Why We Are Not on the Road to Serfdom
Tea Party Economist
by Gary North: Public
School Textbook Publisher Goes Bankrupt
F. A. Hayek
Road to Serfdom in 1943. It was published in 1944. Americans
who read the 1945
Readers Digest version liked it. University professors
didn't. This is one more bit of evidence that American voters have
more sense than university professors. Are you surprised?
wrote The Road to Serfdom, he had a marketing problem. The
book's title was absurd. He knew that. He knew the difference between
Western serfdom, which had limited but defined property rights and
the rule of law, and socialism, which in theory had neither. Serfdom
was a system of liberty compared to Communism, Fascism, and National
Socialism. But he was trying to sell the book to educated Leftists,
who were favorable to socialism. He could not very well have sold
copies in 1944 based on a title like The Road to Fascism,
which was in fact the road the West was on in 1944.
We have been
on the road out of "serfdom" ever since 1947, the year
after Truman removed wartime price and wage controls. Anyone who
doubts this development has no awareness of the lack of influence
that free market ideas had in 1945. It was worse on campus, but
it was bad in general. Henry Hazlitt's Economics
in One Lesson was a breath of fresh intellectual air in
1946. He was alone among financial journalists in 1946.
He would not
be alone today.
TAX REVENUES AND LIBERTY
I ran a chart
on federal tax revenues as a percentage of GDP. Go
back and refresh your memory.
There was a
reason why I ran it. I wanted to drive home a point: the federal
government is no deeper into our pockets than it was in 1947.
I got into
the conservative movement in 1956. That was the year that Dwight
Eisenhower was reelected President. I think most people like to
think of those days as the good old days. Certainly, the popular
television show Happy Days was premised on nostalgia for
that era. But the reality is this: in terms of taxes collected by
the federal government, the good old days were no better than today.
With the top tax income rate at 91%, it was a lot worse. It was
What we forget
is the enormous increase of productivity that the world has lived
through since 1947. The output of American workers has risen steadily
because of innovation, capital formation, and the greater wealth
of our trading partners. As the rest of the world has gotten rich
in the postwar era, everyone has prospered. When our neighbors get
richer, we get richer. This includes our neighbors who live 10,000
miles away. This tremendous increase of productivity has enabled
us to pay our taxes to the federal government and still enjoy an
enormously increased standard of living.
When we think
of the automobiles that Americans drove in 1946, or when I think
of the 1952 automobile that I drove in 1958, there is no comparison.
The cars today are safer, get far better mileage, are more stylish,
handle better, and last longer. While a man my age looks back nostalgically
at a 1955 Chevy hardtop convertible, he would not want to have to
drive one on a regular basis.
The dream cars
of 1955 had more to do with fantasies about the dream girls of 1955
than they did with transportation.
government is intrusive in ways that we would not have imagined
in 1955. The extent of bureaucratic tyranny in specific cases is
considerable today. But when we consider how often we have been
personally abused by some federal bureaucrat, most of us cannot
say that we have suffered to any worse degree than citizens who
were out of step in 1955. There was political correctness in 1955,
We no longer
face the Soviet Union. We no longer face the threat of nuclear war.
We deal with a Pentagon that is bloated, but it's far better to
have a bloated Pentagon than a world war. American troops have died
in Iraq and Afghanistan, but those troops were volunteers. There
is no military draft today. There was in 1955.
government has expanded beyond what it was in 1955, but it has done
so over the last decade by means of borrowed money. That ability
is going to be curtailed at some point. When that curtailment takes
place, the federal government is going to be put on a diet. There
will be a contraction of government control over the economy.
not tolerate total taxation to exceed about 20% of GDP. The politicians
can promise all kinds of benefits, but the reality is this: if the
government cannot borrow the money, it is not going to be able to
fund the projects. American taxpayers will not put up with extensive
taxation. Our nation is a low-tax country. Compared to Europe, it
is a very low-tax country. Any politician who thinks he can get
the voters to approve a major tax increase is going to find himself
an unemployed former politician soon enough. Even if he is in a
safe political district, his fellow Congressmen are not.
This is one
of the reasons why I get tired of hearing from old-time conservatives
that the country is going to hell in a handbasket. We have lost
freedoms, but we have also gained freedoms. If we think of freedom
in terms of the availability of choices that we can afford, we are
the beneficiaries of an enormous increase of freedom over the last
half-century. The government has grown, and it has grown arrogant,
but the ability of any given bureaucracy to affect the American
economy, other than the Federal Reserve System, is minimal. The
Federal Reserve System was an inflationary monster in World War
II, and it remained an inflationary monster during the Korean War.
We should not be naïve about how lawless the Federal Reserve
system was. It was in the hip pocket of the President to a far greater
degree under Franklin Roosevelt and Harry Truman than it is under
We have seen
the defeat of the liberal Establishment again and again. This is
not because we are well-organized politically. It is because the
economy is growing, and technology is moving at an ever-increasing
rate toward decentralization. The federal government cannot regulate
the Internet. Therefore, it cannot regulate public opinion.
In 1963, there
were only three television networks. The liberals controlled all
three. Today, there are hundreds of alternatives to the status quo.
If we count Internet options, there are millions of alternatives.
In November 1963, there were three television network news services.
They were all liberal. They dominated American information distribution.
There has been
extensive moral decline since 1955, but the federal government is
not the primary agency of that decline. I have no doubt that federal
policies have reinforced this decline, but morality is mostly individual,
and people have made their own choices morally without checking
with the federal government. Where life really counts, in our day-to-day
moral decisions, the federal government is a minor player.
far too much power and far too much influence to the tenured bureaucrats
who staff the agencies of the federal government. These people are
not innovative, not driven by some sense of messianic mission, not
communists, not socialists, not much of anything. They are what
bureaucrats are around the world: timeservers. They fill out forms.
Why should we expect anything different? Why should we think American
bureaucrats are exceptional? Why should we think that the vast expansion
of bureaucratic power has not been accompanied by a vast expansion
of paralysis, incompetence, and petty tyranny?
of the federal government is completely dependent today on the availability
of investors who are willing to turn over their money to the Department
of the Treasury. They're willing to do this at almost a zero rate
of interest. This is what has kept the system growing. This will
not continue indefinitely. It cannot be maintained at the rate of
increase which we have seen over the last 10 years at the same low
rates of interest.
beyond any shadow of a doubt, that the federal government is going
to hit a fiscal brick wall. Where will Congress get the money when
the Treasury can no longer not roll over the debt? There will be
political resistance if the politicians attempt to replace borrowed
money with tax increases. That isn't going to happen. If Congress
goes to the Federal Reserve, as seems likely, there will be mass
inflation (20% range). For a time, there may even be hyperinflation,
although I doubt it. But there is not going to be some huge increase
of taxes imposed on the rich or anybody else.
If we think
that the Establishment really controls Congress, which I think it
does, the Establishment is not going to tax itself to pay for the
goodies that middle-class voters think they are entitled to. Consider
the Social Security tax on salaries. It is not imposed on salary
income above $110,000. Why not? Because that would not be in the
interests of members of the Establishment. There is little chance
that the Congress of the United States is ever going to pass a piece
of legislation that imposes the Social Security tax on all salary
income. The Establishment that runs this country is made up of people
who have salaries a lot higher than $110,000. They are not going
to provide the PAC funds to re-elect Congressmen who are dedicated
to the proposition that rich people should pay the same percentage
of Social Security taxes on all of their salary income the way that
the vast majority of American workers pay on their salaries.
Either we live
in a high school civics textbook democracy or we don't. Either you
believe that the system is really controlled by the American voters,
or else you believe that the American voters are manipulated, and
the system is really run by a relatively small number of people
who work together to control what Congress does. I think it is the
latter. I think most conservatives believe that it is the latter.
Voters get an echo, not a choice. The choices have been vetted before
voters get an opportunity to vote.
IS NOT SOCIALISM
This is why
I do not understand why conservatives believe that there is going
to be a massive increase of socialism in the United States. There
will be a lot of regulation. There will be a lot of special-interest
legislation that benefits the Good Old Boys back home and the Old
Boy Network that has its headquarters in New York City. There will
be a lot of corruption. There will be a lot of Congressmen running
around with their secretaries. There has been all this since 1788.
What there isn't going to be is socialism. The idea of socialism
is dead in the water. It has almost no supporters any more, outside
of universities. It has no legitimacy any more. There is no drift
into socialism, because, since at least December 31, 1991, there
has been a drift out of socialism. The USSR went belly-up.
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North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2012 Gary North
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