Guns Out Of Butter
May 27, 2018
by William P. Meyers

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Guns Out of Butter Just Don't Work

"The term Guns or Butter was first used by William Jennings Bryan in his resignation from secretary of state under Woodrow Wilson." It referred to choosing between spending on the military or on civilian production. But this essay is about why things don't work in the real world, despite theories that they should.

Basically, people keep trying to make guns out of butter. Or, if you prefer, butter out of iron ore. Neither works.

In the United States debates about the economy are torn between two poles: socialism and capitalism, for short. Read enough history, and be fair, and you will find that each has done well at times, and each has had its failures. But instead of admitting that and sorting out the details so we can do a good job with the economy, politicians, professors, and politicized ordinary people want to interpret the facts through rigid ideologies.

Free market capitalists interpret any failure of those markets as temporary and self-correcting, if not caused by a socialist plot. Socialists interpret any failures of socialist economies, or socialized parts of economies, as accidental and temporary, if not caused by a capitalist plot.

You don't even need to go back far in history to see this. The collapse of the Venezuelan economy of late is blamed on socialism (by the right), not a period of low crude oil prices. The parallel decline of several capitalist economies that are highly dependent on oil production is not blamed on capitalism (by the right), but on the governments of those countries. Reverse the interpretations for the left.

Could we at least admit that a small economy (small nation or local economy) that is booming because of, say, a gold mine, is not booming because it is socialist or capitalist? It is booming because of the mine. And if the gold runs out, the economy is not crashing because it is capitalist or socialist, but because the gold ran out.

That brings up the issue of who runs mines or other economic enterprises better, socialists or capitalists. It is a fair question. My answer, based on much fact finding, is: it depends. Failures are easy to analyze than successes, so I'll start there.

Businesses fail in a capitalist economy all the time. They fail for a wide variety of reasons. Sometimes a well-run business cannot compete in a crowded field. Other times the owners, managers, or workers are appallingly incompetent. Sometimes the economy changes, so that a once-viable business loses its customers. In theory these failures are fine. If something really needs to get done, some other business will do it. But when a bunch of businesses fail at the same time, as happened in 1929, the capital needed to create new businesses gets destroyed. So healing does not occur.

In fairness, some government-run service providers have done a pretty bad job at times. They seldom cease to exist as long as the government funds them, but occasionally there is a house cleaning that is the equivalent of failing the old business and setting up a new one.

Between failure and success is a wide range of situations. It is hard to find a business or bureaucracy that does not have some incompetent or marginally competent people on the payroll. Or whole departments that accomplish little or nothing, despite having potentially competent employees, because they are badly designed by the higher-ups.

Then look at the butter. Here I mean the basic building block of human organizations: humans. They can be amazingly talented, or mediocre, or total failures. Nor are individual humans consistent. One person may be perfectly competent, unless they are drinking or smoking weed. Many are good at one thing, but learn too slowly to be asked to do a variety of things. Sometimes a group of people performs poorly until a leader emerges who motivates them to outperform. Another groups doing well might fall apart if a leader or key member leaves. Humans are tricky and complicated. Many need frequent care to keep them on track.

It is even more complicated when you start assembling a large number of businesses, including socialized ones, together into a national or global economy. I think the main problems lie at the extremes, where one or the other ideology has won out, and had the time to generate too much of its own excrement.

Main example for capitalism: the Great Depression in the United States, starting in 1930. There was almost no government, much less a socialist government, in the U.S. in the 1920s. Capitalism collapsed. Denying that is a symptom of idiocy.

Main example for socialism: the collapse of the Union of Soviet Socialist Republics (USSR) in 1991. The USSR had almost no free market capitalist components in its economy. Socialism collapsed. Denying that is a symptom of idiocy.

Economists tend to want to be scientists like physicists, or like engineers. They want to build a better cannon to shoot an economy further towards some pre-specified goal. But economies are not built out of steel, though they may include steel factories. They are built out of human beings. Which is to say, butter. Build a cannon out of butter, and on the first hot day, it will be a pool of butter. On a cold day, good luck when you try to fire it.

The best path forward for the American, and global, economy involves looking at details, not promising people capitalist or socialist pie in the sky. At the very least government should insure basic institutions like justice, police, education, roads, and social insurance programs like unemployment, a basic medical payment system, and social security. How much else the government needs to do depends in part on how responsibly capitalists behave. If they produce good products and services at a fair price, pay workers fairly, and cause no other harms, they might need minimal supervision.

But we know there will always be people whose idea of business is not far short of criminal, so some government supervision is a necessity. Neither is socializing anything a guarantee. If a sector of the economy is socialized, it needs to be run efficiently for the good of society, not just to put money and power in the hands of its bureaucrats.

In other words, it is complicated, and the details still need to be worked out.