Socialism & Communism: What is the Difference? by Arthur Preuss 1908

Socialism and Communism: What is the Difference? by Arthur Preuss 1908

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What is Socialism? Socialism is a special form of Communism, as Agrarianism is a special form of Socialism.

Every system that attacks private ownership and substitutes in its place common ownership is in the proper sense of the word Communistic. Communism, however, may be more or less comprehensive and radical, according as the denial of private ownership extends to one or several or all of the great classes of material goods that are at present and always have been held in severalty. Extreme Communism denies the private ownership of all classes of objects and advocates the transfer of all goods without exception to the community as owner and administrator. Moderate Communism "advocates only the abolition of private property as far as capital, or the materials of labor, or productive goods in contradistinction to non-productive goods, is concerned. By productive goods are meant real estate, all kinds of raw material, factories, machines, tools, means of transportation, in fine, everything not intended for immediate consumption. . . . This moderate form of positive Communism is at present the only one which has adherents. They are divided into two large groups, bitterly hostile to each other: Anarchism and Socialism.

"Anarchism (Anarchist Communism) demands the transfer of productive property to independent groups of workingmen (communities). . . . Socialistic Communism, or simply Socialism, advocates the transformation of all capital, or means of production, into the common property of society, or of the State, and the administration of the produce and the distribution of the proceeds by the State. Since modern Socialists, and chiefly the followers of Karl Marx, intend to realize this scheme upon a purely democratic basis, they call themselves Social Democrats, and their system Social Democracy." The transformation of all the means of production into the common property of the State or commonwealth, is the final aim and the substance of Socialism strictly so called, in which all Socialist platforms both in Europe and America agree. Their other and more immediate demands, in which there are many differences, are, as it were, only steps and means to accomplish that end.—Agrarian Socialism, finally, denies private and advocates common ownership in land only.

All these systems have one and the same principle in common, viz., common or collective ownership; they differ only in its application. Whether they are called Communism or Socialism is immaterial, these terms properly meaning the same thing, just as the words "community" and "society." In their strict sense, however, the terms have come to signify the special systems as enumerated and described above.

In his Encyclical "Berum Novarum" Leo XIII. does not enter upon any classification or enumeration of the various Communistic forms, which he supposes to be sufficiently known; nor does he mention any of their demands except that which is common to all systems and is the basis of all other demands, viz., common landownership. Using the term Socialism and Socialist in a broader sense, he attacks all Communistic forms at once and refutes them all by disproving the one essential and fundamental tenet in which they agree. This was a veritable masterstroke of the great Pontiff. The foundation of a building being destroyed, the stories erected upon it tumble by themselves. Such is Leo's refutation of Socialism and Communism. Apparently he deals only with Agrarianism, but by refuting it he eo ipso refutes all economic systems destructive of society.

In fact, between Agrarian Socialism and the other Communistic forms there is no essential difference; the difference lies merely in a greater or less degree of consistency, the least consistent being Agrarianism, the most consistent, extreme or absolute Communism. A supporter of common landownership cannot consistently fall short of advocating Anarchism or Socialism strictly so called, nay, even extreme Communism.

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There is No Such Thing as Trickle-Down Economics

There is No Such Thing as Trickle-Down Economics

Critics of liberalism and the market economy have made a long-standing habit of inventing terms we would never use to describe ourselves. The most common of these is “neo-liberal” or “neo-liberalism,” which appears to mean whatever the critics wish it to mean to describe ideas they don’t like. To the extent the terms have clear definitions, they certainly don’t align with the actual views of defenders of markets and liberal society.

Trickle Down
Economists have never used that term to describe their views. Another related term is “trickle-down economics.” People who argue for tax cuts, less government spending, and more freedom for people to produce and trade what they think is valuable are often accused of supporting something called “trickle-down economics.” It’s hard to pin down exactly what that term means, but it seems to be something like the following: “those free market folks believe that if you give tax cuts or subsidies to rich people, the wealth they acquire will (somehow) ‘trickle down’ to the poor.”

The problem with this term is that, as far as I know, no economist has ever used that term to describe their own views. Critics of the market should take up the challenge of finding an economist who argues something like “giving things to group A is a good idea because they will then trickle down to group B.” I submit they will fail in finding one because such a person does not exist. Plus, as Thomas Sowell has pointed out, the whole argument is silly: why not just give whatever the things are to group B directly and eliminate the middleman?

There’s no economic argument that claims that policies that themselves only benefit the wealthy directly will somehow “trickle down” to the poor. Transferring wealth to the rich, or even tax cuts that only apply to them, are not policies that are going to benefit the poor, or certainly not in any notable way. Defenders of markets are certainly not going to support direct transfers or subsidies to the rich in any case. That’s precisely the sort of crony capitalism that true liberals reject.

General Prosperity
Government doesn’t “give” us tax refunds; it simply refrains from taking more of what we created.What the critics will find, if they choose to look, is many economists who argue that allowing everyone to pursue all the opportunities they can in the marketplace, with the minimal level of taxation and regulation, will create generalized prosperity. The value of cutting taxes is not just cutting them for higher income groups, but for everyone. Letting everyone keep more of the value they create through exchange means that everyone has more incentive to create such value in the first place, whether it’s through the ownership of capital or finding new uses for one’s labor.
In addition, those of us who support such policies don’t want to “give” anything to anyone, whether rich or poor. When people talk about tax cuts as “giving” something to someone, they implicitly start from the premise that everything belongs to government and we are only able to keep some for ourselves by its indulgence of us.

Aside from the fact that rights are not what government gives to us but what we already have that it should, in theory, protect, the only reason government has any revenue in the first place is because it was taken through taxation from those in the private sector who created it. Government doesn’t “give” us tax refunds; it simply refrains from taking more of what we created through mutually beneficial exchange in the first place.

Grain of Truth
The key is not transferring funds to the currently rich, but ensuring the most competitive economic environment possibleHowever, there is one small grain of truth in the “trickle down” idea. One of the key reasons that modern Westerners, including poor ones, live so much better today than at any point in the past is because our ability to combine our labor with more and better capital has driven up our wages and driven down the cost of goods and services. The accumulation of capital by some does contribute to the enrichment of others as that capital makes workers’ labor more productive and thus more valuable.

That historical truth is not a justification for directly subsidizing the current owners of capital. Contrary to what thinkers like Thomas Piketty appear to believe, merely possessing capital does not ensure a flow of income. It is not ownership of capital per se that benefits others, but the ability to deploy capital in ways that create value for consumers. That is why reducing the tax and regulatory burden on everyone is so important: anyone can come with new ways to create value and potentially enrich themselves and others in the process.

The key is not transferring funds to the currently rich, but ensuring the most competitive economic environment possible so that those with the better ideas can put them into practice. The current owners of capital should not be able to lock in their position by using the political process to enrich themselves by legislation that specifically benefits themselves.
As Hayek observed in his defense of competition:

[I]t is by no means regularly the established entrepreneur, the man in charge of the existing plant, who will discover what is the best method [for efficient production]. The force which in a competitive society brings about the reduction of price to the lowest cost at which the quantity salable at that cost can be produced is the opportunity for anybody who knows a cheaper method to come in at his own risk, and to attract customers by underbidding the other producers.

Today’s owners of capital do not have all of the answers, and the way to ensure the best result for everyone, especially the least well off, is to give everyone the freedom to enter and exit the market and to have the maximum incentive to do so by enabling them to keep the fruits of their successful value creation.

Wealth Creation First
The way to help the poor is to maximize our freedom to create and keep value through the unhampered market economy. No serious economist believes the lives of the poor are improved by wealth being transferred to the rich and then “trickling down” to the poor. What economics does tell us is that wealth has to be created first and foremost. You can’t transfer something that does not exist. Wealth creation is most likely to happen when people are able to innovate without permission and put their ideas to the market test.

This process of market-tested permissionless innovation will indeed make some people rich, and it will make some rich people poor. What it also does is to drive the creation of value across entire societies, raising the standard of living for all of their inhabitants.

The momentary snapshots of rich and poor are not the categories that matter for sound economic policy. Wealth does not “trickle down” from rich to poor. It is created by all of us when we develop new ideas, skills, and products as either workers or owners of capital.

The way to help the poor is to maximize our freedom to create and keep value through the unhampered market economy. The answer is not giving hand-outs to those who, momentarily, occupy the group we call “the rich.” And history tells us that the improving standard of living for everyone that results from more economic freedom will be more of a flood than a trickle.

Steven Horwitz

Steven Horwitz is the Charles A. Dana Professor of Economics at St. Lawrence University and the author of Hayek’s Modern Family: Classical Liberalism and the Evolution of Social Institutions. He is spending the 2016-17 academic year as a Visiting Scholar at the John H. Schnatter Institute for Entrepreneurship and Free Enterprise at Ball State University.
He is a member of the FEE Faculty Network.

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Plato Wasn’t Fully Liberal but Nor Was He a Totalitarian - Aeon Skoble

Plato Wasn’t Fully Liberal but Nor Was He a Totalitarian

No one reading Plato’s work Republic is likely to come away seeing it as a manifesto for libertarianism. However, it’s common to hear people claim that it is a blueprint for totalitarian collectivism, as, for example, FEE past president Richard Ebeling wrote in his September 23, 2016 column.

Plato isn’t even engaged in utopian political theory in the first place. As someone who is both a classical liberal and a philosopher who frequently teaches the Republic, I’d like to register a dissent from that interpretation. While he is no libertarian, Plato is not the proto-fascist some make him out to be, and indeed is making a number of points that are friendly to the interests of classical liberals.

This Is Metaphor, People
To begin with, Plato isn’t even engaged in utopian political theory in the first place. The purpose of talking about a city in the first place is metaphorical (“our city of words”). The dialogue is about justice as a human virtue. When Socrates is confronted with the question of whether the just life is the happy life, he suggests that we consider a just city first. This is a hypothetical city that is, by stipulation, perfectly just. He is well aware that no such cities exist, and says as much.

It’s a thought experiment: imagine we had a perfectly just city – what would have to be true of it in order for it to be just?  This will tell us something about the nature of justice, and thus give us insight into how to live.  The thought experiment is built on the analogy between how a city is organized and how a person’s character is organized.  Since “justice” is potentially a property both of societies and of individuals, the features of a just city that make it just would be features that, if we lived according to them, would make us just.

What’s one example? Well, a perfectly just city wouldn’t have terrible economic arrangements. As Ricardo would note centuries later, it’s better if we have a division of labor. Plato sensibly observes that if the various crafts are performed by people who are good at them and enjoy doing them, then (a) we’ll all be better off as a society, because we’ll have quality goods, and (b) we’ll all be better off individually, because people like what they do.  It couldn’t be a perfectly just city if half the people hated their jobs and resented the other half. It couldn’t be a perfectly just city if products were produced by people who didn’t know how to do them well.

There’s nothing contrary to liberalism about this observation. Where we get into trouble is if we ask, who will be in charge of making sure that every job in the city is being done by someone who has true knowledge of that job and the corresponding love of doing it?   But the problem only arises from assuming that this or that person could know that much (which classical liberals know is impossible), not that the point is false.

Plato, Peace, and Love
The city needs to avoid civil war; the individual needs inner peace and harmony. But Plato’s point is the analogy: just as the city functions best when everyone does the job he or she is best at and loves, an individual’s psyche functions best when each “part” is doing what it’s best suited for. The just city would be characterized by a lack of civil strife; the just person is someone whose passions are moderate, whose decision making is guided by reason. The fact that no one is wise enough to be in charge of the city is literally irrelevant to the analogy, since each individual really is capable of pursuing virtue and wisdom.  

In general, all the features of the city half of the analogy that a classical liberal would find problematic are not deal-breakers for the psyche half of the analogy. Plato suggests that the ideal city would have rulers who truly know – and only care about – wisdom and justice.

In the real world, are we likely to have rulers like that?Of course not – and Plato says as much (“I think [this city] can be found nowhere on earth”). But we’re each perfectly capable of using reason to moderate our passions, to be people who seek wisdom and self-control.

The city needs to avoid civil war; the individual needs inner peace and harmony.  Are we likely to find rulers in the real world who can guarantee absolute political harmony?  Of course not – and Plato says as much. But it’s none the less true that we as individuals will be happier if we’re not consumed by unrestrained passions and riven with internal conflict. Indeed, this is Lawrence Reed’s point in his essay “Are We Good Enough For Liberty?” 

Some Other Writings
It’s a mistake to characterize him as a proto-totalitarian on the basis of the “ideal city” thought experiment in the Republic.When Plato is making explicitly political points, they’re actually very insightful, and relevant to many arguments made by classical liberals. For example, in Book 8 of Republic, Plato argues that unrestrained majoritarian democracy is unjust and leads to tyranny. Like many classical liberals, I think this is correct, and indeed the argument anticipates many points Hayek would make in The Road to Serfdom.

In the “ideal city” thought experiment, Plato suggests the rulers and soldiers should not be allowed to accumulate wealth. The insight that underlies this should be very familiar to opponents of crony-capitalism: you should not be seeking political power in order to get rich. 

Does any classical liberal believe that in the real world, our political leaders selflessly work only for the common good and aren’t remotely interested in enriching themselves?  If you want to get rich, start a business. Sure enough, this is Plato’s point. Excellence in the productive trades isn’t incompatible with wealth accumulation, because the incentives align. Since you love to bake and are an excellent baker, lots of people will buy your bread.  But the incentives do not align for political and military power. Unrealistic or not, it’s true that we do not want people seeking power just to get rich.

Not Liberal but Not Terrible Either
Let me be clear: Plato is not Ricardo or Locke or Hayek or Nozick. He was probably more optimistic about political authority than most classical liberals (including me). But it’s a mistake to characterize him as a proto-totalitarian on the basis of the “ideal city” thought experiment in the Republic, which is really an argument in individual moral philosophy. He is very explicit about the allegorical nature of the analogy, and his non-allegorical political observations, such as the dangers of unrestrained democracy, are mostly spot-on. It’s not helpful to classical liberalism to rail against a totalitarianism that isn’t there, especially when the ethical insights are both intrinsically worthwhile and relevant to the philosophy of freedom.

Again, Lawrence Reed: “What [the American] Founders were getting at is the notion that liberty is built upon the ability of a society to govern itself, without government intervention. This ability to self-govern is itself built upon—you guessed it—individual character.”  Plato’s observations about self-governance are more helpful to – and amenable to – classical liberalism than he is usually given credit for. We are more impoverished for dismissing Plato.

Aeon Skoble

Aeon J. Skoble is Professor of Philosophy at Bridgewater State University.

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A Criticism of Socialism (1906 Article)

A 1906 Criticism of Socialism

Article in The Theosophical Quarterly 1906

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A book on Socialism cannot be reviewed in the space this magazine can afford to give it, so that this does not pretend to be more than a notice of some of many points which occur to one when glancing through the above volume. In the first place we are confronted with the eternal difficulty when dealing with the subject of Socialism; that is that there are as many kinds of Socialism as there are exponents of a socialistic belief. It should be understood, therefore, that the following remarks refer to the Wilshire brand. It is a not unpleasant brand in several ways, for Mr. Wilshire is a kind-hearted man who sees and avoids the evils of inflaming class hatred, which is so important a stock in trade of so many socialists. He endeavors to treat the question from an economic standpoint and has kind things to say of every one, even the hated capitalist. He does not agree with most socialistic writers that they are a wicked and perverse generation, but on the contrary says that they are pretty much like other men, and only differ, because, by birth or circumstance, they are exploiters of labor, instead of being laborers.

Trusts, he thinks, are a natural outcome of economic conditions, therefore inevitable, and therefore not evil. They are simply a step on the road towards the national ownership of the means of production, and he rather likes them because they indicate that a very considerable distance has been traveled on that road. He believes that the time is close at hand, a year or two perhaps, unless a great war or a great calamity postpones it, when this country will be confronted by the "great unemployed problem," which will usher in the socialistic regime. It is here that we must depart from him. He has been making the same prediction for the last fifteen years and, so far as we can read the economics of the matter, there is no reason why he should not continue to make such predictions indefinitely.

He says that capital is already finding difficulty of profitable investment, and that another year or two will find it going begging. How he reconciles this with the recent statements of J. J. Hill that the railroads of this country need five billion dollars and five million men to carry out needed improvements in the next five years, we do not understand. He says that our economic troubles are owing to the competitive system of labor and that the solution of the trouble is to have government ownership of the means of production, but he does not show how this will be the case. He simply says it would. We do not believe it, and deny it, and our statement in the absence of proof is quite as valid as his.

The main defect of his writings is along this line. He regards Socialism (his brand, always remember) as a panacea for all our social troubles, but he nowhere shows how this would be the case. He makes the assertion that the government ownership of the means of production would do all these things, and then leaves the matter just as it begins to get interesting. How would the government ownership of the means of production actually work out in practice? Most people think that it would result in indescribable chaos, and there is nothing in Mr. Wilshire's book to lead us to think otherwise.

Of course, he falls into the fundamental socialistic fallacy of attributing the result of production to labor, although he goes farther than many socialists, and adds "labor plus machinery," but he then ignores the share of machinery. As a matter of fact, and this is the crux of the whole subject, labor cannot and does not produce any more now than it did a hundred or a thousand or a million years ago. In fact it does not produce as much, for men do not have to work as hard as they used to. The increase in production has not been brought about by labor at all but by ability, by enterprise, by systematizing the means of production, by the invention of machinery, by combination, and by the countless other factors which represent our modern commercial and industrial life. Mallock sums up all these factors in the single word "ability," and it will do as well as any other. The great increase in production has been brought about by "ability," and it is easy to show that instead of labor receiving less than its share of this increase, that it actually receives more than it is justly entitled to. Wilshire says in one place that we produce twenty times as much as our ancestors and in another place he says it is a hundred times as much. Now, although this increase of production has been brought about by ability and not by labor, he acknowledges that labor now receives about a fifth to a sixth of the total product, which is either three or four times or twenty times as much as it should receive, according to his own statistics.

This is the Great Heresy of Socialism and comes straight down from Marx himself. Marx founded his entire system on the theorem that wealth is the result of labor applied to natural objects, and it is not true. Wealth is the result of labor and ability applied to natural objects, and "ability" is responsible for and should receive all the great increase in the amount produced in recent times. Labor, without the assistance of ability and all that ability represents, could still produce only a bare livelihood by unremitting and incessant toil. Fortunately this is a matter of observation and not of argument. All we have to do is to go to a country where ability, and what it represents, is still absent and we see millions of people engaged in incessant toil for a bare livelihood. China and India are cases in point; and we know that there will be no relief for the peoples of those two countries until the labor of their inhabitants is associated with ability and the production of wealth is thereby increased. From this increase labor will get, as heretofore, more than the share to which it is strictly entitled, and so will the general condition of the people of those two countries be gradually ameliorated.

Neither Wilshire nor any other socialist of whom we have knowledge is free from this fundamental fallacy, which invalidates all their conclusions and makes useless all they write. C. A. G. Jr.

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Why Socialism Failed

Why Socialism Failed

Also see: Your Socialist Zombie Survival Kit
Socialism is the Big Lie of the twentieth century. While it promised prosperity, equality, and security, it delivered poverty, misery, and tyranny. Equality was achieved only in the sense that everyone was equal in his or her misery.

In the same way that a Ponzi scheme or chain letter initially succeeds but eventually collapses, socialism may show early signs of success. But any accomplishments quickly fade as the fundamental deficiencies of central planning emerge. It is the initial illusion of success that gives government intervention its pernicious, seductive appeal. In the long run, socialism has always proven to be a formula for tyranny and misery.

A pyramid scheme is ultimately unsustainable because it is based on faulty principles. Likewise, collectivism is unsustainable in the long run because it is a flawed theory. Socialism does not work because it is not consistent with fundamental principles of human behavior. The failure of socialism in countries around the world can be traced to one critical defect: it is a system that ignores incentives.

In a capitalist economy, incentives are of the utmost importance. Market prices, the profit-and-loss system of accounting, and private property rights provide an efficient, interrelated system of incentives to guide and direct economic behavior. Capitalism is based on the theory that incentives matter!

Under socialism, incentives either play a minimal role or are ignored totally. A centrally planned economy without market prices or profits, where property is owned by the state, is a system without an effective incentive mechanism to direct economic activity. By failing to emphasize incentives, socialism is a theory inconsistent with human nature and is therefore doomed to fail. Socialism is based on the theory that incentives don’t matter!

In a radio debate several months ago with a Marxist professor from the University of Minnesota, I pointed out the obvious failures of socialism around the world in Cuba, Eastern Europe, and China. At the time of our debate, Haitian refugees were risking their lives trying to get to Florida in homemade boats. Why was it, I asked him, that people were fleeing Haiti and traveling almost 500 miles by ocean to get to the “evil capitalist empire” when they were only 50 miles from the “workers’ paradise” of Cuba?

The Marxist admitted that many “socialist” countries around the world were failing. However, according to him, the reason for failure is not that socialism is deficient, but that the socialist economies are not practicing “pure” socialism. The perfect version of socialism would work; it is just the imperfect socialism that doesn’t work. Marxists like to compare a theoretically perfect version of socialism with practical, imperfect capitalism which allows them to claim that socialism is superior to capitalism.

If perfection really were an available option, the choice of economic and political systems would be irrelevant. In a world with perfect beings and infinite abundance, any economic or political system–socialism, capitalism, fascism, or communism–would work perfectly.

However, the choice of economic and political institutions is crucial in an imperfect universe with imperfect beings and limited resources. In a world of scarcity it is essential for an economic system to be based on a clear incentive structure to promote economic efficiency. The real choice we face is between imperfect capitalism and imperfect socialism. Given that choice, the evidence of history overwhelmingly favors capitalism as the greatest wealth-producing economic system available.
The strength of capitalism can be attributed to an incentive structure based upon the three Ps: (1) prices determined by market forces, (2) a profit-and-loss system of accounting and (3) private property rights. The failure of socialism can be traced to its neglect of these three incentive-enhancing components.

Prices
The price system in a market economy guides economic activity so flawlessly that most people don’t appreciate its importance. Market prices transmit information about relative scarcity and then efficiently coordinate economic activity. The economic content of prices provides incentives that promote economic efficiency.

For example, when the OPEC cartel restricted the supply of oil in the 1970s, oil prices rose dramatically. The higher prices for oil and gasoline transmitted valuable information to both buyers and sellers. Consumers received a strong, clear message about the scarcity of oil by the higher prices at the pump and were forced to change their behavior dramatically. People reacted to the scarcity by driving less, carpooling more, taking public transportation, and buying smaller cars. Producers reacted to the higher price by increasing their efforts at exploration for more oil. In addition, higher oil prices gave producers an incentive to explore and develop alternative fuel and energy sources.
The information transmitted by higher oil prices provided the appropriate incentive structure to both buyers and sellers. Buyers increased their effort to conserve a now more precious resource and sellers increased their effort to find more of this now scarcer resource.

The only alternative to a market price is a controlled or fixed price which always transmits misleading information about relative scarcity. Inappropriate behavior results from a controlled price because false information has been transmitted by an artificial, non-market price.
Look at what happened during the 1970s when U.S. gas prices were controlled. Long lines developed at service stations all over the country because the price for gasoline was kept artificially low by government fiat. The full impact of scarcity was not accurately conveyed. As Milton Friedman pointed out at the time, we could have eliminated the lines at the pump in one day by allowing the price to rise to clear the market.

From our experience with price controls on gasoline and the long lines at the pump and general inconvenience, we get an insight into what happens under socialism where every price in the economy is controlled. The collapse of socialism is due in part to the chaos and inefficiency that result from artificial prices. The information content of a controlled price is always distorted. This in turn distorts the incentives mechanism of prices under socialism. Administered prices are always either too high or too low, which then creates constant shortages and surpluses. Market prices are the only way to transmit information that will create the incentives to ensure economic efficiency.

Profits and Losses
Socialism also collapsed because of its failure to operate under a competitive, profit-and-loss system of accounting. A profit system is an effective monitoring mechanism which continually evaluates the economic performance of every business enterprise. The firms that are the most efficient and most successful at serving the public interest are rewarded with profits. Firms that operate inefficiently and fail to serve the public interest are penalized with losses.

By rewarding success and penalizing failure, the profit system provides a strong disciplinary mechanism which continually redirects resources away from weak, failing, and inefficient firms toward those firms which are the most efficient and successful at serving the public. A competitive profit system ensures a constant reoptimization of resources and moves the economy toward greater levels of efficiency. Unsuccessful firms cannot escape the strong discipline of the marketplace under a profit/loss system. Competition forces companies to serve the public interest or suffer the consequences.

Under central planning, there is no profit-and-loss system of accounting to accurately measure the success or failure of various programs. Without profits, there is no way to discipline firms that fail to serve the public interest and no way to reward firms that do. There is no efficient way to determine which programs should be expanded and which ones should be contracted or terminated.
Without competition, centrally planned economies do not have an effective incentive structure to coordinate economic activity. Without incentives the results are a spiraling cycle of poverty and misery. Instead of continually reallocating resources towards greater efficiency, socialism falls into a vortex of inefficiency and failure.

Private Property Rights
A third fatal defect of socialism is its blatant disregard for the role of private property rights in creating incentives that foster economic growth and development. The failure of socialism around the world is a “tragedy of commons” on a global scale.

The “tragedy of the commons” refers to the British experience of the sixteenth century when certain grazing lands were communally owned by villages and were made available for public use. The land was quickly overgrazed and eventually became worthless as villagers exploited the communally owned resource.

When assets are publicly owned, there are no incentives in place to encourage wise stewardship. While private property creates incentives for conservation and the responsible use of property, public property encourages irresponsibility and waste. If everyone owns an asset, people act as if no one owns it. And when no one owns it, no one really takes care of it. Public ownership encourages neglect and mismanagement.

Since socialism, by definition, is a system marked by the “common ownership of the means of production,” the failure of socialism is a “tragedy of the commons” on a national scale. Much of the economic stagnation of socialism can be traced to the failure to establish and promote private property rights.

As Peruvian economist Hernando de Soto remarked, you can travel in rural communities around the world and you will hear dogs barking, because even dogs understand property rights. It is only statist governments that have failed to understand property rights. Socialist countries are just now starting to recognize the importance of private property as they privatize assets and property in Eastern Europe.

Incentives Matter
Without the incentives of market prices, profit-and-loss accounting, and well-defined property rights, socialist economies stagnate and wither. The economic atrophy that occurs under socialism is a direct consequence of its neglect of economic incentives.

No bounty of natural resources can ever compensate a country for its lack of an efficient system of incentives. Russia, for example, is one of the world’s wealthiest countries in terms of natural resources; it has some of the world’s largest reserves of oil, natural gas, diamonds, and gold. Its valuable farm land, lakes, rivers, and streams stretch across a land area that encompasses 11 time zones. Yet Russia remains poor. Natural resources are helpful, but the ultimate resources of any country are the unlimited resources of its people–human resources.

By their failure to foster, promote, and nurture the potential of their people through incentive-enhancing institutions, centrally planned economies deprive the human spirit of full development. Socialism fails because it kills and destroys the human spirit–just ask the people leaving Cuba in homemade rafts and boats.

As the former centrally planned economies move toward free markets, capitalism, and democracy, they look to the United States for guidance and support during the transition. With an unparalleled 250-year tradition of open markets and limited government, the United States is uniquely qualified to be the guiding light in the worldwide transition to freedom and liberty.

We have an obligation to continue to provide a framework of free markets and democracy for the global transition to freedom. Our responsibility to the rest of the world is to continue to fight the seductiveness of statism around the world and here at home. The seductive nature of statism
continues to tempt and lure us into the Barmecidal illusion that the government can create wealth.
The temptress of socialism is constantly luring us with the offer: “give up a little of your freedom and I will give you a little more security.” As the experience of this century has demonstrated, the bargain is tempting but never pays off. We end up losing both our freedom and our security.

Programs like socialized medicine, welfare, Social Security, and minimum wage laws will continue to entice us because on the surface they appear to be expedient and beneficial. Those programs, like all socialist programs, will fail in the long run regardless of initial appearances. These programs are part of the Big Lie of socialism because they ignore the important role of incentives.

Socialism will remain a constant temptation. We must be vigilant in our fight against socialism not only around the globe but also here in the United States.

The failure of socialism inspired a worldwide renaissance of freedom and liberty. For the first time in the history of the world, the day is coming very soon when a majority of the people in the world will live in free societies or societies rapidly moving toward freedom.

Capitalism will play a major role in the global revival of liberty and prosperity because it nurtures the human spirit, inspires human creativity, and promotes the spirit of enterprise. By providing a powerful system of incentives that promote thrift, hard work, and efficiency, capitalism creates wealth.

The main difference between capitalism and socialism is this: Capitalism works.
Find a Portuguese translation of this article here.

Mark J. Perry

Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.

This article was originally published on FEE.org. Read the original article.

10 Dead Economists Who Deserve a Nobel Prize

10 Dead Economists Who Deserve a Nobel Prize

My friend Reuvain Borchardt, a lawyer, asks if it’s possible for a Nobel Prize to be awarded posthumously. What if unlimited posthumous economic Nobel awards were possible?My understanding (at least for the economics prize) is the following: a person loses his or her eligibility to win the prize come January 1st of the year following his or her death. So, for example, someone who dies on September 30th, 2017 will be eligible to win the 2017 Prize, but not in any following years.

My understanding might be mistaken, but I once heard the above explanation from what my memory says was a credible source. (Also, no Nobel in economics was ever so awarded posthumously, although William Vickrey died very soon after it was announced that he won it in 1996. He died before the December ceremonies in Stockholm.)

Anyway, Reuvain’s question got me to thinking: What if unlimited posthumous economic Nobel awards were possible? Who are the ten now-dead, non-laureate economists who I believe would be most deserving. My idiosyncrasies will be evident in my list:

1. Adam Smith (of course, and not just because his is the single most famous name in all of economics)
2. David Ricardo
3. Carl Menger
4. Alfred Marshall
5. Ludwig von Mises
6. Frank Knight
7. Aaron Director
8. Armen Alchian
9. Gordon Tullock
10. Julian Simon

The hardest name to leave off of this list of ten is a tie between Joseph Schumpeter and Knut Wicksell; a name that was quite easy to leave off is John Maynard Keynes.
Republished from Cafe Hayek.

Donald J. Boudreaux

Donald Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, a professor of economics and former economics-department chair at George Mason University, and a former FEE president.

This article was originally published on FEE.org. Read the original article.

And the Nobel Prize in Economics Should Go To...

And the Nobel Prize in Economics Should Go To...

The Nobel Prize in Economics will be announced, for 2016, this Monday. Economists during this season get giddy with predicting who will, and in opining on who should, win. Despite my conviction that the Nobel Prize in Economic Science is every bit as legitimate and justly respected as is any other Nobel Prize (even though it’s not one of the original Prizes established by Alfred Nobel himself), over the past eight or so years my interest in the Prize has diminished. This fact is due chiefly to the Nobel committee’s inexplicable failure to award the Prize to the late Armen Alchian and to my late colleague Gordon Tullock before each died having lived well into his 90s.

Two of the most creative, productive, and finest economists of the last century failed to receive the premier prize for economists.Both Alchian and Tullock were among the most creative, productive, and finest economists of the past century – indeed, of the past two centuries. Each of these men forgot more economics than at least one fifth of the Nobel laureate economists ever knew. And yet neither Alchian nor Tullock was awarded what has become the premier prize for economists.

Still, the Nobel for economists retains much significance. My emeritus colleague Vernon Smith (’02) and my late colleague Jim Buchanan (’86) were indeed worthy recipients. Of course, I believe that the same is true for Hayek. And for Friedman. And for Coase and Becker and Stigler and North and Ostrom and Williamson and Schultz and Schelling and Hicks and Modigliani and Arrow and, yes, Samuelson – and, indeed, for a number of other recipients. But I still am unable to get my head around the fact that Alchian and Tullock each was denied this Prize. It’s inexplicable. And this failure diminishes, for me at least, the luster of the Nobel in economics.

So here’s my wish: I hope, sincerely, that the 2016 Nobel Prize in Economic Science is awarded to Harold Demsetz. No living economist who is without the Prize is more worthy than Demsetz to receive it. And – at most, and all things considered – only a small handful (Baumol, Bhagwati, Harberger, Higgs, Kirzner, McCloskey, Plott, Sowell, and Yeager) are even plausibly as worthy. But among all non-Nobel-laureate living economists, none is more worthy to receive the Prize than is the 86-year-old Demsetz, whose writings on property rights, competition, industrial organization, law, and regulation are unfailingly brilliant and important and, often, downright pioneering.
Again, that is my sincere hope – although, alas, not my prediction.

This first appeared at Cafe Hayek.

Donald J. Boudreaux

Donald Boudreaux is a senior fellow with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University, a Mercatus Center Board Member, a professor of economics and former economics-department chair at George Mason University, and a former FEE president.

This article was originally published on FEE.org. Read the original article.