In the socialist commonwealth every economic change becomes an undertaking whose success can be neither appraised in advance nor later retrospectively determined. There is only groping in the dark. Socialism is the abolition of rational economy.—Ludwig von Mises
The recent ignorant ranting of activists, politicians, and pundits about the methodical and systematic march towards Socialism indicates that the arguments made by Marx and other Socialists are still relevant. The complete misrepresentation of the healthcare proposal as Socialized medicine rather than America’s own unique brand of Statism or more accurately Fascism or nationalized healthcare discredits the arguments of the supposed “Conservatives.” Moreover, it indicates that an understanding of Ludwig von Mises’ argument of the impossibility of Socialism as a viable form of social cooperation is of great significance. Socialism is characterized by a particular set of means or intermediate end, the State ownership of the factors of production, and an ultimate end, the end of history in which perfect social harmony is permanently established.
Social harmony is achieved by the elimination of the exploitation of the proletariat and, most importantly, by the transformation of society from the “kingdom of necessity” to the “kingdom of freedom.” The Socialists argue that, by “rationalizing” the factors of production through State ownership, material production is advanced beyond the limited output of the free market. They boldly proclaim that humanity will be ushered into a post-scarcity utopian society; a world in which material wealth is abundant. Thus Socialism, in addition to prescribing a particular set of means, which requires bureaucrats or central planners to control and allocate the factors of production, also involves a specific end, social harmony or the elimination of the class structure. The crucial premise in the Socialist’s argument is that social harmony is achieved through the intermediate end of advancing material production to previously inconceivable levels.
Marx and other Socialists attempt to demonstrate the productive inferiority of the free market and its supposedly chaotic allocation of the factors of production. Their arguments include strong critiques of the free market on the grounds that its method of production is “irrational” and tends towards monopolization; it is important to emphasize that in a free market monopolies are actually a specific grant of the State. They argue that the free market’s method of production breeds the disenfranchisement of the proletariat and that the disenfranchisement of the proletariat inevitably leads to the booms and busts of the business cycle. This makes the free market inherently unstable; Keynes’ psychological argument that “animal spirits” are the source of the booms and busts of the business cycle is not far removed from Marx’s attempt to account for the business cycle with a psychological argument. Thus, the social organization of production under a free market reflects the “kingdom of necessity,” but the social organization of production under Socialism will deliver humanity into the “kingdom of freedom.”
Socialists argue that scarcity is overcome through the “rationalization” of production and that “rationalization” creates an abundance of material wealth. Since the utopian ideal of a “kingdom of freedom” produces an abundance of material wealth, it eliminates the need for the State to redistribute wealth; all class struggles are eliminated as society reaps the benefits of an unimagined profusion of material wealth. Therefore, the success of the Socialist scheme rests on the intermediate end of “rationalizing” production. By “rationalizing” production, Socialism will avert the waste inherent in the free market’s chaotic allocation of the factors of production, purge society of the free market’s tendency towards greater monopolization, eliminate the free market’s inevitable crises, and, as such, produce an unprecedented increase in material wealth. The productivity gains of the intermediate end will usher in a post-scarcity utopian era that eliminates class distinctions.
The post-scarcity utopian era will provide the material preconditions for creating lasting social harmony; it will permanently establish the “kingdom of freedom.” The argument made eloquently by Ludwig von Mises against Socialism refutes the premise that the “rationalization” of production through State ownership of the factors of production will achieve the promised productivity gains; i.e., that the intermediate end of Socialism is unattainable. If Socialism cannot realize the intermediate end of advanced material production, then it cannot achieve its ultimate end: social harmony. The impossibility of the intermediate end of an unprecedented abundance of material wealth precludes the possibility of a post-scarcity utopian world that eradicates the historical class struggle; i.e., the apparent historical inevitability of Socialism is questionable.
Mises cogently demonstrates that it is impossible for the State ownership of the factors of production to achieve Socialism’s intermediate end of advanced material production because of the inability to engage in rational economic calculation. Mises’ argument starts with the fact that the Socialist means entail the complete abolition of the private ownership of the factors of production. The absence of the private ownership of the factors of production prohibits the voluntary exchange of these means of production. The lack of voluntary exchange of the factors of production leads to the abolition of market prices for the factors of production. The absence of market prices for the factors of production prohibits bureaucrats or central planners from rationally allocating these factors.
The rational allocation of the factors of production requires that scarce resources be allocated in such a way that urgent market participants’ demands are satisfied. Scarce resources should not be allocated to some less urgent market participants’ demands. In a free market, market prices, which are the demonstrated subjective preferences of individual market participants, enable economic calculation. Market prices provide the subjective information that entrepreneurs need to allocate scarce resources towards productive activity that satisfies the most urgent demands of market participants. However, without these market prices, allocation of scarce resources towards the most urgent demands is impossible. The abolition of market prices for the factors of production by Socialism eliminates the very process that enables market participants to rationally economize their actions. The very possibility of the “rationalization” of production demands knowledge of the various subjective preferences of individual market participants.
The subjective preferences of individual market participants are manifest in the process of voluntary exchange; any attempt to know the subjective preferences of individual market participants without the voluntary demonstration of those preferences in the free market is attempting to know, as Mises points out in Human Action, only what God knows. How are bureaucrats or central planners going to allocate the factors of production without prices? What information or knowledge of the individual subjective preferences or demands of market participants will they possess? Thus, a Socialist economy based on the intermediate end of the supposed “rationalization” of the production process is impossible. Socialism’s inability to rationally allocate the factors of production and achieve the intermediate end of an unprecedented abundance of material wealth precludes the possibility of realizing Socialism’s post-scarcity utopian world. Thus, despite the copious pamphlets and manifestos and heinous efforts—why use force and coercion to impose an idea that is supposedly historically inevitable—to promulgate Socialism, it is neither historically inevitable nor realizable. It is the impossible groping’s of hubristic intellectuals and aspiring tyrants.
Kenneth R. Rice II is a graduate of Thomas Aquinas College and the Mises University.