Criticism of socialism refers to a critique of socialist models of economic organization, their intended

efficiency and planned feasibility; as well as the political and social implications of such a system. Some

criticisms are not directed toward socialism as a system, but are directed toward the socialist movement,

socialist political parties or existing socialist states. Some critics consider socialism to be a purely

theoretical concept that should be criticized on theoretical grounds; others hold that certain historical

examples exist and that they can be criticized on practical grounds. Because socialism is a broad

concept, some criticisms presented in this article will only apply a specific model of socialism that may

differ sharply from other types of socialism.

Economic liberals, pro-capitalist libertarians, and some classical liberals viewprivate enterprise, private

ownership of the means of production, and the market exchange as natural or moral phenomena, central

to their conceptions of freedom and liberty. Contrawise, members of these three groups may

perceive public ownership of the means of production, cooperatives, and state-sponsoredeconomic

planning as infringements on liberty.

Critics from the neoclassical school of economics criticize socialist theories that promote state-

ownership or centralization of capital on the grounds that there is a lack of incentive in state institutions to

act on information as efficiently as managers in capitalist firms do because they lack a hard budget

constraint (profit and loss mechanism), resulting in reduced overall economic welfare for society.[1]Critics

from the Austrian school of economics argue that socialist systems based on economic planning are

unfeasible because they lack the information to perform economic calculation in the first place due to a

lack of price signals and a free price system, which they believe are required for rational economic

calculation.[2]Critics of the socialist political movement often criticize the internal conflicts of the socialist

movement as creating a sort of "responsibility void."

The criticisms presented below may not apply to all forms of socialism as some forms of socialism

advocate state ownership of capital in a market economy, while other forms advocate state-directed

economic planning and state-ownership of capital. Other strands of socialist thought reject state

ownership altogether and instead argue for participatory economics and non-governmental worker-

cooperative ownership of the means of production. It is important to note that many socialist theories and

models are opposed to, and often criticize, other types of socialism for various reasons.

Distorted or absent price signals[edit]

Main article: Economic calculation problem

The economic calculation problem is a criticism of central economic planning. It was first proposed

by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek.[3][4] The problem referred to is that

of how to distribute resources rationally in an economy. The free market solution is the price mechanism,

wherein people individually have the ability to decide how a good should be distributed based on their

willingness to give money for it. The price conveys embedded information about theabundance of

resources as well as their desirability which in turn allows, on the basis of individual consensual decisions,

corrections that prevent shortages and surpluses; Mises and Hayek argued that this is the only possible

solution, and without the information provided by market prices socialism lacks a method to rationally

allocate resources. Those who agree with this criticism argue it is a refutation of socialism and that it

shows that a socialist planned economy could never work. The debate raged in the 1920s and 1930s, and

that specific period of the debate has come to be known by economic historians as the Socialist

Calculation Debate.[5]

Ludwig von Mises argued in a famous 1920 article "Economic Calculation in the Socialist Commonwealth"

that the pricing systems in socialist economies were necessarily deficient because if government owned

the means of production, then no prices could be obtained for capital goods as they were merely internal

transfers of goods in a socialist system and not "objects of exchange," unlike final goods. Therefore, they

were unpriced and hence the system would be necessarily inefficient since the central planners would not

know how to allocate the available resources efficiently.[5] This led him to declare "...that rational economic

activity is impossible in a socialist commonwealth.".[3] Mises developed his critique of socialism more

completely in his 1922 book Socialism, an Economic and Sociological Analysis.

Friedrich Hayek argued in 1977 that "prices are an instrument of communication and guidance which

embody more information than we directly have", and therefore "the whole idea that you can bring about

the same order based on the division of labor by simple direction falls to the ground". He further argued

that "if you need prices, including the prices of labor, to direct people to go where they are needed, you

cannot have another distribution except the one from the market principle."[6]

Ludwig von Mises argued that a socialist system based upon a planned economy would not be able to

allocate resources effectively due to the lack of price signals. Because the means of production would be

controlled by a single entity, approximating prices for capital goods in a planned economy would be

impossible. His argument was that socialism must fail economically because of the economic calculation

problem – the impossibility of a socialist government being able to make the economic calculations

required to organize a complex economy. Mises projected that without a market economy there would be

no functional price system, which he held essential for achieving rational and efficient allocation of capital

goods to their most productive uses. Socialism would fail as demand cannot be known without prices,

according to Mises.

The socialist planner, therefore, is left trying to steer the collectivist economy blindfolded. He cannot know

what products to produce, the relative quantities to produce, and the most economically appropriate way

to produce them with the resources and labor at his central command. This leads to "planned chaos," as

Mises called it, or to the "planned anarchy" to which Pravda referred.... Even if we ignore the fact that the

rulers of socialist countries have cared very little for the welfare of their own subjects; even if we discount

the lack of personal incentives in socialist economies; and even if we disregard the total lack of concern

for the consumer under socialism; the basic problem remains the same: the most well-intentioned

socialist planner just does not know what to do.

The heart of Mises' argument against socialism is that central planning by the government destroys the

essential tool — competitively formed market prices — by which people in a society make rational

economic decisions.[7]

These arguments were elaborated by subsequent Austrian economists such as Friedrich Hayek[8] and

students such as Hans Sennholz.

The anarcho-capitalist economist Hans-Hermann Hoppe argues that, in the absence of prices for the

means of production, there is no cost-accounting which would direct labor and resources to the most

valuable uses.[9] Hungarian economist Janos Kornaihas written that "the attempt to realize market

socialism ... produces an incoherent system, in which there are elements that repel each other: the

dominance of public ownership and the operation of the market are not compatible."[10]

Proponents of lassiez-faire capitalism argue that although private monopolies don't have any actual

competition, there are manypotential competitors watching them, and if they were delivering inadequate

service, or charging an excessive amount for a good or service, investors would start a competing

enterprise.[11][12]

In her book How We Survived Communism & Even Laughed,[13] Slavenka Drakulić claims that a major

contributor to the fall of socialist planned economies in the former Soviet bloc was the failure to produce

the basic consumer goods that its people desired. She argues that, because of the makeup of the

leadership of these regimes, the concerns of women got particularly short shrift. She illustrates this, in

particular, by the system's failure to produce washing machines. If a state-owned industry is able to keep

operating with losses, it may continue operating indefinitely producing things that are not in high

consumer demand. If consumer demand is too low to sustain the industry with voluntary payments by

consumers then it is tax-subsidized. This prevents resources (capital and labor) from being applied to

satisfying more urgent consumer demands. According to economist Milton Friedman "The loss part is just

as important as the profit part. What distinguishes the private system from a government socialist system

is the loss part. If an entrepreneur's project doesn't work, he closes it down. If it had been a government

project, it would have been expanded, because there is not the discipline of the profit and loss

element."[14]

Proponents of chaos theory argue that it is impossible to make accurate long-term predictions for highly

complex systems such as an economy.[15]

Pierre-Joseph Proudhon raises similar calculational issues in his General Idea of the Revolution in the

19th Century but also proposes certain voluntary arrangements, which would also require economic

calculation.[16]

Leon Trotsky, a proponent of decentralized planning, argued that centralized economic planning would be

"insoluble without the daily experience of millions, without their critical review of their own collective

experience, without their expression of their needs and demands and could not be carried out within the

confines of the official sanctums", and "Even if the Politburo consisted of seven universal geniuses, of

seven Marxes, or seven Lenins, it will still be unable, all on its own, with all its creative imagination, to

assert command over the economy of 170 million people."[17]

Mises argued that real-world implementation of free market and socialist principles provided empirical

evidence for which economic system leads to greatest success:

The only certain fact about Russian affairs under the Soviet regime with regard to which all people agree

is: that the standard of living of the Russian masses is much lower than that of the masses in the country

which is universally considered as the paragon of capitalism, the United States of America. If we were to

regard the Soviet regime as an experiment, we would have to say that the experiment has clearly

demonstrated the superiority of capitalism and the inferiority of socialism.[18]

According to Tibor R. Machan, "Without a market in which allocations can be made in obedience to the

law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human

preferences and goals."[19]

In contrast to the lack of a marketplace, market socialism can be viewed as an alternative to the

traditional socialist model. Theoretically, the fundamental difference between a traditional socialist

economy and a market socialist economy is the existence of a market for the means of production and

capital goods.

Suppression of economic democracy and self-management[edit]

Central planning is also criticized by elements of the radical left. Libertarian socialist economist Robin

Hahnel notes that even if central planning overcame its inherent inhibitions of incentives and innovation it

would nevertheless be unable to maximize economic democracy and self-management, which he

believes are concepts that are more intellectually coherent, consistent and just than mainstream notions

of economic freedom.[20]

As Hahnel explains, "Combined with a more democratic political system, and redone to closer

approximate a best case version, centrally planned economies no doubt would have performed better.

But they could never have delivered economic self-management, they would always have been slow to

innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible

to growing inequities and inefficiencies as the effects of differential economic power grew. Under central

planning neither planners, managers, nor workers had incentives to promote the social economic interest.

Nor did impending markets for final goods to the planning system enfranchise consumers in meaningful

ways. But central planning would have been incompatible with economic democracy even if it had

overcome its information and incentive liabilities. And the truth is that it survived as long as it did only

because it was propped up by unprecedented totalitarian political power."[20]

Critique of public enterprise[edit]

Slow or stagnant technological advance[edit]

This section

requires expansion. (June 2008)

Milton Friedman, an economist, argued that socialism, by which he meant state ownership over the

means of production, impedes technological progress due to competition being stifled. As evidence, he

said that we need only look to the U.S. to see where socialism fails, by observing that the most

technologically backward areas are those where government owns the means of production.[21] Without a

reward system, it is argued[by whom?], many inventors or investors would not risk time or capital for research.

This was one of the reasons for the United States patent system and copyright law.

Socialism has proved no more efficient at home than abroad. What are our most technologically

backward areas? The delivery of first class mail, the schools, the judiciary, the legislative system – all

mired in outdated technology. No doubt we need socialism for the judicial and legislative systems. We do

not for mail or schools, as has been shown by Federal Express and others, and by the ability of many

private schools to provide superior education to underprivileged youngsters at half the cost of government

schooling.....

We all justly complain about the waste, fraud and inefficiency of the military. Why? Because it is a

socialist activity – one that there seems no feasible way to privatize. But why should we be any better at

running socialist enterprises than the Russians or Chinese?

By extending socialism far beyond the area where it is unavoidable, we have ended up performing

essential government functions far less well than is not only possible but than was attained earlier. In a

poorer and less socialist era, we produced a nationwide network of roads and bridges and subway

systems that were the envy of the world. Today we are unable even to maintain them.[21]

Reduced incentives[edit]

Some critics of socialism argue that income sharing reduces individual incentives to work, and therefore

incomes should be individualized as much as possible.[22] Critics of socialism have argued that in any

society where everyone holds equal wealth there can be no material incentive to work, because one does

not receive rewards for a work well done. They further argue that incentives increase productivity for all

people and that the loss of those effects would lead to stagnation. John Stuart Mill in The Principles of

Political Economy (1848) said:

It is the common error of Socialists to overlook the natural indolence of mankind; their tendency to be

passive, to be the slaves of habit, to persist indefinitely in a course once chosen. Let them once attain any

state of existence which they consider tolerable, and the danger to be apprehended is that they will

thenceforth stagnate; will not exert themselves to improve, and by letting their faculties rust, will lose even

the energy required to preserve them from deterioration. Competition may not be the best conceivable

stimulus, but it is at present a necessary one, and no one can foresee the time when it will not be

indispensable to progress.[23]

However, he later altered his views and adopted a socialist perspective, adding chapters to his Principles

of Political Economy in defense of a socialist outlook, and defending some socialist causes.[24] Within this

revised work he also made the radical proposal that the whole wage system be abolished in favour of a

co-operative wage system. Nonetheless, some of his views on the idea of flat taxation remained, albeit in

a slightly toned down form.[25]

The economist John Kenneth Galbraith has criticized communal forms of socialism that promote

egalitarianism in terms of wages/compensation as unrealistic in its assumptions about human motivation:

This hope [that egalitarian reward would lead to a higher level of motivation], one that spread far beyond

Marx, has been shown by both history and human experience to be irrelevant. For better or worse, human

beings do not rise to such heights. Generations of socialists and socially oriented leaders have learned

this to their disappointment and more often to their sorrow. The basic fact is clear: the good society must

accept men and women as they are.[26]

Reduced prosperity[edit]

According to economist Hans-Hermann Hoppe, countries where the means of production are socialized

are not as prosperous as those where the means of production are under private control.[27] Ludwig von

Mises, a classical liberal economist, argued that aiming for more equal incomes through state intervention

necessarily leads to a reduction in national income and therefore average income. Consequently, the

socialist chooses a more equal distribution of income, on the assumption that the marginal utility of

income to a poor person is greater than that to a rich person. According to Mises, this mandates a

preference for a lower average income over inequality of income at a higher average income. He sees no

rational justification for this preference.[28]

Social and political effects[edit]

Friedrich Hayek in The Road to Serfdom, argued that the more even distribution of wealth through

the nationalization of the means of production advocated by certain socialists cannot be achieved without

a loss of political, economic, and human rights. According to Hayek, to achieve control over means of

production and distribution of wealth it is necessary for such socialists to acquire significant powers

of coercion. Hayek argued that the road to socialism leads society to totalitarianism, and argued

thatfascism and Nazism were the inevitable outcome of socialist trends in Italy and Germany during the

preceding period.[29]

Hayek was critical of the bias shown by university teachers and intellectuals towards socialist ideals. He

argued that socialism is not a working class movement as socialists contend, but rather "the construction

of theorists, deriving from certain tendencies of abstract thought with which for a long time only the

intellectuals were familiar; and it required long efforts by the intellectuals before the working classes could

be persuaded to adopt it as their program."[30]

Peter Self criticizes the traditional socialist planned economy and argues against pursuing "extreme

equality" because he believes it requires "strong coercion" and does not allow for "reasonable recognition

[for] different individual needs, tastes (for work or leisure) and talents." He recommends market socialism

instead.[31]

Objectivists criticize socialism as devaluing the individual, and making people incapable of choosing their

own values, as decisions are made centrally. They also reject socialism's indifference to property rights.[32]

Claims of leadership corruption[edit]

Some critics of socialism have argued that, in a socialist state, the leadership will either become corrupted

or be replaced by corrupt people, and this would prevent the goals of socialism from being realized.

Lord Acton's aphorism that "power tends to corrupt" has been used by critics of socialism to argue that

the leadership of a socialist state would be more susceptible to corruption than others, because a socialist

state has a broader scope than other states.[33] Milton Friedman argued that the absence of private

economic activity would enable political leaders to grant themselves coercive powers.[34] Winston

Churchill, in his campaign against socialist candidate Clement Attlee in the 1945 elections, claimed that

socialism requires totalitarian methods, including a political police, in order to achieve its goals.[35]

Friedrich Hayek made a slightly different but related argument. He conceded that the leaders of the

socialist movement had idealistic motives and did not argue that they would become corrupt or resort to

totalitarian methods once in power. However, he argued that the kind of state structure they wish to set up

would eventually attract a new generation of leaders motivated by cynical ambition rather than any ideals,

and these new leaders would enact repressive measures while at the same time giving up attempts to

implement the original goals of socialism.[36]

See also[edit]

Anti-communism

Anti-capitalism

Anti-fascism

Black Book of Communism

Criticisms of capitalism

Criticisms of communism

Criticisms of Communist party rule

Criticisms of Marxism

Economic efficiency

Economic equilibrium

McCarthyism

Mixed economy

Spontaneous order

The Fatal Conceit

Tragedy of the commons

References[edit]

1. Jump up^ http://www.econlib.org/library/Enc/Socialism.html

2. Jump up^ Ludwig Von Mises, Socialism, pg 119

3. ^ Jump up to:a b Von Mises, Ludwig (1990). Economic calculation in the Socialist

Commonwealth (pdf). Ludwig von Mises Institute. Retrieved 2008-09-08.

4. Jump up^ F. A. Hayek, (1935), "The Nature and History of the Problem" and "The Present State of the

Debate," om in F. A. Hayek, ed.Collectivist Economic Planning, pp. 1-40, 201-43.

5. ^ Jump up to:a b Fonseca, Gonçalo L. (200?). "The socialist calculation debate". HET. Retrieved 2007-04-

03. "The information here has not been reviewed independently for accuracy, relevance and/or balance and

thus deserves a considerable amount of caution. As a result, I would prefer not to be cited as reliable

authorities on anything. However, I do not mind being listed as a general internet resource. ([1])"

6. Jump up^ Reason Magazine, The Road to Serfdom, Foreseeing the Fall. Friedrich Hayek interviewed

by Thomas W. Hazlett

7. Jump up^ The impossibility of socialism

8. Jump up^ F. A. Hayek, (1935), "The Nature and History of the Problem" and "The Present State of the

Debate," in F. A. Hayek, ed.Collectivist Economic Planning, pp. 1-40, 201-43.

9. Jump up^ Hans-Hermann Hoppe. A Theory of Socialism and Capitalism [2]. Kluwer Academic Publishers.

page 46 in PDF.

10. Jump up^ Ollman, Bertell; David Schweickart, (1998). Market Socialism: The Debate Among Socialists.

Routledge. p. 7. ISBN 0-415-91966-5. Unknown parameter |country= ignored (help);

11. Jump up^ "The Myth of Natural Monopoly", by Thomas DiLorenzo

12. Jump up^ "The Development Of The Theory Of Monopoly Price", by Joseph Salerno

13. Jump up^ ISBN 0-06-097540-7

14. Jump up^ Interview with Milton Friedman. July 31, 1991 Stanford California

15. Jump up^ http://www.phil.uu.nl/~janb/phloofin/eclog.html

16. Jump up^ Proudhon, Pierre J. General Idea of the Revolution in the 19th Century, third study.

17. Jump up^ Writings, 1932-33 P.96, Leon Trotsky.

18. Jump up^ Socialism: An Economic and Sociological Analysis by Ludwig von Mises.

19. Jump up^ Machan, R. Tibor, Some Skeptical Reflections on Research and Development, Hoover Press

20. ^ Jump up to:a b Hahnel, Robin. The ABC's of Political Economy, Pluto Press, 2002, 262

21. ^ Jump up to:a b Milton Friedman. We have Socialism Q.E.D., Op-Ed in New York Times December 31,

1989 [3]

22. Jump up^ Zoltan J. Acs & Bernard Young. Small and Medium-Sized Enterprises in the Global Economy.

University of Michigan Press, page 47, 1999.

23. Jump up^ Mill, John Stuart. The Principles of Political Economy, Book IV, Chapter 7.

24. Jump up^ Mill, John Stuart and Benthem, Jeremy edited by Ryan, Alan. (2004). Utilitarianism and other

essays. London: Penguin Books. p. 11. ISBN 0-14-043272-8.

25. Jump up^ Wilson, Fred (2007). "John Stuart Mill: Political Economy". Stanford Encyclopedia of

Philosophy. Stanford University. Retrieved 2009-05-04.

26. Jump up^ John Kenneth Galbraith, The Good Society: The Humane Agenda, (Boston, MA: Houghton

Mifflin Co., 1996), 59-60."

27. Jump up^ Hans-Hermann Hoppe. A Theory of Socialism and Capitalism [4].

28. Jump up^ Ludwig von Mises, Socialism: An Economic and Sociological Analysis, Indianapolis, IN: Liberty

Fund, Inc.. 1981, trans. J. Kahane, IV.30.21

29. Jump up^ Friedrich Hayek, The Road to Serfdom, Routledge (2001), ISBN 0-415-25543-0.

30. Jump up^ F.A. Hayek. The Intellectuals and Socialism. (1949).

31. Jump up^ Self, Peter. Socialism. A Companion to Contemporary Political Philosophy, editors Goodin,

Robert E. and Pettit, Philip. Blackwell Publishing, 1995, p.339 "Extreme equality overlooks the diversity of

individual talents, tastes and needs, and save in a utopian society of unselfish individuals would entail

strong coercion; but even short of this goal, there is the problem of giving reasonable recognition to different

individual needs, tastes (for work or leisure) and talents. It is true therefore that beyond some point the

pursuit of equality runs into controversial or contradictory criteria of need or merit."

32. Jump up^ Socialism

33. Jump up^ "Acton-Creighton Correspondence".

34. Jump up^ Bellamy, Richard (2003). The Cambridge History of Twentieth-Century Political Thought.

Cambridge University Press. p. 60.ISBN 0-521-56354-2.

35. Jump up^ Alan O. Ebenstein. Friedrich Hayek: A Biography. (2003). University of Chicago Press. ISBN 0-

226-18150-2 p.137

36. Jump up^ Friedrich Hayek (1944). The Road to Serfdom. University Of Chicago Press. ISBN 0-226-32061-

8.

Further reading[edit]

Friedrich Hayek  (1988). The Fatal Conceit: The Errors of Socialism. University Of Chicago

Press. ISBN 0-226-32068-5.

Friedrich Hayek (1997). Socialism and War: Essays, Documents, Reviews. University Of Chicago

Press. ISBN 0-226-32058-8.

External links[edit]

Interventionism: An Economic Analysis

School of Darkness  Autobiography of Bella Dodd, ex-Communist (1954)

Socialism: Opposing Views  on the Open Directory Project

"Socialism", Economic Policy 2nd Lecture, by Ludwig von Mises

Slavery vs. Freedom (Part 1 of 4)

Class Warfare vs. Harmony of Interests (Part 2 of 4)

Central Planning vs. Freedom (Part 3 of 4)

Inability of Economic Calculation (Part 4 of 4)

What remains of socialism ? [5], by Emile Perreau-Saussine, in Patrick Riordan (dir.), Values in

Public life: aspects of common goods (Berlin, LIT Verlag, 2007), pp. 11–34

The Law  by Frédéric Bastiat

"The Intellectuals and Socialism"  by Friedrich Hayek

"Hayek and Socialism"  by Bruce Caldwell

Home Page of Competitive Enterprise Institute

"Why Socialism Collapsed in Eastern Europe"  by Tom Palmer

Socialism  by Robert Heilbroner

"Nixonian Socialism"  by Murray Rothbard

"Socialism" , by Robert Heilbroner

"State socialism and anarchism"  by Benjamin Tucker

Lecture XXXV "A Philosophy of Life"  includes a critique of marxist socialism by Sigmund Freud

Socialism: Still Impossible After All These Years , by Peter J. Boettke and Peter T. Leeson

The Myth of the Scandinavian Model , by Martin De Vlieghere, Paul Vreymans and Willy De Wit

The Impossibility of Socialism