Socialism, American Style, Part 1

Jacob G. Hornberger – September 30, 2020

In September 1990, the first year of The Future of Freedom Foundation’s existence, FFF published an article I wrote entitled “Letting Go of Socialism.” The article’s opening paragraph stated,

Socialism has held the world in its grip since the beginning of the 20th century. People everywhere fell for the seductive allure of governmental security. Now on the eve of the 21st century, people all over the world are considering letting go of the socialist nightmare. But tragically, one of the peoples on earth who are refusing to let go of socialism are the Americans.

In the article, I cited three examples of American socialism: Social Security, public (i.e., government) schooling, and subsidies to businesses.

Thirty years later, it’s time to revisit that article. Unfortunately, as we will see in the course of this multipart article, Americans are more wedded to socialism than ever before.

The Principles of Socialism

A 100 percent socialist society is one in which the state owns everything — the businesses, industries, houses, farms, and all other personal and real property. In a purely socialist society, everyone is a government employee.

Ideally under pure socialism, everyone is equal in terms of income and wealth. As a practical matter, however, in a socialist society some people are more equal than others. Those who are higher in the governmental bureaucracies usually receive higher incomes than those at the bottom.

It is rare, however, to find a 100 percent socialist society. Why is that? Because it cannot survive. In order to be able to feed the citizenry, the state has to produce a sufficient amount of food. The same applies to clothing, transportation, and other essential items.

As a practical matter, the socialist state is unable to do that. The reason is that socialism doesn’t work and cannot work. It is an inherently defective system.

As the Austrian school of economic thought has pointed out, in socialism there are no market-determined prices. That’s because there are no markets in which prices are being set. Prices become simply decrees of the state. Thus, because it is impossible to arrive at economic calculations regarding prices, it is impossible to calculate the costs of the various projects that the state decides to undertake and also impossible to establish prices. Inevitably, the result of socialism is economic chaos.

To avoid people’s starving in a socialist society, a socialist regime must inevitably permit limited amounts of private enterprise to sustain its hold on society. That entails permitting some of its citizens to engage in private economic enterprise in order to provide the tax revenue to the state that enables it to sustain its socialist system. That’s why North Korea, which is as close to a purely socialist society that one can get, permits many of its citizens to work overseas.

While they are permitted to keep some of the money they earn, which is more than they could earn at home, much of their earnings are sent to the North Korean government.

Of course, another way that socialist systems survive is by receiving aid from foreign regimes, which necessarily are taxing the income and wealth of their citizens to subsidize the foreign socialist regime.

My Visit to Cuba

Twenty years ago, I visited Cuba, which came very close to being a purely socialist country. I detailed my experience in a 3-part article entitled “A Libertarian Visits Cuba.”

The state owned all the businesses, industries, farms, and other means of production, as well as people’s homes. Nearly everyone worked for the state.

During the Cold War, Cuba was able to survive with massive subsidies from the Soviet Union. But once the Cold War ended and Soviet subsidies came to an end, Cuba’s government had to figure out a way to sustain its system.

By the time I visited, it had been 10 years since the Cold War had ended. It was a gray, drab society. It is difficult to imagine walking down the streets of Havana, the nation’s capital, and seeing nothing but government-owned restaurants, hotels, pharmacies, and retail stores. It was a dismal, depressing site. I walked into a pharmacy, for example, and it consisted of gray walls and bare shelves. No economic vitality whatsoever.

A local citizen asked me if I would like to visit a rationing station. I said yes, and he escorted me through back streets, far from the eyes of tourists. At the rationing station, there were about five huge vats containing dried beans and other staples. People would line up to receive their weekly portions of such items. That’s how a socialist country feeds its citizens — it allocates or rations what each person is to receive. And everyone presumably receives an equal amount.

That rationing station was another drab, depressing scene. When I started taking pictures, one of the administrators said to my escort, “Hey, no pictures are permitted.” My escort responded sarcastically, “Why not, comrade. Don’t we the people own this station?”

Faced with reality, the communist regime was adopting reforms to prevent mass starvation on the island. It permitted people to establish private restaurants in their homes, which would generate tax revenue for the state. Of course, that would mean that people who engaged in that type of enterprise would be making more money than those who didn’t, but the state simply ignored that income inequality.

I ate in some of those privately run restaurants, which were called “paladares,” as well as in state-run restaurants. The difference was day and night in terms of service and food quality. It came as no surprise to me that the privately run ones were significantly better on both counts.

It was somewhat strange, though, to be walking into someone’s home and being escorted into their living room in order to order a meal. And keep in mind that there were no signs outside the house to indicate that there was a paladar there.

The Cuban regime was also permitting people to rent rooms in their homes to people. One day I took a taxi to a small town called Trinidad, which was several hours from Havana. I arrived around
6 p.m. Once the taxi dropped me off, it returned to Havana.

There were no hotels in town. I knocked on someone’s door seeking a place to sleep. A woman responded favorably and asked to see my passport. I reached for it and realized that I had forgotten it back in my hotel in Havana. The woman responded with a look of great fear on her face. She said that she was not permitted to rent a room to anyone who didn’t have his papers with him.

Once I offered the woman a generous bribe, she agreed to my staying there. But she told me that if I planned to take a cab back to Havana, I would encounter highway checkpoints that required people to show their papers. She told me that the standard policy was to jail people who didn’t have their papers.

What came to mind, of course, were the highway checkpoints that the U.S Border Patrol operates in the American Southwest, which many Americans associate with a free society. I decided to fly back to Havana. Fortunately the airline official failed to ask for my passport as I deliberately engaged him in conversation about an upcoming baseball game between Cuba and the United States.

A Free-market Economic System

There are, however, socialist economic systems that are not based on 100 percent government ownership of everything. That’s what we will examine in this series of articles.

However, before we do that, it would be helpful to examine the opposite type of system, a free-market system.

In a pure free-market economic system, the economy and the state are separate, much as church and state in the United States are separate.

In a free-market system, people have the right to engage in any economic enterprise they want and without any governmental permission or interference. No permits, licenses, or other official consents.

People also have the right to accumulate unlimited amounts of wealth, which guarantees great inequalities of wealth in society.

Moreover, people are free to do whatever they want with their money — spend, invest, squander, save, donate, hoard, or even destroy it. In a free-market society, there are no mandatory-charity programs. Charity is 100 percent voluntary.

A free-market system is one in which people are free to travel anywhere in the world and freely buy from people and sell to people in other parts of the world.

A free-market system is one that is free of government regulation. There are, for example, no minimum-wage laws, no price controls, and no anti-gouging laws, not even during emergencies.

The United States has come closest to achieving a pure free-market system. From the inception of the United States, most Americans were free to engage in economic enterprise without state interference, accumulate unlimited amounts of wealth, and decide for themselves what to do with their own money.

Of course, there were exceptions, both large and small. Slaves certainly didn’t benefit from this system until a short time after the Civil War. There were also tariffs, which made it more expensive to buy things from abroad. There were land grants to the railroads, and corrupt government-business partnerships, also known as “crony capitalism.”

Notwithstanding those exceptions, however, Americans discovered the way to achieving higher standards of living across society. When people were free to keep everything they earned, they put a large portion of their savings into banks, which then made loans to businessmen that enabled them to purchase better tools and equipment. That made workers more productive, which generated higher revenues and profits to the firms, which enabled them to pay higher wages to the workers.

At the same time, the fact that Americans were free to trade with each other and, to a large extent, with foreigners (notwithstanding the tariffs) also produced higher standards of living. The reason is that in every trade, people give up things they value less to receive things they value more. Thus, in every trade, people improve their standard of living from their own subjective standpoint.

At the same time, the Framers had called into existence a monetary system that produced the soundest money in history. It was a system in which the official money of the United States was gold coins and silver coins. That system of sound money, which lasted for more than 125 years, was another cause of the tremendous rise in the American standard of living in the 19th century and early 20th century.

The free-market system in America all came to an end in the 1930s, when the United States embraced the worldwide phenomenon of socialism, an economic philosophy that was promising security, comfort, equality, justice, and fairness. It was a siren’s song that would instead lead toward perpetual crises, chaos, and conflict.

We will begin our examination of American socialism with the crown jewel of what is known as America’s welfare state: Social Security.

[Part 2 to be published]

Reprinted from the Future of Freedom Foundation. Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at and from Full Context.

Image credit: Wikimedia

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