CHAPTER 10

UNMASKING SOCIALISM

CHURCHILL ANTICIPATES ITS FAILURE

 

 

 

Churchill formed and deepened his social and economic views at a time when socialism of every variety was on the rise and said to be the “wave of the future.” In the first decades of the twentieth century, Churchill came in close contact with at least three varieties of socialism: the “Fabian” socialism of Sidney and Beatrice Webb, Bernard Shaw, and others; the revolutionary socialism of the more extreme trade unions that was indistinguishable from Marxist Communism; and still another hybrid strain that stopped short of full state ownership but emphasized centralized economic planning. This third strain formed the basis for the nationalistic fascisms of the interwar period. Churchill rejected them all. His most famous formulation on the subject was his comment from 1945: “The inherent vice of Capitalism is the unequal sharing of blessings. The inherent virtue of Socialism is the equal sharing of miseries.”

Churchill was hardly the earliest to denounce socialism. Yet he was the first statesman with reformist credentials to articulate why state socialism was a recipe for economic disaster. In those prewar years, Churchill, strangely, was denounced as a “socialist” by many members of the House of Lords—colleagues of his cousin, the duke of Marlborough. But Churchill always saw through socialism’s pernicious promise. He perceived not only that collectivism would destroy private enterprise but that the totalitarian power its practitioners sought would strangle economic growth and could only end in failure.

It is still today a popular mistake in political discourse to blur the lines between liberalism (of the classical and reformist kind that Churchill embraced) and socialism. Churchill understood the difference, as marked in one of his memorable speeches at Kinnaird Hall to his constituency in Dundee in May 1908:

Liberalism is not Socialism, and will never be. There is a great gulf fixed. It is not only a gulf of method, it is a gulf of principle... Socialism wants to pull down wealth. Liberalism seeks to raise up poverty. Socialism would destroy private interests. Liberalism would preserve them in the only way they can be preserved, by reconciling them with public right. Socialism seeks to kill enterprise. Liberalism seeks to rescue enterprise from the trammels of privilege and preference. Socialism assails the preeminence of the individual. Liberalism seeks to build up the minimum standard of the masses. Socialism attacks capital. Liberalism attacks monopoly.

Churchill went on to say, “the Socialists have a creed of self-sacrifice but preach it in the language of spite, envy, hatred, and uncharitableness.” Churchill then mused on the “barrenness of a philosophy whose creed was absolute collectivism” and the “equality of reward irrespective of services rendered.” Churchill regarded the slogan, “from each according to his ability, to each according to his need” as tantamount to “you shall work according to your fancy, you shall be paid according to your appetite.”

In the 1920s there emerged among a handful of renegade economists such as Ludwig von Mises and F. A. Hayek (who later won the Nobel Prize in economics) an awareness of the inherent defects of socialist economic planning. The nub of their critique was that a “command” economy without freely set market prices would founder quickly by misallocating resources. Decades later, even Communist countries would come to see the truth of this insight. What is uncanny is how fully Churchill anticipated these arguments two decades before academic economists first made them. In a March 1908 speech, Churchill anticipated in broad strokes what Hayek would explain more fully in his classic 1945 essay “The Use of Knowledge in Society.” As Churchill put it:

I reject as impracticable the insane Socialist idea that we could have a system whereby the whole national production of the country, with all its infinite ramifications, should be organized and directed by a permanent official, however able, from some central office. The idea is not only impossible, but unthinkable. If it was even attempted it would produce a most terrible shrinkage and destruction of productive energy.

At one point Churchill wanted to write a book about socialism to be called The Creed of Failure. He outlined the first five chapters, and even though he was one of the bestselling authors of his age, so strong was the enthusiasm for socialism that he could not find a publisher and had to abandon the idea.

Churchill was more directly involved in economic policy in the 1920s, when he served as chancellor of the exchequer. During these years he came to oppose economic planning and interventionist schemes that, while falling short of complete socialism, partook of some of the same planning fallacies inherent to socialism.

In 1929, at the outset of the Great Depression, Churchill opposed a proposal for a government-funded jobs program. John Maynard Keynes had just co-authored a book, We Can Conquer Unemployment , advocating deficit spending to stimulate the economy—a prelude to his General Theory of Employment, Interest, and Money, which became the cornerstone of “Keynesianism.”

Churchill’s argument against the jobs scheme foreshadowed all of the criticisms that would be directed against Keynesian-style spending programs, down to the “stimulus” program of President Obama. In a speech to the House, Churchill noted that the government already borrowed money for necessary public works projects, but that “for the purposes of curing unemployment the results have certainly been meager. They are, in fact, so meager as to lend considerable color to the orthodox Treasury doctrine which has steadfastly held that, whatever might be the political or social advantages, very little additional employment and no permanent additional employment can in fact and as a general rule be created by State borrowing and State expenditure.”

As Churchill approached the 1945 general election, held shortly after the war in Europe had been won, the Conservative Party embraced Hayek’s recent bestselling book, The Road to Serfdom. (The Conservative Party wanted to distribute a condensed version of Hayek’s book as a campaign piece, but could not get the paper—still under wartime rationing—to print the tract.) The book inspired Churchill to give one of his most infamous denunciations of socialism. “No Socialist system can be established without a political police. Many of those who are advocating Socialism or voting Socialist today will be horrified at this idea. That is because they are short-sighted, that is because they do not see where their theories are leading them.” Churchill should have stopped right there. But he went on to suggest the extreme consequences of socialist policy: there would be “some form of Gestapo” which would “gather all the power to the supreme party and the party leaders, rising like stately pinnacles above their vast bureaucracies of Civil servants, no longer servants and no longer civil.” Churchill’s use of the term “Gestapo” in connection with his former coalition partners from the Labour Party went down very poorly with British voters. Churchill’s wife and several close colleagues had urged him to remove the Gestapo reference, but he refused. His extreme language is thought to have contributed to the landslide loss his party suffered in the July 1945 election.

Hayek wrote to the historian Paul Addison, “I am afraid there can be little doubt that Winston Churchill’s somewhat unfortunately phrased Gestapo speech was written under the influence of The Road to Serfdom.” Meeting Hayek briefly a few years later, Churchill indicated his familiarity with the book but told Hayek “it would never happen in England”—a view Hayek himself embraced in his later books.

Churchill did not back away from his embrace of Hayek’s critique of socialist-style policies. While the leader of the opposition in 1947, Churchill opposed the socialist policies of the Attlee government that were leading to the progressive nationalization of basic industries in the following terms:

When losses are made, under the present system those losses are borne by the individuals who sustained them and took the risk and judged things wrongly, whereas under State management all losses are quartered upon the taxpayers and the community as a whole. The elimination of the profit motive and of self-interest as a practical guide in the myriad transactions of daily life will restrict, paralyse and destroy British ingenuity, thrift, contrivance and good housekeeping at every stage in our life and production, and will reduce all our industries from a profit-making to a loss-making process.

Richard Langworth, editor of Churchill by Himself: The Definitive Collection of Quotations, said, “Churchill had been reading, and was deeply impressed by, the Austrian economist Friedrich Hayek’s seminal book, The Road to Serfdom. This statement could have been made by Hayek himself.”

In the 1970s and 1980s, Hayek’s critique of socialism became widely accepted on both sides of the Iron Curtain, and Hayek was a favorite author of both Margaret Thatcher and Ronald Reagan. As in so many other cases, Churchill got there far ahead of everyone else.