Tag: markets

Ludwig von Mises, “SOCIALISM: An Economic and Sociological analysis”

Ludwig von Mises, “SOCIALISM: An Economic and Sociological analysis“; Yale University Press, New Haven; 1962; translated by J. Kahane; LCCN: 51009080; ISBN: 0913966620 (1981 edition)

 

Prices are the cornerstone of the market, they are the rule by which all agents measure value.  This is admittedly a presumption Mises has made before embarking on his analysis of “Socialism”.  Yet it is not an altogether preposterous assumption.  Mises claims that without the assistance of prices one is at sea in the market; it becomes impossible to effect any rational thought process because such processes presuppose the tools necessary for calculation.  Any rational economic process must have some method with which to rank the various means and ends at our disposal, without such an ordering a rational (i.e. one which permits agents to make informed, rational decisions) economic system is inconceivable.  In the price system Mises finds a highly evolved process which distills the various signals received from all agents in the market and determines the value society ascribes to a particular commodity.

With the assistance of the price system, all actors in the market can make decisions that promote the general good and assist in the satisfaction of the desires of individuals.  Guided by their own self-interest, producers and consumers can make decisions that reconcile their subjective values with those of all other individuals.  Prices provide us with an invaluable table of costs that accurately reflects the desires of all other individuals.  Without prices no agent has accurate and succinct data on which to base her decisions, consequently such a system cannot sustain rational behaviour.  Mises’ fundamental critique of Socialism is that with the abolition of private property it will, with the disappearance of the price system, become impossible to calculate.

Unless we are free to bid for products, based on the value we believe they have, the market is unable to arrive at a price for the product. An alternative system, short of one that has direct access to the minds and hearts of all individuals, will not provide us with information that accurately reflects the desires of society.  This is not of course a claim that goods will have different prices under Socialism, non-monetary costs will substitute to make up for under-priced commodities.  Yet a system that relies on long lines and overflowing warehouses as the only signals on which to revise production decisions is wholly inefficient.  Mises argues that Socialism is exactly such a system.

Since no one under a Socialist state will have access to prices it is entirely reasonable to suppose that inaccurate decisions will be made due to lack of appropriate measures of value.  This not only destroys the much vaunted “rationality” of Socialism, it also suggests that a Socialist economy may be unable to perform as well as a Capitalist market system. If we are aware that redistribution of the present wealth of society will not in itself be sufficient to ensure for each individual the standard of living the Socialists promise, it is difficult to see how an economy that is more prone to “persist in error” [Reuven Brenner, “Labyrinths of Prosperity”] can create enough wealth to enhance our individual positions so dramatically.  Mises assures us that the Socialist system is hardly an “improvement” on the Capitalist structure and as such will produce an inferior result.

Once “the fundamental question whether the socialist order of society promises a higher productivity than Capitalism” has been answered in this manner, little remains of the material rationale for socialism.  The Socialist is then forced to evoke other forms of reasoning to support his agenda.  One of these is an appeal to an acquisitive urge that is present among most of us, and which is sparked when we are presented with the opportunity to “take from the rich what is rightly ours”.  Proponents of such actions, quite apart from the fact that they lack any respect or understanding of rights, assume that they can redistribute in such a manner without affecting the total value of the economy’s product.  Such a position fails to comprehend the subtle relationship between production, distribution and consumption.  Yet this is not surprising when we realize that these claims are forwarded by authoritarians who presume to free us from all cares by replacing the capitalist’s “monopoly” over these three functions with their own.  It is clear that any tampering with either of these processes will radically change the end result of an economic process.

Yet any process that fails to acknowledge the nature of the human agent in the economic sphere and fails to create an incentive structure that forces us to weigh the benefits of consumption and saving can hardly be called economic [pg. 458].  After demonstrating the impotency of the socialist scheme in the economic sphere, Mises has to retaliate to the alleged “materialism” of the bourgeoisie.  At this point however, it is rather futile to argue about the merits of poverty and Mises rests his case after drawing various parallels between socialism and a particular interpretation of Christianity.

There are more problems in the discourse on Socialism than would otherwise be imagined.  One of the points Mises highlights, is the apparent ease with which Socialists (and particularly Marx) use words in different ways, imposing on them a variety of contexts and connotations, till the very logic of the argument has been lost in what Mises calls “word-play”.  This happens, Mises argues, in Marx’s writing where the terms rebellion and society are used at different times to mean different things.  It is not clear whether this is done intentionally, to obscure the argument or whether it is accidental.  In either case, it is clear that such verbal acrobatics simply make it even more difficult to conduct this discourse since one is never completely certain of the arguments advanced by others. These issues become crucial in Hayek, where the very word “Law” is imbibed with a halo that the legislature attempts to acquire by cloaking legislative decisions in an exterior of legality.  A similar conception of language is at work in Hayek’s “The mirage of Social Justice”, where he claims that the term “justice” is abused when employed in referring to an outcome that is not generated by an authority, but which is the outcome of an impersonal process.  Oddly, Mises does not seem to have stressed this mode of thought, and claims that “on this [the relative justice of the outcome produced by these two orders] point science can give no judgement” [pg. 273, also pg 436].  Yet, this has to be reconciled with Mises’ insight that “one is not permitted to ask whether a particular price is justified or not” [pg. 435].  The issue becomes a little clearer when we notice the value Mises has ascribed to the term “science”, and why he would wish to keep away from issues that could “only be evaluated subjectively” [pg. 436], or those that appear to require the application of a particular value structure.

Perhaps what comes out most clearly in this book, is that the structures described in Socialist literature cannot be accepted as they are.  As such these visions of Socialist societies are Utopias (ou + topos, no place), in the sense that they prophecy circumstances that Economic analysis tells us cannot be sustained with the institutions under consideration.  These visions are imaginary places because their structure fails to take into account the nature of the human animal and the way in which we make decisions.  We cannot reconcile Socialist Utopia with our Economic and Sociological knowledge of the nature of human action.

This paper was written for Prof. Kirzner’s class “The Foundations of Capitalism”, during Fall 1995.

The Morals of Markets: An Ethical Exploration

Harry Burrows Acton, “The Morals of Markets: An Ethical Exploration”; in “The Morals of Markets and Related Essays”; ed. Jeremy Shearmur and David Gordon; Liberty Press; 1993; ISBN: 0865971064

We’re millions ‘n’ millions
We’re coming to get you
We’re protected by unions
So don’t let it upset you
Can’t escape the conclusion
It’s probably God’s Will
That civilization
Will grind to a standstill

Frank Zappa “Flakes”

“The Morals of Markets” perhaps demonstrates most conclusively why we must be suspicious of the millions ‘n’ millions who would convince us of the immorality of the market.  Acton begins by outlining popular misconceptions of the role profit plays in the market.  Profits are often derided because it is claimed, that unlike the labourer (who labours for her wages) the entrepreneur does not work to acquire them, and that the desire for profit breeds a selfishness that is destructive.  Acton points out that profits serve a very different function in a market system than do wages.  It is true that profits tend to have no upper and lower limits and unlike wages, are not decided in advance.  This is a result of the nature of profit, which is largely a reward for the foresight of the entrepreneur and his willingness to take on risks which the labourer and bureaucrat are unwilling to.  As for the claim that profits tend to make us selfish, Acton points out that profits are not unlike making good bargain.  Part of the reason for condemning profits for promoting selfishness must stem from a blindness of the manner in which humans make decisions.  If we fail to acknowledge that humans are largely concerned with promoting their own well-being then we may begin to look on profits in this manner.  As is, however, the activities of the businessman have the same moral standing as that of any other actor in the market. As Acton says “To be an unsuccessful businessman is a stupid and inappropriate way of being generous.” [pg. 30]  The same would apply to any person engaged in an exchange.

Yet this disdain of market activity extends beyond a dislike for the institution of profit.  When carried to its final conclusion it must claim that any system which places resources in the hands of the individual will generate an “acquisitive society”.  Further, to assist the individual in resisting the selfish motive it becomes necessary that “society” acquire all productive resources and dispense to “each according to his needs”.  This is a rather poor conception of the garden of Eden, one that seeks to absolve the individual of any responsibility whatsoever.  The fact is that we must reconcile ourselves with exercising our responsibilities in a moral manner, a morality that is  largely determined by our upbringing.  When we begin to forsake these responsibilities, seek to turn them over to the state, our priorities change in such a manner that the decisions we make deal largely with superfluities and our concerns themselves become immoral in a way.  Acton demonstrates this strikingly when speaking of the arrangements for education, housing and health care under the welfare state which relieve the individual from worrying about these responsibilities.  This is a marked shift in perspective from the Victorian sentiment, and most striking when it is noted that those who seek to provide for themselves or their children a better quality of education or health care are condemned as being immoral. What such a structure suggests is that only those quantities of these goods should be consumed by each as have been determined by the state. This, Acton holds, is clearly an imposition of morality on an unwilling people.

Further charges of creating a strife-filled and rivalrous atmosphere have been brought against the capitalist order.  Acton points out that competition is not equivalent to rivalry; in that competitors desire the object of the competition, whereas rivals desire the failure of the opponent.  In fact the market is a cooperative construct since individuals strive to further their own goals by engaging in mutually beneficial exchange.  One cannot indict the businessman for failing to have the well-being of society as her immediate goal, for “we can hardly intend something as remote as the interest of society, we can only aim or try to bring it about.” [pg. 46]   What this suggests is that the interest of society is not as clear as the collectivist wing may make it out to be, and coercing the individual to further one’s own conception of the “interest of society” is a rather suspicious form of justice.  It seems rather confusing that those who would replace the effeminate bourgeois order with a valiant collectivist one, can accuse this structure of being both putschist and violent at the same time.  In fact, as Acton suggests, the collectivist conception of collaboration is incompatible with  the sort of cooperation the market engenders, and is limited to what is commonly called a monopolistic or monolithic organization.  In a sense this undermines the very notion of cooperation since if we have no choice but to cooperate, cooperation is meaningless. In fact, as Acton points out, competition occurs because there is scarcity of resources and the market distributes these to those who value them most.  This makes us responsible for the choices we make, and it is not surprising to see that in a welfare state, the individual is released from responsibility and from any sense of morality at all.  Morality that is imposed from above can hardly be be said to have moral standing.  The essence of a moral person is her ability to exercise her morality in the her independent sphere of activity.  When we have no individual sphere of action left, the very concept of morality is shattered.

It is a frightening thought that what would perhaps conform to the collectivist idea of cooperation is a society where there is no “exercise of originality or ingenuity by someone who has no intention of competing with or outdoing anyone.”  Such a society will be forced to a standstill, not unlike the scenario projected by Kurt Vonnegut Jr. in “Harrison Bergeron”.  A place where no one “should be allowed to buy” products “for himself, but should be allotted his fair share of them under a publicly organised scheme” [pg. 87].  This is not simply a consequence of the urge to impose our conception of what is just on the world, but runs much deeper than that.

Giving an interesting twist to the Mises-Hayek thesis that a planned society would be unable to calculate or function efficiently, Acton suggests that scientific progress is similar to the vicissitudes of the market in that we are unable to predict what effect a particular advance will make.  Since we are unable to say what future technology will be like it is quite futile to make “five year plans”.  Of course states have charted out such grandiose projects and Acton suggests that “those who want to predict and make sure cannot allow private initiative.  They are driven to totalitarianism.” [pg. 155]  The consequence must be a state monopoly over science and the direction of research towards those ends that those in power sympathise with. Such a scenario bodes ill for those members of society who do not ascribe to the current consensus/orthodoxy, and indeed for those purposes that the state relegates to the background.  The experiments in Eastern Europe and China have demonstrated that the ends of the state may not always be synonymous with those of the society and provisions for the well-being of the people can be relegated to the background.

What Lord Acton suggests is that the collectivist urge to control, redistribute and redirect the production of society is largely a yearning for a stability that is not conducive to progress.  Advances can only be made on the ruins of previous constructs.  This is most visible in the phenomenon of profit, which is at once ephemeral and unpredictable, and a market process that operates by “creative destruction”.  We do not know what consequences our decisions will have, we can only make guesses, and an entrpreneur is one who is adept at making such guesses.  The market promotes a plurality of plans that submit themselves to market discipline imposed by the consumer.  Final proof of this may be found by undermining one of Acton’s own analogies.  “The planning prophet regards himself as producing future generations as if they were verses in a poem of his own making” [pg. 149].  Of course, the poet does not know the nature of the poem, Milton’s epic too had unintended consequences.