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Saturday, March 1, 2014

The Impossibility Of Socialism

BESIDES THE CALCULATION/knowledge problem, there are other hurdles to be faced in attempting to organize a socialist society, such as the problem of motivation. In a market society, people are motivated to increase the satisfaction of their fellows because that is how they get paid. While Mother Teresa or Albert Schweitzer may perform their work on purely humanitarian grounds, most people choose socially useful work because they profit from it. If a mason works hard at his trade and becomes eminent in his field, he can expect to directly reap much of the benefit of his hard work. But in a socialist society, the rewards for his hard work would be spread across the entire society. The mason could expect to receive only a minuscule part of the extra value that his effort generated.

Historically speaking, we can certainly see that motivation has been a problem in every society that has attempted socialism. On that basis, we might decide that it is highly unlikely that any socialist society could overcome that handicap. But, we must admit, there is no basic principle of human action that says that people couldn’t all place the good of the society as a whole, as seen by the central planners, first on their list of values, however implausible we might think that might be in reality. Socialists could argue that in the yet unachieved glory of the socialist paradise, all people will direct their actions solely toward the good of the commonwealth. One of Mises’s greatest accomplishments was to show that, even if everyone acted that way, socialism still could not achieve a rational allocation of resources.

A race of socialist saints could not engage in meaningful economic calculation in the absence of market prices. Even if each such saint sincerely did his best to meet the most urgent needs of society, he could not determine what means should be used to fulfill those needs, nor even what the most urgent needs were. While the problem of motivation makes it highly unlikely that a socialist society could support the billions of humans who are alive today, Mises demonstrated that it could not possibly do so.

Some people have been vexed by Mises calling socialism “impossible.” “Aren’t there,” they ask, “many historical examples of socialist societies? Maybe we wouldn’t want to live in any of them, but surely we must admit that socialism is possible.”

However, what Mises meant is that it is impossible that any large society, beyond the size of a small, family-based tribe, could fully implement the socialist agenda without plunging into economic chaos. Certainly, some societies have called themselves “socialist.” But all attempts to really follow the socialist blueprint have been quickly abandoned. Sheldon Richman, in his essay “To Create Order, Remove the Planner,” notes:
Immediately after the Russian revolution in 1917, the Bolsheviks under Lenin and Trotsky tried to carry out the Marxian program. They got planned chaos. Trotsky said they stared into the “abyss.” Chastened by that experience, Lenin enacted the New Economic Policy, which was a reintroduction of money and markets. No Soviet leader ever tried to abolish the market again. That is not to say that the Soviet Union had a free market. It is to say that the Soviet Union’s economy was a government-saturated market. There was no actual central plan. In truth, the plan was revised to reflect what was happening outside the planning bureau.

As George Mason economist Peter Boettke points out in his book Calculation and Coordination:
. . . the actual operation of the Soviet economy bore little resemblance to the predictions of these optimal planning models. Soviet “planning” seemed to mostly occur after-the-fact. With the break-down, and finally the collapse, of the Soviet state, it has become increasingly apparent that central planning authorities had little real power to manage the Soviet economy. . . .

We argue that the mature Soviet system was not a hierarchical central planning system at all, but was really a market economy heavily encrusted with central government regulation and restrictions. The Soviet state employed these various interventions to extract revenue from the economy, as an alternative to collecting revenue via the use of taxation.

The goal of most socialist movements has been to establish a worldwide socialist society. Many apologists for socialism have, in fact, blamed the troubles encountered by past attempts at socialism on the continued existence of capitalist countries. Mises demonstrated that the exact opposite is true-if the dream of worldwide socialism is ever realized, the result will be complete social disintegration.
Historical examples of nominally socialist states, such as the Soviet Union, operated within a worldwide market order. They mimicked the more market-oriented countries’ methods of production, their products, and their technologies. Soviet planners even copied commodity prices out of The Wall Street Journal to use in their calculations. Lew Rockwell told a wonderful story about Gorbachev’s press secretary. When asked about his dream for mankind, the secretary replied that he hoped to see all of the world embrace socialism, except for New Zealand. “But why not New Zealand?” a reporter wondered. “Well,” the secretary responded, “we will need someone to get the prices from.”