You may have thought that Socialism had been definitively discredited when the greatest experiment ever conducted, the Soviet Union, collapsed with the Berlin Wall in 1989; yet socialist ideas and parties, some of whom don’t dare call themselves by their true name, still live on. Socialism ought to have been discredited when the Berlin Wall went up in the first place in 1961, demonstrating to the world that Socialism is a giant maximum-security prison.
But Ludwig von Mises, the Austrian (later American) economist, demonstrated that Socialism could never fulfill its promise no matter what variation was attempted nor how wise and virtuous the men running it. He did this in 1922.
Think about that for a minute: 1922. The smoke and mustard gas of WWI was barely clear. The Bolshevik ‘experiment’ in Russia was only 4 years old and Stalin the Butcher of the Soviet Union had not yet risen to power. Nobody had heard of Hitler or Mao or Castro or Kim Jong Il or Idi Amin or Pol Pot. At that time, the Socialist movement was ascendant all over the world, even in the United States; intelligent men and women of goodwill could reasonably believe it held out hope for a better, more prosperous and just world.
But Mises burst the bubble. He demonstrated logically that every wage and price control, every tariff, tax, privilege, prejudice, manipulation and regulation that does NOT derive from government’s legitimate need to prevent and punish murder, robbery, assault, fraud, theft, rape, persecution and conspiracy – every such interference distorts and destroys information necessary for rational economic planning and action. If some collective entity like the state owns or otherwise controls all capital goods, all land, natural resources, factories, machinery, health care services etc. then
· there is no market for these goods
· no buying and selling,
· no bargaining and haggling,
· no Supply and Demand.
· If there is no market then there are no prices. Prices constitute the indispensable information system for signaling the needs and scarcities in an economy, and the cost of available alternatives. There are a hundred different ways to build a building, and dozens of alternative materials and techniques for each component. Which combination is the most economical? Who knows? Without prices, there is no way of knowing. There is no other metric that can adequately substitute for market prices.
· Economic planning cannot function without these numbers.
That is why Socialism fails every time it is tried: Economic calculation is impossible under Socialism.
And then there’s the bureaucracy. With no markets there is no competition, neither incentive nor reward for better customer service or to provide a higher quality product at a lower price. The entire economy becomes like a giant post office or Department of Motor Vehicles, with self-serving, inner-directed bureaucracies with languages and cultures of their own, foreign to the rest of us, with iron-clad privileges, job security and pensions that do not vary with how well or poorly they serve willing customers.
When you accuse liberals of leading us down the path to Socialism and state bureaucracy with their massive government programs, they scoff and wave you off like you’re some kind of nut case. “We’re not socialists, we’re progressives”, they say. “We only want the best of both systems, the Middle Way.”
But there is no ‘middle way’, in the sense of a happy medium, best of both worlds. Every forcible intervention in the economy, every wage and price control, every tax and regulation that does NOT derive from government’s legitimate need to prevent and punish murder, robbery, assault, fraud, theft, rape, persecution and conspiracy, every such interference distorts and destroys information necessary for rational economic planning and action and is a step toward socialism and crisis.
Mises had been an Austrian artillery officer on the eastern front during the Great War (1914-19). Where did he get the time and resources to sit down and carefully think through profound philosophical and theoretical issues? There was no History Of The Gulags Of The Soviet Union or of the genocides of communist China and Cambodia. Yet Mises saw it all coming. To paraphrase Albert Einstein: ‘there is nothing quite so practical as a good and valid theory.’
So, how come you’ve never heard of Mises? The main answer is that he lost the popularity contest among politicians, even Republicans, to Keyenes. (Remember Richard Nixon?: “We’re all Keynesians now”.) Mises’ vision of limited government and individual liberty does not glorify politicians and their grand projects.
A second reason is that much of Mises’ writing, such as his 900-page magnum opus Human Action, is written in thick, academic prose that is inaccessible to most lay readers. But there is one work of his that is short (100 pages), covers his complete philosophy, and is written in plain language: Economic Policy: Thoughts for Today and for Tomorrow. This was distilled from a series of lectures that he gave in Buenos Aires, Argentina, in 1959. Now there’s a country that could have profited from his advice, if only they had taken it.