Ludwig von Mises, “SOCIALISM: An Economic and Sociological analysis”

Ludwig von Mises, “SOCIALISM: An Economic and Sociological analysis“; Yale University Press, New Haven; 1962; translated by J. Kahane; LCCN: 51009080; ISBN: 0913966620 (1981 edition)


Prices are the cornerstone of the market, they are the rule by which all agents measure value.  This is admittedly a presumption Mises has made before embarking on his analysis of “Socialism”.  Yet it is not an altogether preposterous assumption.  Mises claims that without the assistance of prices one is at sea in the market; it becomes impossible to effect any rational thought process because such processes presuppose the tools necessary for calculation.  Any rational economic process must have some method with which to rank the various means and ends at our disposal, without such an ordering a rational (i.e. one which permits agents to make informed, rational decisions) economic system is inconceivable.  In the price system Mises finds a highly evolved process which distills the various signals received from all agents in the market and determines the value society ascribes to a particular commodity.

With the assistance of the price system, all actors in the market can make decisions that promote the general good and assist in the satisfaction of the desires of individuals.  Guided by their own self-interest, producers and consumers can make decisions that reconcile their subjective values with those of all other individuals.  Prices provide us with an invaluable table of costs that accurately reflects the desires of all other individuals.  Without prices no agent has accurate and succinct data on which to base her decisions, consequently such a system cannot sustain rational behaviour.  Mises’ fundamental critique of Socialism is that with the abolition of private property it will, with the disappearance of the price system, become impossible to calculate.

Unless we are free to bid for products, based on the value we believe they have, the market is unable to arrive at a price for the product. An alternative system, short of one that has direct access to the minds and hearts of all individuals, will not provide us with information that accurately reflects the desires of society.  This is not of course a claim that goods will have different prices under Socialism, non-monetary costs will substitute to make up for under-priced commodities.  Yet a system that relies on long lines and overflowing warehouses as the only signals on which to revise production decisions is wholly inefficient.  Mises argues that Socialism is exactly such a system.

Since no one under a Socialist state will have access to prices it is entirely reasonable to suppose that inaccurate decisions will be made due to lack of appropriate measures of value.  This not only destroys the much vaunted “rationality” of Socialism, it also suggests that a Socialist economy may be unable to perform as well as a Capitalist market system. If we are aware that redistribution of the present wealth of society will not in itself be sufficient to ensure for each individual the standard of living the Socialists promise, it is difficult to see how an economy that is more prone to “persist in error” [Reuven Brenner, “Labyrinths of Prosperity”] can create enough wealth to enhance our individual positions so dramatically.  Mises assures us that the Socialist system is hardly an “improvement” on the Capitalist structure and as such will produce an inferior result.

Once “the fundamental question whether the socialist order of society promises a higher productivity than Capitalism” has been answered in this manner, little remains of the material rationale for socialism.  The Socialist is then forced to evoke other forms of reasoning to support his agenda.  One of these is an appeal to an acquisitive urge that is present among most of us, and which is sparked when we are presented with the opportunity to “take from the rich what is rightly ours”.  Proponents of such actions, quite apart from the fact that they lack any respect or understanding of rights, assume that they can redistribute in such a manner without affecting the total value of the economy’s product.  Such a position fails to comprehend the subtle relationship between production, distribution and consumption.  Yet this is not surprising when we realize that these claims are forwarded by authoritarians who presume to free us from all cares by replacing the capitalist’s “monopoly” over these three functions with their own.  It is clear that any tampering with either of these processes will radically change the end result of an economic process.

Yet any process that fails to acknowledge the nature of the human agent in the economic sphere and fails to create an incentive structure that forces us to weigh the benefits of consumption and saving can hardly be called economic [pg. 458].  After demonstrating the impotency of the socialist scheme in the economic sphere, Mises has to retaliate to the alleged “materialism” of the bourgeoisie.  At this point however, it is rather futile to argue about the merits of poverty and Mises rests his case after drawing various parallels between socialism and a particular interpretation of Christianity.

There are more problems in the discourse on Socialism than would otherwise be imagined.  One of the points Mises highlights, is the apparent ease with which Socialists (and particularly Marx) use words in different ways, imposing on them a variety of contexts and connotations, till the very logic of the argument has been lost in what Mises calls “word-play”.  This happens, Mises argues, in Marx’s writing where the terms rebellion and society are used at different times to mean different things.  It is not clear whether this is done intentionally, to obscure the argument or whether it is accidental.  In either case, it is clear that such verbal acrobatics simply make it even more difficult to conduct this discourse since one is never completely certain of the arguments advanced by others. These issues become crucial in Hayek, where the very word “Law” is imbibed with a halo that the legislature attempts to acquire by cloaking legislative decisions in an exterior of legality.  A similar conception of language is at work in Hayek’s “The mirage of Social Justice”, where he claims that the term “justice” is abused when employed in referring to an outcome that is not generated by an authority, but which is the outcome of an impersonal process.  Oddly, Mises does not seem to have stressed this mode of thought, and claims that “on this [the relative justice of the outcome produced by these two orders] point science can give no judgement” [pg. 273, also pg 436].  Yet, this has to be reconciled with Mises’ insight that “one is not permitted to ask whether a particular price is justified or not” [pg. 435].  The issue becomes a little clearer when we notice the value Mises has ascribed to the term “science”, and why he would wish to keep away from issues that could “only be evaluated subjectively” [pg. 436], or those that appear to require the application of a particular value structure.

Perhaps what comes out most clearly in this book, is that the structures described in Socialist literature cannot be accepted as they are.  As such these visions of Socialist societies are Utopias (ou + topos, no place), in the sense that they prophecy circumstances that Economic analysis tells us cannot be sustained with the institutions under consideration.  These visions are imaginary places because their structure fails to take into account the nature of the human animal and the way in which we make decisions.  We cannot reconcile Socialist Utopia with our Economic and Sociological knowledge of the nature of human action.

This paper was written for Prof. Kirzner’s class “The Foundations of Capitalism”, during Fall 1995.