Some people imagine that there is a third way between the market economy and socialism, and in a sense they are right. But the way to it does not lie with government programs. Before I explain that, let us consider the unseen effects of substituting government means for voluntary human energies.
We often use the word voluntary to identify charitable actions taken in society that do not result in profit. But consider that profit in a market economy also results from voluntary actions. They involve willing buyers and willing sellers, willing workers and willing capital owners. All “capitalist” acts result from volitional choice, a decision by individuals to make exchange based on the forecast that doing so will improve their lots in life. A better term for charitable activities, as distinct from commercial ones, would be non-pecuniary activities.
So by voluntary human energies, I really intend to sum up the whole of economic affairs insofar as they do not involve forcing people to do things they would not otherwise do. This includes activities ranging from the small-scale transactions of the peasant farmer to the complex financial transactions of Wall Street. All involve individuals choosing to trade to improve their standard of living.
We can contrast this with government means, which always involves an element of force. Whether it is taxation, regulation, or restrictions on consumption, all government programs are designed to thwart what would otherwise be voluntary decisions. Whether you believe some intervention is necessary, let us be clear that an increase in government management of the economy always means an increase in the use of force.
Of course the advocates of the “third way” don't think of it that way. They believe that they are advocating an increase in compassion for the poor, protection for workers and consumers, fairness to all classes in society, opportunity for those shut out, and security for the vulnerable. The problem here is not the goal – these are all valuable considerations in the formation of public policy – but the means, which always involve supplanting the role of human choice with force.
Over the years, I have found that the advocates of government intervention either do not understand this point or they choose not to think about it. If you think about the history of evil, the large-scale calamities that have variously been visited upon the human family, most of them have resulted from the uses of power, from famines to death camps. If we care about the fate of humanity, we should be very wary of advocating any policies that would enhance the uses of power in society.
The problem with advocating government programs is that, quite often, they produce results the opposite of what is intended. They rearrange the incentives people face to be productive. They subsidize vice, discourage goodness, hamper economic growth, and offer an occasion of sin to lawmakers and bureaucrats. But all of these considerations pale by comparison to the moral problem of enlisting the cause of power to do good. If we value freedom, we must have an intellectual resistance to any proposals that would override choice and replace it with regimentation by the state.
I earlier mentioned that there is still merit to the idea of a third way: that is, a society that employs voluntary economic means and virtuous moral means to build the good society. That is a much greater challenge than some mythical in-between system that combines elements of both capitalism and socialism.
It is this good society to which the best of the social science and religious literature is directed.
This is the way a free people can work to shape culture. This is how a free people can take steps toward building a good society.