Monday, August 17, 2009

Socialism- a simple lesson

From Practical Economics


Socialism is the name used to describe most command economic systems. Other names include communism, progressivism, collectivism and central planning. In socialism, the society, or more accurately stated, those in power, own or regulate the means of production and distribution in a country.

Socialist economies have several common themes that are in line with the aforementioned components of any command economy. Understanding the key tenants of socialism will help to further delineate the operational aspects of using a command economy approach as a means of answering the fundamental economic issues faced by any society. Variations of a socialist approach have been utilized throughout history with the same negative outcomes. The reason that socialistic approaches continue to emerge, however, is because their apparent nature seems to be at face value a positive way to run an economy. The underlying premise that every member of the society will share equally in the fruit of its labor is a cornerstone of socialist thought. What does socialism offer that is so compelling to the general public?

· An equal share to all
· No profit motive or greed
· Equality of pay
· Full employment
· No fear of losses
· Universal social programs
· The seemingly free benefits of a welfare state

Looking at what is promised under socialism, it is no wonder people are dazzled by what it offers. It is understandable that all humans would want these things. People might even believe they are possible. After all, if they can be envisioned, why can’t they come to fruition? Sadly, however, utopian ideals are toppled by a world where humanity and scarcity come face to face. To ignore “what is” for the dream of “what could be” is a fatal miscalculation that has lead to disastrous results. In times of crises, citizens are susceptible to socialist economies as well as socialist governments. Economic downturns, depressions, wartime, real or imagined inequities are all reasons for an elite, or group of elites, to offer socialism as a cure all.

History has shown that humans are highly susceptible to the lure of the utopia that socialism offers. This is dangerous because it can and has been used to secure power by tyrants.The rhetoric of socialism and the euphemisms that are used must not be taken at face value as factual or even possible. One reason socialism gains approval is because it is an economic system that ignores many realities of the inherent make-up and behavioral patterns of humans. In fact, socialists truly believe that the nature of man is altruistic. However, just because someone believes something is true does not give it the legitimacy to override reality, history, fact and experience. Quite possibly the biggest flaw in socialist ideology is the assumption that man is good because man has done good deeds. What is forgotten is the possibility that man does or is good because of his self-interest.

Two appropriate ideas help to explain the lure of the command or socialist economies. Winston Churchill stated, “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” While former President Richard Nixon opined that, “Capitalism works better than it sounds, while socialism sounds better than it works.”

The reality of socialism is that under a command approach there is less efficiency, less reliability and more directing people what to do. This all adds up to less freedom. As a result, long term suffering, increased death and a lower standard of living take place. The cost of socialism is inefficiency in moving scarce resources to their best use. Central planning The argument often heard is that we need the central planning found in socialist systems to maximize our complex and diverse society. Surely, humans would have to be better off if things were not left to chance and if intelligent humans were just given the power to best determine the economic needs of a society. After all, if we can put a man on the moon we should be able to plan the economy to provide for all. This worldview, although seemingly accurate, has no historical examples of effectiveness in guiding the scarcity question efficiently.

In his classic work, The Road to Serfdom, Nobel Prize winning economist, Frederick Hayek, discussed central planning and explained how the socialists have effective economic theory backwards.
One argument frequently heard is that the complexity of modern civilization creates new problems with which we cannot hope to deal effectively except by central authority . This argument is based on a complete misapprehension of the workings of competition. The very complexity of modern conditions makes competition the only method by which coordination of affairs can be adequately achieved.

There would be no difficultly about efficient control or planning were conditions so simple that a single person or board could effectively survey all the facts. But as the factors which have to be taken into account become numerous and complex, no one center can keep track of them. The constantly changing conditions of demand and supply of different commodities can never be fully known, or quickly enough disseminated by any one center.

While people will submit to suffering which may hit anyone, they will not so easily submit to suffering which is the result of the decision of authority. It may be bad to be a cog in an impersonal machine; but it is infinitely worse if we can no longer leave it, if we are tied to our place and to the superiors who have chosen for us. Once government has embarked upon planning for the sake of justice, it cannot refuse responsibility for anybody’s fate or position.

In a planned society we shall all know that we are better off than others, not because of circumstances which nobody controls, and which it is impossible to foresee with certainty, but because some authority wills it. And all our efforts directed toward improving our position will have to aim, not at foreseeing and preparing as well as we can for the circumstances over which we have no control, but influencing in our favor the authority which has all the power.

Although painted with the best of intentions, the inefficient actions of central planning does not make the reality any less harmful. In the end, central planning leads to a total breakdown of civility and sharing, the abuse of position, and the collective suffering of the masses due to elites commanding inefficiency and tyranny.

Intentional causation

Another flaw in the command approach to the scarcity question is that it views economic outcomes as a result of specific and intentional causes. In other words, a simple collective push here and a progressive pull there will create X or solve Y. The command frame of mind believes that specific and intentional policies will have pre-determined results. Because of this assumption, socialist leaders forge ahead with directives believing they control the results and can in fact micro-manage all economic activities like a switchboard operator. Unfortunately, a society made up of millions of humans making more millions of independent decisions based on personal desires undermines the theory of intentional causation. Thinking a group of experts can direct an economy ignores the systemic and dynamic nature of human interaction that Hayek so eloquently discussed.

Anyone who has ever undertaken a home improvement project can attest to the fact that what seemed so easy and straight forward was fraught with unexpected bumps and roadblocks followed by the frustration of unforeseen complications. Anyone who believes intentions will effortlessly create what one desires never tried to fix a leaky faucet. Applying intentional causation to the complexity of an economy is like attempting to shore up a breach in the Hoover Dam with a bucket and mop.

Intentions vs. consequences

Any look at the flaws of the command approach would not be complete without a discussion of the sincerity of the socialist worldview. If intentions were all that is necessary to determine if an economic policy is beneficial, the evaluation of the socialist mind would be golden. Goals, hopes and dreams, reasonable and idealistic as they seem to be, do not stand alone, however. Costs and consequences must always be factored into any choice being made in a world of scarce resources. This factor is ignored by socialists who are blinded by rose colored glasses and dreams of what might be. The fundamental flaw of a command approach is ignoring the reality of scarcity and human nature. With that said, however noble and sincere the socialists intention, ignorance to economic reality does not make the suffering of others less painful.


  1. This was helpful.

  2. Thank you. That's the purpose...:)

  3. They truly do have the best intentions. But we all know what the road to hell is paved with.