As a young man, Prof Ebeling witnessed first hand the demise of the Soviet system. The article below is a truly remarkable eye witness account of the 72 hours that changed the world. Pause on that: just 72 hours to move from seemingly unassailable Communist Party rule to the new beginnings of the Russian nation we have today.
As we know, Mises had shown in the early ’20s how it was impossible for a pure socialist system to centrally plan; in the absence of a price system, they could not properly allocate scare resources. In the late ’30s, Hayek showed us how it was impossible that any one group of planners match the interpersonal transactions of hundreds of millions of people, each with their own particular subjective values on each of the specific things they were doing. It took 70 years for the total collapse of the Soviet system. Then 72 hours changed the world.
We see that Soviet-style planing of money still lingers on in the world today. We are not accustomed to thinking that the Bank of England, the Federal Reserve and the European Central Bank are money planning bureaus, but that is what they do: try to plan our money supply . We have 9 wise men in the MPC who do this. In our case, they do this by inflation targeting via interest rate adjustments and their own bond purchases. The money supply needs no more planning than the price of apples does, yet we still cling to this notion.
To all policy makers, those 72 hours Ebeling writes about are a stark reminder that when confidence blows in something, and people lose faith in the status quo, things can change very quickly indeed!
The credit-induced boom of the central banks, with their private sector mints, the private banks, lending recklessly during the noughties, led to catastrophe by 2007/08. The policy response of our dear leader Gordon Brown involved the socialisation of banking losses. Having assumed the liabilities of the banks, national governments across the Western world are now crisis. Like the cartoon character who runs off the edge of the cliff with his legs still spinning, suspended in mid air, it may be the sudden awareness of an untenable position that brings the paper money system crashing back down to earth. Are we due for our own 72 hours of reckoning?
Twenty years ago, on August 22, 1991, I stood amid a vast cheering crowd of tens of thousands of people outside the Russian parliament building in Moscow, the capital of the Soviet Union. They were celebrating the failure by diehard Soviet leaders to undertake a political and military coup d’état meant to maintain dictatorial communist rule in the Union of Soviet Socialist Republics.
Four days earlier, on August 19th, a band of hard-line Soviet political and military leaders had initiated the coup attempt against the leadership of Mikhail Gorbachev, the General Secretary of the Communist Party of the U.S.S.R, and Boris Yeltsin, president of the Russian Soviet Federated Socialist Republic, the largest of the constituent republics of the Soviet Union.
Fearful that the political and economic reforms that had been introduced by Gorbachev shortly after his ascendency to the top leadership position in the Soviet Communist Party in 1986 were now threatening to bring about the disintegration of the Soviet Union, the hard-line conspirators were determined to preserve intact what remained of Soviet power in their own country.
Gorbachev’s Attempt to Save Socialism
Gorbachev believed that the Soviet Union had taken several serious wrong turns in the past. But he was not an opponent of socialism or its Marxist-Leninist foundations. He wanted a new “socialism-with-a-human-face.” His goal was a “kinder and gentler” communist ideology, so to speak. He truly believed that the Soviet Union could be saved, and with it a more humane collectivist alternative to Western capitalism.
To achieve this end, Gorbachev had introduced to two reform agendas: First, perestroika, a series of economic changes meant to admit the mistakes of heavy handed central planning. State enterprise managers were to be more accountable, small private businesses would be permitted and fostered, and Soviet companies would be allowed to form joint ventures with selected Western corporations. Flexibility and adaptability would create a new and better socialist economy.
Second, glasnost, political “openness” under which the follies of the past would be admitted and the formerly “blank pages” of Soviet history – especially about the “crimes of Stalin” – would be filled in. Greater historical and political honesty, it was said, would revive the moribund Soviet ideology and renew the Soviet people’s enthusiastic support for the redesigned bright socialist future.
The more hard-line and “conservative” members of the Soviet leadership considered all such reforms as opening a Pandora’s Box of uncontrollable forces that would undermine the Soviet system. They had already seen this happen in the outer ring of the Soviet Empire in Eastern Europe.
The Beginning of the End in Eastern Europe
In 1989 Gorbachev had stood by as the Berlin Wall, the symbol of Soviet imperial power in the heart of Europe, had come tumbling down, and the Soviet “captive nations” of Eastern Europe – East Germany, Poland, Czechoslovakia, Hungary, Romania and Bulgaria – that Stalin had claimed as conquered booty at the end of the Second World War, began to free themselves from communist control and Soviet domination.
The Soviet hard-liners were now convinced that a new political treaty that Gorbachev was planning to sign with Russian president Yeltsin and Nursultan Nazarbayev, president of the Soviet republic of Kazakhstan, would mean the end of the Soviet Union, itself.
Already, the small Baltic republics of Estonia, Latvia, and Lithuania were reasserting the national independence they had lost in 1939-1940, as a result of Stalin and Hitler’s division of Eastern Europe. Violent and murderous Soviet military crackdowns in Lithuania and in Latvia in January 1991 had failed to crush the budding democratic movements in those countries. Military methods had also been employed, to no avail, to keep in line the Soviet republics of Georgia and Azerbaijan.
Communist Conspirators for Soviet Power
On August 18th, the hard-line conspirators tried to persuade Gorbachev to reverse his planned political arrangements with the Russian Federation and Soviet Kazakhstan. When he refused he was held by force in a summer home he was vacationing at in the Crimea on the Black Sea.
Early on the morning of August 19th, the conspirators issued a declaration announcing their takeover of the Soviet government. A plan to capture and possibly kill Boris Yeltsin failed. Yeltsin eluded the kidnappers and made his way to the Russian parliament building from his home outside Moscow. Military units loyal to the conspirators ringed the city with tanks on every bridge leading into the city and along every main thoroughfare in the center of Moscow. Tank units had surrounded the Russian parliament, as well.
But Yeltsin soon was rallying the people of Moscow and the Russian population in general to defend Russia’s own emerging democracy. People all around the world saw Yeltsin stand atop an army tank outside the parliament building asking Muscovites to resist this attempt to return to the dark days of communist rule.
The Western media made much at the time of the apparent poor planning during the seventy-two hour coup attempt during August 19th to the 21st. The world press focused on and mocked the nervousness and confusion shown by some of the coup leaders during a press conference. The conspirators were ridiculed for their Keystone cop-like behavior in missing their chance to kidnap Yeltsin or delaying their seizure of the Russian parliament building; or leaving international telephone lines open and not even jamming foreign news broadcasts that were reporting the events as they happened to the entire Soviet Union.
The Dangers If the Hard-liners had Won
Regardless of the poor planning on the part of the coup leaders, however, the fact remains that if they had succeeded the consequences might have been catastrophic. I have a photocopy of the arrest warrant form that had been prepared for the Moscow region and signed by the Moscow military commander, Marshal Kalinin.
It gave the military and the KGB, the Soviet secret police, the authority to arrest anyone. It had a “fill-in-the-blank,” where the victim’s name would be written in. Almost 500,000 of these arrest warrant forms had been prepared. In other words, upwards of a half-million people might have been imprisoned in Moscow, alone. The day before the coup began, the KGB had received a consignment of 250,000 pairs of handcuffs. And the Russian press later reported that some of the prison camps in Siberia had been clandestinely reopened. If the coup had succeeded, possibly as many as three to four million people in the Soviet Union would have been sent to the GULAG, the notorious Soviet labor camp system.
Another document published in the Russian press after the coup failed had the instructions for the military authorities in various regions around the country. They were to begin tighter surveillance of the people in the areas under their jurisdiction. They were to keep watch on the words and actions of everyone. Foreigners were to be even more carefully followed and watched. And their reports to the coup leaders in Moscow were to be filed every four hours. Indeed, when the coup was in progress, the KGB began to close down commercial joint ventures with Western companies in Moscow, accusing them of being “nests of spies,” and arrested some of the Russian participants in these enterprises.
Fear Underneath the Surrealism of Calm
During the coup attempt Moscow had a surrealistic quality. On the streets around the city it seemed as if nothing were happening – except for the clusters of Soviet tank units strategically positioned at central intersections and at the bridges crossing the Moscow River. Taxi cabs patrolled the avenues looking for passengers; the population seemed to go about its business walking to and from work, or waiting in long lines for the meager supplies of everyday essentials at the government retail stores; and motorists were as usual also lined up at the government owned gasoline stations. Even with the clearly marked foreign license plates on my rented car, I was never stopped as I drove around the center of Moscow.
The only signs that these were extraordinary days were the grimmer than usual looks on the faces of many; and that in the food stores many people would silently huddle around radios after completing their purchases. However, the appearance of near normality could not hide the fact that the future of the country was hanging in the balance.
Russians Run the Risk for Freedom
During the three days of that fateful week, Russians of various walks of life had to ask themselves what price they put on freedom. And thousands concluded that risking their lives to prevent a return to communist despotism was price they were willing to pay. Those thousands appeared at the Russian parliament in response to Boris Yeltsin’s appeal to the people. They built makeshift barricades, and prepared to offer themselves as unarmed human shields against Soviet tanks and troops, if they had attacked. My future wife, Anna, and I were among those friends of freedom who stood vigil during most of those three days facing the barrels of Soviet tanks.
Among those thousands, three groups were most noticeable in having chosen to fight for freedom: First, young people in their teens and twenties who had been living in a freer environment during the previous six years since Gorbachev had come to power, and who did not want to live under the terror and tyranny their parents had known in the past. Second, new Russian businessmen, who realized that without a free political order their emerging economic liberties would be crushed. And, third, veterans of the Soviet war in Afghanistan, who had been conscripted into the service of Soviet imperialism and were now determined to prevent its return.
The bankruptcy of the Soviet system was demonstrated not only by the courage of those thousands defending the Russian parliament, but also by the unwillingness of the Soviet military to obey the orders of the coup leaders. It is true that only a handful of military units actually went over immediately to Yeltsin’s side in Moscow. But hundreds of Russian babushkas – grandmothers – went up to the young soldiers and officers manning the Soviet tanks, and asked them, “Are you going to shoot their mother, your father, your grandmother? We are your own people.” The final act of the coup came when these military units refused to obey orders and seize the Russian parliament building, at the possible cost of hundreds or thousands of lives.
Freedom! Freedom! Freedom!
On that clear, warm Thursday of August 22th, that huge mass of humanity that had assembled in a large plaza behind the Russian parliament stood and listened as Boris Yeltsin told them that that area would now be known as the Square of Russian Freedom. The multitude replied in unison: Svaboda! Svaboda! Svaboda! – “Freedom! Freedom, Freedom!”
A huge flag of pre-communist Russia, with its colors of white, blue and red, draped the entire length of the parliament building. The crowd looked up and watched as the Soviet red flag, with its yellow hammer and sickle in the upper left corner, was lowered from the flagpole atop the parliament, and the Russian colors were raised for the first time in its place. And again the people chanted: “Freedom! Freedom! Freedom!”
Not too far away from the parliament building in Moscow, that same day, a large crowd had formed at Lubyanka Square at the headquarters of the KGB. With the help of a crane, these Muscovites pulled down a large statue of Felix Dzerzhinsky, the founder of the Soviet secret police that stood near the entrance to the KGB building. In a small park across from the KGB headquarters, in a corner of which rests a small monument to the victims of the Soviet prison and labor camps, an anti-communist rally was held. A young man in an old Czarist Russian military uniform burned a Soviet flag, while the crowd cheered him on.
The seventy-five-year nightmare of communist tyranny and terror was coming to an end. The people of Russia were hoping for freedom, and they were basking in the imagined joy of it.
Freedom’s Hope and Post-Communist Reality
The demise of the Communist Party and the Soviet system was one of the momentous events in modern history. That it came about with a relatively small amount of bloodshed during those seventy-two hours of the hard-line coup attempt was nothing short of miraculous – only a handful of people lost their lives.
The last twenty years have not turned out how many of the friends of freedom in Russia had hoped. Indeed, post-communist Russia saw a contradictory, poorly organized, and corrupted privatization of Soviet industry, plus a high and damaging inflation in 1992-1994; a severe financial crisis in 1998; a return to authoritarian political rule following Vladimir Putin’s rise to power in 1999; two bloody and destructive wars in the attempted breakaway region of Chechnya; wide spread and pervasive corruption at all levels of government; state controlled and manipulated markets, investment, and commerce; assassinations and imprisonments of political opponents of the regime; and significant nostalgia among too many in the country for “great power” status and the “firm hand” of the infamous Stalinist era.
Nonetheless, for those of us who were fortunate enough to be in Moscow in August 1991, it remains in our minds as an unforgettable historical moment when the first and longest-lived of the 20th century’s totalitarian states was brought to the doorstep of its end.
Dr. Richard M. Ebeling is Professor of Economics at Northwood University. This article was first published at the NU blog, In Defense of Capitalism & Human Progress on the 18th of August
One of the greatest contributions of Ludwig von Mises to the modern world was his sweeping demolition of the intellectual case for Karl Marx’s scientific socialism, which Mises first proposed in 1919, wrote up in 1920, and expanded in 1922. My own personal favourite book by Mises is the 1922 expansion, Socialism, which he later extended in 1935, for the first English translation, and subsequent to that too, in 1951. This exploding neutron star of a book forensically examined every extant and extinct form of socialism — from Russian soviet communism to German national socialism — and systematically applied Mises’ core idea that all of these multi-variant forms of socialism are simply incapable of carrying out rational economic calculation.
Without free market prices to determine the best use of scarce resources, it becomes impossible for central planners of all stripes to work out what to do with these scarce resources, to least wasteful effect, without resorting to mere political whim and fancy. This Misesian idea, which stood firm against all of the subsequent feeble socialist attacks upon it, was the primary reason why the Soviet Union eventually collapsed, and why Nazi Germany would have collapsed too, eventually, even if it had succeeded in invading England’s shores and creating SS-GB.
What is surprising, then, is not that the Soviet Union collapsed, but that it took so long to do so. That particular mystery is a long dark story of Gulags, bloody tyranny, and various forms of western support, which can be told in another time and place.
For those, though, who find this idea challenging, that socialism cannot calculate, Professor Joseph T. Salerno recently gave a superb lecture which covers the subject in depth.
At over an hour, this extensive lecture is a large commitment in time. However, if you have ever been a socialist, or you are trying to give socialism up, or you have socialist friends who you feel need a little life-enhancing re-education, then the time spent watching Professor Salerno explaining why socialism will always fail — unless it first manages to turn us all into ants — will prove an excellent investment of your time.
It would also be useful to watch if you are a government-appointed central planner in the Bank of England. You never know, you might then learn why all of your currency manipulation plans are falling about your ears:
The Subjectivist Revolution in Economics Continues
Humans act and they act purposefully: this is the axiom of action proposed by Ludwig von Mises, teacher of Hayek. From this he claimed that the whole of economics could be deduced. As Mises shows, in order to be, we act purposefully. Not being, we would not act, indeed we would not exist. We act upon satisfying our most urgent needs first, then our second most urgent needs, and so on and so forth, ranking our preferences, with the most urgent needs/demands being satisfied first, the least urgent, and the furthest away in time. From this hierarchy we derive the law of demand, the downward sloping demand curve, the law of diminishing marginal utility (see here for a good illustration) and on and on it goes. Lord Lionel Robbins in a masterful 1932 book, The Nature and Significance of Economic Science shows in very clear terms how all the laws of Economics are derived from the a-priori thought process.
To try to refute it, you cannot, as you act purposefully to do so. Just as Pythagoras’s Theorem is implied in the concept of a right angle triangle – and we knew about the concept of the right angle triangle before Pythagoras “discovered” his Theorem – so, too, do the laws of economics flow from the one irrefutable axiom that humans act purposefully. It is a bit like saying Darwin “discovered” the Theory of Evolution, when what he actually did was articulate it and find very plausible data sets to help explain it to the sceptical mind. Evolution was always there.
So What can this Axiom tell us About Entrepreneurship?
When we act, we choose to satisfy our most urgent needs first, and we forego other opportunities which form our subjective costs. Action implies a sacrifice: what opportunity you forgo is your cost, and what you hope to gain is more than your cost: this is your entrepreneurial profit. This entrepreneurial profit does not have to be measured in money; it can be the choice between going to the theatre or staying at home and watching a TV program.
The entrepreneur is someone who is good at generating entrepreneurial profit, not only for himself but in the way he/she can help many more others in achieving and consuming the results of entrepreneurial profit. He is more alert at spotting opportunities that will satisfy people’s most urgent needs in quicker and in better formats, and for this he is rewarded usually with more money for his efforts.
According to Jesus Huerta De Soto in his book called Socialismo Calculo Economico Y Funcion Empresarial” 1992 soon to be published in English by Edward Elgar in Association with the IEA and called: “Socialism, Economic Calculation and Entrepreneurship” 2010, there are six characteristics of the information and knowledge that the entrepreneur captures to use to provide better goods and services to all in society.
Knowledge is Subjective and not Objective and Scientific
I have just watched my local farmer bring in a grass crop frantically in 3 days as he assessed a window of opportunity for him to do so, since rain was coming. He could not send this up to a State planner to make a decision for him – only his local knowledge about this particular time and circumstance, and his informed intuition regarding the weather could lead to this decision. He has crop that he can sell now. A planner in Whitehall would neither have all the information necessary nor respond quickly enough to make this all happen.
Knowledge is Exclusive and Dispersed
In my farmer example, this knowledge about when to bring the crop in is exclusively his and resides in him alone. In the same way, knowledge across the whole economy is broken up into little pockets of subjective knowledge held by millions of different people.
Knowledge is Tacit and it Cannot be Articulated
My farmer’s knowledge is tacit and in him, yet he probably cannot objectively articulate why he is doing it. Michael Oakeshott in “Rationalism in Politics”, 1962, gave us a very good example of a chef who is after all only following a formulaic procedure of putting together a recipe — add X of this to Y of that and cook at 200 degrees for 10 mins. But the instincts and unconscious background knowledge of an uber chef like Gordon Ramsey will allow him to produce outstanding food which I cannot hope to match simply by following the same recipe.
Entrepreneurship is Creative
There is no cost to an entrepreneurial idea, it is created ex novo. Bill Gates, when he created his first operating system, had his vision and his thought process, the idea, and then he got creating. Profits are thus created new and from nothing.
The Creation of New Information
Each creative new act of entrepreneurship creates new information which is used by others to profit them as well. A new software solution developed by the creative minds of Apple alerts all their users to new ways of doing things that benefit them in a quicker, faster and better way.
I recently had a conversation with a potential entrepreneur who has identified an abundant source of farm waste product that could be excellent for fish feed. If his business is developed, farmers will suddenly be made aware that what was once a cost can now be a source of revenue for him. Thus he will adapt his farming processes to now harvest this waste and costly product for profit. The fish farmers will eagerly await this new source of protein and adapt their newer and better buying accordingly.
The Transmission of Information
Although the price system is objective and allows the allocation of resources, the fish farmer does not need to know all the subjective information of the entrepreneur who has developed the new feed out of the farms’ waste, just that he can buy it. Likewise, the farmer does not need to know the detail of how it is going to be made useful to the fish farmer. All this knowledge is subjective and the briefest communication of it happens to facilitate trade.
Entrepreneurship is the foundation of society in that it insures the co-ordination of individuals’ behaviours. Without it, society would not exist.
Competition and Entrepreneurship
There is always a competitive and on-going process of rivalry and discovery as this society-wide coordination process happens. It is limitless and produces progress if left uninterrupted. It is the single most important process which unites society and permits its harmonious advancement.
The Division of Knowledge v the Division of Labour
The division of labour as suggested by Adam Smith shows us how, in a pin factory, if people concentrate on certain tasks and specialise, more production happens. This is an objective measure. Underneath this, and prior to it, is the subjective division of knowledge. In-depth knowledge is held in widely dispersed formats, often tacitly, precluding its articulation across society; thus it is impossible for any one person body or machine or government department to know all of this information. Also, only tiny amounts need to be communicated to make coordination in society possible. So Huerta De Soto introduces a new concept into the body of knowledge concerning economics: the universal division of knowledge that exists as a deduction from the axiom that humans act and takes the subjectivist revolution started by Menger into our very understanding of the division of labour. He also moves man on from being the Robbinsian homo oeconomicus to the homo empresario. Acting man is entrepreneurship.
Once again Huerta De Soto has given some great new insights into economics in the field of economics. He has stood on the shoulders of Adam Smith, Mises, Hayek and Kirzner to great effect to knock the objective division of labour off its pedestal and put in its place the division of knowledge. This is what Einstein did to Newton in physics. Both still have their place, but the latter being of more fundamental importance.
If someone gave me a gold sovereign for every time in my life I had heard a variation on the following phrase, then in the words of Private James Frazer, from Dad’s Army, I would now be an extremely wealthy man. Here’s the general phrase that you may have heard too:
“Socialism is a great idea, but human nature is so perverse, selfish, and horrible, that nobody has figured out how to do it right yet.”
There are so many misconceptions buried within that simple sentence that there are few single books that can refute them with justice. One that springs immediately to mind is Socialism, first written by Ludwig von Mises in 1922; unfortunately this is an immense distilled work which requires perhaps weeks, months, or even years of study to fully appreciate. However, I may have just stumbled across another excellent book which uses a different approach to tackle the same misconceptions. In contrast to Socialism, the main beauty of this alternative is that it hits all of its targets in just three or so short hours of delightful reading.
We’ll get to the book shortly, but first let us examine the misconceptions.
The first one is that socialism is a great idea. In Socialism, Ludwig von Mises contends that even if you gave the socialists their fully-incentivised New Socialist Man, who would happily take out the garbage in Sunderland whilst his identical twin brother got to be appointed by the central state planning committee as a leading Hollywood actor, socialism is actually a terrible idea because it makes economic calculation impossible. This is a subtle argument, also well explained in Economic Calculation In The Socialist Commonwealth, but suffice it to say that if you lack a free market in which people can express their consumption preferences by buying more of what they like and buying less of what they dislike, then you can never use fluctuating money prices to work out what are the best things to do with scarce resources, within a consequent capital production structure, to satisfy a people’s needs to the best possible effect.
Money prices are in many ways a poor tool, concentrating all of humanity’s multi-faceted complexity into a single precious metallic measuring stick, but they are the best that we can aspire to, says Mises, because they become automatically effective across the board and distribute knowledge in a wonderfully Hayekian way to knit together the international division of labour into an ever-evolving complex mesh of unlimited local feedback loops; this web of free market prices can then use the economic laws of supply and demand, based upon ever-changing consumer preferences, to ensure that scarce resources are continually treated in the least wasteful way, on a transaction-by-transaction basis.
Setting your entire capital production structure instead upon a whims-and-fancies montage of bureaucrats and politicians, based upon central planning diktat rather than local voluntary money prices, quickly leads to economic chaos; it becomes impossible to know what is the best thing you can do with scarce resources. Thus, the more forced socialism you have, the more unbalanced economic chaos you create.
A small-state government may get away with small islands of socialism within a free market society, because its petty bureaucrats can use the prices generated by the external free market to work out vaguely rational action plans. However, the bigger these islands of economic chaos become, as socialism expands, the worse things get, as witnessed with the crumbling premiership of the dreadful Gordon Brown. We can also see this general effect quite clearly with organisations such as the NHS and the BBC. The NHS can exist because it sits like a bloated consumptive tumour supported entirely within the productive body of the British free market (what’s left of it).
However, the NHS has grown into a serious economic drain which is increasingly bleeding the country dry of wealth, particularly in the areas of monopoly pricing in which it engages, such as the scandalous prices it sets and pays for its drugs, never mind the huge legions of overpaid bureaucrats that staff its leafy management centres.
The BBC also sits within the private media world, distorting it in the same way that a giant black hole distorts a local region of space or a giant gorilla distorts a local area of jungle, giving out ridiculous salaries to untalented stars like Graham Norton and yet more phalanxes of empire-building bureaucrats, all cosily ensconced within the snug confines of the huge amount of wealth extracted with menaces from the rest of the population; if the BBC were privatised tomorrow, it is easy to imagine that its stars would take half or even less of the money that they receive now and that at least half of its bureaucrats would be sacked immediately, with the rest receiving 50% pay cuts, with all of those billions of pounds of taxpayers’ filthy lucre taken out of the game. But given the obvious waste at the BBC, they can still sail viably along because they can use prices generated initially within the rest of the media market, even though they have distorted this market so perversely, paying people like Jonathan Ross £18 million pounds over three years to run a mediocre chat show copied from David Letterman.
It was this early economic calculation realisation by Mises, of socialism’s intrinsic inability to calculate, that finally brought down the Soviet Union, rather than any vague military threat from the West. You may say it took fully 70 years for it to completely deform its surroundings into complete stagnation, but the communist empire, which started from a fairly low agrarian base, was still surrounded by a relatively free market world from which it could extract price information. It could not do so efficiently, of course, or with sufficient distributed locality, but it had enough of a price framework to get by, supported by the threat of the Gulag, along with western subsidies and the regular import of western technology ideas. Yes, the Soviet Union may have filled one train in Leningrad with timber and sent it to Vladivostok, and filled another train in Vladivostok with the same kind of timber and sent it to Leningrad, both trains passing halfway at Omsk in a mighty celebration of socialist waste, but at least the Soviets knew what price the timber should be exchanged for at either end, by copying the price from the international timber market; this enabled them to get by, admittedly at a subsistence level. Alas, what tiny amount of wealth they did generate from their enormous natural resources then got wasted on massive military consumption, with their solely successful factory product being the Kalashnikov rifle.
Thank you then, socialism, for providing us with one of the world’s best killing machines. But was it worth the Gulag to do it?
Going beyond the Soviet empire, if the entire world turned socialist, on some glorious day in the future, there would then be no freely-adjusting prices left at all to organise anything with and the resulting total chaos would quickly send us back to a world of agrarian subsistence (with a much smaller global population). The only way out from this decimation and mobocracy would be the re-invention of the free market, which is covered wonderfully in a futuristic novel by Henry Hazlitt, Time Will Run Back.
The second misconception in our original phrase is that human nature is perverse, selfish, and horrible. I will ignore for the moment the idea that socialism is itself based full-square upon envy, the most destructive human urge of all, but will counter this second misconception instead with the thought that evolution gave us our human nature for a reason; it is that nature which saw us fight and scrabble our way up through the detritus of the dinosaur age, through fifty million years in the trees locating and consuming fruit, and then down through the plains of Africa, over several million years, to an age of relative plenty in the modern age. Without this unbelievably complex and evolutionarily successful human nature we would still be in the ground with the dinosaurs, whilst some other creature — perhaps a land-walking descendant of the dolphins, some kind of giant feathered rook, or some kind of well-dressed bipedal cat — walked in dominion over the Earth, in our place, with perhaps a behavioural nature entirely similar to our current one anyway.
We are the way we are for a reason. That reason is continuing survival in a world of scarce resources.
To try to fight over four billion years of evolution with the badly-conceived social engineering ideas of an angry envious mob, perhaps best symbolised by the squashed unhappy face of John Prescott, may have been a little ambitious, maybe even vain, though I’ll be generous and stick with saying simply that it was foolhardy.
Whatever the case, you would have to engage in some serious eugenics to get us to change our ways. We are biological procreating survival machines living in a world of scarce untransformed resources. We need to find and transform these resources and we need to consume complex high-energy resources on a daily basis in order to survive. That we do so with billions of people working together in relative harmony due to the extension of the international division of labour, co-ordinated within a Hayekian framework of distributed knowledge and spontaneously ordered pricing systems, is quite simply a miracle of evolution and intelligence. We should therefore celebrate our human nature and the intelligence it has provided us with, rather than pour scorn upon it as the socialists do, usually in the disingenuous tones supplied by the envious, greedy, and arrogant parts of this self-same human nature.
The third misconception is that nobody has figured how to do socialism right yet, with the frightening assumption behind that being that they will keep trying in Robert-the-Bruce fashion until they do get it right, no matter what the destructive consequences of this impossible obsession may be. This continuing failure of socialism, from the mercifully assassinated Pol Pot through to the thankfully disappeared Gordon Brown, arises because it is impossible to make involuntary socialism work, mainly because of the economic calculation problem but partially because the core of socialism rests upon the hideously destructive basis of envy, which prefers self-immolation and self-righteous aggression to the terrible potential sight of ever seeing anyone succeed in life (as witnessed most clearly in the Tall Poppy syndrome and as described so beautifully in the book by Erik von Kuehnelt-Leddihn, The Menace of the Herd).
In short, socialism has always been and will always be a complete disaster anytime it is tried outside of a small voluntary commune, which itself must exist within a free market matrix if it too is to survive above an agrarian subsistence level.
Even the small voluntary socialist groups of the family and the monastery need money prices to transmit economic information to distant unknown people, plus voluntary participation, otherwise they quickly waste more and more of their resources on force to make people comply with the whims and wishes of the omniscient and omnipotent tyrants who self-appoint themselves as the demi-god decision-makers at the centre.
Societal tyrants always fail in the end, regardless, as Gordon Brown has done, usually running out of everyone else’s money or being defeated in the wars that such tyrants bring about in a bid to strengthen their power base; but we should try to avoid letting these people get hold of our lives in the first place, rather than having to keep re-learning the lesson, every generation for the past 150 years, that socialism is a synonym for failure.
Even within the confines of the loving family or within the cellular habits of the God-loving monastery, once you go beyond the size of a typical stone-age tribe (about 250 people), as happened in the early American religious colonies, starvation and abject failure is usually the result of even voluntary socialism, because once you go beyond reciprocation and barter between people who know and trust each other well, you need prices to co-ordinate such sub-systems with the unknown world beyond the colony’s horizon; once you stop being able to look someone physically in the eye and once you have no voluntary unconditional love for them, you have reached the outer limits of voluntary socialism.
Add impossible-to-escape compulsion into the mix, at any stage, even within a small commune, and the whole thing immediately collapses without the imposition of threatened violence, minefields, and occasional executions pour encourager les autres. This violent attitude then strangles the society until the entire thing first degenerates and then evaporates before the pampered eyes of the elite controllers, as it will do in North Korea, and as it already has done in East Germany.
Imposed socialism always leads to a myriad of people immediately trying to escape it, some of whom are then shot to death for daring to try by those who are ostensibly trying to bring them brotherly love at the end of a dum-dum bullet. Some love!
In the softer West, where the socialists lacked the courage to shoot people dead for daring to leave, capital controls were imposed instead as a sort of death-policy-lite. In Britain, you could therefore leave for Australia in the clothes you were standing up in, if Australia would have you, which I suppose is still better than not being able to leave at all. Thankfully, these life-restricting capital controls were removed later by the likes of Margaret Thatcher, though no doubt we will see their return once the second part of the Keynesians’ greatest recession really starts to renew its initial grip when the first bout of quantitative easing fades completely away.
But who could have foreseen all of this socialist evil in the nineteenth century, when socialism was still young enough to be dismissed as a dark childish fantasy? If only they had strangled this monster at birth, goes the wish, we may perhaps have escaped all the socialist horrors of the twentieth century, involving the deaths of perhaps hundreds of millions of people, all sacrificed on the blood-spattered altar of the grave of Karl Marx, in Highgate Cemetery.
In the twentieth century we witnessed the National Socialist concentration camps, the International Socialist Gulag labour camps, and the killing fields of Cambodia, so we have little excuse to keep apologising for socialism. We also have a library of books to turn to, to protect ourselves intellectually, starting with Socialism by Von Mises. Fortunately for us too, when Lenin’s Russia got going, Ayn Rand could write the seminal Anthem to warn us about its direction; when Hitler’s National Socialism took hold, F.A.Hayek could foresee our potential apocalypse with The Road to Serfdom; and when Atlee’s post-war Britain got going, George Orwell could write the dystopian Nineteen-Eighty-Four to predict its eventual outcome when the Men from the Ministry really got hold of our nation.
Yes, each new generation still seems to take hold of socialism with a fervour, especially in its teenage years, but when they learn the bloody history of the twentieth century and then read the books above, many people disavow this rebellious teenage angst and come back to the light of liberty and freedom. Many lucky people never even go down the road of socialism in the first place, especially if they read these books early enough.
However, were the mundane horrors of socialism so impossible to predict? Why is it that each socialist project always starts out with such apparent idealism and a glad confident morning, but always ends up surrounding itself with a wall and with guns pointing inwards at a simmering prison population? Lord Acton thought that this ongoing failure was a case of true idealism being corrupted by achieved power; Hayek thought that it was bad people in society latching onto the successful true idealists when they had achieved power and then subverting them; but one earlier man possessed a different idea. As a radical Member for Hagen in the German Imperial Parliament in the nineteenth-century Reichstag, Eugene Richter saw the early socialists and associates of Karl Marx up close and personal. For him there were no true idealists who were then subverted later by power or bad people. To Eugene Richter, all the socialists he met in Berlin were bad people from the off, and the true idealist mantle they all wore was simply a cultivated cover to hide their inner evil from closer inspection.
Socialism started off bad, says Richter, with bad people who got worse as their powers multiplied.
The terrible shame is that Richter’s prescience failed to spread very far outside the German-speaking world. His predictions and analysis of what a socialist society would become, if left to its own devices, are so uncannily accurate, you get the impression that he is writing from a vantage point of the 1960s, after the Berlin Wall had gone up in 1961, rather than in 1891, when his book was first published in that same Berlin.
Fortunately, you can now get hold of a republished copy of his book translated into English, in case you missed it the first time around:
Richter gets virtually all of his major predictions right; the mass exodus after socialism is introduced, the subsequent emigration ban coupled with a death penalty for transgression, rationing and the increase of police state powers, the breakup of the family through welfare imposition, larger standing armies, allocated compulsory work duties, internal passports, and all of the other usual miserable flotsam and jetsam of a typical full-blooded socialist regime, with all of the initial ideals forgotten and certainly never achieved, as the worst elements of society scrabble to be King of the Prison Steps to control everyone else from the top.
So much then for a Workers’ Paradise on Earth.
The book itself is written in the form of a father’s diary, with the diarist at first enthusiastic for the new socialist regime controlling a late-nineteenth century Germany. As conditions quickly deteriorate, the narrator tries to explain away each deviation from the ‘ideal’ socialist path, in the same way that the monstrous Stalin later claimed he needed to break a few eggs [stolen from other people] to make an omelette [for himself].
Gradually, the narrator sees that something terrible has gone wrong with the socialist utopian dream, but he struggles to square this with the circle of his socialist roots, until eventually he cracks apart into open disillusionment.
The book has many ups and downs, some of them painful, others bittersweet, so I won’t reveal too much more as you really need to read this book yourself.
However, I will walk through one of the many threads which works itself through the book, covering the police.
On the first glorious day of the socialist revolution, in 1890s Germany, it all seems too wonderful to be true:
“After dinner we all took a stroll unter den Linden. My stars! what a crowd there was! And what endless rejoicing! Not one single discordant tone to mar the harmony of the great celebration day. The police is disbanded, the people themselves maintaining order in the most exemplary manner.”
Obviously, we start to need some police, to control the bad elements which socialism failed to immediately exorcise:
I may here mention that after the tumult in front of the palace, the Ministry deemed it prudent to re-introduce a body of police, which is to be four thousand strong, and to station them in part at the arsenal, and in part at the neighbouring barracks. With a view to avoiding all unpleasant reminiscences, the blue uniform will now be discontinued, and a brown one substituted for it. In place of a helmet the police are to wear large Rembrandt hats with red feathers.
Soon however, the brownshirt police need more than pretty red feathers to control an increasingly ungrateful and hostile population:
There were loud cries of indignation from the gallery, and these spread to the street outside. The police, however, soon managed to clear the space about the House, and they arrested various noisy persons, amongst whom were a good many women. It is said that several members who had voted against the bank monies being refunded to the owners were shamefully insulted in the streets. The police are stated to have made merciless use of their new weapons, the so-called “killers,” a weapon on the English pattern which has just been introduced.
Such a pleasant turn of phrase. But the growth phase of the police keeps expanding remorselessly:
Upon entering the dining-room an official detaches the dinner coupon from your book of money certificates, and hands you a number which indicates your turn. In the course of time others get up and go away, and your turn comes, and you fetch your plate of victuals from the serving tables. The strictest order is maintained by a strong body of police present. The police today – their number has now been augmented here to 12,000 – rather gave themselves airs of importance in the State cookshops, but the fact is, the crowd was a very big one. It seems to me that Berlin proves itself to be on too small a scale for the vast undertakings of Socialism.
Soon, the revolutionary leaders begin to feel the wrath of the people and start using the police as a buffer between themselves and the unwashed proletarians:
The unveiling of the new allegorical monument in commemoration of the great deeds of the Paris Commune of 1871, took place yesterday in the square, which was formerly Palace Square. Since then the square has been continually beset by crowds anxious to view this magnificent monument. Returning from a carriage-drive, the Chancellor had to pass the square. He had almost reached the entrance to the Treasury, when all at once, from the neighbourhood of the Arsenal, hissing, shouts, and general tumult ensued. In all probability the mounted police (which is now re-instated), had shown rather too great a zeal in procuring a passage for the Chancellor’s carriage. The tumult increased in fury, and there were cries: “Down with the aristocrat; down with the proud upstart; pitch the carriage into the canal! The crowd evidently felt greatly irritated at the now rare spectacle of a private carriage.
Herr Richter then presciently anticipates the severity of police border guards on the 1960s Berlin wall:
From all parts of the country reports are constantly coming in, detailing violent collisions between civilians and the troops which were sent out to establish Socialism. The Government is not even quite sure of the troops. This is the reason why Berlin, in spite of the great augmentation of the army, has not received any garrison. But our police force, on the other hand, which has been picked from the ranks of perfectly reliable Socialists throughout the whole country, has been increased to 30,000 men. In addition to mounted police, the police force is now further strengthened by the addition of artillery and pioneers.
At this point in the story, the narrator is beginning to doubt the glories of socialism, especially when the police fully mutate into the 1960s East Berlin border guard squads:
The Chancellor – “I need scarcely remind the Member for Hagen that in order to establish Socialism in the country, we have been under the necessity of increasing the police force more than tenfold. In addition to this, we have seen the expediency of doubling the strength of the navy, and of the standing army, so that these forces might be in a position to render adequate support to the police in their work of maintaining order and preventing emigration, and might also constitute a sufficient bulwark against dangers from abroad.”
The police then go on to become tools of active oppression against the very same workers whom they were supposed to be protecting:
The various shops and places in question are closely watched by strong detachments of police. By these means it is hoped that those on strike will, in a very short time, be starved into submission, inasmuch as the few crumbs and parings which their wives and friends will be able to give them from their rations will be of very little avail.
Finally, the brutalised police become openly savage towards the workers:
Presently fresh detachments of the rioters attempted from Heligoland quay to make a breach in the walls surrounding the magazine. In the meantime, however, and quite unperceived, police reinforcements had been promptly brought up through the grounds of Bellevue Castle. These reinforcements took possession of the foot-bridge, which is almost concealed by the railway bridge, and from this position opened a murderous fire upon the mass of mostly unarmed persons on Heligoland quay. Uttering wild cries of vengeance, and leaving great numbers of killed and wounded behind them, the mob dispersed in all directions. It is said that artillery has been sent for to cannonade Luneburg Street from the other side of the Spree.
The full socialist state has thus arrived.
All in all, Pictures of a Socialistic Future, by Eugene Richter, is a fascinating book and if you like books such as Nineteen-Eighty-Four, then I thoroughly recommend that you get hold of a copy.
How he managed to get so much so right from where he was in time, I have no idea. I suspect the use of a time machine. Socialists themselves may like to make this excuse, to refute Herr Richter’s inexorable logic as to the dangers of their religion.
THERE ARE three classes of socialists: the left-wing, or Marxist, group, who believe that the government should own and control everything; the middle-of-the-road socialists, who believe the government should own and operate public utilities; and the right-wing socialists, who believe that the government should control only the monetary system.
The right-wing socialists are by far the most dangerous, because they are not known as socialists and call themselves capitalists, individualists, private enterprisers, etc. They even believe themselves to be anti-socialist and profess full faith in private enterprise. They are not only numerically the largest group of socialists but are also individually the most influential. Among them are the leading industrialists and mercantilists and bankers and statesmen.
The right wing socialists believe that with production and distribution facilities in the ownership and operation of private interests, and with monetary facilities in the hands of government, we can have free enterprise. They might as well believe that if a man owns an automobile, he need not worry about who or what controls the gas.
Private enterprise means the right among men to come to voluntary agreement on the exchange of their goods and services. These agreements, some written, some oral, some implicit, some explicit, run into the millions, and upon their fidelity rests the entire social structure. In a money economy, all these contracts are expressed in terms of the monetary unit, which is itself based upon a contract—the basic contract which is the foundation of the entire pyramid of contracts.
What is the money contract that makes possible or impossible the faithful performance of every other contract? Ask any businessman, banker, lawyer, economist or statesman, and you will find that his idea is not only vague, but that it involves legislation.
In other words, he believes that money is a political product.
In contrast with this universal belief, the truth is that the state is incompetent to legislate money and powerless to issue it. The substance of money is supplied entirely by private enterprise. The state’s intervention in money is at best an impediment to private enterprise, and with the assertion of the issue power, it becomes the active agent of socialization. Thus those who believe in or accept political money power—and their number is legion—are the most dangerous, though innocent, socialists.
While the great mass of people have no ideology, those who think on the issue between private enterprise and socialism are virtually all socialists of the three classes named. This is a startling fact that we must recognize before the final battle lines are formed. The would-be friends of private enterprise must be made real friends, instead of innocent fellow travelers with those who would destroy our liberties.
Private enterprise, to survive, must control its three facilities, namely, the means of exchange, the means of production, and the means of distribution. To control the means of exchange, we must have separation of money and state.
Addendum
Richard Cobden on money:
I hold all idea of regulating the currency to be an absurdity; the very terms of regulating the currency and managing the currency I look upon to be an absurdity; the currency should regulate itself; it must be regulated by the trade and commerce of the world; I would neither allow the Bank of England nor any private banks to have what is called the management of the currency…
I should never contemplate any remedial measure, which left to the discretion of individuals to regulate the amount of currency by any principle or standard whatever… I should be sorry to trust the Bank of England again, having violated their principle [the Palmer rule]; for I never trust the same parties twice on an affair of such magnitude (Q. 519, 520, 527).
In this article, I argued that a useful measure of GDP needs to extract the government sector, as all it represents is a movement of wealth from the productive private sector to the productive and not so productive government sector. The private sector is the well spring of wealth creation and the government sector can in itself create no wealth, it can only redistribute it to achieve outcomes that it determines to be more desirable.
One of our regular readers commented as follows:
I have trouble with the suggestion that government spending cannot — at least in theory — result in wealth creation.
The commentator goes on to give an example of taxes creating a useful service, that of a national railyway that creates wealth and an example of printing money that, given to the right projects, will create wealth. They are as follows;
Suppose FooCorp sends their packages by carrier pigeon. This is slow and expensive (pigeons need to be trained and fed, and packages go missing when they fly past hunting grounds). FooCorp realises that they can increase efficiency by investing in a private rail network. The cost savings delivered by the network are greater than the cost of the investment, and FooCorp reaps the rewards. This, presumably, is wealth creation. If so, why is wealth not created if a taxpayer-funded rail network benefits the taxpayers more than it costs them?
And:
Suppose that rather than confiscating our wealth directly through taxes, the government confiscates it indirectly by printing money. The government spends its new money not on bank bailouts or welfare programs, but instead on the fusion researchers, who eventually deliver cheap power for all UK citizens. Again, it would seem that though the original funds were ill-gotten, the result has been genuine wealth creation.
I do not deny the possibility that in these specific individual, stylised examples a government can create wealth. However, in the round, they can never create more wealth than a freely functioning economy.
Economic Calculation in the Socialist Commonwealth
This is the title of a very famous essay – for the full downloadable PDF, see here.
Ludwig von Mises masterfully shows us how rational economic calculation in a socialist system is impossible. Only a half-baked system of production is possible under socialism. Empirically, we saw this in Eastern Europe and the Soviet system. The message is very simple;
In the free market, people transact for goods and services via voluntary exchange, facilitated by the use of money.
Money is the price you pay for the goods.
The price mechanism tells us all sorts of information as to the scarcity of those goods and services (higher prices) or their abundance (lower prices). They also indicate the need or wants of consumers as they will pay more for more wanted goods and services and less for less wanted goods and services.
Entrepreneurs look out for these price signals so they can direct the factors of production in better ways and combinations to satisfy those most urgent needs of the consumer.
If government owns the means of production, there is no price for capital goods.
The central planner has to make up a price to get a capital input.
How is this done?
It can only be done at best by educated guesswork.
The Pretence of Knowledge
This is the tile of a very famous speech by Hayek: see here
Also see Hayek FA 1937 Economics and Knowledge, Economica V4 N13 33-54 and 1945 The Use of Knowledge in Society, The American Economic Review .
Hayek built on the work of his teacher Mises by adding the following;
Planning the production process in the free market economy is done by billions of people exchanging goods and services, facilitated by the medium of money.
Prices to entrepreneurs are indispensible communication points in their planning process, showing the entrepreneur what factors of production and being demanded to produce what goods and services.
This knowledge is dispersed and comes from a multiplicity of sources.
Central planners cannot possible have brains big enough to take over the role and plans of all the entrepreneurs in society and all the spending individuals, thus they have a “knowledge problem.”
Although this was all debated well before the advent of super calculating computers, no program can ever take into account the changing needs and preferences of individuals. Also getting into the computer all of the combined information all the time in all circumstances for all times and places to replicate the market place cannot as of yet be done and I suspect never will be done.
Conclusions
So in answer to our commentator, I would advise a quick reading of the above mentioned classics as I think they are unbeatable in their logic. A government may get lucky with a plan and subsequent taxation of wealth to spend on that plan but, overwhelmingly more so than not, they will fail for the given reasons.
In the mixed economy we exist in today, Lord Andrew Adonis, the current Secretary of State for Transport, is doing just as our commentator suggests and is planning to build a high speed rail network that will undoubtedly bring benefits by moving the great cities of our nations closer together. More trade will take place than before, that is for sure. This I hope will be one of those lucky central planning projects.
The reported £34 billion is a lot of money to spend. Would the private sector have undertaken this? We do not know the answer to the latter for sure, but I would note the following pre big government;
All the great roads until the 40’s, but now only toll roads as the road system has been nationalised, were built by the private sector;
This is the same for all the railways, the canals and other infrastructure systems;
And all the bridges;
All the health care provision;
All the education provision;
Power supply;
The tunnels;
And the sewers.
I could go on and on…
If we consider food retail, we find Tesco created with £34 billion of private money invested in its capital. Do we really think that the government could provide for this in a better way?
When governments issue debt, it crowds out private sector bond issuance and fewer big capital projects are provided for by the market system. To create a better functioning market place, governments should be forbidden from raising bonds, then the needs of the market could be met as people will still want to save and they would look more favourably on corporate issuance.
Indeed, we should look once again at how bonds could be the basis of all welfare provision, as I discussedhere, from “How do we fund a Deficit” onwards.
Our commentator gives the second example of using QE or creating money out of nothing to give to some scientists who develop a superior technology that drives masses of benefit. Again, I would say this is possible and more down to luck than having the many millions, if not billions, of economic actors, working through the price mechanism solving problems and allocating resources in the most efficient way, as only entrepreneurs can.
I would back the market, comprising all of us cooperating, over any central planning agent any day of the week!
Government can create the climate for lasting wealth generation by:
Upholding the rule of law;
Upholding the sanctity of contract;
Avoiding war unless attacked;
Removing legislation that obstructs the market.
There is much more but these are some key areas. I would like to refocus our commentator on thinking of ways the government can create the climate of wealth creation, rather than attempting to be the wealth creator itself.
Steven Baker presents a precis of de Soto’s Money, Bank Credit and Economic Cycles pp650-653, setting out an argument which was famously expounded by von Mises in Socialism. This article originally appeared on stevebaker.info.
To attempt to coordinate society through coercion is an intellectual error: it is impossible for an institution to obtain the information needed to establish social coordination by decree. There are four reasons:
It is impossible to obtain, store and process the vast amount of practical information in the minds of different people.
Most of the necessary information is subjective, practical, tacit and non-verbal: it cannot be transmitted.
Information which people have not yet discovered or created and which arises from the market process cannot be transmitted.
Coercion — that is, regulation — prevents the discovery or creation of the necessary information.
These are the arguments developed at length by von Mises in Socialism. Von Mises demonstrates the impossibility of socialism and of effective state intervention in the economy. His thesis explains theoretically why the socialist economies of the Eastern Bloc failed. It also explains the growth of the tensions, maladjustments and inefficiencies in western economies which have led to our present crisis.
Crisis is the inevitable outcome of the application of coercion and privilege by government, which systematically worsens social maladjustments, hinders the creativity of entrepreneurs, distorts economic information, encourages irresponsibility, corrupts individuals and encourages the underground economy.
These arguments are directly applicable to the financial and banking system which has now failed. The system is characterized by private banking with a fractional reserve, controlled by a central bank which determines monetary policy and which has a monopoly on the issue of legal tender. The system shares characteristics with a socialist economy in that:
The whole system is planned by the central bank.
Banks are commonly excluded from general bankruptcy proceedings.
Bank failures are prevented by socializing the costs of their failure.
The entire system rests on the government monopoly on currency.
The system is based on the privilege granted to banks of creating loans out of nothing by holding only a fractional reserve on deposits.
Legally, banks enjoy privileges otherwise only granted to governments.
A vast and inordinately complex set of regulations applies to banks.
There is little or no supervision of government intervention in bank crises and in many cases, intervention is determined ad hoc, disregarding principles of rationality, efficiency and effectiveness.
In banking and credit, the situation resembles that of the socialist countries of the former Eastern Bloc. Central planning is endemic in banking and finance and it is therefore not surprising that we are living through the same inefficiency and failure which has plagued command economies, ultimately causing their collapse.
Steven Baker presents a precis of de Soto’s Money, Bank Credit and Economic Cycles pp650-653, setting out an argument which was famously expounded by von Mises in Socialism. This article originally appeared on 