Socialism can’t figure out the cost of [products] because there are no prices.

This is the best presentation on economics that I’ve ever listened to. That sounds exaggerated but I think it’s true. I liked it because it is a complete refutation on socialist economic planning, the key arguments that would take down any university professor’s pronouncements on the evils of capitalism. Miss this at your own peril.

The Economic Calculation in the Socialist Commonwealth, Ludwig von Mises, 1920.

One, it completely destroyed the intellectual case for central planning.
Two, it pointed out the nature and the necessity of the price system.  Gavec an adequate explanation of Menger’s analysis of price of why, just why we need the price system in a market economy and what the role of the price system is in a market economy.  Prices are important for figuring out cost, prices, profits, loses, and so forth.

UTOPIAN SOCIALISTS @ the 2:45 mark
These are the goofs who started socialism and thought that prices were out of date.
1.  Charles Fourier, 1872-1937.
2.  Henri Saint-Simon, 1760-1825.
3.  Robert Owen, 1771-1858.

They were all crazy.  Even Karl Marx thought that they were crazy.  Marx declared Utopian socialists as unscientific and this seemed to be enough.

Fourier wanted to organize everyone into Phalanstères that looked a lot like grand hotels, based on ancient Greek military formations called phalanxes.

a.  Each person would be able to purchase goods according to income and tastes.
b.  All residents would be a stockholder in the city.
c.  Collective production.  No competition.
d.  All would share meals in a communal kitchen.
e.  Dirty work would be shared.  These guys liked symmetry.  These plans failed.  The classical economists showed they had real problems even though they hadn’t developed an analysis of the price system yet.  These Utopian socialists were agnostics in some sense, who believed that he had a secret source of intuitive knowledge.
f.  Fourier’s 5 stages–he said they would last for 8,000 years: not 7,000 or 5,000, but 8,000.
g.
h.

You need prices to tell who is going to get up early in the morning.  You need profits for the same reason–to determine who is going to do what work.

The incentive problem was, “Who will take out the garbage under socialism?”

Socialist answer was, “The New Socialist Man.”

Both sides implicitly assumed that if the incientive problem could be solved socialistm would be as productive as capitalism.

Under capitalism we have wage differentials.

Socialists answered it no, no, the new socialist man won’t work for profit but for the welfare of the community.  Collective production would only fail if they don’t have the incentive to produce.  Capitalists asked, “How would you know what to produce under socialism?”

Mises said socialism was impossible.  Why?  No prices.

Human beings can’t create anything or goods nor services; they can only reshape human resources

Marx realized the harm that the crazy Utopian socialists were doing to harm the socialist cause, so he tried to shut them up by calling them unscientific.  He didn’t want anyone to read them.  Great rhetorical ploy–said that scientific socialism is you don’t talk about socialism.  You only criticize capitalism.

He said “The inexorable laws of history” dictated that socialism would replace capitalism just as capitalism replaced feudalism and feudalism replaced classical slave societies. Marx’s writings were all a critique of capitalism, Das Kapital,

Mises said, “The rational allocation of resources is impossible without economic calculation using [real] market prices,” called the Impossibility Thesis.  That a socialist economy strictly speaking was impossible because it abolishes private property in the means of production.  You can own consumer goods, non-durable,but can’t own homes, factories and farms, and so forth.  It’s the collective ownership of the means of production.  The socialist state is the sole owner of production.  Since they own every resource in the material production of goods, they can’t exchange them with anyone else in that socialist society.  Without exchange there can be no market prices.  Under Socialism, the state cannot calculate the costs of production for the goods it produces. Without exchange there is no price information in the market.  Prices can’t be found.  It’s called “The Impossibility Thesis.”

In the absence of economic calculation of profit and loss, socialist planners cannot know the most valuable uses of scarce resources and therefore a socialist economy is therefore strictly impossible. Economy in the sense of economizing—using resources for their mostly highly valued ends. that’s not to say that central planners can’t set themselves up and sell something. Does not even serve the planners.

The essential mark of socialism is that one will alone acts. It is immaterial whose will it is . . . . The main thing is that the employment of all factors of production is directed by one agency only. One will alone chooses, decides, directs, acts, gives order to The distinctive mark of socialism is the oneness and invisibility of the will directing all production activities within the whole social system. (Human Action, pgs. 691-92)

And if one person owned all those resources, there could not be prices. doesn’t matter if that person is smart or not.

Price system does not exist before people interact. And it cannot be produced by one person.  It’s interactive. It’s sociable.

1. Sound money that does not fluctuate wildly. Value not influenced or determined by political authorities.
2. Freedom to exchange.
3. Private property in all stages of goods, including capital goods of any kind.

Socialism abolishes all 3 of these. Money in socialism is more like vouchers and not really money. Nullifies economic calculation and destroys the social division of labor.

What technology do you use?  A lot of labor was used, very little machinery was used.  In today’s world we have assembly plants that are completely robotized.  Should we use a lot of labor and little capital or love of capital or little labor?  Depends on the costs of these things.  Socialists can never know these costs.  All economies need calculation.

Post Office still operated in a sea of prices.  The Soviet Union was a monopoly capitalist entity.  It used capitalist prices, formed in a different location and different people with different values, so they couldn’t hold.  Chinese central planners were using the prices from the Sears catalog to get some idea on how to price things.  LOL.

via Robert Wenzel

Advertisements

Offer something of value . . .

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s