Against Statolatry

Perhaps the greatest peculiarity of our age is that The State is viewed as a fount of economic benefits. Whether it be the “dole” in the West or the NREGA here at home, the overall perception remains that The State must direct economic benefits to targeted groups.

Things have never been so in the past. Throughout history, The State has been a “cost” on the citizenry, never a “benefit.” The cost was the Tax. If the citizen wanted benefits, the only recourse was to The Market.

Yet, it was under these conditions, when The State was a cost and not a benefit, that the West achieved that great economic transformation by which the standard of living of its labouring masses rose to astonishing heights. The reasons behind this spectacular achievement are not hard to find: people saved and invested, the amount of capital per capita grew by leaps and bounds, output per unit of input grew, labour productivity and wages rose, and increasing quantities of goods were produced for the consumption of the very same labouring masses. Workers gained as consumers.

This progress would have continued indefinitely and spread to other parts of the world had it not been for two evil ideologies.

The first was Socialism, which completely overlooked the interests of workers as consumers. The socialists advocated the taking over of factories by workers. Whereas capitalists were serving consumers, socialism served producers, ignoring their interests as consumers. The sovereignty of the consumer was sacrificed at the altar of the producer. Trade unionism followed. Workers coerced higher wages for themselves. Labour governments raised taxes on capitalists. Saving and investment fell. Capital accumulation plummeted.

The second evil ideology that then took over was Keynesianism. This destroyed the soundness of money. The State was transformed into an institution that could create money and credit out of nothing. So The State was no longer limited in its spending by tax collections. The State became a limitless deficit spender. Millions found themselves receiving generous doles from The State. No costs; only benefits.

Yet, as Hayek wrote, the Keynesians were holding a “tiger by the tail.” Their only lasting legacy is inflation, a hidden tax, a hidden cost. Thus, there were no “real benefits” from loose government spending. What was really happening was capital consumption. Capital invested per capita was going down. Workers were losing. There was “de-civilization.”

The lesson: there are no short-cuts to prosperity. People must save and invest, entrepreneurs must serve consumers, and workers must work. The State must be cut down drastically: its only role must be that of acting against enemies of the market order. Money must be sound – and supplied by The Market.

If things continue the way they are, de-civilization will surely result. When the Roman Empire collapsed it took the West over 1000 years to recover. The cause of this collapse was currency debasement and consequent price controls which destroyed the incentive to produce for exchange. Economic autarky resulted. This is the exact future that lies ahead of the modern world if Socialism and Keynesianism continue.

Behind both is the idea that The State is God, an ideology of “statolatry.” The State can do anything. The State can look after everyone.

This was never the classical liberal view. Their idea of The State was as an ancillary to The Market. To this idea we must return.