The Rise Of The New Socialism — And What You Can Do About It

By Thorsten Polleit

I. THE STARTING CONDITIONS

In this article I want to explain that a rapid departure from the free market system (or what is left of it today) is taking place before our eyes, and that this is a development that endangers not only prosperity but also the peaceful coexistence of people in this world.

To explain this to you and to find a solution to the problem, I am beginning my lecture with the starting conditions.

The economies are struggling to recover from the politically dictated lockdown crisis. The fact that the international production and logistics chains have suffered considerable damage becomes apparent in persistent production downtimes, delivery delays, rising goods prices, and here and there empty supermarket shelves. One could now hope that sooner or later, these disruptions will be resolved and that the global supply and demand structure will normalize again. Unfortunately, however, this hope is clouded by the relentless economic and sociopolitical paradigm shift that is taking place. Before our eyes, the politically and ideologically induced renunciation of the system of free markets (or what little is left of it today) is taking place. What is happening is supposed to give way to a kind of command and planned economic model that does not bode well for prosperity and peace in the world.

Why turning away from the free market system is problematic, even dangerous, becomes clear when you look at how it works and how well it works.

2. WHAT THE FREE MARKET SYSTEM CAN DO

The system of free markets can do great things economically and socially. In a system of free markets, consumers are free to demand goods they want to buy. And the suppliers have the freedom to offer goods, which they believe will be bought willingly by the consumers.

In a free market, people take advantage of the division of labor. This increases work productivity; it allows for more and better goods to be produced. Companies are established and set out to produce and offer the goods and services that consumers want to buy.

If the companies are successful, they will be rewarded with a profit. The profit allows them to expand their production in the customer’s interests. If the entrepreneur makes a loss, his capital literally goes into better hands; i.e., to entrepreneurs who are comparatively better at fulfilling consumer demands. The profit and loss principle ensures that production output aligns with customer requirements.

The formation of the price of goods plays a particularly important role in the system of free markets. If the price of a good rises, it indicates that the good in question is scarce (relative to the supply of other goods). On the one hand, this encourages consumers to use the good more sparingly. On the other hand, companies get the signal to expand production. The increased production volume of the good counteracts its price increase and improves the supply situation for the consumer. The same applies to a drop in the price of a good. It signifies that the good is abundantly available and that the entrepreneurs should better increase the production of other goods, the prices of which are higher relative to the cheaper good. The price mechanism ensures that scarce resources are channeled into uses in which, from the consumer’s point of view, they generate the greatest benefit.

A free market system—and this is its core feature—is characterized by property: the means of production are privately owned. The entrepreneur can collect the profits of his activity, and he must bear the costs of what he does.

In a free market, the endeavor to keep property or obtain more also encourages the entrepreneur to consistently align his production output with the consumer’s wishes. He uses his means of production to produce goods that do not meet his own needs but those of the buyers. He, therefore, puts himself and his property at the service of the consumer. And it is the consumers who decide whether the entrepreneur will succeed or fail with their decision to purchase or not; we call this consumer sovereignty.

The issue of the environment can also be brought under control in a system of truly free markets. If there were a system of free markets, all resources—such as land, roads, forests, lakes, rivers, seas, oceans—would be privately owned—either by individuals or by groups of people. Overuse and waste of resources would be prevented because the owners would manage their property; that is, they would try to maximize the capital value of the resources.

Owners who see their property rights damaged by, for example, noise, air, or climate change, would have the option of taking the wrongdoer to court. To do so, they would provide evidence of harm caused by a third party, and judges would rule on the complaint, issue injunctions, determine compensation, or reject the lawsuit in the absence of sufficient evidence.

Another characteristic of the free market system is mass production; i.e., the production of goods intended for consumption by the broader population. Associated with this is a tendency toward a constant improvement in the average standard of living for the broad population, that is, a progressive enhancement of the living situation of the majority of the population. One could also say (and the Marxist-socialists may not want to hear that at all): the free market system deproletarianizes ordinary people, gradually elevating them to the rank of middle class (a.k.a. bourgeois).

As already mentioned in the introduction, a free market system develops an increasing, more and more finely divided division of labor, both nationally and internationally. Because it is the division of labor that increases the productivity of the work, it encourages people to produce those goods they can produce at a comparatively low cost. The division of labor not only allows more goods to be produced with a given labor force but also creates goods that could not be produced without a division of labor. A permanent division of labor creates unimagined improvements in prosperity for people. The system of free markets creates a work-sharing connection between people worldwide, bringing them together in a cooperative and productive network to the benefit of all. In that sense, the free market is a peace program for the world.

The economic success of the Western world with its extensive supply of goods and high technological development rests on the system of free markets—which were never really completely free but still made it possible within the existing restrictions imposed by the governments to promote people’s prosperity: the entrepreneurs obviously still had sufficient freedom to expand their production output; the price signals were sufficiently reliable to lead the investments to success. But the achievements of the free market system (or what is left of it today) are increasingly being called into question, undermined, and destroyed, mainly due to the rise of interventionism.

3. THE RISE OF INTERVENTIONISM

In the past decades, there has been no free market system in its purest form in the Western economies. The prevailing economic model was and is interventionism.

In interventionism, the means of production are formally privately owned. However, the state restricts the owners’ rights of disposal over their property—through rules and regulations, taxation, etc., and it also dictates what they can and cannot do with their property. The problem with interventionism is that the goals you want to achieve with it either cannot be achieved or can only be achieved with undesirable and problematic side effects.

Let me give you an example: the state wants to lower the rent to make living space affordable. To do this, it sets a rent ceiling. If the rent ceiling is lower than the market rent, the demand for space to rent exceeds the supply. The scarce supply of space then has to be allocated somehow; i.e., rationed. The foreseeable consequences are queues, corruption, nepotism, etc. Also, a rent ceiling will discourage investors from investing in the construction of new apartments. This also applies to maintenance and renovation investments.

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As a consequence, living conditions for tenants deteriorate. Therefore, a rent ceiling not only reduces the available living space but also lowers the housing quality for tenants.

Interventionism regularly triggers a spiral of intervention: because it did not achieve its goal or has caused undesirable side effects, the state intervenes further. And as the state intervenes more and more in the system of (originally) free markets, it infiltrates and destroys it. If we do not turn away from interventionism, we cannot end the interventionism spiral and we end up with a command and planned economy in which the state determines who produces what, where, and in what quantities and who is allowed to consume what, where, and in what quantities. If you don’t stop it, interventionism leads to bondage, to a command economy that will seriously reduce people’s prosperity and bring coercion and violence.

4. INTERVENTIONISM AS A TROJAN HORSE

Interventionism has become a universally accepted model these days: the idea that the state should and must intervene in the market system to achieve politically desired goals is very popular. It is celebrated by the well-meaning people who believe that interventionism can tame or eliminate the undesirable consequences that they attribute to the free markets—such as financial and economic crises, too great a gap between rich and poor, poverty among the elderly, etc. But this conviction results from a wrong root cause analysis, for it is interventionism, not the free market, that is responsible for the evils that are widely lamented today, and it is self-evident that interventionism cannot eliminate the issues it causes.

However, some advocate interventionism because they know that with its help, the system of free markets (or what is left of it) can be quietly and discretely abolished or destroyed. With finely worded proposals, they recommend that the state intervene in the economy and society to achieve supposedly better results. And so the state actually penetrates education (kindergarten, school, university), transport, media, health, retirement planning, money, credit, and the environment, becomes the dominant player everywhere—undermines the remaining elements of the free market system until it is no longer a free market system but just an empty shell.

Marxist-socialist forces, in particular, find a Trojan horse in interventionism. Thanks to its help, for example, with the issues of climate change and coronavirus, far-reaching interventions by the state in economic and social life—unprecedented in times of peace—can apparently be legitimized. For many people, it sounds good and right when they hear: The national economies are no longer allowed to produce and consume as before; otherwise, the planet will become uninhabitable, and only the state can bring salvation. It should therefore boldly take control and reorganize production and consumption by diktat. And the spread of a virus requires that the state control people’s health according to its guidelines.

5. THE AGENDA OF THE POLITICAL GLOBALISTS

Among the supporters of interventionism, a particularly aggressive branch has emerged in recent years: the zealots who want to convert and rebuild the economy and society according to political provisions and that worldwide. They can aptly be described as political globalists. What they have in common is the conviction that people should not and should not be allowed to lead their lives independently in a world of free markets, but rather that they must be controlled by a central authority. And who should fill this central authority? If the political globalists have their way, this power should be placed in the hands of a cartel of states, ideally a kind of world government, an interest group of high-ranking politicians and bureaucrats, central bank councils, representatives of large companies—i.e., those who are commonly referred to as the Davos Elite or the establishment. The path taken by political globalism boils down to establishing a command and planned economy on this planet, a world command economy.

It would be a preliminary stage to socialism, an expression of the idea that the output of the national economy could be determined by a central authority to create a better, fairer, more environmentally friendly world economy. This should not only be achieved through direct stipulations (i.e., how and what is to be produced when and where and under what conditions), but also in particular through state influence on market prices—through taxes, but also by setting price ceilings (for scarce goods) and/or price floors (for goods available in abundance)—which make the production and consumption of certain goods economically impossible. But this is a path that must lead to disaster because it will shatter what is left of the free market system.

The failures of interventionism—from the rise in goods prices and empty supermarket shelves to hunger and misery—do not convince them of the impracticality of interventionism. Rather, they attribute the failure to reach their goals to the fact that the interventions were not far reaching, not aggressive enough, and that, in the future, they will achieve the desired goal with better and more courageous interventions. And so intervention follows intervention, and the remaining elements of the free market are increasingly overridden and destroyed. The rights of disposal that owners have over their property are gradually curtailed until owners are, in fact, no longer owners.

One of the demands of the interventionists is to standardize the policies in the different regions of the world—for example, by aligning tax rates and labor market regulations, by coordinating fiscal and monetary policies, etc. Above all, the political globalists who use interventionism are also systematically prompting the relativization and discreditation of the system of free markets (or what’s left of it). For example, they propagate the idea that companies should no longer pursue capitalist profit maximization but must follow the guidelines of stakeholder capitalism: that is, their activities are not consistently defined by the interests of the owners, but (also) aligned with the objectives of customers, lenders, suppliers, employees, as well as their local communities. This reeducation of thinking is often touted as rethinking capitalism.

In particular, political globalism starts with the investments of capital collection agencies such as insurance companies, pension schemes, and mutual funds. The principle is well known and has been practiced for government bonds for years. The state privileges its debts. For example, banks do not have to hold equity capital for government bonds. Furthermore, government bonds are given privileged treatment by the central bank by being approved for open market operations. This increases the attractiveness of government bonds from an investor’s point of view, and they lend the states their money on terms that would be inconceivable without the privileges that the state grants its own debts. This is how the state gets a considerable amount of private capital.

As a result, the state is not only becoming bigger and more powerful, it also receives enormous financial power, which it uses for steering purposes—for example, by supporting some branches of industry financially, but not others. A very similar capital management, which amounts to an industry policy, now takes place through the state’s determination of what sustainable investments are and what are not and which companies receive the seal of approval for environment, social affairs, and corporate governance and which do not. To be classified as a sustainable business model, a company must act in accordance with economic, ecological, and social criteria that the state can significantly shape and expand as it pleases. The business purpose and value creation come into the political crosshairs just as much as the relationships with all stakeholders (shareholders, employees, business partners, etc.), and issues such as tax equity are also taken into account. Industry control by the state is thereby expanded and outsourced to private investors.

6. OLD SOCIALISM AND NEOSOCIALISM

In the history of ideas, political globalism has collectivist-socialist roots, and it is the precursor for neosocialism. Compared to old socialism, however, neosocialism has a much more gloomy, sinister guiding principle. The old socialism, at least officially, had the goal of improving the material facilities of the working population and raising their standard of living. (Unfortunately, the means it used to achieve its goals were the wrong ones.) Neosocialism, however, is different. It does not see man as God’s creation but a destroyer of the earth whose self-indulgence must be challenged. Whose resource consumption must be reduced. And probably one or two political globalists may also have the desire to control or reduce the world population so that the planet does not become uninhabitable.

Scarcity and renunciation, which neosocialism advocates, harbor enormous explosive potential. Because economic growth; i.e., the increase in available goods over time, not only increases people’s standard of living. It also proves to be an instrument for avoiding conflict: if the pie grows overall, everyone will be better off, even if their share of the pie remains the same. If the cake shrinks, however, there is suddenly less for everyone, and then the struggles for distribution inevitably become harder. By working towards a reduction in the demand for goods, the supply of goods and the consumption of resources, neosocialism inevitably turns people against each other, nationally and internationally, and the risk of armed conflicts increases.

If political globalism is not halted, neosocialism will be established, and the remnants of the free market will be abolished. The all-too-well-known problem, namely, that socialism and its varieties are impracticable, would manifest itself relentlessly. The impoverishment of the population, of humanity, would be the result. The politically induced rise in energy prices already indicates what looms: the radical rise in energy prices, which was brought about in a relatively short period of time, threatens to overturn the existing structure of production and employment in the world, triggering corporate bankruptcies and mass unemployment. That, in turn, will trigger calls for the state to help out. As a savior, the state pays unemployment benefits and subsidies on a large scale and ensures spending programs.

7. NEOSOCIALISM AND UNBACKED PAPER MONEY

This is financed by issuing new national debt, which is bought by the central banks and paid for with new money. Declining economic clout, but above all, the growing amounts of money that the central banks are issuing are driving up goods prices. Life is becoming more expensive, the standard of living of the broader population is declining. If people do not recognize the cause of the deterioration in their material situation, the state will act as a permanent problem solver. It takes measures to counteract the rise in food prices, rents, insurance premiums, etc.—for example, by issuing price ceilings (for example, for food and transport) and price floors (for example, for wages). This inhibits the national economy, production suffers, the supply situation for the people deteriorates.

The (increased) price inflation is entirely in keeping with the neosocialist program. Not only does it slow down economic expansion, but it also turns large sections of the population into needy people who (have to) turn to the state for handouts. The devaluation of money and the monetary savings, which the price inflation provides, gives the state a growing following, which has a vital interest in a large and financially strong state. It is therefore not surprising that the central banks are now pursuing a monetary policy that drives price inflation above the 2 percent mark. As long as price inflation remains hidden from the eyes of the general public, inflation does its evil job: devaluation, destruction of savings, redistribution. But if price inflation gets too high, the scam threatens to be exposed.

This can even lead to people abandoning money: people try to get rid of their money by exchanging it for real assets (stocks, houses, art, etc.). If confidence in unbacked money wanes, high inflation or even hyperinflation is just around the corner—unless the central banks turn around and reduce price inflation by raising interest rates and slowing down money supply growth. Then, however, the debt pyramid, which has been built up in the Western world for decades, would collapse and with it the structure of production and employment as well as the entire neosocialism project. So it is understandable why the central banks are doing everything in their power to convince the population that they, the central banks, are indispensable, are the guarantors of good money, the fighters against inflation. The distortion of truth couldn’t be greater.

The unbacked paper, or fiat money, system is crucial for the success of the neosocialist megaproject. Properly dosed, it is possible, at least theoretically, to conceal the full extent of the costs caused by the “Great Reset” from the public eye. So if the central bank councils manage to maintain people’s trust in fiat money, the neo-socialists can move forward with their coup. A loss of confidence in fiat money—triggered, for example, by high price inflation as a result of an excessive increase in the amount of money—can, on the other hand, throw the neosocialism project off track. Seen in this light, the current surge in goods and asset prices—as painful as it is for most earners—at least holds a chance that the fiat money fraud will be debunked and the neosocialists will literally run out of money.

8. THE FIGHT OF IDEAS

Human history is not—as Karl Marx whispered to the people—the result of social development laws that inevitably lead to socialism-Marxism. Rather, it is determined by ideas that drive people. If you are convinced that socialism is the system that brings salvation, then you will do everything in your power to establish socialism. So to stop and reverse what is currently going on worldwide—the advance of the state and the repression of the free market system—there is no other way than to enter the fight for the better ideas, to debunk the bad ideas, to help the good ideas—the ideas of the free markets—to break through.

From an economic point of view, the battle has long been over: it is easy to prove that socialism and all its varieties are doomed to failure, that their failure, in reality, is not a coincidence, but that it can be traced back to the working of economic laws. But since this knowledge is not pervasive, we have to educate our fellow men about the dangers that come with socialism and all its varieties. We also have to explain that what is touted as green policies, as a great reset, comes straight from the socialist witch’s kitchen and represents a reissue of well-known socialist ideas in a new guise.

We can educate our fellow men, for example, by sending articles, podcasts, videos of libertarian thinkers or giving their books to family members, friends, or colleagues. And we always have to show the positive alternative that the preservation and defense of property, individual freedom, and free markets has in store—and that their acceptance makes a lasting, peaceful, and productive coexistence of people in this world possible.

Joining the battle of ideas, communicating the better economic ideas, explaining and promoting the superiority of free market ideas is one way of stopping the rise of neosocialism, one opportunity that must not be missed.

Either by getting involved yourself, becoming active, or courageously supporting others going into intellectual battle for them—like, for instance, the Mises Institute and other freedom- and libertarian-minded think tanks.

Source: Mises.org

Dr. Thorsten Polleit is Chief Economist of Degussa and Honorary Professor at the University of Bayreuth. He also acts as an investment advisor.

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