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pythonCode/personTestingOutput/imps-soc.xml
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<xml><p>THE <ent type='ORG'>IMPOSSIBILITY</ent> OF SOCIALISM</p>
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<p>BY RICHARD M. EBELING</p>
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<p>In May, 1988, the <ent type='NORP'>Soviet</ent> newspaper, <ent type='ORG'>Pravda</ent>, ran an article
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which summarized the condition of the <ent type='NORP'>Soviet</ent> socialist
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economy: "Not one of the 170 essential sectors has fulfilled
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the objectives of the Plan a single time over the last 20
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years . . . this has brought about a chain reaction of
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hardship and imbalance which has led to 'planned anarchy'
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. . . the disequilibrium has affected every pore of our
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economy, and has become legendary."</p>
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<p>The term used in the article -- "planned anarchy" -- captures
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the essence of socialism. But it also rings out as a
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vindication of one of the greatest critics of socialism in the
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20th century: the <ent type='NORP'>Austrian</ent> economist, <ent type='PERSON'>Ludwig von Mises</ent>.</p>
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<p>Seventy years ago, in 1920, the <ent type='NORP'>Soviet</ent> experience was only
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three years old. But already, under the name of "War
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Communism," Lenin's <ent type='NORP'>Bolsheviks</ent> had nationalized industry, done
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away with market prices and wages, declared the end of a money
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economy and introduced planning in the form of a centrally-directed command economy.</p>
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<p>That same year, 1920, <ent type='PERSON'>Ludwig von Mises</ent> published one of the
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most important essays in the history of economics: "Economic
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Calculation in the Socialist Commonwealth." In less than fifty
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pages, Mises demonstrated clearly and irrefutably that
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socialism was doomed to fail. He incorporated his argument
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into his 1922 treatise, Socialism, An Economic and
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Sociological Analysis. Here, the economic principles of a
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socialist system were analyzed in the wider context of the
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social, political and cultural pathologies of a collectivist
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order.</p>
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<p>It is not an accident that every experiment with socialism has
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created what <ent type='ORG'>Pravda</ent> called "planned anarchy," or as Mises
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entitled one of his own books in the 1940s, Planned Chaos.
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Even if we ignore the fact that the rulers of socialist
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countries have cared very little for the welfare of their own
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subjects; even if we discount the lack of personal incentives
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in socialist economies; and even if we disregard the total
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lack of concern for the consumer under socialism; the basic
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problem remains the same: the most well-intentioned socialist
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planner just does not know what to do.</p>
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<p>The heart of Mises' argument against socialism is that central
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planning by the government destroys the essential tool --
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competitively-formed market prices -- by which people in a
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society make rational economic decisions.</p>
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<p>A modern economy with an advanced system of division of labor,
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sophisticated technologies and a wide variety of capital
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equipment is just too complex for planners to successfully
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organize and oversee. There is just too much knowledge (and
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too many different types of knowledge) dispersed among too
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many people. The planner is unable to centralize all of the
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relevant and ever-changing information in a complex society.
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He is unable to arrange everything in the economy in just the
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right way in order to "get it right."</p>
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<p>Mises explained that in a market economy free of government
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intervention, this problem which the socialist planner faces
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is non-existent. The key, Mises said, is private property and
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individual freedom. In a system of division of labor, in which
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all of the transactions require the voluntary consent of
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buyers and sellers, self-interest is (as <ent type='PERSON'>Adam Smith</ent> argued
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long ago) harnessed to the common good. No one can acquire
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what someone else possesses unless he, in turn, offers that
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person something he is willing to take in trade. Thus,
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improvement in each individual's condition requires that he
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consider the wants and desires of his fellow men.</p>
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<p>But in a far-flung, world-encompassing system of division of
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labor, in which potential trading partners are separated by
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time and space, how do people discover what they should
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produce in order to satisfy the consumer demands of others?
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And how do they produce efficiently, i.e., with the least
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economic waste?</p>
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<p>Mises explained that the institution of private property made
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all of this possible. Ownership and voluntary exchange create
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opportunities for gains from trade. Competitive bids and
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offers for various goods and services generate market prices
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at which transactions are consummated. And these prices convey
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useful information to everyone in the market about what
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products are in demand in the rest of the world.</p>
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<p>At the same time, private ownership of the means of production
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permits the acquisition and hire of resources and labor for
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the production of goods that consumers may desire to purchase.
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The competitive bids of entrepreneurs for the purchase of
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those means of production generate market prices for the
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necessary resources. These prices enable businessmen to
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evaluate the relative value and profitability of using means
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of production in alternative ways. They provide the means to
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determine which products to produce in the economically least-costly manner.</p>
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<p>Also, since money serves as the common medium through which
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all transactions are undertaken, the market value of all goods
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and services, and all means of production, are reduced to a
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common denominator for simplified comparison and evaluation --
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their money prices on the market.</p>
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<p>This, Mises said, is what makes possible "economic
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calculation" in a market economy. Men are free to make their
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own choices. Market prices that arise out of those choices
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enable each individual to acquire and share information about
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what others desire in the market. The market provides the
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method by which people can make their own free decisions in an
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economically efficient manner. The entire process redounds to
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the benefit of society as a whole.</p>
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<p>The problem with socialism, Mises insisted, is that it short-circuits the "economic calculation" process. And it does so by
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abolishing private ownership of the means of production and
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eliminating peaceful, voluntary exchange. With no legal right
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of ownership, there is neither ability nor incentive to buy
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and sell; with nothing to buy and sell, there are no bids and
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offers for commodities or resources; with no bids and offers,
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there are no consummated exchanges; with no consummated
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exchanges, there arise no market prices; and without market
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prices expressing the relative values of commodities and
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resources, there exists no rational way of knowing what they
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are actually worth to people; therefore, businessmen cannot
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know how they should economically and efficiently be used to
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satisfy the wants and desires of the consuming public.</p>
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<p>The socialist planner, therefore, is left trying to steer the
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collectivist economy blindfolded. He cannot know what products
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to produce, the relative quantities to produce, and the
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economically most appropriate way to produce them with the
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resources and labor at his central command. This leads to
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"planned chaos," as Mises called it, or to "planned anarchy"
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to which <ent type='ORG'>Pravda</ent> referred.</p>
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<p><ent type='PERSON'>Ludwig von Mises</ent> was born on September 29, 1881. This month
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marks the 109th anniversary of his birth. (He died on October
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10, 1973 at the age of 92.) His greatest work, Human Action, A
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Treatise on Economics, was published on September 14, 1949,
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forty-one years ago this month. Throughout most of his life,
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he was one of the most uncompromising defenders of human
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liberty and the free market economy. And he was the most
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important critic of socialism in the 20th century.</p>
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<p>But during his life, he was vilified and hated by a large part
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of the intellectual community, including many in the economics
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profession, around the world. What was his "crime"? In an era
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in which the reigning ideology has been collectivism of one
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form or another, in which the <ent type='ORG'>State</ent> has been worshipped as a
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god, and in which unswerving obedience to the <ent type='ORG'>State</ent> is to be
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given, <ent type='PERSON'>Ludwig von Mises</ent> defended the individual and his
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freedom against omnipotent governments.</p>
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<p>But he did more than that. He also tore to shreds the
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socialist fantasy that proclaimed that prosperity could come
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from central planning. He not only argued that prosperity and
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freedom were compatible, he proved that prosperity could come
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only through freedom and free markets. Socialism as a means
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for improving the condition of man is impossible.</p>
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<p>Socialism is dying around the world. Those who have lived
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under socialism are trying to rediscover the rules and
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institutions of a market economy. <ent type='PERSON'>Ludwig von Mises</ent>' life was
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dedicated to showing why socialism had to die and why there is
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no substitute for a free economy. His courage and devotion to
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the principles of freedom shall stand as a model and ideal for
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all of us to emulate in future ages.</p>
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<p>Professor <ent type='PERSON'>Ebeling</ent> is the <ent type='PERSON'>Ludwig von Mises</ent> Professor of
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Economics at <ent type='ORG'>Hillsdale College</ent> and also serves as Vice-President of <ent type='ORG'>Academic Affairs</ent> of The Future of Freedom
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<ent type='ORG'>Foundation</ent>, P.O. Box 9752, <ent type='GPE'>Denver</ent>, CO 80209.</p>
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<p>------------------------------------------------------------
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From the September 1990 issue of <ent type='ORG'>FREEDOM DAILY</ent>,
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Copyright (c) 1990, The Future of Freedom <ent type='ORG'>Foundation</ent>,
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PO Box 9752, <ent type='GPE'>Denver</ent>, <ent type='GPE'>Colorado</ent> 80209, 303-777-3588.
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Permission granted to reprint; please give appropriate credit
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and send one copy of reprinted material to the <ent type='ORG'>Foundation</ent>.
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</p></xml>
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