of the Mixed Economy
Llewellyn H. Rockwell, Jr.
planned economy was all the rage in 1937, when Prentice-Hall published
a 1,000- page tome on The Planned Society: Yesterday, Today,
Tomorrow: A Symposium by Thirty-Five Economists, Sociologists, and
Statesmen. The "question that confronts us today is not if we
shall plan, but how we shall plan," wrote Lewis Mumford in the Foreword.
All the contributors Keynesian, socialist, communist, and fascist agreed with that point, including such luminaries as Sidney Hook,
Benito Mussolini, and Joseph Stalin.
the book was honest. It linked Stalin and Keynes, fascism and the
New Deal. The plans were not identical, of course, but all agreed
on government "rationality" as versus the "chaos" of the free market.
of the authors advocated the "mixed economy," Mises's name for an
admixture of capitalism and socialism. Such a combination, he showed,
is necessarily unstable, and our own mixed economy is tilting towards
statism, with such regulatory disasters in the last few years as
the Clean Air Act, the Americans With Disabilities Act, and the
Civil Rights Act.
no part of the economy is left untouched by the President's budget
and the swarm of regulatory agencies. Buttressed by most of the
economics profession, the regulatory state today rules and ruins
America. Communism lost, but social democracy won.
the American mixed economy, it is the job of the planner to: ensure
"full employment" (as federal policies create joblessness); encourage
technological innovation (not through markets, but through subsidies);
ensure a "fair" distribution of wealth (rewarding parasites and
punishing the productive); manage international trade (though it
needs no more management than domestic trade); and keep "public
goods" out of private hands (even though public ownership must always
be less efficient than private).
planner has taboos as well. He must never mention private property,
praise the coordinative function of prices, criticize pressure groups
unless they're anti big-government, be cynical about the uses of
power, call for a tax cut, or identify the real source of prosperity
as the free market.
Schultze, President Carter's chairman of the Council of Economic
Advisers, not only adheres to these rules and taboos in his new
to the President, he sets them out for every policymaker
to follow in the future.
the entire work, he has not one good word to say about the market,
private property, or the price system. His central assumption is
that the government must manage the economy to prosperity. According
to Schultze, we should believe that: the Federal Reserve protects
the dollar, when our money has lost 99% of its value since the Fed
was established; the Fed can cure business cycles, when every decade
or so, it causes a serious economic setback; the government can
create full employment, even as it causes unemployment with such
welfare measures as the minimum wage and civil rights; the government
can develop new technologies, even though bureaucracy is a proven
technology killer; we can trust the government to improve our standard
of living, though our standard of living has fallen for nearly twenty
years; the government protects us from monopolistic capitalists,
even while government creates and sustains destructive monopolies
from the post office to the schools; regulatory agencies do protect
us from dirty air, unsafe drugs, and lead poisoning, while everywhere
government is biggest, from Moscow to D .C., life is dirty and unsafe.
mainstream economists the useful idiots of the interventionist
state advise presidents on economic policy. Today, these economic
planners see their primary task as "keeping supply and demand in
balance." That doesn't mean allowing the market to work, of course,
but rather pushing and releasing buttons on the planning machine.
are two views on how to do this, one mainstream and one rival. The
mainstream view says that a decrease in overall demand causes economic
downturns, and so demand should be increased by government spending
and money creation. This is supposed to make up for the deficiencies
of the private sector.
rival view says declines are caused by a fall in overall supply,
caused by any number of factors, including an irrational fear of
investment. So, boosting overall demand through spending or inflation
only exacerbates the troubles.
second view has better policy implications, but both are misguided.
They assumed that there is something called overall demand conglomerating
the values of consumers and producers alike. This obscures the real
obscurantist aggregations don't stop with "supply" and "demand."
The planners also discuss such categories as capital and investment
as if they were homogeneous, representing these very diverse groupings
as single letters in their macroeconomic models.
views also assume that government managers are smarter than the
market. Imagine that you had to plan the household finances of your
next-door neighbor, with little or no information about their income,
tastes, and talents, all of which can and do change. Yet the planners
have been trying to do this for decades, to the entire economy.
explain their way out of this problem, the planners separate the
"micro" economy from the "macro" and claim the decisions of individuals
have nothing to do with the overall picture. It's true that no one
individual can, for example, change the net rate of savings in the
economy, but there would be no net rate of savings without individual
is out of the millions of decisions of real people that the economy
is created, and it is the job of the economist to understand and
explain how that happens, not to encumber it.
planners of the mixed economy like to talk about supply and demand
as if they needed the government to coordinate them. Yet supply
and demand describe the natural pattern of economic behavior in
the absence of government interference.
there is a chicken plague, the price of eggs will soar. The consumer
doesn't have to read the "Chicken Health Update" to know that he
should economize on eggs. The price tells him that, and he can then
look for substitutes.
if Frank Perdue genetically engineers a superchicken that lays many
more eggs than the normal bird, the price of eggs will plummet.
But the consumer doesn't need to read "Techno-Poultry Weekly" to
know that. He need only look at the price.
a free market, there is no need for planners to bring supply and
demand into line. The daily transactions of millions of consumers
do so, leavened by the risk-bearing entrepreneurs. It is the mixed
economy itself that creates the demand for economic planners to
run it. Massive deficits destabilize the economy, leading to calls
for government to stabilize it.
"entitlement" programs are interventions as well. Government spending
may increase the demand for some goods and services, but it drains
resources from the private economy just as surely as taxes. Yet
the "opportunity costs" of confiscating these resources never factor
into the planners' models.
much does the mixed economy cost us? We can't know. Despite the
well-intentioned attempts of some economists to figure it out, no
one can know the effects of technologies never created; firms never
started; people never hired; others hired by government fiat; central
bank-created recessions; and higher prices from taxes, regulations,
and governmented-generated demand. We can only know that the effect
is gigantic, harmful, and growing.
intervention can be criticized on a number of other grounds that
the mixed-economy planners do not mention:
politicians and bureaucrats are self-interested. In the private
sector, self- interest works to the common good. In the public sector,
it means expansion of the government's budget and power, which attacks
the common good.
the market can sometimes anticipate the planners, negating the effects
of government action. If the Federal Reserve increases the money
supply, the market can take account of the likely inflationary effects
and prices will rise sooner and higher than the managers thought.
intervention increases the incentive to evade the law, thereby enlarging
the less-efficient and societally unfortunate underground economy.
intervention distorts the price system and the interest rate, which
work to coordinate the use of resources. Price controls and regulations
cause misallocation, and Fed-lowered interest rates cause businessmen
to make bad investments.
intervention undermines the division of labor, preventing people
from doing the tasks they are most suited for because regulation
prevents employers from hiring on merit.
the mixed economy is such a disaster, why do we have one? Because
it enables the well-connected to loot the rest of us in a social
democracy disguised as "democratic capitalism." To get away with
the looting, the mixed-economy state attacks all countervailing
institutions: families, neighborhoods, businesses, private schools,
and charitable and religious organizations. The result is the barbarism
and increasing poverty we see all around us.
Planned Society didn't mention that, but it is the inevitable
outcome of what it recommended, and what the U.S. government practiced
in 1937, and in 1992.