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Thursday, January 13, 2011

Von Mises and Socialism

No price points, no rationality, no morality.

by StFerdIII


In 1920, the Austrian supply-side and orthodox 'liberal' economist Von Mises wrote the best critique perhaps ever of socialism. Though his colleague, the inimitable Von Hayek penned the most famous evisceration of the evils, immoralities, and irrationalities of Socialism, 'The Road to Serfdom' [see reviews here], it might be stated that the most apposite and technical destruction of socialist theory and practice; was achieved by Von Mises in his book 'Socialism'. This work, along with Von Hayek's opus domini, need to be read and understood by people, even those immoderate socialists, Fascists and utopians who believe that the cult of the state is the solution to the ills of humanity and society.

The power of Von Mises analysis is this: he goes to the root of socialist irrationality, namely the lack of pricing power. Economies can only function when prices are allowed to find their own natural levels. I for one can't stand pop music and don't know why people would spend their hard earned money on Lady Gaga stupidity, or the computer generated sluttery of a Katy Pery. But they do. And these pop tarts earn more than businessmen who employ people, pay exorbitant regulatory and tax rates, and produce products of value for a certain market. Yet the price of a pop starlet are set by a market demand. The prices paid to a business for goods and services are also set by an interaction of need, value and perception. Though we might want to 'force' a business owner to 'collect' his 'legitimate pay', we can't. Neither can we legislate that a useless pop singer be salary capped. Once we start 'managing' prices, we are in effect neutering the functioning economy. Once this occurs distortions will arise and the general society will be a lot poorer. This is true in health care [socialized even in the US]; the postal service; agriculture, timber, heavy industry, telecoms, culture and any other market segment in which government regulates supply, demand and pricing. It always leads to a destruction of choice, wealth, job creation and innovation. As Von Mises explains:

“The problem of economic calculation is the fundamental problem of Socialism. That for decades people could write and talk about Socialism without touching this problem only shows how devastating were the effects of the Marxian prohibition on scientific scrutiny of the nature and workings of a socialist economy.”

This is the root of the problem with Socialism. From this issue – the Socialist ignorance about how prices work – flows all of the other immoralities and irrationalities of a Socialist system. Socialists believe that prices must be 'managed' by a commission, a board, or some regulatory agency. This management must be 'fair' and 'equitable' and be premised on some normative morality. But the management of prices can never be objective, independent or even rational. How do you regulate the price of a car, or its 5.000 components? How do you decide on the price of a bag of peanuts, or what a house should cost in a given locale? There are so many inputs, variables, tastes, and demand requirements and differences, that price-setting is impossible, and it certainly can't be fair, moral or rational.

Marxist theology posited that labor was the only important input in calculating the price of an object or product. Different positions in society will demand different labor prices or costs. Thus a doctor might have more price value than say a carpenter. But the Marxist-Socialist position on labor value is incredibly simplistic. Much more than just labor goes into the price of a product or service, including quality, utility, availability, functionality, and perception to name just a few. There is no possibility that a Socialist Health Board for example, can set prices for health care technologies, doctor's fees, nurses salaries, or even hospital overheads by fiat. They have to be determined by the interactions of what makes a price, a real price. The variables by time, place, space, and individual are so varied that a price floor, ceiling or range is not only impracticable, it is immoral.

Von Mises claimed that since Socialists [and there are a wide variety of socialists of course], did not understand how prices and economies function, their central planning boards would ineluctably lead to catastrophe. He gives numerous examples of socialist planning gone awry. Food production left to rot, in order to keep prices high, and the corruption to state officials who 'manage' the food supply flowing. Millions of shoes being produced that no one wants. Long line ups to purchase the scant few products that people do desire, while millions of other units are destroyed due to a lack of demand. Broken infrastructure. Criminally high taxation. Micro regulation and obsession with forms and papers to be filled out. Police enforcement of various immoral and anti-human laws and observances. The desire to set prices leads to the whole sordid mess one finds within a socialist state; a socialist program; or a socialized firm.

This then is the key to why Von Mises is so important. He is not discussing the idiocy of a state like Cuba, Venezuela, or North Korea. Nor is he focused on National Socialist Germany, or Russian Communist-Fascism. Fascism is of course a Marxist-Socialist theology premised on unfettered state power. He is describing any system or program in which the government manages prices, as being 'Socialist'. He is precisely right of course.

A system such as health 'care' in which bureaucracies decide on prices, resources, supply and demand interaction and outcomes [this person will get treatment, that person will not]; is socialist. Price points are denied and the immorality of the system proceeds apace. Distortions in resources must follow the central planning setting of prices. Resources are set by prices. If good doctors need to command a certain level of salary in order to perform difficult work, pay back their education and cover the costs of government-created lawsuits; than that natural price cannot be avoided or denied. If a bureaucracy arbitrarily decides, as they do in all socialist health care systems, that a doctor cannot make more than $120.000 per annum; and cannot bill the 'state' more than x hours per week, you will quickly find that many talented people will not go through the pain and agony of becoming medical professionals. Many potential medical professionals will simply migrate to other, more objective, and less regulated market sectors. Thus the consumer, and the suffering patient who is denied access to these professionals, receives poor care, or cannot access in a timely way medical help is the loser. This same consumer is also a prey to high taxes which are stolen by the government through fees, payroll, health and income confiscation. Thus not only are resources and access denied, the monetary cost is quite enormous for the average person under a socialized health system.

The only way to sell 'socialism' is through the 'moral' arguments of coerced 'charity', and equality. But these are canards. There is little that is moral about massive transfers and establishing a culture where private charity is neutered. Equality is a fantasma which is as absurd an idea as it is immoral. As Von Mises states;

“The masses may long for it ever so ardently, innumerable revolutions and war may be fought for it, still it will never be realised. Every attempt to carry it out will lead to syndicalism or, by some other route, to chaos, which will quickly dissolve the society, based upon the division of labour, into tiny autarkous groups.”

All true. The only 'link' and bonding agent in a socialized system, program or state is of course the 'syndicates' or government and their union friends. Society is divided up into 'autarkous groups'. Some will find favor with government policy [Gays, Muslims, Feminists, union workers, national champions etc], and many will be in disfavor. The syndicates will coerce the citizen-knaves out of their money, out of their freedom to choose; and force them into compliance. Prices will be managed and the distortive effects including resource destruction and immorality will immediately become apparent. This is socialism. Price setting leads to immorality and state coercion.

Hayek and Von Mises are almost never taught at university or in high school. This is not a surprise and it is not an accident. The children need to be indoctrinated. Keynes, Obama, national 'values', multiculturalism [a key plank in creating autarkous groups], Islam is Peace, the dear Mother Earth, etc. are emphasized. But the iniquities of socialist ideals are rarely explained. Cultural Marxism dominates the media and educational systems. It is up to parents to put into their children's hands the works of Von Mises and Von Hayek. Our future depends on it.