Authoritarianism Is Not Compatible with Economic Progress: Freedom Is Indivisible

By Patrick Barron

Is it possible, or even desirable, for economic freedom and progress to be compatible with authoritarianism? Although some may believe so, this is a fallacy. Freedom is indivisible. Political and economic freedom cannot be separated.

This is the position of Ludwig von Mises himself. In Planning for Freedom, he says, “Tyranny is the political corollary of socialism, as representative government is the political corollary of the market economy.” Regarding a citizen’s reaction to such tyranny, he writes in Planned Chaos that “If one master plan is to be substituted for the plans of each citizen, endless fighting must emerge. Those who disagree with the dictator’s plan have no other means to carry on than to defeat the despot by force of arms.” Mises contrasts the tyranny of socialism with capitalism in Bureaucracy when he writes,

Capitalism means free enterprise, sovereignty of the consumers in economic matters, and sovereignty of the voters in political matters. Socialism means full government control of every sphere of the individual’s life and the unrestricted supremacy of the government in its capacity as central board of production management. There is no compromise possible between these two systems.

Some may challenge Mises’s assertion. After all, referral to authority, even to one as great as Mises, does not prove that he is right. Some may say that economic progress surely depends upon the safety of one’s person and one’s property. “Is it not clear,” they say, “that authoritarian regimes provide better internal security, however harsh punishments may be, than their more permissive democratic neighbors?” Some authoritarian countries, such as China and some Arab countries, validate that premise. As long as one obeys the rules, business can prosper. Or so it is claimed. Instead of simply throwing Mises’s claims against the claims of others, let us look at some other issues with authoritarianism.

One of the main problems with authoritarian rule is deciding who gets to choose the dictator. Western society has passed beyond the “divine right” of kings; although noble succession still prevails in some Middle Eastern countries. Most authoritarians base their right to rule on the violent overthrow of the preexisting regime. China, Cuba, Iran, and North Korea come to mind. But this hardly provides a solid intellectual foundation for either current or future rule. Mises claims that democracy is the best form of government because it allows peaceful transitions between administrations. The people decide who rules via periodic elections. When society seems to be going in the wrong direction, a peaceful change of leadership is preferable to attempting a coup.

Dynamism is the essence of a progressing economy. It involves adopting new ways of meeting the demands of consumers and discarding the old ways. Joseph Schumpeter called this process “creative destruction.” This is anathema to authoritarian societies. Authoritarian societies are supported by incompetent sycophants who were placed in favorable positions by the dictator himself. However, where there is no creative destruction there is no progress. My trip to the Soviet Union in the early 1970s, while an officer in the Air Force, confirmed what I already knew. The Soviet Union was crumbling from within. There were few consumer goods, and goods available to the ordinary Soviet citizen were shoddy beyond my worst expectation. In Yuri Maltsev’s excellent introduction to Requiem for Marx, he points out that one of the reasons that the Iron Curtain fell was that the people simply gave up trying to live in an increasingly insane society.

Hayek reminds us that the authoritarian has no better insight than anyone else into how to order an economy; neither is it possible for any group of planners armed with the most powerful tools. The billions of decisions required are unknown and unknowable. Few know more than what their industry specialization allows them, and the need for continuous adaptation to market forces is beyond any particular person’s perception. We must all be willing to throw out the old and adopt the new in order to keep pace with changing markets. The law is “change or die.” Death may be slow or sudden, but there is no substitute for change.

The Importance of Understanding That Freedom Is Indivisible

Five years of fiat money expansion has so disrupted economies worldwide that a serious recession is on the horizon. Prices are rising. World trade is under attack. The world is on the brink of nuclear war. Sovereign debt has reached absurd levels. All these insults toward ordinary people are brought to us by out-of-control governments who have no understanding of real economics and, of course, no real understanding of wealth creation.

An example of this is how lavish unemployment benefits have discouraged workers from seeking employment. Do not blame them. It is rational self-interest for millions of people to take handouts when they can. Please instead blame politicians for making it all possible with fiat money expansion. Unfortunately, when the bitter fruits of these failed policies can no longer be ignored, too many will call upon government to take a strong hand and “do something.” The problem is that the government caused the problem in the first place and, therefore, has no viable solution. But that will not stop them. They must appear to be doing something.

The only answer is total freedom in both the economic and political spheres. The economy must go through wrenching adjustments to redirect capital to its best use as determined by consumers and not as determined by the government. Reality must prevail. This fiat money expansion has destroyed much capital by directing it to less productive uses than the public would determine in an environment of total freedom.

We must resist the temptation to believe that a strong man can save us. We can only save ourselves. The modern West is characterized by laziness, frivolous spending, and living beyond one’s means. We must do the opposite. Working hard, living frugally, and saving money are solutions all people can adopt to protect themselves from the encroachments of authoritarianism.

Source: Mises Institute

Patrick Barron is a private consultant to the banking industry. He has taught an introductory course in Austrian economics for several years at the University of Iowa. He has also taught at the Graduate School of Banking at the University of Wisconsin for over twenty-five years, and has delivered many presentations at the European Parliament.