Socialism Isn't Just Impractical, It's Impossible

A century after the Bolshevik Revolution, the ideas of Marx and Engels continue to inspire new generations of radicals against reality. These theories were fundamentally debunked however all the way back in 1920.

A full century ago, the world was forever changed by the October Revolution and the eventual emergence of the red army as the victors of the Russian Civil War. Though the history of the civil war itself is a very interesting topic, and will be dealt with in a later piece, I find this anniversary to be a most opportune time to address the ideology of the war's victors (the Soviets), Socialism. For we need not the mountains of empirical evidence gathered over the course of the great Soviet experiment to effectively judge the merits of their program from an economic standpoint. The ethics of Socialism, again, are a very different topic which I will not be addressing here.

The theory of the Socialist economy, despite how its modern apologists may try to frame the issue, is rooted fundamentally in the collective ownership of the means of production. Socialism, in essence, is the absence of private property. As Vladimir Lenin himself is said to have put it, after the socialist revolution the whole of the economy was to become "like one factory". Under such an arrangement, no capitalist would have the perverse incentive to "exploit" the working population, as no capitalists (defined as the owners of the means of production) would exist.

The flaw in the Socialist program that has been repeated ad nauseum since the the original publishing of the Communist Manifesto in 1848 is of course that of the incentive problem. The incentive problem, which should be quite obvious to most casual observers of humanity, is basically that under a Socialist economy with no prices and totally equal outcomes for all citizens, what incentive would anyone have to work? Moreover, why would any one worker work harder than any other? Different jobs require different skillsets, commitment, and effort. In the absence of a price system which allowed people who are employed in more strenuous jobs to be incentivised by higher wages, why would anyone become a chemical engineer for instance? This is an argument so effective that it is even levied against the United States' own (comparatively austere) welfare system.

The Socialist however has a response to this critique! After the revolution they say, we will all transform into the "New Socialist Man", unconcerned with money incentives or other forms of primitive greed. Man, says the Socialist, will evolve into an altruistic being who thinks only of serving the collective. No more concerned with money incentives than the common Borg! This is the origin of the "Not Real Socialism" defense popularized on social media in recent years. "The Soviet Union wasn't real Socialism", say the apologists, "had the Soviet Union been an example of real Socialism, we would have seen the emergence of the new socialist man!" The same defense is trotted out for ever case you may throw at them: Cuba, Venezuela, the Third Reich, Cambodia, East Germany, etc. As ridiculous as this defense may seem, many are committed to it and refuse to believe otherwise. Therefore the incentive problem is an insufficient argument for convincing dedicated Socialists.

Enter Ludwig Von Mises. At the time of the Bolshevik Revolution, Mises was an esteemed economist working in Vienna, Austria-Hungary. Mises' hometown was actually in Lemberg, Galicia, which would later be incorporated into the Soviet Union as Lviv, Ukraine SSR. Needless to say, as an economist and Eastern European, Mises faced the spread of Socialism right before his eyes. Mises was quite familiar with the Socialists pronouncements about their "New Socialist Man" and sought to develop a definitive argument to defeat it.

It would be in his monumental 1920 article Economic Calculation in the Socialist Commonwealth , that Mises would accomplish his goal. Mises begins his article by not disputing the argument of awakening of the "New Socialist Man", but by completely accepting it. From this point, Mises is able to carry the Socialist argument through to its logical conclusion. Mises supposed first that all citizens in the Socialist Commonwealth were firmly dedicated to the cause of the revolution and were incapable of greed or selfishness, essentially throwing out the incentive problem. It is immediately after this point however that Mises discovers a brand new problem with the Socialist program: the problem of economic calculation.

In short, in a Socialist society with no prices (or with some arbitrary prices) it would impossible to rationally allocate scarce resources. In a capitalist economy, where prices are determined by the subjective valuations of individuals in the community, producers are driven to produce goods using the least expensive inputs available. Take the example of two factories, one which produces nuts and bolts, the other which produces steel beams. The nuts and bolts can be made out of either steel or zinc. The steel beams (obviously) can only be made out of steel. Should the nuts and bolts be made of steel or zinc? In the capitalist economy, the prices of these basic inputs are determined by supply and demand. It is through the price system that resources are able to be directed to their most highly valued end. The steel beam factory's demand for steel in a capitalist economy would bid up the price of steel relative to zinc. This factory is willing to pay this additional premium for steel because zinc is useless to them. The factory which produces nuts and bolts however has a choice, and they will opt to use the cheaper zinc. In a socialist economy where the means of production are collectively owned, prices cannot emerge. Therefore there is no rational way for the manager of the factory producing nuts and bolts to decide between using steel or zinc. Opting for steel of course would likely cause a shortage.

In a simple economy with two producers, it would be easy enough for a socialist planning board to order one firm to use zinc and the other to use steel. This however becomes impossible in a modern industrial economy with an innumerable number of inputs going into an innumerable number of products. It is simply impossible to calculate where and how each resource should be used in the absence of real prices. Therefore, "real Socialism" itself is not only impractical, it is truly impossible. I recommend any defender of capitalism study Mises' essay carefully and take this argument to heart, for no Socialist has dared to refute it successfully.

Well done and very timely. Thank you.

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Beyond the Incentive Problem and the Calculation Problem discussed in the article, there is also the Knowledge Problem. The Knowledge Problem is that the hundreds, thousands or millions of market participants each have specialized and specific knowledge of their role in the economy to produce things (See "I, Pencil" by Leonard Read for an excellent description) as well as what they want or need as consumers. This knowledge can never be known by central planners and will always result in inefficiencies throughout the economy leading to shortages and surpluses. These three problems are the fundamental flaws of Socialism that will always occur and lead to a loss of freedom and economic destruction. See "The Problem With Socialism" by Thomas DiLorenzo for details.

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Beyond the Incentive Problem, the Calculation Problem and the Knowledge Problem is the World View Problem, or maybe spiritual problem. A foundation needed for Socialism to work is the deep belief that man is basically good, and given the choice, with all things being equal, will choose to do what is best for everyone. Those arguing why it hasn't worked before will say that it will work this time because we understand more now ... or those who went before went about the process wrong. One main reason Socialism doesn't work is because of sin ... man is basically evil and selfish.

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Excellent.

In "Wealth and Justice - The Morality of Democratic Capitalism" by Peter Wehner and Arthur C. Brooks, they describe three views of human nature:

Hit Enter too soon! Three views of human nature: 1) Humans are flawed but perfectible, i.e. they can live in a communal society - separated from private property and freed of human inequality. Sharing is paramount. This is the belief of communists which denies human nature and actually Mother Nature as well (e.g. animals of all types create "personal property" - many male mammals "mark" territory, spiders build webs, birds have nests, etc. 2) Humans are flawed and fatally so, i.e. people are antisocial, unable to properly care for themselves and prone to lapsing into a pre-civilized state. They, therefore, must submit to the authority of the state. Believers of this are the Socialists and Fascists. 3) Humans are flawed but capable of virtuous acts and self-government, i.e. human nature is a mix of virtue and vice, nobility and corruption; people can be swayed by reason and passion (incentives); people are capable of self-government but not to be trusted with absolute power (e.g. no kings or dictators) and under the right circumstances, human nature can work to the advantage of the whole. This is the basis for the US Declaration of Independence and Constitution - consistent with free market capitalism, individual liberty and limited government.

Communism works great -- if you're a termite. Humans aren't termites.

And I love the argument that true communism has never really been tried! Mao in China and the Kim clan in NK have taken it about as far as it can be taken and destroyed their countries and starved their people in the process.

It is fascinating to see how in the last year we are coming so close to communism if not in name. Our speech rights are violated. Our right to work and enjoy the fruits of same are gone as the government confiscates our taxcesnbwfore we can see them so that we don’t know how much we’ve been robbed. And where does this money go. To people and projects not decided by those whose taxes pay for them. President trump is trying but I don’t hold out much hope

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