By Alexaner William Salter
Tuesday, November 09, 2021
Is America having a socialist moment?
Democrats are more likely than ever to embrace the label. Republicans strongly
condemn it. Both sides agree that socialism is a live issue.
They’re wrong. If we assume that socialism is only about
the efficient management of the economy — no small assumption, to be sure — it
is as dead as a doornail. Two economists, Ludwig von Mises and F. A. Hayek, put
that theory to rest by demonstrating that it’s impossible for socialism to
out-produce capitalism.
Let’s be clear: Socialism is not actually on the agenda
in the U.S. As it’s traditionally defined, socialism means public ownership of
the means of production — i.e., government control of the economy’s commanding
heights. Socialism does not mean the welfare state, public
services, public–private partnerships, or even the occasional state-owned
enterprise. Western Europe is not socialist. The Nordic democracies are not
socialist. And despite their collectivist proclivities, the likes of Senator
Elizabeth Warren and Representative Alexandria Ocasio-Cortez are not — in any
intellectually rigorous sense — socialists, regardless of what they may call
themselves on occasion.
It’s quite fashionable to play with socialist ideas. It’s
much less fashionable to be a socialist.
Almost a hundred years ago, economists fiercely debated
the merits of competing economic systems. The issue then turned on whether
socialism could beat capitalism at its own game. Socialists argued that the
capitalist system was hopelessly “anarchic” because it lacked top-down
coordination. Enlightened planners could fine-tune production to create more
wealth for everyone. Using models from state-of-the-art economic theory,
socialists could engineer economic efficiency from on high.
This argument appealed to many intellectuals and not a
few politicians. But it was completely wrong. Mises and Hayek showed the world
why. The greatest representatives of the Austrian school, both were
accomplished economists who ranked with the profession’s elite. Hayek won the
Nobel prize in 1974; while Mises never did, arch-Keynesian Paul Samuelson
considered him worthy of the honor. Both made crushing arguments against
socialism, demonstrating why it was not only difficult but impossible. There’s
no way for socialism to produce more wealth than capitalism.
Mises’s argument was simple and elegant. In a socialist
economy, the factors of production cannot be private property. Without
ownership there’s no exchange, and hence no markets. Without markets, there are
no market prices — those indispensable indicators of resource value across lines
of production. And without market prices, nobody can compute profits or losses.
Producers, then, will not have any reliable information about whether they’re
satisfying customer demand. So much for rational economic calculation! Mises
proved that socialism is like throwing darts at a moving board while
blindfolded.
Hayek built on Mises’s arguments by further explaining
the informational role of prices. His classic article, “The Use of Knowledge in
Society,” is one of the most-cited papers in the history of economics. Contrary
to the assumptions of would-be social planners, the knowledge required to
coordinate an economy doesn’t exist in a single place. It’s scattered
throughout the minds and intentions of producers and consumers themselves. How,
then, can buyers and sellers get what they want? Hayek’s answer: Market prices
contain the necessary information and act as information surrogates. Supply and
demand can be brought into harmony through price adjustments. Thanks to Hayek,
we know the market-price system is the most powerful communications network
ever devised.
This is the genius of capitalism: Free economies work
because planning is decentralized. Households and businesses, not a national
committee, make the decisions. By abolishing property, prices, and profits,
socialism destroys the very foundations of economic harmony. No amount of good
intentions or detailed production analysis by planners can cope with this fatal
defect. That’s why socialist countries — such as Cuba or North Korea — are poor.
Socialists lucky enough to live in liberal democracies want to disqualify such
examples as “not real socialism.” On the contrary: They are what socialism
inevitably becomes.
Thankfully, there are very few advocates of socialism
today and none of them have the ability to pass their agenda in the United
States. We can — and should — argue about the costs and benefits of the Build
Back Better Act and the Green New Deal, but even the most ambitious left-wing
plans on offer from Democratic legislators won’t turn the U.S. into Venezuela.
Not even close. They can still do a great deal of damage, of course. Tax hikes,
corporate welfare, and other forms of cronyism bring economic pain — all of
which we should resist on principle. Abusing the s-word, however, will not help
us do that.
None of this means that the Mises–Hayek critique is
irrelevant to today’s political debates. The Austrian economists’ insights
about property rights and information should make us hesitant to tinker with
the economy. Alas, it’s hard to see much evidence of that hesitancy amid large
swaths of our political class — left and right. Nevertheless, the fundamental
point stands: Regulated market economies are a fundamentally different thing
from centrally controlled economies. We blunt the force of Mises’s and Hayek’s
masterstroke when we call everything we don’t like “socialism.” Doing so, in
fact, diminishes our ability to hold actual socialist regimes accountable for
the poverty and misery of their citizens. Furthermore, moving the goalposts could
backfire: If progressive Democrats pass their agenda and the economy doesn’t
immediately tank, many will mistakenly conclude that socialism works.
We absolutely should use Mises’s and Hayek’s insights to
explain why so many of the economic initiatives of today’s Left will fail, even
if they fall a long way short of full-blooded central planning. But let’s not
fall into the trap of helping D.C. busybodies revive a dead economic
philosophy.
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