Ludwig Von Mises Critique Of "The Socialist Society - Its Crucial Question: Can It Operate As a Workable System?"

This series of four articles is a condensation of chapters in Human Action, by Ludwig von Mises, which deal with various forms of government interference with the free market. They were published in the Wall Street Journal, December 12, 13, 14, 15, 1949.

"Economics is a theoretical science and as such abstains from any judgment of value. It is not its task to tell people what ends they should aim at. It is a science of the means to be applied for the attainment of the ends chosen, not, to be sure, a science of the choosing of ends.

"Ultimate decisions, the valuation and the choosing of ends, are beyond the scope of any science. Science never tells a man how he should act; it merely shows how a man must act if he wants to attain definite ends."

This is Ludwig von Mises' approach to economics. For instance, it is not the duty of economics, he thinks, to tell people whether they ought to choose or reject socialism as a way of organizing their economic life. The economist's duty is to determine first whether socialism is a workable system, and if so, what it will do. Arguments about the effect of socialism on men's personal lives, their liberties and happiness, are important — but they are for philosophers, not economists.

Socialism is not a workable economic system. It not only fails to deliver what it promises; it can deliver nothing but chaos.

This is one of the major conclusions in von Mises' comprehensive study of economics and civilization, Human Action, published this fall by the Yale University Press. The Wall Street Journal begins this morning a condensation of the chapters dealing with the economic problems of all the various forms of government interference with the free market. These forms of interference go under many names — communism, the managed economy, the welfare state — but they are all varieties of socialism. And all have one fatal economic flaw.

Only the main conclusions will be presented here. For the reasoning and the elaborate data supporting these conclusions, the reader is referred to the full work, possibly the most important economic treatise of our time.

The socialist creed rests upon three dogmas:

First: Society is an omnipotent and omniscient being, free from human frailty and weakness.

Second: The coming of socialism is inevitable.

Third: As history is a continuous progress from less perfect conditions to more perfect conditions, the coming of socialism is desirable.

For the study of human action and economics, the only problem to be discussed in regard to socialism is this: Can a socialist system operate as a system of the division of labor?

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All older social reformers wanted to realize the good society be a confiscation of all private property and its subsequent redistribution; each man's share should be equal to that of every other.

These plans became unrealizable when the large-scale enterprises in manufacturing, mining, and transportation appeared. The age-old program of redistribution was superseded by the idea of socialization. The means of production were to be expropriated, but no redistribution was to be resorted to. The state itself was to run all the plants and farms.

This inference became logically inescapable as soon as people began to ascribe to the state not only moral but also intellectual perfection. Then one could not help concluding that the infallible state was in a position to succeed in the conduct of production activities better than erring individuals. It would avoid all those errors that often frustrate the actions of entrepreneurs and capitalists. There would no longer be malinvestment or squandering of scarce factors of production; wealth would multiply. The "anarchy" of production appears wasteful when contrasted with the planning of the omniscient state.

The socialist mode of production then appears to be the only reasonable system, and the market economy seems the incarnation of unreason. In the eyes of the rationalist advocates of socialism, the market economy is simply an incomprehensible aberration of mankind. In the eyes of those influenced by historicism, the market economy is the social order of an inferior stage of human evolution which the inescapable process of progressive perfection will eliminate in order to establish the more adequate system of socialism. Both lines of thought agree that reason itself postulates the transition to socialism.

Karl Marx was not the originator of socialism. Nothing could be added to the description of the socialist system as developed by his predecessors, and Marx did not add anything. What he did was to integrate the socialist creed into this meliorist doctrine. The coming of socialism is inevitable, and this by itself proves that socialism is a higher and more perfect state of human affairs than the preceding state of capitalism. It is vain to discuss the pros and cons; socialism is bound to come "with the inexorability of a law of nature."

The Marxian taboo branded all attempts to examine the economic problems of a socialist commonwealth as "unscientific." Nobody was bold enough to defy this ban. It was tacitly assumed by both the friends and the foes of socialism that socialism is a realizable system of mankind's economic organization. The vast literature concerning socialism dealt with alleged shortcomings of capitalism and with the general cultural implications of socialism. It never dealt with the economics of socialism as such.

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The essential mark of socialism is that one will alone acts.

It is immaterial whose will it is. The director may be an anointed king or a dictator, ruling by virtue of his charisma, he may be a Fuehrer or a board of Fuehrers appointed by the vote of the people. 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 orders. All the rest simply obey orders and instructions. Organization and a planned order are substituted for the "anarchy" of production and for various people's initiative.

In terming the director society (as the Marxians do), state (with a capital S), government, or authority, people tend to forget that the director is always a human being, not an abstract notion or a mythical collective entity. We may admit that the director or the board of directors are people of superior ability, wise and full of good intentions. But it would be nothing short of idiocy to assume that they are omniscient and infallible.

In an analysis of the problems of socialism, we are not concerned with the moral and ethical character of the director. Neither do we discuss his value judgments. What we are dealing with is merely the question of whether any mortal man, equipped with the logical structure of the human mind, can be equal to the tasks incumbent upon a director of a socialist society.

We assume that the director has at his disposal all the technological knowledge of his age. Moreover, he has a complete inventory of all the material factors of production available and a roster enumerating all manpower employable. The crowd of experts and specialists which he assembles provides him with perfect information and answer correctly all questions he may ask them.

But now he must act. He must choose among an infinite variety of projects in such a way that no want which he himself considers more urgent remains unsatisfied because the factors of production required for its satisfaction are employed for the satisfaction of wants which he considers less urgent.

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It is important to realize that this problem has nothing at all to do with the valuation of the ultimate ends. It refers only to the means by the employment of which the ultimate ends chosen are to be attained.

We assume that the director has made up his mind with regard to the valuation of ultimate ends. We do not question his decision. Neither do we raise the question of whether the people — the wards — approve or disapprove of their director's decisions. We may assume, for the sake of argument, that a mysterious power makes everyone agree with one another and with the director in the valuation of ultimate ends.

Our problem — the crucial and only problem of socialism — is a purely economic problem, and as such refers merely to means and not to ultimate ends.