Our American economy is not capitalist but feudalist with a few capitalist features permitted by the ruling class.
Feudalism is characterized by two features: (1) taxation of everything the government can physically tax; and (2) treating people, adults, as children who need to be protected by the mighty overlords — the “state” — from themselves and from each other in all aspects of life.
Neither Mises nor even Rothbard, consumed as they were with fighting socialism, realized entirely the existence of a non-self-contradictory feudal order. Rothbard came very close, as is evident in this quote:
For agricultural countries, in a preindustrial era, can indeed peg along indefinitely on a subsistence level; despotic kings, nobles and states can tax the peasantry above subsistence level, and live elegantly off the surplus, while the peasants continue to toil for centuries at the bare minimum.
Such a system is profoundly immoral and exploitative, but it ‘works’ in the sense of being able to continue indefinitely…
Even here, Rothbard is not properly distinguishing between slavery and serfdom. Feudalism for the masses is not slavery but serfdom, a mighty improvement. A slave is not taxed at all; he is simply “nationalized,” 100% owned by the slave-master. An income tax may grab 30% of one’s income, but one still has the freedom to decide where to work, how hard, at what remuneration, or whether to work at all, unlike a slave.
Given our neo-feudalism, why did Mises believe that middle-of-the-road policy leads to socialism? If feudalism is a stable system, why should it devolve to a still more primitive order, viz., socialist slavery?
Mises had a particular reason: price controls. Their dynamics is such that, unless fully repealed, they tend to spread and paralyze the economy. But when the government sets prices, it effectively controls if not explicitly owns all capital goods, and society is by that very fact socialized.
There is a second and less clear-cut reason. Many people condemn capitalism on moral grounds. It is, they say, a cruel, exploitative, and unfair system. Their solution is to tax it so that people “pay their fair share” and regulate it in order to restrain capitalism and steer it into pro-social venues. Capitalism, they declare, is always in danger of falling apart because of its inner contradictions and needs constant government intervention (other than direct price controls, from inflation to subsidies to erecting barriers to entry to various industries to sin taxes to import quotas to …) in order to hobble along somehow.
It is this ideology, espoused equally by both the masses and the elites, that’s directly responsible for our present feudalism.
A small minority, however, see further. They, too, condemn capitalism for inequality, insecurity, etc. Capitalism for them is an abomination, just as for the majority of feudalists. But they hold that the massive and all-pervasive interventionism we observe all around us has obviously failed to stabilize, direct, and civilize capitalism. They propose that both capitalism and feudalism fail and recommend socialism instead.
It’s not that feudalism is by its essence self-contradictory but rather that it’s so clearly unsatisfactory that drives some smarter people toward the socialist ideology.