The Obvious Appeal of Socialism – Part 2

Badwater Basin – 85 meters below sea level – Death Valley – Click to embiggen

Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.
     Alexis de Tocqueville

We humans are generally nice to each other. This should not be surprising since being nice is an evolutionarily stable strategy. Those societies in which the practice of the “be nice to others” strategy was not generally and systematically followed did not survive, and those societies in which people were nice to each other survived and prospered. Being nice aids survival because we are social animals and therefore must cooperate to survive. Mutual cooperation is part of our evolutionary endowment.

Anatomically modern human beings have been around for between 200 and 300 thousand years. Our brains and our cognitive abilities were shaped by Darwinian evolutionary processes. We are superbly adapted to navigating the environment that our ancestors lived in, and survived long enough to produce the next generation.

But that ancient environment is not where we live today. The modern world is not the same as that ancient world of small bands of hunter-gatherers surviving in the natural world. That world has changed but we are still much the same. Our instincts are those of hunter-gatherers. Which is the reason that our intuition about what the world is and how it works is quite frequently wrong.

What worked in the past is not guaranteed to work in the present. That principle is fractal in nature. What worked in the long infancy of human history need not work in its present maturity. So also, in the context of an individual life, what worked in childhood does not appear to work in adulthood. The environment changed and therefore so must our responses.

 ***

We all grew up in a socialist/communist environment — it’s called the family. Our affection for some kind of socialist system is natural and understandable. It was nice that our parents took care of us, provided to our needs and told us what to do. In families, people know each other, know what needs to be done, and who will do what. Love, trust and caring is the glue that keeps it all together. They know each other’s names. 

Socialism works nicely in the nuclear family. In joint-families, it starts to work less well. But when the family gets too large, it begins to get harder to remember names. It is easy to forget who can do what and what needs to be done and who needs what. In short, what worked at a small scale does not work at some much larger scale.

The basic problem with socialism is the limited cognitive capacity of the human brain. Countries have millions of people. No one can possibly remember the names of millions of people, or know who needs what, or who can do what, and what needs to be done. It’s a knowledge problem. That is why socialism fails.

***

So what is the defining feature of socialism? It is that the means of production is owned by the government. Socialism does not allow the means of production to be privately owned. 

Means of production are those things that help in the production process. It’s machines, factories, communications and transportation networks, roads, ports, airports, financial institutions, etc. Those are “capital” goods. Private property is limited to consumption goods and goods that are not used for producing other goods.

A tractor is a capital good because it is used in the production of food. In a capitalist economy, a tractor would be someone’s private property but in a socialist economy, the entire society owns it. The idea being that the owner of a tractor could exploit workers (who don’t own tractors.) So to stop the exploitation, it has to be collectively owned, thus protecting workers from being exploited by capitalists.

***

A market is where people exchange private property. The market is a process that determines the price of the good being exchanged. The price of a good is arrived at through the interaction of the supply of and the demand for a good. All machines are capital goods. If all capital goods are owned by the collective, then they cannot be sold in a market. Therefore there is no price determination. Prices encode information about the relative scarcity or abundance of a good. Lack of prices implies misallocation of that good, and that leads to inefficiencies that end up creating poverty.

When prices of capital goods are not known, then the prices of intermediate goods and final goods are also not known. This is so because processes in an economy are interdependent. The price of a pizza (a final or a consumption good) depends on the prices of everything that went into its production — such as the oven, the fuel, the flour, etc. If you don’t have prices for the things that went into the production of all  those things, there is no way to know what the price of pizza should be. It will have to be arbitrarily decided. 

We need to pay attention to the phrase “arbitrarily decided.” It’s someone’s arbitrary decision, and that means that person has to dictate the price. That distinguishes a socialist system from a free-market system. 

In a free-market system, prices are determined by the impersonal forces of supply and demand. Prices emerge out of the interactions of buyers and sellers in the market and are not dictated or chosen by any particular person. Think of it like the result of a tennis match. The result emerges from the playing of the game and is not chosen by either of the two players. 

The importance of market-determined prices in the functioning of an economy is hard to overstate, and quite hard for the untrained mind to fully appreciate. But with a bit of effort, it can be understood.

***

Think back to simpler times and smaller economies. Say a village of a few hundred people living a simple agrarian life. There’s some land on which a few staples are grown, a few animals, some simple farming tools, some modest dwellings are made with materials on hand, etc. There’s a village headman who decides who has to do what, what will be produced and how the production will be allocated. All the decisions are arbitrary. To do that, he has to have authority and the ability to dictate to the villagers. There are no markets. And so there are no prices. 

People are not free to choose what they do or consume. For the whole thing to work, the people have to follow the headman’s plan. In the absence of price signals that would have guided the production and consumption decisions of the people, the plan directs the people.

But the modern world is big and complex. There are untold millions of consumer and capital goods, all of which have complex interdependencies in production, distribution and consumption. It is not humanly possible for any planner to know what is to be done. Those who attempt to plan a modern economy succeed in impoverishing the people.

***

But that’s not the worst of it. The arbitrary will and the power of the central planner necessarily means that the people cannot have the freedom to do as they wish. After all, what good is a plan if everyone disregards it and does his own thing, follows his own plan? Therefore socialism requires the surrender of freedom to the will of another. There can be no freedom because that will not be consistent with the plan.

There are different kinds of freedom — economic freedom, individual freedom, civic freedom.  Freedom is an intrinsically good thing. But they are also instrumental in producing wealth and promoting human wellbeing. Freedom is essential because the world we live in is dynamic. It changes and we are the agents of that change. Only if we have freedom can we bring a better future into being.

We humans are tinkerers. We like to do things that interest us. Through trial and error, we discover new and innovative ways to make old things, and discover new things. Accidents happen, and some of them are happy accidents. 

Planning erects a barrier to tinkering, and hinders invention and discovery that has powered the progress of human civilization.

***

That centralized planning prevents the good from happening is bad enough. But it’s much worse than that. Centralized, top-down planning leads to the murder of millions. The more perfect, the more grand, the more visionary the plan, the higher the pile of bodies is guaranteed to be. Why is it so?

Imagine I had a modest plan. Being modest, if carried out perfectly, it would yield a net benefit of, say, $1000. I try to get some people to follow my plan but they don’t cooperate with me, thus demonstrating that they are really stupid morons who are responsible for the loss of $1000. What do I do? Write a blog post detailing how stupid they are and block them on social media. I don’t murder them all.

But if I were the dictator of a large country and I came up with some great big plan that will yield a net benefit of thousands of trillions of dollars and transform the whole world and shake the world at its foundation? Well, that would be marvelous, wouldn’t you say? 

And if I find that there are a bunch of bozos who are refusing to cooperate with me, am I not justified in removing them? Remember the thousands of trillions of net benefit. That justifies murdering a few malcontents, surely. And a few insane people. And few retards. And a few of this and a few of that. Alright, maybe more than a few. Let’s just get on with the gulags and the gas chambers to efficiently remove the roadblocks to the great plan. The quicker we get rid of them, the sooner the great dream will be a reality. 

***

The historian Robert Conquest (late of the Univ of California at Berkeley — my alma mater) had brilliantly documented the crimes of the Soviet dictators. He composed a limerick.

There was a great Marxist called Lenin,
Who did two or three million men in;
That’s a lot to have done in.
But where he did one in
That grand Marxist Stalin did ten in. 

In the Soviet Union, it is estimated that socialism killed around 100,000,000 people. Lenin and Stalin had to wake up very early in the morning to get that done.

***

Next up: Why is India socialist.

{Part 1 of this series is here.}

Author: Atanu Dey

Economist.

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