The Command Economy

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America is
transforming itself, without forethought, debate, or pause, into
a command economy. A command economy is a top-down, state-controlled
economy directed by planners and bureaucrats, boards and bodies,
administrators and authorities. A command economy is not characterized
by mutuality of interest and agreement between parties. It relies
on edict. A command economy, as the name implies, orders the affairs
of a nation by coercion. In a free economy goods and services are
bought and sold by consent; business transactions are based on agreement;
contracts depend upon a meeting of the minds of the parties involved.
In a command economy government sets prices, controls and directs
resources, and oversees production and consumption. Free economies
produce prosperity; command economies produce poverty. The transformation
of America is already taking place at breakneck speed, even before
the current economic crisis is full blown. Historical precedents
insist that as conditions worsen, the transformation into a command
economy will accelerate.

It is astonishing
that this should be taking place, especially at a time in which
three billion people around the globe have rejected the poverty,
want and shortages of their command economies to begin the experience
and blessings of abundance. It is not as though object lessons are
wanting. China’s stunning economic growth, its modernization
and rising living standards are the result of nothing more complicated
than freeing the command economy. Although
lessons abound, Americans are choosing – or perhaps failing
to choose and therefore letting the choice be made for them –
to go in much the same direction as the command economy of postwar
Great Britain. That period saw the nationalization of entire sectors
of the British economy, a currency crisis and prolonged economic
decline including crippling unemployment and choking inflation.
The reasons that the United States would choose to follow a pattern
that hollows out economies the way it did the British are many.
But as a symptom, although not a cause of this self-inflicted harm,
look to the modern American politician. For today’s breed of
politician, power is their very passion. Their every concern and
the entire public debate about politicians centers around the use
of power. How may power best be exploited and aggrandized? Who is
to be bailed out, who is to be plundered to pay for it? Who is to
be subsidized, who penalized? Who shall be taxed and who shall be
paid? In contrast, the founders looked upon power very differently:
How can it be kept in check? In yielding to the former and to their
command economy, the current generation of Americans, blessed with
so much, will be the shame of the ages.

Anyone believing
the evidence for the looming command economy is being overstated
need look no further than the speed at which American finance has
been nationalized in the current crisis. Legislators voted an initial
$700 billion bailout package, but in no time the taxpayers ended
up with more than eighteen times that, $12.8 trillion in loans,
spending, and guarantees. And to make clear who is really in charge,
the giveaways are accompanies by a refusal of the authorities to
disclose who is getting what and what kind of collateral, if any,
is being given. The trend was dramatically illustrated in October
2008. In a development that played out like a scene from The
Godfather
, the CEOs of the nine largest banks in America,
dealmakers and negotiators in their right, were ushered into a room
at the Treasury Department in Washington and handed a one-page document
agreeing to sell preferred shares to the government. They were told
by Henry Paulson, according to the New York Times account,
that they must sign it before leaving. The chairman of Wells Fargo
protested that his institution didn’t have problems with toxic
mortgages and didn’t need a bailout. Too bad. “It was
a take it or take it offer,” said one insider. An online writer
for The Wall Street Journal favorably likened Paulson’s
commandeering of the banks to Reagan at the Berlin Wall. “History
often carries an air of inevitability,” he gushed.

If there is
inevitability to America's becoming a command economy, it is a sorrowful
day for human freedom. The Central Plan of the command economy is
incompatible with dissent, disagreement, individual preferences,
and your own plan, whatever it may be. If the Central Plan is to
prevent foreclosures on homeowners who can't pay, then the plans
of individuals whose resources will be used to prevent those foreclosures
must give way. If your individual plan and the Central Plan are
in conflict, you will have to give up your plan. As we have noted,
a free economy rests on agreement, but a command economy is constructed
of coercion. One of the reasons (among many to which I refer in
my book The
Dollar Meltdown
) that a command economy produces poverty
has to do with the diversion of productive human effort. In a free
economy people provide services that are sought by others and they
are rewarded for doing so. Each individual's own wants and needs
are met to the extent he finds ways to serve others. But in a command
economy enormous amounts of human effort are expended in attempts
to influence or control the Central Plan. This activity produces
no new wealth. It only seeks to divide what wealth already exists.

The command
economy is not the exclusive province of either the left or the
right, Republican or Democrat, Communist or Fascist, Stalinist or
Nazi, Pol Pot, Mao, Chvez, or Ahmadinejad. It is what they all
have in common. Just as war is the health of the state, economic
turbulence is the state's opportunity for self-advancement. As the
unseen and destructive consequences of each new command and initiative
unfold, new plans are created and commands issued to undo the latest
harm. In the current sequence, the Fed used its monetary monopoly
to create artificial credit conditions; the cheap money fueled a
housing boom, which, like all bubbles, popped; the monetary and
fiscal authorities rushed in to bail out the banks; the only means
they have of bailing out the banks is to borrow or print more money.

This originally
appeared on Whiskey and
Gunpowder
.

December
25, 2009

Charles Goyette [send
him mail
] is the author of the New York Times bestseller
The Dollar Meltdown: Surviving the Impending Currency Crisis
with Gold, Oil, and Other Unconventional Investments.

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