United Liberty

So contends Lev Nazrozov. He writes:

Out-of-control predatory capitalists have perpetrated a worldwide economic depression. Capitalism’s degenerate character is now extraordinarily visible during this time of multiple crises.

On each side of the page there is a picture of a miserable emaciated proletarian who carries on his back a huge pack of money, with a bourgeois seated atop of the pack and smoking a cigar.

By simply allowing the government to dominate every sector of the polity, by embracing totalitarianism, we might be able to avoid the woes of economic recession? Historical study makes such a conclusion seem ridiculous. While totalitarian economies did not suffer from “depressions”, per se, one could argue that consumers and citizens lived under a system which continuously mimicked the effects of depression.

The Soviet Union did not collapse because Reagan ended the Cold War or because the US was not “soft on communism”— the Soviet Union collapsed because the totalitarian economy imploded. As all totalitarian, centrally-commanded economies are wont to do. This is why we don’t need to destroy our own economy or constitution by making regime-change a standard part of US foreign policy. Eventually, command economies will fail, people will revolt, and freer markets will return.

In The Road From Serfdom, Robert Skidelsky attempts to understand the collapse of totalitarian economies and the (former) demise of economic planning. Noting that the Soviet Empire was “based on coercion”, Skidlesky concludes that “it broke up when it lost the will and the means to coerce its subjects”. Since the Soviet economy’s entire purpose was the fulfillment of the central plan, not to satisfy market demand, central planning drove the system.

The proximate cause of the collapse of the Soviet empire was state bankruptcy. This is the common cause of the breakdown of all rule from the Roman Empire to our own day. The economy declines, while the state’s need for revenue expands… As in Roman times, the Soviet economy was based on “extensive” production, and started to decay when it ran out of free, or cheap, resources of land and labor. Like the Roman state, the Soviet state lost to its territorial magnates its ability to appropriate a declining surplus. In both cases the decline in state revenue was matched by growing pressure on the state’s social and military budget: the growing cost of “bread and circuses” and of countering the barbarian pressure on the frontiers in Roman times had its counterparts in growing subsidies to loss-making industries and the cost of countering Reagan’s arms build-up in the 1980’s.

Nazrozov seems to forget the reality of life under command economies, including constant surpluses and shortages, shoddy consumer goods, environmental destruction, forced labor camps, cooked growth rates, ideological arrests, incessant state supervision, lack of incentives for technological innovation, passive prices, forced industrialization, massive relocation, seizure of property, the caste system of the nomenklatura and nomenbratura, and so on. Skidelsky sharply notes that “the Soviet command economy was in fact what Marx imagined capitalism to be— an institutionalized system for centralizing wealth and power”. Is this preferable to economic depression? Such a question does not even need to be entertained, since capitalism does not HAVE to involve economic depressions.

Nazrozov is at his most ignorant when he writes:

Between 1814 and today no adequate study has been made of the “economic depression.” Let us hope that such a study will be made early in the 21st century, and perhaps a method will be found to prevent it once and for all.

Actually, there have been many studies and theories on the reasons for economic depression in pre-industrial and industrial economies. The most compelling come from the Austrian school of economics, which links expansionary money supply with consequent Depressions. Nazrozov should have no trouble finding online versions of The Causes of the Economic Crisis by Ludwig von Mises, Prices and Production by Friedrich Hayek, or The Case Against the Fed by Murray Rothbard. These Austrian economists alternate between global and national views in their analysis of economic depressions.

In the aptly-titled “Inflation Must End in A Slump”, written in 1951, Ludwig von Mises was prescient:

This country, and with it most of the Western world, is presently going through a period of inflation and credit expansion. As the quantity of money in circulation and deposits subject to check increases, there prevails a general tendency for the prices of commodities and services to rise. Business is booming.

Yet such a boom, artificially engineered by monetary and credit expansion, cannot last forever. It must come to an end sooner or later. For paper money and bank deposits are not a proper substitute for nonexisting capital goods.

Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis. It has happened again and again in the past, and it will happen in the future, too.

For more on depressions, slumps, Austrian economics, and totalitarian economics:

• “Did Mises and Hayek Predict the Great Depression?” by Victor Aguilar.
• “Anatomy of the Bank Run” by Murray Rothbard.
• Robert Higgs on the “crisis”.
• “Why Socialism Must Always Fail” by Emmanuel Forgolou.
• “Economic Recovery Requires Capital Accumulation, Not Government Stimulus Packages” by George Reisman.
• Interview with Hayek in 1977 foreseeing the fall of communism.