The Welfare State As a Zero-sum Game

But how could such a vast waste of human life, of accumulated wealth cast into guns and shot instead of industrial investment, and of human creativity be “rational”? It’s frighteningly simple when you understand the fundamental premises of Mercantilism, the political economic theory which dominated the thinking of rulers and most “practical” men.

Mercantilist theory took the common-sense view of wealth and applied it to the national level. The key idea is that the precious metals, gold and silver, constitute the real wealth of a nation, so the nation should maximize its possession of gold and silver. The mercantilists also assumed that the primary way by which this could be done (in all nations without gold and silver mines) was by maximizing exports and minimizing imports. They would thus receive more payments of precious metals than were paid out. And, fatefully, they also assumed that the most efficient means of doing this is by controlling the foreign markets which buy one’s exports. These assumptions led them to the logical conclusions that they should maximize their political (military) power to control colonies abroad (or, at least, markets) and, most fatefully, that they could only become more wealthy by decreasing the wealth of other nations by using such power.

One’s Gain, Another’s Loss

The mercantilist ideas thus led the rulers to look at their relations with other nations in a “beggar thy neighbor” way, or what economists call a zero-sum game: if you gain, I necessarily lose; if I gain, you necessarily lose. The only rational thing to do, if you wanted to be richer, or simply avoid getting poorer, was to seize foreign markets and precious metals. Since everyone looked at it the same way—War.

All of those assumptions were wrong, as all economic history since then has shown, yet almost all of the brightest people, from goatherds to prime ministers and kings, believed those things implicitly. The genius of classical economics, especially of David Hume’s theories of money and international trade, of Adam Smith’s theory of economic growth or wealth, and of Ricardo’s theory of comparative costs, consisted in showing how they were wrong and how all nations could get richer at the same time and at vastly accelerated rates by an international system of cooperative competition.

In vastly oversimplified terms, they showed that money is merely an aggregate symbolic representation of the exchange value of real goods, so that an increase in the quantity of money of any form will in time only produce higher prices (unless the real goods have increased); that this works internationally as well as within a nation; that all increases in real wealth come only from increased efficiency and investment; and, fatefully, that two of the major ingredients of efficiency are (1) task specialization, which allows those most skilled to produce goods at lowest cost and, thus, price, and (2) competition, which not only spurs people to greater effort to be efficient, but also allows the natural selection of the most efficient and the subsequent redirection of the casualties into more efficient production.

The general implications were exactly the opposite of Mercantilism. A nation that only increases its money only increases its prices. (This is what Spain did by seizing the gold and silver of the Aztecs and Incas. The resulting inflation prevented the rise of industrial production because it was cheaper to buy from abroad, due to long time lags in the spread of the inflation, and produced a basic movement away from efficient investment. The most successful of all mercantilists was the biggest disaster.)

Free Trade

A nation that directs its wealth to the military destruction of wealth decreases its wealth. A nation that insists on buying its own goods when it could import them more cheaply because foreign task specialists are more efficient in those goods gets poorer, not richer. The general implication was that all nations should stop wasting wealth in war, concentrate on saving and investing and becoming more efficient, and compete peacefully (cooperatively) with complete freedom of economic competition among and within the nations.

These classic ideas of classic liberalism (the opposite of American “liberalism” today) became the dominant ideas of the ruling elite in the first three quarters of the nineteenth century. Laissez faire ideas in international trade and politics were never completely applied even in England, but on balance they were distinctly dominant. This was an era of almost unbroken peace in Europe, a rare thing in European history, an era of exploding wealth, and an era without major internal economic civil war (class warfare).

That era began to end in 1870 with the Franco-Prussian war. That war owed much to the old bitterness between the two nations, especially the Prussian resentment of the de feat by Napoleon. But it is also very important that the German political economists had turned strongly toward a form of neo-Mercantilism embodied in the ideas eventually of the institutional economists, List and Sombart. (Germany never really accepted the liberal theories very much. The so-called classicists held sway until the institutional theorists entered the scene.)

The institutional economists argued strongly, even bitterly, that institutions, especially political ones, are the ultimate determinant of wealth. Most ominously of all, they argued that international free trade was rigged in favor of the rich and already efficient and, thus, was against the interest of unindustrialized Germany. They insisted on protective tariffs to protect their industries from “unfair foreign competition.” The defeat of France led to an immediate flip-flop of the French social analysts (especially the lions of Paris, Renan and Taine) from internationalism to nationalism.

A great, decade-long economic depression hit the West in 1873. Nations everywhere began building tariff walls to protect their industries from bankruptcy. The political voices of neo-Mercantilism became dominant even in England in the great new surge of imperialism in the late nineteenth century. The zero-sum game returned with vigor as nations tried to build their exports and minimize the costs of imports by controlling colonies. The armies grew, the navies grew. By the early twentieth century Europe was a “tinder-box” armed to the teeth, living breathlessly through one military-political incident after another, lulled by the century of peace and wealth produced by ideas now rejected as absurd, waiting unknowingly for the random match of Sarajevo. Zero-sum thinking produced the inevitable conflict.

The Growth of Socialism

The imperialist and protectionist theories were joined in the late nineteenth century by a far more rhetorically powerful zero-sum theory—the melange of ideas known as Socialism. Socialism rejected all the ideas of the liberals and reinstated in somewhat different (and certainly in a hidden or “cleaned up” form) the ideas of the Mercantilists. Above all, they insisted that one man could only get wealthy at the expense of another: if one man hired another and got money from his efforts, then the hired man was “exploited,” or lost, even though they both got richer by the transaction. Only complete equality, an end to the competition that gave the more efficient an advantage over the less efficient, and an end to the interest advantage of saving could lead to wealth for everyone. Otherwise, the zero-sum process would inevitably lead to greater concentration of wealth in fewer hands and the deprivation of more and more. The conclusion: class warfare within and across nations is inevitable and glorious—War!

All Western history has proven the socialist myth false. But myths are created and accepted because they appeal to deep feelings, especially those like envy, resentment, fear and aggression. These particular zero-sum myths could not be accepted by many educated people because they were so clearly wrong. But their emotional appeal led inventive people to find a new way—the Keynesian revolution.

Keynes himself did not agree with many of the ideas of the socialist zero-sum game, though he was emotionally committed to the working class cause before he developed his theory.

“Oversaving”

The high unemployment rates of Britain during the 1920s (as much as 10 per cent) can be explained by classical economists as due to the deflation caused by Britain’s return to the gold standard (at parity value) in the 1920s; higher taxes forcing capital abroad; an inefficient (thus more costly) work force at home, because of union monopoly powers granted politically in 1906, leading to the same capital flight; the growing taxes used to pay for the new unemployment benefits causing further flight; and the increasing incentives of the unemployment benefits to avoid work to be unemployed.

Keynes decided, without considering this kind of argument, that there was an inevitable tendency of a sort even Marx had not seen—an “inevitable” tendency of advanced capitalist societies to “oversave,” or save relatively more than they invested, so you inevitably get unemployment. The remedy was to have the government intervene by using its borrowing and taxation powers to “give” money to consumers and, thus, increase demand, which would then increase incentives to invest, and eventually decrease unemployment.

The Keynesian Revolution consisted not only of this idea, but its combination with the old ideas of the socialist zero-sum theory. This started in Britain as early as the 1890s, became dominant there in the 1930s, and became dominant in the United States only in the 1960s. It now dominates the thinking of the great mass of our Western rulers and educated people. Everyone knows the ideas. Equality is the only way to maximize real wealth for everyone. Competition is the source of poverty, not wealth. Efficiency is repression. And, according to Keynes, we should emphasize consumption and decrease saving (oversaving).

Most fatefully of all, the instrument of all of this is the central power of government: government is to use its physically enforced powers of taxation to increase equality through redistribution of income and, most especially, by providing “services” to the “disadvantaged.” (The implicit assumption, of course, is that under the laissez faire system the higher incomes of the few was due to their being unfairly “advantaged” by the system, not due to their greater efficiency in saving and investment and work—because it is always the case that one man’s loss is another man’s gain and vice versa—life is a zero- sum game!) This melange of Keynesian ideas and neo-socialist zero-sum ideas is what we know as the Welfare State theory.

The Redistributive State

The theory itself teaches, even insists bitterly, that life is a zero-sum game. In order for the less well off to get better off, something must be taken away from others. (Soci ologists who share these views, which is most of them by far, call this a “conflict theory.” Fateful name.) But, even if the state and the intellectuals did not teach people this, they would probably understand it or believe it. (The zero-sum game is really the most ancient way of thinking, found in all primitive societies and highly exaggerated in peasant mentality.) In any event, they all come to act in accord with the theory in the Welfare State dominated by that theory. That is, they all act as if they know and believe with all their hearts that someone else getting more means they are going to get less, and that the crucial thing is to get more than someone else—maximize your intake of government services, money and rights, and minimize your outflow of taxes and duties. The conclu sion is now apparent to those with memories and eyes—War!

In our pluralistic societies of pressure group politics, in which there are many massive groups and in which political decisions are made by coalitions of these groups, the warfare is primarily between massive groups; but it also becomes more and more individual, as the individual comes more and more to play the same zero-sum game against the members of his own group. The overall effect is to pit each big group, and then individuals, against the others in an increasingly bitter struggle for the distribution of the pie—the rights, services, benefits, monies of the body politic—the spoils of victory.

In the societies that are relatively homogeneous, like Japan and Sweden, the war of all against all produced by the zero-sum assumptions of the welfare state comes much later and at a higher level of redistribution than in the highly pluralistic societies. The United States is unique among the Western nations (and very like Russia) in having a massive number of pressure groups and no dominant group. These groups, especially the ethnic and racial groups, already envied and resented each other, precisely as the nations of Europe did over the centuries. By greatly amplifying the zero-sum warfare games in our nation, the Welfare State Revolution has pushed us far along the road toward Hobbes’ state of nature, that nasty and brutal war of all against all.

A nation that had little sense of historical community, and was pasted together with shallow patriotism and deep shared self-interest in making the whole nation richer by the pursuit of capitalistic growth for all, has been ripped and torn in every seam of its national life. Everything has become politicized—work, sex, parent and child relations, life itself. The most ignorant mugger in the big cities now mouths the zero-sum theories of our “liberal” (socialist) politicians. But we have only begun down the road to that great calamity of civil war, the war of all against all.

The zero-sum game of internal war will inevitably slow our economic growth to zero and possibly begin the final stages of deprivation—disinvestment of the British sort. When the pie becomes stagnant (the glorious goal of zero growth, at last!) these human beings turned into wolves will hurl themselves on each other in all their fury, unless their fury is directed against a common foe in the time-honored way of tyrants—foreign war! Or unless we use the solution the Russian socialist zero-summers know so well—tyranny.