Criticisms of socialism
Encyclopedia
Criticism of socialism
refers to a critique of socialist models of economic organization, their efficiency and feasibility; as well as the political and social implications of such a system. Some criticisms are not directed toward socialism as a system, but are directed toward the socialist movement, socialist political parties or existing socialist state
s. Some critics consider socialism to be a purely theoretical concept that should be criticized on theoretical grounds; others hold that certain historical examples exist and that can be criticized on practical grounds. Because socialism is a broad concept, some criticisms presented in this article will only apply a specific model of socialism that may differ sharply from other types of socialism.
Economic liberals, pro-capitalist libertarians, and some classical liberals view private enterprise, private ownership of the means of production
, and the market exchange as a natural and/or moral phenomena, central to their conceptions of freedom and liberty. Contrawise, members of these three groups may perceive public ownership of the means of production, cooperatives, and state-sponsored economic planning
as infringements on liberty.
Critics from the neoclassical school of economics criticize socialist theories that promote state-ownership and/or centralization of capital on the grounds that there is a lack of incentive in state institutions to act on information as efficiently as managers in capitalist firms do because they lack a hard budget constraint
(profit and loss mechanism), resulting in reduced overall economic welfare for society.
Critics from the Austrian school
of economics argue that socialist systems based on economic planning are unfeasible because they lack the information to perform economic calculation in the first place due to a lack of price signals and a free price system
, which they believe are required for rational economic calculation. Critics of the socialist political movement often criticize the internal conflicts of the socialist movement as creating a sort of "responsibility void."
The criticisms presented below may not apply to all forms of socialism as some forms of socialism advocate state ownership of capital in a market economy, while other forms advocate state-directed economic planning and state-ownership of capital. Other strands of socialist thought reject state ownership altogether and instead argue for participatory economics
and non-governmental worker-cooperative ownership of the means of production. It is important to note that many socialist theories and models are opposed to, and often criticize, other types of socialism for various reasons.
, or more precisely central economic planning
. It was first proposed by Ludwig von Mises
in 1920 and later expounded by Friedrich Hayek
. The problem referred to is that of how to distribute resources rationally
in an economy. The free market
solution is the price mechanism, wherein people individually have the ability to decide how a good should be distributed based on their willingness to give money for it. The price conveys embedded information about the abundance of resources as well as their desirability
which in turn allows, on the basis of individual consensual decisions, corrections that prevent shortages
and surpluses
; Mises and Hayek argued that this is the only possible solution, and without the information provided by market prices socialism lacks a method to rationally allocate resources. Those who agree with this criticism argue it is a refutation of socialism
and that it shows that a socialist planned economy
could never work. The debate raged in the 1920s and 1930s, and that specific period of the debate has come to be known by economic historians as the Socialist Calculation Debate.
Ludwig von Mises
argued in a famous 1920 article "Economic Calculation in the Socialist Commonwealth
" that the pricing systems in socialist economies were necessarily deficient because if government owned the means of production
, then no prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not "objects of exchange," unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently. This led him to declare "...that rational economic activity is impossible in a socialist commonwealth
.". Mises developed his critique of socialism more completely in his 1922 book Socialism, an Economic and Sociological Analysis.
Friedrich Hayek
argued in 1977 that "prices are an instrument of communication and guidance which embody more information than we directly have", and therefore "the whole idea that you can bring about the same order based on the division of labor by simple direction falls to the ground". He further argued that "if you need prices, including the prices of labor, to direct people to go where they are needed, you cannot have another distribution except the one from the market principle."
Ludwig von Mises
argued that a socialist system based upon a planned economy would not be able to allocate resources effectively due to the lack of price signals. Because the means of production would be controlled by a single entity, approximating prices for capital goods in a planned economy would be impossible. His argument was that socialism must fail economically because of the economic calculation problem
the impossibility of a socialist government being able to make the economic calculations required to organize a complex economy. Mises projected that without a market economy
there would be no functional price system
, which he held essential for achieving rational and efficient allocation of capital goods to their most productive uses. Socialism would fail as demand cannot be known without prices, according to Mises.
These arguments were elaborated by subsequent Austrian economists such as Friedrich Hayek
and students such as Hans Sennholz
.
The anarcho-capitalist
economist Hans-Hermann Hoppe argues that, in the absence of prices for the means of production, there is no cost-accounting which would direct labor and resources to the most valuable uses. Hungarian
economist Janos Kornai
has written that "the attempt to realize market socialism ... produces an incoherent system, in which there are elements that repel each other: the dominance of public ownership and the operation of the market are not compatible."
Proponents of capitalism argue that although private monopolies don't have any actual competition, there are many potential competitors watching them, and if they were delivering inadequate service, or charging an excessive amount for a good or service, investors would start a competing enterprise.
In her book How We Survived Communism & Even Laughed, Slavenka Drakulić
claims that a major contributor to the fall of socialist planned economies in the former Soviet bloc was the failure to produce the basic consumer goods that its people desired. She argues that, because of the makeup of the leadership of these regimes, the concerns of women got particularly short shrift. She illustrates this, in particular, by the system's failure to produce washing machine
s. If a state-owned industry is able to keep operating with losses, it may continue operating indefinitely producing things that are not in high consumer demand. If consumer demand is too low to sustain the industry with voluntary payments by consumers then it is tax-subsidized. This prevents resources (capital and labor) from being applied to satisfying more urgent consumer demands. According to economist Milton Friedman
"The loss part is just as important as the profit part. What distinguishes the private system from a government socialist system is the loss part. If an entrepreneur's project doesn't work, he closes it down. If it had been a government project, it would have been expanded, because there is not the discipline of the profit and loss element."
Proponents of chaos theory
argue that it is impossible to make accurate long-term predictions for highly complex systems such as an economy.
Pierre-Joseph Proudhon
raises similar calculational issues in his General Idea of the Revolution in the 19th Century
but also proposes certain voluntary arrangements, which would also require economic calculation.
Leon Trotsky
, a proponent of decentralized planning, argued that centralized economic planning would be "insoluble without the daily experience of millions, without their critical review of their own collective experience, without their expression of their needs and demands and could not be carried out within the confines of the official sanctums", and "Even if the Politburo consisted of seven universal geniuses, of seven Marxes, or seven Lenins, it will still be unable, all on its own, with all its creative imagination, to assert command over the economy of 170 million people."
Mises argued that real-world implementation of free market and socialist principles provided empirical evidence for which economic system leads to greatest success:
According to Tibor R. Machan, "Without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals."
In contrast to the lack of a marketplace, market socialism
can be viewed as an alternative to the traditional socialist model. Theoretically, the fundamental difference between a traditional socialist economy
and a market socialist economy is the existence of a market for the means of production and capital goods.
notes that even if central planning overcame its inherent inhibitions of incentives and innovation it would nevertheless be unable to maximize economic democracy and self-management, which he believes are concepts that are more intellectually coherent, consistent and just than mainstream notions of economic freedom.
As Hahnel explains, "Combined with a more democratic political system, and redone to closer approximate a best case version, centrally planned economies no doubt would have performed better. But they could never have delivered economic self-management, they would always have been slow to innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible to growing inequities and inefficiencies as the effects of differential economic power grew. Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impending markets for final goods to the planning system enfranchise consumers in meaningful ways. But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it did only because it was propped up by unprecedented totalitarian political power."
, an economist, argued that socialism, by which he meant state ownership over the means of production, impedes technological progress due to competition being stifled. As evidence, he said that we need only look to the U.S. to see where socialism fails, by observing that the most technologically backward areas are those where government owns the means of production. Without a reward system, it is argued, many inventors or investors would not risk time or capital for research. This was one of the reasons for the United States patent
system and copyright
law.
in The Principles of Political Economy (1848) said:
However, he later altered his views and adopted a socialist perspective, adding chapters to his Principles of Political Economy in defense of a socialist outlook, and defending some socialist causes. Within this revised work he also made the radical proposal that the whole wage system be abolished in favour of a co-operative wage system. Nonetheless, some of his views on the idea of flat taxation remained, albeit in a slightly toned down form.
The economist John Kenneth Galbraith
has criticized communal forms of socialism that promote egalitarianism in terms of wages/compensation as unrealistic in its assumptions about human motivation:
, countries where the means of production are socialized are not as prosperous as those where the means of production are under private control. Ludwig von Mises
, a classical liberal economist, argued that aiming for more equal incomes through state intervention necessarily leads to a reduction in national income and therefore 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 Mises, this mandates a preference for a lower average income over inequality of income at a higher average income. He sees no rational justification for this preference.
in The Road to Serfdom
, argued that the more even distribution of wealth through the nationalization
of the means of production advocated by certain socialists cannot be achieved without a loss of political, economic, and human rights. According to Hayek, to achieve control over means of production and distribution of wealth it is necessary for such socialists to acquire significant powers of coercion
. 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 preceding period.
Hayek was critical of the bias shown by university teachers and intellectuals towards socialist ideals. He argued that socialism is not a working class movement as socialists contend, but rather "the construction of theorists, deriving from certain tendencies of abstract thought with which for a long time only the intellectuals were familiar; and it required long efforts by the intellectuals before the working classes could be persuaded to adopt it as their program."
Winston Churchill
argued that socialism inevitably evolves into a totalitarian regime:
Several theorists have shown that bad economic theory leads directly to bad practice,
and the two cannot be separated. For example, Milton Friedman
argued that the absence of voluntary economic activity makes it too easy for repressive political leaders to grant themselves
coercive powers. Friedman's view was also shared by Friedrich Hayek
and
John Maynard Keynes, both of whom believed that capitalism is vital for freedom
to survive and thrive.
Peter Self criticizes the traditional socialist planned economy and argues against pursuing "extreme equality" because he believes it requires "strong coercion" and does not allow for "reasonable recognition [for] different individual needs, tastes (for work or leisure) and talents." He recommends market socialism
instead.
Objectivists
criticize socialism as devaluing the individual
, and making people incapable of choosing their own values, as decisions are made centrally. They also reject socialism's indifference to property
rights.
Edward O. Wilson said: "Karl Marx was right, socialism works, it is just that he had the wrong species", arguing that while ants and other social insects appear to live in communist-like societies, they only do so because they are compelled to do so as a result of their basic biology. Since they lack reproductive independence, worker ants, being sterile, need their ant-queen to survive as a colony and a species and individual ants cannot reproduce without a queen, thus being forced to live in centralized societies. Humans, however, do possess reproductive independence so they can give birth to offspring without the need of a "queen", and in fact humans enjoy their maximum level of Darwinian fitness only when they look after themselves and their families, while finding innovative ways to use the societies they live in for their own benefit. On the other hand, left-wing philosopher Peter Singer
argues in his book A Darwinian Left
that the view of human nature provided by evolution (e.g., evolutionary psychology
) is compatible with and should be incorporated into the ideological framework of the Left.
Socialism was strongly criticized in the 1878 papal encyclical Quod Apostolici Muneris
by Pope Leo XIII. It was again strongly criticized in the 1931 letter Quadragesimo Anno
.
Fascism fundamentally opposes Marxian socialism because of its emphasis on nationalism above class struggle
, ethnic purity and the struggle of nations. Fascism views the nation to be more important than class, and favored a corporatist
mixed economy that encouraged class collaboration
as opposed to class struggle. Furthermore, the goals of fascism differ from most socialist philosophies.
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...
refers to a critique of socialist models of economic organization, their efficiency and feasibility; as well as the political and social implications of such a system. Some criticisms are not directed toward socialism as a system, but are directed toward the socialist movement, socialist political parties or existing socialist state
Socialist state
A socialist state generally refers to any state constitutionally dedicated to the construction of a socialist society. It is closely related to the political strategy of "state socialism", a set of ideologies and policies that believe a socialist economy can be established through government...
s. Some critics consider socialism to be a purely theoretical concept that should be criticized on theoretical grounds; others hold that certain historical examples exist and that can be criticized on practical grounds. Because socialism is a broad concept, some criticisms presented in this article will only apply a specific model of socialism that may differ sharply from other types of socialism.
Economic liberals, pro-capitalist libertarians, and some classical liberals view private enterprise, private ownership of the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
, and the market exchange as a natural and/or moral phenomena, central to their conceptions of freedom and liberty. Contrawise, members of these three groups may perceive public ownership of the means of production, cooperatives, and state-sponsored economic planning
Economic planning
Economic planning refers to any directing or planning of economic activity outside the mechanisisms of the market, in an attempt to achieve specific economic or social outcomes. Planning is an economic mechanism for resource allocation and decision-making in contrast with the market mechanism...
as infringements on liberty.
Critics from the neoclassical school of economics criticize socialist theories that promote state-ownership and/or centralization of capital on the grounds that there is a lack of incentive in state institutions to act on information as efficiently as managers in capitalist firms do because they lack a hard budget constraint
Budget constraint
A budget constraint represents the combinations of goods and services that a consumer can purchase given current prices with his or her income. Consumer theory uses the concepts of a budget constraint and a preference map to analyze consumer choices...
(profit and loss mechanism), resulting in reduced overall economic welfare for society.
Critics from the Austrian school
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
of economics argue that socialist systems based on economic planning are unfeasible because they lack the information to perform economic calculation in the first place due to a lack of price signals and a free price system
Free price system
A free price system or free price mechanism is an economic system where prices are set by the interchange of supply and demand, with the resulting prices being understood as signals that are communicated between producers and consumers which serve to guide the production and distribution of...
, which they believe are required for rational economic calculation. Critics of the socialist political movement often criticize the internal conflicts of the socialist movement as creating a sort of "responsibility void."
The criticisms presented below may not apply to all forms of socialism as some forms of socialism advocate state ownership of capital in a market economy, while other forms advocate state-directed economic planning and state-ownership of capital. Other strands of socialist thought reject state ownership altogether and instead argue for participatory economics
Participatory economics
Participatory economics, often abbreviated parecon, is an economic system proposed primarily by activist and political theorist Michael Albert and radical economist Robin Hahnel, among others. It uses participatory decision making as an economic mechanism to guide the production, consumption and...
and non-governmental worker-cooperative ownership of the means of production. It is important to note that many socialist theories and models are opposed to, and often criticize, other types of socialism for various reasons.
Distorted or absent price signals
The economic calculation problem is a criticism of socialist economicsSocialist economics
Socialist economics are the economic theories and practices of hypothetical and existing socialist economic systems.A socialist economy is based on public ownership or independent cooperative ownership of the means of production, wherein production is carried out to directly produce use-value,...
, or more precisely central economic planning
Economic planning
Economic planning refers to any directing or planning of economic activity outside the mechanisisms of the market, in an attempt to achieve specific economic or social outcomes. Planning is an economic mechanism for resource allocation and decision-making in contrast with the market mechanism...
. It was first proposed by Ludwig von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
in 1920 and later expounded by Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
. The problem referred to is that of how to distribute resources rationally
Rational choice theory
Rational choice theory, also known as choice theory or rational action theory, is a framework for understanding and often formally modeling social and economic behavior. It is the main theoretical paradigm in the currently-dominant school of microeconomics...
in an economy. The free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
solution is the price mechanism, wherein people individually have the ability to decide how a good should be distributed based on their willingness to give money for it. The price conveys embedded information about the abundance of resources as well as their desirability
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
which in turn allows, on the basis of individual consensual decisions, corrections that prevent shortages
Economic shortage
Economic shortage is a term describing a disparity between the amount demanded for a product or service and the amount supplied in a market. Specifically, a shortage occurs when there is excess demand; therefore, it is the opposite of a surplus....
and surpluses
Economic surplus
In mainstream economics, economic surplus refers to two related quantities. Consumer surplus or consumers' surplus is the monetary gain obtained by consumers because they are able to purchase a product for a price that is less than the highest price that they would be willing to pay...
; Mises and Hayek argued that this is the only possible solution, and without the information provided by market prices socialism lacks a method to rationally allocate resources. Those who agree with this criticism argue it is a refutation of socialism
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...
and that it shows that a socialist planned economy
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
could never work. The debate raged in the 1920s and 1930s, and that specific period of the debate has come to be known by economic historians as the Socialist Calculation Debate.
Ludwig von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
argued in a famous 1920 article "Economic Calculation in the Socialist Commonwealth
Economic Calculation in the Socialist Commonwealth
"Economic Calculation In The Socialist Commonwealth" is an article by Austrian School economist and libertarian thinker Ludwig von Mises. Its critique against economic calculation in a planned economy triggered the decades-long economic calculation debate....
" that the pricing systems in socialist economies were necessarily deficient because if government owned the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...
, then no prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not "objects of exchange," unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently. This led him to declare "...that rational economic activity is impossible in a socialist commonwealth
Commonwealth
Commonwealth is a traditional English term for a political community founded for the common good. Historically, it has sometimes been synonymous with "republic."More recently it has been used for fraternal associations of some sovereign nations...
.". Mises developed his critique of socialism more completely in his 1922 book Socialism, an Economic and Sociological Analysis.
Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
argued in 1977 that "prices are an instrument of communication and guidance which embody more information than we directly have", and therefore "the whole idea that you can bring about the same order based on the division of labor by simple direction falls to the ground". He further argued that "if you need prices, including the prices of labor, to direct people to go where they are needed, you cannot have another distribution except the one from the market principle."
Ludwig von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
argued that a socialist system based upon a planned economy would not be able to allocate resources effectively due to the lack of price signals. Because the means of production would be controlled by a single entity, approximating prices for capital goods in a planned economy would be impossible. His argument was that socialism must fail economically because of the economic calculation problem
Economic calculation problem
The economic calculation problem is a criticism of central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek. The problem referred to is that of how to distribute resources rationally in an economy...
the impossibility of a socialist government being able to make the economic calculations required to organize a complex economy. Mises projected that without a market economy
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
there would be no functional price system
Price system
In economics, a price system is any economic system that affects its distribution of goods and services with prices and employing any form of money. Except for possible remote and primitive communities, all modern societies use price systems to allocate resources...
, which he held essential for achieving rational and efficient allocation of capital goods to their most productive uses. Socialism would fail as demand cannot be known without prices, according to Mises.
These arguments were elaborated by subsequent Austrian economists such as Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
and students such as Hans Sennholz
Hans Sennholz
Hans F. Sennholz was an economist of the Austrian school of economics who studied under Ludwig von Mises. After serving in the Luftwaffe in World War II, he took degrees at the universities of Marburg and Köln. He then moved to the United States to study for a Ph.D. at New York University...
.
The anarcho-capitalist
Anarcho-capitalism
Anarcho-capitalism is a libertarian and individualist anarchist political philosophy that advocates the elimination of the state in favour of individual sovereignty in a free market...
economist Hans-Hermann Hoppe argues that, in the absence of prices for the means of production, there is no cost-accounting which would direct labor and resources to the most valuable uses. Hungarian
Hungary
Hungary , officially the Republic of Hungary , is a landlocked country in Central Europe. It is situated in the Carpathian Basin and is bordered by Slovakia to the north, Ukraine and Romania to the east, Serbia and Croatia to the south, Slovenia to the southwest and Austria to the west. The...
economist Janos Kornai
János Kornai
János Kornai , is an economist noted for his analysis and criticism of the command economies of Eastern European communist states.- Biography :...
has written that "the attempt to realize market socialism ... produces an incoherent system, in which there are elements that repel each other: the dominance of public ownership and the operation of the market are not compatible."
Proponents of capitalism argue that although private monopolies don't have any actual competition, there are many potential competitors watching them, and if they were delivering inadequate service, or charging an excessive amount for a good or service, investors would start a competing enterprise.
In her book How We Survived Communism & Even Laughed, Slavenka Drakulić
Slavenka Drakulic
Slavenka Drakulić is a noted Croatian writer and publicist who currently lives in Sweden.Slavenka Drakulić was born in Rijeka, PR Croatia, on July 4, 1949. She graduated in comparative literature and sociology from the University in Zagreb in 1976...
claims that a major contributor to the fall of socialist planned economies in the former Soviet bloc was the failure to produce the basic consumer goods that its people desired. She argues that, because of the makeup of the leadership of these regimes, the concerns of women got particularly short shrift. She illustrates this, in particular, by the system's failure to produce washing machine
Washing machine
A washing machine is a machine designed to wash laundry, such as clothing, towels and sheets...
s. If a state-owned industry is able to keep operating with losses, it may continue operating indefinitely producing things that are not in high consumer demand. If consumer demand is too low to sustain the industry with voluntary payments by consumers then it is tax-subsidized. This prevents resources (capital and labor) from being applied to satisfying more urgent consumer demands. According to economist Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
"The loss part is just as important as the profit part. What distinguishes the private system from a government socialist system is the loss part. If an entrepreneur's project doesn't work, he closes it down. If it had been a government project, it would have been expanded, because there is not the discipline of the profit and loss element."
Proponents of chaos theory
Chaos theory
Chaos theory is a field of study in mathematics, with applications in several disciplines including physics, economics, biology, and philosophy. Chaos theory studies the behavior of dynamical systems that are highly sensitive to initial conditions, an effect which is popularly referred to as the...
argue that it is impossible to make accurate long-term predictions for highly complex systems such as an economy.
Pierre-Joseph Proudhon
Pierre-Joseph Proudhon
Pierre-Joseph Proudhon was a French politician, mutualist philosopher and socialist. He was a member of the French Parliament, and he was the first person to call himself an "anarchist". He is considered among the most influential theorists and organisers of anarchism...
raises similar calculational issues in his General Idea of the Revolution in the 19th Century
The General Idea of the Revolution in the Nineteenth Century
The General Idea of the Revolution in the Nineteenth Century was an influential manifesto written in 1851 by the anarchist philosopher Pierre-Joseph Proudhon...
but also proposes certain voluntary arrangements, which would also require economic calculation.
Leon Trotsky
Leon Trotsky
Leon Trotsky , born Lev Davidovich Bronshtein, was a Russian Marxist revolutionary and theorist, Soviet politician, and the founder and first leader of the Red Army....
, a proponent of decentralized planning, argued that centralized economic planning would be "insoluble without the daily experience of millions, without their critical review of their own collective experience, without their expression of their needs and demands and could not be carried out within the confines of the official sanctums", and "Even if the Politburo consisted of seven universal geniuses, of seven Marxes, or seven Lenins, it will still be unable, all on its own, with all its creative imagination, to assert command over the economy of 170 million people."
Mises argued that real-world implementation of free market and socialist principles provided empirical evidence for which economic system leads to greatest success:
According to Tibor R. Machan, "Without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals."
In contrast to the lack of a marketplace, market socialism
Market socialism
Market socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
can be viewed as an alternative to the traditional socialist model. Theoretically, the fundamental difference between a traditional socialist economy
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
and a market socialist economy is the existence of a market for the means of production and capital goods.
Suppression of economic democracy and self-management
Central planning is also criticized by elements of the radical left. Libertarian socialist economist Robin HahnelRobin Hahnel
Robin Hahnel is a Professor of Economics at Portland State University. He is best known for his work on participatory economics with Z Magazine editor Michael Albert. He is currently a visiting professor at Lewis & Clark College....
notes that even if central planning overcame its inherent inhibitions of incentives and innovation it would nevertheless be unable to maximize economic democracy and self-management, which he believes are concepts that are more intellectually coherent, consistent and just than mainstream notions of economic freedom.
As Hahnel explains, "Combined with a more democratic political system, and redone to closer approximate a best case version, centrally planned economies no doubt would have performed better. But they could never have delivered economic self-management, they would always have been slow to innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible to growing inequities and inefficiencies as the effects of differential economic power grew. Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impending markets for final goods to the planning system enfranchise consumers in meaningful ways. But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it did only because it was propped up by unprecedented totalitarian political power."
Slow or stagnant technological advance
Milton FriedmanMilton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
, an economist, argued that socialism, by which he meant state ownership over the means of production, impedes technological progress due to competition being stifled. As evidence, he said that we need only look to the U.S. to see where socialism fails, by observing that the most technologically backward areas are those where government owns the means of production. Without a reward system, it is argued, many inventors or investors would not risk time or capital for research. This was one of the reasons for the United States patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
system and copyright
Copyright
Copyright is a legal concept, enacted by most governments, giving the creator of an original work exclusive rights to it, usually for a limited time...
law.
Socialism has proved no more efficient at home than abroad. What are our most technologically backward areas? The delivery of first class mail, the schools, the judiciary, the legislative system – all mired in outdated technology. No doubt we need socialism for the judicial and legislative systems. We do not for mail or schools, as has been shown by Federal Express and others, and by the ability of many private schools to provide superior education to underprivileged youngsters at half the cost of government schooling.....
We all justly complain about the waste, fraud and inefficiency of the military. Why? Because it is a socialist activity – one that there seems no feasible way to privatize. But why should we be any better at running socialist enterprises than the Russians or Chinese?
By extending socialism far beyond the area where it is unavoidable, we have ended up performing essential government functions far less well than is not only possible but than was attained earlier. In a poorer and less socialist era, we produced a nationwide network of roads and bridges and subway systems that were the envy of the world. Today we are unable even to maintain them.
Reduced incentives
Some critics of socialism argue that income sharing reduces individual incentives to work, and therefore incomes should be individualized as much as possible. Critics of socialism have argued that in any society where everyone holds equal wealth there can be no material incentive to work, because one does not receive rewards for a work well done. They further argue that incentives increase productivity for all people and that the loss of those effects would lead to stagnation. John Stuart MillJohn Stuart Mill
John Stuart Mill was a British philosopher, economist and civil servant. An influential contributor to social theory, political theory, and political economy, his conception of liberty justified the freedom of the individual in opposition to unlimited state control. He was a proponent of...
in The Principles of Political Economy (1848) said:
However, he later altered his views and adopted a socialist perspective, adding chapters to his Principles of Political Economy in defense of a socialist outlook, and defending some socialist causes. Within this revised work he also made the radical proposal that the whole wage system be abolished in favour of a co-operative wage system. Nonetheless, some of his views on the idea of flat taxation remained, albeit in a slightly toned down form.
The economist John Kenneth Galbraith
John Kenneth Galbraith
John Kenneth "Ken" Galbraith , OC was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism...
has criticized communal forms of socialism that promote egalitarianism in terms of wages/compensation as unrealistic in its assumptions about human motivation:
Reduced prosperity
According to economist Hans-Hermann HoppeHans-Hermann Hoppe
Hans-Hermann Hoppe is an Austrian School economist of the anarcho-capitalist tradition, and a Professor Emeritus of economics at the University of Nevada, Las Vegas.-Academic career:...
, countries where the means of production are socialized are not as prosperous as those where the means of production are under private control. Ludwig von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
, a classical liberal economist, argued that aiming for more equal incomes through state intervention necessarily leads to a reduction in national income and therefore average income. Consequently, the socialist chooses a more equal distribution of income, on the assumption that the marginal utility
Marginal utility
In economics, the marginal utility of a good or service is the utility gained from an increase in the consumption of that good or service...
of income to a poor person is greater than that to a rich person. According to Mises, this mandates a preference for a lower average income over inequality of income at a higher average income. He sees no rational justification for this preference.
Criticism of market socialism
Marxists criticize this form of socialism because it does not end commodity production, alienates individuals from the products of their labor, atomizes individuals and creates a degenerate commercialized culture. Libertarian socialists and anarchists argue that market socialism fails to see any alternatives outside of the narrow confines of market-based or state-based solutions.Social and political effects
Friedrich HayekFriedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
in The Road to Serfdom
The Road to Serfdom
The Road to Serfdom is a book written by the Austrian-born economist and philosopher Friedrich von Hayek between 1940–1943, in which he "warned of the danger of tyranny that inevitably results from government control of economic decision-making through central planning," and in which he argues...
, argued that the more even distribution of wealth through the nationalization
Nationalization
Nationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being...
of the means of production advocated by certain socialists cannot be achieved without a loss of political, economic, and human rights. According to Hayek, to achieve control over means of production and distribution of wealth it is necessary for such socialists to acquire significant powers of coercion
Coercion
Coercion is the practice of forcing another party to behave in an involuntary manner by use of threats or intimidation or some other form of pressure or force. In law, coercion is codified as the duress crime. Such actions are used as leverage, to force the victim to act in the desired way...
. Hayek argued that the road to socialism leads society to totalitarianism
Totalitarianism
Totalitarianism is a political system where the state recognizes no limits to its authority and strives to regulate every aspect of public and private life wherever feasible...
, and argued that fascism
Fascism
Fascism is a radical authoritarian nationalist political ideology. Fascists seek to rejuvenate their nation based on commitment to the national community as an organic entity, in which individuals are bound together in national identity by suprapersonal connections of ancestry, culture, and blood...
and Nazism
Nazism
Nazism, the common short form name of National Socialism was the ideology and practice of the Nazi Party and of Nazi Germany...
were the inevitable outcome of socialist trends in Italy
Italy
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
and Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
during the preceding period.
Hayek was critical of the bias shown by university teachers and intellectuals towards socialist ideals. He argued that socialism is not a working class movement as socialists contend, but rather "the construction of theorists, deriving from certain tendencies of abstract thought with which for a long time only the intellectuals were familiar; and it required long efforts by the intellectuals before the working classes could be persuaded to adopt it as their program."
Winston Churchill
Winston Churchill
Sir Winston Leonard Spencer-Churchill, was a predominantly Conservative British politician and statesman known for his leadership of the United Kingdom during the Second World War. He is widely regarded as one of the greatest wartime leaders of the century and served as Prime Minister twice...
argued that socialism inevitably evolves into a totalitarian regime:
Several theorists have shown that bad economic theory leads directly to bad practice,
and the two cannot be separated. For example, Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
argued that the absence of voluntary economic activity makes it too easy for repressive political leaders to grant themselves
coercive powers. Friedman's view was also shared by Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
and
John Maynard Keynes, both of whom believed that capitalism is vital for freedom
to survive and thrive.
Peter Self criticizes the traditional socialist planned economy and argues against pursuing "extreme equality" because he believes it requires "strong coercion" and does not allow for "reasonable recognition [for] different individual needs, tastes (for work or leisure) and talents." He recommends market socialism
Market socialism
Market socialism refers to various economic systems where the means of production are either publicly owned or cooperatively owned and operated for a profit in a market economy. The profit generated by the firms system would be used to directly remunerate employees or would be the source of public...
instead.
Objectivists
Objectivism (Ayn Rand)
Objectivism is a philosophy created by the Russian-American philosopher and novelist Ayn Rand . Objectivism holds that reality exists independent of consciousness, that human beings have direct contact with reality through sense perception, that one can attain objective knowledge from perception...
criticize socialism as devaluing the individual
Individual
An individual is a person or any specific object or thing in a collection. Individuality is the state or quality of being an individual; a person separate from other persons and possessing his or her own needs, goals, and desires. Being self expressive...
, and making people incapable of choosing their own values, as decisions are made centrally. They also reject socialism's indifference to property
Property
Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation...
rights.
Miscellanea
SociobiologistSociobiology
Sociobiology is a field of scientific study which is based on the assumption that social behavior has resulted from evolution and attempts to explain and examine social behavior within that context. Often considered a branch of biology and sociology, it also draws from ethology, anthropology,...
Edward O. Wilson said: "Karl Marx was right, socialism works, it is just that he had the wrong species", arguing that while ants and other social insects appear to live in communist-like societies, they only do so because they are compelled to do so as a result of their basic biology. Since they lack reproductive independence, worker ants, being sterile, need their ant-queen to survive as a colony and a species and individual ants cannot reproduce without a queen, thus being forced to live in centralized societies. Humans, however, do possess reproductive independence so they can give birth to offspring without the need of a "queen", and in fact humans enjoy their maximum level of Darwinian fitness only when they look after themselves and their families, while finding innovative ways to use the societies they live in for their own benefit. On the other hand, left-wing philosopher Peter Singer
Peter Singer
Peter Albert David Singer is an Australian philosopher who is the Ira W. DeCamp Professor of Bioethics at Princeton University and Laureate Professor at the Centre for Applied Philosophy and Public Ethics at the University of Melbourne...
argues in his book A Darwinian Left
A Darwinian Left
A Darwinian Left: Politics, Evolution and Cooperation is a 2000 book by Peter Singer , which argues that the view of human nature provided by evolution is compatible with and should be incorporated into the ideological framework of the Left.Singer's argument is that the Left will be better able to...
that the view of human nature provided by evolution (e.g., evolutionary psychology
Evolutionary psychology
Evolutionary psychology is an approach in the social and natural sciences that examines psychological traits such as memory, perception, and language from a modern evolutionary perspective. It seeks to identify which human psychological traits are evolved adaptations, that is, the functional...
) is compatible with and should be incorporated into the ideological framework of the Left.
Socialism was strongly criticized in the 1878 papal encyclical Quod Apostolici Muneris
Quod Apostolici Muneris
The encyclical Quod Apostolici Muneris is the second encyclical of Pope Leo XIII. It was published on 28 December 1878.The encyclical is an attack on "socialism, communism and nihilism"; it is therefore usually regarded as an attack against Christian socialism...
by Pope Leo XIII. It was again strongly criticized in the 1931 letter Quadragesimo Anno
Quadragesimo Anno
Quadragesimo Anno is an encyclical written by Pope Pius XI, issued 15 May 1931, 40 years after Leo XIII's Rerum Novarum. Unlike Leo XIII, who addressed the condition of workers, Pius XI discusses the ethical implications of the social and economic order...
.
Fascism fundamentally opposes Marxian socialism because of its emphasis on nationalism above class struggle
Class struggle
Class struggle is the active expression of a class conflict looked at from any kind of socialist perspective. Karl Marx and Friedrich Engels wrote "The [written] history of all hitherto existing society is the history of class struggle"....
, ethnic purity and the struggle of nations. Fascism views the nation to be more important than class, and favored a corporatist
Corporatism
Corporatism, also known as corporativism, is a system of economic, political, or social organization that involves association of the people of society into corporate groups, such as agricultural, business, ethnic, labor, military, patronage, or scientific affiliations, on the basis of common...
mixed economy that encouraged class collaboration
Class collaboration
Class collaboration is a principle of social organization based upon the belief that the division of society into a hierarchy of social classes is a positive and essential aspect of civilization.-Class collaboration under capitalism:...
as opposed to class struggle. Furthermore, the goals of fascism differ from most socialist philosophies.
See also
- Anti-communismAnti-communismAnti-communism is opposition to communism. Organized anti-communism developed in reaction to the rise of communism, especially after the 1917 October Revolution in Russia and the beginning of the Cold War in 1947.-Objections to communist theory:...
- Anti-fascismAnti-fascismAnti-fascism is the opposition to fascist ideologies, groups and individuals, such as that of the resistance movements during World War II. The related term antifa derives from Antifaschismus, which is German for anti-fascism; it refers to individuals and groups on the left of the political...
- Black Book of Communism
- Criticisms of capitalismCriticisms of capitalismCapitalism has been the subject of criticism from many perspectives during its history. Criticisms range from people who disagree with the principles of capitalism in its entirety, to those who disagree with particular outcomes of capitalism...
- Criticisms of communismCriticisms of communismCriticism of communism can be divided into two broad categories: those concerning themselves with the practical aspects of 20th century Communist states, and those concerning themselves with communist principles and theory....
- Criticisms of Communist party ruleCriticisms of Communist party ruleCriticisms of communist party rule have been known since the first days of the first communist government in Soviet Russia, established after the October Revolution of 1917.-Background:...
- Criticisms of MarxismCriticisms of MarxismCriticisms of Marxism have come from the political left as well as the political right. Democratic socialists and social democrats reject the idea that socialism can be accomplished only through class conflict and a proletarian revolution. Many anarchists reject the need for a transitory state phase...
- Economic calculation problemEconomic calculation problemThe economic calculation problem is a criticism of central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek. The problem referred to is that of how to distribute resources rationally in an economy...
- Economic efficiency
- Economic equilibriumEconomic equilibriumIn economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal...
- Free price systemFree price systemA free price system or free price mechanism is an economic system where prices are set by the interchange of supply and demand, with the resulting prices being understood as signals that are communicated between producers and consumers which serve to guide the production and distribution of...
- Market economyMarket economyA market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
- McCarthyismMcCarthyismMcCarthyism is the practice of making accusations of disloyalty, subversion, or treason without proper regard for evidence. The term has its origins in the period in the United States known as the Second Red Scare, lasting roughly from the late 1940s to the late 1950s and characterized by...
- Mixed economyMixed economyMixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
- Spontaneous orderSpontaneous orderSpontaneous order, also known as "self-organization", is the spontaneous emergence of order out of seeming chaos. It is a process found in physical, biological, and social networks, as well as economics, though the term "self-organization" is more often used for physical and biological processes,...
- The Fatal ConceitThe Fatal ConceitThe Fatal Conceit: The Errors of Socialism is a non-fiction book written by the economist and political philosopher Friedrich Hayek and edited by William Warren Bartley.-Main thesis and arguments:...
- The Road to SerfdomThe Road to SerfdomThe Road to Serfdom is a book written by the Austrian-born economist and philosopher Friedrich von Hayek between 1940–1943, in which he "warned of the danger of tyranny that inevitably results from government control of economic decision-making through central planning," and in which he argues...
Case studies
- Chinese economic reformChinese economic reformThe Chinese economic reform refers to the program of economic reforms called "Socialism with Chinese characteristics" in the People's Republic of China that were started in December 1978 by reformists within the Communist Party of China led by Deng Xiaoping.China had one of the world's largest...
- Great Leap ForwardGreat Leap ForwardThe Great Leap Forward of the People's Republic of China was an economic and social campaign of the Communist Party of China , reflected in planning decisions from 1958 to 1961, which aimed to use China's vast population to rapidly transform the country from an agrarian economy into a modern...
- Great Chinese Famine
- Russian famine of 1921Russian famine of 1921The Russian famine of 1921, also known as Povolzhye famine, which began in the early spring of that year, and lasted through 1922, was a severe famine that occurred in Bolshevik Russia...
- Soviet famine of 1932–1933
- Special PeriodSpecial PeriodThe Special Period in Time of Peace in Cuba was an extended period of economic crisis that began in 1991 after the dissolution of the Soviet Union and, by extension, the Comecon. The economic depression of the Special Period was at its most severe in the early-to-mid 1990s before slightly declining...
External links
- Interventionism: An Economic Analysis
- School of Darkness Autobiography of Bella DoddBella DoddBella Visono Dodd was a member of the Communist Party of America in the 1930s and 1940s who later became a vocal anti-communist.-Biography:...
, ex-Communist (1954) - "Socialism", Economic Policy 2nd Lecture, by Ludwig von MisesLudwig von MisesLudwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
- What remains of socialism ? http://www.polis.cam.ac.uk/contacts/staff/eperreausaussine/what_is_left_of_socialism.pdf, by Emile Perreau-Saussine, in Patrick Riordan (dir.), Values in Public life: aspects of common goods (Berlin, LIT Verlag, 2007), pp. 11–34
- The Law by Frédéric BastiatFrédéric BastiatClaude Frédéric Bastiat was a French classical liberal theorist, political economist, and member of the French assembly. He was notable for developing the important economic concept of opportunity cost.-Biography:...
- "The Intellectuals and Socialism" by Friedrich HayekFriedrich HayekFriedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
- "Hayek and Socialism" by Bruce Caldwell
- Home Page of Competitive Enterprise Institute
- "Why Socialism Collapsed in Eastern Europe" by Tom Palmer
- Socialism by Robert HeilbronerRobert HeilbronerRobert L. Heilbroner was an American economist and historian of economic thought. The author of some twenty books, Heilbroner was best known for The Worldly Philosophers , a survey of the lives and contributions of famous economists, notably Adam Smith, Karl Marx, and John Maynard...
- "Nixonian Socialism" by Murray RothbardMurray RothbardMurray Newton Rothbard was an American author and economist of the Austrian School who helped define capitalist libertarianism and popularized a form of free-market anarchism he termed "anarcho-capitalism." Rothbard wrote over twenty books and is considered a centrally important figure in the...
- "Socialism", by Robert HeilbronerRobert HeilbronerRobert L. Heilbroner was an American economist and historian of economic thought. The author of some twenty books, Heilbroner was best known for The Worldly Philosophers , a survey of the lives and contributions of famous economists, notably Adam Smith, Karl Marx, and John Maynard...
- "State socialism and anarchism" by Benjamin TuckerBenjamin TuckerBenjamin Ricketson Tucker was a proponent of American individualist anarchism in the 19th century, and editor and publisher of the individualist anarchist periodical Liberty.-Summary:Tucker says that he became an anarchist at the age of 18...
- Lecture XXXV "A Philosophy of Life" includes a critique of marxist socialism by Sigmund FreudSigmund FreudSigmund Freud , born Sigismund Schlomo Freud , was an Austrian neurologist who founded the discipline of psychoanalysis...
- Socialism: Still Impossible After All These Years, by Peter J. Boettke and Peter T. Leeson
- The Myth of the Scandinavian Model, by Martin De Vlieghere, Paul Vreymans and Willy De Wit
- The Impossibility of Socialism