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Why We Don’t Compromise, Part 4


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The crown jewel of the U.S. welfare state is Social Security. This federal program was adopted during the 1930s as part of Franklin Roosevelt’s New Deal, which consisted of an array of government programs that revolutionized America’s economic system. While he assured the American people that his programs were nothing more than a way to “save America’s free-enterprise system” during the Great Depression, in reality they were a combination of socialist programs, which were based on taking money from one person and giving it to another person, and fascist programs, which entailed leaving money in private hands but subjecting it to government control or manipulation.

The real nature of Roosevelt’s New Deal has been detailed in a book entitled Three New Deals: Reflections on Roosevelt’s America, Mussolini’s Italy, and Hitler’s Germany, 1933–1939, by Wolfgang Schivelbusch. Schivelbusch shows the remarkable parallels that Roosevelt’s economic programs had with those that were being established by Adolf Hitler in Germany and Benito Mussolini in Italy. I’ll bet quite a few Americans would be surprised to learn that Hitler sent a message to Roosevelt in 1934, by means of a communication from the German consul general in New York to the U.S. ambassador to Germany, commending Roosevelt on his new economic plan for America:

[Hitler] congratulates the president [stated the counsel general] upon his heroic effort in the interest of the American people. The president’s successful struggle against economic distress is being followed by the entire German people with interest and admiration. The Reich chancellor is in accord with the president that the virtues of sense of duty, readiness for sacrifice, and discipline must be the supreme rule of the whole nation. This moral demand, which the president is addressing to every single citizen, is only the quintessence of [the] German philosophy of the state, expressed in the motto “The public weal before the private gain.”

Roosevelt seized on the crisis of the Great Depression to adopt Social Security, a program that would become a permanent part of the U.S. governmental system. The idea for the program originated not within America’s Founding Fathers but instead among socialists in Germany. That’s why Social Security was a core program in Germany under Hitler. It’s also why the U.S. Social Security Administration displays a bust of Otto von Bismarck, the so-called Iron Chancellor of Germany, on its website, rather than one of George Washington or James Madison.


Another centerpiece of Roosevelt’s economic program was the National Industrial Recovery Act or NIRA. Few Americans know about the NIRA today but nearly every American knew about this federal program during the 1930s. That’s because the NIRA revolutionized America’s economic system by forcing or manipulating businesses and industries to enter into monopolies and cartels that had the power to set wages and prices.

The NIRA was straight out of Benito Mussolini’s economic playbook. Like Mussolini’s fascist economic programs, the NIRA left the means of production in private hands but subjected them to government controls and manipulation.

The NIRA was enacted in 1933 amidst tremendous excitement and hoopla. Not surprisingly, it was run by a retired army general, Hugh Johnson, who adopted a symbol called the Blue Eagle to promote the program. The patriotism of any firm or business that refused to prominently display the Blue Eagle was questioned.

The entire NIRA scheme would have fit in perfectly in fascist Italy.

After two years of operation nearly everyone recognized what a chaotic fiasco the NIRA was. But since it had become such a central part of America’s economic system and since a large segment of Americans had become dependent on it, people assumed that the NIRA would have to be phased out gradually. There was no “button” to push to get rid of it and even if there was, people would have been too scared to push it.

Then one day in 1935, the Supreme Court declared the NIRA to be unconstitutional — i.e., alien to the governmental structure established by the Framers with the Constitution. On that day — May 27, 1935, the Supreme Court effectively “pushed the button” that instantaneously put the program out of existence. The result was not the chaos that many had fearfully predicted but instead an immediate surge in economic activity.

Unfortunately, the Court failed to do the same thing to Roosevelt’s Social Security program, notwithstanding the fact that the Constitution had failed to grant the federal government the power to institute socialist economic programs.

The libertarian position

What is the libertarian position on Social Security? Repeal it, immediately, just like food stamps, farm subsidies, education grants, foreign aid, and every other welfare-state program. Social Security is nothing more than a socialist program, one that takes money from the people who are working and gives it to seniors. Contrary to popular opinion, there is no “fund” and no one is just getting back the money he supposedly put into the system. As Congress made very clear when it established Social Security, and as the Supreme Court has held, Social Security is nothing more than a welfare program, one that can be repealed whenever Congress chooses to.

Recall our 1890 America minimum baseline position on freedom that I posed in part 2 of this series: People have the right to keep everything they earn and to decide for themselves what to do with it. Moreover, genuine freedom means that charity is entirely voluntary, with government playing no role whatsoever in charitable activity.

However, several years ago some libertarians joined with free-market conservatives to advance an alternative to Social Security. Termed “choice,” “privatization,” or “free-market oriented,” this Social Security plan would leave everyone free to keep his own money, but people would nonetheless be forced by the government to place a portion of their income into government-approved retirement accounts that invest in the stock market, the bond market, or some other investment vehicle.

It goes without saying that forcing someone to save his money, on pain of fine and imprisonment, constitutes a severe violation of libertarian principles as well as our 1890 America minimum baseline for economic liberty. Remember: Under principles of economic freedom, people have the right to keep everything they earn and to decide for themselves what to do with their own money. Forcing someone to save some of his money or even manipulating him into doing so is not what genuine freedom is all about.

Let’s assume that we libertarians were living in 1890 America, an era in which Americans lived without income taxation, Social Security, or other welfare-state programs. Someone approaches us and says, “Hey, I’ve got an idea. Let’s enact a law that forces everyone to save a part of his money and place it in government-approved retirement accounts.”

What libertarian would endorse such a scheme, knowing that it would constitute an abandonment of a system in which he is free to keep everything he earns and to decide for himself what to do with it?

Would a scheme based on Social Security “privatization” be better than the Social Security system we have today? Maybe. And maybe not. Some people say that it would be better because it leaves people free to keep their own money and invest it in the stock market. Others say it wouldn’t be better because the stock market could crash, wiping out everyone’s retirement funds.

The debate revolves around which system is better — a socialist system — one in which government takes money from some and gives it to others — or a fascist system — one that leaves money in private hands but is controlled, directed, or manipulated by those in political power.

Why should libertarians involve themselves in that debate? Why should they endorse either scheme? Aren’t libertarians about freedom rather than choosing between socialism and fascism?

Some libertarian proponents of Social Security “privatization” say that their scheme is actually a “gradualist” way to achieve economic liberty. But as in the case of school vouchers, gradualism, as it turns out, isn’t gradualism at all. Instead, the “privatization” scheme actually works to entrench the state more deeply into the economic lives of the citizenry, especially by making a large number of Americans dependent on the scheme — so dependent that they’ll never endorse any plan to abolish it.

Think of all the investment firms that would be receiving hundreds of millions of dollars in retirement funds. They would be working from big office buildings, which come with long-term rental contracts involving extremely high rent payments. They also would have to have enormous staffs to handle all the incoming money and the investment of the funds. There would be huge accounting divisions to keep track of it all. There would also be huge teams of investment advisors and analysts.

After, say, five years of a “privatization” scheme, what are the chances that those firms would suddenly say, “Well, gradualism time is over. The time has arrived to dismantle the system and embrace economic liberty. We’ll just make do without all that financial business that the government has sent our way”?

The chances are nil, just like the chances are nil that schools that have become dependent on vouchers would ever say, “Gradualism time is over. Time to dismantle the voucher program.”

Indeed, suppose the “privatization” program is “working.” What are the chances that people who are benefiting from a soaring stock market are going to start calling for repeal of the program? In fact, my hunch is that if the program is “working,” even the libertarian proponents of “privatization” are not about to tell people that gradualism time is over and that it’s now time to end government involvement in people’s retirement. Instead, they’ll be basking in the glow of all the praise for advancing a successful statist program.

The example of Chile

A perfect example of this phenomenon is Chile, which adopted the type of Social Security plan that libertarian proponents of “choice” and “privatization” want for the United States. Until 1981, Chile had had the type of Social Security system that the United States has — that is, one by which the government simply takes money from the working class and gives it to the retired class.

Then, in 1981, under the dictatorial regime of army Gen. Augusto Pinochet, Chile adopted the “privatization” model — that is, the one that permits people to keep their money but mandates that they put it into government-approved retirement accounts.

It shouldn’t surprise anyone that Pinochet chose the fascist model for Social Security over the socialist model. After he and his military-intelligence establishment had ousted the democratically elected socialist president of the country, Salvador Allende, from power, they used any means to eliminate any sign of socialism in Chilean society, including such means as kidnapping, torture, rape, execution, or simply reeducation of anyone who was suspected of holding socialist beliefs.

Moreover, Pinochet was an acolyte of Francisco Franco, the army general who was dictator of Spain and who was deeply devoted to the principles of economic fascism. During the Spanish Civil War, Franco had received assistance from none other than Germany’s ruler, Adolf Hitler, the man who had complimented Franklin Roosevelt for adopting the same sorts of economic policies that he himself was adopting for Germany. When Franco died, Pinochet was the only major ruler to attend his funeral.

Was Pinochet’s Social Security fascist Social Security scheme better than Allende’s socialist scheme? Pinochet certainly thought so and so do many libertarians today who are trying to foist Pinochet’s scheme onto the American people. On the other hand, despite Pinochet’s efforts to purify Chile of socialist ideas, there still are Chileans who support returning to the Social Security plan favored by Allende and his fellow socialists.

One thing is certain: Despite the passage of more than 30 years, the proponents of the Pinochet plan are not ready to say, “The end of the gradualist period has finally arrived. It’s time to end all government involvement in retirement.” On the contrary, despite the fact that the Pinochet scheme has proven to be just another Social Security reform plan and not a “gradualist” way to achieve economic liberty, they are bound and determined to keep the scheme fully intact in Chile and, even worse, they’re trying their best to spread it to the United States and other parts of the world.

When you see or hear the term “gradualist” insofar as it is applied to phasing out government programs, do you think in terms of 35 years? Just think: if the libertarian proponents of Pinochet’s Social Security scheme succeed in getting it adopted here in United States, it might well be another 35 more years or more before Americans can finally achieve economic freedom. Do you want freedom now or 35 years from now?

Moreover, consider the fact that some proponents of the Pinochet plan rarely, if ever, even disclose to people that their plan is intended to “gradually” phase out Social Security. In all their arguments in favor of “choice” or “privatization,” they don’t cause people to question or even just think about the libertarian position: that government has no legitimate role whatsoever in people’s retirement. Their arguments are based solely on the supposed superiority of their fascist scheme over the socialist scheme, albeit couched in terms of a “free-market oriented” program.

Is a government-mandated retirement scheme genuine freedom? Is that what libertarianism has come to? I say not. I say libertarianism is not about whether fascism is better than socialism. I say that libertarianism is about freedom. I say it’s about the fundamental, God-given right of people to keep everything they earn and to decide for themselves what to do with it. The only chance we have to achieve freedom is to stand squarely in favor of it. If libertarians won’t do that, who will?

This article was originally published in the August 2015 edition of Future of Freedom.

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    Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.