Ludwig von Mises’ 1922 book Socialism: An Economic and Sociological Analysis is the definitive refutation of socialism, ie coercive direction of production and distribution by the state. It is the book which persuaded Friedrich Hayek to turn to classical liberalism. He wrote in his foreword,
Socialism promised to fulfill our hopes for a more rational, more just world. And then came this book. Our hopes were dashed. Socialism told us that we had be looking for improvement in the wrong direction.
State control of the economy can never work because there is no way to perform rational economic calculations without a market in the means of production. Without markets, there can be no price system: neither profit nor loss can guide social co-operation to best meet the needs of the public. Without genuine rivalry — competition — and entrepreneurial alertness, monetary calculation cannot determine true economic costs and direct scarce resources to where they may be best employed. Socialism fails because society is a dynamic process of co-operation and discovery amongst thinking, acting individuals: central planning cannot work.
The book deals with many other issues beside the economic calculation problem, including ownership and property, equality, the social order and the family, the foreign relations of a socialist community, methods of destroying the social order with public policy and various myths about social progress leading inevitably towards socialism. The 1947 epilogue covers the failure of interventionism as the middle ground between socialism and capitalism before dealing with Fascism, Nazism and the Soviet experience of the time.
Since Labour abandoned their policy of nationalisation, it’s often been said that there is no difference between the parties. In so far as this means politics is conducted on a centre ground which accepts the validity of the third way, interventionism, there is something in it but the question is direction of travel. Labour demonstrates continually its willingness to believe in the omnipotence of political power and perhaps today this is the definition of their doctrines. Conservatives at least aspire to a free society, even as various travesties encourage yet more attempts to substitute power where virtue and competence are lacking.
Great sections of our contemporary social system — transport, utilities, banking — are nominally in private hands or operated by private companies but they are in fact heavily regulated by the state. Consider for example price regulation at Heathrow or the provision of water, which Parliament is debating today. Banking is a special example because while anyone who watches the news knows the credit markets are centrally planned by the central banks, few seem willing to make the connection between that planning and the economic chaos which engulfed the financial system. Today, it is not a social system of unhampered co-operation which is falling short but one of extensive political intervention.
Socialism is a book dated in parts but its key insights into the nature of reality and the limits of political power are no less valid. After at last reading it from cover to cover, my copy is festooned with flags at quotable sections. I think the most important is the conclusion of the Epilogue, which was written in the context of a recent second world war and apparent preparations for a third:
The intellectual leaders of the peoples have produced and propagated the fallacies which are on the point of destroying liberty and Western civilization. The intellectuals alone are responsible for the mass slaughters which are the characteristic mark of our century. They alone can reverse the trend and pave the way for a resurrection of freedom.
Not mythical “material productive forces,” but reason and ideas determine the course of human affairs. What is needed to stop the trend towards socialism and despotism is common sense and moral courage.
It is that sentiment which makes the writing of Ludwig von Mises most valuable as we begin a year of “hard truths” as the Chancellor has put it.
Whatever may be wrong with society today, it cannot be attributed to government being either too small or too inactive. The country still faces profound difficulties: the quantity and quality of state welfare isn’t good enough and we can’t afford it. What is to be the response? Higher taxes and more political power or greater freedom and more social co-operation?