The Transition from Freedom & Capitalism to Despotism & Socialism

Monthly Market Commentary: December 1, 2021

I grew up in a strict family and social environment in the 1950s and 1960s. But life became freer as time went by. Part of this increase in freedom had to do with studying in London in the late sixties (a swinging place at the time), and then working in New York, and after 1973 in Hong Kong, which although not a democracy was nonetheless one of the freest cities in the world (even up to this day).

But then, starting with the 1990s, I notice a very subtle change in regulatory requirements. More and more detailed forms had to be filed with government agencies and with corporations with which I had business relationships every year. I recently had to debate the leader of the Swiss Socialist Party. In preparation for the debate, I re-read the socialist theories and economic books from worldly philosophers such as von Mises, Hayek, Friedman, and Joseph Schumpeter who was the author among others of Capitalism, Socialism and Democracy, 1943.

In the prologue to part two Schumpeter writes: “Can capitalism survive? No. I do not think it can.” Shortly before Schumpeter died in 1950,he delivered an address at the American Economic Association in New York with the title The March into Socialism.

In this speech Schumpeter modified this definite forecast but based on “observable tendencies,” he concluded that, “The capitalist order tends to destroy itself and centralist socialism is…. a likely heir apparent…the March into Socialism is, therefore, the migration of people's economic affairs from the private into the public sphere.
Schumpeter then explains how the migration of people's economic affairs from the private into the public sphere proceeds: “As the size of the firm increases, so too does its bureaucracy. The functions of ownership and control gradually separate. Eventually, the owners find that their connection to, and knowledge of, the economic process has been severed. ……Isolated from economic reality, their sympathy for the capitalist system begins to wane, and, with it, the social support for the institutions that form the foundation of capitalism. These render the capitalist system open to attack from hostile parties.

Furthermore, Schumpeter opined about the growing herd of intellectuals: “The man who has gone through a college or university easily becomes psychically unemployable in manual occupations without necessarily acquiring employability in, say, professional work. All those who are unemployed or unsatisfactorily employed or unsatisfactorily unemployable drift into the vocations in which standards are least definite or in which aptitudes and acquirements of a different order count. They swell the host of intellectuals whose numbers increase disproportionately. They enter it in a thoroughly discontented frame of mind. Discontent breeds resentment. And it often rationalizes itself into … social criticism … amounting to moral disapproval of the capitalist order.

Finally, Schumpeter believed that, “Perennial inflationary can play an important part in the eventual conquest of the private-enterprise system by the bureaucracy – the resultant frictions and deadlocks being attributed to private enterprise and used as arguments for further restrictions and regulations. A situation may well emerge in which most people will consider complete planning as the smallest of all evils.

What I liked best was Schumpeter’s observation that, capitalism would stagnate provided it would get sufficient help from the government. All the current interventionists seem to overlook this fact when in fact, it has been evident for quite some time. But unfortunately, as Friedrich August von Hayek observed, “If socialists understood economics, they wouldn't be socialist.

I wish my readers Merry Christmas and a Happy New Year, and most importantly good health for them and their families, and friends.

Thank you for being a subscriber, and a friend I enjoy, and kind regards
Yours sincerely

Marc

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