Lost Wisdom: Gustav Cassel on Economic Planning

Steven Horwitz

This is from a 1934 Cobden Memorial lecture of Gustav Cassel's entitled "From Protectionism through Planned Economy to Dictatorship":

Planned economy will always tend to develop into Dictatorship...[because] experience has shown that representative bodies are unable to fulfill all the multitudinous functions connected with economic leadership without becoming more and more involved in the struggle between competing interests with the consequence of a moral decay ending in party - if not individual - corruption.  The parliamentary system can be saved only by wise and deliberate restrictions of the functions of parliament.  Economic dictatorship is much more dangerous than people believe.  Once authoritative control has been established, it will not always be possible to limit it to the economic domain.

That is quoted from Hayek's "Freedom and the Economic System" (p. 192 in CW). 

Hayek says of that passage that it has "a clarity which leaves nothing to be desired."  Yup, Fritz, you called that right.  That passage has the knowledge problem, the public choice problem, the "road to serfdom", and the importance of constitutional rules all packed into four sentences.  It even hints at the ratchet effect. 

The sad part is how much of the wisdom of that concise paragraph has been swamped by the nonsense coming from reams of worthless paper produced by the four P's:  professors, pundits, policymakers, and politicians.

Comments

[Doug Thorson]

Excellent Steve! I'm going to link this to my blog. I love it when you can nail something in a few words. More likely people will read it and will think about it.

[Barkley Rosser]

The key here is command central planning. In my comparative systems textbook with Marina Rosser we note that there has never been a society that adopted command central planning on a permanent basis (as opposed to temporarily during wartime) that was a functioning political democracy.

[Pietro M.]

History has proven - so far - that democracy is compatible with massive economic interventionism. It is a dysfunctional form of democracy, an irrational and ignorant voters', an interest groups' and a parasites' democracy, but surely not a dictatorship.

It is a very stable political system in which the majority is exploited to enrich a small number of people, the ruling elite, whose policies create most of the existing social problems, and who always look for the solution to these problems in the expansion of their power and arbitrariness.

The system works because those who are deprived of opportunities (like Europe's millions of unemployed) are integrated in the system as public-deficit-creating public employees and early retired workers. It's social integration through deficit.

As long as faith in unrestricted democracy is maintained, despite its evident shortcomings, and as long as social inclusion through parasitism is a viable policy (the US might need more and more of this hypocrital form of social policies if it keeps on messing with markets), Cassel's prophecy may not be realized.

if these conditions will no longer hold, it will all depend on politics's limited capacity for self-correction. When they want to prevent social instability, the elites may occasionally do something good for liberty. When they fear to lose their power, it's, on the other hand, there is no limit to political myopia, brutality and inefficiency.

The future of democracy depends on politicians' ability to be only limitedly nasty and harmful to the rest of society, in order not to squander all the capital markets usually create.

I just received Vincent Ostrom's book on democracy, I hope it will make more of an optimist. Definetely a hard task.

[Richard Ebeling]

Unfortunately, if you read the entire Cobden lecture by Gustav Cassel much of it as not as eloquent or to the point. He takes a lot of time criticizing the gold standard.

However, there is another piece by Gustav Cassel that he wrote for and was published by the League of Nations in 1927 called, "An Inquiry in the Nature and Causes of the Poverty of Nations," which was pretty much sound, through-and-through.

He points out all the wrong-headed policies and bad effects from the turn away from the "Smithian" policy perspective during and in the years after the First World War.

He and Eli Heckscher were the two most prominent classical liberal-oriented economists in Sweden in the interwar period.

To read about them and their ideas in detail, there is an interesting book called, "The State as Monster." (Obviously, a "value-free" approach!)

Richard Ebeling

[Current]

> The future of democracy depends on politicians' ability
> to be only limitedly nasty and harmful to the rest of
> society, in order not to squander all the capital
> markets usually create.
>
> I just received Vincent Ostrom's book on democracy, I
> hope it will make more of an optimist. Definetely a
> hard task.

I don't know if this is a pessimistic thought, or an optimistic one, but anyway.

It doesn't just depend the things you mention. It depends also on selection. The states with the best institutions are likely to be winners.

The state with the most degenerate politicians will deteriorate. The wealth creating portion of the population will leave for better shores. Those states with better policies will survive.

[David Hillary]

Richard, smybe that is what Steve meant by Lost Wisdom.