As the title of my essay indicates, this is a rebuttal to “Irony Alert: Older Voters Who Reject Democratic Socialism Actually Benefited from It the Most” written by Calvin Wolf. You can find more on Wolf and his work here.
Irony Alert has numerous views which this author disagrees with. I will be addressing three of them here. Consequently, this essay will be divided into three parts: Misidentifications, Inflation and Civil Liberties.
Calvin Wolf’s Dichotomy: Democratic Socialism and Laissez Faire Capitalism
It is important to note the bifurcation that author Calvin Wolf makes. He states that during 1933 – 1973 a time of democratic socialism was prevalent in the USA. According to the author, this was followed by “laissez faire capitalism” or an era of “conservatism” (terms he uses interchangeably). The News Hub prolific blogger advocates the former whilst critiquing the latter.
The Misidentification of Laissez Faire Capitalism by Calvin Wolf
It is imperative that the overarching theme of this essay be scrutinized. The first step in doing this is to analyze the dichotomy presented to us by the author, namely that two contrasting economic approaches existed during the two periods mentioned. It is the goal of this paper to make clear that the columnist’s essay relies on a false narrative to support its case of: democratic socialism being superior to the “free market” or as Wolf prefers the epoch of laissez faire capitalism.
Here I will show how Wolf’s essay is comprised of a string of misclassifications of both presidential administrations as well as economic models. I will begin by exposing a common myth, one very relevant to this discussion Ronald Reagan’s gradualism towards free markets:
If you are an effective foreshadower you have already come to the conclusion that Wolf buys into this misconception. Writes Wolf:
“I turn 31 next week, and thus was born during the Reagan years of tax cuts (but increased military spending) that let the rich get richer at the expense of increasing the national debt.”
This misleads readers; it makes it seem as if Reagan cut overall taxes while in office. Wolf is correct, nominally Reagan did sign into law a much heralded tax cut in 1981. However, there is a crucial aspect of his economic approach as president that Wolf leaves out – when he raised taxes. Just one year after, closer to the date when Wolf was conceived Ronald “The Gipper” Reagan implemented the largest tax increase in the history of the country: The Tax Equity and Fiscal Responsibility Act. In 1983, this “laissez faire capitalist” increased taxes in order to “save” Social Security. Then, just three years later The Gipper implemented the highest tax increase ever upon corporations.
Wolf Equates Restrictions with Free Markets.
Wolf continues the misportrayal of laissez faire capitalism. As shown with this excerpt from his essay:
“…then the 1973 OPEC oil embargo hit and conservatism made a comeback.”
The problem with the News Hub contributor here is, he is implying that an embargo is concomitant of laissez faire capitalism. However, there is nothing in the term that puts a restriction on trade – In fact, the opposite is true. Laissez faire capitalism is: a doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights. Clearly this act like the ones I show regarding president Hebert Hoover are not compatible with laissez faire capitalism!
Another Mistake That Wolf Commits Is Classifying President Hebert Hoover as a Laissez Faire Capitalist:
Writes Wolf:
“…Republican president Herbert Hoover was still in office (he) clung to laissez-faire capitalism despite the deepening Great Depression.”
This is incorrect. Hebert Hoover was actively intervener of economic affairs! What did Hoover do? Among other things, Hoover:
• (1930) Signed into law, the Smoot Haley Tariff. This tariff affected over 20,000 imported goods to heights never seen before.
• (1932) Signed into law the Revenue Act of 1932 which doubled taxes including an increase from 25% to 63% for those in the highest bracket.
As Franklin D. Roosevelt correctly put it “(Hoover is presiding over) the greatest spending administration in peace time history.”
Wars Paid with Hidden Taxes (Inflation of the Money Supply/Devaluing of the currency)
An Irony arises in the next phase of Wolf’s essay. Wolf focuses heavily on the increase of prices; devaluing of the currency.
Writes Wolf:
“The average American worker has less purchasing power today, in 2016, than in 1970.”
It just so happens that it was during 1971, during the “laissez faire capitalist” era that the Federal Reserve took the dollar off of any backing of gold. This permitted the Federal Reserve to openly print money (which they did) at whim causing prices to rise (or preventing them from falling) in essence devaluing the dollar. However, there is more irony than just the “democratic socialist” era being guilty of allowing the dollar to devalue at such a rapid pace. To see this, take a look at our author’s next statement:
“During World War II and the 1950s, the vast increase in federal spending and expansion of the military was also socialist…The period from 1933 to the late 1960s saw a tremendous boom in democratic socialism…Government agencies rapidly expanded, including the military.”
Here, the New Hubs author boasts about this accomplishment curtesy of his favored democratic socialist approach. The irony, of course is that Wolf is against the devaluation of the currency as shown in the previous quote. Yet, these socialist programs both domestic and foreign were paid for by expanding the money supply – which, ceteris paribus as stated earlier devalues the currency (dollar). The domestic programs of which Wolf is referring to are The New Deal enacted by the Franklin Roosevelt administration and The Great Society 1964 – 1965. The “foreign” militaristic projects which grew during that time are, but not limited to the USA’s involvement in WWII, The Vietnam War (1955 – 1975) and the lesser known 1953 Iranian coup d’état. However, the taking off the quasi gold standard was not solely done to pay for the invasions and welfare programs to come. These programs were paid for already, by inflating the money supply. There are only three ways in which the government can pay for programs: explicit taxes (which vary in type), borrowing or via the hidden tax which is increasing the money supply using the central bank (The Federal Reserve has been the central bank of the US since 1913). If neither explicit taxes nor borrowing increased (and there was no budget surplus), then added programs were necessarily paid for by inflating the money supply. However, we need not go so far into this “democratic socialist era” to see acts that decreased the purchasing power of the dollar.
The Affects Early Democratic Socialism Had on the Dollar
In 1933, Roosevelt signed into law The Emergency Banking Act. This law gave the president the power to confiscate gold as well as gold certificates – which he did. In 1934 after confiscating all the gold and gold certificates he could, FDR pegged the troy ounce at $35, a rise from what is was previously pegged at ($20.67). But how and why did it go from $20.67 to $35? 1) The dollar to ratio pegged by FDR was done so because The New Deal’s new programs (which were created from 1933 – 1938) were going to be partially paid for by printing out new money and 2) in the case where enough people would demand a return for their gold at $20.67 a shortage of gold at that ratio would occur.
More Democratic Socialism: Policies to Expand the Wealth Gap
The often seen as benevolent system of democratic socialism that Wolf refers to actually granted special privileges to large banks and big business alike. These special privileges came at the expense of depositors and small businesses. Below we see a head to head of the two approaches.
Wealth Gap: the Democratic Socialist Approach vs. the Laissez Faire Capitalism
Instead of allowing the free market to weed out insolvent banks with bank runs, the president rid the bankers from the responsibility of honoring their customers’ demand deposits. The banks were caught lending the deposits irresponsibly yet due to government intervention they received impunity.
Democratic Socialism Begins to Crush Small Businesses
Democratic socialism wasted no time in eliminating big businesses’ competitors. In 1933 The National Recovery Administration (NRA) was signed into law, although it lasted only two years it still jailed people and ran small businesses to the ground. The NRA gave an ultimatum to businesses: abide by the State’s arbitrarily price controls face jail time, get fined or both. Some of these government fixed prices forced some mom and pop shops to charge higher for their services which was one of the only advantages they had against the powerful companies – many times it was that advantage that kept them afloat. Once those small businesses closed down due to having their advantage wiped out by democratic socialism, the larger companies inherited those customers – effectively increasing the wealth gap. The free market of course would have kept those small businesses up for as long as they could under market conditions.
We have delved into the economics of democratic socialism as well as laissez fairism. However, we have not touched on the civil liberty aspects at least not by the colloquial sense of this term.
Civil Liberties
“The Civil Rights Act of 1964 was also democratic socialism, for it interfered with previously-held private property rights… Government agencies rapidly expanded, including the military.”
Here, Wolf’s blog fails to mention that Japanese Americans were placed in internment camps. This too “interfered with previously-held private property rights.” The difference is that the market has the ability to punish those who practice discrimination such as racism as well as reward those that refuse to practice it. Wolf’s article leads one to believe that democratic socialism and or undermining private property rights necessarily helps decrease if not entirely erase discriminatory acts against “minorities.” Using his example of democratic socialism, we see that assumption is incorrect.
1 Democratic socialism is put in quotations because there was plenty of free market activity during this time. Both
time periods that Wolf picks in his article I consider to be mixed economies; not solely a democratic socialist one.
In fact, I strongly believe that during the first era there was more laissez faire capitalism than the second.
2 The metrics used here are purchasing power of the currency, civil liberties as well as others from Wolf’s blog.
3 Merriam-Webster.
4 Refers to when the USA declared war.
5 “Rare coins” were not allowed to be confiscated.
6 Immediately after the $35 to 1 troy ounce peg US citizens could not trade in dollars for gold.
7 Not to mention if you resisted arrest you could be physically harmed or even killed, legally.
8 Apart from the gold confiscation and implemented price controls on businesses.
Luis R. Rivera III has a bachelor’s degree in economics from Loyola University, New Orleans and worked as a research assistant for Walter Block. He can be reached at LuisRivera3@hotmail.
This article “A Response to Calvin Wolf’s Irony Alert: Older Voters Who Reject Democratic Socialism Actually Benefited from It the Most” is free and open source. You have permission to republish this article under a Creative Commons license with attribution to Luis R. Rivera III and emancipatedhuman.com.
