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Thursday, January 11, 2018

Why socialism doesn't work

The Hoover Institution publishes an unusually good casual explication of the real reason socialism not only does not work, but cannot work: the Impossibility of Socialist Calculation:
After gaining power a century ago and then holding onto it through a civil war, the Soviet communists were intent on building a socialist state that would overwhelm capitalism. State ownership and scientific planning would replace the anarchy of the market. Material benefits would accrue to the working class. An equitable economy would supplant capitalist exploitation and a new socialist man would rise, prioritizing social above private interests. A dictatorship of the proletariat would guarantee the interests of the working class. Instead of extracting surpluses from workers, the socialist state would take tribute from capitalists to finance the building of socialism.

The basics of the Soviet “horse” were in place by the early 1930s. Under this system, Stalin and his Politburo set general priorities for industrial ministries and a state planning commission. The ministers and planners worked in tandem to draw up economic plans. Managers of the hundreds of thousands of plants, factories, food stores, and even farms were obligated by law to fulfill the plans handed down by their superiors.

The Soviets launched their planned socialist economy as the capitalist world sank into depression, trade wars, and hyperinflation. Soviet authorities bragged of unprecedented rates of growth. New industrial complexes grew from scratch. Magazines featured contented workers lounging in comfortable resorts. The message: The West was failing, and the Soviet economic system was the way to the future.

As the competition between capitalism and Soviet socialism became more pronounced during the Cold War, serious scholarly study of the Soviet economy began. The overarching research agenda of Western scholars was “scientific planning”—the socialist belief that expert technocrats could manage an economy better than spontaneous market forces. After all, would not experts know better than buyers and sellers what, how, and for whom to produce?

It was the Austrian economists F. A. Hayek and Ludwig von Mises who resisted this idea most forcefully. In their landmark critique laid out in a series of papers written from the 1920s through the 1940s, they concluded that socialism must fail. In modern economies, hundreds of thousands of enterprises produce millions of products. Even with the most sophisticated computer technology, managing such large numbers would be far too complex for an administrative body trying to allocate resources. Modern economies, therefore, are too complex to plan. Without markets and prices, decision-makers will not know what is scarce and what is abundant. If property belongs to all, what rules should those who manage assets for society follow?

The Soviets’ solution to the complexity and information problems was a national plan that spelled out production goals only for broad sectors, not for specific transactions. In other words, rather than mandate the delivery of 10 tons of steel cable by factory A to factory B, the planners set a target for the total number of tons of cable to be produced nationwide. Only a few specific goods—such as crude oil, aluminum ore, brown coal, electricity, and freight-car dispatches—could be planned as actual transactions. Everything else had to be planned in crude quantities, such as several million square meters of textile products. Product specifications, delivery plans, and payments were worked out at lower levels and often with disastrous results.

Soviet scientific planning, in fact, directed only a minuscule portion of products. In the early 1950s, central agencies drew up less than 10,000 planned indexes, while industrial products numbered more than 20 million. Central agencies drew up generalized plans for industrial ministries, which issued more detailed plans to “main administrations,” which prepared plans for enterprises. There never was a pretense that the top officials would plan the production of specific products.

To make matters even more complicated, virtually all plans were “drafts” that could be changed at any time by higher state and party officials. This constant intervention, called “petty tutelage,” was an irritant from the first to the last day of the Soviet system, but it was a key pillar of resource allocation.
If you want to read some truly artistic masterpieces of illogic, read a few socialist papers attempt to prove that socialist price-calculation is possible. The two primary papers, written first by Mises, then further articulated by Hayek, are two of the most conclusively devastating critiques of anything ever published. And the empirical evidence subsequently gathered over decades resoundingly supported their logical conclusion.

It's not an accident that the Impossibility of Social Justice Convergence sounds a lot like the Mises-Hayek law.

Labels:

70 Comments:

Anonymous Eduardo January 11, 2018 2:32 PM  

Dude, I always love the idea of some dystopian cyberpunk future built on the ashes of a socialist project went right. Or wrong if you prefer.

Sounds like an awesome setting.

Blogger David of One January 11, 2018 2:36 PM  

Thank you VD!

Yet again, more to learn at Vox Popoli!

Dave

Anonymous Sorcerygod January 11, 2018 2:41 PM  

Liken the future to some French doors — beautiful to look at, easeful to swing open, leading . . . where? Joseph Stalin died in 1953 not on his deathbed, but in his dacha, with the long knives out all around him, uncared-of, knowing that Communism had failed.

Stalin was a hyper-intelligent man. He could see the evidence before him. Communism was a war-economy measure, no more, no less. It could manufacture T-34 tanks by the tens of thousands, but not basic necessities like milk and chicken. He tried the New Economy in the Twenties, he broke the back of the kulaks (rich peasants), he reordered this and that, he uprooted whole peoples. And nothing worked.

In the end, his feeling must have been that: keep banging your head, because maybe a miracle might happen. A miracle to salvage the dream.

[continues:]

Communism Failure Article

BACKUP LINK:
https://starofmagic.wordpress.com/2018/01/09/daffodil-printed-french-doors/

Anonymous Eduardo January 11, 2018 2:43 PM  

You had to see back in the day when Vox was strictly all about Intellect.

Just choose whatever subiect you want, put on the search bar and Vox will probably had spoken about it XD.

Anonymous Looking Glass January 11, 2018 2:44 PM  

Socialism will always devolve to pre-Capitalist era levels of wealth. It's a fantastical version of a Lord ruling from his fiefdom, just with far more cruelty involved, though we're retreading territory that's been conclusively shown for 100 years. As Vox points out.

The appeal is always to Power or "Free Stuff". Magical Thinking murdered 100 million people last century by the joyful hand of their own governments. I used to be more forgiving of the idiots, but I've definitely moved into Ivan Throne's camp on the subject.

For a really basic explanation of why all Socialism fail, in a city of 100,000 people, each person is making 100s of decisions, each day, that are Economic in nature. That's 10s of millions of economic optimizations just for that one city. Only an omniscient & all-knowing deity is capable of running that type of system. Hence the fantasy aspect and the appeal to Elites, which is why we're back at Genesis 3 and there really is nothing new under the Sun.

Blogger tublecane January 11, 2018 2:45 PM  

As Hayek describes it, Mises' Socialism, in which the impossibility of price calculation in a socialistic economy, convinced him away from youthful hope in that direction. The question I have is why he was looking in that direction in the first place. Why are so many bright young people, then and now, enticed by that particular delusion. Even after socialism proved worse in practice than the bitterest reactionary dared predict?

I don't know. Hayek typically blamed WWI and the sense that civilization had grown corrupt. But people like him thought as he did beforehand. There's been a leftward drift in the intellectual class and potential recruits to that class for a long, long time. I find it fundamentally inexplicable, except that certain taints in the Enlightenment mindset make thinking that way more likely. Egalitarianism, obviously. The idea of environmentalism, or man being made by his circumstances. The ideas of infinite perfectibility and potential plenty, as well, are always circling about.

It's something more, though. Reading this blog you get the sense lefties are playing out there inward hate and psychological issues. And that's certainly true. But there's also the fact that leftist ideals serve, for reasons I can't explain, as repositories for hope. The right can't be utopian, really, can it? Maybe on the way Plato's Republic was utopian, but only for an extremely limited class. The mass of his pretend-society may have lived no differently than most human beings ever did.

I don't see any reason why you can't believe equality is impossible and there will always be limits to fulfilling wants and needs and still be hopeful. But most children of Enlightenment are just that: children. They want it all, and get cranky if you admonish them.

Blogger tublecane January 11, 2018 2:48 PM  

@3-"rich peasants"

More like peasants who happened to own a cow. Or maybe just had a few more grains of rice than their neighbor.

Blogger Silly but True January 11, 2018 3:05 PM  

When calculating the price of a cheap quality hamburger made by unskilled others, you know you're in serious trouble when the first question is how much does a 34 year-old high school dropout with 8 children need to live.

Blogger Lovekraft January 11, 2018 3:09 PM  

In the case of China, was communism just a convenient cover to cement the Han tribe's power? A power struggle like many others through history.

The one constant is the ever-changing cycles of power and communism just appears to be yet another attempt to either mitigate mass upheaval, or be used as cover.

Anonymous TS January 11, 2018 3:10 PM  

The Incompetence of Evil

https://the-avocado.org/2017/12/06/the-incompetence-of-evil/

Anonymous Napoleon 12pdr January 11, 2018 3:11 PM  

The inability of the Soviets to plan was precisely the vulnerability that Dr. Pournelle proposed to exploit in "The Strategy of Technology." He realized, correctly, that the ossified Soviet command economy could not use the new computer technology that was emerging in the 1970s. Things were changing too rapidly. The United States did - thanks to some enlightened decision-making by the Ford Administration and the gutsy call by Carter's SECDEF, Harold Brown, to put his scant resources into R&D.

The result? By the mid-1980s, we were fielding hardware that was a generation more advanced than anything the Soviets had. With another jump in performance in the works. The Iraqis got to sample some of that capability in DESERT STORM. Tom Clancy put it neatly - it was the War of the Worlds, and we were the Martians. :-)

Anonymous Homesteader January 11, 2018 3:24 PM  

Our POWs complained that the TOWs were taking them out before
they knew what was happening, even with their T72s in defilade.

Anonymous Looking Glass January 11, 2018 3:27 PM  

@6 tublecane

But the serpent said to the woman, “You will not surely die. For God knows that when you eat of it your eyes will be opened, and you will be like God, knowing good and evil.” So when the woman saw that the tree was good for food, and that it was a delight to the eyes, and that the tree was to be desired to make one wise, she took of its fruit and ate, and she also gave some to her husband who was with her, and he ate.

Genesis 3:4-6 ESV

The question I have is why he was looking in that direction in the first place. Why are so many bright young people, then and now, enticed by that particular delusion. Even after socialism proved worse in practice than the bitterest reactionary dared predict?

The Enlightenment is the land of opposites. It did not "Enlighten" but was the Endarkening. From which spawned Leftism, the distinctly Anti-Christian Religion. It's a religion through & through, and all we see is those captured by its demonic pull. You too can imagine yourself as like God.

Or I can let John Lennon explain the problem.

Imagine there's no heaven
It's easy if you try
No hell below us
Above us only sky
Imagine all the people living for today

Imagine there's no countries
It isn't hard to do
Nothing to kill or die for
And no religion too
Imagine all the people living life in peace

You may say I'm a dreamer
But I'm not the only one
I hope someday you'll join us
And the world will be as one

Imagine no possessions
I wonder if you can
No need for greed or hunger
A brotherhood of man
Imagine all the people sharing all the world

You may say I'm a dreamer
But I'm not the only one
I hope someday you'll join us
And the world will be as one
Imagine no possessions
I wonder if you can
No need for greed or hunger
A brotherhood of man
Imagine all the people sharing all the world


Lennon gained the whole world and lost his soul, condemned to death and taken there by his own fame. It takes a lifetime to train yourself to not given into your own Pride.

Blogger ((( bob kek mando ))) - ( the Original Militant Apathist ) January 11, 2018 3:31 PM  

"casual" explication?

could be.

Blogger Nate January 11, 2018 3:32 PM  

wait... i thought Capn said you were a socialist becuase Richard Spencer?

Blogger Scott Rassbach January 11, 2018 3:34 PM  

Socialism doesn't work for manufacturing, or farming. Demand is too complicated to manage.

However, are there goods or services that should not be in a market? Are markets universally applicable to all goods and services, or are there some that could be managed differently (maybe not a central plan, but some other method?)

A separate question: is there a place for temporary planning, subsidies, or protections, say a new industry?

Blogger Ron Winkleheimer January 11, 2018 3:36 PM  

Why are so many bright young people, then and now, enticed by that particular delusion. Even after socialism proved worse in practice than the bitterest reactionary dared predict?

I remember arguing with a guy on usenet back in the 90s. He would admit that communism had failed, but now that we had computers and the Internet we would be able to coordinate production and (and this was his big bugaboo) eliminate waste. We wouldn't be wasting resources on failing businesses for instance. And also of course "fairness." I think he was somewhere on the autism spectrum and that a lot of people who think communism is great are what is now called neuroatypical.

Anonymous Looking Glass January 11, 2018 3:38 PM  

@9 Lovekraft

Well, the Cultural Revolution was actually an active destruction of Han culture, so my understanding is that the tribal side of the Chinese conflict is really, really messy. However, the Han have a long history of problems with a much smaller minority that has massive influence among the ruling elite. They've noticeably been purging the Manchus from power lately, though I believe the Manchus still hold sway in the Chinese Military.

I'll defer to someone with far more expertise on the tribal aspect to the current Chinese power structure & struggles, but China did make a big to-do about moving a lot of nuclear-capable missiles to the Northern regions. Manchu territory. Funny, that.

Blogger DonReynolds January 11, 2018 3:38 PM  

Economists in pre-revolutionary France developed a remarkable economic system of thought and are called the Physiocrats. Even though the political outcome of that system was one of the worst disasters in Western Civilization, there are still elements of that economic thought that still persisted centuries later.

The Physiocrat tableau analysis evolved into the modern Input-Output Analysis, which was the center-piece of Soviet economic planners. Of course, political leadership meddled and manipulated the economic plans for political purposes, but there were remarkable successes in capital formation, which would normally be impossible in a poor and backward country like Russia.

The actually functioning of the Soviet Economic model was more informal than formal. The five-year plans painted the usual rosey picture of overly optimistic goals and expectations, but it fell to plant managers and engineers to actually get anything accomplished. They did that by influence, corruption, bribery, intimidation, blackmail, and a variety of informal networks, black markets, theft, and commandeering. In general, much like trying to build a major project in New York City....with city inspectors, labor bosses, protection rackets, mafia, community organizers, suppliers, shippers, police, and utilities. (This is the world where Donald Trump seems to have thrived.)

But the bigger Physiocrat surprise was the fondness of RINO Republicans for French economics, having otherwise a low opinion of all things French. They particularly love the idea of the Physiocrat Engine of Growth, which was the wealthy individuals. It was the rich who hired all the tradesmen and artisans (and artists). It was the vast sea of poor who created the wealthy, but we can overlook that part. What matters was the role of the rich as employers and as well-heeled consumers that drove the economy in pre-revolutionary France.

Of course, the Physiocrats were not capitalists in the modern sense, but we could consider them reactionary capitalists....meaning capitalism for the few, instead of the many.

As Adam Smith pointed out....it was not a miracle of capitalism to create silk stockings. The miracle of capitalism was creating silk stockings that working girls in the factories could afford.

Anonymous Lol anarcho-tyranny January 11, 2018 3:41 PM  

Too bad you libertarians consider things like interstate highways, social safety nets and border walls “socialism.”

Anonymous Ghost Who Walks January 11, 2018 3:48 PM  

Thank you Ludwig von Mises!
And his explanation, which appears in one on his major works, "Socialism," deserves to be read first hand. It is very short.

Blogger Anon11010 January 11, 2018 3:49 PM  

Red Plenty by Francis Spufford is a splendid book about exactly this topic. I can’t overemphasize how good it is at explaining the absurdity of the Soviet command economy.

Blogger James Dixon January 11, 2018 3:51 PM  

> I don't see any reason why you can't believe equality is impossible and there will always be limits to fulfilling wants and needs and still be hopeful.

You mean I can't be the master of all I survey and have all of my whims fulfilled simply by waving my hand? What's there to be hopeful about then?

And yes, that is the attitude of the children who have never grown up who still support Marxism/Socialism/Communism today. Reality is not as they wish it to be and it must be made so, by the most powerful force available, government.

Anonymous Napoleon 12pdr January 11, 2018 3:51 PM  

@6 tubelcane:

I think the Original Sin of the Left was Rousseau's notion of the Noble Savage. This led to a romantic rose-tinted view of the lower class and its pathologies. Add in a general disdain for the disciplined lifestyle of the middle classes, and you have a recipe for trouble.

If you take a look at modern Leftist dogma, it's all about the very rich and the very poor demanding that their libertine lifestyles be paid for by the middle class.

Blogger ((( bob kek mando ))) - ( the Original Militant Apathist ) January 11, 2018 3:56 PM  

17. Ron Winkleheimer January 11, 2018 3:36 PM
...what is now called neuroatypical.



you mean, neurodeviant? pathologically neurodeviant?

Anonymous Roundtine January 11, 2018 3:57 PM  

It is remarkable how Mises called it decades before most others even started to doubt it. Had Mises captured the popular mind, or at least the non-communist/anti-communist elites, we could have avoided most trouble. We only needed enough military deterrence to outlast their coming collapse.

The same is true today with respect to SJWs.

Blogger Ingot9455 January 11, 2018 4:08 PM  

@3 Ah, but Stalin's goal wasn't success, it was power. One of his routine maneuvers was to 'fail' himself into greater power. He would be given a government job, fail at it, then demand more power to 'deal with the situation', lather rinse repeat.

@17 I read a good article once on the combination of what computational resources it would take to actually really solve the Socialist central planning problem, which can be seen as linear algebra, and then compare it with Moore's law of double every 18 months (which doesn't exactly hold now, but)

The answer was the Socialist central planning will become possible sometime between the year 2200-2400, and it will require an 'Internet Of Things' similar to John C. Wright's Eschaton Sequence series, where every product actually contains a computer that manages it and reports on it.

Anonymous AB.Prosper January 11, 2018 4:10 PM  

Silly but True wrote:When calculating the price of a cheap quality hamburger made by unskilled others, you know you're in serious trouble when the first question is how much does a 34 year-old high school dropout with 8 children need to live.

The Bible notes four times "the workman is worthy of his hire" which is more than a caution not commit fraud. It also means treat workers fairly and pay fairly.

How to deal with bad situations like the above is part and parcel of a complex society and unless you are willing to roll back to say 1910's technology you are going to deal with complexity, more and more of it every year

There are social measures you can do to to prevent those situations, marriage reform and technological ones too (state paid birth control and abortion) but an urban culture is almost never moral and will have many problems

Even when its done right, said woman might be a widow who never worked before, never needed too.

Ultimately the more automation and complexity you build in, the bigger State you are going to get either control from multinationals or the Government . Its quite possible and in fact probable that if things continue the US will move from 40% of GDP as State of some kind (fact via Cato) to 50% to more and "future USA" may end up a giant welfare state with some part time workers here and there

Tech is two edged sword.

Now more on topic, an AI probably could manage the calculations required for Communism of some kind, probably with limited markets but thus far such AI's don't exist and such a society would be a miserable rabbit warren in any case

Blogger RobertT January 11, 2018 4:10 PM  

Sloppy scholarship.

"the competition between capitalism and Soviet socialism became more pronounced during the Cold War ... the Austrian economists F. A. Hayek and Ludwig von Mises resisted this idea most forcefully."

The Cold War didn't start until after WWII.

https://www.google.com/search?q=dates+of+cold+war&rlz=1C1GCEA_enUS778US778&oq=dates+of+cold+wa&aqs=chrome.0.0j69i57j0l4.7058j0j7&sourceid=chrome&ie=UTF-8

Anonymous WinstonWebb January 11, 2018 4:12 PM  

Central planning, economic coordination, price controls, blah, blah, blah...
Socialism is EVIL at its very core for one main reason: it will absolutely DESTROY an individual (up to and including murder) in favor of the collective. And then celebrate the action as "good".

It just doesn't get more vile than that.

Blogger Johnny January 11, 2018 4:35 PM  

My take on socialism is that the real enthusiasm for it is that the public at large sees it as an income redistribution scheme. That is a selfish motive and people don't like admitting to selfishness, so the people selling socialism come up with all this other malarkey as a cover.

On balance when the communists took over in the USSR, the establishment of their oligarchy power structure played a bigger role than who owned the means of production. The country was already widely socialist because the majority of people were rural and the rural people were unusually given to collective ownership. The villages were effectively communes with the land and housing divided up by the local population. Initially the communists put one of their members in the communes, pushed education, but otherwise did little more than keep track of local production. Things went along for about a decade with an extensive black market that was tolerated. The problem that developed was that industrial production expansion was very slow and inferior to what their capitalist neighbors were accomplishing. To get more rapid development they turned to using pressed labor methods in the factory sector to keep costs down. That did work at the expense of reducing the citizens to a kind of industrial serfdom. The hardship and loss of freedom was major.

When Stalin came to power he murdered people so much and so easily that the country came to be run by fear more than anything else. In an effort to industrialize farming they forced the commune population into these massive government run farms. If you think of it, actually mimicking the old feudal system in Europe under the kings with ennobled landowners. The rural population hated what was going on, resisted, and the whole country came close to resembling a slave labor camp. And the management of the new farming system was so bad that production fell dramatically. From then on it was a brutish and secretive system that did manage to raise industrial production, while the population was treated so badly that the body count was in the tens of millions.

Once they became industrial with the communists embedded in the factories, staying in power required pandering to the party members in their numerous positions of power. That made change difficult and change came only when directed from the top. Thus stagnation was the common outcome.

Blogger Snidely Whiplash January 11, 2018 4:38 PM  

AB.Prosper wrote:when the first question is how much does a 34 year-old high school dropout with 8 children need to live.
What's wrong with that question? My father was a jr. high dropout, and I was his 8th child. Granted, he was 38 when I was born, but he wasn't able to marry until he was 25, as WWII got in the way.
The circumstance you describe is a perfectly normal situation. It's your biased and frankly wrong-headed cultural bias that tells you otherwise.

Blogger Metric January 11, 2018 4:40 PM  

Another area that reminds me of the Mises calculation problem: Gains in this life vs. gains in the eternal afterlife. Since there are infinities involved, any rational weighting of importance means that gains in this life are worth exactly nothing, relatively speaking. This will have tremendous implications for how time and money are spent. It is trivially easy to see how many Christians live as though they take the afterlife seriously. The only ones who do are derided as cultists.

Anonymous Random American January 11, 2018 4:42 PM  

Tublecane: "Why are so many bright young people, then and now, enticed by that particular delusion. Even after socialism proved worse in practice than the bitterest reactionary dared predict?"

I think there are many possible and overlapping emotional/psychological motivations for individuals, but they boil down into two basic camps as people.

1. The naive believer/useful idiot/lazy bastard: Idealistic, hopeful, but inexperienced (generally) young people, totally ignorant of human nature, who let their rose-colored glasses and petty, ill-thought-out desires affect all they see. Heck, who would choose a life of boring hard work and dedication, especially when it also comes with responsibility and risk of failure? Hey, if we all just get along, man, we could all have enough to be happy and nobody would have to work a boring job or take risks ever again! (Pass the doob, please, bro, it's for sharing!) A mixture of (depending on the individual) naive idealism, innocent ignorance, immaturity, cowardice and fear of life/responsibility/risk, and also maternal instinct gone insane, thinking that a government elite can play Mother to the whole world. If people are naive enough to think communism can work in large groups, that all people will gladly waste their lives working for strangers, and let go of all personal ambition and group tribalism as long as there's free soup, then they are also naive enough to believe that there exists a group of people pure and good enough to be trusted to run it all for our common good. (I see some of this same maternal malfunction and naivete in the idiots among liberals who support mass immigration, thinking that a small percentage of Europeans/Americans can somehow fix and support the whole 7 billion people of the dysfunctional, dumb, violent world. Same motivations, slightly different mental disease as a result.

2. Those who think They will end up in charge of their "Utopia": They simply see it as a power play, same as so many other power-mongers in other political/economic systems. Pretend to be the very Bestest Friend of the Common Man, and maybe someday you too can finagle your way into being among the Most Equalest of Them All. Then all your goon squads make make sure the common people know to agree with you, and you can use the all-powerful state to solve everyone's problems, or at least to make everyone pretend that's what you're doing. You get to be Angry God and Lovable Savior at the same time, what's not to like? (Not so different than pampered royal tyrants of the past, or so many not-officially-communist but globalist politicians and leaders of today.)

Anonymous Aeoli Pera January 11, 2018 4:45 PM  

It's a religious thing.

Blogger Cataline Sergius January 11, 2018 4:53 PM  

As bad as their central planning for industry was, it was no where near as bad their central planning on family life.

When the Bolsheviki came into power in 1917 they regarded the family, like every other 'bourgeois' institution, with fierce hatred, and set out with a will to destroy it. 'To clear the family out of the accumulated dust of the ages we had to give it a good shakeup, and we did,' declared Madame Smidovich, a leading Communist and active participant in the recent discussion. So one of the first decrees of the Soviet Government abolished the term 'illegitimate children.' This was done simply by equalizing the legal status of all children, whether born in wedlock or out of it, and now the Soviet Government boasts that Russia is the only country where there are no illegitimate children. The father of a child is forced to contribute to its support, usually paying the mother a third of his salary in the event of a separation, provided she has no other means of livelihood.

At the same time a law was passed which made divorce a matter of a few minutes, to be obtained at the request of either partner in a marriage. Chaos was the result. Men took to changing wives with the same zest which they displayed in the consumption of the recently restored forty-per-cent vodka.

'Some men have twenty wives, living a week with one, a month with another,' asserted an indignant woman delegate during the sessions of the Tzik. 'They have children with all of them, and these children are thrown on the street for lack of support! (There are three hundred thousand bezprizorni or shelterless children in Russia to-day, who are literally turned out on the streets. They are one of the greatest social dangers of the present time, because they are developing into professional criminals. More than half of them are drug addicts and sex perverts. It is claimed by many Communists that the break-up of the family is responsible for a large percentage of these children.)


The peasant villages have perhaps suffered most from this revolution in sex relations. An epidemic of marriages and divorces broke out in the country districts. Peasants with a respectable married life of forty years and more behind them suddenly decided to leave their wives and remarry. Peasant boys looked upon marriage as an exciting game and changed wives with the change of seasons. It was not an unusual occurrence for a boy of twenty to have had three or four wives, or for a girl of the same age to have had three or four abortions. As the peasants of Borisovo-Pokrovskoie bitterly complained: 'Abortions cover our villages with shame. Formerly we did not even hear of them.' But the women, in self-defense, replied: 'It's easy for you to talk. But if you just tried to bear children yourselves you would sing a different song.'

I was once discussing the subject of frequent divorces with the president of a village soviet. 'What makes women get divorces?' I asked him. Just then a girl about eighteen years old entered the room. 'Here is our latest divorcee,' said the president laughingly. 'Ask her.' I turned around, but the girl was no longer there, and from the window I saw her running away as fast as she could. I ran after her and finally caught up with her in the fields outside the village. We sat down on a haystack and I asked the girl to talk to me frankly, as woman to woman.

Tears filled her eyes as she told me that she still loved her nineteen-year-old husband, but that he had forced her to ask for a divorce only two months after they had been married. He now thought he loved another girl in the village and threatened to kill his wife if she did not leave him voluntarily.


When I read Moira Greyland's book, I was struck by just how similar the arguments her parents made for inflicting their horrors upon on her, had matched those of the Russians from only a few decades before.

Blogger Stilicho January 11, 2018 5:01 PM  

Why, with better computers and mathematical models, we'll do socialism right this time! Scratch a keynesian, find a socialist. Central bank rate-planning falls into the same category, and is just one level removed from the politburo planners (One Rate to rule them all and in the debt-ness bind them!).

Keen's soft spot for socialism holds him back from following his insights to their ultimate conclusion as well. Put another way, it's ALL the debt, stupid.

Blogger tublecane January 11, 2018 5:08 PM  

@27-That wouldn't work, either. Because at most those computers would inform us of the allocation of resources in the economy at any given moment. But prices are necessary as signals to consumers, who are the ones that give things value. It's their subjective interpretation of what they want or need that determines where things go, and the only reliable way to communicate things to them is through prices. Computers inside products won't work.

Anonymous Ominous Cowherd January 11, 2018 5:15 PM  

Snidely Whiplash wrote:AB.Prosper wrote:when the first question is how much does a 34 year-old high school dropout with 8 children need to live.

What's wrong with that question? My father was a jr. high dropout, and I was his 8th child. Granted, he was 38 when I was born, but he wasn't able to marry until he was 25, as WWII got in the way.

The circumstance you describe is a perfectly normal situation. It's your biased and frankly wrong-headed cultural bias that tells you otherwise.


I bet your father wasn't making minimum wage, and he probably wasn't flipping burgers. That was before credentialism ran amok, and there is a very good chance your father was better educated and a better worker than many of our recent college grads.

Blogger Johnny January 11, 2018 5:22 PM  

RobertT wrote:Sloppy scholarship.

"the competition between capitalism and Soviet socialism became more pronounced during the Cold War ... the Austrian economists F. A. Hayek and Ludwig von Mises resisted this idea most forcefully."



Competition between the Soviets and their capitalist neighbors was there right from the start inside the USSR because they were very much aware of their capitalist neighbors and determined to do better. It was a matter of attitude and pushing their propaganda line.

Except for some political movements that were not mainstream, we gave the socialist alternative a lot less attention until they became an active adversary in the post WWII period.

Blogger tublecane January 11, 2018 5:22 PM  

@29-I don't understand your point. Capitalist countries/theorists and socialist countries/theorists competed with eachother prior to the Cold War. (Though not as much as they should have. See, for instance, Wall Street's role in funding/coddling both the Soviet Union and the Third Reich.) The Cold War "intensified" this competition. I think that's fairly reasonable.

The excerpt above doesn't outright say it, but though Mises and Hayek debunked "scientific planning" long before the Cold War, that wasn't a widely-recognized fact of "serious scholarly study." Western academics didn't have as their "overarching research agenda" to prove Austrians correct.

I won't say they necessarily suppressed knowledge, but the sentiment abroad was that Keynes has won over Hayek, and we could march into our glorious future under his banner, including commies.

Anonymous MawBTS January 11, 2018 5:25 PM  

The main problem is the labour theory of value: the idea that goods are only as valuable as the work that went into making them. Much communist and Marxist thought only makes sense in light of this very wrong idea.

Think about Excalibur: a divine sword that allows the bearer to rule Britain. The LTV says Excalibur has a value of zero, since no labour whatsoever went into making it.

But if I spend lots of time doing something useless, like shitting on the ceiling, then this action attains great value, since it represents crystallized labour. In fact, the more time I spend shitting, the more valuable it becomes.

Karl Marx added a bodge when defining the LTV, saying that it only applies to socially necessary actions. But who's he to decide whether shitting on the ceiling is or isn't socially necessary?

Marx's observation (that goods and services cannot exist without labour) is true, but his derivation (that labour is the ONLY source of value) is wrong. It's like noting that all goods contain atoms, and postulating an "atomic theory of value", where an object's worth depends on how many atoms it has. Why even defend that? At best, the LTV should be seen as a historically plausible error.

Though it's worth keeping socialism (worker control over the economy) distinct from social democracy (capitalism with interventionist government policies), and keeping that distinct from communism (a stateless society with no property), and keeping that distinct from Marxism (a particular ideology that tries to achieve communism). They are all different things with different problems.

Blogger Demonic Professor El January 11, 2018 5:25 PM  

The thing about socialism/Marxism is...think about the millions of pages and gallons of ink spent on explaining how socialism can work.

And why it didn't work in specific contexts. Most academic work in the past at least 30 years spends its primary time explicating why capitalism continues to foil socialism. Usually it involves bad people and brainwashing.

I usually follow the rule of thumb that if you need to constantly change everything about your theory in order to reach the conclusion, then the conclusion is false.

Then again, we all know socialism isn't about economics or equity, but about authoritarian philosopher god-kings ruling over society with armed thugs.

Blogger tublecane January 11, 2018 5:31 PM  

@40-"Except for some political movements that were not mainstream, we gave the socialist alternative a lot less attention until they became an active adversary in the post-WWII period"

We weren't permanent World Police until after WWII. They, meanwhile, were surrounded by hostile non-communist countries. So yes, we gave commies less attention.

But construing "the socialist alternative" broadly, here on the homefront we had homegrown and imported versions. Wobblies and all that. An anarchist assassinated a president. Remember Red Scares? Those weren't fringe phenomena.

We didn't even recognize the existence of the Soviet Union until 1933, and only then because the White House was infiltrated full of our own central planners. (More Brown than Red, really.)

Anonymous map January 11, 2018 5:31 PM  

Hayek and others had a very hard time explaining the Great Depression. That is why Keynes and his argument won out in the beginning.

Anonymous MawBTS January 11, 2018 5:32 PM  

The thing about socialism/Marxism is...think about the millions of pages and gallons of ink spent on explaining how socialism can work.

Someone wrote a book once called 100 Authors Against Einstein.

When Einstein heard of this, he said "If I were wrong, then one would have been enough!"

I don't mean to say that elaborate academic subjects are necessarily wrong. But there probably is a negative relationship between the amount of "defending" a topic needs, and its truth value.

Blogger tublecane January 11, 2018 5:35 PM  

@42-Of course goods can exist without labor. Air and water are desirable because they're necessary to sustain life, and therefore are economic goods. It so happens that most of the time they're abundant, and therefore not very valuable.

Blogger tublecane January 11, 2018 5:45 PM  

@45-On the contrary, I think they have the only explanation for the "business cycle" that makes sense.

People not liking their explanation is different from them not being able to explain it.

The situation with mainstream opinion on the Great Depression is like people with Trump Derangement Syndrome and Trump's election. You can explain it to them as carefully and painstakingly as possible, but they're not interested in hearing it. Their interest in the subject of Trump begins and ends with how to make him go away. Therefore, they prefer explanations of his election to throw light on a future in which he's not president. Which Russia-gate fits perfectly.

If your explanation doesn't contain grounds for impeachment, they're likely to think of it as no explanation at all. Similarly, if the Austrian of the Great Depression didn't call for an interventionist solution, you can stick your fingers in your ears, say, "La-la-la," and pretend it was no explanation at all.

Keynesians defeated Austrians on the issue of the origin of the Great Depression because everyone who mattered wanted Keynesian solutions to the depression. If you believed Hayek and Mises, it would mean party's over and much pain to come. Which we got anyway, but no matter. That could always be explained away.

Blogger Johnny January 11, 2018 5:55 PM  


My take on the labor theory of value is that it is essentially a political statement. The implication is that all surplus value should go to labor. It works to sell doctrine because more people get their income from labor than from property, thus they see themselves as benefiting from the new system. Same old stuff, appealing to a covert selfish motive.

Beyond that I have never been able to take Marxist economic theory seriously. Too close to nonsense right on the face of it. If you want to deal with it you have to deal with its ability to sell to the general population. Detailed doctrine analysis is a wast of time because it is too close to nonsense right from the start.

The thing about all social systems is they have to be sold, and people make silent calculations as to whether or not they will benefit. For the professor class it is about power. Capitalism leaves them out of the equation, thus they do not like it. Socialism requires government management, the government needs people like them to run things, thus they like socialism because it empowers their class.

For the working stiffs it is usually about money. Except for the radical types they are less inclined to power trips.

Anonymous Looking Glass January 11, 2018 6:09 PM  

Related, but Trump has now given us the official title for these countries: "shithole countries". I personally love the "We'll talk about something else" denial, letting the MSM run with this for a day. God, they really are dogs chasing their own tails.


@48 tublecane

It's a rhetoric vs dialectic issue. Keynes worked over politicians better because he offered them what they wanted to hear. Keynes himself gets a worse wrap because those that followed after him simply put everything into making a Third Way, Debt-based apologia for Central Banking.

As for the Great Depression, it was simply a Debt Bubble. It probably tracks closer to the Japanese Bubble of the late 80s more than people want to admit. Federal Reserve pumped debt into the economy and the inflation has to go somewhere, which hit the Market and then spread to the banks. Then 1930 starts the massive drought throughout the Midwest, which craters agricultural production & exports. Since Midwest farms were leveraged with mortgages, you lose roughly 1/2 the banks west of Appalachia in the next decade.

95% of the time, it's the debt. It gets really bad when it's the Debt + an Act of God. The specifics of the damage are local to the economy that's hit. This is why Central Banking is a War Crime.

Blogger Lazarus January 11, 2018 6:40 PM  

@29

Not sloppy scholarship, sloppy writing.

Blogger Robert What? January 11, 2018 7:08 PM  

I disagree. Socialism works very well. You just have to ask "works for who?"

In terms of bringing economic liberty and opportunities to the largest number of people, it is a miserable failure. But in terms of bringing unearned wealth and power to a tiny connected crony ruling class, it "works" very well thank you.

Blogger Johnny January 11, 2018 7:13 PM  

"95% of the time, it's the debt. It gets really bad when it's the Debt + an Act of God. The specifics of the damage are local to the economy that's hit. This is why Central Banking is a War Crime."

We had debt bubbles long before we had a central bank. They did not start keeping good data until around the time they formed the Federal Reserve so it is hard to document the past ones, but in general they are bank fueled and a central bank is not needed for it to happen. Excess western land speculation was a big one, triggered by Andrew Jackson. Then there was a machine tool bubble, a railroad bubble, and some others, I forget. Typically excess borrowing triggers some asset to go way up in price, then the crash and the flood of bad debt.

Blogger tublecane January 11, 2018 7:16 PM  

@50-He offered then what they wanted to hear because he actually believed it (at least while he was saying it, though his mind was changeable). Not, I don't think, because he said it well.

I've read some of Keynes' General Theory, and it's probably the worst-written "great book" I've ever encountered. Economic Consequences of the Peace was better, but honestly, Keynes was no master rhetorician. His algebraic style has got to be least fit for convincing politicians.

It is well-adapted for the academic world, on the other hand. They prefer rhetorical obtusesness, I find. But if we're going to start passing around garlands for obtuse writing, pretty soon you're going have to start praising abominations like Derrida or Foucault for their rhetoric.

You might as well say modern art succeeded in its aesthetic worth as to say Keynes triumphed through rhetoric.

Blogger tublecane January 11, 2018 7:18 PM  

@53-There can be bubbles without central banks, and without banks at a for that matter. But central banks, especially ones issuing funny money, make them both more likely and worse.

Anonymous Ominous Cowherd January 11, 2018 7:32 PM  

Keynes gave politicians theoretical cover for borrowing money and spending it to buy votes. Parroting Keynes gave economists a way to curry favor with politicians.

Mises and Hayek told politicians that any interference with the economy was going to make things worse, not better, and the best thing to do was nothing. Any economist who parroted Mises and Hayek got no tenure and no grants.

Golly, I wonder which theory got more academic attention?

Anonymous BBGKB January 11, 2018 7:36 PM  

socialism doesn't work because socialists don't work. Bernie was kicked out of a commune for not doing his fair share
https://www.dailywire.com/news/5120/sanders-was-kicked-out-commune-laziness-hank-berrien

calculating the price of a cheap quality hamburger made by unskilled others,..how much does a 34 year-old high school dropout with 8 children need to live

I guess its a good thing Latrina of 21 crackbaby fame never worked

Had Mises captured the popular mind, or at least the non-communist/anti-communist elites, we could have avoided most trouble

I am pretty sure all the jews who supported communism did it with the understanding they would be commissars not bodies in the ditch. Marx's plan for a death tax was so jew banking money could buy up formerly family businesses

Blogger SirHamster January 11, 2018 8:24 PM  

One draw of socialism is the idea that centralized planning can introduce efficiency, with less failure and waste.

This is backwards in that that decentralized failure and waste is necessary distributed information. "This does not work" - taught to many individuals.

Failures can be painful, but they provide sharp, difficult to forget lessons. The use of socialism to reduce and "level out" failure is pain avoidance - but it means loss of knowledge in a larger portion of the population.

Thus, socialism feeds off the childish desire for less pain to create and perpetuate ignorance.

Anonymous Gen. Kong January 11, 2018 10:30 PM  

What many fail to realize or comprehend is that Socialism is merely the demo - a Potemkin factory with lots of utopian goodies for the proles (which are only delivered in allowing the proles to loot and kill in the revolutionary stage). The Socialist-Revolution scam has two main sets of backers: the edumacated class or so-called 'Intelligentsia' (the SJW true believers in the utopian idiocy) who endlessly stir the pot to violence, the Mega-Capitalists (banking oligarchs, certain aristos, etc.) who stand walk in to collect the bulk of the hard assets after the blood is spilled.

In 1916, Lenin and Trotsky were two exiled Bolsheviks with a small band back in the Tsarist Empire. Thanks to the Russan Empire's stupidity in joining the Great Wart of Racketeering, things collapsed to the point that Nicholas II abdicated in early 1917, leaving the provisional government of Kerensky - backed by elements in the west - to continue fighting the lost cause on the Eastern front against Germany. Germany and its (((backers))) saw the opportunity and sent in Lenin and Trotsky along with 5 million gold marks (the 20-mark German gold coin contained a bit less than 1/4 troy oz. of gold). That was plenty enough to buy the services of the hundreds of thousands of peasant deserters from the Russian army who were there in the cities with their Model 1891 rifles. So in November 1917 Lenin et al attacked the Winter Palace once the elite guard was paid to leave. The looting began in earnest in 1918 and by 1922 folks like (((Armand Hammer))) and his associates made out very nicely with payment in commodities from the looting command. Stalin was merely smart enough to figure out that he would need to become boss of the gang in order to survive and direct the loot to his followers, and ruthless enough to carry out the purges when the opportunity arose.

It's very much the same today. The racket is made up of the same three elements: the mega-rich (most of whom are basically debt-racketeers with a regime-sanctioned license to create money by lending zeros), the nomenklatura (the true-believer SJW academics and fake-news types) plus the thugocracy (dindus, Musloids, Mexicans and assorted parasitical foreigners) who get to kill YT and take his wymyn and sheeit. All the Marxist/Socialist theory is merely a pretense for unrestrained criminality - or 'anarcho-capitalism' as some would call it.

Anonymous map January 11, 2018 10:42 PM  

It was not discovered until much later that the Great Depression was caused by the Smoot-Hawley tariff, which itself was caused by the massive dumping of European output into the United States.

The US became the world's biggest creditor, lending money to the Europeans for everything from WWI to economic development. Worse, the credit was denominated in gold-backed dollars, meaning European debtors had to acquire dollars to pay their debts. Hence, the massive dumping of European product that led to calls for a large tariff.

The tariff spooked the bond market, which caused a massive stock market crash and an economic contraction.

The Federal Reserve was just doing its job maintaining the gold standard.

Blogger Thucydides January 11, 2018 11:25 PM  

The biggest problem is how to explain this to people? Yes, we can have enjoyable sessions trading theories and observations, but the average apolitical idiots in Ontario fell for "We deserve a living wage", voted for the Liberals, who promptly raised the minimum wage 20% on 01 Jan and are now angrily berating business owners for laying off workers or cutting benefits. Workers who voted for a "living wage" actually got what they deserved, but they don't see it that way, and are blaming the greedy business owners.

While I certainly don't have the rhetorical chops to fight "we deserve a living wage", there are a few tools that I have been able to deploy effectively.

The essay "I Pencil" is a great way to introduce curious and non converged people to the true scale and scope of the problem. If it takes literally millions of people to ensure a cheap 2B pencil can be purchased in any store, what else is going on to make the rest of the economy run?

Hayek's "Local Knowledge problem" pretty much proves a command economy can never compete with a market economy, but is a smart bomb you need to target at the right audience, most people are not wiling or able to follow the arguments.

And one of the ultimate zingers (although I would like to be able to attribute the source properly) is the observation that "the difference between a primitive society and an advance society is a primitive society allocates resources based on whims and personal connections, while an advance society allocates resources based on market transactions".

I know that isn't original with me, but I can't find the proper attribution.

Blogger Snidely Whiplash January 11, 2018 11:32 PM  

Thucydides wrote:The essay "I Pencil" is a great way to introduce curious and non converged people to the true scale and scope of the problem. If it takes literally millions of people to ensure a cheap 2B pencil can be purchased in any store, what else is going on to make the rest of the economy run?


"I, Pencil" is a crock. It doesn't take thousands of people to produce a pencil. It takes thousands of people to make standardized pencils at lowest marginal cost and distribute then in an industrial economy. I can make a pencil myself, and have, with 3 ingredients and one tool, all of which, except the wax, I am perfectly capable of making myself.

Don't confuse the way its done now with the optimal way or the necessary way for it to be done.

Blogger tublecane January 12, 2018 12:22 AM  

@62-You miss the point of I, Pencil entirely. Leonard Read doesn't think there's only way to produce a pencil. The essay is about one particular pencil, which happens not to have been made by you alone (plus whoever procured the wax).

The point is that contained within each mass-produced, standardized pencil is a hidden complexity of creation that doesn't occur to most people. A great variety of resources and labor came together from across different industries, without any central authority commanding it. The process just happened.

It wasn't entirely spontaneous, because discrete pasts of it were planned and deliberately organized. But there was no Master Plan to make a pencil. As the essay says:

"Since only God can make a tree, I [that is, the pencil] insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree."

Did you even read it?

Blogger Christopher B January 12, 2018 12:37 AM  

I read about one gunner who claimed to have lit up an Iraqi tank with a sabot round by shooting at the heat signature showing behind a berm.

Anonymous CarpeOro January 12, 2018 9:41 AM  

"The Soviets’ solution to the complexity and information problems was a national plan that spelled out production goals only for broad sectors, not for specific transactions."

Not entirely accurate, or at the very least misleading. The results of some of the "broad sector" goals at times added up to situations like the following. A "broad goal" at one point was to produce x number of tons of porcelain, basically a consumer product in it's many forms. They out produced the USA in whatever year. The devil being in the details, the vast majority of it was toilet bowl tanks (or maybe seats, it has been a few decades since I heard the story). Not entire toilets comprised of multiple parts, just the tanks. There is the disconnect in micro-managing an economy - from the top the numbers can look great, but the utility of the actual production at the consumer level can be approaching nil. Sure, there can be a need for replacement toilet tanks but that is negligible to the amount produced. If I recall, the excess production went into warehouses or was buried.

Anonymous AB.Prosper January 12, 2018 1:37 PM  

Snidely Whiplash wrote:What's wrong with that question? My father was a jr. high dropout, and I was his 8th child. Granted, he was 38 when I was born, but he wasn't able to marry until he was 25, as WWII got in the way.

The circumstance you describe is a perfectly normal situation. It's your biased and frankly wrong-headed cultural bias that tells you otherwise.


It wasn't my question SW. I'm on you side here, thus the Bible quote

My preferred economic reform would be Distributism

In any case of late we want each business to attend to its own affairs and assume the Invisible Hand, aka The God of the Market aka Mammon aka Gnon will figure it all out

That is as stupid a way to run an economy as Communism

The fact is other than Communism nearly any economic system is still The West

Back in the late Middle Ages basically every facet of economic activity had a high degree of regulation, wage controls, price controls, quality controls , mandatory days off, trade controls , bans on interest . Many people had no economic mobility though there was always trade and markets

It was a panoply of traditions and laws that oversaw nearly all economic life. It worked actually very well given the population density and technology and it was fully "Of the West"

Now even talk of a 10 cent minimum wage gets the Ayn Rand Jihad ready to strap on a suicide vest but fact is other than Communism, any nation of the West can choose whatever path it likes including Social Democracy, Mixed. Distributism , Capitalism or whatever else

Some work better than others of course but economics are not what made the West , well the West.

As for the future assuming we manage to avoid a Dark Age , we will be seeing a different kind of economy than we are used to, either regulated or distributed and our corporations will be eager to go along with it simply so computers and automation don't wipe out the entire customer base

If we are smart we'll try Distributism or some variant at first but the older market societies will create a vast growth of the State no matter what.

best way to see every machine and every computer is a tiny tick of more Government as GDP

Blogger Stephen St. Onge January 13, 2018 3:34 PM  

@11 Napoleon 12 pdr. wrote:

        “The inability of the Soviets to plan was precisely the vulnerability that Dr. Pournelle proposed to exploit in ‘The Strategy of Technology.’   He realized, correctly, that the ossified Soviet command economy could not use the new computer technology that was emerging in the 1970s.   Things were changing too rapidly.   The United States did - thanks to some enlightened decision-making by the Ford Administration and the gutsy call by Carter”s SECDEF, Harold Brown, to put his scant resources into R&D.”

        It was more than just the inability to plan.   Jerry pointed out to us that personal computers needed to be able to communicate with us, and that destroyed censorship.   Ending censorship was the necessary and sufficient condition to end Communism, he said.   I heard him lay it out in the early ’80s.

@24 Napoleon 12 pdr. wrote:

        “I think the Original Sin of the Left was Rousseau's notion of the Noble Savage.   This led to a romantic rose-tinted view of the lower class and its pathologies.   Add in a general disdain for the disciplined lifestyle of the middle classes, and you have a recipe for trouble.

        The Left’s Original Sin preceded Rousseau.  J. L. Talmon laid it out in The Rise of Totalitarian Democracy.  The philosophers of the ‘Enlightenment’ did not have the benefit of non-Euclidean geometry (which showed how our supposedly rigorous logic was filled with unspoken assumptions), not having the benefit of modern psychology (which showed how we are influenced by unconscious beliefs and desires, and that motivation is emotion, not reason).   So they set out to create a world shaped entirely by reason, which is impossible, but which would create a world ruled by the ‘most rational’ people.  In other words, ruled by them.

        And of course, this has roots in Plato and Socrates, and how the world will be perfect “when kings are philosophers, or philosophers are kings.”

Blogger Stephen St. Onge January 13, 2018 3:36 PM  

27. Blogger Ingot9455 wrote:
        “I read a good article once on the combination of what computational resources it would take to actually really solve the Socialist central planning problem, which can be seen as linear algebra, and then compare it with Moore's law of double every 18 months (which doesn't exactly hold now, but)

“The answer was the Socialist central planning will become possible sometime between the year 2200-2400, and it will require an ‘Internet Of Things’ similar to John C. Wright's Eschaton Sequence series, where every product actually contains a computer that manages it and reports on it.”

        Alas, that still won’t solve the “socialist calculation problem.”  For the problem is almost always misstated.

        What Mises actually pointed out was an economic problem so profound that no one had ever seen it clearly, though Karl Marx got a glimpse.  The problem rests on the question Where do prices come from in the first place?

        Read the first section of the first paragraph of Capital.   Marx notes that one can take the various prices of commodities for sale in the market, each selling for a certain amount of pounds, shillings, and pence, and go backwards to say a certain weight of iron is equal in value to a certain amount of cotton cloth, and so on to all the things with a market quotation.

        Mises’s great insight is that economic calculation depends on the pre-existence of these market prices.  Without the prices, no calculation is possible in the first place, regardless of how much computing power exists.  But prices are not planned, they are discovered, as people make decisions to buy and sell in the market.  A market must exist in order for calculation to be possible. But socialism aims to eliminate the market in the first place!  Thus socialism can’t calculate, for it won’t have the information to perform the calculations on.

        Various socialists then proceeded to ‘solve’ the economic problem.  The solution invariably consisted of recreating markets, but calling them something else, and calling changes in prices ‘planning.’  In short, create a “hampered market economy,” and call it “socialism.”  And to the extent that real planning exists, localized portions of the economy can’t calculate.

Blogger Stephen St. Onge January 13, 2018 3:41 PM  

45 map wrote:
        “Hayek and others had a very hard time explaining the Great Depression.   That is why Keynes and his argument won out in the beginning.”

        I think the Great Depression should be thought of as a “perfect storm” of multiple catastrophes combining.

        First, there was the normal business cycle, explained well by Mises and Hayek, and centered around fractional reserve banking.

        Next was the Federal Reserve, which tried to prevent deflation while also maintaining the gold standard.  This is impossible.   In the long run, gold production might exactly equal the production of all other goods and services, but in the short and medium run one will get ahead of the other, leading to inflation and deflation.

        Next, the aftermath of the Great War.  The Allied powers had huge war debts, and Germany had huge reparation debts.  The combined debts were several times greater than the all the gold ever mined and found in all of history and pre-history.  The U.S. could only be “paid in gold” if it continually recycled the gold abroad through purchases of foreign goods and services.

        Enter protectionism.  The pre-WWI policy of running a continuous trade surplus through moderately high tariffs made sense, because the U.S. was a debtor nation.  But WWI converted the U.S. into a creditor.  Tariff policy needed to change its basic orientation, but instead the Fordney–McCumber tariff of 1922, and the Smoot-Hawley tariff of 1930 went in precisely the wrong direction.  Even worse, further loans to foreign nations were encouraged, which also could never be paid.

        And combined with all this, the fundamental structure of the economy was changing.

        In classical China, a sage advised the ruler to always keep 90% of the people on the land, growing food, to make the kingdom prosper.  By about 1790, a country could prosper with only 80% on the land.  When the Civil War began, the U.S. had about 60% on the land.  In 1900, maybe 50%.  And that percentage probably would have been even lower, if not for massive agricultural exports AND massive immigration.

        But with the advent of the tractor, the percentage needed for farming dropped sharply.   And during the 1920s, foreign nations began to catch up in farm productivity, while immigration was drastically reduced.  The predictable result of this was a massive drop in farm population and the number of farms.  But instead of encouraging this, and smoothing it out, the U.S. govt. tried to prevent it from happening in the first place.

        The Great Depression was where it all came apart at once.  The business cycle downturn, the collapse of exports, the cessation of foreign payments, the increase in the tariffs, the bank failures, the massive deflation that took place as the banks failed, and the cratering of farm sector all at once shook the world economy.

        Keynes, under the obscure prose of the General Theory, was basically correct in what he said.  You could cure the Depression the regular way, by letting real wages fall tremendously and openly, and writing off massive debts outright, or you could gigantically inflate the money supply, causing real wages to fall anyway, but in a hidden manner.  No country had the guts to push the necessary inflation through till WWII, though.

        After WWII, the attempt to eliminate business cycles just meant that we would still experience them, but with continual inflation.  Maybe people will one day attain the emotional maturity to deal with unpleasant facts rationally, but I wouldn’t hold my breath.

Anonymous Mr. Rational January 14, 2018 8:11 AM  

Stephen St. Onge wrote:the attempt to eliminate business cycles just meant that we would still experience them, but with continual inflation.
Fascinating summary.  How do deflationary currencies like Bitcoin figure in this?

Maybe people will one day attain the emotional maturity to deal with unpleasant facts rationally, but I wouldn’t hold my breath.
Mortal humans will always have to go through a growing-up process, and there will always be many who haven't made it far enough to foresee consequences.

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