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starbucks4ever (97.18)

Mises paper: the list of errors continues

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August 24, 2009 – Comments (29)

I am still reading what is supposed to be the ultimate proof but is really not ultimate and not a proof. So where did we stop last time? It was that thing about socialism piggybacking on the success of its rival.

Quote: "In state and municipal undertakings technical improvements are introduced because their effect in similar private enterprises, domestic or foreign, can be noticed".

Well, first of all, I don't see why this point, even if it were true, should bother Mises at all. Logically, there is nothing wrong with using achievements of your rivals to your own advantage. The one who succeeds most in this life is not necessarily the innovator; often it is the person who purchases other people's inventions and patents. Just like an army commander has every right to use information reported to him by a reconnaissance unit, a socialist country doesn't owe any apologies to Mises if it decides to take a hint or two from other countries' economic data.

Of course one can always say that IF every single country in the world decided to take the socialist route, then this wonderful external source of information would dry up. But this objection cannot be taken too seriously  because there is no logical reason why EVERYBODY would want to try Socialism at once. To say that planners will run out of information if everybody chooses to go socialist is the same thing as to say that life will end if everybody becomes hyper-religious and chooses absolute celibacy. Don't worry about that! As long as we have such politicians as Ron Paul, the chance of every single country, province and township embracing Socialism is about equal to the chance of the Roman Pope, the Iranian Ayatollah, and the Israili main Rabbi changing their mind and turning Atheist on the same hour of the same day.

But even if by some miracle such a thing ever happened, that wouldn't be the end of efficient central planning. For central planners could always designate one special province inside the country and let it run along capitalist lines in order to gain useful insights from that experiment. China has in fact done something of the sort when it took over Hong Kong and is now proposing the same "one country - two systems" model to Taiwan. Even if voters in EVERY country were to reject Capitalism by an overwhelming majority, there would still be enough individuals willing to form a separate Taiwan-sized capitalist colony and relocate there to commit themselves fully to the market cause. The Caps community alone will supply more than enough volunteers, I think. The government would only have to give them a go-ahead, and soon enough all the missing price data will again be on the planners' desk. So a refusal to generate "objective market data" on your own is a) not a bad thing in itself and b) does not deprive you of information that you need. 

And moreover, it's not even obvious that central planning is destined to a catch-up role and cannot innovate "organically". There are no theoretical reasons for not implementing innovations until some businessman abroad alerts you to the possibility. Nor is that conclusion borne out by empirical data. How many satellites had been launched by market economies before the Sputnik? The answer is zero. How many nuclear power plants had been built before the first Soviet plant opened in 1954? Again, the answer is zero. How many subway systems had been built by private capital before the construction of the Moscow "Metro" in the 1930s? Zero up to this day.

When Mises says that "without economic calculation there can be no economy" he is only saying that without such calculation, there can be no economy that HE prefers - the one that is based entirely on that calculation. But he forgets that other economies might well choose to derive their legitimacy from other sources.

P. S. Some posters have suggested, predictably, that Mises' profound revelations can only be appreciated by a qualified audience - the one that is 100% committed to the market cause. I disagree. Ideological "isms" are only necessary when you want to to evaluate emotional rhetoric, but there are no ideological qualifications to access Mises' economic "discoveries". His paper is written in plain language and does not require any special economic knowledge, much less any ideological "isms". The reader's job is simply to ask himself how closely the author's statements conform to logic. So I am just reading the paper, and reporting to you what in my opinion makes sense and what doesn't, and so far I just see an error upon error. In the present example, when he calls a planning system defective because it dares to copycat some of the achievements of capitalist economies - a claim that ignores the whole history of Japan's industrialization - I cannot pretend that it makes any sense to me because it doesn't. So to those of you with strong ideological preferences I can only advise to support your beliefs with equally strong arguments - in the comments section.

29 Comments – Post Your Own

#1) On August 25, 2009 at 1:34 AM, ajm101 (31.90) wrote:

I wonder how much higher the US equity premium would be if we weren't wasting 7% of the GDP (relative to other countries with comparable healthcare quality) on an inefficient healthcare system.

Zloj, you are making a very fundamental mistake in taking Mises seriously.  They are not there to solve problems, they are there to promote Austrian economics and Libertarian political theory.  Nothing wrong with that, but they should be treated in the same way as AEI or Heritage (partisan think tanks).

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#2) On August 25, 2009 at 1:03 PM, whereaminow (< 20) wrote:

1. Logically, there is nothing wrong with using achievements of your rivals to your own advantage.

At this point Mises has already proven Socialism to be impossible.  No market = aggregation of subjective valuations = no price formation made at the margins by individual actors = no profit/loss = no objective feedback = no knowledge of whether goods have been used economically. 

With this understanding, Mises is offering an observation (perhaps irrelevant), not a proof. 

2. The really scary thing is a simple truth. The structure of a purely Socialist economy bears little difference from totalitarian economy.  Therefore, I hope you are right in assuming that we will never see worldwide implementation of such an economic system.  That would most certainly be accompanied by global totalitarianism.  And however shortlived, it would be nightmarish.  There has been such widespread central planning of all economies before.  It was called The Dark Ages.

3. The essence of the difference between capitalism and other planned systems such as fascism, socialism, syndicalism, mercantilism/corporatism, is that while the latter are all economic systems, capitalism is not.  Capitalism, for better or worse, is a catallactic condition which arises when free individuals are allowed to interact.  Individuals engage in voluntary exchange and specialization of labor, not because some authority on high commanded them, but because it is beneficial to them.   It requires no plan, only for planners to get out of the way.  You may prefer the central plan, but if you do plan, you are not engaging in capitalism.  This is why we remark on the hilarity of central planners such as Alan Greenspan bemoaing the failures of his capitalist planning.

If you never come to understand capitalism, particularly the implications of mutually beneficial voluntary exchange, you will never "get" Mises either. 

David in Qatar   

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#3) On August 25, 2009 at 1:03 PM, whereaminow (< 20) wrote:

Oops again

No market = no aggregation of subjective valuations = no price formation made at the margins by individual actors = no profit/loss = no objective feedback = no knowledge of whether goods have been used economically. 

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#4) On August 25, 2009 at 2:22 PM, starbucks4ever (97.18) wrote:

"No market = aggregation of subjective valuations = no price formation made at the margins by individual actors = no profit/loss = no objective feedback = no knowledge of whether goods have been used economically."

Actually the whole point of the current post is that the knowledge whether the goods have been used economically (that is, economically from a capitalist viewpoint) WILL be available from the experience of other capitalist countries. That this information is mostly garbage (see previous post) is a separate issue, but if the planners want it, they will have it. 

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#5) On August 26, 2009 at 5:55 PM, JHenson04 (< 20) wrote:

I'd like to respond in a fuller way, but one point for the moment.

zlog says: "Of course one can always say that IF every single country in the world decided to take the socialist route, then this wonderful external source of information would dry up. But this objection cannot be taken too seriously  because there is no logical reason why EVERYBODY would want to try Socialism at once."

Actually, the logic of the Marxists themselves is that every country would need to be socialist in order for it to work.  So why don't you hit the history books again.

The whole post is kind of sad.  Yes, his essay is in plain language, but you need to have a decent understanding of the concepts before you tackle it.  Mises does not recount the entirety of economics in this essay alone.  I imagine it would be very difficult to understand this argument if first you did not understand the nature of the economic science, which, I have to say, you clearly do not.

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#6) On August 26, 2009 at 6:32 PM, starbucks4ever (97.18) wrote:

"Actually, the logic of the Marxists themselves is that every country would need to be socialist in order for it to work. "

JHenson04,

First of all I am not a Marxist, and second of all, I can't recall even Marxists saying such nonsence. The truth is, Marx never outlined his blueprints for planning procedures and practices. His social vision always remained utopian and he was simply assuming that the socialist government would easily find the best way to manage the whole thing. A controlled capitalist "reservation" preserved for experimental purposes would not contradict the spirit of Marxism, not would it violate its letter because Marx never went past the first volume of das Kapital and did not leave any instructions to the planning authorities. You should also consider the possibility that central planners could depart from Marxism and centrally plan in whatever way that proves most efficient. Hope it helps,

-Z. 

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#7) On August 26, 2009 at 6:32 PM, whereaminow (< 20) wrote:

hey i didn't see this zloj, but you and I made the Mises blog with our first debate.  LOL, we're famous!

http://blog.mises.org/archives/010281.asp#comments

Anyway, despite our disagreements, I've always thought you're a good dude, so I'm happy to be linked with you, even if the argument will rage forever.

David in Qatar

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#8) On August 26, 2009 at 6:46 PM, starbucks4ever (97.18) wrote:

Hi whereaminow,

You're always welcome. Disagreements are fine as far as I am concerned. I am sure you will have something to say about the concept of borrowing data from other countries/provinces/experiemntal capitalist playgrounds. And yes, I do understand that the borrowing process will not work perfectly as nothing works perfectly in this world :)

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#9) On August 26, 2009 at 8:21 PM, JHenson04 (< 20) wrote:

zlog, it was the pretension of Marxists for world revolution.  That's what I'd call "well known."

Since I like to take ideas of import seriously, I think it's important to treat this suggestion of a capitalist playground with seriousness.  I have no read the essay recently, but I cannot imagine that Mises would ever even say it was hypothetically possible.  Why?  It goes back to price reflection of the complications inherent in economic coordination.

This isolated playground, even if it is another country that the socialist planners look towards, will never be able to import its prices and expect a modicum of efficiency.  Why is this?  Consider the case of a country with an abundance of coal, to a country without.  The country without coal is the socialist country, the country with is capitalist.

Coal in the capitalist country will be cheap, making electricity (presumably) cheap (assuming they allow this foul substance to be burned! heaven forbid!).   Looking at their neighbors, the socialist economy prices electricity cheaply.  It is gobbled up immediately, and there is widespread shortage. There is no functioning price mechanism to distribute the scarce electricity to the most profitable enterprise.  If there had been, the producers of the electricity would sell to the consumers of the most productive utilizers of electricity.

This example seems banal when one understands the price mechanism.  Yet zlog has made somewhat of an ass of himself commenting recklessly on a profound essay.  (I say this with no intended venom.)  Oh well.. there's no reason people should continue to remain ignorant when they have been presented a logical explanation of their errors.

You say: "When Mises says that "without economic calculation there can be no economy" he is only saying that without such calculation, there can be no economy that HE prefers - the one that is based entirely on that calculation."

You're right, of course.  Mises prefers an economy that reflects the economy that the people participating prefer.  That is to say, one that utilizes the price mechanism and economic calculation to mitigate opportunity cost.  Socialists prefer an economy that they alone determine. 

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#10) On August 26, 2009 at 8:34 PM, JHenson04 (< 20) wrote:

Just because I'm bored, you say:

"The truth is, Marx never outlined his blueprints for planning procedures and practices. His social vision always remained utopian and he was simply assuming that the socialist government would easily find the best way to manage the whole thing. ... You should also consider the possibility that central planners could depart from Marxism and centrally plan in whatever way that proves most efficient. Hope it helps,"

Marx was a socialist.  That is to say, he believed in socializing the means of production.  I am not going to get into all the blatent falsehoods attributable to Marxism, well, because even boredem has its limits... ha, but he was also not a "utopian," per se.  Marx believed that the socialists before him were silly painting these utopian visions of an idyllic future.  Clearly this approach was not working, so Marx developed his own theory, what he branded "scientific."  It was all based arond his Hegelian dialectic, which, again, is too much to get into here but basically says that history goes back and forth, and its final stage is socialism.  Socialism is inevitable because capitalism exploits the worker more and more with each passing day.  The proles would eventually rise up! awaken to a new consciousness! and overthrow their bourgeois masters!  This would usher in the stateless (hence worldwide) millenium of communism (these words I use interchangably for these purposes).

So, actually, this capitalist reservation (playground, whatever) is against the spirit of Marxism.  I know this is technical and knit-picking, but I'm also aiming to stamp out any remnants of socialism, an absurd, destructive, murderous concept, from this thread!

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#11) On August 26, 2009 at 8:49 PM, starbucks4ever (97.18) wrote:

JHenson,

Any idea can be brought to absurdum, if you have made up your mind to do so. There was once a Soviet leader who did just that: he visited an American corn farm, was very impressed and then ordered to plant corn in Russia, where it could not possibly grow because the weather was a little too cold. But so what? Just because an idiot can easily run his car into the nearest oak tree doesn't mean there is something wrong with cars. By the same token, an idiot can make entirely wrong conclusions from the price of coal. Any comparison has to be an apple-to-apple comparison, as every good seventh-grader must know. In your example, the planner must simply take the price of electricity minus the price of coal and learn from this how efficiently coal can be converted to electricity under capitalism. I doubt that this data would be very useful, but obtaining such data would be easy.

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#12) On August 26, 2009 at 8:55 PM, JHenson04 (< 20) wrote:

Well, honestly, what is the point of socialism if you need a capitalist reservation to run it?  I still contend it wouldn't work, but I'll grant you this for purposes of the discussion.

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#13) On August 26, 2009 at 9:17 PM, starbucks4ever (97.18) wrote:

JHenson04,

Wow! That was quite a tirade! You were accurate in reproducing the Marxist message, but you haven't shown how a capitalist playground would be "against the spirit". Nobody here likes plague, right? But we are still open to the idea of keeping a colony of bacteria in a research lab to study their properties. So may I presume that an intelligent Marxist would be just as open to the idea of a scientific experiment, all the more so that all participants would be volunteers and so "exploitation" would not raise any moral issues. I must also insist on my term "Utopian" becuase while Marx was right economically, his sociological premises were often so naive they were almost childidh. But I must also reject your adjectives "absurd, destructive, and murderous" because my own experience of it was quite different. We had plenty of absurdities, but no destruction and very little murder rate. On the other hand, the amount of absurdities here is really amazing. The changes in stock valuations over the last year might have given Kafka a subject for a novel.

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#14) On August 26, 2009 at 9:23 PM, JHenson04 (< 20) wrote:

so you then admit you're a socialist?  where are you from?

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#15) On August 26, 2009 at 10:04 PM, starbucks4ever (97.18) wrote:

"Well, honestly, what is the point of socialism if you need a capitalist reservation to run it?  I still contend it wouldn't work, but I'll grant you this for purposes of the discussion."

A good question. What's the point of having a healthcare system if it needs sick people in order to function properly? What's the point of science if in the end you still have to revert to the unprovable belief that the evidence of your senses is correct? Aren't we back to the same old religios method? What's the point of taking boxing courses and getting a sparring partner who repeatedly punches you in the face? The whole point was to avoid getting punched in the face, right? When you want to fight something, you must also allow for the existence of what you're fighting against. That's the nature of the game.

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#16) On August 26, 2009 at 10:12 PM, starbucks4ever (97.18) wrote:

JHenson, disagreeing with Mises doesn't make one a socialist. 

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#17) On August 26, 2009 at 11:31 PM, JHenson04 (< 20) wrote:

Honestly I don't think you've thought the whole argument out.  He was saying that socialism would never be able to meet a population's needs as well as capitalism, and the reason is that it has no way of determining whether its actions are good or bad (profit and loss).  Advocating socialism is tantamount to advocating the banning of accounting practices.  There is no scorecard to say if society's activities add to or detract from human satisfaction.

If you are going to admit that socialism needs a free market to function even remotely efficiently (an unlikely possibility, I maintain), why would you ever introduce socialism into the - admittedly better - capitalist system.  It is at that point superfluousm, even detrimental to society.

Is this all the Mises you've read?  I would recommend reading much more before engaging in this sort of debate.   Once you understand the axioms on which Mises builds his case, I believe you'll find it irrefutable.

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#18) On August 26, 2009 at 11:32 PM, JHenson04 (< 20) wrote:

As for those wild stock prices, see Austrian Business Cycle Theory.

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#19) On August 26, 2009 at 11:45 PM, JHenson04 (< 20) wrote:

You know, I actually wrote a paper on this that never went to any use.  I don't claim it's very good, but it's not horrible!  Sorry for the length!

Socialism: A Free Market Critique of its Economy and Political Consequences

 

Socialism’s Historical Predecessor: The Free Market

 

            The history of the 19th century is known diametrically as one of flourishing liberalism as well as for the intellectual rise of socialism.  In the preceding centuries, the philosophical groundwork had been laid for a series of revolutions oriented around the individual’s changing role in broader society.  This tradition of codifying provisions for the protection of individual rights had its roots in medieval scholarship and finally realized political dividends through revolution, including the Glorious Revolution, the American Revolution, and the French Revolution.  These turbulent events gave birth to new institutions that were designed to protect individual rights of belief and property.

            From the protection of private property in the area of politics arose large economies based on free market principles, under which the vast majority of economic interactions were voluntary exchanges.  This criterion was markedly different than forced or coerced exchange – the norms of exchange under monarchy and other despotic economic systems.  What differentiates the voluntary from other forms of exchange is its unique quality of mutual beneficence; repeated in perpetuity, voluntary exchange facilitates the creation of a high value economy for society.

 

Economic Calculation in a Free Market: the Price Mechanism

 

            The free market economy achieves a high value relative to all other economic arrangements through its reliance on private property to establish prices.  Prices are what allow for economy – the act of minimizing cost to achieve a stated goal – by reducing a large range of human preferences to quantifiable, specifically monetary, terms.  Once preference is expressed numerically, ratiocination of tradeoffs, or the economic calculation, becomes possible.  Without an expression of price, rational economic calculation in anything larger than, say, a household becomes untenable due to the sheer number of factors required for meaningful analysis.

            What is the anatomy of a price?  That is, what fundamentally gives prices their efficacy?  To understand this concept requires linking the price expression to its underlying unit: value.  Humans assign different conceptions of worth to different goods; value is a creation of the human mind alone.  Humans then prioritize these values, and from this ordering emerges a preference scale, expressed in the form of prices.  As all preference is subjective, all expressions of value – prices – are implicitly subjective as well.  Would a vegetarian pay even $1 for a cheeseburger to consume?  Certainly not; but a carnivore may pay $10, or more.  A free economy leaves decisions of preference, determinations of value, to individuals and not to a third party.  Thus, prices established in a free economy are transmitters of preference information.

            If prices permit rational economic calculation, their formulation is best understood in conjunction with the idea of an order of goods.  Carl Menger, among the first economists to conceive the idea of marginal utility, developed a model dividing goods into a higher order and lower order in his 1871 treatise Principles of Economics.  Lower order goods are defined by consumption, while higher order goods are defined as anything that serves as an input to a lower order good, be it raw material, labor, or capital investment.  In the production system of a free market, all goods have prices, and the price of the higher order goods is imputed into the price of the lower order goods.

A simple example illustrates this imputation.  The cost of a pound of sand from which to make a drinking glass may be expressed in mere cents, whereas a drinking glass may sell for several dollars.  Accounting for this sudden price increase are the additional inputs of heat energy needed to make glass from sand, labor, needed to form the glass into the shape of a drinking glass, etc., as well as any distribution and retail costs.  Importantly, all costs associated with production are passed down to the consumer.  Imputation of costs from higher order to lower order goods is impossible without a functioning price mechanism across the spectrum of economic goods.

For the consumer, economic calculation is an excellent, if imperfect, expression of consumption cost.  It is invaluable (pardon the pun) for everyday economic decisions.  For the entrepreneur, economic calculation is used to determine the costs of production (the sum total of the price of higher order goods) and assists in his reckoning of the market price of his product (lower order good).  If the market value of his product exceeds the sum total of his costs plus his required rate of return, production is economical and implicitly, though strictly amorally, valuable to society.  Indeed, it is profit and loss that serves as the compass for production in the free market.

To know that a price was agreed upon within the context of voluntary exchange is to know that both parties benefited, or, at the very least, assumed they would benefit.  This self-evident fact exposes the fallacy of the bifurcated price system (in which goods have an “exchange” and “use” value) that Classical economists developed prior to the Marginal Revolution in economic thought.  Stated negatively, this principle asserts that economic goods do not have a natural, intrinsic value.  It was upon this fallacy that Karl Marx formulated his labor theory of value, and upon this theory that socialism’s economic pretenses are largely developed.

 

Political Implications of the Free Market

 

Limitations on the power of civil government are, as mentioned above, intellectual descendents of medieval scholarship.  St. Thomas Aquinas, an Italian monk working in the 13th century, vastly expanded the tradition of methodically separating the individual from the state with his meditations on the legitimate authority of the state in religious affairs.  For this reason, freedom of belief is often thought of as the principle freedoms on which others hang.  Although by no means an economist, Aquinas contributed mightily to the development of the free economy through his reconciliation of Christian faith and Aristotelian philosophy.  It is for this reason that Friedrich von Hayek, prolific economist and political theorist, referred to Aquinas “the First Whig” in his postscript to The Constitution of Liberty.  Michael Novak, a Hayek enthusiast whose own works helped re-orient the Catechism of the Catholic Church’s economic teachings around capitalism, acknowledges that Aquinas’ emphasis on ordered liberty provides a significant philosophical and theological defense for limiting government.

(As the Soviet Union dissolved, Pope John Paul II embraced capitalism, if somewhat guardedly, in his 1991 encyclical Centimius Annus.  No fan of unbridled capitalism, yet relentlessly anti-Communist, Pope John Paul II, in the tradition his Dominican forebear, approached questions of political economy from an anthropological perspective.  His criticisms are legitimate and focus on those people without capable means to enter a market.)

Classical economists, including Adam Smith and Jean-Baptiste Say, began their study of economy by observing the purposeful actions of their fellow citizens.  From these observations, they were able to draw conclusions about government intervention in an economy, and rarely were the conclusions state-friendly: tariffs reduced wealth by limiting trade; excessive taxes were detrimental towards savings, the basis for capital accumulation, and therefore slowed economic growth; price fixing led to shortages; government debasement of currency caused inflation, leading to economic dislocations that could be absolutely devastating to a nation.  Milton Friedman’s axiomatic statement “Inflation is always and everywhere and monetary phenomenon” and his distrust of government was based in his classical grounding.  As demonstrated capably by Frederic Bastiat, state policies often lead to war, for tariffs and warships embargoing a harbor share a common purpose.

A free market has altogether different societal implications.  Austrian economist Ludwig von Mises observed that market activity fosters social cooperation, self-reliance, and trust of neighbor.  Free economic activity is intimately intertwined and interdependent: the cost of dishonesty is therefore high.  People working for mutual benefit have no logical reason to commit betrayal in business affairs.  With the knowledge that each is responsible for himself and his family first, the subsequent equality of responsibility leads to humility – the antithesis of haughty paternal government.  Predictable government policy is crucial to a properly functioning economy, and as such, war, with its inevitable consequences on trade and domestic freedoms, becomes distasteful.

Of paramount importance in the realm of ethics is the free market’s characteristic of economic self-determination.  As described by Mises, in his economic life man is both a consumer and a producer: as a consumer, he establishes his value judgment scale, giving rise to preference, and in doing so guides production; as a producer he produces the good of maximum value.  Thus, in a free market, contra the contention of anti-capitalists, there is economic self-determination by consumers.  The free market’s flexible adjustments – in labor markets, in industrial production, in the aesthetics of goods – to changing tastes is provided by the feedback contained in the information in prices.  In the words of the Mises, in the free market “the captain is the consumer.”

 

Socialism

 

            Socialism is defined as a system in which the means of production are owned by the community.  Originally conceived on the heels of the Enlightenment in an era that had witnessed great strides forward in science, socialists, armed with newly acquired scientific knowledge, were hostile towards markets, which they viewed as anarchistic and chaotic.  Believing that dispersed information bred inefficiencies and unnecessary social inequality, socialists looked to centralize knowledge and create a scientifically planned economy that was more equitable.

The only practical way to achieve this goal was through state (“public”) control of the means of production.  Consequently, in a socialist system, the productive means of society are removed from private hands and put into public, or community, trust.  The state and its bureaus and agents make economic decisions for society based their judgments of needs.  These needs are partly perceptible in the observance of prices established on the market for goods designated (by the bureaucrats) for distribution (consumption).  It is through the price signals of what may be termed socialism’s consumptive market that planners judge what economic course will be most satisfying for society.

The economic effect of public, rather than private, ownership is the removal of pricing for productive means; under socialism, capital necessarily remains un-priced.  It is due to this inability, nay refusal, to price capital that leads to the dislocation of productive resources, so characteristic of socialist economies.  Economic calculation is possible only on the consumptive market and not throughout productive industry.

 

Economic Calculation under Socialism: The Labor Theory of Value

 

Marx, in his dedication to the politics of the proletariat, developed the labor theory of value to solve the problems of socialist production.  The labor theory of value asserts that value is derived primarily through the man-hours dedicated to producing each good.  Thus, in the mind of planners, a good’s economic feasibility can be determined by weighing the necessary labor hours against societal utility, a variable presumably based on the prices established in the consumptive market.

Despite its relative simplicity, dependence on the labor theory of value to plan an economy is futile; compared to the living standards of a free economy, a populace will reject the lower standards of socialism.  Although labor is an important factor of production, it certainly does not take into account the full spectrum of variables required to calculate economy; that is only possible through a broadly free market price mechanism.  Absent a rational calculation method, socialist economies will tend towards taking goods of higher value and transforming them into goods with lower value.  They will focus on reducing cost so as to maximize equitable distribution, but goods will suffer a decline in quality because socialist economies limit the choices available to consumers.  They are able to focus on fulfilling an immediate and obvious need, but are unable to judge the relative tradeoffs associated with shifting production schedules so as to meet this dire need; in this manner, a shortage in good A is remedied just to induce a new shortages in goods B & C.

 

Political Implications of Socialism

 

Labor theory of value is poor economic theory and reeks of the potential for political manipulation so desired by Marx.  Emotional appeal to the large working class, the proletariat, subordinates any efforts to arrive at economic axioms that determine purposeful behavior.  A series of false material promises – the remuneration of the worker’s “full yield,” a wholly just world, a chicken in every pot – is not only ingenuous, but, ironically and tragically, made infinitely more difficult by suffocating market pricing.  Chaos and anarchy, in greater degrees than had ever existed in the free market, are transferred to the political realm instead.  Instances of force and coercion, alien to voluntary exchange, are amplified greatly in official state policy, as state objectives cannot be questioned or altered lest the illegitimacy of the entire system be exposed.  Machiavelli’s reviled suggestion that the ends justify the means becomes the state motto.  Morality and self-determination are stamped out by the needs of nearly unalterable planning and the machinations required for completion.  Truth is replaced by arbitrary edict and obsequience is elevated to a cardinal virtue.  A class of bureaucrats emerges as the new bourgeois, having added state power – terminally, legal violence - to prod labor into submission.

Endgame for the socialist society bears no semblance to paradise, but much to a fiefdom, constantly in fear of or at war with its neighbors.

 

Concluding Remarks

 

Despite its multifaceted benefits, the free market is not perfect.  It is prone to cyclical corrections.  Markets, while they secure prosperity for the willing and able, leave out those with severe physical and mental handicaps.  As amoral phenomena, markets must be made to exclude things that society does not see fit for sale, such as human life.  In times of war, where national sovereignty is at stake, civil governments may be obliged to co-opt market sectors into their war making efforts.  Acknowledging all these exceptions, however, does not make for a compelling case for an alternate economic order.

            Adam Smith, having spent his life observing man’s economic activities, expressed dismay that despite the clear advantages of a free economy, the extended reasoning chains required for understanding made it an unlikely candidate for societal adoption.  The relatively simplistic, emotionally appealing, although specious argumentation of socialism (or any paternal government) was likely to carry the day based on rhetorical potential alone.  That there was ever an historical movement towards liberty now seems quaint and idealistic.  The shadow of Roosevelt’s New Deal looms large over this county, an import of Europe’s socialist heirs, the Fascists and Communists.  Liberty being most harmonious, progressive, and peaceful, it is of centurial importance to defend the intellectual underpinnings of a free society.

 

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#20) On August 26, 2009 at 11:54 PM, starbucks4ever (97.18) wrote:

JHenson

Again, you're being confused. First of all, I did not propose to introduce socialism. If I disagree with Mises, that doesn't mean I think Marx is kosher, does it? Second of all, even if I admitted that "socialism needs a free market", this isn't a contradiction because by the same token I am also saying that capitalism needs socialism to function even remotely efficiently. Third of all, if you ask what I really think about it, the answer is, I see both systems as being about equally good, that is, they are both quite inefficient. Forth, the reason I'm not quoting the whole essay is that it would take too much space for a single post. I've finished reading it. I understand he may have written many other works, but from that essay, his position is already crystal clear to me, so I will not try to further perfect my understanding of Mises. The perfect is the enemy of the good. 

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#21) On August 27, 2009 at 8:36 AM, JHenson04 (< 20) wrote:

"Third of all, if you ask what I really think about it, the answer is, I see both systems as being about equally good, that is, they are both quite inefficient."

That's a very cynical way of looking at life.  At any rate, I'm stupefied how you could think that the Soviet and American economies from the 1940s - 1980s were equally "good."

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#22) On August 27, 2009 at 8:47 AM, starbucks4ever (97.18) wrote:

"At any rate, I'm stupefied how you could think that the Soviet and American economies from the 1940s - 1980s were equally "good."

Very simply. The Soviet economy in 1980 was about as good as the American economy in 1940. And the Russian economy in 1910 was also about as good as the American economy in 1870. The gap did not become larger or smaller with the introduction of socialism, but remained approxiumately the same.

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#23) On August 27, 2009 at 9:03 AM, JHenson04 (< 20) wrote:

Yeah, it's not worth it.  I give up.  You're going to think what you want, and remain unencumbered by mountains of evidence, both theoretical and historical.

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#24) On August 28, 2009 at 9:41 AM, JHenson04 (< 20) wrote:

"Without private property, there would be no private owners bidding for goods and services, and no exchanges among real owners. Without private owners, each guided by the desire for profits and the fear of losses, there would be no market prices to indicate what people wanted and how much they were willing to pay for it. Without market prices, there would be no competition and no profit-and-loss system. And without a profit-and-loss system, there would be no network of interrelated, consumer-directed, independent producers. Without private property, competition, market prices, and a profit-and-loss system, the planners would not know what to produce, how much to produce, or how to produce it."

 from http://mises.org/story/3629

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#25) On August 28, 2009 at 1:22 PM, ajm101 (31.90) wrote:

JHenson - keep telling yourself that people only work for money and no other metric of utility, and that the straw man that you keep knocking down is your actual opponent.

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#26) On August 28, 2009 at 4:04 PM, JHenson04 (< 20) wrote:

ajm, until you have a modicum of understanding re: money, don't make an a$$ of yourself in public.

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#27) On August 29, 2009 at 9:35 PM, notoointerested (< 20) wrote:

The logical reason for having socialism everywhere is that if it works better, as you contend, everyone should live by that system. Alternatively, if capitalism generally works better, everyone should live in that system. Everyone should take advantage of what works best. Besides, Mises argued that economic calculation is impossible without capital markets. It would have been illogical for him to argue that calculation necessarily stops at national borders.

The idea that socialists could designate a capitalist zone for calculation sounds like capitulation on your part. But you backpeddled on that admission. The innovation point that follows is as irrelvant as anything else I have read by you here, because the calc problem is not about technology or creativity, but about extreme complexity and future changes in consumer demands.

The economic calculation problem is not a matter of technological innovation or of who owns water, or any other one resource. The economic calculation problem is the matter of determining the pattern and overall pace of investment in all the many types of new capital goods. Yes, there is innovation here, but its not a matter of being creative, but what to do with all that creativity out there. To be more specific, how do you determine the extent of investment in billions of particular capital goods in millions of projects without prices and profit and loss accounting? 

Yes, there are millions of final goods worldwide, and each derives from a complex combination of capital goods, parts, types of specialized labor... How is all this capital investment be planned so as to coincide, at least roughly, with future trends in consumer demands? Your attack on Mises does not even to begin to address the real issues of economic calclation.

I don't expect a serious answer, as it seems that this person is too blinded by ideology to engage in a serious debate. But this was not a major time invesment on my part.

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#28) On August 31, 2009 at 9:56 AM, starbucks4ever (97.18) wrote:

notoointerested,

I see no particular logic in forcing every single country to have the same system that you think "works best". That's akin to Stalin's obscession with forcing every single peasant into the collective farm. First of all, people never seem to able to agree about what works best. Second of all, there are many people out there who think that what generally works worst is going to work best for THEM. Thir of all, each system will have some good years and some rough patches, and these opinions will be changing as a result. And I don't see why recognition of complexity would constitute a "capitulation" on my part. A decision to set aside of a colony of bacteria for research purposes does not constitute a capitulation before the disease. On the contrary, it makes you better prepared to fight the disease. Isn't it beautiful to have your opponents work for your benefit?

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#29) On August 31, 2009 at 10:42 AM, JHenson04 (< 20) wrote:

"I don't expect a serious answer, as it seems that this person is too blinded by ideology to engage in a serious debate."

That about sums it up in my eyes.  There's no use debating an Socialist ideologue who is either uninterested in or incapable of engaging in serious debate.

It is enough to realize that the free market works far better than collectivist economics and dismiss the stubborn critics.  Our time is better spent propagating our ideas through popular means, rather than being mired in pseudo-intellectual debate with obstinate and unteachable opponents.

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