Wednesday, September 16, 2015

Twilight world (1985)

Book Review from the December 1985 issue of the Socialist Standard

The Tyranny of the Status Quo. Milton and Rose Friedman. Pelican Books, 1985, 2.95.

In all developed capitalist countries the same basic pattern has been followed. A take off in government spending, mostly accounted for by reformist welfare schemes, with a relative shift towards central government, away from local levels. In Britain and other European countries this trend started earlier. This leads us to the topic of inflation. The Friedmans are in no doubt that the main cause of inflation over the centuries of money economies has been deliberate acts by governments. This assertion is conclusively backed up by the statistics the authors offer. Noting that inflation in America took off not long after government spending, they show how the large and unpopular tax increases (unpopular to many workers as capitalists in general, although this feeling is based on a misunderstanding of how wages are determined) necessary to finance these programmes can be partially staved off by "deficit financing". Often a government will resort to borrowing as an alternative but problems generally arise about the repaying of loans with interest which increases the temptation to resort to the printing press.

As total supporters of capitalism the Friedmans understandably omit to mention an important advantage of inflation from a ruling class viewpoint. Between one wage settlement and another the workers' purchasing power is steadily eroded, leaving it to them to take the initiative in an attempt to rectify the situation. The mere fact that if deflation rather than inflation were to obtain all this would be reversed is a powerful disincentive restraining most capitalists from pressing for more than reduction in the inflation rate.

In dealing with proposals to bail out "lame ducks" (another allegedly progressive cause), the authors examine the case of the Chrysler Corporation, an example viewed with favour by many leftists. They point out that no change in the car market resulted from this action by the state. Instead of going out of business Chrysler continued to sell cars so there must have been a reduction in sales so there must have been a reduction in sales by their competitors. The jobs "saved" at Chrysler were lost elsewhere. Those who lost were diffused and largely unaware of the connection but wherever they live there was no net gain of jobs. That the Friedmans can see this so clearly puts into a pretty poor light those lefties who are endlessly calling for "job creation".

The authors raise an objection to capitalism being described as the "profit system". They say it is a profit and loss system, and identify the loss component as the more important as it is this, or the fear of it, which they believe enhances the efficiency of the system. Whatever merit there is in this observation, it puts the Friedman's out on a limb even among the open defenders of the present system. Capitalism would still be ugly and inefficient from any sane standpoint even if regular profits could be guaranteed. However, it is the loss factor and the reaction it forces on individual firms that activates the most objectionable features. It is fair to say that most reforms, whether initiated by capitalists themselves or forced from them under pressure, have been designed to mitigate these loss-induced features. From this as we have already seen arises a significant part of the big government and its big spending against which the Friedmans have been railing for so long. The efforts of "entrenched trade unions" (sic) to protect themselves by establishing minimum wages and some form of job security also earn a blast from the authors. Generally speaking the unions have no alternative, although care is required to see that action does not "save" one man's job by taking another's away.

Even with our somewhat charitable interpretation this exhausts the digestible parts of the book. Big government is the enemy and the answer is to reduce it, the authors say ad nauseum here and elsewhere. Exactly how far they wish to go along that road is not made clear, but at least they don't pretend to be advocating "socialism" or even to be benefitting all workers. Clearly they regard socialism (as we use the term( as pure fantasy, while liberally applying the word to other forms of capitalism. Some absurdly simplistic "solutions" are put forward. Crime, for instance, could be cut by from a third to a half by simply legalising the trade of narcotic drugs. Incidentally we are told that crime cannot be related to social conditions because if it were the rate in Bombay and Calcutta would be much higher than in American cities instead of the reverse being the case. The Friedmans' notion of who pays taxes is almost the complete inverse of reality. They deny that the capitalists pay any taxes, because they think they can pass the cost on to the customer, and see the whole tax burden as falling on individuals, mainly workers.

The Friedmans' arguments, given in more detail in their earlier works, are only a contribution to the continuous debate on how best capitalist can be run, a subject in which we have no interest. Unlike many others of their ilk, they have stuck to their views with some consistency which is why they occasionally make telling points which escape or are ignored by their rivals. If for instance a government increases tariffs on certain imported goods, it may well be, as the Friedmans imply, that in the long term more harm than good may come to the local capitalists as a whole. But those immediately threatened may well have gone out of business before the longer term effects are noticed and they will therefore press for all they are worth for a protectionist policy. When any harmful side effects manifest themselves other short-term crises will have arisen to divert attention from the cause. Not that sectional interests are not sacrificed, indeed even this oversimplified example shows that not all capitalists can be accommodated at once. It is this continuous cut and thrust from which the authors stand apart, seeing attempts by governments to follow a consensus line as weakness and lack of principle. The Friedmans point out that the Reagan and Thatcher governments were elected promising apparently sweeping changes of which they (for once) approved. However after a honeymoon period these administrators lost momentum. They are correct in thinking that this is a common occurrence, and the basic cause is as illustrated by the tariffs' example but multiplied to cover all capitalist interest who feel threatened. Usually the government is forced to pay attention to this clamour and modify many of its policies, although there have been some exceptional cases. What cheek it is to describe this process as a tyranny! Being forced to sell our labour power to an employer as the only way to make any kind of living, now that is a tyranny.
E. C. Edge 

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