Socialist Economy Is Impossible


Morgan Reynolds

After the Soviet Union collapsed in December 1991 it was widely and plausibly proclaimed that full-blown socialism was dead and buried.  Capitalism had triumphed.  No more aggressive, big and popular socialist experiments.  Ha!  Wrong.  Even in the good ol’ USA socialist US Senator Bernie Sanders has stirred a huge youth following beneath the socialist banner. Granted, he failed to advocate outright seizure and centralization of all productive capital assets in a planned economy, but he pushed more free stuff, welfare-style programs and lots of ad hoc interventions into the economy to “fix” this, that and every other human ill.

After my stint as Chief Economist at the U.S. Department of Labor, Jeff Tucker, then of the Mises Institute, interviewed me in April 2003 and it included the following exchange:

AEN: “You have written on the socialist calculation debate. What are the lessons still unlearned?”

Reynolds: “The main lesson that Mises taught is still neglected. He argued that in the absence of effective private property rights and exchange with money, there would be no market prices. In the absence of money prices, you cannot calculate profit and loss. There are no substitutes for prices and profit and loss, and so without them, we are confronted with a world without economizing, that is, a world of chaos. Even if we know what we want to do, we cannot find the least-cost method of doing it.

“That’s the lesson. But when I presented this paper at the university, I had the longest and most intense debate with two colleagues about it. They are two very smart guys. But I could not convince them, no matter what I said. They kept claiming that they could find a big enough computer and nonlinear programming model, and proceed to map that n-dimensional frontier and eventually take care of the problem.

“I pressed them even on the subject of changes: let’s say people are being born and dying, preferences are changing, resource availability shifts, and on and on. But they stuck to their claim that we are smart enough to manufacture a substitute for the free market. This is just absurd. It is ludicrous. But the claim is still made.

“They weren’t socialists; they just believed that you don’t need markets for economizing in a complex economy. They are typical mainstream economists who do not recognize the limits of the human mind. Part of the problem may be that economists are very bright. They believe that there is nothing they can’t figure out.”

This brings to mind a related economist story.  I attended the Mont Pelerin Society meeting in Cannes, France, in 1994 and Henry G. Manne, then Dean of the George Mason University Law School, said he wanted to introduce me to someone who wanted to meet me.  Fine.  It was Professor Julian Simon, noted economist and author of The Ultimate Resource, and he bluntly asked me, “Morgan, how did you get so simple minded?”  We both burst out laughing!  Two like-minded scholars sharing a laugh.  Well, what’s the point of analysis but to separate complex things into their component elements and get to the root of the matter?

Here you will find my investigation of the socialist calculation debate.  Though written for economists, I think any intelligent reader can follow it.  It took me about a decade to get to the root of the matter, to penetrate the confusion and really figure out what the fatal, fundamental problem was with the socialist chimera.  If I can figure it out, you surely can understand it too via this article!


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2 Responses to Socialist Economy Is Impossible

  1. Coincidence Theorist says:

    With all due respect, Von Mises does not seem to take into account that the government does a lot of stuff behind the scenes. An unusually high percentage of prominent politicians in the US have been freemasons, who are not subject to visible laws (with rare exceptions) and give preference to freemasons in all economic and political dealings. The market economy is a magic trick as skillful as 9/11 planes. The USA is not a mixed economy, it has been a fully socialist centrally planned economy for at least a century, the difference from the Soviet Union is that government ownership of corporations is well hidden and all central planning is done secretly. For instance, members of the Council on Foreign Relations own more than 51% of all major American corporations, and this is only visible ownership, I am not talking about ownership by intelligence agencies. There is a term for that: “a proprietary,” i.e. a corporation that is private officially, but is managed by Intel and behaves in bizarre noneconomic ways. 21 trillion are missing from the Federal Budget since the late 1990s, as revealed by Mark Skidmore and Catherine Austin Fitts. Could this money have been used to gain control over big business and does the deep state want to control big business? Yes and yes. Government control of mass media is completely hidden. Free enterprise does not exist in the USA either: The proportion of self-employed workers is about the lowest in the world, small business constitutes a minuscule share of the economy (if you can see through the deceptive definition of “small business” in America), and the probability of becoming an entrepreneur is extremely low. Among the self-employed folks in the USA, the majority have gotten the business and/or money from their parents, and the others are lying about their biography.

  2. Stephen MacLean says:

    Great to see a new post from Dr Reynolds. His reflections about trying to convince his fellow economists about the calculation debate says it all about the presumptions of progressive intellectuals.

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