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“Not Real Socialism” Is An Excuse for Bad Economics

The perspectives of Hayek and Hoppe can help us understand why the good will of socialism often leads to the demise of its citizens.

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By Mason Mohon | @mohonofficial

When looking at the empirical evidence for economic systems, socialism/communism seems to be in dead last. Time and time again, socialist governments have met economic demise. The Soviet Union collapsed after starving massive amounts of people. Communist regimes throughout history have been notorious for massacring enemies of the socialist order. In the present, the Venezuelan state has hyperinflated the currency and is causing widespread economic degradation in their country. North Korea is held as the earth’s boogeyman of unfreedom.

But when confronted with this historical evidence, a proponent of any of the many forms of socialism will claim that it was “not real socialism.” They explain that if one small adjustment had been made to the economic-political order, we would have seen the worker’s utopia by now. Yet we have not. The twentieth century taught us that statism is a failure. Yet we have not heeded this lesson. Hoppe explains:

To this day, socialists claim that “true” socialism has not been refuted by the empirical evidence, and everything would have turned out well and unparalleled prosperity would have resulted, if only Trotsky’s, or Bucharin’s, or better still their very own brand of socialism, rather than Stalin’s, had been implemented.

At this early point, a leftist reader may make the claim that I am not using the terms “socialism” and “communism” correctly. When I use these words, I refer to a system where property is not owned privately. It is either owned by the state, the community, the workers, or any other body that is not private individuals/firms. If you as the reader brand yourself a socialist yet still believe in private property rights, I have no problem with your version of socialism. This is not the case of most socialists, though. They believe property should be owned by one of the aforementioned groups, rather than private individuals.

The Austro-libertarian critique of socialism is not purely based off of empiricism. It is a two-pronged critique, consisting of the Misesian problem of economic calculation and the Hayekian problem of knowledge. Both of these apply to any socialist/communist system that moves away from private property rights. They are not specific to any historical instance of communism or socialism. They merely apply to the economic theories behind such a system.

This puts pressure onto those that posit that socialism “is good and theory and bad in practice.” Its theory is where the Austro-libertarian critique is aimed. A similar empty statement is that “it would be good if it worked.” Well obviously – if socialism brought ultimate economic prosperity it would be good. But one of the conditions for socialism cannot be its success, yet this seems to have been tacked on to the definition. With such a definition, every failed socialistic regime can easily be brushed off as “not real socialism.” But the argument based on this definition is ultimately bankrupt for a socialist engaging in such an argument is merely playing with a bit of rhetorical trickery.

The Misesian side of the Austrian critique of socialism focuses on that issue of calculation. In the market, firms are required to create products that consumers are demanding. They can tell if they are by measuring the relationship between the total earnings and the costs. If costs exceed earnings, there is a loss, and the firm knows that it is not serving consumer demand. If earnings exceed costs, there is profit, and the firm will continue its present profitable action.

When the state is providing a good or service, it does not know if it is serving consumers. Because the state takes taxes and then produces, it does not need to worry about being profitable. Its earnings are secure because of its coercive nature. Thus, any bureaucracy faces an issue of unknown allocation. This includes any socialist agency that the state runs. The more processes of productions that are nationalized, the more resources are misallocated. Hoppe continues:

In distinct contrast, socialism means to have no economy, no economizing, at all, because under these conditions monetary calculation and cost-accounting is impossible by definition. If no private property in the factors of production exists, then no prices for any production factor exist; hence, it is impossible to determine whether or not they are employed economically.

On the Hayekian side sits the problem of knowledge. Hayek detailed that centrally planned economies are bound to fail because the central planner cannot know what to produce. They cannot hold in their head the needs of every individual. They cannot look out for the best interests of everyone all the time. It is only sensible that such a centrally planned economy should be delegated to subsidiary authorities. But when it comes to the workings of individual firms, who knows better for the firm than the individual in charge of the firm.

It does not matter if you define socialism as something different than what the historical instances have been. As long as you advocate for a system based upon the removal of private property rights and favor state/community ownership, there will inevitably be negative results. The state or commune cannot effectively allocate resources and satisfy the needs and wants of everyone. Socialism is ultimately a failure based simply off of its core characteristics.


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