Two Ways of Life

Mr. anderson is Executive Secretary, The Foundation for Economic Education.

In his 1859 classic, On Liberty, John Stuart Mill observed that, "The only freedom which deserves the name, is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it."

The application of this philosophy of freedom to economic affairs simply means freedom of choice in the marketplace. It means the freedom, in our dual role as producer and consumer, to conduct our own daily affairs without interference from others.

Throughout the world it may be observed that individuals do not have this kind of freedom of choice. Not only communist nations regulate and control the lives of the citizens, but even in noncommunist countries these freedoms once enjoyed are being rapidly lost. Nowhere, it seems, is freedom defended as a philosophical absolute. At best, it is tolerated as a pragmatic necessity rather than upheld as a sovereign principle.

The structure of society is all-important in its impact on individual freedom. The institutions of society may be designed to maximize individual liberty, or society may be designed to give a ruling elite power over the citizenry. To put the matter more simply—a society may be structured for freedom and production, or it may be structured for slavery and plunder.

The extent to which individual behavior is influenced by external forces is far more profound than may first be realized. The so-called "way of life" in India, Russia, Argentina, or the United States dramatically affects human action. How the individual lives and acts is ultimately dependent upon values learned from the society in which he lives. While all individuals have a common source in their Creator, our formulation of values radically differs as each of us is exposed to different living experiences.

This uniqueness of each individual possessing values different from all other individuals can be the source of a free society based on peace and harmony. Unfortunately, this condition of differing values can also lead to the structuring of a totalitarian society based on conflict and violence. The great question is why this latter structuring of society has been the most prevalent one throughout human history.

Axioms of Economics

While it is true that men can impose artificial structures upon society, nevertheless, there exist certain universal laws which operate irrespective of these structures. Certain economic axioms can be observed from our very nature. They have guided mankind from the beginning, and will continue to do so as long as man’s nature is unchanged. Four of these axioms need to be mentioned.

Axiom number one: we live in a world of scarcity. It is true that the general well-being of individuals is better today than in the past. But this improvement has in no way eliminated scarcity. It merely reflects a reduction in the degree of scarcity, and could be transient, depending on the decisions we make in the present and future. As long as man exists, the problem of scarce resources exists.

The condition of perpetual scarcity follows from axiom number two: man’s insatiable appetite. No matter how many of man’s wants are satisfied, there always remain additional wants to be fulfilled. There are never enough resources to supply all of our wants: Unlimited wants, but only limited means for satisfying them.

This combination of insatiable wants and scarce resources is a universal condition of man’s existence. It has always been true, it is true today, and it will remain true as long as man lives. And it is in terms of this condition that the economic questions of production, distribution, and consumption must be resolved.

The reality of our basic economic problem leads to axiom number three: we must constantly make choices. The determination of what to produce, by whom, when, where and how much must be made. In addition, these same questions must be answered regarding distribution and consumption. Who gets what, and when, where, and how much.

What is certainly clear is that not everyone can have everything, now. One final observation about man’s nature should also be made. Axiom number four is that we all want more for less. This trait can lead to either good or evil. Perhaps above all else it explains why the path taken by man in the structuring of society has been so consistently authoritarian. The acquisition of more through plunder under socialism rather than more through production under capitalism has always marked the difference between these two systems of social organization. The present-oriented mentality of individuals has too often concluded that plunder is the better way because it seems the quicker way to obtain more for less.

The Role of Private Property

No type of society established by man can in any way avoid these universal economic axioms, though the nature of the system determines how these universal laws will manifest themselves. The basic problem of allocating scarce economic resources toward the satisfaction of human wants must be faced in every society.

The rapid decline or total loss of individual freedom throughout the world today may be traced to one major cause. Furthermore, this same cause can also be seen in the rapid growth of socialist societies and the destruction of capitalist societies. The cause of our lost freedoms has been the destruction of the institution of private property. Quite simply, the nature of property ownership determines whether man will be free or enslaved.

In order to understand why this is true, an examination and comparison of socialism and capitalism is required. In our world neither capitalism nor socialism exists in its perfect theoretical form. Today’s societies are variations of capitalism or socialism. The relationship of property ownership to individual freedom, however, is best understood by a contrasting of the pure socialist society with the pure capitalist society. Very quickly, it will be seen that these two forms of social organization are diametrically opposed in both philosophy and structure.

The first problem we encounter here is that the socialist ideal has never been defined, even by the very people who advanced it. It is true that Marx and other socialists, at various times, did offer glimpses of the socialist fantasy as it would work in some never-never world. The romantic pronouncement: "From each according to his abilities, to each according to his needs," has frequently been heralded as the banner of the ultimate socialist state. The socialist dreams of a wonderland in which scarcity no longer exists and all of our wants can be readily fulfilled.

The Socialist Fantasy

No better glimpse is available into this fantasy world than Karl Marx’s observation of that future socialist state, "a society where each one does not have a circumscribed sphere of activity but can train himself in any branch he chooses, society by regulating the common production makes it possible for me to do this today and that tomorrow, to hunt in the morning, to fish in the afternoon, to carry on cattle-breeding in the evening; also to criticize the food—just as I please—without becoming either hunter, fisherman, shepherd or critic." And it could well be added to such fantasizing, "but if wishes were horses, beggars could ride."

To analyze socialism by defining it as some imaginary fantasy of a romantic idealist is meaningless. The only definition of socialism that is relevant is the social structure that is in reality advanced. The main characteristic that identifies socialism is the common ownership of the means of production, distribution, and exchange. Or, as Karl Marx states it in a single phrase, socialism means "the abolition of private property."

Socialism, as a structure of social organization, is therefore recognizable by the nature of property ownership. Under socialism the resources of the society are collectivized and centrally administered by some form of political bureaucracy. This arrangement of common property ownership inevitably forms a vertically structured society; a political elite establishes itself as the sovereign power over the whole society.

The Problem of Production

No society, socialist or otherwise, can escape the necessity of productive effort. Under socialism, it is the State, as the owner of all economic resources, that determines how the factors of production will be employed. Establishing a socialist society does not nullify the basic economic problems of scarcity and insatiable human wants. The when, where, how, who, and what to produce problems must be resolved. By the same token, the problems of distribution and consumption are also present. What is different about the socialist society is the manner in which these economic problems are handled.

The socialist theoretician has two complications in his theory: the first is the absurdity of advancing a concept of common ownership for consumer goods. It is ludicrous to imagine the whole of society owning the food about to be eaten by some individual or the toothpaste to clean his teeth. In this respect, even the most extreme socialist recognizes that the concept of common ownership of property cannot be universally applied.

The second complication in the collectivization of property ownership is the realization that not everyone can own everything nor can everything be controlled by everyone. The concept of socialism, the common ownership of property, necessarily requires that someone be in charge. And modern socialism, without exception, has named "the State" as this absolute authority.

It is this second point that invariably makes the socialist society authoritarian. The socialist likes to speak of the state as the agency of society, but in reality the State is the sovereign force dominating the society. Property under socialism is not owned in common—it is owned by the State. It cannot be that everyone is in charge. The State is in charge. The State becomes the owner and the controller of all productive property.

The State as Owner

State ownership means absolute ownership. That is, the State is not only the legal owner of all productive property but the economic owner as well. All decisions relating to property use are the total prerogative of the State. The State establishes a plan for the structuring of society, and as sole property owner, directs all economic activity toward the implementation of its plan. Under such a concept of State ownership of productive property the practice of individual freedom is impossible. There is no private property for use in production, and therefore no economic activity that can be performed privately.

Many individuals have a partial understanding of this aspect of socialism. They recognize that at least one factor of production, capital, will be owned by the State under socialism. The machines to build cars and tractors no longer will be owned by individuals, but instead will be owned by the socialist State. Others have recognized that the factor of production, land, will also be owned by the State under socialism. The land used for growing crops or raising beef will no longer be owned by the farmers, but instead will be State owned.

But many individuals need to be reminded that there are three factors of production and that all three are owned by the socialist State. And it is the State ownership of this third factor of production that absolutely assures the loss of individual freedom. That third factor of production is labor, the labor of individuals, including you and me. Under socialism the individual is denied a proprietary interest in his own person. Like the factors of production, capital and land, the labor of each individual is owned and controlled by the State. This State ownership and control of labor precludes freedom of choice to the individual in the directing of his own life.

Enslaving the Individual

The collective ownership of labor under the central direction of the socialist State results in the regimentation of human beings according to the structural plans of the State. Rarely, if ever, do the central plans of the socialist State correspond to the plans and interests of the individual. Ultimately, the State must resort to the use of force against those individuals whose values are in conflict with the socialist plan. The State ownership of labor is merely a disguised way of subordinating the individual to the sovereign will of the State. The very essence of socialism assures, therefore, the destruction of individual freedom of choice—the freedom of each individual to choose for himself how he will direct his own life.

The growth of socialism throughout this century has demonstrated this lesson without exception. Wherever the State has replaced the market in the allocation of economic resources, the freedom of individuals in the employment of their labor has been infringed. This has not been a development just within the Iron Curtain countries; it even occurred under Labor Party rule in England after World War II. When the State owns your labor, the State controls you.

The socialist society can also be critically analyzed from the point of view of economic inefficiency. The absence of a market makes economic calculation impossible. Without a price system there is no way to determine either the costs of production or the economic value from the output of production. Neither efficiency nor inefficiency—neither profit nor loss—from productive effort can ever be known under socialism. The destruction and waste of scarce economic resources inevitably follows from this dilemma.

In addition, the collective ownership of property destroys individual motivation. The care and accumulation of property is directly related to personal possession. It is in our nature to value our own property more highly than property belonging to others. And the socialist concept of collective property is always the property of others to any one individual. The incentive to produce for others can never match the incentive to produce for self.

While such criticisms of socialism are a major indictment against this structure of social organization, they relate primarily to economic improvement and our material well-being. The far more overwhelming case against socialism concerns the loss of individual freedom that inexorably follows from the State ownership of property.

Individual Ownership

In contrast to socialism as a structure of social organization, the capitalist society advances the concept of private ownership of economic resources. Both social orders recognize the necessity for property ownership and its control. They differ totally, however, as to who will own and control property. Socialism centralizes all ownership in a sovereign State. Capitalism is based on private ownership.

The ownership and control of property by individuals, rather than by the State, leads to a drastically different society than that which develops under socialism. Perhaps the most obvious and immediate result is the vast decentralization of ownership and control of property. Instead of a single State owner under socialism, the capitalist society is characterized by millions of individual owners.

It is certainly true that under capitalism some individuals own more property than others. It is equally true that some types of property are far more valuable than other types of property. Under capitalism, this inequality of property ownership is accepted for what it is—a given condition of man and his nature. Invariably, the statement that inequality is a part of man’s nature creates resentment. Inequality of property ownership is particularly offensive to many. But whether we approve or not, it is a reality that persists in every social structure, including socialism.

While certain individuals do possess more property than others under capitalism, it must be recognized that even the poorest member of the society at least has a proprietary interest in himself—he owns his own life. Under socialism the ownership of self is denied to the individual. All productive property, including labor, is owned by the State. Attacks against inequality of property ownership center largely upon land and capital. Even if equality could be attained with respect to the ownership of land and capital—and it cannot be—what about inequality of labor ownership? Inborn traits of intelligence and physical abilities differ significantly among individuals, and to deny these inequalities among individuals is to deny our very being.

The important point is that under capitalism the individual ownership of property exploits inequality or differences among individuals in a way that advances freedom and material well-being. Inequality is a condition of our nature; it cannot be eliminated by any social system. And whereas socialism aggravates this inequality, capitalism creates the beneficent division-of-labor society out of these natural inequalities. The capitalist social structure places total sovereignty over property in the hands of the individual who owns it. What each person does with his land, labor, and capital is exclusively his own decision. Each individual owner is free to pursue his own good in his own way. He becomes totally responsible for himself and his possessions. His values, and his plans, are the primary force in the directing of his life and the employment of his property.

Government’s Role

The philosophical framework of the capitalist society requires a system of laws—a government—to assure that the life and property of individuals are safeguarded. The role of government in a capitalist society is to establish and execute laws designed to keep the peace. As Mill observed, attempts by any to deprive others of their freedom must be prevented, and the force of law is essential to this end. Government in the capitalist society is symbolized by the blindfolded goddess of justice. The rule of law equally protecting life and property is fundamental to the development of a capitalist society.

When individual life and property are secure, a spirit of social cooperation will materialize. Individuals quickly discover the personal advantages of specialization and exchange. A nation of traders transforms itself into a free market economy. With market prices as their guide, and motivated by the potential of profit, individuals bring their resources into production for the benefit of consumers.

It is the development of this pattern under capitalism that has led to such descriptive synonyms as the free market economy, the private property order, the competitive enterprise system, the consumer sovereign society. All these descriptions are valid, for each recognizes some important attribute of the society. Undergirding it all, however, is the central point that property ownership must be a sovereign, absolute right of the individual.

Socialist planning is built upon a common social goal executed through the central direction of the State. It represents total planning of societal objectives by political action, and the implementation of these objectives by a bureaucratic corps within the socialist State. Under capitalism, however, the planning is done by individuals pursuing their personal goals. Through the signal of market prices, consumers direct production toward the satisfaction of their individual wants.

Once again the socialist society radically differs from the capitalist society. The structure of socialism is a product of State planning with a politically established central goal. The structure of capitalism is market determined by the actions of millions of individual consumers. Under socialism the State decides what society needs, but under capitalism the consumer decides his own needs and acts accordingly.

Who Makes the Decision?

In any society, it is the nature of property ownership that determines who wields power. Proclamations declaring a right to individual freedom are empty unless the individual is allowed to acquire and possess property and thereby is empowered to exercise his freedom. The sustenance of life is property, and the loss of this sustenance by the individual to the State assures the loss of his personal freedom as well. The ownership of self, denied by the socialist State, is fundamental to human freedom. Only under capitalism, where the institution of private property is guarded as a sovereign right, can the individual own himself and be free.

The extent to which individual freedom has been lost throughout the world today can be gauged by the corresponding loss of private property rights. The encroachment by government over the control of property has literally destroyed any concept of absolute private property rights. The use of property has increasingly come under the direction of government, even though nominal ownership may still be retained by the individual.

In the United States today it is impossible to find a single example of productive property that is not in some way controlled by government. Such interference by government has but a single purpose—to obstruct consumer and producer freedom of choice and substitute therefore the will of the State. The sole end of all such activity is to shift power over the structuring of society away from the individual and into the hands of the State. Loss of control over one’s property to the State is nothing less than a direct assault on individual freedom.

The perplexing question that continually faces the devotee of individual liberty and private property rights is why socialism is so alluring while capitalism generates such hostility? The freedom and prosperity experienced under capitalism has been a demonstrated fact that is in stark contrast to the enslavement and inefficiency of the socialist society. Yet the intellectual allure of socialism dominates social thought throughout the world today. Unless a firm philosophical framework is formulated on spiritual and moral absolutes conducive to a free society, man can quickly succumb to the allure of socialism through the pursuit of base motives.

The Critics of Capitalism

No better example of the allure of socialism can be observed than by witnessing the intolerance expressed against the structure of the capitalist society. Critics of capitalism refer continually to the misallocation of productive resources under capitalism, and the need to alter the allocation of resources to meet "nobler" objectives. These critics invariably call upon government power as the means of forcibly altering the structure of society to achieve their aims.

The problem, as they see it, is that the structure of the capitalist society is determined by the behavior of consumers in the marketplace. Productive resources are employed to create the goods and services that individual consumers desire. Under capitalism the structure of society is determined by market forces in such a way as to provide what everybody wants. The profit or loss from market activities directs privately owned productive resources toward the satisfaction of consumer demands.

Capitalism, therefore, responds to what everybody wants; but herein lies its dilemma. Nobody wants what everybody wants! Our differing individual values will never conform to the values of all consumers. In the absence of tolerance for the values of others as expressed in the marketplace, it is extremely tempting to impose the State’s design upon society. As Friedrich Hayek so aptly observed in The Road to Serfdom, every socialist sees his plan prevailing over society; he sees himself as planner and not as one of the planned. To the intellectual, the attraction of socialism is in this belief that he will be the planner of society; that he, rather than the decisions being made by millions of consumers through the marketplace, will determine its structure.

The hostility to the capitalist society as it responds to what everybody wants, rather than to what someone thinks everyone should want, is a primary reason why many find the socialist society so appealing. Under socialism, the socialist, rather than the consumers, will plan society.

While the capitalist system rewards the productive and thrifty individual and motivates everyone to imitate these virtues, such a system generates an inequality of possessions that can create base feelings of greed, guilt, and envy. Once again, a firm philosophical framework is necessary to temper the urge to follow such base instincts. Temptations to use the State to seize another’s property out of greed and envy assures destruction of the capitalist society as the law is transformed from an instrument of justice into a device for legal plunder. By the same token, feelings of guilt from possessing more property than others must be replaced with a feeling of responsibility and stewardship toward the employment of that property for the benefit of consumers.

And finally, what is perhaps the most difficult characteristic to accept about the capitalist society is the inevitable change brought about by competition in the marketplace. No one likes change. Yet the only certainty of a free society is that it will be a society of change. Such change is mandated by the consumers as they act out their preferences in the market. Productive resources are constantly bidding against one another as the successful displace the unsuccessful in response to the demands of the consumer.

These ever-changing values of the consumers keep the market in a constant state of flux. The competition of producers responding to such ever-changing values assures that some will profit while others risk loss. The demise of old goods and services from the competitive thrust of new goods and services demands continual adjustment on the part of consumers and producers. This adjustment, brought about by competition in a consumer sovereign capitalist society can be overwhelming to many, as the old and familiar is displaced with the new.

The socialist society is seen as a way out for such people. While an escape from change is an illusion, the static nature of the socialist society holds appeal. The tragedy, however, is what is not seen. Out of the static structure of the socialist State has come a "graveyard" society of death, slavery, and human misery. A society that promised good, has delivered evil. In the words of Ludwig von Mises, the twentieth century’s most outstanding free market economist, "good intentions aren’t enough."

The future of civilization, of man’s material progress, and especially his freedom are dependent upon the structuring of a society based on the institution of private property. In the final analysis, the man who is not permitted to own property becomes the property of someone else; man either owns or is owned.

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The accumulation of property is no guarantee of the development of character, but the development of character, or of any other good LIBERTY whatever, is impossible without property.

William Graham Sumner