Tag: why socialism will never work

Socialism Fails Due to the Lack of Economic Calculation

By Andrew Lepore | United States

In 1920, an article first appeared In the German Archive for social sciences which decimated the socialist economic model and laid the foundation for the Austrian price theory. Economist Ludwig Von Mises’s article, “Economic Calculation in the Socialist Commonwealth”, demonstrates the impossibility of a successful socialist economy. For this reason, it is one of the world’s most important economic articles.

At the time Mises published it, those in academia were debating the problem with incentive under socialism. The incentive to work as much as others, to work your hardest, to provide the best services, to do the jobs nobody wants to do, etc. Scholars and left-wing economists were attempting to solve the problem of incentive under socialism, and once they did so, they thought, they would have a system just as productive as capitalism.

By publishing this article, Mises answered their question by proving it is an impossible problem to solve. Mises demonstrated that the incentive which drives economic actions, both on the supply and demand side, comes from monetary reward. The cost-benefit analysis of the individual ultimately is how a person decides what they will do and how much they will work.

Similarly with what a person decides to buy, an individual will use their capital to purchase the object of most value to them at the least opportunity cost, or the least amount of money spent. The medium for all of this; for how we represent economic calculation that takes place in the market, how we determine profits and losses, and how we measure the cost and compare it to benefit, is through prices.

Prices emerge when there are many private owners of the means of production competing in the marketplace to convince consumers to spend their hard-earned capital on their product or service. Or in other words, prices emerge when many companies compete for the business of many customers by convincing them they can get the best product at the lowest cost ( The lowest opportunity cost for the greatest benefit, economic calculation).

Mises proved that socialism wouldn’t work because It cannot distinguish more or less valuable uses of resources. Nevertheless, with leftists being as hard headed as they are, the debate over the socialist calculation problem still rages on.

I recommend to all readers who want a deeper economic understanding of the failure after failure of government programs. It’s a short read, yet is full of information. It will arm you with economic facts to counter argument for statist programs, both on the left and the right.

“The significance of Mises’s 1920 article extends far beyond its devastating demonstration of the impossibility of socialist economy and society. It provides the rationale for the price system, purely free markets, the security of private property against all encroachments, and sound money. Its thesis will continue to be relevant as long as economists and policy-makers want to understand why even minor government economic interventions consistently fail to achieve socially beneficial results. “Economic Calculation in the Socialist Commonwealth” surely ranks among the most important economic articles written this century.” – Joe Salerno


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Why Does Socialism Starve People?

By Mason Mohon | USA

It comes up in every single debate. We see it every time we are arguing with a communist or another sort of lefty. The right-wing proponent will throw out instances like Venezuela, the Soviet Union, and other catastrophic failures of socialist economies. This is followed by the response from the left-winger that either those were not real communism/socialism, or that there are factors that the right-winger fails to realize. In reality, both of these arguments are really bad. We cannot throw out death counts and assume they are causally related to the institution of socialism. What must be explored is economic law, and we need to look at what sort of incentives a socialist economy creates, and whether or not it is compatible with human actors.

In this article, socialism and communism will be used interchangeably because they both fit the definition of a planned economy.

We must first look into how we are supposed to study economics. The beginning of all economic thought comes from logical deductions coming from the action axiom. That is, we begin all economics with the axiom that man (human) acts. It is why Mises termed his magnificent economic treatise Human Action, and it is the starting point the Austrian School of economics comes from. This article is not to explore all of the warrants behind this line of thought, though. For an in-depth explanation of praxeological reasoning, I recommend the “Chapter Zero” of Chase Rachels’s book A Spontaneous Order, which is written by Will Porter and titled Epistemology and Praxeology. Within it, it is explained why we begin here and has refutations of the opposition.

What is important, though, is that we deduce economic law logically, not through reflecting upon history. This is not to say that history is not important, for it can prove itself to be an important tool in many instances, but all too often will people interpret history one way, which goes directly against logical deductions, one example being the second industrial revolution. Economic law cannot be deduced from history, it can only be reflected on and compared.

What this means to the present situation is that it goes directly against what it means to be a student of economics to say that “the Soviet Union had starving people, and because of that socialism/communism must lead to starvation.” We cannot use a historical example as an economic law. Rather, we must look to what economic law says and the reasoning behind why it says what it says. Once we have done this, then we may say that socialism is causally related to starvation and mass death. It is simply not enough to make claims about historical repetition.

Now, we may look at the economic issues with socialism. The argument will take its form in three planks: how socialism will cause misallocation, how socialism will incentivize people to produce, and how socialism will incentivize people to climb society.

In the first place, we must look at why socialism causes misallocations. These misallocations are the causes of the shortages of food and resources we associate with socialism. It is often objected that instances where this misallocation did occur, it was “not real socialism” or “not the right brand of socialism.” The problem is that misallocations will occur in any instance where the factors of production are no longer privately owned, which is the defining characteristic of socialism. In any economy, to determine whether or not an entrepreneur or producer is engaging in fruitful, efficient, and socially productive action, they must engage in economic calculation. This is the action of seeing whether or not their initial investment has created a profit or a loss. If an entrepreneur or producer discovers they have suffered a loss (people are not buying what they are providing), they discover that it is not good for resources to go where they are putting them. In a socialist economy, no economic calculation can exist, because market prices are nonexistent. Because of this, there is no way to discover whether or not resources are going to the right places. With something like food, it is extremely important that we figure out if it is going to the right places. To read more into how entrepreneurs serve society, I recommend this article.

Now that we have established the economic law proving socialism to misallocate resources, we can look at history and the world around us to see this being reflected. Socialist commonwealths across the globe have fallen apart. It is why there was no food in the Soviet Union, and it is why Venezuela failed to properly utilize its oil, resulting in profound economic decline. Some economies may seem to be socialist and successful, but those are instances in which we are either misunderstanding what their economy is, or they are purely surviving off of luck, meaning enough resources to keep the country from collapsing have been delegated, but there is no way to know what kinds of losses this is and will be producing without economic calculation.

Furthermore, we must look at the incentives to produce that are produced by a socialist economy. In Hans-Hermann Hoppe’s critique of socialism in his book Democracy: The God That Failed, he explains the ways wealth can be created within an economy. There are three, the first of which being mixing your work with untouched land. The second is to produce the good by combining or changing resources, and the third is by transferring a good through voluntary and contractual means. If the ownership of all assets is assigned to the collective (or the state), then individuals who mix their work (or homestead) with land, individuals who produce, and individuals who exchange lose their incentive to create wealth, because anything they create they will not own, for the collective (or the state) shall assume ownership. The cost of performing fruitful tasks is raised, and those that do not act productively still benefitted, increasing the incentive to not work (to each according to his need).

Moreover, we must look at the paths available to people to get to the top of society. In a capitalist free-market society, the best way to climb to the top is by starting a business and serving consumer needs. As Dr. Hoppe said, if one “wants to increase his wealth and/or rise in social status, he can only do so by better serving the most urgent wants of voluntary consumers through the use he makes of his property.” Clearly, the way to raise your own social status in a private property order is to serve others, making selfishness ultimately selfless. A socialist order stands in stark contrast, for to rise one must appeal to the collective or whoever elects people into the state. Doing this promotes cutthroat dirty politics, and it forces one to rise through “promises, bribes, and threats.” This has clearly been reflected throughout the world of big government and socialism, for Soviet Union leadership was given to whoever could stab the most people in the back in the end.

In conclusion, it is important that we know the causes of socialist terror. It is not logical or economically sound to make quick assumptions about starvation in the past and claim socialism and communism are failures. Rather, we must make praxeological economic deductions from the basis that man acts to determine whether or not socialism will work. The results are in strong opposition to socialism, which causes misallocations, laziness, and dirty politics. In the end, the results are catastrophic, and history only stands to prove.

Socialism, the Killer

By Addie Mae Villas | USA

Currently, 44% of millennials would rather live in a socialist country than a capitalist country. What they often get wrong is not only the definition of socialism, the study states that 66% of the participants gave the wrong definition, but also the fact that socialism kills and would never work in the United States. From just 1914-1999, socialism had killed over 94 million people, but with socialism being alive and well currently, that number has only risen. Vladimir Lenin once said “the goal of socialism is communism.” so why aren’t people realizing that socialism is an atrocity?

Socialism is dangerous for many reasons, it gives unchecked power to the state, removes freedoms, and destroys the economy. With socialism, it causes all production to be regulated by the state, as well as attempting at creating equality through distribution. In our current capitalist market, we have diversity and incentives to succeed because businesses are upheld with their own capital. In a socialist economy, the government bears the harm of failure but also gains all profit. When there is no incentive to do well, products are created to just get by and the markets are controlled with a tight fist leaving no space for originality. On a larger picture, socialism leads to large governments, that restrict liberties for everyone. One can easily turn to North Korea or Venezuela, two socialist countries where human rights are violated without an eye being batted. What makes it even worse is the fact that everyone is equally poor. In order to achieve the equality that so many people look for in socialism, everyone suffers. Margaret Thatcher wisely stated that the problem with socialism and socialist is “They always run out of other people’s money.” Distribution of wealth divides the goods of the people across everyone. This forces people to give up their possessions, again causing the loss of rights. Socialism is a killer, and when it isn’t, it takes away human rights and freedom.

So why is socialism so popular with the youth of America? The YouGov study, cited earlier, that millennials believe that socialism is the way to create a utopian society with safe spaces and equality, but in the end, it does none of the things it promises. Currently, Venezuela is collapsing after years of socialism. Citizens of the once prosperous nation, now are starving and seeing one of the world’s fattest inflations. In North Korea, the people see no freedom and greatly suffer under the totalitarian regime. Often times, socialists turn to the Scandinavian socialism as a form of socialism that would work in the US. The problem with that version of socialism is the fact that Scandinavia is 15 times smaller than the US and Scandinavia has a very homogenous population. Even then, most of the countries in Scandinavia don’t practice true socialism as they still have freedom in the markets. Plus, most of the countries see high tax rates in order to compensate for their government spending. So, in the end, socialism fails on all aspects.

It’s high time for people to leave the dreams of socialism in the past. But, it is also time for the future children of the world to learn from the past and prevent the horrors of socialism coming to the United States. Ayn Rand remarked that “There is no difference between communism and socialism, except in the means of achieving the same ultimate end: communism proposes to enslave men by force, socialism – by vote. It is merely the difference between murder and suicide.” Maybe millennials should pick up a history textbook and learn that socialism has never and will never work.

That “Economist” Who Wants Bitcoin Banned? He’s Full of Crap.

By Mason Mohon | USA

Joseph Stiglitz found himself being named on headlines of crypto sites across the web. The former chief economist of the World Bank released a statement or two on how he thought that Bitcoin, the world’s biggest cryptocurrency, should be banned. Honestly, we should have expected nothing less from this centralization loving bank buddy.

A Coindesk report dove into what he said in regards to cryptocurrency. “Bitcoin is successful only because of its potential for circumvention, lack of oversight,” said Stiglitz. “So it seems to me it ought to be outlawed. It doesn’t serve any socially useful function.”

This economist, though, has another thing coming. Circumvention itself is not an inherently bad thing. Food is circumvention from starvation. Bitcoin is the feed to an economically starving world. Bitcoin was created so that money could be used outside of the state, and so that we can have transactions that we trust will work in the absence of a third party. So Stiglitz is right in that Bitcoin technology is used (and proudly) to circumvent state action. When the state uses its control of money to stealthily steal our money and finance its wars under the table, I think we may have a moral obligation to circumvent it.

David Veksler from the Foundation for Economic Education wrote about a time when he had profound trouble getting his money from himself to a friend. He tried multiple conventional methods of transfer, yet was heavily discouraged by wait times, fees, and other general issues with getting money to a friend, such as a check getting lost in the mail. In the west, we have been heavily bogged down with regulation, because “politicians want their cut, and they have no problem forcing us to use an expensive and unreliable financial system to get it.” Veksler outlined that Bitcoin allows us to circumvent these western regulations. The state has set up an economic blockade, and cryptocurrency is what we are using to get around it.

As I stated earlier, Bitcoin is food for our economic starvation, yet for some, it is food for actual starvation. A Venezuelan who wished to remain anonymous wrote about how Bitcoin is the only thing standing between their family and starvation. The writer said the following,

The economy is Venezuela is dead. My father lost his air conditioning business and people like our neighbors that were middle and upper class a few years ago can’t afford food. Thanks to the rising price of Bitcoin and its relative stability (to the Venezuelan economy), my family is part of a very small fortunate minority that can afford to help feed their community and also potentially immigrate to another country.

The writer’s entire intent in their writings was to show that Bitcoin does not exist with the sole goal of criminal circumvention for drug activity. It exists to help people in a very humanitarian way, for these people had fallen victim to a very dangerous dictator. Ironically enough, Stiglitz voiced support Venezuelan economic policies a few years ago. We see how well that’s going out.

Joseph Stiglitz has a rough track record, and I wouldn’t be surprised if he’s wrong about something once again. Bitcoin is not a toy for druggies to finesse their way around the government. Its uses seem to be spreading far and wide. Stiglitz needs to get with the program, or it will catch up to him.