On the (im)Possibility of finding a “Third Way” between Liberalism and Socialism

[Note: This post is part of a series on the History of the Classical Liberal Tradition]

Some people can see the logic in applying political, moral, and economic principles consistently and avoiding contradictions which make being consistent impossible. Thus for example, if you really do believe that profit, interest, and rent are immoral (as many early socialists did) because they are “unearned” by the capitalist / factory owner, the banker or money lender, and the land or property owner, and which is paid at the expense of those who do in fact “work” (or “labour”), then this is immoral and a form of exploitation which must be stopped.

If you really do believe, as another example, that the payment of wages to workers by a profit-making factory owner or employer is also a form of exploitation since the worker never receives the “full value” of what their labour produces, the difference going to the owner in the form of “profit”, then this too must be stopped because exploitation is immoral.

If you really do believe that “capitalism” is riven by internal contradictions that lead inevitably to periodic economic recessions and depressions, that the workers’ standard of living is doomed to gradually decline through unchecked population growth and the decline in their wage rates, that the exploitation of nature for profit leads inevitably to environmental destruction, pollution, and global warming, that “overproduction” of consumer goods leads to rampant and degrading “consumerism”, that “globalisation” of markets creates a race to the bottom as countries with cheap labour drive out of business those countries where wage rates are much higher, if you believe these things then logic tells you that you have to oppose them because they are immoral and damaging to the welfare of ordinary working people and possibly will also lead to the end of the world. Hence the passion held by supporters of “Extinction Rebellion”.

On other other hand, radical liberals / libertarians believe none of these things are true but they do have a similar desire to see their principles put into practice in a logical and consistent manner, namely the idea that individuals by their nature as human beings have rights to life, liberty, and property which pre-date the creation of the state and which trump (no pun intended) any claim the state may have to take away or infringe upon these rights; that the non-aggression principle should apply in all social and economic relations between people; and that when states, groups, or other individuals use aggression to interfere with these natural rights they engage in the unjust exploitation of others which is immoral and thus should be brought to an end as soon as possible. [I will not go into these claims in any detail here. See other sections of this collection of posts for more information.]

Thus it would seem that there is and can not be any “third way” or compromise, at least in terms of theory (but perhaps not in terms of actual policies), between the logically consistent socialist/communist and the logically consistent radical liberal / libertarian. Either the payment of wages by a profit-seeking factory owner is exploitation or it is not; likewise, either the seizure and confiscation of a person’s justly acquired property by the state is unjust or it is not. However, this is exactly what those who are less attracted to logical consistency from both sides want to believe is possible. People from both the “liberal side” and the “socialist side” have thought that there must be a way to avoid the “problems” (as they see them) of the logical extremes of both ends of the political spectrum [See the post on this.]
Thus we have seen attempts at creating a “Third Way” for liberals in the emergence of “New Liberalism” in the late 19thC and “neo-liberalism” after WW2, both of which tried to “soften” the extremes of laissez-faire free market capitalism, the appearance of large “monopoly” firms, and rampant “anti-social” individualism with the injection of just enough “socialism” to remove its rough edges.

We have also seen socialist and Labour Parties do something very similar, with Tony Blair’s Third Way for the British Labour Party in the late 1990s (or “New Labour” as his campaign slogan called it); the pragmatists and “economic realists” in the Australian Labor Party under Bob Hawke and Paul Keating in the 1980s, who wanted to remove the extreme measure of traditional socialist calls for the “nationalisation” of industry by the state and to allow a sizable dollop of “privatisation”, private ownership, free market pricing, and competition.

In spite of the logical contradictions this attempt to find a “Third Way” inevitably produces, this has not stopped political parties from pushing these theoretical problems to one side and to nevertheless try to create what I have called a “smorgasbord” of policies which have elements of both liberalism and socialism in them. [See my post on “The Success of Liberal Ideas has led to the Decline of Radical Liberal Parties” (6 Sept. 2021) ) where I discuss the problems this has caused in creating parties which are LINO (“Liberal in Name Only”) and SINO (“Socialist in Name Only”).]

If we too just push aside the theoretical contradictions this creates and just focus on the policies we can see that the result is not a good one. The Austrian economist Ludwig von Mises (1881-1973) has called these policies “middle of the road” policies, by which he means both parties try to avoid being a consistent and radical liberal party on the right hand side of the road, as well as trying to avoid being a consistent and radical socialist party on the left hand side of the road, and thus follow a “middle of the road” policy which is supposed to be a bit of each but works out being neither one nor the other. For a variety of reasons I cannot go into here , Mises believes the steady pursuit of “middle of the road” policies will end up inevitably taking the party which follows them to the left hand side of the road. See his The Middle of the Road Leads to Socialism) given to the University Club of New York, April 18, 1950 and which was later published in his book Planning for Freedom (1952) [available online .]

Thus, as I see it, the problem boils down to the following problems:

  1. “new” liberalism or neo-liberalism is not consistent in its adherence to and application of liberalism and thus becomes LINO (“Liberalism in Name Only”)
  2. the same is true for “New Labour” or what we might call “neo-socialism” which is not consistent in its adherence to and application of socialism and thus becomes SINO (“Socialism in Name Only”)
  3. and attempts to follow a “middle of the road” policy between these two political and economic ideologies will drive both LINOs and SINOs eventually towards a more interventionist “centrist” position, as they bid for voter support in elections by offering them more and more “handouts” and subsidies to special interests, as the desire to win and stay ion office overpowers any ideological conviction they once might have had as “liberal” or “socialist” parties.