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Mises on Economic Calculation   Leave a comment

I’m concluding my series on Ludwig von Mises’ 1920 essay “Economic Calculation in the Socialist Commonwealth”, appropriately enough, with his conclusion of the essay. I highly recommend you read it for yourself to get a fuller understanding of why socialism was a bad idea in 1920 and a bad idea nearly a century later.. Lela

 

He called for socialists to consider their position on a rational basis and realize that socialism does not  match reality. Their system has no way of determining the natural value of anything. Prices must be arbitrarily derived by bureaucrats in a socialist system, while in a capitalist system, supply and demand operate automatically to provide a “market value” price derived through exchange relations. The purchasers of a product determine the price depending on their personal choices.

Ninety-seven years after Mises wrote this essay, he’s still right and the Soviet Union and China have both proven his critiques. The Soviet Union is no more and Russia and the former Soviet bloc countries are largely market-based economies. Many of them are much more capitalistic than the United Kingdom or the United States. Meanwhile, China has taken a halfway position in state capitalism. Lenin thought of state capitalism as an intermediary step toward the paradise of socialism, but having tried social for several decades, China decided to introduce some capitalism.

Image result for image of american socialismName a socialist society that is doing well. There are a few capitalist societies that have a great admix of socialism — the United States, for example. Alaska too. The United States has suffered under a slowing economy for more than a decade now and is currently $21 trillion in debt. Alaska almost didn’t pass a budget this year. Socialism sounds good from the perspective where it hasn’t been tried yet, but inevitably it can’t operate without some market-economy features and so …. The United States has spent many decades slowly becoming more socialistic and our economy is teetering on the brink of collapse. Some observe that we appear to have been coasting on the dynamism of our past capitalism and that is now running out. Just look at the pace of inventions in the US between the end of the Civil War and now. You can see that we had a huge burst of activity and then we slowly fell away in an inverse ratio to the amount of government interference in the economy. So, what does that mean for us now? Is the solution perhaps reintroducing capitalism to the system?

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The Most Recent Socialist Doctrines and the Problem of Economic Calculation   Leave a comment

This is part of a series on Ludwig von Mises 1920 essay “Economic Calculation in the Socialist Commonwealth”. I highly recommend that you read the full essay as I am just hitting the high points. Lela

 

Until socialists had some actual success in the world, they didn’t need to worry much about the problems of economic calculation without a price mechanism, so they didn’t. Really, what does it matter if your theory doesn’t work … until it becomes a reality.

In Mises’s era, socialist parties had obtained power in Russia, Hungary, Germany and Austria, which meant their theories now had to work in practice. So Marxist writers were beginning to actually look at the problems their theories walked hand-in-hand with. Mises had noted that they prefered to focus on drawing up programs for the path to socialism and not on addressing the problems of socialism itself.

Bauer leaves his readers completely ignorant of the fact that the nature of the banks is entirely changed in the process of nationalization and amalgamation into one central bank. Once the banks merge into a single bank, their essence is wholly transformed; they are then in a position to issue credit without any limitation. In this fashion the monetary system as we know it today disappears of itself. When in addition the single central bank is nationalized in a society, which is otherwise already completely socialized, market dealings disappear and all exchange transactions are abolished. At the same time the Bank ceases to be a bank, its specific functions are extinguished, for there is no longer any place for it in such a society. It may be that the name “Bank” is retained, that the Supreme Economic Council of the socialist community is called the Board of Directors of the Bank, and that they hold their meetings in a building formerly occupied by a bank. But it is no longer a bank, it fulfils none of those functions which a bank fulfils in an economic system resting on the private ownership of the means of production and the use of a general medium of exchange-money. It no longer distributes any credit, for a socialist society makes credit of necessity impossible. Bauer himself does not tell us what a bank is, but he begins his chapter on the nationalization of the banks with the sentence: “All disposable capital flows into a common pool in the banks.” As a Marxist must he not raise the question of what the banks’ activities will be after the abolition of capitalism?

Most other Marxist writers, even into the 21st century, don’t seem to realize that the bases of economic calculation are removed when you eliminate exchange and the price mechanism. That requires something be substituted in its place so as to avoid total chaos. There’s a fantasy belief that socialist institutions can easily replace those of a capitalist economy, but that has proven not to be the case. When the socialist markets in the USSR didn’t work, people turned to the black market. Mises was prescient in seeing that this would be the inevitable outcome.

Lenin’s ideas on the socialist economic system, to which he is striving to lead his people, are generally obscure.

Lenin trusted that the communes would be so efficient that they would provide a model for the rest of the country. Not too long after this, millions of people died in the Ukraine (the USSR’s bread basket) because the commune system didn’t work. In Lenin’s theories, every large agricultural and industrial concern was a member of the great commonwealth of labor. Those who are active in the commonwealth had the right of self-government. He said they exercised a profound influence on the direction of production and again on the distribution of the goods they were assigned for consumption. To Lenin, labor is the property of the whole society, and as its product belongs to society, society has a right to control product distribution.

How, we must now ask, is calculation in the economy carried on in a socialist commonwealth which is so organized? Lenin gives us a most inadequate answer by referring us back to statistics. We must bring statistics to the masses, make it popular, so that the active population will gradually learn by themselves to understand and realize how much and what kind of work must be done, how much and what kind of recreation should be taken, so that the comparison of the economy’s industrial results in the case of individual communes becomes the object of general interest and education.

Mises thought these “scanty allusions” to be a sign that Lenin didn’t understand statistics or monetary computation … that he might in fact be math deficient. You still couldn’t figure out how well the economy was doing or what a “fair” price was of any given product because there was no means of economic calculation within a socialist society.

Responsibility and Initiative in Communal Concerns   Leave a comment

This is a series based on Ludwig von Mises’ essay “Economic Calculation” I’m only hitting what I think are the highlights and suggest you look the essay up to read it in full if you’re curious. Lela

Image result for image of the failure of socialist businessesMost socialists ignore this or they believe they can remedy it by setting up pretend business structures. They still don’t own the means of production, but occasionally enterprises have flourished under their control, so they see this as proof that if society owned the means of production, there would be no issues over the lack of ownership.

Mises acknowledged that there are two different kinds of business. Most small companies are run by proprietors or small boards of directors who all have direct interest in the company. They may be corporations, but they act like small businesses. Think Hobby Lobby or Chik-fil-A.

Then there are the large scale corporations where only a fraction of the shareholders have any direct control of the firm. The firm’s control is in the hands of people who don’t own it and are sometimes at variance to the people who own stock in the company. Sometimes the management follows a course that injures the shareholders. Why? Because their agenda for the company is their own best interest rather than the shareholders.

The same holds true for banks and large financial institutions. It’s best not to trifle with the public’s interests because sooner or later, it will come back on you, the manager, and end up harming you in the long run.

Image result for image of the failure of socialist businessesBut when an industry is nationalized, this motive disappears because private individuals no longer have material interests in the enterprise they are employed by. By Mises’ era there were already decades of evidence on State and socialist endeavors. There were no internal pressure to reform or improve products and socialist enterprises had no incentive to adapt to changing conditions of demand. Companies grow moribund. Managers lose interest in doing great work, because they get paid the same whether they do pedestrian work or excellent work. It doesn’t matter, so they don’t care.

If the managers of these enterprises were interested in the yield, it was thought they would be in a position comparable to that of the manager of large-scale companies. This is a fatal error. The managers of large-scale companies are bound up with the interests of the businesses they administer in an entirely different way from what could be the case in public concerns. They are either already owners of a not inconsiderable fraction of the share capital, or hope to become so in due course. Further, they are in a position to obtain profits by stock exchange speculation in the company’s shares. They have the prospect of bequeathing their positions to, or at least securing part of their influence for, their heirs.

This ignores the obvious fact that most people are diligent, enthusiastic and hard working only when it benefits them. Socialists believe they can construct a socialist commonwealth on the basis of the Categorical Imperative alone. How lightly it is their wont to proceed in this way is best shown by Kautsky when he says, “If socialism is a social necessity, then it would be human nature and not socialism which would have to readjust itself, if ever the two clashed.”

But let’s say we live in Utopia and that people really will exert the same zeal for the collective as they do for themselves and those they love. We’re still faced with the problem that the lack of economic calculation means that individuals can’t ascertain how well they’re actually doing in their jobs.

Bureaucracies typically lack initiative. We know that. Government agencies spend a lot of money trying to remedy this by organizational changes. It almost always fails.

Socialists resist placing their ventures entirely in the hands of a single person, because they suspect he’ll permit errors that damage the community, so instead they rely on committees. But committees rarely introduce bold innovations.

One cannot transfer free disposal of the factors of production to an employee, however high his rank, and this becomes even less possible, the more strongly he is materially interested in the successful performance of his duties; for in practice the property-less manager can only be held morally responsible for losses incurred.

The property owner himself bears responsibility. He must primarily feel the loss arising from unwise business practices. This difference in the sense of ownership is a characteristic difference between market-based and socialist production.

Nature of Economic Calculation   Leave a comment

This is part of an ongoing series evaluating an essay by Ludwig von Mises. Click here to follow the rest of the series.

Every economic choice we make is really based on value. When we judge a item as more or less satisfactory, we are making a statement about its quality and its desirability to us. Most of us are quite capable of making these valuations. We all have opinions about what we like. In simple conditions, this valuation is easy, but as affairs become more complex and their interconnections are not so easily discerned, subtler means of valuation must be employed to determine value

Valuation is complicated by the  subjective nature of valuation. In an exchange economy the objective exchange value of commodities is the unit of economic calculation.

It is possible to base the calculation upon the valuations of all participants in trade. The subjective use value of each is not immediately comparable as a purely individual phenomenon with the subjective use value of other men. The exchange value arises out of the interplay of the subjective valuations of all who take part in exchange, but calculation by exchange value furnishes a control over the appropriate employment of goods. Anyone who wishes to make calculations concerning a complicated process of production will immediately notice whether he has worked more economically than others or not; if he finds, from reference to the exchange relations obtaining in the market, that he will not be able to produce profitably, this shows that others understand how to make better use of the goods in question. Calculation by exchange value makes it possible to refer values back to a unit. For this purpose, since goods can be mutually substituted in accordance with the exchange relations obtaining in the market, any possible good can be chosen. In a monetary economy it is money that is so chosen.

Monetary calculation has its limits. Money is not a yardstick of value or price. Value and price are not measured in money because as an economic good, money is not of stable value as has been naïvely, but wrongly, assumed in using it as a “standard of deferred payments.” The exchange-relationship which obtains between money and goods is subjected to constant, though often minor, fluctuations originating not only from the influence of other economic goods, but also from the side of money, but these fluctuations hardly disturb value calculations.

The inadequacy of the monetary calculation of value does not have its mainspring in the fact that value is then calculated in terms of a universal medium of exchange, namely money, but rather in the fact that in this system it is exchange value and not subjective use value on which the calculation is based.

Value calculations that stand outside of exchange transactions are impossible to calculate. If a man were to calculate the profitability of erecting a building or factor, he couldn’t include the loss of beauty in a view as part of his calculation because that is subjective criteria and yet many buildings have not been built because it would ruin a view.

It is customary to term such elements “extra-economic,” but you really can’t call the considerations irrational.

In any place where men regard as significant the beauty of a neighborhood or of a building, the health, happiness and contentment of mankind, the honor of individuals or nations, they are just as much motive forces of rational conduct as are economic factors in the proper sense of the word, even where they are not substitutable against each other on the market and therefore do not enter into exchange relationships.

Monetary calculation cannot embrace these factors, but this doesn’t negate the significance of monetary calculation in our everyday economic life. Humankind values esoteric things like beauty, health, honor and pride, so we should pay regard to them. Sensitive spirits may object to having to balance spiritual goods against material ones, but that is not the fault of monetary calculation. Even where judgments of value can be established directly without computation in value or in money, the necessity of choosing between material and spiritual satisfaction cannot be evaded.

Robinson Crusoe and the socialist state have an equal obligation to make the choice.

Anyone with a genuine sense of moral values experiences no hardship in deciding between honor and livelihood. We all have to eat and you can’t eat honor, but some people do choose to forego bread for honor’s sake, while others value material comfort over spiritual values.

Monetary calculation fulfills all the requirements of economic calculation. It affords us a guide through a complicated economic system. It enables us to extend to all goods of a higher order the judgment of value, as it touches on consumer goods. It renders their value capable of computation and thereby gives us the primary basis for all economic operations. It takes the guesswork out of capitalism.

We use money to keep track of the exchange of production goods, to reduce all exchange-relationships to a common denominator. There are limited circumstances where we can dispense with monetary calculations. Households often use a false economy. There’s relatively limited use of capital, division of labor is rudimentary, consumption goods are handled from beginning to end. So within the narrow confines of a closed household economy, it is possible to judge production without monetary placeholders, but it is increasingly difficult to do so the larger and more complex the economic system becomes.

This is why socialist societies end up perplexed when they try to take money out of the equation. “The human mind cannot orientate itself properly among the bewildering mass of intermediate products and potentialities of production without such aid. It would simply stand perplexed before the problems of management and location.”

It is an illusion to imagine that in a socialist state calculation in natura can take the place of monetary calculation. Calculation in natura, in an economy without exchange, can embrace consumption goods only; it completely fails when it comes to dealing with goods of a higher order. And as soon as one gives up the conception of a freely established monetary price for goods of a higher order, rational production becomes completely impossible. Every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.

It is easy to overlook this fact when we deal with socialistic processes within a larger free market system. The State undertakes technical improvements in industry because their effect in similar private enterprises is evident and because those private industries which produce the materials for these improvements request it, but it’s easy to miss that these activities operate within a society based on private ownership of the means of production and upon the system of monetary exchange, which provides a means of accounting. This wouldn’t be possible in a purely socialistic environment, because economic calculation would be impossible.

There can be–in our sense of the term–no economy whatsoever. In trivial and secondary matters rational conduct might still be possible, but in general it would be impossible to speak of rational production any more. There would be no means of determining what was rational, and hence it is obvious that production could never be directed by economic considerations. What this means is clear enough, apart from its effects on the supply of commodities. Rational conduct would be divorced from the very ground which is its proper domain. Would there, in fact, be any such thing as rational conduct at all, or, indeed, such a thing as rationality and logic in thought itself? Historically, human rationality is a development of economic life. Could it then obtain when divorced therefrom?

Mises wrote this a long time before the Soviet Union toppled because of irrational policies based on a lack of economic calculation. He could evaluation the difference between a competitive economy and a socialist one and foresee the future.

The supply of goods will no longer proceed anarchically of its own accord; that is true. All transactions which serve the purpose of meeting requirements will be subject to the control of a supreme authority. Yet in place of the economy of the “anarchic” method of production, recourse will be had to the senseless output of an absurd apparatus. The wheels will turn, but will run to no effect.

Mises foresaw a society where many thousands of factories would be producing wares that were not ready for use, because the administration is incapable of testing their bearings. Has that good been on the shelf too long. Was work or material wasted in creating it? Was the method of production profitable? Maybe the administration could evaluation the quality of an item, but they would have no way of calculating the cost of production.

Contrast that with the economic system of private ownership of the means of production. Here the system of computation by value is necessarily employed by each independent member of society. Everybody participates in its emergence in two  ways

  • as a consumer
  • as a producer

As a consumer he chooses what he wants to buy based on quality and price. As a producer, he sets out to create high quality goods by whatever method produces the greatest return. Through the interplay of these two processes of valuation, individuals determine the price they want to pay for consumer goods, thus “harmonized their own requirements with their estimation of economic facts.”

Mises offered a contrasting example. Consider two societies are building railroads. The principle question is, should it be built at all and which route should it follow.  In a competitive and monetary economy, this question would be answered by monetary calculation. The new road will render less expensive the transport of some goods, and it may be possible to calculate whether this reduction of expense transcends that involved in the building and upkeep of the next line.

The socialist society would know how to look after itself. It would issue an edict and decide for or against the projected building and determine the route depending on personal preference. The decision would depend at best upon vague estimates by a central planning authority rather than on an exact calculation of value. The rail would not need to reduce the cost of transport of goods. It needn’t even be used. But it would be built and proclaimed a victory because it no economic appraisal or evaluation is possible. It’s just throwing darts at a board.

“Socialism is the abolition of rational economy.”

Why Government Spending Matters More than the Size of the Deficit   Leave a comment

Budget deficits are often in the media spotlight. The budget deficit is defined as the difference between what the government spends and what the government collects. When the government spends more than it collects, a budget deficit exists. When the government collects more than it spends, a budget surplus emerges.

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The conventional view is that one can show that budget deficits reduce national saving. National saving is typically defined as the sum of private saving (the after-tax income that households save rather than consume) and public saving. When the government runs a budget deficit, public saving is negative, which reduces national saving below private saving.

By generating surpluses, so it would appear, the government creates real wealth, thereby strengthening the economy’s fundamentals. This argument would be correct if government activities were of a wealth-generating nature.

Government Spending Doesn’t Create Wealth

This is, however, not the case. Government activities are confined to the redistribution of real wealth from wealth generators to wealth consumers. Government activities result in taking wealth from one person and channeling it to another.

Various impressive projects that the government undertakes also fall into the category of wealth redistribution. The fact that the private sector didn’t undertake these projects indicates that they are low on the priority list of consumers.

Given the state of the pool of real wealth the implementation of these projects will undermine the well-being of individuals since they will be introduced at the expense of projects that are higher on the priority list of consumers.

Image result for image of negative influence of government spending

Let us assume that the government decides to build a pyramid that most people regard as low priority. The people who will be employed on this project must be given access to various goods and services to sustain their life and well-beings.

Since the government is not a wealth producer it would have to impose taxes on wealth producers (those individuals who produce goods and services in accordance with consumers’ most important priorities) in order to support the building of a pyramid.

Whenever wealth producers exchange their products with each other, the exchange is voluntary. Every producer exchanges goods in his possession for goods that he believes will raise his living standard.

The crux therefore is that the exchange or the trade must be free and thus reflective of individual’s priorities. Government taxes are, however, of a coercive nature: they force producers to part with their wealth in exchange for an unwanted pyramid. This implies that producers are forced to exchange more for less, and obviously this impairs their well-being.

The more that pyramid-building that is undertaken by the government the more real wealth is taken away from wealth producers. We can thus infer that the level of tax,  i.e. real wealth, taken from the private sector is directly determined by the size of government activities.

Observe that by being a wealth consumer, the government cannot contribute to savings and to the pool of real wealth. Moreover, if government activities could have generated wealth then they would have been self-funded and would not have required any support from other wealth generators. If this were otherwise then the issue of taxes would never arise.

The Effects of Surpluses on Inflation and the Money Supply

The essence of our previous analysis is not altered by the introduction of money. In the money economy the government will tax (take money from wealth generators) and disburse the received money to various individuals that are employed directly or indirectly by the government.

This money will give these individuals access to the pool of real wealth that is the total stock of goods and services. Government-employed individuals are now able to exchange the taxed money for various goods and services that are required to improve their lives.

Image result for image of negative influence of government spending

What then is the meaning of a budget surplus in a money economy? It basically means that the government’s inflow of money exceeds its expenditure of money. The budget surplus here is just a monetary surplus. The emergence of a surplus produces the same effect as any tight monetary policy.

On this Ludwig von Mises wrote,

Now, restriction of government expenditure may be certainly a good thing. But it does not provide the  funds a government needs for a later expansion of its expenditure. An individual may conduct his affairs in this way. He may accumulate savings when his income is high and spend them later when his income drops. But it is different with a nation or all nations together. The treasury may hoard a part of the lavish revenue from taxes, which flows into the public exchequer as a result of the boom. As far and as long as it withholds these funds from circulation, its policy is really deflationary and contra-cyclical and may to this extent weaken the boom created by credit expansion. But when these funds are spent again, they alter the money relation and create a cash-induced tendency toward a drop in the monetary unit’s purchasing power. By no means can these funds provide the capital goods required for the execution of the shelved public works.1

Government Spending — Not Surpluses and Deficits — Is What Matters Most

Thinking that government spending is a wealth generator in itself, some will argue that the proper response to a government surplus shows there is no need to reduce spending, and that taxes should simply be reduced. But, a budget surplus — i.e. a monetary surplus — does not “make room” for lower taxes. Only if real government outlays are curtailed (i.e. only when the government cuts the number of pyramids it plans to build) can tax effectively be lowered. Lower government outlays imply that wealth generators will now have a larger portion of the pool of real wealth at their disposal.

On the other hand, if government outlays continue to increase, notwithstanding budget surpluses, no effective tax reduction is possible; the share of the pool of real wealth at the disposal of wealth producers will diminish.

For example, if government outlays are $3 trillion and the government revenue is $2 trillion then the government will have a deficit of $1 trillion. Since government outlays have to be funded this means that the government would have to secure some other sources of funding such as borrowing, printing money or new forms of taxes. The government will employ all sorts of means to obtain resources from wealth generators to support its activities.

What matters here is that government outlays are $3 trillion, not that the deficit is $1 trillion. For instance, if government revenue on account of higher taxes were $3 trillion then we would have a balanced budget. But would this alter the fact that the government still takes $3 trillion of resources from wealth generators?

We Must Build Wealth Before We Can Spend It

The critics of a smaller government will react that the private sector cannot be trusted to build up and enhance the nation’s infrastructure. For instance, the US urgently requires the building and upgrading of bridges and roads.

There is no doubt that this is the case. However, can Americans afford the improvement of the infrastructure? The arbiter here should be the free market where individuals, by buying or abstaining from buying, decide on the type of infrastructure that is going to emerge.

If the size of the pool of real wealth is not adequate to afford better infrastructure then time is needed to accumulate real wealth to be able to secure better infrastructure. The build-up of the pool of real wealth cannot be made faster by raising government outlays. As we have seen, an increase in government spending will only weaken the pool of real wealth.

The government can force various non-market chosen projects. The government, however, cannot make these projects viable. As time goes by the burden that these projects will impose on the economy through higher ongoing levels of taxes is going to undermine the well-being of individuals and will make these projects even more of a burden.

Spending Reductions Must Come With Tax Cuts

What about the lowering of taxes on businesses – surely this will give a boost to capital investment and strengthen the process of real wealth formation? This is what President Trump is being rumored to be considering. As long as this lowering of taxes is not matched by a reduction in government spending this will encourage a misallocation of capital.

The emerging budget deficit is going to be funded either by borrowings or by monetary pumping. Obviously, this amounts to the diversion of real wealth from wealth generating activities to non-wealth generating activities. Various capital projects that emerge on the back of such government policy are likely to be the equivalent of useless pyramids.

We have seen that one of the ways of securing the necessary funds by the government is by means of borrowing. But how can this be?

A borrower must be a wealth generator in order to be able to repay the principal loan plus interest. This is, however, not the case as far as the government is concerned, for government is not a wealth generator – it only consumes wealth.

So how then can the government as a borrower, producing no real wealth, ever repay its debt? The only way it can do this is by borrowing again from the same lender – the wealth-generating private sector. It amounts to a process whereby government borrows from you in order to repay you.

We can conclude that the only meaningful contribution the government can make to the pool of real wealth, and hence people’s living standards, is by focusing on a reduction in real outlays – not whether there is a surplus or a deficit. This in turn means the government must remove itself from business activities and permit wealth generators to get on with the business of wealth generation.

Source: Why Government Spending Matters More than the Size of the Deficit

Posted February 25, 2017 by aurorawatcherak in economics

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The Fate of the Rising Generation Within a Bureaucratic Environment   Leave a comment

Ludwig von Mises

The youth movement was an impotent and abortive revolt of youth against the menace of bureaucratization. It was doomed because it did not attack the seed of the evil, the trend toward socialization. It was in fact nothing but a confused expression of uneasiness, without any clear ideas and definite plans. The revolting adolescents were so completely under the spell of socialist ideas that they simply did not know what they wanted.

Found on FEE

It is evident that youth is the first victim of the trend toward bureaucratization. The young men are deprived of any opportunity to shape their own fate. For them there is no chance left. They are in fact “lost generations” for they lack the most precious right of every rising generation, the right to contribute something new to the old inventory of civilization. The slogan: Mankind has reached the stage of maturity, is their undoing. What are young people to whom nothing is left to change and to improve? Whose only prospect is to start at the lowest rung of the bureaucratic ladder and to climb slowly in strict observance of the rules formulated by older superiors? Seen from their viewpoint bureaucratization means subjection of the young to the domination of the old. This amounts to a return to a sort of caste system.

Caste Conflict and Class Warfare

Among all nations and civilizations—in the ages preceding the rise of modern liberalism and its offspring, capitalism—society was based on status. The nation was divided into castes. There were privileged castes such as kings and noblemen, and underprivileged castes such as serfs and slaves. A man was born into a definite caste, remained in it throughout his whole life, and bequeathed his caste status to his children. He who was born into one of the lower castes was forever deprived of the right to attain one of the stations of life reserved to the privileged. Liberalism and capitalism abolished all such discrimination and made all people equal under the law. Now virtually everybody was free to compete for every place in the community.

This is more than a crisis of the youth. It is a crisis of progress and civilization.

Marxism provides a different interpretation of liberalism’s achievements. The main dogma of Karl Marx is the doctrine of the irreconcilable conflict of economic classes. Capitalist society is divided into classes the interests of which are antagonistic. Thus the class struggle is inevitable. It will disappear only in the future classless society of socialism.

The most remarkable fact about this doctrine is that it has never been explicitly expounded. In the Communist Manifesto the instances used for the exemplification of class struggles are taken from the conflict between castes. Then Marx adds that the modern bourgeois society has established new classes. But he never said what a class is and what he had in mind in speaking of classes and class antagonisms and in coordinating classes to castes. All his writings center around these never-defined terms. Although indefatigable in publishing books and articles full of sophisticated definitions and scholastic hairsplitting, Marx never attempted to explain in unambiguous language what the characteristic mark of an economic class is. When he died, thirty-five years after the publication of the Communist Manifesto, he left the manuscript of the third volume of his main treatise, Capital, unfinished. And, very significantly, the manuscript breaks off just at the point at which the explanation of this fundamental notion of his entire philosophy was to be given. Neither Marx nor any one of the host of Marxian writers could tell us what a social class is, much less whether such social classes really play in the social structure the role assigned to them in the doctrine.

Of course, from the logical viewpoint it is permissible to classify things according to any trait chosen. The question is only whether a classification on the ground of the traits selected is useful for further investigation and for the clarification and amplification of our knowledge. The question is therefore not whether the Marxian classes really exist, but whether they really have the importance attached to them by Marx. Marx failed to provide a precise definition of the concept social class that he had used in all his writings in a loose and uncertain way, because a clear definition would have unmasked its futility and its valuelessness for dealing with economic and social problems and the absurdity of coordinating it to social castes.

The characteristic feature of a caste is its rigidity. The social classes, as Marx exemplified them in calling the capitalists, the entrepreneurs, and the wage earners distinct classes, are characterized by their flexibility. There is a perpetual change in the composition of the various classes. Where today are the scions of those who in the days of Marx were entrepreneurs? And where were the ancestors of the contemporary entrepreneurs in the days of Marx? Access to the various stations of modern capitalist society is open to everyone. We may call the United States senators a class without violating logical principles. But it would be a mistake to coordinate them to a hereditary aristocratic caste, notwithstanding the fact that some senators may be descendants of senators of earlier days.

In the bureaucratic machine of socialism the way toward promotion is not achievement but the favor of the superiors.

The point has already been stressed that the anonymous forces operating on the market are continuously determining anew who should be entrepreneur and who should be capitalist. The consumers vote, as it were, for those who are to occupy the exalted positions in the setting of the nation’s economic structure.

Now under socialism there are neither entrepreneurs nor capitalists. In this sense, namely, that what Marx called a class will no longer exist, he was right to call socialism a classless society. But this is of no avail. There will be other differences in social functions which we can call classes with surely no less justification than that of Marx. There will be those who issue orders and those who are bound to obey these orders unconditionally; there will be those who make plans and those whose job it is to execute these plans.

Architects of Their Own Fortune

The only thing that counts is the fact that under capitalism everybody is the architect of his own fortune. A boy eager to improve his own lot must rely on his own strength and effort. The vote of the consumers passes judgment without respect to persons. The achievements of the candidate, not his person, are valued. Work well done and services well rendered are the only means to succeed.

Under socialism, on the contrary, the beginner must please those already settled. They do not like too efficient newcomers. (Neither do old-established entrepreneurs like such men; but, under the supremacy of the consumers, they cannot prevent their competition.) In the bureaucratic machine of socialism the way toward promotion is not achievement but the favor of the superiors. The youth depends entirely on the kind disposition of the old men. The rising generation is at the mercy of the aged.

It is useless to deny this fact. There are no Marxian classes within a socialist society. But there is an irreconcilable conflict between those who are in favor with Stalin and Hitler and those who are not. And it is simply human for a dictator to prefer those who share his opinions and praise his work to those who do not.

It was in vain that the Italian Fascists made a hymn to youth their party song and that the Austrian socialists taught the children to sing: “We are young and this is fine.” It is not fine to be a young man under bureaucratic management. The only right that young people enjoy under this system is to be docile, submissive, and obedient. There is no room for unruly innovators who have their own ideas.

This is more than a crisis of the youth. It is a crisis of progress and civilization. Mankind is doomed when the youths are deprived of the opportunity to remodel society according to their own fashion.

Excerpted from Bureaucracy (1944).

Keynes Favored Eugenics, Migration Restrictions, and Population Control | Phillip Magness   Leave a comment

In Germany, 1926, John Maynard Keynes delivered the speech that became “The End of Laissez-Faire”; Mises recorded its troubling implications.

Source: Keynes Favored Eugenics, Migration Restrictions, and Population Control | Phillip Magness

Posted June 7, 2016 by aurorawatcherak in economics

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