DemocracyThe God That Failed (27 page)

6

On
Socialism
and
Desocialization

I

Wealth can be brought into existence or increased in three and only three ways: by perceiving certain nature-given things as scarce and actively bringing them into one's possession before anyone else has done so (homesteading); by producing goods with the help of one's labor and such previously appropriated resources; or by acquiring a good through voluntary, contractual transfer from a previous appropriator or producer. Acts of original appropriation turn something which no one had previously perceived as scarce into an income-providing asset; acts of production are by their very nature aimed at the transformation of a less valuable asset into a more valuable one; and every contractual exchange concerns the exchange and redirection of specific assets from the hands of those who value their possession less to those who value them more.
¹

¹
It should be noted that each of these activities fulfills the requirements of a so-called Pareto-superior move, i.e., of enhancing the welfare of at least one individual without diminishing that of another. Hence, even in the absence of the possibility of interpersonal comparison of utility, every one of these activities can be said to increase
social
welfare. On Vilfredo Pareto's strictures regarding the meaningful use of the term
social
welfare
see his
Manual
of
Political
Economy
(New York: Augustus M. Kelley, 1971), where he writes:

Consider any position, and assume that we move away from it by a very small amount, consistent with the restrictions [of achieving the greatest possible welfare of the individuals of a collectivity]. If in so doing the welfare of all individuals of the collectivity is increased, it is obvious that the new position is more advantageous to each one of them; and vice versa, it is less so if the welfare of all the individuals is decreased. Moreover, the welfare of some of them can remain the same, without changing these conclusions. But on the other hand, if this small movement increases the welfare of certain individuals and decreases that of others, we can no longer state positively that it is advantageous to the entire collectivity to carry out this movement, (p. 451)

Now, if a man uses his body ("labor") in order to appropriate, i.e., bring under his control, some other nature-given things (unowned "land"), this action demonstrates
that he values these things. Hence, he must have gained utility in appropriating them. At the same time, his action does not make anyone else worse off, for in appropriating previously unowned resources nothing is taken away from others. Others could have appropriated these resources, too, if they had considered them valuable. Yet, they demonstrably did not do so. Indeed, their failure to appropriate them demonstrates their preference for
not
appropriating them. Thus, they cannot possibly be said to have lost any utility as a result of another's appropriation. Proceeding from the basis of acts of original appropriation, any further act, whether of production or consumption is equally Pareto-superior on demonstrated preference grounds, provided that it does not affect the physical integrity of the resources appropriated or produced with appropriated means by others. The producer-consumer is better off, while everyone else is left in control of the same quantity of goods as before. As a result, no one can be said to be worse off. Finally, every voluntary exchange of goods proceeding from this basis is a Pareto-superior change as well, because it can only take place if both exchange parties expect to benefit from it, while the supply of goods controlled in action (owned) by others remains unchanged. See further on this Murray N. Rothbard, "Toward a Reconstruction of Utility and Welfare," in idem
The
Logic
of
Action
One
(Cheltenham, U.K.: Edward Elgar, 1997); Jeffrey Herbener, "The Pareto Rule and Welfare Economics,"
Review
of
Austrian
Economics
10, no. 1(1997).

From this it follows that socialism can only lead to impoverishment.

First of all, under socialism, ownership of productive assets is assigned to a collective of individuals regardless of each member's prior action or inaction relative to the owned assets. In effect, socialist ownership favors the nonhomesteader, the nonproducer, and the noncontractor and disadvantages homesteaders, producers, and contractors. Accordingly, there will be less original appropriation of natural resources whose scarcity is realized, there will be less production of new and less upkeep of old factors of production, and there will be less contracting, for all of these activities involve costs. Under a regime of collective ownership the cost of performing them is raised, and that of not performing them is lowered.
²

Second, since means of production cannot be sold under socialism, no market prices for factors of production exist. Without such prices, cost-accounting is impossible. Inputs cannot be compared with outputs, and it is impossible to decide if their usage for a given purpose is worthwhile or leads to the squandering of scarce resources in the pursuit of projects with relatively little or no importance for consumers. Because he is not permitted to take offers from private individuals who might see an alternative way of using a given means of production, the socialist caretaker of capital goods does not know what his foregone
opportunities are. Hence, permanent misallocations of production factors must ensue.

²
See Hans-Hermann Hoppe,
A
Theory
of
Socialism
and
Capitalism:
Economics,
Poli
tics,
and
Ethics
(Boston: Kluwer, 1989).

Third,
even
given
some initial allocation, since input factors and the output produced are owned collectively, every single producer's incentive to increase the quantity and/or quality of his individual output is systematically diminished, and his incentive to use input factors so as to avoid their over- or underutilization is reduced. Instead, with gains and losses in the socialist firm's capital and sales account socialized instead of attributed to specific, individual producers, everyone's inclination toward laziness and negligence is systematically encouraged. Hence, an inferior quality and/or quantity of goods will be produced and permanent capital consumption will ensue.
⁴

Fourth, under a regime of private property, the person who owns a resource can determine independently of others what to do with it. If he wants to increase his wealth and/or rise in social status, he can only do so by better serving the most urgent wants of voluntary consumers through the use he makes of his property. With collectively owned factors of production, collective decisionmaking mechanisms are required. Every decision as to what, how, and for whom to produce, how much to pay or charge, and whom to promote or demote, is a political affair. Any disagreement must be settled by superimposing one person's will on another's view, and this invariably creates winners and losers. Hence, if one wants to climb the ladder under socialism, one must resort to one's political talents. It is not the ability to initiate, to work, and to respond to the needs of consumers that assures success. Rather, it is by means of persuasion, demagoguery, and intrigue, through promises, bribes, and threats that one rises to the top. Needless to say, this politicalization of
society, implied by any system of collective ownership, contributes even more to impoverishment.
⁵

³
See Ludwig von Mises,
Economic
Calculation
in
the
Socialist
Commonwealth
(Auburn, Ala.: Ludwig von Mises Institute, 1980); idem,
Socialism:
An
Economic
and
Sociological
Analysis
(Indianapolis, Ind.: Liberty Fund, 1981); idem,
Human
Action:
A
Treatise
on
Economics,
Scholar's Edition (Auburn, Ala.: Ludwig von Mises Institute, 1998); Murray N. Rothbard,
Man,
Economy,
and
State,
2 vols. (Auburn Ala.: Ludwig von Mises Institute, 1993), esp. pp. 544-50, 585-86; idem, "Ludwig von Mises and Economic Calculation under Socialism," and "The End of Socialism and the Calculation Debate Revisited," in idem,
The
Logic
of
Action
One;
Joseph Salerno, "Ludwig von Mises as Social
Rationalist,"
Review
of
Austrian
Economics
4 (1990).

⁴
See further on this Hans-Hermann Hoppe, "Desocialization in a United Germany,"
Review
of
Austrian
Economics
5, no. 2 (1991); Murray N. Rothbard,
Power
and
Market
(Kansas City: Sheed Andrews and McMeel, 1977) esp. pp. 172-89; Ludwig von Mises,
Bureaucracy
(New Rochelle, N.Y.: Arlington House, 1969), esp. chap. 3.

II

The manifest bankruptcy of socialism all across Eastern Europe since the late 1980s, after some seventy years of "social experimentation," provides a sad illustration of the validity of economic theory. What does the theory that long ago predicted this result as inevitable
⁶
now imply regarding how Eastern Europe can rise most quickly from the ruins of socialism? Since the ultimate cause of its economic misery is the collective ownership of factors of production, the solution and key to a prosperous future is privatization. Yet how should socialized property be privatized?
⁷

⁵
See further on this Friedrich A. Hayek,
The
Road
to
Serfdom
(Chicago: University of Chicago Press, 1944), esp. chap. 10; also
The
Politicization
of
Society,
Kenneth S. Templeton, ed. (Indianapolis, Ind.: Liberty Fund, 1979). It should be emphasized here in particular that, contrary to widespread belief, the lack of democracy has essentially nothing to do with socialism's inefficiency. It is not the rules according to which politicians are selected for their office that constitutes the problem. It is politics and political decisionmaking as such. Instead of each producer deciding independently what to do with particular resources, as under a regime of private property and contractualism, with socialized factors of production each decision requires a collective's permission. It is irrelevant to the producer how those giving permission are chosen. What matters to him is that permission must be sought at all. As long as this is the case, the incentive for producers to produce is reduced and impoverishment will continue. Private property is as incompatible with democracy, then, as with any other form of political rule. Rather, with the institution of private property an "anarchy of production" is established, in which no one rules anyone, and all producers' relations are voluntary and thus mutually beneficial.

⁶
See in particular Mises,
Socialism;
also
Collectivist
Economic
Planning,
Friedrich A. Hayek, ed. (London: Routledge and Sons, 1935); Trygve J.B. Hoff,
Economic
Calcu
lation
in
a
Socialist
Society
(Indianapolis, Ind.: Liberty Fund, 1981).

⁷
While a vast body of literature dealing with the socialization of private property exists, little has been written on how to desocialize. The reason for this neglect, one would suspect, is to be found in most Western intellectuals' persistent explicit or implicit socialist predilections. Given these, any treatment of the problem of deserialization must appear simply irrelevant; for why should anyone ever want to go back from an allegedly "higher stage of social evolution," i.e., socialism, to a lower one, i.e., capitalism? Even within the Mises School at best only implicit advice on this most pressing problem confronting the people of Eastern Europe can be found. For one of the few exceptions see Murray N. Rothbard, "How To Desocialize?" and "A Radical Prescription for the Socialist Bloc," in
The
Economics
of
Liberty,
Llewellyn H. Rockwell, Jr., ed. (Auburn, Ala.: Ludwig von Mises Institute, 1990); idem, "How and How Not To Desocialize,"
Review
of
Austrian
Economics
6, no.l (1992); Jeffrey Herbener, "The Role of Entrepreneurship in Deserialization,"
Review
of
Austrian
Eco
nomics
6, no .1 (1992).

An elementary yet fundamental moral observation must precede the answer to this question.
⁸
Since socialism cannot arise without the expropriation of assets originally "created" and owned by individual homesteaders, producers, and /or contractors, all socialist property, illbegotten from the very start, should be forfeited. No government, even if freely elected, can be considered the owner of any socialist property, for a criminal's heir, even if himself innocent, does not become the legitimate owner of illegitimately acquired assets. Because of his personal innocence he remains exempt from prosecution, but all of his "inherited" gains must immediately revert to the original victims, and their repossession of socialist property must take place without their being required to pay anything. In fact, to charge a victimized population a price for the reacquisition of what was originally its own would itself be a crime and would forever take away any innocence that a government previously might have had.
⁹

More specifically, all original property titles should be recognized immediately, regardless of who presently owns them. Insofar as the claims of original private owners or their heirs clash with those of the current assets' users, the former should override the latter. Only if a current user can prove that an original owner-heir's claim is illegitimate—that the title to the property in question had initially been acquired by coercive or fraudulent means—should a user's claim prevail and should he be recognized as the legitimate owner.
¹⁰

⁸
On the ethical theory underlying the following considerations see in particular Murray N. Rothbard,
The
Ethics
of
Liberty
(New York: New York University Press, 1998); Hans-Hermann Hoppe,
The
Economics
and
Ethics
of
Private
Property
(Boston: Kluwer,1993).

⁹
Empirically, this is what post-communist governments have by and large done, of course. Particularly noteworthy in this regard is the case of Germany. After the reunification of Germany in 1991, the (conservative) German government, backed by its supreme court, refused to return any of the property that had been expropriated from 1946 to 1949, under Soviet-Russian direction, in former East Germany (more than 50 percent of all agriculturally used land!) to its original owners. Instead, the government sold this land to its own favored "clients," which in many cases included the former communist expropriators-turned-capitalists. By contrast, to this day the original owners or their heirs have not received a penny in compensation.

¹⁰
In those cases in which current users actually bought expropriated assets from the government, they should seek compensation from those responsible for this sale, and the government officials accountable for it should be compelled to repay the purchase price. On the question of criminal possession, restitution, burden of proof, and other related issues see Rothbard,
The
Ethics
of
Liberty,
esp. chaps. 9-11;
Hans-Hermann Hoppe,
Eigentum,
Anarchie
und
Staat
(Opladen: Westdeutscher Verlag,1987), esp.chap.4.