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Why Socialism Failed

This is a huge article, so I'm just posting the first section. If you aren't familiar with the works of Mises, Hayek, or Rothbard, you should be.

http://www.lewrockwell.com/rothbard/rothbard132.html

This article was originally published in The Review of Austrian Economics in 1991, during the collapse of the Soviet Union.

The End of Socialism and the Calculation Debate Revisited

by Murray N. Rothbard

At the root of the dazzling revolutionary implosion and collapse of socialism and central planning in the "socialist bloc" is what everyone concedes to be a disastrous economic failure. The peoples and the intellectuals of Eastern Europe and the Soviet Union are crying out not only for free speech, democratic assembly, and glasnost, but also for private property and free markets. And yet, if I may be pardoned a moment of nostalgia, four-and-a-half-decades ago, when I entered graduate school, the economics Establishment of that era was closing the book on what had been for two decades the famed "socialist calculation debate." And they had all decided, left, right, and center, that there was not a thing economically wrong with socialism: that socialism's only problems, such as they might be, were political. Economically, socialism could work just as well as capitalism.

Mises and the Challenge of Calculation

Before Ludwig von Mises raised the calculation problem in his celebrated article in 1920,[1] everyone, socialists and non-socialists alike, had long realized that socialism suffered from an incentive problem. If, for example, everyone under socialism were to receive an equal income, or, in another variant, everyone was supposed to produce "according to his ability" but receive "according to his needs," then, to sum it up in the famous question: Who, under socialism, will take out the garbage? That is, what will be the incentive to do the grubby jobs, and, furthermore, to do them well? Or, to put it another way, what would be the incentive to work hard and be productive at any job?

The traditional socialist answer held that the socialist society would transform human nature, would purge it of selfishness, and remold it to create a New Socialist Man. That new man would be devoid of any selfish, or indeed any self-determined, goals; his only wish would be to work as hard and as eagerly as possible to achieve the goals and obey the orders of the socialist State. Throughout the history of socialism, socialist ultras, such as the early Lenin and Bukharin under "War Communism," and later Mao Tse-tung and Che Guevara, have sought to replace material by so-called "moral" incentives. This notion was properly and wittily ridiculed by Alexander Gray as "the idea that the world may find its driving force in a Birthday Honours List (giving to the King, if necessary, 165 birthdays a year)."[2] At any rate, the socialists soon found that voluntary methods could hardly yield them the New Socialist Man. But even the most determined and bloodthirsty methods could not avail to create this robotic New Socialist Man. And it is a testament to the spirit of freedom that cannot be extinguished in the human breast that the socialists continued to fail dismally, despite decades of systemic terror.

But the uniqueness and the crucial importance of Mises's challenge to socialism is that it was totally unrelated to the well-known incentive problem. Mises in effect said: All right, suppose that the socialists have been able to create a mighty army of citizens all eager to do the bidding of their masters, the socialist planners. What exactly would those planners tell this army to do? How would they know what products to order their eager slaves to produce, at what stage of production, how much of the product at each stage, what techniques or raw materials to use in that production and how much of each, and where specifically to locate all this production? How would they know their costs, or what process of production is or is not efficient?

Mises demonstrated that, in any economy more complex than the Crusoe or primitive family level, the socialist planning board would simply not know what to do, or how to answer any of these vital questions. Developing the momentous concept of calculation, Mises pointed out that the planning board could not answer these questions because socialism would lack the indispensable tool that private entrepreneurs use to appraise and calculate: the existence of a market in the means of production, a market that brings about money prices based on genuine profit-seeking exchanges by private owners of these means of production. Since the very essence of socialism is collective ownership of the means of production, the planning board would not be able to plan, or to make any sort of rational economic decisions. Its decisions would necessarily be completely arbitrary and chaotic, and therefore the existence of a socialist planned economy is literally "impossible" (to use a term long ridiculed by Mises's critics)."
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If you have an hour or so to dig into the rest of the article (complicated but educational stuff), here ya go.

I might use this as a topic for a future paper.

You might want to modernise it a little before you write a paper on it, Russian communism might have failed but the current reality of the former sov-block states doesnt seem to have brought them a lot of joy either.
It would also be worth investigating the comparison between soviet states and current communist ones like China, Cuba and North Korea, out of those three China is positively booming.

Who, to this day, argues for pure socialism as a viable economic system of governance? Who, to this day, argues for pure capitalism as a viable economic system of governance? You think the US exhibits the qualities of pure capitalism? Think again my friend as SOX 404 is creating so much of a regulatory nightmare that most IPOs are nowadays migrating to the London or Hong Kong stock exchange. China is, in many ways, more capitalistic than most western nations in several respects. Compound this with the fact that many socialistic Scandanavian countires are, and historically have been, outperforming the US along with much of the Western world provokes me to ask you what your point is?

You can't mix and match ideological socialism with empirical socialism because more often than not, they are inherently different. You're ignoring the simple fact that pure socialism has never existed and neither has pure capitalism. Therefore comparing varying shades of gray to dispute the grander ideology would seem foolhardy.

quote:

It would also be worth investigating the comparison between soviet states and current communist ones like China, Cuba and North Korea, out of those three China is positively booming.

China is certainly an interesting place these days...a political dictatorship with an almost completely free-market economy. I read that the Chinese are building a new city the size of Philadelphia every 3-4 weeks. It's truly astounding what happens when government removes its claws from the wallets of the people isn't it? I'm hoping this prosperity will eventually lead to a political revolution.

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Originally posted by occrider Who, to this day, argues for pure socialism as a viable economic system of governance? Who, to this day, argues for pure capitalism as a viable economic system of governance? You think the US exhibits the qualities of pure capitalism?

Of course not...The US is a horrible mess economically. We are much further down the road to socialism than anyone realizes. Government at all levels is approaching 50% of GDP, and our national debt is going to hit 9 trillion dollars before Bush leaves office (currently $8.7 trillion) This so-called party of "limited government" made a bad situation much worse.

quote:

You can't mix and match ideological socialism with empirical socialism because more often than not, they are inherently different. You're ignoring the simple fact that pure socialism has never existed and neither has pure capitalism. Therefore comparing varying shades of gray to dispute the grander ideology would seem foolhardy.

True, pure socialism has never existed. AND IT NEVER WILL!

Socialism will never succeed because it is in fundamental opposition to the structure of reality. This was the point of the article. Even if we were to overcome its huge conflicts with human nature (the incentive problem), the system is doomed to fail because there is simply no way for a system of "collective ownership" (central planning) to work on a national scale (the calculation problem).

No matter how beautiful the theory is, in reality, a functional and prosperous socialist state is literally impossible.

Recommended Reading

quote:

Originally posted by occrider Compound this with the fact that many socialistic Scandanavian countires are, and historically have been, outperforming the US along with much of the Western world provokes me to ask you what your point is?

I have seen this a couple of times, and I must step in to correct you. Scandinavia has high taxes, but their markets, in general, are very free (though there is obviously lots of room for improvement).

quote:

Originally posted by Capitalizt China is certainly an interesting place these days...a political dictatorship with an almost completely free-market economy. I read that the Chinese are building a new city the size of Philadelphia every 3-4 weeks. It's truly astounding what happens when government removes its claws from the wallets of the people isn't it? I'm hoping this prosperity will eventually lead to a political revolution.

Why is it an importance to you of China's government? They are more effective and productive than that of AMerica's.

quote:

Originally posted by St_Andrew I have seen this a couple of times, and I must step in to correct you. Scandinavia has high taxes, but their markets, in general, are very free (though there is obviously lots of room for improvement).

Doesn't matter. They still beat that of US way of things.

quote:

Originally posted by occrider Who, to this day, argues for pure socialism as a viable economic system of governance? Who, to this day, argues for pure capitalism as a viable economic system of governance? You think the US exhibits the qualities of pure capitalism? Think again my friend as SOX 404 is creating so much of a regulatory nightmare that most IPOs are nowadays migrating to the London or Hong Kong stock exchange. China is, in many ways, more capitalistic than most western nations in several respects. Compound this with the fact that many socialistic Scandanavian countires are, and historically have been, outperforming the US along with much of the Western world provokes me to ask you what your point is? You can't mix and match ideological socialism with empirical socialism because more often than not, they are inherently different. You're ignoring the simple fact that pure socialism has never existed and neither has pure capitalism. Therefore comparing varying shades of gray to dispute the grander ideology would seem foolhardy.

+1

Do not try and argue the pureness of any ism with the occrider.

He will put the beatdown on you faster than you can say "free market".

MrS

Capitalizt, tell ya what mate, you come over to England and try catch a train somewhere, then go to Europe where it's mainly publicly funded and tell me whether free markets are better than central markets!

(You might wanna start saving your pennies tho for the UK leg of your trip!)

quote:

Originally posted by George Smiley Capitalizt, tell ya what mate, you come over to England and try catch a train somewhere, then go to Europe where it's mainly publicly funded and tell me whether free markets are better than central markets! (You might wanna start saving your pennies tho for the UK leg of your trip!)

What do you mean?

quote:

Originally posted by Capitalizt Government at all levels is approaching 50% of GDP

What?

quote:

True, pure socialism has never existed. AND IT NEVER WILL! Socialism will never succeed because it is in fundamental opposition to the structure of reality. This was the point of the article. Even if we were to overcome its huge conflicts with human nature (the incentive problem), the system is doomed to fail because there is simply no way for a system of "collective ownership" (central planning) to work on a national scale (the calculation problem). No matter how beautiful the theory is, in reality, a functional and prosperous socialist state is literally impossible. Recommended Reading

Great the article is attacking something that has never existed and never will. It fails to attack socialistic tendencies so I have to ask what's the point?

quote:

I have seen this a couple of times, and I must step in to correct you. Scandinavia has high taxes, but their markets, in general, are very free (though there is obviously lots of room for improvement).

Nearly every successful economy belongs in the group of free market economies, Scandanavia included. I'm not saying Scandanavia is Marxist, I'm saying Scandanavia is relatively socialist compared to other western economies. If you're paying high taxes, I would hope you're spending that excess tax money on social programs.

quote:

Originally posted by occrider Nearly every successful economy belongs in the group of free market economies, Scandanavia included. I'm not saying Scandanavia is Marxist, I'm saying Scandanavia is relatively socialist compared to other western economies. If you're paying high taxes, I would hope you're spending that excess tax money on social programs.

I try to avoid gross generalisations, especially in economics but I guess social programs is a pretty broad area as well. Most of the northern euro countries I found had a similar pattern because of a few things, small populations, small countries and comparatively high incomes with comparatively high living costs.
Overall though the maintainence of things like public housing, utilities, roads, hospitals and so on is very well looked after. Your things like social security tend to be much like other european countries and unemployment is typically below 5% for most of them.

Military spending and national debt are where as a US citizen would notice, are where they differ the most. Tiny armed forces which are almost 'token' in size and while they do have very lively and active import-export markets it seems to at least be running into the low red-debt to black profits, lot of money goes through these places.
Big advantage seems is that they can literally drive it up to the front door by a boat and most of them have large port industries or good, fast road and rail to the rest of europe to support this. Distances are smaller and that leads to lower overheads. It's not like the US or Australia where we have to contend with huge distances overland and maintain a massive infrastructure which is at best 'does the job'.

Personally I wouldnt call them socialist at all, theyre very fiercely competitive and cunning on the international markets and have long, well entrenched and very efficient industry which is only equalled by the Japanese. What I did notice though, was that they where very selective about who they outsource anything too in other countries, especially when it comes to labour. Industrial outsourcing, well, thats something they keep an extremely tight rein on- they make damn sure that it will be long term profitable and make sure that profit is coming back into the country and not a continous source of loss.

quote:

Originally posted by Capitalizt True, pure socialism has never existed. AND IT NEVER WILL!

Pure capitalism has never existed...

quote:

Originally posted by ali92 What do you mean?

Well thanks to the government of Margaret Thatcher, the UK has the most right wing economy in Europe. We pay lower taxes and hence get shit public services (due to them all being privatised). Natural monopolies (like certain utilities and public transport) simply do not apply to the laws of competition, and to subject them to "competition" (well, not competition at all, but just giving private companies the right to rake in loads of money for taking it off the governments hands) means there is no incentive to improve services.

Hence, I go to Europe I jump on the 8:20 at 8:20, whereas in the UK I'll be jumping on the 8:20 round about 9, if it's not cancelled...

quote:

Originally posted by George Smiley Capitalizt, tell ya what mate, you come over to England and try catch a train somewhere, then go to Europe where it's mainly publicly funded and tell me whether free markets are better than central markets! (You might wanna start saving your pennies tho for the UK leg of your trip!)

Well perhaps trains run like crap in free market countries because most people there are rich enough to buy cars

quote:

Originally posted by Capitalizt Well perhaps trains run like crap in free market countries because most people there are rich enough to buy cars

Yea but then you get congestion, plus trains are quicker (well, usually) and better for the environment...

quote:

Originally posted by George Smiley Well thanks to the government of Margaret Thatcher, the UK has the most right wing economy in Europe. We pay lower taxes and hence get shit public services (due to them all being privatised). Natural monopolies (like certain utilities and public transport) simply do not apply to the laws of competition, and to subject them to "competition" (well, not competition at all, but just giving private companies the right to rake in loads of money for taking it off the governments hands) means there is no incentive to improve services. Hence, I go to Europe I jump on the 8:20 at 8:20, whereas in the UK I'll be jumping on the 8:20 round about 9, if it's not cancelled...

Ahh. That sucks. Sounds kinda like SEPTA here in Philadelphia and Amtrak (for trains)/Greyhound (buses) for the rest of the US.

www.septasucks.com

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Originally posted by occrider Nearly every successful economy belongs in the group of free market economies, Scandanavia included. I'm not saying Scandanavia is Marxist, I'm saying Scandanavia is relatively socialist compared to other western economies. If you're paying high taxes, I would hope you're spending that excess tax money on social programs.

Again, Scanandianvia do have high taxes (which sucks, btw), but that doesn't mean they have less free markets than other western countries, I would say they have more free markets than any other western country except the anglo saxian ones (and in some cases more free markets than those)!

Let me give you a few examples so you understand my thinking! Energy, telecom, etc - Scandinavia were waaaay before rest of Europe privatizing that! And although all healthcare, and education is paid for by the government (high taxes), more and more are run by companies or other non-governmental organizations (which for example wasn't the case in Canada, a supposedly more liberal country...). And even Sweden's previously socialist government was WAAAY more pro-free trade than any of the North American countries. The beuraucracy/regulation burden for companies are less, certainly than Europe and maybe even less so than North America.

So that taxes are high doesn't mean that our markets are less free, it means labour is more expensive and that you have to pay for others' welfare. Really, the only reason why Scandinavia is fairly successive today is because of our great free-trade stance and de-regulations made 10-15 years ago.

quote:

Originally posted by St_Andrew Again, Scanandianvia do have high taxes (which sucks, btw), but that doesn't mean they have less free markets than other western countries, I would say they have more free markets than any other western country except the anglo saxian ones (and in some cases more free markets than those)! Let me give you a few examples so you understand my thinking! Energy, telecom, etc - Scandinavia were waaaay before rest of Europe privatizing that! And although all healthcare, and education is paid for by the government (high taxes), more and more are run by companies or other non-governmental organizations (which for example wasn't the case in Canada, a supposedly more liberal country...). And even Sweden's previously socialist government was WAAAY more pro-free trade than any of the North American countries. The beuraucracy/regulation burden for companies are less, certainly than Europe and maybe even less so than North America. So that taxes are high doesn't mean that our markets are less free, it means labour is more expensive and that you have to pay for others' welfare. Really, the only reason why Scandinavia is fairly successive today is because of our great free-trade stance and de-regulations made 10-15 years ago.

i agree with that that's why we are lookin at u guys and the whole scandinavia to see how we can cope with our current situation

but yeah in my books erik sweden is very liberal ...wait maybe too much?

quote:

Originally posted by George Smiley Well thanks to the government of Margaret Thatcher, the UK has the most right wing economy in Europe. We pay lower taxes and hence get shit public services (due to them all being privatised). Natural monopolies (like certain utilities and public transport) simply do not apply to the laws of competition, and to subject them to "competition" (well, not competition at all, but just giving private companies the right to rake in loads of money for taking it off the governments hands) means there is no incentive to improve services.

Thats why you should put those on contract, for whatever company runs it best instead of just giving it away. But just keeping it in government hands usually means it's even more expensive than "giving the money to the companies", just that you are rather giving the money to an ineffective organisation.

quote:

Hence, I go to Europe I jump on the 8:20 at 8:20, whereas in the UK I'll be jumping on the 8:20 round about 9, if it's not cancelled...

In Sweden its exactly like what you describe it is like in England - except that that is only by our state run train company, the private ones are A LOT better at keeping the time and having a higher level of service.

quote:

Originally posted by CranberryJuice i agree with that that's why we are lookin at u guys and the whole scandinavia to see how we can cope with our current situation

Scrapping CAP is part of that you know?

quote:

Originally posted by St_Andrew Thats why you should put those on contract, for whatever company runs it best instead of just giving it away. But just keeping it in government hands usually means it's even more expensive than "giving the money to the companies", just that you are rather giving the money to an ineffective organisation.

Don't get me wrong, I have nothing against competition but I just don't think competition can apply to certain industries (eg natural monopolies). For example, when I used to catch a train from Liverpool to Sheffield, there was only one train to catch. It was always rammed and I'd often spend 2 hours stood up. But there is no insentive for the train company to improve services as they get the same amount of money from tickets sales either way (due to the way I think revenue is distrinuted). Another example - water - if I think my water is well over priced and I'm not happy with the service, what exactly do I do? Ring Yorkshire water up and tell em I'm switching to Kent water?! Also there is no other water company in Yorkshire waiting for the government to take the franchise off Yorkshire water. Monoploies are illegal for a reason, and where private companies are not bound by the laws of competition it should be state run (not to mention the ethical debate over whether a private company can be trusted to provide us with vital services such as fuel etc)

quote:

In Sweden its exactly like what you describe it is like in England - except that that is only by our state run train company, the private ones are A LOT better at keeping the time and having a higher level of service.

Shows what I know then! (To be fair I think what helps continental Europe is the fact it got bombed to shit in WW2 so they got to build all their infrastructures again, with all that American money! Whereas we won, so we got to keep our antique railways!!)

quote:

Originally posted by St_Andrew Scrapping CAP is part of that you know?

I'm feelin' that brother!

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