Economic Policy for a Free Society (1948)
Good political structure should be closely similar to the informal organization or federation of large societies, cultures, or civilizations. The range and kind of governmental activities and• legislation at different levels should reflect the different range and kind of consensus, attained or attainable. As one moves from primary groups through small to large communities and on to inclusive society, the range of moral consensus becomes narrower and its content at once more fundamental or abstract and more vague or ambiguous. Government in a free society must, at different levels, adapt itself to the existing hierarchy of moral consensus and try to build, or to facilitate society’s building, a strong, bottom-heavy moral structure.
Individualism and collectivism are usually discussed largely in terms of political (coercive) versus voluntary (free) association and of governmental-monopolistic versus private-competitive organizations. The range of aggregate governmental activities, however, is hardly more important, as a policy problem, than their distribution between small and large, local and central, governments. Extensive local socialization need not be incompatible with, or very dangerous to, a free, society. Local bodies are themselves largely voluntary associations; people have much freedom to choose and to move among them; they are substantially competitive and, even if permitted to do so, rarely could much restrain trade. The libertarian argument against “too much government,” consequently, relates mainly to national governments, not to provincial or local units-and to great powers rather than to small nations.
Democratic process is an invention of local bodies. It has been extended upward and may be extended gradually toward world organization. In any case, modern democracy rests upon free, responsible local government and will never be stronger than this foundation. Free, responsible local bodies’
correspond, in the political system, to free, responsible individuals or families and voluntary associations in the good in society. A people wisely conserving its liberties will seek ever to enlarge the range and degree of local freedom and responsibility. In so doing, it may sacrifice possible proximate achievements. Doing specific good things by centralization will always be alluring. It may always seem easier to impose “progress” on localities than to wait for them to effect it for themselves provided one is not solicitous about the basis or sources of progress. A community imposing good local government from above may seem to get ahead rapidly for a time. Likewise, a community may temporarily raise its economic scale of life by living up its capital. And the analogy seems closely in point. Progress to which local freedom, responsibility, and experimentation have pointed the way may be accelerated for a time and effected more uniformly by the short cut of central action. But such short-cutting tends to impair or to use up the roots of progress in order to obtain a briefly luxuriant bloom.
The inefficiency and corruption of local government are recognized evils – which make us unduly complacent or enthusiastic about centralization. It is generally supposed that almost any function will be more efficiently and more honestly discharged by a larger unit of government. So, we readily accept increase of central responsibility, through supervision or outright transfer of functions or both. As regards corruption, the prevailing view is simply wrong – unless one sticks to a narrow, legalistic definition. Our federal government (I venture) is far more corrupt in its best years than municipal government at its worst, if one judges by the proportion of outlays (activities) which serve the common interest as against the proportion spent in vote-buying; that is, in serving special interests against the common interest. Municipal machines at worst divert a modest tribute; their graft and patronage are small fractions of the value of public services actually rendered. Our national government typically spends freely on behalf of organized, logrolling minorities, tossing in some general welfare outlays for good measure. For decades the subsidies appropriated in the form of protective tariffs probably amounted to more than the total of all other federal outlays, including silver subsidies.
The notion that large governmental units are more efficient than small ones is equally wrong but. hard to attack, because efficiency is far more ambiguous or deceptive in meaning than is corruption. Large administrative units may seem more efficient than small ones, if only because they contain so many people employed to increase efficiency rather than to produce substantive services. But administrative efficiency in government, at best, is a false god and a dangerously static good.
Large governments, like giant business corporations, may effectively mobilize existing technology, realizing fully its current potentialities. In a shortsighted view they are instruments of progress; but they lack the creative powers of a multiplicity of competitive smaller units. They are, to repeat, at best only means for “forcing” the plant – for enriching the present at the expense of the future. The French genius for administration would appear to have been purchased dearly in terms of capacity for government. Free government is always worth some cost in terms of “good” or efficient government.
The political agnostic or specialized reformer would transfer control or responsibility upward whenever proximate gains seemed thus attainable. Libertarians would counsel a bolder scheme of improving local government by enlarging local freedom and removing the props of central control – and they would join in recommending central measures for facilitating proper discharge of local responsibilities.
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A great virtue of extreme federalism or decentralization in great nations is that it facilitates their extension toward world organization or their easy absorption into still larger federations. If central governments were, as they should be, largely repositories of unexercised powers, held simply to prevent their exercise by constituent units or extra-governmental organizations, then supranational organization would be easy if not almost gratuitous. Indeed, such great-nation decentralization of organization is both end and means of international organization.
War is a collectivizing process, and large-scale collectivism is inherently warlike. If not militarist by national tradition, highly centralized states must become so, by the very necessities in sustaining at home an inordinate, “unnatural” power concentration, by the threat of their governmental mobilization as felt by other nations, and by their almost inevitable transformation of commercial intercourse into organized economic warfare among great economic-political blocs. There can be no real peace or solid world order in a world of a few great, centralized powers.
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Collectivism is a name for an extreme form of governmental centralization or power concentration. To the student of society, it must seem wholly unnatural and utterly unstable. It may serve useful purposes for a time; but it is not itself a viable social or political order. Its order is synthetic and fragile; its order is imposed from above, while real social order is a growth or building-upward. A highly centralized world government is nearly unthinkable – save as a hysterical imputation of evil purpose in an enemy power. It could be the imposition only of a predominant, militarized nation and, in the modern world, would be the most precarious basis of peace – if it is not the antithesis of peace – in any discerning apprehension of meanings.
If order were not merely a quality or aspect of a substantial, functioning society, if it could be reified, synthesized, and poured on the world like manna or DDT, the application would surely induce rapid, radical decentralization and deorganization of power among men. Centralization is a product of disorder. In advanced societies it is retrogression, induced by disasters. The obvious case is, of course, war or prospect of war, when everyone naturally looks to the largest available organization and demands mobilized concentration of power-which assures the war if it is still only a fear. But the economic disasters of depression and deflation work the same way. Indeed, it may reasonably be said that economic disaster was the crucial proximate cause of World War II – that it caused a governmental mobilization, or reversal of the gradual demobilization from World War I, and that this in turn precipitated the conflict.
To recognize that an orderly world would be highly decentralized (if only by definition) is to see something of how durable peace may wisely be sought. If we can apprehend fragments or aspects of an organized world, we apprehend something of how the firm substance may gradually be realized.
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The main content of centralization in the modern world has been control of foreign trade. It was this aspect of mercantilism that Adam Smith mainly attacked; and this same aspect of government remains, or has again become, the proper first concern of libertarians. Commercial policy is not only the hard core of bad national centralization; it is also the necessary basis or prerequisite of bad centralization in other manifestations. Bad central planning begins historically in commercial policy and, in all major aspects, involves or requires arbitrary restrictions on foreign trade. Free foreign trade would largely frustrate all major enterprises in economic centralization or in direct federal control of relative prices, wages, or production. To specify that central economic planning or regulation should proceed with a framework of free external trade is to suggest perhaps the most useful distinction between good and bad “planning.” To achieve free trade would be to realize, directly and indirectly, most of the decentralization that libertarians propose.
Nationalism, as imposition of internal free trade, is a means to prosperity and peace. As imposed control of trade, external and then internal, it is mobilization for war, which immediately jeopardizes world order and, in the longer view, also undermines the moral basis of internal peace…
Socialism, of necessity, has been deeply corrupted by liberalism and conversely, for they have been contemporaries in a world of free discussion and have been catalyzed by the same evils and guided by much the same aspirations. Indeed, it is now hard to see how socialists and libertarians can long sustain substantial intellectual differences, save by avoiding all discussion.
Modern socialism is avowedly concerned mainly about inequalities of wealth (and power?) and about industrial monopoly – both major concerns of libertarians. Inequality, in the sense of too much at the top, is admittedly a matter of taxation; but taxation presents no issues which need divide socialists from libertarians – if socialist interest in the subject or its problems ever becomes substantial and informed. On monopoly problems there is at least a tactical difference: socialists talk much about enterprise monopolies; libertarians talk much about both enterprise monopolies and labor monopolies. Real difference appears only in the respective policy prescriptions for “basic industries.” Socialists would “cure” monopoly problems by extending, consolidating, and “politicalizing” monopolies, that is, by abolishing competition in areas where it is relatively “impure.” Libertarians would directly regulate or governmentalize only a small group ·of intractable “natural monopolies,” leaving them largely to local bodies, and then seek, by innumerable policy devices, partly direct but mainly indirect, to render competition more and more effective everywhere else.
When socialists begin to talk about decentralization, however, even this difference promises to become empty and nominal. “Decentralized socialism” has perhaps great merit as vicarious, intellectual experimentation. It may be fruitful of insights to ask what government should do if a basic industry, paralyzed by administrative disorganization, were simply dropped in its lap. The first step, of course, would be to impose organization from above, perhaps by putting the army quartermasters in charge. Vicarious experimentation, intelligently pursued, probably would lead to a financial-administrative organization in which the administrative units, if autonomous enterprises, would be numerous enough to assure effective competition. Properly decentralized in administration, a socialized industry would probably be completely ripe for alienation; indeed, alienation would be necessary to implement the administrative decentralization. Wise central control would surely come to rely more and more on competition among numerous, similar administrative units, if only to set standards. The administrative devices necessary to sustain such competition would probably transform the central authority gradually from a proprietor to a bondholder or prior claimant. At this stage the public administrative units would
become private enterprises, but with the worst possible financial structures. The next obvious step would be to liquidate the government’s fixed claims from the proceeds of common-stock issues – and thus to reduce the government debt.
“Decentralized socialism” may thus be regarded as a very roundabout kind of antitrust policy – and as a stimulating approach to both economic and political theory. As social experimentation, however, it is not likely to be well conducted unless it is purely vicarious. Socialist rules regarding outputs, prices, wages, and marginal cost could hardly be implemented against the inevitable pressure-group demands; no governing faction could be expected to eschew the enormous available patronage; and the desirable administrative decentralization would be blocked by central appetites for power and jobs. At best, however, the experiment would turn out to be not one of abolishing private property but one of contriving new property arrangements. If, out of such vicarious experiment, one is able better to apprehend the good property arrangements, one may attain a sound directional sense for actual experimentation and see more clearly the promising routes from here and now. The more intelligently socialists plan for decentralization, the more does socialism fall into line with an orderly, gradual, libertarian process of dispersing property and of continuous, experimental development in the institution of property itself.
All monopoly or bargaining power implies special privilege to limit production, to restrict entry into industries or occupations, and thereby to levy tribute upon the whole community. As an actual present evil, it involves a concentration of power that has little relation to the concentration of personal wealth.
In one aspect it is a matter of uncontrolled corporate imperialism and giant enterprise aggregations. The profligate dispensation of privileges under incorporation laws may have accelerated the industrialization of America. Existing corporation laws may have been somewhat appropriate to an agricultural nation bent on rapid change. They may, by their extravagances, have accelerated progress. But they are surely ill designed to sustain progress or tolerable operation of the economy they promoted. Turned loose with inordinate powers, corporations have vastly over organized most industries. Having perhaps benefited briefly by corporate organization, America might now be better off if the corporate form had never been invented or never made available to private enterprise.
A heritage of excessive; centralization may be a necessary or reasonable price to pay for rapid maturing of new industries and new technology – and the same may be true of some desirable new governmental functions or services in any case, America should face now an urgent task of deorganizing industry and concentrating industrial control. Some direct dismantling of corporate empires seems indispensable. The main concern of policy, however, should be that of facilitating new enterprise and multiplication of moderate-sized firms. There are grave productional diseconomies in giant enterprises; but these are compensated by larger artificial, private “economics” which wise public policy may and should cut away. Notable are the “economics” of national advertising and vast sales organizations (a problem of consumer education, consumer-goods standards, and technical information), of differential access to technical knowledge (patent-pooling and research), and differential access to new capital funds (inordinate: centralization of securities markets). All these merely private advantages of great, monopolistic size present challenges which can be met. Reasonable access to markets, to technology, and to capital funds, on the part of new and moderate-sized firms, would mean an end of serious enterprise monopoly.
Industrial monopolies are not yet a serious evil. Their organization is largely superficial; their powers, with rare exceptions, are very limited and precariously held; they tend to fall apart, though too slowly, in spite of policy. Their menace remains largely potential and complementary. In a community bent on preserving libertarian democracy, enterprise monopolies, standing alone, would be diagnosed as a simple skin disease and easily remedied.
The hard monopoly problem is labor organization. Here are monopolies, actual and imminent, with really great power, economic, political, and military. Once grown large, they cannot easily be taken apart like enterprise aggregations. Like corporations and up to about the same size or scale, unions have real social uses – which may outweigh abuses. But their size potentials and their appetites for power exceed even those of business corporations. Organized like armies rather than like businesses, and encountering no productional diseconomies of size because they produce nothing, they tend to absorb all competitors and to use power zealously and overtly while any eligible workers remain outside. Their size tendencies, moreover, are almost unamenable to the check of law or governmental policy. There would appear to be no stable attainable happy mean. Strong labor organizations either die aborning or grow into intolerable monopolies. Moreover, labor monopolies and enterprise monopolies are ominously complementary; each tends to foster and to strengthen the other, fighting together to maximize joining exactions from the public while also fighting each other over division of the spoils.