can be granted to an individual only to the extent that the freedom of action of one individual does not infringe upon the freedom of action of other individuals. Individual freedom, as granted by the constitutions of all modern democracies to the citizens, is clearly defined by law as a series of compulsions imposed upon all individuals by the community—the state.
The economists of laissez-faire, however, failed to conceive freedom in its only possible form in the form of a synthesis between freedom of action, and [ p. 36 ] the prohibition of such actions as might impair or destroy the freedom of others. Freedom in economic affairs, according to their theory, was absolute, unlimited and unrestrained.
They had a nebulous notion about the necessity of protecting the economic freedom of man from infringement by the actions of others, but compared with the clear principles regarding freedom in human society which guided the authors of the modem democratic constitutions, theirs were extremely primitive. They fought against monopoly tendencies, knowing that these would strangle competition. But their stand against restricting competition among laborers was based on the same argument, i, e, that such restrictions would destroy freedom of competition between workers, that what is today called “collective bargaining” on the part of organized workers would be unfair to nonorganized labor, to the consumers, and would produce unemployment. They did not realize that trade unionism was the specific reaction to the total lack of norms regulating the relationship between employer and employee, to the unregulated, absolute freedom on the labor market which was gradually destroying the freedom of the wage earners.
Absolute, unlimited and unrestrained freedom of action could bring about “freedom” in this world only if absolute equality in every respect existed between individuals, if an order could be established which everyone would consider just and if it were possible to preserve such order in static form forever or at least for a long period of time. It is evident that such absolute equality among men does not and never can [ p. 37 ] exist. Economic conditions, like life itself, are in a permanent state of flux, and so after a short time, absolute economic freedom, like absolute freedom in any other field, created a situation in which many, if not the majority of people, were in fact deprived of freedom.
An economic order could rightly be called a system of absolute free enterprise based on absolute freedom of competition if inheritance did not exist; if, at the death of each individual, all the tools, all the means of production and wealth he had accumulated during his lifetime were destroyed or taken by the state, so as to give each person complete equality of opportunity. As such a thing is not likely to come to pass, freedom of enterprise and freedom of opportunity can at best be relative.
Theoretically, complete freedom of competition in economic life is thinkable only if each person starts from scratch. The moment capital, business organization, tools, patents and other assets accumulated by successful individuals during their activity in the field of free competition, are transferred to other individuals, who thus start with a great advantage over many others of their generation, absolute freedom of competition loses its meaning. In such a situation, if complete tyranny by a few economic dynasties is to be prevented and a relative degree of freedom in economic life is to be maintained, a certain amount of regulation by kw is imperative and unavoidable.
In human society it is difficult to challenge the righteousness and justification of the claim for leadership and privileged positions of those who are more [ p. 38 ] capable, more diligent, more intelligent, more thrifty. But it became hard for the masses to accept justification of the claim for leadership and privileged positions of second or third generations who inherited fortunes and capital from their parents, thus starting upon free enterprise in economic life under conditions so favorable that free competition became a method of perpetuating economic inequalities.
We cannot very well call the order existing today in the United States, the British Commonwealth and in other capitalist countries a “system of free enterprise” when many industries are monopolized to an extent which makes it absolutely impossible to start new ventures in those fields or to compete with those industries.
Consequently, within two or three decades, modem industrialism has created not only hitherto undreamedof wealth for the economically stronger and more fit, as well as for their descendants, but it has also created poverty, frustration, dependency and lack of freedom, bitterly resented by those millions who lost their chance to become independent and whose labor is now a mere commodity.
This situation naturally created reactions, and finally modern socialism.
Socialism teaches that private capitalism necessarily leads to monopoly—to a greater concentration of capital in the hands of the few, to economic dismemberment and to the pauperization of the laboring masses. The conception of class warfare between capitalists and proletariat was construed and the salvation of the Western industrial world was seen to [ p. 39 ] lie in the expropriation of the exploiters, in the abolition of the profit motive and in the nationalization of all means of production.
For nearly a century now this class warfare has teen going on in all Western countries, despite the fact that the entire controversy is based on a misconception. It is not because capital is controlled by individuals and private corporations that the private capitalist system of free enterprise failed. It failed because in the economic field, “freedom” was regarded as an absolute instead of a functional concept, a human ideal in constant need of adjustment and regulation by law, and of institutions for its defense and safeguard. In absolute form, freedom of one man means the serfdom of the other. Obviously such a state of affairs cannot be a human ideal and cannot be called “freedom.”
After a period of fabulous wealth for a few and increasing poverty for many, some people recognized the danger of the trend and tried to bridge the abyss separating the capitalist and proletarian classes by accepting trade-unionism, introducing labor legislation, social security, inheritance taxes and other measures to overcome the most blatant injustices arising from absolute freedom in economic life. Experience with social legislation unquestionably demonstrates that in this direction lies the solution of the social problem. If freedom in economic life is to have meaning, we must create a system of regulations and norms within which free enterprise, free initiative and freedom of economic activity can exist without destroying the freedom of enterprise, free initiative [ p. 40 ] and free economic activity of others. This principle cannot work realistically except by establishing institutions capable of giving expression to constantly changing conditions and of creating law.
The scope and limits of free enterprise are just as relative as are those of any other freedom in human society. It was not so long ago that raising armies came within the scope of private enterprise. Just as modern capitalist states own a few industrial enterprises, the state—the king—also had an army. But the king could not wage war without the support and collaboration of his great landowners, just as modern democratic states cannot wage war without the support and collaboration of the great industrial enterprises. And just as governments today call upon private industrialists to produce guns, planes and ships for them, in other days powerful knights were called upon to raise armed battalions and to take command over them.
It is not so long since the champions of absolute free enterprise hotly defended their sacred right to raise and possess armies. Who today would defend that right and assume that private enterprise includes the right of the big landowner or the big employer to raise and command armies? Who today would regard state monopoly of conscription and of maintaining armed forces as an infringement upon the system of free enterprise? Or is the Duke of Atholl, who still enjoys the privilege of maintaining a private army in Scotland, the only remnant of the system of free enterprise in the Western world?
The fact that at certain stages, evolution demands the transfer of certain human activities from the individual [ p. 41 ] to the collectivity does not mean the end of individualism. It means, rather, that the interest of the community and the freedom of its members are better served if certain activities vitally concerning all are under the control of the community.
From a dogmatic viewpoint of absolute individual free enterprise, it is difficult to speak of freedom of enterprise in America or in England, when no landowner, no banker, no industrialist, is free to raise armies and fight under his individual banner, for his own house, for his own interests, for his own independence. The state monopoly of conscription, of raising and maintaining armed forces, is such a far-reaching infringement upon absolute individual liberty and the system of absolute freedom of enterprise, that it outranks completely the limitations upon free enterprise arising from trade-unionism or social legislation. Yet, after a hard and long fight between the defenders of free military enterprise and the community, that issue has been settled so that today, no one, not even the most adventurous industrial robber baron, believes that his individual freedom of action has been der stroyed and that he is living in a Communist society just because he is no longer free to invest capital in a private army.
Our civic life is based entirely on the fundamental doctrine that maximum individual freedom results from the prohibition of the free exercise of such human actions as would infringe upon the freedom of action of others. This is the meaning of political freedom.
It is also the meaning of economic freedom.
[ p. 42 ]
The first conflict between false theory and reality in the industrial age—the anarchic situation created by the erroneous conception of freedom in economic life—might have been solved, after many unnecessary struggles, by a rapprochement between capitalist and socialist doctrines through social legislation, as it has been very nearly solved in small, progressive countries like Sweden, Denmark and Norway. But an even greater barrier to free industrial development, a dominating force in our civilization, has created a much more violent conflict which threatens to destroy all the positive achievements of the past two centuries. This conflict is the clash between industrialism and political nationalism.
Modern industrial economy, in order to progress, needs freedom of exchange and transportation even more than it needs freedom of individual initiative and competition. The purpose of mechanized industrial economy is maximum production of consumer goods. This entails the utmost rationalization of production processes, widespread division of labor, plant location on the economically most favorable geographic sites, free supplies of raw materials from aU over the earth and free distribution of finished products to all world markets. These conditions essential to industrial development were recognized at the beginning of the industrial age; and free trade became the natural policy of the first great industrial power, England, where abolition of the tariffs on agricultural products the remnants of the mercantile age was urged and complete freedom in international trading advocated.
[ p. 43 ]
But by the time free trade had established England’s leadership in industrial production and world trade, the eighteenth century nation-state system had already crystallized as a rigid political structure. People in the Western world had begun to think in national terms, pledging allegiance to their nation-states, their national symbols and ideals above everything else. And these young nation-states—the United States, Germany, France—looked with envy upon England’s growing wealth created by her industrial power and export trade. They began to feel that free trade was a very profitable policy indeed for the economically strongest nation and that, under the existing freedom of economic exchange they themselves had very little chance to build up industries at home, capable of competing with British manufacturers. They wanted to produce within their own national borders as much as possible of what they needed, and in addition, a substantial volume of commodities for export.
To create a national industry became more important to them than to carry on the free trade system, even if such a change of policy meant higher prices at home. Each felt that, as a national unit, it would have more “freedom” if it put legal restrictions on the freedom of trade of the stronger producer nations. So, championed by Alexander Hamilton and Friedrich List, a new theory of industrial protection was born and national tariff barriers were erected under the protection of which national industries came into being in the United States, in Germany and in various other countries.
From that moment, the system of free individualist [ p. 44 ] economy—a most promising departure—was halted, disrupted and strangled.
Since the middle of the nineteenth century, it has been meaningless to talk of a free economy. The reality consists of a system of warring national economies guided primarily by political and not economic interests and considerations.
For a relatively short time—about half a century—this misalliance between industrialism and nationalism could be overlooked because in the politically divided world a few nations were large enough for industrialism to continue to develop. For a time sufficient open spaces provided conditions that enabled the relative wealth of the United States and of the colonial powers of Great Britain, France, Germany, Holland and Belgium to be created. All of these nations were engaged in desperate competition during the entire nineteenth century, seeking to bring under their own national sovereignty territories large enough to supply their industrial machinery with raw materials and markets of their own.
This development finally reached a saturation point. Once there were no more territories to discover, once the possibility of annexing virgin lands ceased, these divided national industrial states got into violent collisions with each other, starting a new type of conflict, creating more and more chaotic conditions throughout the world.
Within narrow national boundaries fortified by artificial tariff walls, economic freedom became a farce. The impossibility of exchanging freely, of producing where production was economically most rational, of supplying the markets where a demand [ p. 45 ] for commodities existed, accelerated and made more acute the periodical crises within the system of national economies, bringing about unemployment and misery in the midst of plenty.
What we usually call world economics, international trade, has today little, if anything, to do with economics or trade. They are in fact economic warfare, trade warfare. The dominating motive of all economic activity outside existing national boundaries is not trade, is not production, is not consumption, is not even profit, but a determination to strengthen by all means the economic power of the nation-states.
Within the political strait-jacket of the nation-states, national economies could function only through artificial stimulants which, after a brief flurry, made the position even worse. Capitalists, who originally thought that they profited most by the system of free enterprise began to seek to eliminate competition, the very foundation of the capitalist system. Artificial structures, trusts and cartels, were erected to control competition and to circumvent the iron laws of supply and demand on the free market. They thought they saw salvation in economic planning, fixing in advance quality, quantity and rate of production to avoid overproduction and to keep prices high.
On the other hand, the workers, whose sufferings increased under this system of anarchic economy, rejected the very idea of private capital and free enterprise, organized trade unions to obtain higher wages through collective bargaining and formed political parties to influence legislation and control governments.
On all sides today in the Western world voices are [ p. 46 ] raised accusing managers of trusts and cartels as well as the leaders of labor parties and trade unions of destroying individual freedom. The cry is that planned economy, whether controlled by capitalist cartels or socialist labor parties, inevitably leads to dictatorship and destruction of democracy.
This is unquestionably true.
Both cartels and labor unions have been driving the great industrial democracies of the Western world toward more government control and less individual freedom. But the strange thing is that none of these champions of absolute individual and economic liberty have taken the trouble to analyze the crisis through which the world is passing. None of them have tried to determine the underlying causes of the trend, nor the forces which are driving us toward ever-increasing power for the state. They assert it is the leaders of cartels with their fear of competition, and the socialists with their collectivist ideology, who cause this trend. Some are even so blind as to declare that no “objective facts” make inevitable our march toward complete state control. Only wrong ideas, only human stupidity, they say are responsible for the present situation which has come about because people “believe” in false prophets and in the heresies of economic planning, collectivism and government control
Economic freedom and the system of free enterprise have been driven into bankruptcy by the primitive, erroneous notion of unregulated freedom and by political nationalism > by the nation-state structure.
Except for a limited period after the birth of industrialism, free economy has never really existed.
[ p. 47 ]
The political credo of nationalism undermined and destroyed it before it could develop.
The primacy of national interests in every country forces governments and peoples toward economic selfsufficiency, toward preparedness for war, toward more economic planning and direction, which means the transfer of more and more authority from individuals to the central government. The political structure of the nation-states is in violent and absolute opposition to the needs of an economic system of free enterprise. In final analysis, all obstacles to free economy arising in the democratic countries derive from it
To all practical purposes it is today a waste of time to search for the laws of economic life. In a world of national industrialism, it is the gun that regulates production, trade and consumption. There is no higher law to govern economy in a world of sovereign nation-states.
Monopolistic tendencies, socialism, collectivism are merely reactions, attempts to cure the most urgent symptoms of the crisis created by the clash between industrialism and nationalism. Developments in every single nation-state have run parallel, albeit with varying rapidity, toward the domination of the individual by the state, first in his economic and then automatically in his political life.
From this evolution over the past fifty years, it is clear that individual capitalism, within the limited boundaries of nation-states at the present stage of industrial development, cannot operate without causing anarchic conditions that force governments to intervene and take control of the economic process in [ p. 48 ] the interest of the nation. The advantages of a free economic system, higher living standards, greater wealth, better housing, better education, more leisure are unquestionable. But it remains a fact that they mean much less to the blind citizen-serfs of the nation-states, than their nationalist passions. People willingly and enthusiastically renounce the enjoyment of freedom and wealth, if only they can continue to indulge in slavish submission to and abject worship of their nation-state and its symbols.
The individual system of free enterprise within the limits of nation-states can neither flourish nor develop. In all countries it has led to more and more power for the state, to a totalitarian form of government and the destruction of individual liberty.
Prohibitive tariff walls, monopolies, cartels, control of government by trusts and private interests, dumping, poverty, slums, unemployment and many other products of the system of absolute free enterprise are surely not freedom, or freedom has no meaning.