Economic liberals and right libertarians view private ownership of the means of production and the market exchange as natural entities or moral rights which are central to their conceptions of freedom and liberty and view the economic dynamics of capitalism as immutable and absolute. They thus perceive public ownership of the means of production, cooperatives and economic planning as infringements upon liberty.
According to the Austrian school economist Ludwig von Mises, an economic system that does not utilize money, financial calculation and market pricing will be unable to effectively value capital goods and coordinate production and therefore socialism is impossible because it lacks the necessary information to perform economic calculation in the first place. Another central argument leveled against socialist systems based on economic planning is based on the use of dispersed knowledge. Socialism is unfeasible in this view because information cannot be aggregated by a central body and effectively used to formulate a plan for an entire economy, because doing so would result in distorted or absent price signals. Other economists criticize models of socialism based on neoclassical economics for their reliance on the faulty and unrealistic assumptions of economic equilibrium and pareto efficiency. Some philosophers have also criticized the aims of socialism, arguing that equality erodes away at individual diversities and that the establishment of an equal society would have to entail strong coercion. Critics of the socialist political movement often criticize the internal conflicts of the socialist movement as creating a sort of "responsibility void".
Because there are many models of socialism, most critiques are only focused on a specific type of socialism, therefore the criticisms presented below may not apply to all forms of socialism and many will focus on the experience of Soviet-type economies. It is also important to note that different models of socialism conflict with each other over questions of property ownership, economic coordination and how socialism is to be achieved—so critics of specific models of socialism might be advocates of a different type of socialism.
Critique of centralized planning
Distorted or absent price signals
The economic calculation problem is a criticism of central economic planning. It was first proposed in 1854 by the Prussian economist Hermann Heinrich Gossen. It was subsequently expounded in 1902 by the Dutch economist Nicolaas Pierson, in 1920 by Ludwig von Mises, and later by Friedrich Hayek. The problem referred to is that of how to distribute resources rationally in an economy. The free market relies on the price mechanism,
wherein people individually have the ability to decide how resources
should be distributed based on their willingness to give money for
specific goods or services. The price conveys embedded information about
the abundance of resources as well as their desirability which in turn allows—on the basis of individual consensual decisions—corrections that prevent shortages and surpluses.
Mises and Hayek argued that this is the only possible solution and
without the information provided by market prices socialism lacks a
method to rationally allocate resources. Those who agree with this
criticism argue it is a refutation of socialism and that it shows that a
socialist planned economy could never work. The debate raged in the
1920s and 1930s and that specific period of the debate has come to be
known by economic historians as "the Socialist Calculation Debate".
Ludwig von Mises argued in a famous 1930 article "Economic Calculation in the Socialist Commonwealth"
that the pricing systems in socialist economies were necessarily
deficient because if government owned the means of production, then no
prices could be obtained for capital goods
as they were merely internal transfers of goods in a socialist system
and not "objects of exchange", unlike final goods, therefore they were
unpriced and hence the system would be necessarily inefficient since the
central planners would not know how to allocate the available resources
efficiently. This led him to declare "that rational economic activity is impossible in a socialist commonwealth". Mises developed his critique of socialism more completely in his 1922 book Socialism, an Economic and Sociological Analysis.
Friedrich Hayek argued in 1977 that "prices are an instrument of
communication and guidance which embody more information than we
directly have" and therefore "the whole idea that you can bring about
the same order based on the division of labor by simple direction falls
to the ground". He further argued that "if you need prices, including
the prices of labor, to direct people to go where they are needed, you
cannot have another distribution except the one from the market
principle".
Ludwig von Mises argued that a socialist system based upon a
planned economy would not be able to allocate resources effectively due
to the lack of price signals. Because the means of production would be
controlled by a single entity, approximating prices for capital goods in
a planned economy would be impossible. His argument was that socialism
must fail economically because of the economic calculation problem—the
impossibility of a socialist government being able to make the economic
calculations required to organize a complex economy. Mises projected
that without a market economy there would be no functional price system,
which he held essential for achieving rational and efficient allocation
of capital goods to their most productive uses. According to Mises,
socialism would fail as demand cannot be known without prices.
The socialist planner, therefore, is left trying to steer the collectivist economy blindfolded. He cannot know what products to produce, the relative quantities to produce, and the most economically appropriate way to produce them with the resources and labor at his central command. This leads to "planned chaos" or to the "planned anarchy" to which Pravda referred.... Even if we ignore the fact that the rulers of socialist countries have cared very little for the welfare of their own subjects; even if we discount the lack of personal incentives in socialist economies; and even if we disregard the total lack of concern for the consumer under socialism; the basic problem remains the same: the most well-intentioned socialist planner just does not know what to do.
The heart of Mises' argument against socialism is that central planning by the government destroys the essential tool – competitively formed market prices – by which people in a society make rational economic decisions.
These arguments were elaborated by subsequent Austrian economists such as Friedrich Hayek and students such as Hans Sennholz.
The anarcho-capitalist economist Hans-Hermann Hoppe
argues that in the absence of prices for the means of production, there
is no cost-accounting which would direct labor and resources to the
most valuable uses. Hungarian economist Janos Kornai
has written that "the attempt to realize market socialism [...]
produces an incoherent system, in which there are elements that repel
each other: the dominance of public ownership and the operation of the
market are not compatible".
Proponents of laissez-faire capitalism argue that although private monopolies do not have any actual competition, there are many potential competitors
watching them and if they were delivering inadequate service, or
charging an excessive amount for a good or service, investors would
start a competing enterprise.
In her book How We Survived Communism and Even Laughed, Slavenka Drakulić
claims that a major contributor to the fall of socialist planned
economies in the former Soviet bloc was the failure to produce the basic
consumer goods that its people desired. She argues that because of the
makeup of the leadership of these regimes, the concerns of women got
particularly short shrift. She illustrates this in particular by the
system's failure to produce washing machines.
If a state-owned industry is able to keep operating with losses, it may
continue operating indefinitely producing things that are not in high
consumer demand. If consumer demand is too low to sustain the industry
with voluntary payments by consumers, then it is tax-subsidized. This
prevents resources (capital and labor) from being applied to satisfying
more urgent consumer demands. According to economist Milton Friedman:
"The loss part is just as important as the profit part. What
distinguishes the private system from a government socialist system is
the loss part. If an entrepreneur's project doesn't work, he closes it
down. If it had been a government project, it would have been expanded,
because there is not the discipline of the profit and loss element".
Proponents of chaos theory argue that it is impossible to make accurate long-term predictions for highly complex systems such as an economy.
Pierre-Joseph Proudhon raises similar calculational issues in his General Idea of the Revolution in the 19th Century, but also proposes certain voluntary arrangements, which would also require economic calculation.
Leon Trotsky, a fierce proponent of decentralized economic planning,
argued that centralized economic planning would be "insoluble without
the daily experience of millions, without their critical review of their
own collective experience, without their expression of their needs and
demands and could not be carried out within the confines of the official
sanctums" and "[e]ven if the Politburo consisted of seven universal
geniuses, of seven Marxes, or seven Lenins, it will still be unable, all
on its own, with all its creative imagination, to assert command over
the economy of 170 million people".
Mises argued that real-world implementation of free market and socialist
principles provided empirical evidence for which economic system leads
to greatest success:
The only certain fact about Russian affairs under the Soviet regime with regard to which all people agree is: that the standard of living of the Russian masses is much lower than that of the masses in the country which is universally considered as the paragon of capitalism, the United States of America. If we were to regard the Soviet regime as an experiment, we would have to say that the experiment has clearly demonstrated the superiority of capitalism and the inferiority of socialism.
According to Tibor R. Machan: "Without a market in which allocations
can be made in obedience to the law of supply and demand, it is
difficult or impossible to funnel resources with respect to actual human
preferences and goals".
In contrast to the lack of a marketplace, market socialism
can be viewed as an alternative to the traditional socialist model.
Theoretically, the fundamental difference between a traditional
socialist economy and a market socialist economy is the existence of a
market for the means of production and capital goods.
Suppression of economic democracy and self-management
Central planning is also criticized by elements of the radical left. Libertarian socialist economist Robin Hahnel
notes that even if central planning overcame its inherent inhibitions
of incentives and innovation, it would nevertheless be unable to
maximize economic democracy and self-management, which he believes are
concepts that are more intellectually coherent, consistent and just than
mainstream notions of economic freedom.
As Hahnel explains: "Combined with a more democratic political
system, and redone to closer approximate a best case version, centrally
planned economies no doubt would have performed better. But they could
never have delivered economic self-management, they would always have
been slow to innovate as apathy and frustration took their inevitable
toll, and they would always have been susceptible to growing inequities
and inefficiencies as the effects of differential economic power grew.
Under central planning neither planners, managers, nor workers had
incentives to promote the social economic interest. Nor did impending
markets for final goods to the planning system enfranchise consumers in
meaningful ways. But central planning would have been incompatible with
economic democracy even if it had overcome its information and incentive
liabilities. And the truth is that it survived as long as it did only
because it was propped up by unprecedented totalitarian political
power".
Critique of public enterprise
Slow or stagnant technological advance
Economist Milton Friedman
argued that socialism, by which he meant state ownership over the means
of production, impedes technological progress due to competition being
stifled. As evidence, he said that we need only look to the United
States to see where socialism fails, by observing that the most
technologically backward areas are those where government owns the means
of production. Without a reward system, it is argued many inventors or investors would not risk time or capital for research. This was one of the reasons for the United States patent system and copyright law.
Socialism has proved no more efficient at home than abroad. What are our most technologically backward areas? The delivery of first class mail, the schools, the judiciary, the legislative system – all mired in outdated technology. No doubt we need socialism for the judicial and legislative systems. We do not for mail or schools, as has been shown by Federal Express and others, and by the ability of many private schools to provide superior education to underprivileged youngsters at half the cost of government schooling.....
We all justly complain about the waste, fraud and inefficiency of the military. Why? Because it is a socialist activity – one that there seems no feasible way to privatize. But why should we be any better at running socialist enterprises than the Russians or Chinese?
By extending socialism far beyond the area where it is unavoidable, we have ended up performing essential government functions far less well than is not only possible but than was attained earlier. In a poorer and less socialist era, we produced a nationwide network of roads and bridges and subway systems that were the envy of the world. Today we are unable even to maintain them.
Reduced incentives
Some critics of socialism argue that income sharing reduces individual
incentives to work and therefore incomes should be individualized as
much as possible.
Critics of socialism have argued that in any society where everyone
holds equal wealth there can be no material incentive to work because
one does not receive rewards for a work well done. They further argue
that incentives increase productivity for all people and that the loss
of those effects would lead to stagnation. In The Principles of Political Economy (1848), John Stuart Mill said:
It is the common error of Socialists to overlook the natural indolence of mankind; their tendency to be passive, to be the slaves of habit, to persist indefinitely in a course once chosen. Let them once attain any state of existence which they consider tolerable, and the danger to be apprehended is that they will thenceforth stagnate; will not exert themselves to improve, and by letting their faculties rust, will lose even the energy required to preserve them from deterioration. Competition may not be the best conceivable stimulus, but it is at present a necessary one, and no one can foresee the time when it will not be indispensable to progress.
However, he later altered his views and adopted a socialist perspective, adding chapters to his Principles of Political Economy in defense of a socialist outlook and defending some socialist causes.
Within this revised work, he also made the radical proposal that the
whole wage system be abolished in favour of a co-operative wage system.
Nonetheless, some of his views on the idea of flat taxation remained,
albeit in a slightly toned down form.
Economist John Kenneth Galbraith
has criticized communal forms of socialism that promote egalitarianism
in terms of wages/compensation as unrealistic in its assumptions about
human motivation:
This hope [that egalitarian reward would lead to a higher level of motivation], one that spread far beyond Marx, has been shown by both history and human experience to be irrelevant. For better or worse, human beings do not rise to such heights. Generations of socialists and socially oriented leaders have learned this to their disappointment and more often to their sorrow. The basic fact is clear: the good society must accept men and women as they are.
Reduced prosperity
According to economist Hans-Hermann Hoppe,
countries where the means of production are socialized are not as
prosperous as those where the means of production are under private
control.
Ludwig von Mises, a classical liberal economist, argued that aiming for
more equal incomes through state intervention necessarily leads to a
reduction in national income and therefore average income. Consequently,
the socialist chooses the objective of a more equal distribution of
income on the assumption that the marginal utility
of income to a poor person is greater than that to a rich person.
According to Mises, this mandates a preference for a lower average
income over inequality of income at a higher average income. He sees no
rational justification for this preference and he also states that there
is little evidence that the objective of greater income equality is
achieved.
Social and political effects
In The Road to Serfdom, Friedrich Hayek argued that the more even distribution of wealth through the nationalization
of the means of production advocated by certain socialists cannot be
achieved without a loss of political, economic and human rights.
According to Hayek, to achieve control over means of production and
distribution of wealth it is necessary for such socialists to acquire
significant powers of coercion. Hayek argued that the road to socialism leads society to totalitarianism and argued that fascism and Nazism were the inevitable outcome of socialist trends in Italy and Germany during the preceding period.
Hayek was critical of the bias shown by university teachers and
intellectuals towards socialist ideals. He argued that socialism is not a
working class movement as socialists contend, but rather "the
construction of theorists, deriving from certain tendencies of abstract
thought with which for a long time only the intellectuals were familiar;
and it required long efforts by the intellectuals before the working
classes could be persuaded to adopt it as their program".
Peter Self
criticizes the traditional socialist planned economy and argues against
pursuing "extreme equality" because he believes it requires "strong
coercion" and does not allow for "reasonable recognition [for] different
individual needs, tastes (for work or leisure) and talents". He
recommends market socialism instead.
Objectivists criticize socialism as devaluing the individual
and making people incapable of choosing their own values as decisions
are made centrally. They also reject socialism's indifference to property rights.
Claims of leadership corruption
Some
critics of socialism have argued that in a socialist state the
leadership will either become corrupted or be replaced by corrupt people
and this would prevent the goals of socialism from being realized.
Lord Acton's
aphorism that "power tends to corrupt" has been used by critics of
socialism to argue that the leadership of a socialist state would be
more susceptible to corruption than others because a socialist state has
a broader scope than other states.
Milton Friedman argued that the absence of private economic activity
would enable political leaders to grant themselves coercive powers. In his campaign against socialist candidate Clement Attlee in the 1945 elections, Winston Churchill claimed that socialism requires totalitarian methods, including a political police, in order to achieve its goals.
Friedrich Hayek made a slightly different, but related argument.
He conceded that the leaders of the socialist movement had idealistic
motives and did not argue that they would become corrupt or resort to
totalitarian methods once in power. However, he argued that the kind of
state structure they wish to set up would eventually attract a new
generation of leaders motivated by cynical ambition rather than any
ideals and these new leaders would enact repressive measures while at
the same time giving up attempts to implement the original goals of
socialism.
