Warning – this is a long post. There is really no need for me to try to improve on conclusions drawn by men who are far more intelligent than me – men like Ludwig von Mises, Friedrich Hayek, Hans-Hermann Hoppe and John Kenneth Galbraith.
So I’ll just quote them…
I have been having this running debate with Komrade Karl here about why socialism/collectivism is a bad idea for America. He has raised the same mythical 99% issue as the old and busted Occupy (bowel) “movement” did, that being, in Karl’s vernacular (the spelling and punctuation is his):
what is so democratic about a working class man making 10 dollars an hour, having less than a hundredth of the “voting” power of a millionaire? is the voice of 99 working men less than that of one bourgeoisie. Socialist advocate for true democracy. you accuse socialism of “arbitrary” authority, I ask you what is more arbitrary, workers choosing their leaders through worker’s organizations, or workers working for whichever group of millionaires performed best in stock trades and had social connections to previous management.
Setting aside the apparent fact that they don’t cover language arts and writing at the Vladimir Ilyich Lenin Primary School, income “inequality” seems to be the modern progressive/socialist/Marxist/communist’s rallying cry…but is a socialist/centrally planned society really the way to achieve such “equality”?
History says that Komrade Karl is up in the night and therefore – quite wrong.
Almost 100 years ago – in 1922, Ludwig Von Mises studied socialism in its nascent form, resulting in his publishing of a book titled: Socialism: An Economic and Sociological Analysis.
He pointed out that the principle issue of a socialist is how to divvy up the outcome of an economy/society:
On logical grounds, treatment of the problem of income should properly come at the end of any investigation into the life of the socialist community. Production must take place before distribution is possible, therefore, logically, the former should be discussed before the latter. But the problem of distribution is so prominent a feature of Socialism as to suggest the earliest possible discussion of the question. For fundamentally, Socialism is nothing but a theory of “just” distribution; the socialist movement is nothing but an attempt to achieve this ideal. All socialist schemes start from the problem of distribution and all come back to it. For Socialism the problem of distribution is the economic problem.
Socialists do not advocate for true democracy, they advocate for redistribution. Komrade Karl seems to think that the distribution problem is solved and even takes issue with my use of the term “arbitrary” with respect to distribution of output – von Mises addressed why this is an accurate term – in 1922 (I didn’t just make it up). Economist F.A. Hayek also noted this in his 1944 book, The Road to Serfdom, as the “Who, whom” dilemma – that is to say, who plans for whom, who decides for whom and so on and so forth.
My guess (based on Karl’s expressed points) is that he has a populist (and therefore superficial) understanding of socialism. He defends it because it sounds “fair” and therefore it must be good – who cares if it really works, right?
Ludwig von Mises did. He writes:
The socialist community is characterized by the fact that in it there is no connection between production and distribution. The magnitude of the share which is assigned for the use of each citizen is quite independent of the value of the service he renders. It would be fundamentally impossible to base distribution on the imputation of value because it is an essential feature of socialistic methods of production that the shares of the different factors of production in the result cannot be ascertained; and any arithmetical test of the relations between effort and result is impossible.
It would therefore not be possible to base even a part of distribution on an economic calculation of the contribution of the different factors, e.g. by first granting the worker the full product of his labour which under the capitalist system he would receive in the form of wages, and then applying a special form of distribution in the case of the shares which are attributed to the material factors of production and to the work of the entrepreneur. On the whole socialists lack any clear conception of this fact. But a faint suspicion of them pervades the Marxian doctrine that under Socialism the categories wages, profit, and rent would be unthinkable.
There are four different principles upon which socialistic distribution can conceivably be based: equal distribution per head, distribution according to service rendered to the community, distribution according to needs, and distribution according to merit. These principles can be combined in different ways.
The principle of equal distribution derives from the old doctrine of natural law of the equality of all human beings. Rigidly applied it would prove absurd. It would permit no distinction between adults and children, between the sick and the healthy, between the industrious and the lazy, or between good and bad. It could be applied only in combination with the other three principles of distribution. It would at least be necessary to take into account the principle of distribution according to needs, so that shares might be graded according to age, sex, health and special occupational needs; it would be necessary to take into account the principle of distribution according to services rendered, so that distinction could be made between industrious and less industrious, and between good and bad workers; and finally, some account would have to be taken of merit, so as to make reward or punishment effective. But even if the principle of equal distribution is modified in these ways the difficulties of socialistic distribution are not removed. In fact, these difficulties cannot be overcome at all.
We have already shown the difficulties raised by applying the principle of distribution according to value of services rendered. In the capitalist system the economic subject receives an income corresponding to the value of his contribution to the general process of production. Services are rewarded according to their value. It is precisely this arrangement which Socialism wishes to change and to replace by one under which the shares attributed to the material factors of production and to the entrepreneur would be so distributed that no property owner and no entrepreneur would have a standing fundamentally different from that of the rest of the community. But this involves a complete divorce of distribution from economic imputation of value. It has nothing to do with the value of the individual’s service to the community. It could be brought into external relation with the service rendered only if the service of the individual were made the basis of distribution according to some external criteria. The most obvious criterion appears to be the number of hours worked. But the significance to the social dividend of any service rendered is not to be measured by the length of working time. For, in the first place, the value of the service differs according to its use in the economic scheme. The results will differ according to whether the service is used in the right place, that is to say, where it is most urgently required, or in the wrong place. In the socialist organization, however, the worker cannot be made ultimately responsible for this, but only those who assign him the work. Secondly, the value of the service varies according to the quality of the work and according to the particular capability of the worker; it varies according to his strength and his zeal. It is not difficult to find ethical reasons for equal payments to workers of unequal capabilities. Talent and genius are the gifts of God, and the individual is not responsible for them, as is often said. But this does not solve the problem whether it is expedient or practicable to pay all hours of labour the same price.
The third principle of distribution is according to needs. The formula of each according to his needs is an old slogan of the unsophisticated communist. It is occasionally backed up by referring to the fact that the Early Christians shared all goods in common. Others again regard it as practicable because it is supposed to form the basis of distribution within the family. No doubt it could be made universal if the disposition of the mother, who hungers gladly rather than that her children should go without, could be made universal. The advocates of the principle of distribution according to needs overlook this. They overlook much more besides. They overlook the fact that so long as any kind of economic effort is necessary only a part of our needs can be satisfied, and a part must remain unsatisfied. The principle of “to each according to his needs” remains meaningless so long as it is not defined to what extent each individual is allowed to satisfy his needs. The formula is illusory since everyone has to forgo the complete satisfaction of all his needs. It could indeed be applied within narrow limits. The sick and suffering can be assigned special medicine, care, and attendance, better attention and special treatment for their special needs, without making this consideration for exceptional cases the general rule.
Similarly it is quite impossible to make the merit of the individual the general principle of distribution. Who is to decide on merits? Those in power have often had very strange views on the merits or demerits of their contemporaries. And the voice of the people is not the voice of God. Who would the people choose today as the best of their contemporaries? It is not unlikely that the choice would fall on a film star, or perhaps on a prize-fighter. Today the English people would probably be inclined to call Shakespeare the greatest Englishman. Would his contemporaries have done so? And how would they esteem a second Shakespeare if he were among them today? Moreover, why should those be penalized in whose lap Nature has not placed the great gifts of talent and genius? Distribution according to the merits of the individual would open the door wide to mere caprice and leave the individual defenseless before the oppression of the majority. Conditions would be created which would make life unbearable.
As far as the economics of the problem are concerned it is a matter of indifference which principle or which combination of different people is made a basis for distribution. Whatever principle is adopted the fact remains that each individual will receive an allocation from the community. The citizen will receive a bundle of claims which can be exchanged within a certain time for a definite amount of different goods. In this way he will procure his daily meals, fixed shelter, occasional pleasures, and from time to time new clothing. Whether the satisfaction of needs which he obtains in this way is great or small will depend upon the productivity of the efforts of the community.
So it is clear that from Von Mises viewpoint, the distribution of any societal outputs is, most certainly, arbitrary and disassociated from true “fairness” in any form. Both he and the noted anarcho-capitalist economist, Hans-Hermann Hoppe realized that while socialism promises efficiency, at a macro level it actually delivers a sub-optimal result. Hoppe states that countries where the means of production are socialized are not as prosperous as those where the means of production are under private control and Ole Ludwig argued that aiming for more equal incomes through state intervention necessarily leads to a reduction in national income and therefore a corresponding reduction in average income. Consequently, the socialist chooses a more equal distribution of income, on the assumption that the marginal utility of income to a poor person is greater than that to a rich person. According to von Mises, this mandates a preference for a lower average income over inequality of income at a higher average income. So, basically, the socialist would rather that all incomes be precisely equal at a lower level than having a greater standard deviation of incomes at a much higher level – ergo the term “shared misery”.
The economist John Kenneth Galbraith (in The Good Society: The Humane Agenda) was highly critical of all forms of communal/collectivist forms of socialism that promote egalitarianism in terms of wages/compensation. He observed them as unrealistic in their assumptions about human motivation:
This hope [that egalitarian reward would lead to a higher level of motivation], one that spread far beyond Marx, has been shown by both history and human experience to be irrelevant. For better or worse, human beings do not rise to such heights. Generations of socialists and socially oriented leaders have learned this to their disappointment and more often to their sorrow. The basic fact is clear: the good society must accept men and women as they are.
Komrade Karl shares this blind spot with his fellow members of the proletariat.
While socialism fails economically, it is far more dangerous as it applies to society.
In 2013, we have the benefit of the real history of socialism, Marxism and communism over the subsequent 91 years since von Mises made the above observations and there is nothing in those years that would indicate that he was in error, actually it is quite the opposite. I would also point out that in 1944, Hayek argued that the road to socialism leads society to totalitarianism, and argued that fascism and Nazism were the inevitable outcome of socialist trends in Italy and Germany during the run up to WW II.
It would seem that we also have history to thank for the validation of Hayek’s conclusions as well.