Editorial Foreword: This essay by Paul Craig Roberts, which is republished here with permission from ISI, contains classic insights about statism, bureaucracy, the history of classical liberalism, and threats to negative liberty. Although some of the case-study examples are now dated, it is still worthy reading for liberty-loving individuals.
Essay: A person born before the turn of the century was born a private individual. He was born into a world in which his existence was attested by his mere physical presence, without documents, forms, permits, licenses, orders, lists of currency carried in and out, identity cards, draft cards, ration cards, exit stamps, customs declarations, questionnaires, tax forms, reports in multuplicate, social security number, or other authentications of his being, birth, nationality, status, beliefs, creed, right to be, enter, leave, move about, work, trade, purchase, dwell.
He was born into a world in which a person could travel anywhere on the face of the earth, excepting Russia and Turkey, without need of a passport, visa, or identity card. He was born into a world of freedom of movement of people, money, and ideas. A confident nineteenth-century futurology predicted that the twentieth century would find him freer still.
But by the time of the First World War, the world into which he was born was on its way out. And the period since has been one of the growing autonomy, not of the individual, but of the state. He was born in a century that pulled down walls and lived out his life in the century of the wall builders. Twentieth-century walls—whether made from iron, or barbed wire, mine fields, and machine-gun towers, or from paper—the barbed wire of documents twentieth-century walls are by-products of the universal bureaucratization of life. In place of the nineteenth century’s autonomous individual, to whom some romantics romanticized all things were permitted, we have the twentieth century’s autonomous state to which, as Dostoevsky, predicted and Lenin declared, all things are permitted.
The private individual is an extremely recent and precarious invention. A central question of our century is whether he is a mere momentary caprice of history.
Many people take private individuals for granted, and they will find what I am saying farfetched. But private individuals do not exist in the Soviet Union or in China where the claims of the state are total and even art and literature must be subservient to the interests of the state—as the recent expulsion of Solzhenitsyn reluctantly reminds the wistful hopes of a weakened West. Neither do private individuals exist in many of the emerging nations where change consists only of replacing the subordination of the person to tribe or caste with subordination to the modern activist state.
But my topic is not one of communism versus democracy. My argument does not turn on the form of political system but on the self-interest of bureaucrats and their beneficiaries and allies, whatever the form of the political system.
Just as private individuals do not exist today in the Soviet Union or in China, they did not exist in ancient Egypt. Nor were they prevalent in the Europe of the Middle Ages. Private individuals were the creation of the social revolution that created private property.
I do not use the term social revolution lightly as do academic sociologists who find a social revolution every time students change their hair styles or sex habits. I am speaking of a social revolution which, along with the reaction to it, comprises the social, economic, political, and intellectual history of Western civilization from the twelth century through the present.
The Rise and Fall of the Private Individual
The Social Revolution through which private individuals were created hand-in-hand with the creation of private property began with the Inclosures in the twelth century and attained its greatest flowering in the nineteenth century. Prior to the appearance of private property, private individuals did not exist. There existed only the rulers and the ruled, lords and serfs.
A serf was a person who did not own his own labor. Although he was not himself owned by another, that is, he could not be bought and sold like a slave, the feudal nobility, the state of that time, had rights over the serf’s labor. When we say that a peasant was enserfed, we mean that he owed a certain amount of his working time to the state. Over time and regions this obligation seems to have averaged about one-third of a serf’s working life.
In turn the serf had use-rights in the land. The same social revolution which abolished the serf’s use-rights in the land abolished the state’s use-rights in the serf’s labor. The same social revolution which created private property in land and capital created private property in labor. Serfdom disappeared as wages appeared. As Karl Marx recognized, “Wages and private property are identical.”
Reaction to this great social revolution began with it, and over most of the course of this revolution, reaction was identified with conservatism. But what was really happening was that as different groups—landowners, merchants, capitalists, and laborers—attained specific private property rights—in land, trade, capital, and labor—each group had an incentive to gain control of the state as a means of advancing its specific property rights at the expense of others. A “reactionary” was merely whoever had control of the state at a point in time and was defending his interest against the interests of others. As different groups in different times gained control of the state, each in turn passed from the offensive to the defensive and were automatically turned into conservatives, which meant they wanted to conserve their interests. But no group trusted the state as such. No group felt its property rights secure unless it controlled the state. Each identified progress with the advancement of its property rights.
Historians have often confused this strife between different property interests with an alleged reaction of property against democracy. But whichever property group was in power, it would tend to see democracy as the right of others to vote away its property. Democracy was thus confined to voting by members of the group whose property interest was dominant. This greatly limited the power of government because any claim to act in the public interest was quickly recognized for what it was.
Although each property group had an accurate assessment of the threat of government to its interests, each group mistakenly saw its interests as divergent from the interests of others, and each preferred to unite with government against the property interest of others. However, in spite of the strife among its beneficiaries, the social revolution of private property was inexorable, and the real reactionaries were swept aside.
But the revolution was never quite completed. Just as the various property groups began to realize, under the influence of Adam Smith and others, their common interests and unite against government per se, the greatest reactionary of them all, Karl Marx, appeared and began a new counter-attack against the on-going social revolution. Like some of the earlier reactionaries, Marx knew exactly what he was reacting to. He was reacting to private individuals. According to Marx, man is only individualized through the creation of private property: “Man originally appears as a generic being, a tribal being, a herd animal.” Private property “makes the herd animal superfluous and dissolves the herd.”
Marx’s counter-attack was the work of genius. According to Marx, the private individual is rootless, powerless, alienated, and unfree. He only appears to be free, but as an individual actor he must bear the consequences of his own action; yet as an individual actor he has no control over his life because he is affected by, but has no control over, the actions of others. Thus, the divergent actions of private individuals produce consequences beyond the control of all, and a private individual is the victim of his own individuality.
Marx’s solution is to do away with the private individual and return to the herd animal. Herd animals do not act as individuals and therefore they do not have to bear uncontrolled consequences of private actions. Instead they act as a community, or the State acts for the community. Marx’s genius launched the career of a new class of professional rulers—the bureaucrats. In the Soviet Union and China this class is known as the Communist Party and in the United States and Europe it is known as the civil service.
As Marx and his followers translated his esoteric argument for the masses, it came out: “It is not government that exploits, but private property.” To Lenin, to Mussolini, to Hitler, to European socialists and statists of all hues and colors, and to their counterparts in the United States who go under the name of liberals—a curious perversion of a name that originally designated one who stood for the interests of private property against the interests of the state—to all of these this meant that progress could be realized only through government. The strife this century between the various statists has overshadowed their common agreement that government action is the instrument of progress.
My liberal acquaintances are generally proud of what they see as the progressive nature of their view that government is the instrument of social progress. It is unknown to them that they share this view with the great reactionaries of history. My liberal acquaintances become annoyed when I quote from Mussolini and from Camelot liberals on the state as the instrument of social progress, and they find that they cannot tell them apart. But I generally lose their friendship when I point out that Alexander Herzen published an open letter to Tsar Alexander of Russia in 1857 protesting the Tsar’s idea that government action is the instrument of progress.
Many people are not aware of the extent of bureaucratic involvement in private life. Usually I find that people, whether my students, my academic colleagues, or my mailman, see themselves under the thumb of big business and multinational corporations. They generally look to government for protection, which means that each wants government to overrule any private action that each does not see in his interest. Government, of course, is anxious to oblige because in this way it gains power over all private actions. Let me give two recent examples which have left even some statist liberals shaken.
A female student at the University of Georgia failed in her efforts to be chosen by her fellow students as sports editor of the student newspaper. In petty spite she filed a discrimination complaint with HEW, and this cabinet level agency quickly involved the United States government in the matter of the students’ selection of the sports editor of their newspaper.
U.S. District Judge Wilbur Owens instructed the Board of Regents of the University System of Georgia to use involuntary transfers of faculty members between system institutions to achieve racial balance among the faculties. As long as the involuntary transfers of teachers was infra-city and confined to elementary and high school teachers, my liberal colleagues saw it as social progress. But oncethey faced inter-city involuntary transfers, they called it fascism. It is true that until the liberal progress of the 1960s, government direction of labor in this century was unique to the Hitler and Stalin regimes. As is often the case, people realize the consequences of statist ideas only when their own private individualities are touched.
But examples such as these are unlimited and many are so horrific that they are unbelievable until they touch us individually. Let me instead sum up the success of the reactionary forces in this century in simple economic terms. At the turn of the century government in the U.S. had a claim to only one-eighth of the national income. By 1970 government had a claim to one-third of the national income. In relative terms our position is no different from that of a medieval serf who owed the state one-third of his working time.
Serfdom and the Bureaucratic State
It is true that the statists owe their success partly to technological change which raised national income through time. If people are better off in absolute terms, they may not notice that they are worse off in relative terms. But statists mainly owe their success to the power of reaction in the twentieth century. It is striking that it has required little more than a half century to reverse a social revolution that had been on-going since the twelth century. When you hear a liberal say that you cannot repeal the twentieth century, all he is saying is that in the twentieth century statist reactionaries have repealed the nineteenth and eighteenth centuries and have us on our way to re-enserfment.
Many may reject this parallel. They may say that we have a democratic government controlled by thepeople, and that high taxes and big government merely reflect the voters’ demands for public goods in the public interest. Such an argument is reassuring but problematical. The income tax was voted in under one guise and retained under another. Furthermore, it was the action of a past generation. For us it is an inherited obligation, as were feudal dues, and it is seen that way by the Internal Revenue Service. All of us have been born to the statist gospels. Any clamors for tax reduction are translated into proposals for tax reform, which are further transformed into proposals for securing more revenues for government.
The public interest remains what it has always been—the interest of those who speak in the name of the public. Few who understand the workings of democracy, or any form of government, will claim that a public interest can prevail over divergent special interests. Individual citizens find that their time is spent in going about their jobs and ordinary affairs. The cost is large to any single individual of organizing a constraint on bureaucratic power, and the gains to him are not clearly identifiable. He tends to hope it will be done by someone else because in that event he shares the benefits without incurring the costs.
But precisely because they do have special interests offering them identifiable gains, bureaucrats and their beneficiaries have incentives to enlarge the scope of government. Today legislation is originated by bureaucrats who unlike politicians are life peers and cannot be voted out of office.
Since the bureaucracy’s position is the strongest, and since the benefits to its members of more government are large and easily identifiable, it is unlikely that a democracy offers the ruled any more control over the rulers than did feudal serfdom. In fact the medieval serf may have been in a stronger position than the ruled of today. The feudal state was constrained by custom and tradition, and the medieval serf was more intelligent than his twentieth century counterpart. He would immediately see through any king or noble who might claim he was raising taxes in the public interest. This is the reason that the power of government in a kingdom is less than the power of government in a democracy. No king could claim to speak in the name of the people or to act in the public interest without arousing suspicion. The power of governments which historians cavalierly term autocratic was extremely small. No king ever had draft laws at his disposal. The universal draft originated with the democrats of the French Revolution and has ever since been a feature of democracy. Perhaps the only case in which the rulers can be controlled by the ruled is when government is small, and if government is small, its form is of little consequence.
Bureaucratic Undermining of the Market
Our Founding Fathers were products of the great social revolution of which I have spoken. As such, they believed that God had created people as private individuals and not as herd animals. Not trusting governments with God’s handiwork, they attempted to design a political system that would preserve the private individual against the self-interest of government. But any viable federalism as a means of checking the power of government was destroyed by the Civil War. Since that time bureaucratic power has been limited only by an on-going market system. To the extent that markets work, there is no need of government. Once this was realized by bureaucrats and their allies, they saw their vested interests in arguments that markets do not work and in policies assuring that indeed they did not work. The great depression launched their battle to beat back the constraint that a market system placed on bureaucratic power. All of economic and social policy and the predominant economic and social theory since that time can be explained in these terms.
This is a new explanation of social and economic theory and policy, and it may be difficult for people born to statists gospels to follow. After all, it is taught in every college and university in the country, and it is printed in virtually every economics textbook, that government economic policy is conducted in the public interest to achieve economic stability, to prevent recessions and inflations, to protect the public from monopolies and from unemployment and eroding purchasing power. It is true that many have noticed that the record of government social and economic policy is one of dismal failure, but the general conclusion has merely been that bureaucrats make errors like anyone else and lack sufficient power, that better minds are needed in positions of more power.
Such a conclusion is possible only if the assumption is that bureaucrats attempt to act in the public interest and merely fail. But if we assume that bureaucrats act in their own interest, as do other groups and individuals, public failures are transformed into bureaucratic successes.
Some people are sufficiently sophisticated to notice that bureaucrats are quick to use every opportunity to feather their nests and enlarge their budgets and powers. But I am saying more. I am saying that there is no coincidence whatsoever between the interest of bureaucrats and the public interest. I am saying that government social and economic policy is the tool of bureaucrats for self-aggrandizement and is inimical to the public interest.
Before we had activist government economic policy, we had small government and lots of little ups and downs called the business cycle. These ups and downs were used as an excuse for an activist government economic policy to smooth them out and replace the business cycle with uniform stability. With activist economic policy not only came big government but the worst long-term depression and inflation in our history, that is, chronic economic instability. Many people have puzzled why the Federal Reserve and the Treasury always do the wrong things—even when they are run by Milton Friedman’s teachers and colleagues.
But the trouble with this way of puzzling over the matter is that it assumes the bureaucracy has an interest in economic stability. Whereas any given President has an interest in economic stability for the period of his re-election campaign, no one else in government has an interest in economic stability. Put simply, economic stability does not increase the demand for bureaucrats and their services or for pork-barrel legislation to deal with the consequences of instability.
It is easy for government to cause economic instability, and it can always rely on its allies among the liberal academics to blame the instability that government causes on the private sector. All government needs to do is intervene in markets and disrupt them, or shrink the money supply, or increase the money supply faster than business and labor can produce goods. The resulting instability becomes the excuse for increases in government programs and in the supply and power of bureaucrats. If government wishes to take control over an industry and to facilitate the takeover by placing the industry in a bad light with the public, it can begin by causing inflation. Then on the grounds of fighting inflation, government can impose price controls and cause shortages. At this point its academic allies can begin alleging conspiracy among the businessmen. The result will be rationing and government determined production schedules, followed by a decline in profitability, subsidies, and then nationalization.
If government wishes to increase its share of the national income relative to the private sector, all it needs to do is cause inflation. Inflation allows government to increase its share of national income in three ways: (1) with the progressive income tax system, inflation drives people into higher tax brackets, thus increasing government’s claim on their income and the government’s relative share of national income, (2) the inflation that government causes can be blamed on excessive consumer spending, and an increase in taxation can masquerade as a scientific economic policy to fight inflation, (3) through the inflation tax on money.
The reason all countries suffer inflation is not because it is not known how to prevent it, but because inflation increases the powers and incomes of governments.
The Academic Allies of the Bureaucratic State
My references to the academic allies of the bureaucracy may annoy some, although others may be proud of the connection. The subject of the academic alliance with the bureaucracy is an essay in itself. Ihave shown how economic policy since the Great Depression can be understood in terms of the bureaucracy’s interest in inefficacious markets, that is, in markets that do not work. As I said, also, that economic theory itself could be understood in these same terms, I must now provide some argument in support. Many believe the popular misconception that economists are class-biased lackeys of capitalists whose science is an ideology for the market, and they may even misinterpret what I am saying as evidence in support of this misconception. Indeed, many economists themselves prefer this misconception because it provides a disguise that conveniently masks whose lackeys they really are.
On the surface it may look like economists are not sufficiently relevant to be anyone’s lackeys. Large expanses of modern economics are inscrutable even to many economists. But if one strips away the reified jargon and mathematical symbols and looks at what the economists who dominate the profession have been doing for the last forty years, one sees that they certainly have not been providing an ideology for the market. Rather, they have been providing a rationale for big government, whose handmaidens they are.
The two subjects which have dominated theoretical economics during this period are externalities and Keynesian macroeconomics. The externality literature is replete with the concepts of “market failure” and “social costs.” The purpose of this literature is to discredit the efficacy of the market on a microeconomic level. The Keynesian literature is replete with unemployment equilibrium. The purpose of this literature is to discredit the efficacy of private saving and investment decisions and the market on a macroeconomic level. The justification of big government as scientific economic policy is precisely the purpose of the most famous diagram in post-war economics—the “Keynesian cross”—a diagram that is familiar to every student who has had an economics course during the last quarter century. This diagram is devoid of economic content and is solely a propagandistic rationale for the efficacy of big government.
It does not surprise me that economists fashion their theories to serve the interest of the state rather than the interest of private enterprise. After all, it is in their self-interest. Private enterprise does not provide the research grants that are the bread and butter of the influential social scientists. These grants come from the National Science Foundation, the National Endowment for the Humanities, the U.S. Department of Health, Education and Welfare, the U.S. Department of Labor, and so forth. Neither can private enterprise provide the positions of power which academics enjoy as cabinet ministers and Presidential advisors. Any social scientist who can discover a social problem that can be parlayed into a new federal program is set for life.
The conspiracy of bureaucrats and their alliance with academia is unwittingly protected by the naive worldview of liberals who believe that all good follows from public actions and all evil from private actions. The liberal is the easy dupe of the bureaucrat because the liberal’s outlook is highly simplified: On the one hand he sees the public interest, identified with government, self-evident and beyond questioning by an upright person; on the other hand he sees private interests, selfish, sinister, and illegitimate. As a result of the pervasiveness of this outlook, the public learns in schools, colleges, universities, and from the news media to be suspicious of the private businessman and to look with favor upon government interventions as acts in the public interest. I expect that the informal inculcation of this attitude will soon become official educational policy in the U.S., just as it is today in Sweden—a country totally ruled by bureaucracy.
This conspiracy and alliance is far from being unique to the U.S. and can be found in most every country. I will conclude with remarks on its manifestations in Sweden and in West Africa.In Sweden the “new Left” is subsidized by the bureaucracy to discover social imperfections because each imperfection justifies an increase in state power to correct the imperfection. The Swedish “new left” may have convinced itself that it is revolutionary, but in fact it is either an agent or a dupe of the bureaucratic state.The imperialistic rule of the Swedish bureaucracy has been established since the late eighteenth century when King Gustaf III, under the influence of the French Enlightenment, toyed with the idea of a nation of private individuals and was promptly assassinated by his bureaucracy which felt its prerogatives threatened. The imperialistic rule of the Swedish bureaucracy is the standard to which our own aspires. But it is in the lands that most shrilly accuse the West of imperialism that the imperialistic nature of indigenous bureaucracy stands out most starkly. The voluminous writings about imperialism are just another mask behind which hide the real imperialists. Let me strip away the mask.In some nations of West Africa there are state export monopolies, or marketing boards as they are officially described, that extend their control over practically all agricultural products. These boards were set up ostensibly to stabilize the prices received by private farmers. African farmers, if they wish to sell their crops, must sell to the state marketing boards at prices set by the boards. The boards in turn sell the crops on the world market. The original idea supposedly was that during years of high world market prices, the boards would hold back part of the proceeds from the producers in order to provide a reserve for years when world market prices were low. In this way incomes were to be stabilized.When these state monopolies were introduced, categorical, formal, official assurances were given that the marketing boards would serve as trustees and agents for the private producers and that no money would be withheld overall from the farmers. In the words of the supporters of the marketing monopolies:
There will be no question of the boards making a profit at the expense of West African producers. On the average of a period of years, the average price paid to the producers will be equal to the average net price realized on world markets, and the boards’ buying and selling transactions will, therefore, approximately balance.
By 1962 the state marketing monopolies had withheld between one-third and one-half of the commercial values of their crops from the producers in Nigeria and Gold Coast-Ghana. The total sum withheld exceeded two billion dollars! The political changes and upheavals in Nigeria and Ghana in the 1960’s stopped the publication of consistent statistical information on the operations of the marketing boards, but the evidence indicates that the state marketing monopolies continue to be the instrument of exploitation of those whom they were ostensibly set up to help. What was supposed to be state help to private producers has resulted in prolonged large-scale confiscation of their incomes.
What has become of this huge sum stolen from the poorest elements of the populations by their own governments? Some of it was lost in currency devaluations, but much of it was transferred to cover current operating expenses of the governments. In effect, a productive sector of the population, whose money income is minuscule, has been kept poor by being taxed at rates equivalent to those levied on American annual incomes of $50,000 to $140,000! The consumption and investment of West African farmers have been throttled in order that civil servants and government officials can enjoy relatively high incomes.
This makes it clear why West African governments have been such vociferous consumers of the anti-Western imperialist diatribes that originate in the West. It is always in the interest of indigenous imperialists to support the argument that the country isexploited by foreigners.
Indigenous imperialism has been obscured by an assumption underlying the economic theory of public goods which asserts that governments act not in their own interests but in the interests of others—the “public interest.” Economists who use the “public interest” assumption to analyze the state sector simultaneously assume that other organized groups and individuals act in their self-interest. This dichotomy in the economists’ assumption about behavior protects indigenous imperialism under the mask of benevolence.
Such exploitation of agricultural export producers as has occurred in West Africa retards economic development. The lack of progress is then taken as evidence of the need for greater amounts of foreign aid. The government-to-government grants that characterize “foreign aid” allow the recipient governments to consolidate and extend their control over their citizenry. The situation is made even worse by the fact that many of the African government leaders have been products of Western universities and have little sympathy for the culture of those they govern.
The real beneficiaries of foreign aid arc the international organizations, those who control political power in the recipient countries, those who staff the foreign aid agencies of the giving countries, and the Western professors who advise on economic development schemes. I once served in a state university as the academic replacement for a professor who had just purchased a $60,000 home and gone on an AID mission to India for two years. His pay for his mission to the poor was $30,000 per year plus expenses, and it allowed him to pay off his mortgage on his return. One of his colleagues had gone on a similar mission to South America and bragged to me that he had “salted away $30,000.” Such “missions” which let academics save at annual rates of up to twice their normal incomes explain the great popularity among professors of foreign aid and all arguments that justify it. He who hasn’t got’ his yet can hope to in the future. Western taxpayers who arc assuaging “guilt” for the poverty of underdeveloped countries are fattening the pocketbooks of others, but the others are not the exploited farmers of West Africa.
It is clear that the state marketing monopolies are supported not by the producers whose incomes they confiscate, but by officials of governments and international organizations and their academic handmaidens. As the boards came to accumulate huge reserves by exploiting the farmers, price stabilization gradually receded as the argument for their existence. Now it is laid that the boards are necessary to raise taxes to finance economic development and to control inflation. In other words, the agricultural producers are going to be imperialized to the end.
The rationale for the marketing boards is clear. They are one more result of the cult of state power which serves the material interests of a new class of planners, academics, state functionaries, and international civil servants—a class which appropriates the wealth of others under the guise of the “public interest.” These salaried do-gooders are the new imperialists.
I hope what I have said will be interpreted as a call to arms and not as a counsel of despair. There are still some intellectually honest men and women. Within the limits of their talents they can do much. Those who cannot be bought can analyze the lack of coincidence between the public interest and the interest of government. They can strip away the various moral guises behind which hides the self-interest of government, and leave the statists unmasked, naked in their greed.
We can learn to apply the logic of skepticism universally and not just toward the private sector. When John Kenneth Galbraith, Ralph Nader, Common Cause, and the Secretary of HEW claim to speak in the public interest, we can be just as suspicious as we would be if the presidents of General Motors and U.S. Steel claimed to speak in the public interest. If we can increase the sophistication of the public just a bit, we can have them jump the gap between amusement over the idea that “What is good for General Motors is good for the country” to amusement over the idea that what is good for HEW is good for the country. One day we may have the modern democrat as sophisticated as the medieval serf who, when told by his noble master that his taxes were going up in the public interest, thanked his Lordship for his concern but told him no thanks, the public be damned.
Paul Craig Roberts is currently chairman of The Institute for Political Economy, and he has had immensely productive career as a scholar, professor, public servant, journalist, and businessman. Dr. Roberts was Assistant Secretary of the Treasury for Economic Policy during the Reagan Administration. His latest book is entitled, How the Economy Was Lost: The War of the Worlds. This essay was originally published in the Fall 1976 issue of Intercollegiate Review, and it is republished here with permission from the Intercollegiate Studies Institute.