Socialism is an intellectual parasite of capitalism
Rational planning, to the extent socialism requires, is impossible
“Socialist prices” is an oxymoron
Marx’s attitude toward economics was energetically moral, and responses to socialism have been energetically moral as well. But the most important objection to socialism is a technical one, not a moral one. Although the moral case against socialism is indeed powerful, and will be discussed later in this book, its real intellectual death-blow was dealt in 1920 by Ludwig von Mises based on the relatively dry and technical question of the use and nature of prices in an economy.
As we know from our discussion of the Labor Theory of Value, socialists of the Marxian bent hold prices to be at some level objective. In part, this is an outgrowth of socialism’s pretense that it is a scientific system for understanding and organizing a society. If economic values are in constant flux—as is known by anybody who has followed the stock market or observed pricing trends at your local grocery store—then central planning is impossible. To counteract that criticism, socialism posits that economic values are fixed and knowable. For the socialist, a product has a certain value, and it is a moral imperative that the worker be compensated at a level equal to the value of the thing produced.
Under the socialist understanding, prices are endogenous, an aspect of the thing itself, reflecting the material, resources, time, expertise, and—above all—the labor involved in its creation. But for Mises, and for practically all modern economists, prices are exogenous, reflecting only how people value a particular product. This may seem like an oversimplification—a product is only worth what you can sell it for—but, in practice, the radical subjectivism of Mises provides an infinitely richer and more nuanced model of pricing—and thus of human action—than does the static Marxist model. That’s because the Mises model asks not only, “What is it worth?” but, “What is it worth? To whom? At what time? In what context? In relation to what other goods?”
Mises not only rejected Marx’s theory of pricing, he went a step further, arguing that the lack of real market prices in a socialist economy would make economic calculation impossible. If we define socialism as economic central planning conducted in accord with rational economic calculation, Mises argued, socialism is not just impractical, but beyond realization. That is to say, socialism is impossible, because without prices there can be no economic calculation, and therefore, no economic planning in the real sense of the phrase. To the extent that the socialist powers of Mises’ day—the Soviet Union prominent among them—engaged in economic calculation, they were able to do so only because prices were being calculated in the capitalist economies.
Socialism, Mises argued, was not only a material and economic parasite succored by capitalist prosperity, but also an intellectual parasite. In other words, socialism needed capitalism to do its thinking for it. As Mises put it in his magisterial Socialism:
The problem of economic calculation is the fundamental problem of Socialism. That for decades people could write and talk about Socialism without touching this problem only shows how devastating were the effects of the Marxian prohibition on scientific scrutiny of the nature and working of a socialist economy.
To prove that economic calculation would be impossible in the socialist community is to prove also that Socialism is impracticable. Everything brought forward in favour of Socialism during the last hundred years, in thousands of writings and speeches, all the blood which has been spilt by the supporters of Socialism, cannot make socialism workable. The masses may long for it ever so ardently, innumerable revolutions and wars may be fought for it, still it will never be realised. Every attempt to carry it out will lead to syndicalism or, by some other route, to chaos, which will quickly dissolve the society, based upon the division of labour, into tiny autarkous groups.
. . . . The attempt of the Russian Bolsheviks to transfer Socialism from a party programme into real life has not encountered the problem of economic calculation under Socialism, for the Soviet Republics exist within a world which forms money prices for all means of production. The rulers of the Soviet Republics base the calculations on which they make their decisions on these prices. Without the help of these prices their actions would be aimless and planless. Only so far as they refer to this price system, are they able to calculate and keep books and prepare their plans.
. . . . We know indeed that socialist enterprises in single branches of production are practicable only because of the help they get from their non-socialist environment. State and municipality can carry on their own enterprises because the taxes which capitalist enterprises pay, cover their losses. In a similar manner Russia, which left to herself would long ago have collapsed, has been supported by finance from capitalist countries. But incomparably more important than this material assistance, which the capitalist economy gives to socialist enterprises, is the mental assistance. Without the basis for calculation which Capitalism places at the disposal of Socialism, in the shape of market prices, socialist enterprises would never be carried on, even within single branches of production or individual countries.1
Socialist thinkers misunderstand the role of prices. Prices are not a static measure of the effort that went into making a product. Rather, prices are a kind of epistemological interface, facilitating the exchange of information about what producers are producing and what consumers are consuming, what producers want to produce and what consumers want to consume.
Take a simple example: milk. Imagine what it would take, in terms of sheer information, to run a socialist distribution network for milk in the United States. Some people, such as vegans or the lactose intolerant, consume no milk. But some households consume large quantities of the drink: those with many kids, those who use lots of milk products in their cooking, etc. Others may consume varying amounts; in July, when it’s hot and humid, a family might prefer lemonade, but it might consume a lot of milk in August if it’s whipping up a bunch of home-made ice cream for a big family reunion.
In addition to quantity calculations, there are various questions to answer, too: whole milk or skim, 1 percent or 2 percent? Do you prefer more expensive organic milk or cheaper factory-farmed milk? And if you prefer the pricier organic stuff, how much more are you willing to pay for it? What about soy milk? Chocolate milk? The delicious Pennsylvania Dutch treat known as vanilla milk?
There are 115 million households in the United States. If we imagine a weekly milk-consumption budget for each of them, that’s 5.98 billion household-weeks to plan for. Adding in a fairly restrictive list of variables— call it zero to twenty quarts a week, four levels of fat content, organic/nonorganic, soy/dairy, and three flavor options—you end up with around 6 trillion options to choose from.
These are the choices facing our committee of central planners—and let’s just assume our planners are the best and brightest the world has to offer, with the temperaments of angels, totally unswayed by the quotidian concerns of politics or the influence of the various competing dairy lobbies (i.e., let’s assume they are not human beings as we know them to exist), and that they have at their disposal a vast array of top-flight supercomputers. If they took just one second to consider each of these options, it would take them 190,128 years just to run through the possibilities of one year’s milk consumption in the United States. That’s a lot of calculation. When central planners say they’re considering all the options and taking all the information into account, they are never telling the truth. They do not even know what the options are—because they cannot know.
“How can you govern a country in which there are 246 kinds of cheese?”
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Charles de Gaulle, saying more than he knew
But even if the planners had some miraculous way to consider all the options and to take all of the information into account, where would they get the information? They could send out surveys to every household, asking them about their milk-consumption preferences for the following year. But would they get accurate answers? Probably not. People often lie on opinion surveys, providing answers that simply communicate what they imagine to be some desirable quality about themselves. For instance, newspaper companies, terrified about their declining readerships, frequently survey Americans about what they want in a newspaper, and the answers usually are:
2. More in-depth/investigative reporting
3. More cultural news
In truth, the most-read sections of most newspapers are:
1. Obituaries
2. Sports scores
3. Letters to the editor
In other words, consumers’ stated preferences are at odds with their revealed preferences. We say we want to watch culturally enriching PBS programs, but we actually watch American Idol.
Another complicating factor is that consumers do not know what their future needs and desires will be. If you’re planning your household’s milk consumption in January, you may not plan adequately for August’s family reunion—because you do not know there will be a family reunion in August. You do not know how many kids are coming to your daughter’s birthday party in May. You may not know that you’re going to have a new baby in nine months. (Granted, the more assertive socialist regimes are pretty aggressive about helping you to “plan” that last contingency—ask a Chinese family.)
But what Hayek and Mises understood was that this end-consumer question was only a tiny part of the problem facing central planners. As difficult as it is to plan for consumers’ actual preferences—Mises would say impossible—the much larger and more intractable problem is the capital structure necessary to meet those needs. Imagine that the planners calculate that 10 percent of consumers will prefer organic milk to non-organic milk. (Of course, in a non-price economy more people will prefer the more expensive options, but let’s set aside that problem for the moment.) Calculating that one-tenth of the dairy output should be organic, they order the construction of one organic dairy for every nine non-organic dairies.
Dairies are large and complex operations. Roads must be built to service them, along with fleets of trucks, vast arrays of machinery and tools for maintaining the machinery, housing for the workers, etc. And, of course, in a centrally planned economy, you can’t just go out and buy those trucks on the free market; you have to plan and build factories, mines and steelworks, rubber plantations, oil wells, and gasoline refineries. All of this adds to the information overload that makes it impossible to rationally plan an economy when you lack the information communicated through prices.
Inevitably, the central planners are going to get some of their calculations wrong, because they won’t be making calculations, but educated guesses—at best. Say the demand for organic milk turns out to be much stronger than 10 percent—say it’s 30 percent. How can the planners meet their citizens’ milk-consumption preferences then? They’ve already built their dairies, and 90 percent of their output is non-organic. They’ve already built roads, transportation systems, apartment buildings, and a vast infrastructure to support their assumption of a 10 percent organic milk preference. Their choices are not good: they can try to retrofit the old non-organic dairies to make them organic, or they can build new organic dairies and let the surplus capacity at their non-organic dairies fall into disuse, an enormous waste of resources and effort.
Most likely, the central planners will simply refuse to accommodate their citizens’ preferences. They will condemn their taste for organic milk as a bourgeois extravagance. In the more robustly socialist economies, the planners will inform the citizens what their preferences are rather than the other way around. In any case, you can be sure of three things:
1. Consumers’ actual preferences will not be satisfied.
2. Resources will be inefficiently allocated.
3. Something other than rational, disinterested economic planning will be the real guiding force behind the central planners’ decisions.
This is not a fanciful example, incidentally. In the hardcore socialist economies of the twentieth century, the production and distribution of foodstuffs was horribly dysfunctional. As murderous as tyrants such as Stalin and Mao were, far more people died from unnecessary starvation under socialist management of food production. In fact, of the 100 million or so deaths attributable to socialism worldwide in the twentieth century, most came through starvation. And the inescapable problem of socialism’s ineffective production and distribution of food is still evident today in the vast stores of food rotting in Venezuelan government warehouses while Hugo Chávez’s subjects go hungry.
But it can also be seen in the United States, where a federally chartered cartel sets a minimum price for milk. That is, under American law, it is illegal for a merchant to sell a gallon of milk to a poor mother to give to her hungry baby for less than the milk cartel says is a fair market price. Given what we’ve learned about the complexities of calculating a rational plan for a milk distribution system, you’ll not be surprised to learn that that poor American mother is paying more than the market price would be for her milk. In other words, in the United States of America, the heart-land of capitalism, a little bit of dairy socialism is literally keeping milk out of the mouths of hungry babies. (The Left has long argued that a capitalist is a guy who steals candy from a baby; in fact, a socialist is a guy who steals milk from a baby.)
“Like every other group, academics like to exert influence and feel important. Few scholars in the social sciences and humanities are content just to observe, describe, and explain society; most want to improve society and are naive enough to believe that they could do so if only they had sufficient influence. The existence of a huge government offers academics the real possibility of living out their reformist fantasies.”
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Dwight Lee, Go to Harvard and Turn Left, 1994
“After the collapse of central planning in Eastern Europe and the former U.S.S.R., the only place in the world where Marxists were still thriving was the Harvard political science department.”
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Peter G. Klein, Why Intellectuals Still Support Socialism, 2006
Naturally, in this situation the interests that are being served are not those of the poor and the hungry, but the interests of the dairy producers. The pattern repeats itself wherever there is government planning of economic activity, whether it is in a socialized sector of a non-socialist country, as in the case of the U.S. milk producers, or in the broader economy of a socialist country.
It is no accident that in every socialist country, the central planners and government officials enjoy a substantially higher standard of living than do the poor proletarians on whose behalf, allegedly, they manage the economy. This has proven true across long periods of time, in different countries with very different cultures and social habits. It is not a feature of some alleged misapplication of socialism, but of socialism itself. The disastrous economy of Cuba and the disastrous economy of North Korea are regional expressions of a single phenomenon.
Though most socialists today attempt to distance their beliefs and ideology from Marxism—mostly because of the horrors inflicted upon the world by Marxist governments—the belief that a complex economy can be rationally planned is quintessentially Marxist. In his famous 1938 essay, “Dialectical and Historical Materialism,” Joseph Stalin clearly laid out the philosophical case:
Contrary to idealism, which denies the possibility of knowing the world and its laws, which does not believe in the authenticity of our knowledge, does not recognize objective truth, and holds that the world is full of “things-in-themselves” that can never be known to science, Marxist philosophical materialism holds that the world and its laws are fully knowable, that our knowledge of the laws of nature, tested by experiment and practice, is authentic knowledge having the validity of objective truth, and that there are no things in the world which are unknowable, but only things which are as yet not known, but which will be disclosed and made known by the efforts of science and practice.2
Stalin here is engaged in one of the characteristic intellectual errors of the twentieth century: conflating the hard-and-fast, objective knowledge of the natural sciences with the tenuous, contingent, temporary knowledge of the social sciences—and, more important, the scattershot knowledge of daily life. Knowing how many protons are in a uranium atom is not very much like knowing whether you should plant corn or wheat in a particular field in western Ukraine. Stalin would turn out to be pretty good about getting the former kind of knowledge but not the latter, which is why the USSR could build a terrifying, cutting-edge nuclear arsenal but starved millions of its people to death.
Russians are a mathematically and scientifically gifted people, and perhaps that is part of the reason why the allegedly scientific nature of central planning appealed to them. Nikita Khrushchev, in one of the all-time great moments of hubris in the history of politics, promised a 1961 Communist Party congress that by 1980 at the latest, scientific socialism would surpass, in both quantity and quality, the best that Western capitalism could produce.
Years before the rise of information technology transformed capitalism, the Soviets were counting on “cybernetics”—applied computer science—to provide the information-management solutions that marketplace calculations provide in capitalist economies. In his fascinating look at Soviet economics, Red Plenty, Francis Spufford places that project in context:
For much of the 80 years during which the USSR was a unique experiment in running a non-market economy, the experiment was a stupid experiment, a brute-force experiment. But during the Soviet moment there was a serious attempt to apply the intellectual resources of the educated country the Bolsheviks had kicked and bludgeoned into being. All of the perversities in the Soviet economy. . . are the classic consequences of running a system without the flow of information provided by market exchange; and it was clear at the beginning of the 60s that for the system to move on up to the plenty promised so insanely for 1980, there would have to be informational fixes for each deficiency. Hence the emphasis on cybernetics, which had gone in a handful of years from being condemned as a “bourgeois pseudo-science” to being an official panacea.
The USSR’s pioneering computer scientists were heavily involved, and so was the authentic genius Leonid Kantorovich, nearest Soviet counterpart to John Von Neumann and later to be the only ever Soviet winner of the Nobel prize for economics. Their thinking drew on the uncorrupted traditions of Soviet mathematics. While parts of it merely smuggled elements of rational pricing into the Soviet context, other parts were truly directed at outdoing market processes. The effort failed, of course, for reasons which are an irony-laminated comedy in themselves. The sumps of the command economy were dark and deep and not accessible to academics; Stalinist industrialisation had welded a set of incentives into place which clever software could not touch; the system was administered by rent-seeking gangsters; the mathematicians were relying (at two removes) on conventional neoclassical economics to characterise the market processes they were trying to simulate, and the neoclassicists may just be wrong about how capitalism works.3
Today, Khrushchev’s “cybernetic” approach has passed into disrepute—to the dust-bin of history—but faith in “scientific” and “rational” management of incomprehensibly complex economic systems remains a fixed fact of political life. Other models of scientific understanding have replaced Soviet cybernetics—evolutionary biology, network systems, complexity theory—but the central conceit remains as fatal as ever. The main question is the scale of the attempted planning; the socialism applied to the U.S. healthcare, agriculture, and education sectors is fairly limited, so its effects are relatively mild. More comprehensive central-planning regimes produce more comprehensive failures—and a more comprehensively perverse feedback loop for the central planners.
“By keeping the prices of consumer goods artificially low, the Soviet planners created the ubiquitous ‘waiting line.’ Around that institution grew ‘an elaborate subculture . . . with its own habits and rules.’ The odd thing is that shortages appeared in product lines of which the Soviet Union was the largest producer in the world. In the late 1980s, the USSR produced more than three pairs of shoes for each citizen, but people had to wait to buy shoes. The problem was that the available shoes did not reflect consumers’ tastes: the shoes were made to fulfill a government plan, not to satisfy market demand.”
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—James Dorn, Cato scholar, 1994
The scientific hubris of socialism turned out to be one of its deadliest features, and the misapplication of scientific knowledge—the literalization of scientific metaphor—is a recurring theme. For instance, the Juche Idea, the socialist philosophy of North Korea, is deeply influenced by a shallow and misunderstood reading of the science of biological evolution. Referring to the state as the “socio-political organism,” with the great leader as its brain, the Juche Idea assumes that central planning is as necessary to a society as a nervous system is to a biological organism. (Woodrow Wilson, years before the advent of the Juche Idea, made a similar argument, describing the ideal leader as an autocrat who acts as the brain of the body politic. His administration would also pursue a bush-league version of Juche, American-style. More on that later.)
As consecutive iterations of the central-planning ideology have become less metaphorical and more literal—the Pyongyang regime really does want to do all of North Korean society’s thinking for it, as though it were a literal biological organism and not a metaphorical one—the belief in the necessity of central planning has become ever more deeply ingrained, even as the disastrous results of central planning have become impossible to ignore.
The central planners, of course, have no incentive to admit that their powers to act rationally are limited. When THE PLAN fails—as THE PLAN ultimately must fail, being based on faulty and inadequate information—the planners invariably attempt to force society to conform to their plan, rather than reform their plan to conform to society. In truth, they cannot reform their plans to conform to society’s actual needs, because they do not know what those needs are and have no way of finding out.
The case of milk is a relatively simple and straightforward one; imagine how much more complicated healthcare is. Knowing that planners have little access to useful information but easy access to brute political force, Hayek predicted that attempts at central planning would lead to authoritarian misrule of the sort that characterized the socialist regimes of the mid-twentieth century, an argument he spelled out at great length in The Road to Serfdom.
Mises and Hayek are today synonymous with what is known as the Austrian school of economics, and they had first-hand experience to show them where the road to serfdom ends. The Austrians, in an ironic historical twist, did not do most of their intellectual work in Austria, which became inhospitable to them after the rise of one of the twentieth century’s most notable socialist movements, one which marched into Vienna in the form of the Austrian National Socialist Workers’ Party, a.k.a. the Austrian Nazi Party. Mises spent most of the rest of his life in the United States, Hayek in Britain. Each was troubled by the rise of the central-planning ethos in the West and by the romantic spirit that became attached to socialism. Each would have recognized the governments of contemporary North Korea or Venezuela as familiar to those who experienced the twin totalitarianisms of the 1930s.
Mises was one of the first to fully appreciate that the Stalin-Hitler, socialist-fascist, Left-Right split was an illusion, and that the totalitarian movement based in Berlin was substantially similar to the one based in Moscow. “The usual terminology of political language is stupid,” he wrote.
What is “left” and what is “right”? Why should Hitler be “right” and Stalin, his temporary friend, be “left”? Who is “reactionary” and who is “progressive”? Reaction against an unwise policy is not to be condemned. And progress towards chaos is not to be commended. Nothing should find acceptance just because it is new, radical, and fashionable. “Orthodoxy” is not an evil if the doctrine on which the “orthodox” stand is sound. Who is anti-labor, those who want to lower labor to the Russian level, or those who want for labor the capitalistic standard of the United States? Who is “nationalist,” those who want to bring their nation under the heel of the Nazis, or those who want to preserve its independence?4
“Socialists should be delighted to find at last a socialist who speaks and thinks as responsible rulers do.”
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George Bernard Shaw, on fascist kingpin Benito Mussolini
Modern American socialists and their apologists have done relatively little to wrestle with the substance of the Austrians’ critique. A few exceptions to that rule are writers associated with Dissent magazine, an American socialist journal. Those socialists who have addressed the Austrians’ criticisms have mostly ignored Mises and concentrated on Hayek, whose analysis is more holistic and less technically economic. Their lines of criticism are familiar and, if not quite obvious, certainly inadequate.
One is that Hayek’s prophesied “Road to Serfdom” has not come to pass; Sweden, rather famously, is not an authoritarian hellhole, in spite of its large and expensive welfare state. The second objection is that all governments engage in some level of central planning. Hayek’s “spontaneous orders,” they argue, are not in truth spontaneous; they rely upon the rule of law and other institutions that can only be created and guaranteed by the state. If the state can create a regime of the rule of law, they implicitly ask, why can’t it create a regime in which economic affairs are arranged in ways that maximize social benefits (however those social benefits might be defined)? In a 1994 Dissent article, David Miller made both cases:
Hayek’s view of the world was Manichaean. On one side stood liberty, limited government, and the market economy; on the other stood coercion, authoritarian government, and planning. It was essential to his argument that there should be no halfway houses. Full-scale planning would be economically disastrous, but trying to compromise between the market and planning, using government agencies to direct investment while relying on market pricing of consumer goods, for instance, would be worse still. Behind this lay his view that the two political systems were the embodiments of two opposed philosophies, both with deep roots in European culture. The first of these embraced those who emphasized the limits and fallibilities of the human intellect, drawing from this the conclusion that in social affairs we must proceed cautiously and pragmatically, using trial and error and relying to a large extent on inherited traditions. . . . Ultimately, then, the question of economic freedom versus planning was a question of knowledge. Those who advocated the latter were not simply making an empirical error, they were supposing that the human mind was capable of acquiring a kind of knowledge that, according to Hayek, was categorically unobtainable. And for that reason, no compromise with the enemy was possible.
. . . . Plainly he belonged to that generation of European liberals who had to confront the combined impact of Soviet communism and Fascism, and it is tempting to suppose that Hayek’s attacks on planning and socialism are motivated by a wish to protect liberal democracies from totalitarian infection. Evidence to support this suggestion might be found in The Road to Serfdom, where Hayek lays a good deal of stress on the socialist origins of Nazism, and argues that the adoption of socialist policies elsewhere might be expected to culminate in a form of Fascism. Reduced to its essentials, the argument is that economic planning cannot even be attempted in a parliamentary democracy, so power must gravitate into the hands of a small group of officials, and eventually into those of a single dictator.5
Mr. Miller responds to Hayek with an ethical argument positing equality as a good to be considered with weight equal to (perhaps greater than) the moral weight that Hayek gives to liberty. Consequently, he considers all sorts of limitations on property rights, from differential rights to different kinds of property, to highly redistributive tax systems, to disallowing the inheritance of property. The relative weight of equality and freedom is an old and difficult question of political morality, and it goes well beyond our brief here. But what Mr. Miller and his fellow socialists have not adequately dealt with is this: even if they are right about the moral question—even if we conclude that material equality (as opposed to political equality) is to be considered as important or more important than liberty—the freedom that makes marketplace capitalism possible is not merely a moral concern but also a practical one.
Without the liberty that makes real markets possible, we still are left with either a central-planning regime or an incoherent system that attempts to install a partial-planning program parasitically upon the market economy. Hayek was demonstrably correct that the most robust central-planning regimes end in inhumane dictatorships. The jury is still out on the partial-planning regimes; bear in mind that it has only been a short time, historically speaking, since World War II. Within the memory of men still playing dominoes in VFW halls today, most of Europe was under authoritarian dictatorships. Within my own lifetime (and, as of this writing, I am well under forty) such paragons of Western European enlightenment as Spain, Portugal, and Greece have been subject to wretched dictatorships.
Today, the European Union grows ever more intrusive and ever more hostile to the democratically exercised sovereignty of its constituent states. Meanwhile, far-right nationalist movements and far-left socialist movements still have a lot of life left in them in Europe—and both far left and far right call not for capitalism and personal freedom, but for central planning, economic nationalism, autarky, and various expressions of neo-mercantilism. Do not be too sure that Europe has found an off ramp from the Road to Serfdom.
