In a word, no. This question is often asked by those who have come across the so-called "libertarian" right. As discussed in section A.1.3, the word "libertarian" has been used by anarchists for far longer than the pro-free market right have been using it. In fact, anarchists have been using it as a synonym for anarchist for over 150 years, since 1858. In comparison, widespread use of the term by the so-called "libertarian" right dates from the 1970s in America (with, from the 1940s onwards, limited use by a few individuals). Indeed, outside of North America "libertarian" is still essentially used as an equivalent of "anarchist" and as a shortened version of "libertarian socialist." As Noam Chomsky notes:
"Let me just say regarding the terminology, since we happen to be in the United States, we have to be rather careful. Libertarian in the United States has a meaning which is almost the opposite of what it has in the rest of the world traditionally. Here, libertarian means ultra right-wing capitalist. In the European tradition, libertarian meant socialist. So, anarchism was sometimes called libertarian socialism, a large wing of anarchism, so we have to be a little careful about terminology." [Reluctant Icon]
This in itself does not prove that the term "libertarian socialist" is free of contradiction. However, as we will show below, the claim that the term is self-contradictory rests on the assumption that socialism requires the state in order to exist and that socialism is incompatible with liberty (and the equally fallacious claim that capitalism is libertarian and does not need the state). This assumption, as is often true of many objections to socialism, is based on a misconception of what socialism is, a misconception that many authoritarian socialists and the state capitalism of Soviet Russia have helped to foster. In reality it is the term "state socialism" which is the true oxymoron.
Sadly many people take for granted the assertion of many on the right and left that socialism equals Leninism or Marxism and ignore the rich and diverse history of socialist ideas, ideas that spread from communist and individualist-anarchism to Leninism. As Benjamin Tucker once noted, "the fact that State Socialism . . . has overshadowed other forms of Socialism gives it no right to a monopoly of the Socialistic idea." [Instead of a Book, pp. 363-4] Unfortunately, many on the left combine with the right to do exactly that. Indeed, the right (and, of course, many on the left) consider that, by definition, "socialism" is state ownership and control of the means of production, along with centrally planned determination of the national economy (and so social life).
Yet even a quick glance at the history of the socialist movement indicates that the identification of socialism with state ownership and control is not common. For example, Anarchists, many Guild Socialists, council communists (and other libertarian Marxists), as well as followers of Robert Owen, all rejected state ownership. Indeed, anarchists recognised that the means of production did not change their form as capital when the state took over their ownership nor did wage-labour change its nature when it is the state employing labour (for example, see section H.3.13). For anarchists state ownership of capital is not socialistic in the slightest. Indeed, as Tucker was well aware, state ownership turned everyone into a proletarian (bar the state bureaucracy) -- hardly a desirable thing for a political theory aiming for the end of wage slavery!
So what does socialism mean? Is it compatible with libertarian ideals? What do the words "libertarian" and "socialism" actually mean? It is temping to use dictionary definitions as a starting point, although we should stress that such a method holds problems as different dictionaries have different definitions and the fact that dictionaries are rarely politically sophisticated. Use one definition, and someone else will counter with one more to their liking. For example, "socialism" is often defined as "state ownership of wealth" and "anarchy" as "disorder." Neither of these definitions are useful when discussing political ideas, particularly anarchism as, obviously, no form of anarchism would be socialist by such a definition nor do anarchists seek disorder. Therefore, the use of dictionaries is not the end of a discussion and often misleading when applied to politics.
Libertarian, though, is generally defined to mean someone who upholds the principles of liberty, especially individual liberty of thought and action. Such a situation cannot but be encouraged by socialism, by free access to the means of life. This is because in such a situation people associate as equals and so. as John Most and Emma Goldman once argued, the "system of communism logically excludes any and every relation between master and servant, and means really Anarchism." ["Talking about Anarchy", p. 28, Black Flag, no. 228, p. 28] In other words, by basing itself on free association and self-management in every aspect of life the anarchist form of socialism cannot but be libertarian.
In other words, there is a reason why anarchists have used the term libertarian for over 150 years! More to the point, why assume that the right's recent appropriation of the word be considered the base point? That implies that private property defends individual liberty rather than suppresses it. Such an assumption, as anarchists have argued from the start of anarchism as a distinct socio-political theory, is wrong. As we discussed earlier (see section B.4, for example), capitalism denies liberty of thought and action within the workplace (unless one is the boss, of course). As one staunch defender of capitalism (and a classical liberal often listed as a forefather of right-wing "libertarianism") glibly noted, the capitalist "of course exercises power over the workers", although "he cannot exercise it arbitrarily" thanks to the market but within this limit "the entrepreneur is free to give full rein to his whims" and "to dismiss workers offhand" [Ludwig von Mises, Socialism, p. 443 and p. 444] Right-wing "libertarians" are utterly blind to the liberty-destroying hierarchies associated with private property, perhaps unsurprisingly as they are fundamentally pro-capitalist and anti-socialist (equally unsurprisingly, genuine libertarians tend to call them "propertarians"). As left-wing economist Geoffrey M. Hodgson correctly notes:
"By their own logic, [such] market individualists are forced to disregard the organisational structure of the firm, or to falsely imagine that markets exist inside it. To do otherwise would be to admit that a system as dynamic as capitalism depends upon a mode of organisation from which markets are excluded . . . This . . . allows market individualists to ignore the reality of non-market organisations in the private sector . . . They can thus ignore the reality of control and authority within the private capitalist corporation but remain critical of public sector bureaucracy and state planning." [Economics and Utopia, pp. 85-6]
The propertarian perspective inevitably generates massive contradictions, such as admitting that both the state and private property share a common monopoly of decision making over a given area yet opposing only the former (see section F.1). As anarchists have long pointed out, the hierarchical social relations associated with private property have nothing to do with individual liberty. Removing the state but keeping private property would, therefore, not be a step forward: "A fine business we would make if we destroyed the State and replaced it with a mass of little States! killing a monster with one head and keeping a monster with a thousand heads!" [Carlo Cafiero, "Anarchy and Communism", pp. 179-86, The Raven, No. 6, p. 181]
This is why we argue that anarchism is more than just a stateless society, for while a society without a state is a necessary condition for anarchy it is not sufficient -- private hierarchies also limit freedom. Hence Chomsky:
"It's all generally based on the idea that hierarchic and authoritarian structures are not self-justifying. They have to have a justification . . . For example, your workplace is one point of contact and association. So, workplaces ought to be democratically controlled by participants . . . there are all kinds of ways in which people interact with one another. The forms of organisation and association that grow out of those should be, to the extent possible, non-authoritarian, non-hierarchic, managed and directed by the participants." [Reluctant Icon]
Therefore, anarchists argue, real libertarian ideas must be based on workers self-management, i.e. workers must control and manage the work they do, determining where and how they do it and what happens to the fruit of their labour, which in turn means the elimination of wage labour. Or, to use Proudhon's words, the "abolition of the proletariat." [Selected Writings of Pierre-Joseph Proudhon, p. 179] Unless this is done then the majority of people will become subject to the authoritarian social relationships the likes of Mises and other right-wing "libertarians" support. As one communist-anarchist put it:
"It is because the individual does not own himself, and is not permitted to be his true self. He has become a mere market commodity, an instrument for the accumulation of property -- for others . . . Individuality is stretched on the Procrustes bed of business . . . If our individuality were to be made the price of breathing, what ado there would be about the violence done to the personality! And yet our very right to food, drink and shelter is only too often conditioned upon our loss of individuality. These things are granted to the propertyless millions (and how scantily!) only in exchange for their individuality -- they become the mere instruments of industry." [Max Baginski, "Stirner: The Ego and His Own", pp. 142-151, Mother Earth, Vol. II, No. 3, p. 150]
Socialism, anarchists argue, can only mean a classless and anti-authoritarian (i.e. libertarian) society in which people manage their own affairs, either as individuals or as part of a group (depending on the situation). In other words, it implies self-management in all aspects of life -- including work. It has always struck anarchists as somewhat strange and paradoxical (to say the least) that a system of "natural" liberty (Adam Smith's term, misappropriated by supporters of capitalism) involves the vast majority having to sell that liberty in order to survive. Thus to be consistently libertarian is, logically, to advocate self-management, and so socialism (see section G.4.2). This explains the long standing anarchist opposition to the phoney "individualism" associated with classical liberalism (so-called right-wing "libertarian" ideology, although better termed "propertarian" to avoid confusion). Thus we find Emma Goldman dismissing "this kind of individualism" in "whose name . . . social oppression are defended and held up as virtues." [Red Emma Speaks, p. 112]
As we will discuss in section I.3.3, socialisation is advocated to ensure the elimination of wage labour and is a common theme of all genuine forms of socialism. In theory at least, anarchist argue that state socialism does not eliminate wage labour, rather it universalises it. In fact, state socialism shows that socialism is necessarily libertarian, not statist. For if the state owns the workplace, then the producers do not, and so they will not be at liberty to manage their own work but will instead be subject to the state as the boss. Moreover, replacing the capitalist owning class by state officials in no way eliminates wage labour; in fact it makes it worse in many cases. Therefore "socialists" who argue for nationalisation of the means of production are not socialists (which means that the Soviet Union and the other so-called "socialist" countries are not socialist nor are parties which advocate nationalisation socialist).
Indeed, attempts to associate socialism with the state misunderstands the nature of socialism. It is an essential principle of socialism that (social) inequalities between individuals must be abolished to ensure liberty for all (natural inequalities cannot be abolished, nor do anarchists desire to do so). Socialism, as Proudhon put it, "is egalitarian above all else." [No Gods, No Masters, vol. 1, p. 57] This applies to inequalities of power as well, especially to political power. And any hierarchical system (particularly the state) is marked by inequalities of power -- those at the top (elected or not) have more power than those at the bottom. Hence the following comments provoked by the expulsion of anarchists from the social democratic Second International:
"It could be argued with much more reason that we are the most logical and most complete socialists, since we demand for every person not just his [or her] entire measure of the wealth of society but also his [or her] portion of social power, which is to say, the real ability to make his [or her] influence felt, along with that of everybody else, in the administration of public affairs." [Malatesta and Hamon, Op. Cit., vol. 2, p. 20]
The election of someone to administer public affairs for you is not having a portion of social power. It is, to use of words of Emile Pouget (a leading French anarcho-syndicalist) "an act of abdication," the delegating of power into the hands of a few. [Op. Cit., p. 67] This means that "[a]ll political power inevitably creates a privileged situation for the men who exercise it. Thus it violates, from the beginning, the equalitarian principle." [Voline, The Unknown Revolution, p. 249]
From this short discussion we see the links between libertarian and socialism. To be a true libertarian requires you to support workers' control otherwise you support authoritarian social relationships. To support workers' control, by necessity, means that you must ensure that the producers own (and so control) the means of producing and distributing the goods they create. Without ownership, they cannot truly control their own activity or the product of their labour. The situation where workers possess the means of producing and distributing goods is socialism. Thus to be a true libertarian requires you to be a socialist.
Similarly, a true socialist must also support individual liberty of thought and action, otherwise the producers "possess" the means of production and distribution in name only. If the state owns the means of life, then the producers do not and so are in no position to manage their own activity. As the experience of Russia under Lenin shows, state ownership soon produces state control and the creation of a bureaucratic class which exploits and oppresses the workers even more so than their old bosses. Since it is an essential principle of socialism that inequalities between people must be abolished in order to ensure liberty, it makes no sense for a genuine socialist to support any institution based on inequalities of power (and as we discussed in section B.2, the state is just such an institution). To oppose inequality and not extend that opposition to inequalities in power, especially political power, suggests a lack of clear thinking. Thus to be a true socialist requires you to be a libertarian, to be for individual liberty and opposed to inequalities of power which restrict that liberty.
Therefore, rather than being an oxymoron, "libertarian socialism" indicates that true socialism must be libertarian and that a libertarian who is not a socialist is a phoney. As true socialists oppose wage labour, they must also oppose the state for the same reasons. Similarly, consistent libertarians must oppose wage labour for the same reasons they must oppose the state. So, libertarian socialism rejects the idea of state ownership and control of the economy, along with the state as such. Through workers' self-management it proposes to bring an end to authority, exploitation, and hierarchy in production. This in itself will increase, not reduce, liberty. Those who argue otherwise rarely claim that political democracy results in less freedom than political dictatorship.
One last point. It could be argued that many social anarchists smuggle the state back in via communal ownership of the means of life. This, however, is not the case. To argue so confuses society with the state. The communal ownership advocated by collectivist and communist anarchists is not the same as state ownership. This is because it is based on horizontal relationships between the actual workers and the "owners" of social capital (i.e. the federated communities as a whole, which includes the workers themselves we must stress), not vertical ones as in nationalisation (which are between state bureaucracies and its "citizens"). Also, such communal ownership is based upon letting workers manage their own work and workplaces. This means that it is based upon, and does not replace, workers' self-management. In addition, all the members of an anarchist community fall into one of three categories:
Therefore, workers' self-management within a framework of communal ownership is entirely compatible with libertarian and socialist ideas concerning the possession of the means of producing and distributing goods by the producers themselves. Far from there being any contradiction between libertarianism and socialism, libertarian ideals imply socialist ones, and vice versa. As Bakunin put it in 1867:
"We are convinced that freedom without Socialism is privilege and injustice, and that Socialism without freedom is slavery and brutality." [Bakunin on Anarchism, p. 127]
History has proven him correct. Rather that libertarian socialism being the oxymoron, it is state socialism and libertarian capitalism that are. Both historically (in terms of who first used the word) and logically (in terms of opposing all hierarchical organisations) it is anarchists who should be called libertarians, not the propertarian right.
In 1920, the right-wing economist Ludwig von Mises declared socialism to be impossible. A leading member of the "Austrian" school of economics, he argued this on the grounds that without private ownership of the means of production, there cannot be a competitive market for production goods and without a market for production goods, it is impossible to determine their values. Without knowing their values, economic rationality is impossible and so a socialist economy would simply be chaos: "the absurd output of a senseless apparatus." For Mises, socialism meant central planning with the economy "subject to the control of a supreme authority." ["Economic Calculation in the Socialist Commonwealth", pp. 87-130, Collectivist Economic Planning, F.A von Hayek (ed.), p. 104 and p. 106] While applying his "economic calculation argument" to Marxist ideas of a future socialist society, his argument, it is claimed, is applicable to all schools of socialist thought, including libertarian ones. It is on the basis of his arguments that many right-wingers claim that libertarian (or any other kind of) socialism is impossible in principle.
Yet as David Schweickart observes "[i]t has long been recognised that Mises's argument is logically defective. Even without a market in production goods, their monetary values can be determined." [Against Capitalism, p. 88] In other words, economic calculation based on prices is perfectly possible in a libertarian socialist system. After all, to build a workplace requires so many tonnes of steel, so many bricks, so many hours of work and so on. If we assume a mutualist society, then the prices of these goods can be easily found as the co-operatives in question would be offer their services on the market. These commodities would be the inputs for the construction of production goods and so the latter's monetary values can be found.
Ironically enough, Mises did mention the idea of such a mutualist system in his initial essay. "Exchange relations between production-goods can only be established on the basis of private ownership of the means of production" he asserted. "When the 'coal syndicate' provides the 'iron syndicate' with coal, no price can be formed, except when both syndicates are the owners of the means of production employed in their business. This would not be socialisation but workers' capitalism and syndicalism." [Op. Cit., p. 112] However, his argument is flawed for numerous reasons.
First, and most obvious, socialisation (as we discuss in section I.3.3) simply means free access to the means of life. As long as those who join a workplace have the same rights and liberties as existing members then there is socialisation. A market system of co-operatives, in other words, is not capitalist as there is no wage labour involved as a new workers become full members of the syndicate, with the same rights and freedoms as existing members. Thus there are no hierarchical relationships between owners and wage slaves (even if these owners also happen to work there). As all workers' control the means of production they use, it is not capitalism.
Second, nor is such a system usually called, as Mises suggests, "syndicalism" but rather mutualism and he obviously considered its most famous advocate, Proudhon and his "fantastic dreams" of a mutual bank, as a socialist. [Op. Cit., p. 88] Significantly, Mises subsequently admitted that it was "misleading" to call syndicalism workers' capitalism, although "the workers are the owners of the means of production" it was "not genuine socialism, that is, centralised socialism", as it "must withdraw productive goods from the market. Individual citizens must not dispose of the shares in the means of production which are allotted to them." Syndicalism, i.e., having those who do the work control of it, was "the ideal of plundering hordes"! [Socialism, p. 274fn, p. 270, p. 273 and p. 275]
His followers, likewise, concluded that "syndicalism" was not capitalism with Hayek stating that there were "many types of socialism" including "communism, syndicalism, guild socialism". Significantly, he indicated that Mises argument was aimed at systems based on the "central direction of all economic activity" and so "earlier systems of more decentralised socialism, like guild-socialism or syndicalism, need not concern us here since it seems now to be fairly generally admitted that they provide no mechanism whatever for a rational direction of economic activity." ["The Nature and History of the Problem", pp. 1-40, Collectivist Economic Planning, F.A von Hayek (ed.),p. 17, p. 36 and p. 19] Sadly he failed to indicate who "generally admitted" such a conclusion. More recently, Murray Rothbard urged the state to impose private shares onto the workers in the former Stalinist regimes of Eastern Europe as ownership was "not to be granted to collectives or co-operatives or workers or peasants holistically, which would only bring back the ills of socialism in a decentralised and chaotic syndicalist form." [The Logic of Action II, p. 210]
Third, syndicalism usually refers to a strategy (revolutionary unionism) used to achieve (libertarian) socialism rather than the goal itself (as Mises himself noted in a tirade against unions, "Syndicalism is nothing else but the French word for trade unionism" [Socialism, p. 480]). It could be argued that such a mutualist system could be an aim for some syndicalists, although most were and still are in favour of libertarian communism (a simple fact apparently unknown to Mises). Indeed, Mises ignorance of syndicalist thought is striking, asserting that the "market is a consumers' democracy. The syndicalists want to transform it into a producers' democracy." [Human Action, p. 809] Most syndicalists, however, aim to abolish the market and all aim for workers' control of production to complement (not replace) consumer choice. Syndicalists, like other anarchists, do not aim for workers' control of consumption as Mises asserts. Given that Mises asserts that the market, in which one person can have a thousand votes and another one, is a "democracy" his ignorance of syndicalist ideas is perhaps only one aspect of a general ignorance of reality.
More importantly, the whole premise of his critique of mutualism is flawed. "Exchange relations in productive goods" he asserted, "can only be established on the basis of private property in the means of production. If the Coal Syndicate delivers coal to the Iron Syndicate a price can be fixed only if both syndicates own the means of production in industry." [Socialism, p. 132] This may come as a surprise to the many companies whose different workplaces sell each other their products! In other words, capitalism itself shows that workplaces owned by the same body (in this case, a large company) can exchange goods via the market. That Mises makes such a statement indicates well the firm basis of his argument in reality. Thus a socialist society can have extensive autonomy for its co-operatives, just as a large capitalist firm can:
"the entrepreneur is in a position to separate the calculation of each part of his total enterprise in such a way that he can determine the role it plays within his whole enterprise. Thus he can look at each section as if it were a separate entity and can appraise it according to the share it contributes to the success of the total enterprise. Within this system of business calculation each section of a firm represents an integral entity, a hypothetical independent business, as it were. It is assumed that this section 'owns' a definite part of the whole capital employed in the enterprise, that it buys from other sections and sells to them, that it has its own expenses and its own revenues, that its dealings result either in a profit or in a loss which is imputed to its own conduct of affairs as distinguished from the result of the other sections. Thus the entrepreneur can assign to each section's management a great deal of independence . . . Every manager and submanager is responsible for the working of his section or subsection. It is to his credit if the accounts show a profit, and it is to his disadvantage if they show a loss. His own interests impel him toward the utmost care and exertion in the conduct of his section's affairs." [Human Action, pp. 301-2]
So much, then, for the notion that common ownership makes it impossible for market socialism to work. After all, the libertarian community can just as easily separate the calculation of each part of its enterprise in such a way as to determine the role each co-operative plays in its economy. It can look at each section as if it were a separate entity and appraise it according to the share it contributes as it is assumed that each section "owns" (i.e., has use rights over) its definite part. It can then buy from, and sell to, other co-operatives and a profit or loss can be imputed to evaluate the independent action of each co-operative and so their own interests impel the co-operative workers toward the utmost care and exertion in the conduct of their co-operative's affairs.
So to refute Mises, we need only repeat what he himself argued about large corporations! Thus there can be extensive autonomy for workplaces under socialism and this does not in any way contradict the fact that "all the means of production are the property of the community." ["Economic Calculation in the Socialist Commonwealth", Op. Cit., p. 89] Socialisation, in other words, does not imply central planning but rather free access and free association. In summary, then, Mises confused property rights with use rights, possession with property, and failed to see now a mutualist system of socialised co-operatives exchanging products can be a viable alternative to the current exploitative and oppressive economic regime.
Such a mutualist economy also strikes at the heart of Mises' claims that socialism was "impossible." Given that he accepted that there may be markets, and hence market prices, for consumer goods in a socialist economy his claims of the impossibility of socialism seems unfounded. For Mises, the problem for socialism was that "because no production-good will ever become the object of exchange, it will be impossible to determine its monetary value." [Op. Cit., p. 92] The flaw in his argument is clear. Taking, for example, coal, we find that it is both a means of production and of consumption. If a market in consumer goods is possible for a socialist system, then competitive prices for production goods is also possible as syndicates producing production-goods would also sell the product of their labour to other syndicates or communes. As Mises admitted when discussing one scheme of guild socialism, "associations and sub-associations maintain a mutual exchange-relationship; they receive and give as if they were owners. Thus a market and market-prices are formed." Thus, when deciding upon a new workplace, railway or house, the designers in question do have access to competitive prices with which to make their decisions. Nor does Mises' argument work against communal ownership in such a system as the commune would be buying products from syndicates in the same way as one part of a company can buy products from another part of the same company under capitalism. That goods produced by self-managed syndicates have market-prices does not imply capitalism for, as they abolish wage labour and are based on free-access (socialisation), it is a form of socialism (as socialists define it, Mises' protestations that "this is incompatible with socialism" not-with-standing!). [Socialism, p. 518]
Murray Rothbard suggested that a self-managed system would fail, and a system "composed exclusively of self-managed enterprises is impossible, and would lead . . . to calculative chaos and complete breakdown." When "each firm is owned jointly by all factor-owners" then "there is no separation at all between workers, landowners, capitalists, and entrepreneurs. There would be no way, then, of separating the wage incomes received from the interest or rent incomes or profits received. And now we finally arrive at the real reason why the economy cannot consist completely of such firms (called 'producers' co-operatives'). For, without an external market for wage rates, rents, and interest, there would be no rational way for entrepreneurs to allocate factors in accordance with the wishes of the consumers. No one would know where he could allocate his land or his labour to provide the maximum monetary gains. No entrepreneur would know how to arrange factors in their most value-productive combination to earn greatest profit. There could be no efficiency in production because the requisite knowledge would be lacking." [quoted by David L. Prychitko, Markets, Planning and Democracy, p. 135 and p. 136]
It is hard to take this argument seriously. Consider, for example, a pre-capitalist society of farmers and artisans. Both groups of people own their own means of production (the land and the tools they use). The farmers grow crops for the artisans who, in turn, provide the farmers with the tools they use. According to Rothbard, the farmers would have no idea what to grow nor would the artisans know which tools to buy to meet the demand of the farmers nor which to use to reduce their working time. Presumably, both the farmers and artisans would stay awake at night worrying what to produce, wishing they had a landlord and boss to tell them how best to use their labour and resources.
Let us add the landlord class to this society. Now the landlord can tell the farmer what to grow as their rent income indicates how to allocate the land to its most productive use. Except, of course, it is still the farmers who decide what to produce. Knowing that they will need to pay rent (for access to the land) they will decide to devote their (rented) land to the most profitable use in order to both pay the rent and have enough to live on. Why they do not seek the most profitable use without the need for rent is not explored by Rothbard. Much the same can be said of artisans subject to a boss, for the worker can evaluate whether an investment in a specific new tool will result in more income or reduced time labouring or whether a new product will likely meet the needs of consumers. Moving from a pre-capitalist society to a post-capitalist one, it is clear that a system of self-managed co-operatives can make the same decisions without requiring economic masters. This is unsurprising, given that Mises' asserted that the boss "of course exercises power over the workers" but that the "lord of production is the consumer." [Socialism, p. 443] In which case, the boss need not be an intermediary between the real "lord" and those who do the production!
All in all, Rothbard confirms Kropotkin's comments that economics ("that pseudo-science of the bourgeoisie") "does not cease to give praise in every way to the benefits of individual property" yet "the economists do not conclude, 'The land to him who cultivates it.' On the contrary, they hasten to deduce from the situation, 'The land to the lord who will get it cultivated by wage earners!'" [Words of a Rebel, pp. 209-10] In addition, Rothbard implicitly places "efficiency" above liberty, preferring dubious "efficiency" gains to the actual gains in freedom which the abolition of workplace autocracy would create. Given a choice between liberty and "efficiency", the genuine anarchist would prefer liberty. Luckily, though, workplace liberty increases efficiency so Rothbard's decision is a wrong one. It should also be noted that Rothbard's position (as is usually the case) is directly opposite that of Proudhon, who considered it "inevitable" that in a free society "the two functions of wage-labourer on the one hand, and of proprietor-capitalist-contractor on the other, become equal and inseparable in the person of every workingman". This was the "first principle of the new economy, a principle full of hope and of consolation for the labourer without capital, but a principle full of terror for the parasite and for the tools of parasitism, who see reduced to naught their celebrated formula: Capital, labour, talent!" [Proudhon's Solution of the Social Problem, p. 165 and p. 85]
And it does seem a strange co-incidence that someone born into a capitalist economy, ideologically supporting it with a passion and seeking to justify its class system just happens to deduce from a given set of axioms that landlords and capitalists happen to play a vital role in the economy! It would not take too much time to determine if someone in a society without landlords or capitalists would also logically deduce from the same axioms the pressing economic necessity for such classes. Nor would it take long to ponder why Greek philosophers, like Aristotle, concluded that slavery was natural. And it does seem strange that centuries of coercion, authority, statism, classes and hierarchies all had absolutely no impact on how society evolved, as the end product of real history (the capitalist economy) just happens to be the same as Rothbard's deductions from a few assumptions predict. Little wonder, then, that "Austrian" economics seems more like rationalisations for some ideologically desired result than a serious economic analysis.
Even some dissident "Austrian" economists recognise the weakness of Rothbard's position. Thus "Rothbard clearly misunderstands the general principle behind producer co-operatives and self-management in general." In reality, "[a]s a democratic method of enterprise organisation, workers' self-management is, in principle, fully compatible with a market system" and so "a market economy comprised of self-managed enterprises is consistent with Austrian School theory . . . It is fundamentally a market-based system . . . that doesn't seem to face the epistemological hurdles . . . that prohibit rational economic calculation" under state socialism. Sadly, socialism is still equated with central planning, for such a system "is certainly not socialism. Nor, however, is it capitalism in the conventional sense of the term." In fact, it is not capitalism at all and if we assume that free access to resources such as workplaces and credit, then it most definitely is socialism ("Legal ownership is not the chief issue in defining workers' self-management -- management is. Worker-managers, though not necessarily the legal owners of all the factors of production collected within the firm, are free to experiment and establish enterprise policy as they see fit."). [David L. Prychitko, Op. Cit., p. 136, p. 135, pp. 4-5, p. 4 and p. 135] This suggests that non-labour factors can be purchased from other co-operatives, credit provided by mutual banks (credit co-operatives) at cost and so forth. As such, a mutualist system is perfectly feasible.
Thus economic calculation based on competitive market prices is possible under a socialist system. Indeed, we see examples of this even under capitalism. For example, the Mondragon co-operative complex in the Basque Country indicate that a libertarian socialist economy can exist and flourish. Perhaps it will be suggested that an economy needs stock markets to price companies, as Mises did. Thus investment is "not a matter for the mangers of joint stock companies, it is essentially a matter of the capitalists" in the "stock exchanges". Investment, he asserted, was "not a matter of wages" of managers but of "the capitalist who buys and sell stocks and shares, who make loans and recover them, who make deposits in the banks." [Socialism, p. 139]
It would be churlish to note that the members of co-operatives under capitalism, like most working class people, are more than able to make deposits in banks and arrange loans. In a mutualist economy, workers will not loose this ability just because the banks are themselves co-operatives. Similarly, it would be equally churlish but essential to note that the stock market is hardly the means by which capital is actually raised within capitalism. As David Engler points out, "[s]upporters of the system . . . claim that stock exchanges mobilise funds for business. Do they? When people buy and sell shares, 'no investment goes into company treasuries . . . Shares simply change hands for cash in endless repetition.' Company treasuries get funds only from new equity issues. These accounted for an average of a mere 0.5 per cent of shares trading in the US during the 1980s." [Apostles of Greed, pp. 157-158] This is echoed by David Ellerman:
"In spite of the stock market's large symbolic value, it is notorious that it has relatively little to do with the production of goods and services in the economy (the gambling industry aside). The overwhelming bulk of stock transactions are in second-hand shares so that the capital paid for shares usually goes to other stock traders, not to productive enterprises issuing new shares." [The Democratic Worker-Owned Firm, p. 199]
This suggests that the "efficient allocation of capital in production does not require a stock market (witness the small business sector [under capitalism])." "Socialist firms," he notes, "are routinely attacked as being inherently inefficient because they have no equity shares exposed to market valuation. If this argument had any merit, it would imply that the whole sector of unquoted closely-held small and medium-sized firms in the West was 'inherently inefficient' -- a conclusion that must be viewed with some scepticism. Indeed, in the comparison to large corporations with publicly-traded shares, the closely-held firms are probably more efficient users of capital." [Op. Cit., p. 200 and p. 199]
In terms of the impact of the stock market on the economy there is good reason to think that this hinders economic efficiency by generating a perverse set of incentives and misleading information flows and so their abolition would actually aid production and productive efficiency).
Taking the first issue, the existence of a stock market has serious (negative) effects on investment. As Doug Henwood notes, there "are serious communication problems between managers and shareholders." This is because "[e]ven if participants are aware of an upward bias to earnings estimates [of companies], and even if they correct for it, managers would still have an incentive to try to fool the market. If you tell the truth, your accurate estimate will be marked down by a sceptical market. So, it's entirely rational for managers to boost profits in the short term, either through accounting gimmickry or by making only investments with quick paybacks." So, managers "facing a market [the stock market] that is famous for its preference for quick profits today rather than patient long-term growth have little choice but to do its bidding. Otherwise, their stock will be marked down, and the firm ripe for take-over." While "[f]irms and economies can't get richer by starving themselves" stock market investors "can get richer when the companies they own go hungry -- at least in the short term. As for the long term, well, that's someone else's problem the week after next." [Wall Street, p. 171]
Ironically, this situation has a parallel with Stalinist central planning. Under that system the managers of State workplaces had an incentive to lie about their capacity to the planning bureaucracy. The planner would, in turn, assume higher capacity, so harming honest managers and encouraging them to lie. This, of course, had a seriously bad impact on the economy. Unsurprisingly, the similar effects caused by capital markets on economies subject to them are as bad as well as downplaying long term issues and investment. In addition, it should be noted that stock-markets regularly experiences bubbles and subsequent bursts. Stock markets may reflect the collective judgements of investors, but it says little about the quality of those judgements. What use are stock prices if they simply reflect herd mentality, the delusions of people ignorant of the real economy or who fail to see a bubble? Particularly when the real-world impact when such bubbles burst can be devastating to those uninvolved with the stock market?
In summary, then, firms are "over-whelmingly self-financing -- that is, most of their investment expenditures are funded through profits (about 90%, on longer-term averages)" The stock markets provide "only a sliver of investment funds." There are, of course, some "periods like the 1990s, during which the stock market serves as a conduit for shovelling huge amounts of cash into speculative venues, most of which have evaporated . . . Much, maybe most, of what was financed in the 1990s didn't deserve the money." Such booms do not last forever and are "no advertisement for the efficiency of our capital markets." [Henwood, After the New Economy, p. 187 and p. 188]
Thus there is substantial reason to question the suggestion that a stock market is necessary for the efficient allocation of capital. There is no need for capital markets in a system based on mutual banks and networks of co-operatives. As Henwood concludes, "the signals emitted by the stock market are either irrelevant or harmful to real economic activity, and that the stock market itself counts little or nothing as a source of finance. Shareholders . . . have no useful role." [Wall Street, p. 292]
Then there is also the ironic nature of Rothbard's assertion that self-management would ensure there "could be no efficiency in production because the requisite knowledge would be lacking." This is because capitalist firms are hierarchies, based on top-down central planning, and this hinders the free flow of knowledge and information. As with Stalinism, within the capitalist firm information passes up the organisational hierarchy and becomes increasingly simplified and important local knowledge and details lost (when not deliberately falsified to ensure continual employment by suppressing bad news). The top-management takes decisions based on highly aggregated data, the quality of which is hard to know. The management, then, suffers from information and knowledge deficiencies while the workers below lack sufficient autonomy to act to correct inefficiencies as well as incentive to communicate accurate information and act to improve the production process. As Cornelius Castoriadis correctly noted:
"Bureaucratic planning is nothing but the extension to the economy as a whole of the methods created and applied by capitalism in the 'rational' direction of large production units. If we consider the most profound feature of the economy, the concrete situation in which people are placed, we see that bureaucratic planning is the most highly perfected realisation of the spirit of capitalism; it pushes to the limit its most significant tendencies. Just as in the management of a large capitalist production unit, this type of planning is carried out by a separate stratum of managers . . . Its essence, like that of capitalist production, lies in an effort to reduce the direct producers to the role of pure and simple executants of received orders, orders formulated by a particular stratum that pursues its own interests. This stratum cannot run things well, just as the management apparatus . . . [in capitalist] factories cannot run things well. The myth of capitalism's productive efficiency at the level of the individual factory, a myth shared by bourgeois and Stalinist ideologues alike, cannot stand up to the most elemental examination of the facts, and any industrial worker could draw up a devastating indictment against capitalist 'rationalisation' judged on its own terms.
"First of all, the managerial bureaucracy does not know what it is supposed to be managing. The reality of production escapes it, for this reality is nothing but the activity of the producers, and the producers do not inform the managers . . . about what is really taking place. Quite often they organise themselves in such a way that the managers won't be informed (in order to avoid increased exploitation, because they feel antagonistic, or quite simply because they have no interest: It isn't their business).
"In the second place, the way in which production is organised is set up entirely against the workers. They always are being asked, one way or another, to do more work without getting paid for it. Management's orders, therefore, inevitably meet with fierce resistance on the part of those who have to carry them out." [Political and Social Writings, vol. 2, pp. 62-3]This is "the same objection as that Hayek raises against the possibility of a planned economy. Indeed, the epistemological problems that Hayek raised against centralised planned economies have been echoed within the socialist tradition as a problem within the capitalist firm." There is "a real conflict within the firm that parallels that which Hayek makes about any centralised economy." [John O'Neill, The Market, p. 142] This is because workers have knowledge about their work and workplace that their bosses lack and a self-managed co-operative workplace would motivate workers to use such information to improve the firm's performance. In a capitalist workplace, as in a Stalinist economy, the workers have no incentive to communicate this information as "improvements in the organisation and methods of production initiated by workers essentially profit capital, which often then seizes hold of them and turns them against the workers. The workers know it and consequently they restrict their participation in production . . . They restrict their output; they keep their ideas to themselves . . . They organise among themselves to carry out their work, all the while keeping up a facade of respect for the official way they are supposed to organise their work." [Castoriadis, Op. Cit., pp. 181-2] An obvious example would be concerns that management would seek to monopolise the workers' knowledge in order to accumulate more profits, better control the workforce or replace them (using the higher productivity as an excuse). Thus self-management rather than hierarchy enhances the flow and use of information in complex organisations and so improves efficiency. This conclusion, it should be stressed, is not idle speculation and that Mises was utterly wrong in his assertions related to self-management. People, he stated, "err" in thinking that profit-sharing "would spur the worker on to a more zealous fulfilment of his duties" (indeed, it "must lead straight to Syndicalism") and it was "nonsensical to give 'labour' . . . a share in management. The realisation of such a postulate would result in syndicalism." [Socialism, p. 268, p. 269 and p. 305] Yet, as we note in section I.3.2, the empirical evidence is overwhelmingly against Mises (which suggests why "Austrians" are so dismissive of empirical evidence, as it exposes flaws in the great chains of deductive reasoning they so love). In fact, workers' participation in management and profit sharing enhance productivity. In one sense, though, Mises is right, in that capitalist firms will tend not to encourage participation or even profit sharing as it shows to workers the awkward fact that while the bosses may need them, they do not need the bosses. As discussed in section J.5.12, bosses are fearful that such schemes will lead to "syndicalism" and so quickly stop them in order to remain in power -- in spite (or, more accurately, because) of the efficiency and productivity gains they result in.
"Both capitalism and state socialism," summarises Ellerman, "suffer from the motivational inefficiency of the employment relation." Op. Cit., pp. 210-1] Mutualism would be more efficient as well as freer for, once the stock market and workplace hierarchies are removed, serious blocks and distortions to information flow will be eliminated.
Unfortunately, the state socialists who replied to Mises in the 1920s and 1930s did not have such a libertarian economy in mind. In response to Mises initial challenge, a number of economists pointed out that Pareto's disciple, Enrico Barone, had already, 13 years earlier, demonstrated the theoretical possibility of a "market-simulated socialism." However, the principal attack on Mises's argument came from Fred Taylor and Oscar Lange (for a collection of their main papers, see On the Economic Theory of Socialism). In light of their work, Hayek shifted the question from theoretical impossibility to whether the theoretical solution could be approximated in practice. Which raises an interesting question, for if (state) socialism is "impossible" (as Mises assured us) then what did collapse in Eastern Europe? If the "Austrians" claim it was "socialism" then they are in the somewhat awkward position that something they assure us is "impossible" existed for decades. Moreover, it should be noted that both sides of the argument accepted the idea of central planning of some kind or another. This means that most of the arguments of Mises and Hayek did not apply to libertarian socialism, which rejects central planning along with every other form of centralisation.
Nor was the response by Taylor and Lange particularly convincing in the first place. This was because it was based far more on neo-classical capitalist economic theory than on an appreciation of reality. In place of the Walrasian "Auctioneer" (the "god in the machine" of general equilibrium theory which ensures that all markets clear) Taylor and Lange presented the "Central Planning Board" whose job it was to adjust prices so that all markets cleared. Neo-classical economists who are inclined to accept Walrasian theory as an adequate account of a working capitalist economy will be forced to accept the validity of their model of "socialism." Little wonder Taylor and Lange were considered, at the time, the victors in the "socialist calculation" debate by most of the economics profession (with the collapse of the Soviet Union, this decision has been revised somewhat -- although we must point out that Taylor and Lange's model was not the same as the Soviet system, a fact conveniently ignored by commentators).
Unfortunately, given that Walrasian theory has little bearing to reality, we must also come to the conclusion that the Taylor-Lange "solution" has about the same relevance (even ignoring its non-libertarian aspects, such as its basis in state-ownership, its centralisation, its lack of workers' self-management and so on). Many people consider Taylor and Lange as fore-runners of "market socialism." This is incorrect -- rather than being market socialists, they are in fact "neo-classical" socialists, building a "socialist" system which mimics capitalist economic theory rather than its reality. Replacing Walrus's mythical creation of the "Auctioneer" with a planning board does not really get to the heart of the problem! Nor does their vision of "socialism" have much appeal -- a re-production of capitalism with a planning board and a more equal distribution of money income. Anarchists reject such "socialism" as little more than a nicer version of capitalism, if that.
With the collapse of the Soviet Union, it has been fashionable to assert that "Mises was right" and that socialism is impossible (of course, during the cold war such claims were ignored as the Soviet threat had to boosted and used as a means of social control and to justify state aid to capitalist industry). Nothing could be further from the truth as these countries were not socialist at all and did not even approximate the (libertarian) socialist idea (the only true form of socialism). The Stalinist countries had authoritarian "command economies" with bureaucratic central planning, and so their failure cannot be taken as proof that a decentralised, libertarian socialism cannot work. Nor can Mises' and Hayek's arguments against Taylor and Lange be used against a libertarian mutualist or collectivist system as such a system is decentralised and dynamic (unlike the "neo-classical" socialist model). Libertarian socialism of this kind did, in fact, work remarkably well during the Spanish Revolution in the face of amazing difficulties, with increased productivity and output in many workplaces as well as increased equality and liberty (see section I.8).
Thus the "calculation argument" does not prove that socialism is impossible. Mises was wrong in asserting that "a socialist system with a market and market prices is as self-contradictory as is the notion of a triangular square." [Human Action, p. 706] This is because capitalism is not defined by markets as such but rather by wage labour, a situation where working class people do not have free access to the means of production and so have to sell their labour (and so liberty) to those who do. If quoting Engels is not too out of place, the "object of production -- to produce commodities -- does not import to the instrument the character of capital" as the "production of commodities is one of the preconditions for the existence of capital . . . as long as the producer sells only what he himself produces, he is not a capitalist; he becomes so only from the moment he makes use of his instrument to exploit the wage labour of others." [Collected Works, Vol. 47, pp. 179-80] In this, as noted in section C.2.1, Engels was merely echoing Marx (who, in turn, was simply repeating Proudhon's distinction between property and possession). As mutualism eliminates wage labour by self-management and free access to the means of production, its use of markets and prices (both of which pre-date capitalism) does not mean it is not socialist (and as we note in section G.1.1 Marx, Engels, Bakunin and Kropotkin, like Mises, acknowledged Proudhon as being a socialist). This focus on the market, as David Schweickart suggests, is no accident:
"The identification of capitalism with the market is a pernicious error of both conservative defenders of laissez-faire [capitalism] and most left opponents . . . If one looks at the works of the major apologists for capitalism . . . one finds the focus of the apology always on the virtues of the market and on the vices of central planning. Rhetorically this is an effective strategy, for it is much easier to defend the market than to defend the other two defining institutions of capitalism. Proponents of capitalism know well that it is better to keep attention toward the market and away from wage labour or private ownership of the means of production." ["Market Socialism: A Defense", pp. 7-22, Market Socialism: the debate among socialists, Bertell Ollman (ed.), p. 11]
The theoretical work of such socialists as David Schweickart (see his books Against Capitalism and After Capitalism) present an extensive discussion of a dynamic, decentralised market socialist system which has obvious similarities with mutualism -- a link which some Leninists recognise and stress in order to discredit market socialism via guilt-by-association (Proudhon "the anarchist and inveterate foe of Karl Marx . . . put forward a conception of society, which is probably the first detailed exposition of a 'socialist market.'" [Hillel Ticktin, "The Problem is Market Socialism", pp. 55-80, Op. Cit., p. 56]). So far, most models of market socialism have not been fully libertarian, but instead involve the idea of workers' control within a framework of state ownership of capital (Engler in Apostles of Greed is an exception to this, supporting community ownership). Ironically, while these Leninists reject the idea of market socialism as contradictory and, basically, not socialist they usually acknowledge that the transition to Marxist-communism under their workers' state would utilise the market.
So, as anarchist Robert Graham points out, "Market socialism is but one of the ideas defended by Proudhon which is both timely and controversial . . . Proudhon's market socialism is indissolubly linked with his notions of industrial democracy and workers' self-management." ["Introduction", P-J Proudhon, General Idea of the Revolution, p. xxxii] As we discuss in section I.3.5 Proudhon's system of agro-industrial federations can be seen as a non-statist way of protecting self-management, liberty and equality in the face of market forces (Proudhon, unlike individualist anarchists, was well aware of the negative aspects of markets and the way market forces can disrupt society). Dissident economist Geoffrey M. Hodgson is right to suggest that Proudhon's system, in which "each co-operative association would be able to enter into contractual relations with others", could be "described as an early form of 'market socialism'". In fact, "instead of Lange-type models, the term 'market socialism' is more appropriately to such systems. Market socialism, in this more appropriate and meaningful sense, involves producer co-operatives that are owned by the workers within them. Such co-operatives sell their products on markets, with genuine exchanges of property rights" (somewhat annoyingly, Hodgson incorrectly asserts that "Proudhon described himself as an anarchist, not a socialist" when, in reality, the French anarchist repeatedly referred to himself and his mutualist system as socialist). [Economics and Utopia, p. 20, p. 37 and p. 20]
Thus it is possible for a socialist economy to allocate resources using markets. By suppressing capital markets and workplace hierarchies, a mutualist system will improve upon capitalism by removing an important source of perverse incentives which hinder efficient use of resources as well as long term investment and social responsibility in addition to reducing inequalities and increasing freedom. As David Ellerman once noted, many "still look at the world in bipolar terms: capitalism or (state) socialism." Yet there "are two broad traditions of socialism: state socialism and self-management socialism. State socialism is based on government ownership of major industry, while self-management socialism envisions firms being worker self-managed and not owned or managed by the government." [Op. Cit., p. 147] Mutualism is a version of the second vision and anarchists reject the cosy agreement between mainstream Marxists and their ideological opponents on the propertarian right that only state socialism is "real" socialism.
Finally, it should be noted that most anarchists are not mutualists but rather aim for (libertarian) communism, the abolition of money. Many do see a mutualist-like system as an inevitable stage in a social revolution, the transitional form imposed by the objective conditions facing a transformation of a society marked by thousands of years of oppression and exploitation (collectivist-anarchism contains elements of both mutualism and communism, with most of its supporters seeing it as a transitional system). This is discussed in section I.2.2, while section I.1.3 indicates why most anarchists reject even non-capitalist markets. So does Mises's argument mean that a socialism that abolishes the market (such as libertarian communism) is impossible? Given that the vast majority of anarchists seek a libertarian communist society, this is an important question. We address it in the next section.
In a word, no. While the "calculation argument" (see last section) is often used by propertarians (so-called right-wing "libertarians") as the basis for the argument that communism (a moneyless society) is impossible, it is based on certain false ideas of what prices do, the nature of the market and how a communist-anarchist society would function. This is hardly surprising, as Mises based his theory on a variation of neo-classical economics and the Marxist social-democratic (and so Leninist) ideas of what a "socialist" economy would look like. So there has been little discussion of what a true (i.e. libertarian) communist society would be like, one that utterly transformed the existing conditions of production by workers' self-management and the abolition of both wage-labour and money. However, it is useful here to indicate exactly why communism would work and why the "calculation argument" is flawed as an objection to it.
Mises argued that without money there was no way a socialist economy would make "rational" production decisions. Not even Mises denied that a moneyless society could estimate what is likely to be needed over a given period of time (as expressed as physical quantities of definite types and sorts of objects). As he argued, "calculation in natura in an economy without exchange can embrace consumption-goods only." His argument was that the next step, working out which productive methods to employ, would not be possible, or at least would not be able to be done "rationally," i.e. avoiding waste and inefficiency. The evaluation of producer goods "can only be done with some kind of economic calculation. The human mind cannot orient itself properly among the bewildering mass of intermediate products and potentialities without such aid. It would simply stand perplexed before the problems of management and location." Thus we would quickly see "the spectacle of a socialist economic order floundering in the ocean of possible and conceivable economic combinations without the compass of economic calculation." ["Economic Calculation in the Socialist Commonwealth", pp. 87-130, Collectivist Economic Planning, F.A. von Hayek (ed.), p. 104, p. 103 and p. 110] Hence the claim that monetary calculation based on market prices is the only solution.
This argument is not without its force. How can a producer be expected to know if tin is a better use of resources than iron when creating a product if all they know is that iron and tin are available and suitable for their purpose? Or, if we have a consumer good which can be made with A + 2B or 2A + B (where A and B are both input factors such as steel, oil electricity, etc.) how can we tell which method is more efficient (i.e. which one used least resources and so left the most over for other uses)? With market prices, Mises' argued, it is simple. If A cost $10 and B $5, then clearly method one would be the most efficient ($20 versus $25). Without the market, Mises argued, such a decision would be impossible and so every decision would be "groping in the dark." [Op. Cit., p. 110]
Mises' argument rests on three flawed assumptions, two against communism and one for capitalism. The first two negative assumptions are that communism entails central planning and that it is impossible to make investment decisions without money values. We discuss why each is wrong in this section. Mises' positive assumption for capitalism, namely that markets allow exact and efficient allocation of resources, is discussed in section I.1.5.
Firstly, Mises assumes a centralised planned economy. As Hayek summarised, the crux of the matter was "the impossibility of a rational calculation in a centrally directed economy from which prices are necessarily absent", one which "involves planning on a most extensive scale -- minute direction of practically all productive activity by one central authority". Thus the "one central authority has to solve the economic problem of distributing a limited amount of resources between a practically infinite number of competing purposes" with "a reasonable degree of accuracy, with a degree of success equally or approaching the results of competitive capitalism" is what "constitutes the problem of socialism as a method." ["The Nature and History of the Problem", pp. 1-40, Op. Cit., p. 35, p. 19 and pp. 16-7]
While this was a common idea in Marxian social democracy (and the Leninism that came from it), centralised organisations are rejected by anarchism. As Bakunin argued, "where are the intellects powerful enough to embrace the infinite multiplicity and diversity of real interests, aspirations, wishes, and needs which sum up the collective will of the people? And to invent a social organisation that will not be a Procrustean bed upon which the violence of the State will more or less overtly force unhappy society to stretch out?" Moreover, a socialist government, "unless it were endowed with omniscience, omnipresence, and the omnipotence which the theologians attribute to God, could not possibly know and foresee the needs of its people, or satisfy with an even justice those interests which are most legitimate and pressing." [Bakunin on Anarchism, pp. 268-9 and p. 318] For Malatesta, such a system would require "immense centralisation" and would either be "an impossible thing to achieve, or, if possible, would end up as a colossal and very complex tyranny." [At the Café, p. 65]
Kropotkin, likewise, dismissed the notion of central planning as the "economic changes that will result from the social revolution will be so immense and so profound . . . that it will be impossible for one or even a number of individuals to elaborate the social forms to which a further society must give birth. The elaboration of new social forms can only be the collective work of the masses." [Words of a Rebel, p. 175] The notion that a "strongly centralised Government" could "command that a prescribed quantity" of a good "be sent to such a place on such a day" and be "received on a given day by a specified official and stored in particular warehouses" was not only "undesirable" but also "wildly Utopian." During his discussion of the benefits of free agreement against state tutelage, Kropotkin noted that only the former allowed the utilisation of "the co-operation, the enthusiasm, the local knowledge" of the people. [The Conquest of Bread, pp. 82-3 and p. 137]
Kropotkin's own experience had shown how the "high functionaries" of the Tsarist bureaucracy "were simply charming in their innocent ignorance" of the areas they were meant to be administrating and how, thanks to Marxism, the socialist ideal had "lost the character of something that had to be worked out by the labour organisations themselves, and became state management of industries -- in fact, state socialism; that is, state capitalism." As an anarchist, he knew that governments become "isolated from the masses" and so "the very success of socialism" required "the ideas of no-government, of self-reliance, of free initiative of the individual" to be "preached side by side with those of socialised ownership and production." Thus it was essential that socialism was decentralised, federal and participatory, that the "structure of the society which we longed for" was "worked out, in theory and practice, from beneath" in by "all labour unions" with "a full knowledge of local needs of each trade and each locality." [Memoirs of a Revolutionist, p. 184, p. 360, p. 374-5 and p. 376]
So anarchists can agree with Mises that central planning cannot work in practice as its advocates hope. Or, more correctly, Mises agreed with the anarchists, as we had opposed central planning first. We have long recognised that no small body of people can be expected to know what happens in society and plan accordingly ("No single brain nor any bureau of brains can see to this organisation." [Issac Puente, Libertarian Communism, p. 29]). Moreover, there is the pressing question of freedom as well, for "the despotism of [the 'socialist'] State would be equal to the despotism of the present state, increased by the economic despotism of all the capital which would pass into the hands of the State, and the whole would be multiplied by all the centralisation necessary for this new State. And it is for this reason that we, the Anarchists, friends of liberty, we intend to fight them to the end." [Carlo Cafiero, "Anarchy and Communism", pp. 179-86, The Raven, No. 6, p. 179]
As John O'Neill summarises, the "argument against centralised planning is one that has been articulated within the history of socialist planning as an argument for democratic and decentralised decision making." [The Market, p. 132] So, for good economic and political reasons, anarchists reject central planning. This central libertarian socialist position feeds directly into refuting Mises' argument, for while a centralised system would need to compare a large ("infinite") number of possible alternatives to a large number of possible needs, this is not the case in a decentralised system. Rather than a vast multitude of alternatives which would swamp a centralised planning agency, one workplace comparing different alternatives to meet a specific need faces a much lower number of possibilities as the objective technical requirements (use-values) of a project are known and so local knowledge will eliminate most of the options available to a small number which can be directly compared.
As such, removing the assumption of a central planning body automatically drains Mises' critique of much of its force -- rather than an "the ocean of possible and conceivable economic combinations" faced by a central body, a specific workplace or community has a more limited number of possible solutions for a limited number of requirements. Moreover, any complex machine is a product of less complex goods, meaning that the workplace is a consumer of other workplace's goods. If, as Mises admitted, a customer can decide between consumption goods without the need for money then the user and producer of a "higher order" good can decide between consumption goods required to meet their needs.
In terms of decision making, it is true that a centralised planning agency would be swamped by the multiple options available to it. However, in a decentralised socialist system individual workplaces and communes would be deciding between a much smaller number of alternatives. Moreover, unlike a centralised system, the individual firm or commune knows exactly what is required to meet its needs, and so the number of possible alternatives is reduced as well (for example, certain materials are simply technically unsuitable for certain tasks).
Mises' other assumption is equally flawed. This is that without the market, no information is passed between producers beyond the final outcome of production. In other words, he assumed that the final product is all that counts in evaluating its use. Needless to say, it is true that without more information than the name of a given product it is impossible to determine whether using it would be an efficient utilisation of resources. Yet more information can be provided which can be used to inform decision making. As socialists Adam Buick and John Crump point out, "at the level of the individual production unit or industry, the only calculations that would be necessary in socialism would be calculations in kind. On the one side would be recorded the resources (materials, energy, equipment, labour) used up in production and on the other the amount of good produced, together with any by-products. . . . Socialist production is simply the production of use values from use values, and nothing more." [State Capitalism: The Wages System Under New Management, p. 137] Thus any good used as an input into a production process would require the communication of this kind of information.
The generation and communication of such information implies a decentralised, horizontal network between producers and consumers. This is because what counts as a use-value can only be determined by those directly using it. Thus the production of use-values from use-values cannot be achieved via central planning, as the central planners have no notion of the use-value of the goods being used or produced. Such knowledge lies in many hands, dispersed throughout society, and so socialist production implies decentralisation. Capitalist ideologues claim that the market allows the utilisation of such dispersed knowledge, but as John O'Neill notes, "the market may be one way in which dispersed knowledge can be put to good effect. It is not . . . the only way". "The strength of the epistemological argument for the market depends in part on the implausibility of assuming that all knowledge could be centralised upon some particular planning agency" he stresses, but Mises' "argument ignores, however, the existence of the decentralised but predominantly non-market institutions for the distribution of knowledge . . . The assumption that only the market can co-ordinate dispersed non-vocalisable knowledge is false." [Op. Cit., p. 118 and p. 132]
So, in order to determine if a specific good is useful to a person, that person needs to know its "cost." Under capitalism, the notion of cost has been so associated with price that we have to put the word "cost" in quotation marks. However, the real cost of, say, writing a book, is not a sum of money but so much paper, so much energy, so much ink, so much human labour. In order to make a rational decision on whether a given good is better for meeting a given need than another, the would-be consumer requires this information. However, under capitalism this information is hidden by the price.
Somewhat ironically, given how "Austrian" economics tends to stress that the informational limitations are at the root of its "impossibility" of socialism, the fact is that the market hides a significant amount of essential information required to make a sensible investment decision. This can be seen from an analysis of Mises' discussion on why labour-time cannot replace money as a decision-making tool. Using labour, he argued, "leaves the employment of material factors of production out of account" and presents an example of two goods, P and Q, which take 10 hours to produce. P takes 8 hours of labour, plus 2 units of raw material A (which is produced by an hour's socially necessary labour). Q takes 9 hours of labour and one unit of A. He asserts that in terms of labour P and Q "are equivalent, but in value terms P is more valuable than Q. The former is false, and only the later corresponds to the nature and purpose of calculation." ["Economic Calculation in the Socialist Commonwealth", Op. Cit., p. 113]
The flaw in his argument is clear. Assuming that an hour of socially necessary labour is £10 then, in price terms, P would have £80 of direct labour costs, with £20 of raw material A while Q would have £90 of direct labour and £10 of A. Both cost £100 so it hard to see how this "corresponds to the nature and purpose of calculation"! Using less of raw material A is a judgement made in addition to "calculation" in this example. The question of whether to economise on the use of A simply cannot be made using prices. If P, for example, can only be produced via a more ecologically destructive process than Q or if the work process by which P is created is marked by dull, mindless work but Q's is more satisfying for the people involved than Q may be considered a better decision. Sadly, that kind of information is not communicated by the price mechanism.
As John O'Neill points out, "Mises' earlier arguments against socialist planning turned on an assumption about commensurability. His central argument was that rational economic decision-making required a single measure on the basis of which the worth of alternative states of affairs could be calculated and compared." [Ecology, Policy and Politics, p. 115] This central assumption was unchallenged by Taylor and Lange in their defence of "socialism", meaning that from the start the debate against Mises was defensive and based on the argument that socialist planning could mimic the market and produce results which were efficient from a capitalist point of view.
Anarchists question whether using prices means basing all decision making on one criterion and ignoring all others is a rational thing to do. As O'Neill suggests, "the relative scarcity of items . . . hardly exhaust the full gamut of information that is distributed throughout society which might be relevant to the co-ordination of economic activities and plans." [The Market, p. 196] Saying that a good costs £10 does not tell you much about the amount of pollution its production or use generates, under what conditions of labour it was produced, whether its price is affected by the market power of the firm producing it, whether it is produced in an ecologically sustainable way, and so forth. Similarly, saying that another, similar, good costs £9 does not tell you whether than £1 difference is due to a more efficient use of inputs or whether it is caused by imposing pollution onto the planet.
And do prices actually reflect costs? The question of profit, the reward for owning capital and allowing others to use it, is hardly a cost in the same way as labour, resources and so on (attempts to explain profits as an equivalent sacrifice as labour have always been ridiculous and quickly dropped). When looking at prices to evaluate efficient use for goods, you cannot actually tell by the price if this is so. Two goods may have the same price, but profit levels (perhaps under the influence of market power) may be such that one has a higher cost price than another. The price mechanism fails to indicate which uses least resources as it is influenced by market power. Indeed, as Takis Fotopoulos notes, "[i]f . . . both central planning and the market economy inevitably lead to concentrations of power, then neither the former nor the latter can produce the sort of information flows and incentives which are necessary for the best functioning of any economic system." [Towards an Inclusive Democracy, p. 252] Moreover, a good produced under a authoritarian state which represses its workforce could have a lower price than one produced in a country which allowed unions to organise and has basic human rights. The repression would force down the cost of labour, so making the good in question appear as a more "efficient" use of resources. In other words, the market can mask inhumanity as "efficiency" and actually reward that behaviour by market share.
In other words, market prices can be horribly distorted in that they ignore quality issues. Exchanges therefore occur in light of false information and, moreover, with anti-social motivations -- to maximise short-term surplus for the capitalists regardless of losses to others. Thus they distort valuations and impose a crass, narrow and ultimately self-defeating individualism. Prices are shaped by more than costs, with, for example, market power increasing market prices far higher than actual costs. Market prices also fail to take into account public goods and so bias allocation choices against them not to mention ignoring the effects on the wider society, i.e. beyond the direct buyers and sellers. Similarly, in order to make rational decisions relating to using a good, you need to know why the price has changed for if a change is permanent or transient implies different responses. Thus the current price is not enough in itself. Has the good become more expensive temporarily, due, say, to a strike? Or is it because the supply of the resource has been exhausted? Actions that are sensible in the former situation will be wrong in the other. As O'Neill suggests, "the information [in the market] is passed back without dialogue. The market informs by 'exit' -- some products find a market, others do not. 'Voice' is not exercised. This failure of dialogue . . . represents an informational failure of the market, not a virtue . . . The market . . . does distribute information . . . it also blocks a great deal." [Op. Cit., p. 99]
So a purely market-based system leaves out information on which to base rational resource allocations (or, at the very least, hides it). The reason for this is that a market system measures, at best, preferences of individual buyers among the available options. This assumes that all the pertinent use-values that are to be outcomes of production are things that are to be consumed by the individual, rather than use-values that are collectively enjoyed (like clean air). Prices in the market do not measure social costs or externalities, meaning that such costs are not reflected in the price and so you cannot have a rational price system. Similarly, if the market measures only preferences amongst things that can be monopolised and sold to individuals, as distinguished from values that are enjoyed collectively, then it follows that information necessary for rational decision-making in production is not provided by the market. In other words, capitalist "calculation" fails because private firms are oblivious to the social cost of their labour and raw materials inputs.
Indeed, prices often mis-value goods as companies can gain a competitive advantage by passing costs onto society (in the form of pollution, for example, or de-skilling workers, increasing job insecurity, and so on). This externalisation of costs is actually rewarded in the market as consumers seek the lowest prices, unaware of the reasons why it is lower (such information cannot be gathered from looking at the price). Even if we assume that such activity is penalised by fines later, the damage is still done and cannot be undone. Indeed, the company may be able to weather the fines due to the profits it originally made by externalising costs (see section E.3). Thus the market creates a perverse incentive to subsidise their input costs through off-the-book social and environmental externalities. As Chomsky suggests:
"it is by now widely realised that the economist's 'externalities can no longer be consigned to footnotes. No one who gives a moment's thought to the problems of contemporary society can fail to be aware of the social costs of consumption and production, the progressive destruction of the environment, the utter irrationality of the utilisation of contemporary technology, the inability of a system based on profit or growth-maximisation to deal with needs that can only be expressed collectively, and the enormous bias this system imposes towards maximisation of commodities for personal use in place of the general improvement of the quality of life." [Radical Priorities, pp. 190-1]
Prices hide the actual costs that production involved for the individual, society, and the environment, and instead boils everything down into one factor, namely price. There is a lack of dialogue and information between producer and consumer.
Moreover, without using another means of cost accounting instead of prices how can supporters of capitalism know there is a correlation between actual and price costs? One can determine whether such a correlation exists by measuring one against the other. If this cannot be done, then the claim that prices measure costs is a tautology (in that a price represents a cost and we know that it is a cost because it has a price). If it can be done, then we can calculate costs in some other sense than in market prices and so the argument that only market prices represent costs falls. Equally, there may be costs (in terms of quality of life issues) which cannot be reflected in price terms.
Simply put, the market fails to distribute all relevant information and, particularly when prices are at disequilibrium, can communicate distinctly misleading information. In the words of two South African anarchists, "prices in capitalism provided at best incomplete and partial information that obscured the workings of capitalism, and would generate and reproduce economic and social inequalities. Ignoring the social character of the economy with their methodological individualism, economic liberals also ignored the social costs of particular choices and the question of externalities." [Michael Schmidt and Lucien van der Walt, Black Flame, p. 92] This suggests that prices cannot be taken to reflect real costs any more that they can reflect the social expression of the valuation of goods. They are the result of a conflict waged over these goods and those that acted as their inputs (including, of course, labour). Market and social power, much more than need or resource usage, decides the issue. The inequality in the means of purchasers, in the market power of firms and in the bargaining position of labour and capital all play their part, so distorting any relationship a price may have to its costs in terms of resource use. Prices are misshapen.
Little wonder Kropotkin asked whether "are we not yet bound to analyse that compound result we call price rather than to accept it as a supreme and blind ruler of our actions?" [Fields, Factories and Workshops Tomorrow, p. 71] It is precisely these real costs, hidden by price, which need to be communicated to producers and consumers for them to make informed and rational decisions concerning their economic activity.
It is useful to remember that Mises argued that it is the complexity of a modern economy that ensures money is required: "Within the narrow confines of household economy, for instance, where the father can supervise the entire economic management, it is possible to determine the significance of changes in the processes of production, without such aids to the mind [as monetary calculation], and yet with more or less of accuracy." However, "the mind of one man alone -- be it ever so cunning, is too weak to grasp the importance of any single one among the countlessly many goods of higher order. No single man can ever master all the possibilities of production, innumerable as they are, as to be in a position to make straightway evident judgements of value without the aid of some system of computation." [Op. Cit., p. 102]
A libertarian communist society would, it must be stressed, use various "aids to the mind" to help individuals and groups to make economic decisions. This would reduce the complexity of economic decision making, by allowing different options and resources to be compared to each other. Hence the complexity of economic decision making in an economy with a multitude of goods can be reduced by the use of rational algorithmic procedures and methods to aid the process. Such tools would aid decision making, not dominate it as these decisions affect humans and the planet and should never be made automatically.
That being the case, a libertarian communist society would quickly develop the means of comparing the real impact of specific "higher order" goods in terms of their real costs (i.e. the amount of labour, energy and raw materials used plus any social and ecological costs). Moreover, it should be remembered that production goods are made up on inputs of other goods, that is, higher goods are made up of consumption goods of a lower order. If, as Mises admits, calculation without money is possible for consumption goods then the creation of "higher order" goods can be also achieved and a record of its costs made and communicated to those who seek to use it.
While the specific "aids to the mind" as well as "costs" and their relative weight would be determined by the people of a free society, we can speculate that it would include direct and indirect labour, externalities (such as pollution), energy use and materials, and so forth. As such, it must be stressed that a libertarian communist society would seek to communicate the "costs" associated with any specific product as well as its relative scarcity. In other words, it needs a means of determining the objective or absolute costs associated with different alternatives as well as an indication of how much of a given good is available at a given it (i.e., its scarcity). Both of these can be determined without the use of money and markets.
Section I.4 discusses possible frameworks for an anarchist economy, including suggestions for libertarian communist economic decision-making processes. In terms of "aids to the mind", these include methods to compare goods for resource allocation by indicating the absolute costs involved in producing a good and the relative scarcity of a specific good, among other things. Such a framework is necessary because "an appeal to a necessary role for practical judgements in decision making is not to deny any role to general principles. Neither . . . does it deny any place for the use of technical rules and algorithmic procedures . . . Moreover, there is a necessary role for rules of thumb, standard procedures, the default procedures and institutional arrangements that can be followed unreflectively and which reduce the scope for explicit judgements comparing different states of affairs. There are limits in time, efficient use of resources and the dispersal of knowledge which require rules and institutions. Such rules and institutions can free us for space and time for reflective judgements where they matter most." [John O'Neill, Ecology, Policy and Politics, pp. 117-8] It is these "rules and institutions need themselves to be open to critical and reflective appraisal." [O'Neill, The Market, p. 118]
Economic decisions, in other words, cannot be reduced down to one factor yet Mises argued that anyone "who wished to make calculations in regard to a complicated process of production will immediately notice whether he has worked more economically than others or not; if he finds, from reference to the exchange values obtaining in the market, that he will not be able to produce profitably, this shows that others understand how to make better use of the higher-order goods in question." [Op. Cit., pp. 97-8] However, this only shows whether someone has worked more profitably than others, not whether it is more economical. Market power automatically muddles this issue, as does the possibility of reducing the monetary cost of production by recklessly exploiting natural resources and labour, polluting, or otherwise passing costs onto others. Similarly, the issue of wealth inequality is important, for if the production of luxury goods proves more profitable than basic essentials for the poor does this show that producing the former is a better use of resources? And, of course, the key issue of the relative strength of market power between workers and capitalists plays a key role in determining "profitably."
Basing your economic decision making on a single criteria, namely profitability, can, and does, lead to perverse results. Most obviously, the tendency for capitalists to save money by not introducing safety equipment ("To save a dollar the capitalist build their railroads poorly, and along comes a train, and loads of people are killed. What are their lives to him, if by their sacrifice he has saved money?" [Emma Goldman, A Documentary History of the American Years, vol. 1, p. 157]). Similarly, it is considered a more "efficient" use of resources to condemn workers to deskilling and degrading work than "waste" resources in developing machines to eliminate or reduce it ("How many machines remain unused solely because they do not return an immediate profit to the capitalist! . . . How many discoveries, how many applications of science remain a dead letter solely because they don't bring the capitalist enough!" [Carlo Cafiero, "Anarchy and Communism", pp. 179-86, The Raven, No. 6, p. 182]). Similarly, those investments which have a higher initial cost but which, in the long run, would have, say, a smaller environmental impact would not be selected in a profit-driven system.
This has seriously irrational effects, because the managers of capitalist enterprises are obliged to choose technical means of production which produce the cheapest results. All other considerations are subordinate, in particular the health and welfare of the producers and the effects on the environment. The harmful effects resulting from "rational" capitalist production methods have long been pointed out. For example, speed-ups, pain, stress, accidents, boredom, overwork, long hours and so on all harm the physical and mental health of those involved, while pollution, the destruction of the environment, and the exhaustion of non-renewable resources all have serious effects on both the planet and those who live on it. As green economist E. F. Schumacher argued:
"But what does it mean when we say that something is uneconomic? . . . [S]omething is uneconomic when it fails to earn an adequate profit in terms of money. The method of economics does not, and cannot, produce any other meaning . . . The judgement of economics . . . is an extremely fragmentary judgement; out of the large number of aspects which in real life have to be seen and judged together before a decision can be taken, economics supplies only one -- whether a money profit accrues to those who undertake it or not." [Small is Beautiful, pp. 27-8]
Schumacher stressed that "about the fragmentary nature of the judgements of economics there can be no doubt whatever. Even with the narrow compass of the economic calculus, these judgements are necessarily and methodically narrow. For one thing, they give vastly more weight to the short than to the long term. . . [S]econd, they are based on a definition of cost which excludes all 'free goods' . . . [such as the] environment, except for those parts that have been privately appropriated. This means that an activity can be economic although it plays hell with the environment, and that a competing activity, if at some cost it protects and conserves the environment, will be uneconomic." Moreover, "[d]o not overlook the words 'to those who undertake it.' It is a great error to assume, for instance, that the methodology of economics is normally applied to determine whether an activity carried out by a group within society yields a profit to society as a whole." [Op. Cit., p. 29]
To claim that prices include all these "externalities" is nonsense. If they did, we would not see capital moving to third-world countries with few or no anti-pollution or labour laws. At best, the "cost" of pollution would only be included in a price if the company was sued successfully in court for damages -- in other words, once the damage is done. Ultimately, companies have a strong interest in buying inputs with the lowest prices, regardless of how they are produced. In fact, the market rewards such behaviour as a company which was socially responsible would be penalised by higher costs, and so market prices. It is reductionist accounting and its accompanying "ethics of mathematics" that produces the "irrationality of rationality" which plagues capitalism's exclusive reliance on prices (i.e. profits) to measure "efficiency."
Ironically enough, Mises also pointed to the irrational nature of the price mechanism. He stated (correctly) that there are "extra-economic" elements which "monetary calculation cannot embrace" because of "its very nature." He acknowledged that these "considerations themselves can scarcely be termed irrational" and, as examples, listed "[i]n any place where men regard as significant the beauty of a neighbourhood or a building, the health, happiness and contentment of mankind, the honour of individuals or nations." He also noted that "they are just as much motive forces of rational conduct as are economic factors" but they "do not enter into exchange relationships." How rational is an economic system which ignores the "health, happiness and contentment" of people? Or the beauty of their surroundings? Which, moreover, penalises those who take these factors into consideration? For anarchists, Mises comments indicate well the inverted logic of capitalism. That Mises can support a system which ignores the needs of individuals, their happiness, health, surroundings, environment and so on by "its very nature" says a lot. His suggestion that we assign monetary values to such dimensions begs the question and has plausibility only if it assumes what it is supposed to prove. [Op. Cit., p. 99-100] Indeed, the person who would put a price on friendship simply would have no friends as they simply do not understand what friendship is and are thereby excluded from much which is best in human life. Likewise for other "extra-economic" goods that individual's value, such as beautiful places, happiness, the environment and so on.
So essential information required for sensible decision making would have to be recorded and communicated in a communist society and used to evaluate different options using agreed methods of comparison. This differs drastically from the price mechanism as it recognises that mindless, automatic calculation is impossible in social choices. Such choices have an unavoidable ethical and social dimension simply because they involve other human beings and the environment. As Mises himself acknowledged, monetary calculation does not capture such dimensions.
We, therefore, need to employ practical judgement in making choices aided by a full understanding of the real social and ecological costs involved using, of course, the appropriate "aids to the mind." Given that an anarchist society would be complex and integrated, such aids would be essential but, due to its decentralised nature, it need not embrace the price mechanism. It can evaluate the efficiency of its decisions by looking at the real costs involved to society rather than embrace the distorted system of costing explicit in the price mechanism (as Kropotkin once put it, "if we analyse price" we must "make a distinction between its different elements". [Op. Cit., p. 72]).
In summary, then, Mises considered only central planning as genuine socialism, meaning that a decentralised communism was not addressed. Weighting up the pros and cons of how to use millions of different goods in the millions of potential situations they could be used would be impossible in a centralised system, yet in decentralised communism this is not an issue. Each individual commune and syndicate would be choosing from the few alternatives required to meet their needs. With the needs known, the alternatives can be compared -- particularly if agreed criteria ("aids to the mind") are utilised and the appropriate agreed information communicated.
Efficient economic decision making in a moneyless "economy" is possible, assuming that sufficient information is passed between syndicates and communes to evaluate the relative and absolute costs of a good. Thus, decisions can be reached which aimed to reduce the use of goods in short supply or which take large amounts of resources to produce (or which produce large externalities to create). While a centralised system would be swamped by the large number of different uses and combinations of goods, a decentralised communist system would not be.
Thus, anarchists argue that Mises was wrong. Communism is viable, but only if it is libertarian communism. Ultimately, though, the real charge is not that socialism is "impossible" but rather that it would be inefficient, i.e., it would allocate resources such that too much is used to achieve specified goals and that there would be no way to check that the allocated resources were valued sufficiently to warrant their use in the first place. While some may portray this as a case of planning against markets (no-planning), this is false. Planning occurs in capitalism (as can be seen from any business), it is a question of whether capitalism ensures that more plans can be co-ordinated and needs meet by means of relative prices and profit-loss accounting than by communism (free access and distribution according to need). As such, the question is does the capitalist system adds additional problems to the efficient co-ordination of plans? Libertarian communists argue, yes, it does (as we discuss at length in section I.1.5).
All choices involve lost possibilities, so the efficient use of resources is required to increase the possibilities for creating other goods. At best, all you can say is that by picking options which cost the least a market economy will make more resources available for other activities. Yet this assumption crucially depends equating "efficient" with profitable, a situation which cannot be predicted beforehand and which easily leads to inefficient allocation of resources (particularly if we are looking at meeting human needs). Then there are the costs of using money for if we are talking of opportunity costs, of the freeing up of resources for other uses, then the labour and other resources used to process money related activities should be included. While these activities (banking, advertising, defending property, and so forth) are essential to a capitalist economy, they are not needed and unproductive from the standpoint of producing use values or meeting human need. This would suggest that a libertarian communist economy would have a productive advantage over a capitalist economy as the elimination of this structural waste intrinsic to capitalism will free up a vast amount of labour and materials for socially useful production. This is not to mention the so-called "costs" which are no such thing, but relate to capitalist property rights. Thus "rent" may be considered a cost under capitalism, but would disappear if those who used a resource controlled it rather than pay a tribute to gain access to it. As Kropotkin argued, "the capitalist system makes us pay for everything three or four times its labour value" thanks to rent, profit, interest and the actions of middle men. Such system specific "costs" hide the actual costs (in terms of labour and resource use) by increasing the price compared to if we "reckon our expenses in labour". [Op. Cit., p. 68]
Moreover, somewhat ironically, this "economising" of resources which the market claims to achieve is not to conserve resources for future generations or to ensure environmental stability. Rather, it is to allow more goods to be produced in order to accumulate more capital. It could be argued that the market forces producers to minimise costs on the assumption that lower costs will be more likely to result in higher profits. However, this leaves the social impact of such cost-cutting out of the equation. For example, imposing externalities on others does reduce a firm's prices and, as a result, is rewarded by the market however alienating and exhausting work or rising pollution levels does not seem like a wise thing to do. So, yes, it is true that a capitalist firm will seek to minimise costs in order to maximise profits. This, at first glance, could be seen as leading to an efficient use of resources until such time as the results of this become clear. Thus goods could be created which do not last as long as they could, which need constant repairing, etc. So a house produced "efficiently" under capitalism could be a worse place to live simply because costs were reduced by cutting corners (less insulation, thinner walls, less robust materials, etc.). In addition, the collective outcome of all these "efficient" decisions could be socially inefficient as they reduce the quality of life of those subject to them as well as leading to over-investment, over-production, falling profits and economic crisis. As such, it could be argued that Mises' argument exposes more difficulties for capitalism rather than for anarchism.
Finally, it should be noted that most anarchists would question the criteria Hayek and Mises used to judge the relative merits of communism and capitalism. As the former put it, the issue was "a distribution of income independent of private property in the means of production and a volume of output which was at least approximately the same or even greater than that procured under free competition." ["The Nature and History of the Problem", Op. Cit., p. 37] Thus the issue is reduced to that of output (quantity), not issues of freedom (quality). If slavery or Stalinism had produced more output than free market capitalism, that would not make either system desirable This was, in fact, a common argument against Stalinism during the 1950s and 1960s when it did appear that central planning was producing more goods (and, ironically, by the propertarian right against the welfare state for, it should be remembered, that volume of output, like profitability and so "efficiency", in the market depends on income distribution and a redistribution from rich to poor could easily result in more output becoming profitable). Similarly, that capitalism produces more alcohol and Prozac to meet the higher demand for dulling the minds of those trying to survive under it would not be an argument against libertarian communism! As we discuss in section I.4, while anarchists seek to meet material human needs we do not aim, as under capitalism, to sacrifice all other goals to that aim as capitalism does. Thus, to state the obvious, the aim for maximum volume of output only makes sense under capitalism as the maximum of human happiness and liberty may occur with a lower volume of output in a free society. The people of a society without oppression, exploitation and alienation will hardly act in identical ways, nor seek the same volume of output, as those in one, like capitalism, marked by those traits!
Moreover, the volume of output is a somewhat misleading criteria as it totally ignores its distribution. If the bulk of that volume goes to a few, then that is hardly a good use of resources. This is hardly an academic concern as can be seen from the Hayek influenced neo-liberalism of the 1980s onwards. As economist Paul Krugman notes, the value of the output of an average worker "has risen almost 50 percent since 1973. Yet the growing concentration of income in the hands of a small minority had proceeded so rapidly that we're not sure whether the typical American has gained anything from rising productivity." This means that wealth have flooded upwards, and "the lion's share of economic growth in America over the past thirty years has gone to a small, wealthy minority." [The Conscience of a Liberal, p. 124 and p. 244]
To conclude. Capitalist "efficiency" is hardly rational and for a fully human and ecological efficiency libertarian communism is required. As Buick and Crump point out, "socialist society still has to be concerned with using resources efficiently and rationally, but the criteria of 'efficiency' and 'rationality' are not the same as they are under capitalism." [Op. Cit., p. 137] Under communist-anarchism, the decision-making system used to determine the best use of resources is not more or less "efficient" than market allocation, because it goes beyond the market-based concept of "efficiency." It does not seek to mimic the market but to do what the market fails to do. This is important, because the market is not the rational system its defenders often claim. While reducing all decisions to one common factor is, without a doubt, an easy method of decision making, it also has serious side-effects because of its reductionistic basis. The market makes decision making simplistic and generates a host of irrationalities and dehumanising effects as a result. So, to claim that communism will be "more" efficient than capitalism or vice versa misses the point. Libertarian communism will be "efficient" in a totally different way and people will act in ways considered "irrational" only under the narrow logic of capitalism.
For another critique of Mises, see Robin Cox's "The 'Economic Calculation' controversy: unravelling of a myth" [Common Voice, Issue 3]
A lot. Markets soon result in what are termed "market forces," impersonal forces which ensure that the people in the economy do what is required of them in order for the economy to function. The market system, in capitalist apologetics, is presented to appear as a regime of freedom where no one forces anyone to do anything, where we "freely" exchange with others as we see fit. However, the facts of the matter are somewhat different, since the market often ensures that people act in ways opposite to what they desire or forces them to accept "free agreements" which they may not actually desire. Wage labour is the most obvious example of this, for, as we indicated in section B.4, most people have little option but to agree to work for others.
We must stress here that not all anarchists are opposed to the market. Individualist anarchists favour it while Proudhon wanted to modify it while retaining competition. For many, the market equals capitalism but this is not the case as it ignores the fundamental issue of (economic) class, namely who owns the means of production. Capitalism is unique in that it is based on wage labour, i.e. a market for labour as workers do not own their own means of production and have to sell themselves to those who do. Thus it is entirely possible for a market to exist within a society and for that society not to be capitalist. For example, a society of independent artisans and peasants selling their product on the market would not be capitalist as workers would own and control their means of production. Similarly, Proudhon's competitive system of self-managed co-operatives and mutual banks would be non-capitalist (and socialist) for the same reason. Anarchists object to capitalism due to the quality of the social relationships it generates between people (i.e. it generates authoritarian ones). If these relationships are eliminated then the kinds of ownership which do so are anarchistic. Thus the issue of ownership matters only in-so-far it generates relationships of the desired kind (i.e. those based on liberty, equality and solidarity). To concentrate purely on "markets" or "property" means to ignore social relationships and the key aspect of capitalism, namely wage labour. That right-wingers do this is understandable (to hide the authoritarian core of capitalism) but why (libertarian or other) socialists should do so is less clear.
In this section of the FAQ we discuss anarchist objections to the market as such rather than the capitalist market. The workings of the market do have problems with them which are independent of, or made worse by, the existence of wage-labour. It is these problems which make most anarchists hostile to the market and so desire a (libertarian) communist society. So, even if we assume a mutualist (a libertarian market-socialist) system of competing self-managed workplaces, then communist anarchists would argue that market forces would soon result in many irrationalities occurring.
Most obviously, operating in a market means submitting to the profit criterion. This means that however much workers might want to employ social criteria in their decision making, they cannot. To ignore profitability would cause their firm to go bankrupt. Markets, therefore, create conditions that compel producers to decide things which are not be in their, or others, interest, such as introducing deskilling or polluting technology, working longer hours, and so on, in order to survive on the market. For example, a self-managed workplace will be more likely to invest in safe equipment and working practices, this would still be dependent on finding the money to do so and may still increase the price of their finished product. So we could point to the numerous industrial deaths and accidents which are due to market forces making it unprofitable to introduce adequate safety equipment or working conditions, (conservative estimates for industrial deaths in the USA are between 14,000 and 25,000 per year plus over 2 million disabled), or to increased pollution and stress levels which shorten life spans.
This tendency for self-managed firms to adjust to market forces by increasing hours, working more intensely, allocating resources to accumulating equipment rather than leisure time or consumption can be seen in co-operatives under capitalism. While lacking bosses may reduce this tendency in a post-capitalist economy, it will not eliminate it. This is why many socialists, including anarchists, call the way markets force unwilling members of a co-operatives make such unpleasant decisions a form of "self-exploitation" (although this is somewhat misleading, as there no exploitation in the capitalist sense of owners appropriating unpaid labour). For communist-anarchists, a market system of co-operatives "has serious limitations" as "a collective enterprise is not necessarily a commune -- nor is it necessarily communistic in its outlook." This is because it can end up "competing with like concerns for resources, customers, privileges, and even profits" as they "become a particularistic interest" and "are subjected to the same social pressures by the market in which they must function." This "tends increasingly to encroach on their higher ethical goals -- generally, in the name of 'efficiency', and the need to 'grow' if they are to survive, and the overwhelming temptation to acquire larger earnings." [Murray Bookchin, Remaking Society, pp. 193-4]
Similarly, a market of self-managed firms would still suffer from booms and slumps as the co-operatives response to changes in prices would still result in over-production (see section C.7.2) and over-investment (see section C.7.3). While the lack of non-labour income would help reduce the severity of the business cycle, it seems unlikely to eliminate it totally. Equally, many of the problems of market-increased uncertainty and the destabilising aspects of price signals discussed in section I.1.5 are just as applicable to all markets, including post-capitalist ones.
This is related to the issue of the "tyranny of small decisions" we highlighted in section B.6. This suggests that the aggregate effect of individual decisions produces social circumstances which are irrational and against the interests of those subject to them. This is the case with markets, where competition results in economic pressures which force its participants to act in certain ways, ways they would prefer not to do but, as isolated individuals or workplaces, end up doing due to market forces. In markets, it is rational for people try to buy cheap and sell dear. Each tries to maximise their income by either minimising their costs or maximising their prices, not because they particularly want to but because they need to as taking into account other priorities is difficult as there is no means of finding them out and deeply inadvisable as it is competitively suicidal as it places burdens on firms which their competitors need not face.
As we noted in section E.3, markets tend to reward those who act in anti-social ways and externalise costs (in terms of pollution and so on). In a market economy, it is impossible to determine whether a low cost reflects actual efficiency or a willingness to externalise, i.e., impose costs on others. Markets rarely internalise external costs. Two economic agents who strike a market-rational bargain between themselves need not consider the consequences of their bargain for other people outside their bargain, nor the consequences for the earth. In reality, then, market exchanges are never bilateral agreements as their effects impact on the wider society (in terms of, say, pollution, inequality and so on). This awkward fact is ignored in the market. As the left-wing economist Joan Robinson put it: "In what industry, in what line of business, are the true social costs of the activity registered in its accounts? Where is the pricing system that offers the consumer a fair choice between air to breath and motor cars to drive about in?" [Contribution to Modern Economics, p. 10]
While, to be fair, there will be a reduced likelihood for a workplace of self-employed workers to pollute their own neighbourhoods in a free society, the competitive pressures and rewards would still be there and it seems unlikely that they will be ignored, particularly if survival on the market is at stake so communist-anarchists fear that while not having bosses, capitalists and landlords would mitigate some of the irrationalities associated with markets under capitalism, it will not totally remove them. While the market may be free, people would not be.
Even if we assume that self-managed firms resist the temptations and pressures of the market, any market system is also marked by a continuing need to expand production and consumption. In terms of environmental impact, a self-managed firm must still make profits in order to survive and so the economy must grow. As such, every market system will tend to expand into an environment which is of fixed size. As well as placing pressure on the planet's ecology, this need to grow impacts on human activity as it also means that market forces ensure that work continually has to expand. Competition means that we can never take it easy, for as Max Stirner argued, "[r]estless acquisition does not let us take breath, take a calm enjoyment. We do not get the comfort of our possessions . . . Hence it is at any rate helpful that we come to an agreement about human labours that they may not, as under competition, claim all our time and toil." [The Ego and Its Own, p. 268] Value needs to be created, and that can only be done by labour and so even a non-capitalist market system will see work dominate people's lives. Thus the need to survive on the market can impact on broader (non-monetary) measures of welfare, with quality of life falling as a higher GDP is created as the result of longer working hours with fewer holidays. Such a regime may, perhaps, be good for material wealth but it is not great for people.
The market can also block the efficient use of resources. For example, for a long time energy efficient light-bulbs were much more expensive than normal ones. Over the long period, however, they used far less energy than normal ones, meaning less need to produce more energy (and so burn coal and oil, for example). However, the high initial price ensured that most people continued to use the less efficient bulbs and so waste resources. Much the same can be said of alternative forms of energy, with investment in (say) wind energy ignored in favour of one-use and polluting energy sources. A purely market system would not allow decisions which benefit the long-term interests of people to be made (for example, by distributing energy-efficient light-bulbs freely or at a reduced cost) as these would harm the profits of those co-operatives which tried to do so.
Also, markets do not reflect the values of things we do not put a price upon (as we argued in section B.5). It cannot protect wilderness, for example, simply because it requires people to turn it into property and sell it as a commodity. If you cannot afford to visit the new commodity, the market turns it into something else, no matter how much you value it. The market also ignores the needs of future generations as they always discount the value of the long term future. A payment to be made 1,000 years from now (a mere speck in geological time) has a market value of virtually zero according to any commonly used discount rate. Even 50 years in the future cannot be adequately considered as competitive pressures force a short term perspective on people harmful to present and future generations, plus the ecology of the planet.
Then there are corrosive effects of the market on human personalities. As we have argued elsewhere (see section B.1.3), competition in a free market creates numerous problems -- for example, the creation of an "ethics of mathematics" and the strange inversion of values in which things (property/money) become more important than people. This can have a de-humanising effect, with people becoming cold-hearted calculators who put profits before people. This can be seen in capitalism, where economic decisions are far more important than ethical ones -- particularly as such an inhuman mentality can be rewarded on the market. Merit does not necessarily breed success, and the successful do not necessarily have merit. The truth is that, in the words of Noam Chomsky, "wealth and power tend to accrue to those who are ruthless, cunning, avaricious, self-seeking, lacking in sympathy and compassion, subservient to authority and willing to abandon principle for material gain, and so on . . . Such qualities might be just the valuable ones for a war of all against all." [For Reasons of State, pp. 139-140]
Needless to be said, if the market does reward such people with success it can hardly be considered as a good thing. A system which elevates making money to the position of the most important individual activity will obviously result in the degrading of human values and an increase in neurotic and psychotic behaviour. Little wonder, as Alfie Kohn has argued, competition can have serious negative effects on us outside of work, with it damaging both our personal psychology and our interpersonal relationships. Thus competition "itself is responsible for the development of a lower moral standard" which places winning at any cost above fairness and justice. Kohn quotes Nathan Ackerman, the father of family therapy, who noted that the "strife of competition reduces empathic sympathy, distorts communication, impairs the mutuality of support and sharing, and decreases the satisfaction of personal need." [No Contest, p. 163 and pp. 142-3] Thus, the market can impoverish us as individuals, sabotaging self-esteem, promoting conformity, ruining relationships and making us less than what we could be. This is a problem of markets as such, not only capitalist ones and so non-capitalist markets could make us less human and more a robot.
All market decisions are crucially conditioned by the purchasing power of those income groups that can back their demands with money. Not everyone can work (the sick, the very old, children and so forth) and for those who can, personal circumstances may impact on their income. Moreover, production has become so interwoven that it "is utterly impossible to draw a distinction between the work of each" and so we should "put the needs above the works, and first of all to recognise the right to live, and later on the right to well-being for all those who took their share in production." This is particularly the case as "the needs of the individual, do not always correspond to his works" -- for example, "a man of forty, father of three children, has other needs than a young man of twenty" and "the woman who suckles her infant and spends sleepless nights at its bedside, cannot do as much work as the man who has slept peacefully." [Kropotkin, Conquest of Bread, p. 170 and p. 171] This was why communist-anarchists like Kropotkin stressed the need not only to abolish wage-labour but also money, the wages system.
So it goes without saying that purchasing power (demand) and need are not related, with people often suffering simply because they do not have the money required to purchase, say, health care, housing or food for themselves or their families. While economic distress may be less in a non-capitalist market system, it still would exist as would the fear of it. The market is a continuous bidding for goods, resources, and services, with those who have the most purchasing power the winners. This means that the market system is the worst one for allocating resources when purchasing power is unequally distributed (this is why orthodox economists make the convenient assumption of a "given distribution of income" when they try to show that a capitalist allocation of resources is the best one via "Pareto optimality"). While a mutualist system should reduce inequality drastically, it cannot be assumed that inequalities will not increase over time. This is because inequalities in resources leads to inequalities of power on the market and, assuming self-interest, any trade or contract will benefit the powerful more than the powerless, so re-enforcing and potentially increasing the inequalities and power between the parties. Similarly, while an anarchist society would be created with people driven by a sense of solidarity and desire for equality, markets tend to erode those feelings and syndicates or communes which, thanks to the resources they control (such as rare raw materials or simply the size of their investments reducing competitive pressures) have an advantage on the market may be tempted to use their monopoly power vis-à-vis other groups in society to accrue more income for themselves at the expense of less fortunate syndicates and communes. This could degenerate back into capitalism as any inequalities that exist between co-operatives would be increased by competition, forcing weaker co-operatives to fail and so creating a pool of workers with nothing to sell but their labour. The successful co-operatives could then hire those workers and so re-introduce wage labour. So these possibilities could, over time, lead to a return a post-capitalist market system to capitalism if the inequalities become so great that the new rich become so alienated from the rest of society they recreate wage-labour and, by necessity, a state to enforce a desire for property in land and the means of production against public opinion.
All this ensures that the market cannot really provide the information necessary for rational-decision making in terms of ecological impact as well as human activity and so resources are inefficiently allocated. We all suffer from the consequences of that, with market forces impoverishing our environment and quality of life. Thus are plenty of reasons for concluding that efficiency and the market not only do not necessarily coincide, but, indeed, necessarily do not coincide. Indeed, rather than respond to individual needs, the market responds to money (more correctly, profit), which by its very nature provides a distorted indication of individual preferences (and does not take into account values which are enjoyed collectively, such as clean air, or potentially enjoyed, such as the wilderness a person may never visit but desires to see exist and protected).
This does not mean that social anarchists propose to "ban" the market -- far from it. This would be impossible. What we do propose is to convince people that a profit-based market system has distinctly bad effects on individuals, society and the planet's ecology, and that we can organise our common activity to replace it with libertarian communism. As Max Stirner argued, competition "has a continued existence" because "all do not attend to their affair and come to an understanding with each other about it . . . . Abolishing competition is not equivalent to favouring the guild. The difference is this: In the guild baking, etc., is the affair of the guild-brothers; in competition, the affair of chance competitors; in the union, of those who require baked goods, and therefore my affair, yours, the affair of neither guildic nor the concessionary baker, but the affair of the united." [Op. Cit., p. 275]
Therefore, social anarchists do not appeal purely to altruism in their struggle against the de-humanising effects of the market, but also to to egoism: the simple fact that co-operation and mutual aid is in our best interests as individuals. By co-operating and controlling "the affairs of the united," we can ensure a free society which is worth living in, one in which the individual is not crushed by market forces and has time to fully develop his or her individuality and uniqueness:
"Solidarity is therefore the state of being in which Man attains the greatest degree of security and wellbeing; and therefore egoism itself, that is the exclusive consideration of one's own interests, impels Man and human society towards solidarity." [Errico Malatesta, Anarchy, p. 30]
In conclusion then, communist-anarchists argue that even non-capitalist markets would result in everyone being so busy competing to further their "self-interest" that they would loose sight of what makes life worth living and so harm their actual interests. Ultimately, what counts as self-interest is shaped by the surrounding social system. The pressures of competing may easily result in short-term and narrow interests taking precedence over richer, deeper needs and aspirations which a communal system could allow to flourish by providing the social institutions by which individuals can discuss their joint interests, formulate them and act to achieve them. That is, even non-capitalist markets would result in people simply working long and hard to survive on the market rather than living. If one paradox of authoritarian socialism is that it makes everyone miserable by forcing them to altruistically look out for the happiness of others, market-based libertarian socialism could produce the potential paradox of making everyone miserable by the market forcing them to pursue a limited notion of self-interest which ensures that they do not have the time or opportunity to really be happy and at one with themselves and others.
In other words, bosses act as they do under capitalism in part because markets force them to. Getting rid of bosses need not eliminate all the economic pressures which influence the bosses' decisions and, in turn, could force groups of workers to act in similar ways. Thus a competitive system would undermine many of the benefits which people sought when they ended capitalism. This is why some socialists inaccurately call socialist schemes of competing co-operatives "self-managed capitalism" or "self-exploitation" -- they are simply drawing attention to the negative aspects of markets which getting rid of the boss cannot solve. Significantly, Proudhon was well aware of the negative aspect of market forces and suggested various institutional structures, such as the ago-industrial federation, to combat them (so while in favour of competition he was, unlike the individualist anarchists, against the free market). Communist anarchists, unsurprisingly, argue that individualist anarchists tend to stress the positive aspects of competition while ignoring or downplaying its negative sides. While, undoubtedly, capitalism makes the negative side of competition worse than it could be it does not automatically follow that a non-capitalist market would not have similar, if smaller, negative aspects to it.
Some libertarian Marxists (as well as Leninists) claim that non-communist forms of socialism are just "self-managed" capitalism. Strangely, propertarians (the so-called "libertarian" right) also say yes to this question, arguing that socialist opposition to exploitation does not imply socialism but what they also call "self-managed" capitalism. Thus some on the left proclaim anything short of communism is a form of capitalism while, on the right, some proclaim that communism is exploitative and only a market system (which they erroneously equate to capitalism) is non-exploitative.
Both are wrong. First, and most obviously, socialism does not equal communism (and vice versa). While there is a tendency on both right and left to equate socialism with communism (particularly Marxism), in reality, as Proudhon once noted, socialism "was not founded as a sect or church; it has seen a number of different schools." [Selected Writings of Pierre-Joseph Proudhon, p. 177] Only a few of these schools are communist, just as only a few of them are libertarian. Second, not all socialist schools aim to abolish the market and payment by deed. Proudhon, for example, opposed communism and state socialism just as much as he opposed capitalism. Third, capitalism does not equal the market. The market predates capitalism and, for some libertarian socialists, will survive it. Even from a Marxist position, a noted in section I.1.1, the defining feature of capitalism is wage labour, not the market.
Why some socialists desire to reduce the choices facing humanity to either communism or some form of capitalism is frankly strange, but also understandable because of the potential dehumanising effects of market systems (as shown under capitalism). Why the propertarian right wishes to do so is more clear, as it aims to discredit all forms of socialism by equating them to communism (which, in turn, it equates to central planning and Stalinism).
Yet this is not a valid inference to make. Opposition to capitalism can imply both socialism (distribution according to deed, or selling the product of ones labour) and communism (distribution according to need, or a moneyless economy). The theory is a critique of capitalism, based on an analysis of that system as being rooted in the exploitation of labour (as we discussed in section C.2), i.e., it is marked by workers not being paid the full-value of the goods they create. This analysis, however, is not necessarily the basis of a socialist economy although it can be considered this as well. As noted, Proudhon used his critique of capitalism as an exploitative system as the foundation of his proposals for mutual banking and co-operatives. Marx, on the other hand, used a similar analysis as Proudhon's purely as a critique of capitalism while hoping for communism. Robert Owen used it as the basis of his system of labour notes while Kropotkin argued that such a system was just the wages-system under another form and a free society "having taken possession of all social wealth, having boldly proclaimed the right of all to this wealth . . . will be compelled to abandon any system of wages, whether in currency or labour-notes." [The Conquest of Bread, p. 167]
In other words, though a system of co-operative selling on the market (what is mistakenly termed "self-managed" capitalism by some) or exchanging labour-time values would not be communism, it is not capitalism. This is because the workers are not separated from the means of production. Therefore, the attempts by propertarians to claim that it is capitalism are false, an example of misinformed insistence that virtually every economic system, bar state socialism and feudalism, is capitalist. However, it could be argued that communism (based on free access and communal ownership of all resources including the product of labour) would mean that workers are exploited by non-workers (the young, the sick, the elderly and so on). As communism abolishes the link between performance and payment, it could be argued that the workers under communism would be just as exploited as under capitalism, although (of course) not by a class of capitalists and landlords but by the community. As Proudhon put it, while the "members of a community, it is true, have no private property" the community itself "is proprietor" and so communism "is inequality, but not as property is. Property is the exploitation of the weak by the strong. Communism is the exploitation of the strong by the weak." [What is Property?, p. 250]
Needless to say, subsequent anarchists rejected Proudhon's blanket opposition to all forms of communism, rejecting this position as only applicable to authoritarian, not libertarian, communism. Which, it must be remembered, was the only kind around when this was written in 1840 (as we noted in section H.1, what was known as communism in Proudhon's time was authoritarian). Suffice to say, Proudhon's opposition to communism shares little with that of the Propertarian-right, which reflects the sad lack of personal empathy (and so ethics) of the typical defender of capitalism. However, the notion that communism (distribution according to need) rather than socialism (distribution according to deed) is exploitative misses the point as far as communist anarchism goes. This is because of two reasons.
Firstly, "Anarchist Communism . . . means voluntary Communism, Communism from free choice." [Alexander Berkman, What is Anarchism, p. 148] This means it is not imposed on anyone but is created and practised only by those who believe in it.
Therefore it would be up to the communities and syndicates to decide how they wish to distribute the products of their labour and individuals to join, or create, those that meet their ideas of right and wrong. Some may decide on equal pay, others on payment in terms of labour time, yet others on communistic associations. The important thing to realise is that individuals and the co-operatives they join will decide what to do with their output, whether to exchange it or to distribute it freely. Hence, because it is based on free agreement, communism-anarchism cannot be exploitative. Members of a commune or co-operative which is communistic are free to leave, after all. Needless to say, the co-operatives will usually distribute their product to others within their confederation and exchange with the non-communist ones in a different manner. We say "usually" for in the case of emergencies like earthquakes and so forth the situation would call for, and produce, mutual aid just as it does today to a large degree, even under capitalism.
The reason why capitalism is exploitative is that workers have to agree to give the product of their labour to another (the boss, the landlord) in order to be employed in the first place (see section B.4). While they can choose who to be exploited by (and, to varying degrees, pick the best of the limited options available to them) they cannot avoid selling their liberty to property owners (a handful do become self-employed and some manage to join the exploiting class, but not enough to make either a meaningful option for the bulk of the working class). In libertarian communism, by contrast, the workers themselves agree to distribute part of their product to others (i.e. society as a whole, their neighbours, friends, and so forth). It is based on free agreement, while capitalism is marked by power, authority, and the firm (invisible) hand of market forces (supplemented, as necessary, by the visible fist of the state). As resources are held in common under anarchism, people always have the option of working alone if they so desired (see section I.3.7).
Secondly, unlike under capitalism, there is no separate class which is appropriating the goods produced. The so-called "non-workers" in a libertarian communist society have been, or will be, workers. As the noted Spanish anarchist De Santillan pointed out, "[n]aturally, children, the aged and the sick are not considered parasites. The children will be productive when they grow up. The aged have already made their contribution to social wealth and the sick are only temporarily unproductive." [After the Revolution, p. 20] In other words, over their life time, everyone contributes to society and so using the "account book" mentality of capitalism misses the point. As Kropotkin put it:
"Services rendered to society, be they work in factory or field, or mental services, cannot be valued in money. There can be no exact measure of value (of what has been wrongly-termed exchange value), nor of use value, with regard to production. If two individuals work for the community five hours a day, year in year out, at different work which is equally agreeable to them, we may say that on the whole their labour is equivalent. But we cannot divide their work, and say that the result of any particular day, hour, or minute of work of the one is worth the result of a minute or hour of the other." [Conquest of Bread, p. 168]
So it is difficult to evaluate how much an individual worker or group of workers actually contribute to society. This can be seen whenever workers strike, particularly so-called "key" areas like transport. Then the media is full of accounts of how much the strike is costing "the economy" and it is always far more than that of the wages lost in strike action. Yet, according to capitalist economics, the wages of a worker are equal to their contribution to production -- no more, no less. Striking workers, in other words, should only harm the economy to the value of their wages yet, of course, this is obviously not the case. This is because of the interconnected nature of any advanced economy, where contributions of individuals are so bound together.
Needless to say, this does not imply that a free people would tolerate the able-bodied simply taking without contributing towards the mass of products and services society. As we discuss in section I.4.14, such people will be asked to leave the community and be in the same situation as those who do not wish to be communists.
Ultimately, the focus on calculating exact amounts and on the evaluation of contributions down to the last penny is exactly the kind of narrow-minded account-book mentality which makes most people socialists in the first place. It would be ironic if, in the name of non-exploitation, a similar accounting mentality to that which records how much surplus value is extracted from workers under capitalism is continued into a free society. It makes life easier not to have to worry whether you can afford to visit the doctors or dentists, not to have to pay for use of roads and bridges, know that you can visit a public library for a book and so forth. For those who wish to spend their time calculating such activities and seeking to pay the community for them simply because they hate the idea of being "exploited" by the "less" productive, the ill, the young or the old then we are sure that a libertarian communist society will accommodate them (although we are sure that emergencies will be an exception and they will be given free access to communal hospitals, fire services and so forth).
Thus the notion that communism would be exploitative like capitalism misses the point. While all socialists accuse capitalism for failing to live up to its own standards, of not paying workers the full product of their labour, most do not think that a socialist society should seek to make that full payment a reality. Life, for libertarian communists, is just too complex and fleeting to waste time and energy calculating exactly the contribution of each to society. As Malatesta put it:
"I say that the worker has the right to the entire product of his work: but I recognise that this right is only a formula of abstract justice; and means, in practice, that there should be no exploitation, that everyone must work and enjoy the fruits of their labour, according to the custom agreed among them.
"Workers are not isolated beings that live for themselves and for themselves, but social beings . . . Moreover, it is impossible, the more so with modern production methods, to determine the exact labour that each worker contributed, just as it is impossible to determine the differences in productivity of each worker or each group of workers, how much is due to the fertility of the soil, the quality of the implements used, the advantages or difficulties flowing from the geographical situation or the social environment. Hence, the solution cannot be found in respect to the strict rights of each person, but must be sought in fraternal agreement, in solidarity." [At the Café, pp. 56-7]
All in all, most anarchists reject the notion that people sharing the world (which is all communism really means) equates to them being exploited by others. Rather than waste time trying to record the minutiae of who contributed exactly what to society, most anarchists are happy if people contribute to society roughly equal amounts of time and energy and take what they need in return. To consider such a situation of free co-operation as exploitative is simply ridiculous (just as well consider the family as the exploitation of its working members by their non-working partners and children). Those who do are free to leave such an association and pay their own way in everything (a task which would soon drive home the simplicity and utility of communism, most anarchists would suggest).
We have discussed, in section I.1.1, the negative effects of workplace hierarchy and stock markets and, in section I.1.2, the informational problems of prices and the limitations in using profit as the sole criteria for decision making for the efficient allocation of resources. As such, anarchists have reason to doubt the arguments of the "Austrian" school of economics that (libertarian) socialism is impossible, as first suggested by Ludwig Von Mises in 1920. ["Economic Calculation in the Socialist Commonwealth", Collectivist Economic Planning, F.A von Hayek (ed.), pp. 87-130] Here, we discuss why anarchists also have strong reason to question the underlying assumption that capitalism efficiently allocates resources and how this impacts on claims that "socialism" is impossible. This is based on an awareness of the flaws in any (implicit) assumption that all prices are at equilibrium, the issue of uncertainty, the assumption that human well-being is best served by market forces and, lastly, the problem of periodic economic crisis under capitalism.
The first issue is that prices only provide adequate knowledge for rational decision making only if they are at their equilibrium values as this equates supply and demand. Sadly, for the "Austrian" school and its arguments against socialism, it rejects the notion that prices could be at equilibrium. While modern "Austrian" economics is keen to stress its (somewhat underdeveloped) disequilibrium analysis of capitalism, this was not always the case. When Mises wrote his 1920 essay on socialism his school of economics was considered a branch of the neo-classicalism and this can be seen from Mises' critique of central planning. In fact, it would be fair to say that the neo-"Austrian" focus of prices as information and (lip-service to) disequilibrium flowed from the Economic Calculation debate, specifically the awkward fact that their more orthodox neo-classical peers viewed Lange's "solution" as answering Mises and Hayek.
Thus there is a fundamental inconsistency in Mises' argument, namely that while Austrian economics reject the notion of equilibrium and the perfect competition of neo-classical economics he nonetheless maintains that market prices are the correct prices and can be used to make rational decisions. Yet, in any real market, these correct prices must be ever changing so making the possibility that "precise" economic decisions by price can go wrong on a large scale (i.e., in slumps). In other words, Mises effectively assumed away uncertainty and, moreover, failed to mention that this uncertainty is increased dramatically within capitalism.
This can be seen from modern "Austrian" economics which, after the Economic Calculation debates of the 1920s and 1930s, moved increasingly away from neo-classical equilibrium theory. However, this opened up a whole new can of worms which, ironically, weakened the "Austrian" case against socialism. For the modern "Austrian" economist, the economy is considered not to be in equilibrium, with entrepreneur being seen as the means by which it brought towards it. Thus "this approach postulates a tendency for profit opportunities to be discovered and grasped by routine-resisting entrepreneurial market participants", with this "tending to nudge the market in the equilibrative direction." Lip-service is paid to the obvious fact that entrepreneurs can make errors but "there is no tendency for entrepreneurial errors to be made. The tendency which the market generates toward greater mutual awareness, is not offset by any equal but opposite tendency in the direction of diminishing awareness" and so the "entrepreneurial market process may indeed reflect a systematically equilibrative tendency, but this by no means constitutes a guaranteed unidirectional, flawlessly converging trajectory." All this results on the "speculative actions of entrepreneurs who see opportunities for pure profit in the conditions of disequilibrium." [Israel M. Kirzner, "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach", pp. 60-85, Journal of Economic Literature, Vol. 35, No. 1, p. 71, p. 73, p. 82, p. 72 and p. 68]
When evaluating this argument, it is useful to remember that "postulate" means "to assume without proof to be true" or "to take as self-evident." At its most simple, this argument ignores how entrepreneurial activity pushes an economy away from equilibrium (unlike radical economists, only a few "Austrian" economists, such as those who follow Ludwig Lachmann, recognise that market forces have both equilibrating and disequilibrium effects, acknowledged in passing by Kirzner: "In a world of incessant change, they argue, it is precisely those acts of entrepreneurial boldness which must frustrate any discovery efforts made by fellow entrepreneurs." [Op. Cit., p. 79]). In other words, market activity can lead to economic crisis and inefficient allocation decisions. A successful entrepreneur will, by their actions, frustrate the plans of others, most obviously those of his competitors but also those who require the goods they used to produce their commodities and those whose incomes are reduced by the new products being available. It staggers belief to think that every action by a firm will be step towards equilibrium or a better co-ordination of plans, particularly if you include unsuccessful entrepreneurs into the process. In other words, the market can be as discoordinating as it can be co-ordinating and it cannot be "postulated" beforehand which will predominate at any given time.
There is an obvious example of entrepreneurial activity which leads to increasing disequilibrium, one (ironically) drawn straight from "Austrian" economics itself. This is the actions of bankers extending credit and so deviating from the "natural" (equilibrium) rate of interest. As one post-Keynesian economist notes, this, the "Austrian" theory of the business cycle, "not only proved to be vulnerable to the Cambridge capital critique . . . , but also appeared to reply upon concepts of equilibrium (the 'natural rate of interest', for example) that were inconsistent with the broader principles of Austrian economic theory." [J.E. King, A history of post Keynesian economics since 1936, p. 230] As we discussed in section C.8, this kind of activity is to be expected of entrepreneurs seeking to make money from meeting market demand. The net result of this activity is a tendency away from equilibrium. This can be generalised for all markets, with the profit seeking activities of some businesses frustrating the plans of others. Ultimately, the implication that all entrepreneurial activity is stabilising, virtuous arbitrage that removes disequilibria is unconvincing as the suggestion that the misinformation conveyed by disequilibrium prices can cause very substantial macroeconomic distortions for only one good (credit). Surely, the argument as regards interest rates can apply to other disequilibrium prices, with responses to unsustainable prices for other goods being equally capable of generating mal-investment (which only becomes apparent when the prices adjust towards their "natural" levels). After all, any single price distortion leads to all other prices becoming distorted because of the ramifications for exchange ratios throughout the economy.One of the reasons why neo-classical economists stress equilibrium is that prices only provide the basis for rational calculation only in that state for disequilibrium prices can convey extremely misleading information. When people trade at disequilibrium prices, it has serious impacts on the economy (which is why neo-classical economics abstracts from it). As one economist notes, if people "were to buy and sell at prices which did not clear the market" then once "such trading has taken place, there can be no guarantee that, even if an equilibrium exists, the economy will ever converge to it. In fact, it is likely to move in cycles around the equilibrium." This "is more than a mere supposition. It is an accurate description of what does happen in the real world." [Paul Ormerod, The Death of Economics, pp. 87-8] Once we dismiss the ideologically driven "postulate" of "Austrian" economics, we can see how these opportunities for "pure profit" (and, of course, a corresponding pure lose for the buyer) impacts on the economy and how the market system adds to uncertainty. As dissident economist Steve Keen puts it:
"However, a change in prices in one market will affect consumer demand in all other markets. This implies that a move towards equilibrium by one market could cause some or all others to move away from equilibrium. Clearly it is possible that this . . . might never settle down to equilibrium.
"This will be especially so if trades actually occur at disequilibrium -- as in practice they must . . . A disequilibrium trade will mean that the people on the winning side of the bargain -- sellers if the price is higher than equilibrium -- will gain real income at the expense of the losers, compared to the alleged standard of equilibrium. This shift in income distribution will then affect all other markets, making the dance of many markets even more chaotic." [Debunking Economics, p. 169]
That prices can, and do, convey extremely misleading information is something which "Austrians" have a tendency to downplay. Yet in economies closer to their ideal (for example, nineteenth century America) there were many more recessions (usually triggered by financial crises arising from the collapse of speculative bubbles) than in the twentieth and so the economy was fundamentally more unstable, resulting in the market "precisely" investing in the "wrong" areas. Of course, it could be argued that there was not really free market capitalism then (e.g., protectionism, no true free banking due to regulation by state governments and so on) yet this would be question begging in the extreme (particularly since the end of the 20th and dawn of the 21st centuries saw speculative crises precisely in those areas which were regulated least).
Thus, the notion that prices can ensure the efficient allocation of resources is question begging. If prices are in disequilibrium, as "Austrians" suggest, then the market does not automatically ensure that they move towards equilibrium. Without equilibrium, we cannot say that prices provide companies sufficient information to make rational investment decisions. They may act on price information which is misleading, in that it reflects temporary highs or lows in the market or which is a result of speculative bubbles. An investment decision made on the mis-information implied in disequilibrium prices is as likely to produce mal-investment and subsequent macro-economic distortions as decisions made in light of the interest rate not being at its "natural" (equilibrium) value. So unless it is assumed that the market is in equilibrium when an investment decision is made then prices can reflect misinformation as much as information. These, the obvious implications of disequilibrium, help undermine Mises' arguments against socialism.
Even if we assume that prices are at or, at best, near equilibrium when investment decisions are made, the awkward fact is that these prices do not tell you prices in the future nor what will be bought when production is finished. Rather, they tell you what was thought to be profitable before investment began. There are always differences between the prices used to cost various investments and the prices which prevail on the market when the finished goods are finally sold, suggesting that the market presents systematically misleading signals. In addition, rival companies respond to the same price signals by undertaking long term investments at the same time, so creating the possibility of a general crisis of over-accumulate and over-production when they are complete. As we discussed in section C.7.2, this is a key factor in the business cycle. Hence the recurring possibility of over-production, when the aggregate response to a specific market's rising price results in the market being swamped by good, so driving the market price down. Thus the market is marked by uncertainty, the future is not known. So it seems ironic to read Mises asserting that "in the socialist commonwealth every economic change becomes an undertaking whose success can be neither appraised in advance nor later retrospectively determined. There is only groping in the dark." [Op. Cit., p. 110]
In terms of "appraised in advance", Mises is essentially assuming that capitalists can see the future. In the real world, rather than in the unreal world of capitalist economics, the future is unknown and, as a result, success can only be guessed at. This means that any investment decision under real capitalism is, equally, "groping in the dark" because there is no way to know, before hand, whether the expectations driving the investment decisions will come to be. As Mises himself noted as part of his attack on socialism, "a static state is impossible in real life, as our economic data are for ever changing" and so, needless to say, the success of an investment cannot be appraised beforehand with any real degree of certainty. Somewhat ironically, Mises noted that "the static nature of economic activity is only a theoretical assumption corresponding to no real state of affairs, however necessary it may be for our thinking and for the perfection of our knowledge of economics." [Op. Cit., p. 109] Or, for that matter, our critique of socialism! This can be seen from one his examples against socialism:
"Picture the building of a new railroad. Should it be built at all, and if so, which out of a number of conceivable roads should be built? In a competitive and monetary economy, this question would be answered by monetary calculation. The new road will render less expensive the transport of some goods, and it may be possible to calculate whether this reduction of expense transcends that involved in the building and upkeep of the next line. That can only be calculated in money." [Op. Cit., p. 108]
It "may be possible"? Not before hand. At best, an investor could estimate the willingness of firms to swap to the new railroad and whether those expected costs will result in a profit on both fixed and running costs. The construction costs can be estimated, although unexpected price rises in the future may make a mockery of these too, but the amount of future income cannot. Equally, the impact of building the new railroad will change the distribution of income as well, which in turn affects prices across the market and people's consumption decisions which, in turn, affects the profitability of new railroad investment. Yet all this is ignored in order to attack socialism.
In other words, Mises assumes that the future can be accurately predicted in order to attack socialism. Thus he asserts that a socialist society "would issue an edict and decide for or against the projected building. Yet this decision would depend at best upon vague estimates; it would never be based upon the foundation of an exact calculation of value." [Op. Cit., p. 109] Yet any investment decision in a real capitalist economy depends "at best upon vague estimates" of future market conditions and expected returns on the investment. This is because accounting is backward looking, while investment depends on the unknowable future.
In other words, "people recognise that their economic future is uncertain (nonergodic) and cannot be reliably predicted from existing market information. Consequently, investment expenditures on production facilities and people's desire to save are typically based on differing expectations of an unknowable, uncertain future." This means that in an uncertain world future profits "can neither be reliably forecasted from existing market information, nor endogenously determined via today's planned saving propensity of income earners . . . Thus, unless one assumes that entrepreneurs can accurately predict the future from here to eternity, current expectations of prospective yield must depend on the animal optimism or pessimism of entrepreneurs" [Paul Davidson, John Maynard Keynes, pp. 62-3] So, yes, under capitalism you can determine the money cost (price) of a building but the decision to build is based on estimates and guesses of the future, to use Mises' words "vague estimates." A change in the market can mean that even a building which is constructed exactly to expected costs does not produce a profit and so sits empty. Even in terms of "exact calculation" of inputs these can change, so undermining the projected final cost and so its profit margin.
For a good explanation of the problems of uncertainty, we must turn to Keynes who placed it at the heart of his analysis of capitalism. "The actual results of an investment over a long term of years," argued Keynes, "very seldom agree with the initial expectation" since "our existing knowledge does not provide a sufficient basis for a calculated mathematical expectation. In point of fact, all sorts of considerations enter into the market valuation which are in no way relevant to the prospective yield." He stressed that "human decisions affecting the future, whether personal or political or economic, cannot depend on strict mathematical expectation, since the basis for making such calculations does not exist." He also suggested that the "chief result" of wage flexibility "would be to cause a great instability of prices, so violent perhaps as to make business calculations futile." [The General Theory, p. 152, pp. 162-3 and p. 269]
Much the same can be said of other prices as well. As Proudhon argued decades before Mises proclaimed socialism impossible, profit is ultimately an unknown value. Under capitalism wages are the "least that can be given" to a worker: "that is, we do not know." The "price of the merchandise put upon the market" by the capitalist will be the "highest that he can obtain; that is, again, we do not know." Economics "admits" that "the prices of merchandise and labour . . . can be estimated" and "that estimation is essentially an arbitrary operation, which never can lead to sure and certain conclusions." Thus capitalism is based on "the relation between two unknowns" which "cannot be determined." [System of Economical Contradictions, p. 64]
So under capitalism all decisions are "groping in the dark". Which can, and does, lead to inefficient allocations of resources:
"It leads, that is to say, to misdirected investment. But over and above this it is an essential characteristic of the boom that investments which will in fact yield, say, 2 per cent. in conditions of full employment are made in the expectation of a yield of, say, 6 per cent., and are valued accordingly. When the disillusion comes, this expectation is replaced by a contrary 'error of pessimism', with the result that the investments, which would in fact yield 2 per cent. in conditions of full employment, are expected to yield less than nothing; and the resulting collapse of new investment then leads to a state of unemployment in which the investments, which would have yielded 2 per cent. in conditions of full employment, in fact yield less than nothing. We reach a condition where there is a shortage of houses, but where nevertheless no one can afford to live in the houses that there are." [Keynes, Op. Cit., pp. 321-2]
Thus uncertainty and expectations of profit can lead to massive allocation inefficiencies and waste. Of course Mises pays lip-service to this uncertainty of markets. He noted that there are "ceaseless alternations in other economic data" and that exchange relations are "subject to constant . . . fluctuations" but those "fluctuations disturb value calculations only in the slightest degree"! He admitted that "some mistakes are inevitable in such a calculation" but rest assured "[w]hat remains of uncertainty comes into the calculation of the uncertainty of future conditions, which is an inevitable concomitant of the dynamic nature of economic life." [Op. Cit., p. 98, p. 110 and p. 111] So, somewhat ironically, Mises assumed that, when attacking socialism, that prices are so fluid that no central planning agency could ever compute their correct price and so allocated resources inefficiently yet, when it comes to capitalism, prices are not so fluid that they make investment decisions difficult!
The question is, does capitalism reduce or increase these uncertainties? We can suggest that capitalism adds two extra layers of uncertainty. As with any economy, there is the uncertainty that produced goods will meet an actual need of others (i.e., that it has a use-value). The market adds another layer of uncertainty by adding the need for its price to exceed costs a market. Finally, capitalism adds another level of uncertainty in that the capitalist class must make suffice profits as well. Thus, regardless of how much people need a specific good if capitalists cannot make a profit from it then it will not be produced.
Uncertainty will, of course, afflict a communist-anarchist society. Mistakes in resource allocation will happen, with some goods over produced at times and under-produced at others. However, a communist society removes the added uncertainty associated with a capitalist economy as such mistakes do not lead to general slumps as losses result in the failure of firms and rising unemployment. In other words, without Mises' precise economic calculation society will no longer be afflicted by the uncertainty associated with the profit system.
Significantly, there are developments within capitalism which point to the benefits of communism in reducing uncertainty. This is the rise of the large-scale corporation. In fact, many capitalist firms expand precisely to reduce the uncertainties associated with market prices and their (negative) impact on the plans they make. Thus companies integrate horizontally by take-over to gain more control over investment and supply decisions as well as vertically to stabilise costs and secure demand for necessary inputs.
As economist John Kenneth Galbraith noted, when investment is large, "[n]o form of market uncertainty is so serious as that involving the terms and conditions on which capital is obtained." As a result internal funds are used as "the firm has a secure source of capital" and "no longer faces the risks of the market." This applies to other inputs, for a "firm cannot satisfactorily foresee and schedule future action or prepare for contingencies if it does not know what its prices will be, what its sales will be, what its costs, including labour and capital costs, will be and what will be available at these costs. If the market is uncontrolled, it will not know these things . . . Much of what the firm regards as planning consists in minimising uncontrolled market influences." This partly explains why firms grow (the other reason is to dominate the market and reap oligopolistic profits). The "market is superseded by vertical integration" as the firm "takes over the source of supply or the outlet". This "does not eliminate market uncertainty" but rather replaces "the large and unmanageable uncertainty as to the price" of inputs with "smaller, more diffuse and more manageable uncertainties" such as the costs of labour. A large firm can only control the market, by "reducing or eliminating the independence of action" of those it sells to or buys from. This means the behaviour of others can be controlled, so that "uncertainty as to that behaviour is reduced." Finally, advertising is used to influence the amount sold. Firms also "eliminate market uncertainty" by "entering into contracts specifying prices and amounts to be provided or bought for substantial periods of time." Thus "one of the strategies of eliminating market uncertainty is to eliminate the market." [The New Industrial State p. 47, pp. 30-6 and p. 47]
Of course, such attempts to reduce uncertainty within capitalism are incomplete and subject to breakdown. Such planning systems can come into conflict with others (for example, the rise of Japanese corporations in the 1970s and 1980s and subsequent decline of American industrial power). They are centralised, hierarchically structured and based on top-down central planning (and so subject to the informational problems we highlighted in section I.1.2). Market forces can reassert themselves, making a mockery of even the best organised plans. However, these attempts at transcending the market within capitalism, as incomplete as they are, show a major problem with relying on markets and market prices to allocate resources. They add an extra layer of uncertainty which ensure that investors and firms are as much in the dark about their decisions as Mises argued central planners would be. As such, to state as Mises does that production in socialism can "never be based upon the foundation of an exact calculation of value" is somewhat begging the question. [Op. Cit., p. 109] This is because knowing the "exact" price of an investment is meaningless as the key question is whether it makes a profit or not -- and that is unknown when it is made and if it makes a loss, it is still a waste of resources! So it does not follow that a knowledge of current prices allows efficient allocation of resources (assuming, of course, that profitability equates to social usefulness).
In summary, Mises totally ignored the issues of uncertainty (we do not, and cannot, know the future) and the collective impact of individual decisions. Production and investment decisions are made based on expectations about future profits, yet these (expected) profits depend (in part) on what other decisions are being, and will be, made. This is because they will affect the future aggregate supply of a good and so market price, the price of inputs and the distribution of effective demand. In the market-based (and so fragmented and atomistic) decision-making Mises assumes, any production and investment decisions are made on the basis on unavoidable ignorance of the actions of others and the results of those actions. Of course there is uncertainty which would affect every social system (such as the weather, discovery of new sources of energy, raw materials and technology, changing customer needs, and so forth). However, market based systems add extra levels of uncertainty by the lack of communication between decision-makers as well as making profit the be-all-and-end-all of economic rationalism.
So in terms of Mises' claim that only capitalism ensures that success can be "appraised in advance", it is clear that in reality that system is as marked by "groping in the dark" as any other. What of the claim that only markets can ensure that a project's success is "later retrospectively determined"? By this, Mises makes a flawed assumption -- namely the dubious notion that what is profitable is right. Thus economically is identified with profitably. So even if we assume prices provide enough information for rational decision making, that the economy jumps from one state of equilibrium to another and that capitalists can predict the future, the awkward fact is that maximising profit does not equal maximising human well-being.
Neither well-being nor efficiency equals profitability as the latter does not take into account need. Meeting needs is not "retrospectively determined" under capitalism, only profit and loss. An investment may fail not because it is not needed but because there is no effective demand for it due to income inequalities. So it is important to remember that the distribution of income determines whether something is an "efficient" use of resources or not. As Thomas Balogh noted, real income "is measured in terms of a certain set of prices ruling in a given period and that these prices will reflect the prevailing distribution of income. (With no Texan oil millionaires here would be little chance of selling a baby blue Roll-Royce . . . at a price ten times the yearly income of a small farmer or sharecropper)." [The Irrelevance of Conventional Economics, pp. 98-9] The market demand for commodities, which allocates resources between uses, is based not on the tastes of consumers but on the distribution of purchasing power between them. This, ironically, was mentioned by Mises as part of his attack on socialism, arguing that the central planners could not use current prices for "the transition to socialism must, as a consequence of the levelling out of the differences in income and the resultant re-adjustments in consumption, and therefore production, change all economic data." [Op. Cit., p. 109] He did not mention the impact this has in terms of "efficiency" or profitability! After all, what is and is not profitable ("efficient") depends on effective demand, which in turn depends of a specific income distribution. Identical production processes become efficient and inefficient simply by a redistribution of income from the rich to the poor, and vice versa. Similarly, changes in market prices may make once profitably investments unprofitable, without affecting the needs they were satisfying. And this, needless to say, can have serious impacts on human well-being.
As discussed in section C.1.5, this becomes most obvious during famines. As Allan Engler points out, "[w]hen people are denied access to the means of livelihood, the invisible hand of market forces does not intervene on their behalf. Equilibrium between supply and demand has no necessary connection with human need. For example, assume a country of one million people in which 900,000 are without means of livelihood. One million bushels of wheat are produced. The entire crop is sold to 100,000 people at $10 a bushel. Supply and demand are in equilibrium, yet 900 000 people will face starvation." [Apostles of Greed, pp. 50-51] In case anyone thinks that this just happens in theory, the example of numerous famines (from the Irish famine of the 1840s to those in African countries in 1980s) gives a classic example of this occurring in practice, with rich landowners exporting food to the other nations while millions starve in their own.
So the distributional consequences of the market system play havoc with any attempt to define what is and is not an "efficient" use of resources. As markets inform by 'exit' only -- some products find a market, others do not -- 'voice' is absent. The operation of 'exit' rather than 'voice' leaves behind those without power in the marketplace. For example, the wealthy do not buy food poisoned with additives, the poor consume it. This means a division grows between two environments: one inhabited by those with wealth and one inhabited by those without it. As can be seen from the current capitalist practice of "exporting pollution" to developing countries, this problem can have serious ecological and social effects. So, far from the market being a "democracy" based on "one dollar, one vote," it is an oligarchy in which, for example, the "79,000 Americans who earned the minimum wage in 1987 have the same influence [or "vote"] as Michael Milken, who 'earned' as much as all of them combined." [Michael Albert and Robin Hahnel, The Political Economy of Participatory Economics, p. 21] One dissident economist states the blindly obvious, namely that the "market and democracy clash at a fundamental level. Democracy runs on the principle of 'one man (one person), one vote.' The market runs on the principle of 'one dollar, one vote.' Naturally, the former gives equal weight to each person, regardless of the money she/he has. The latter gives greater weight to richer people." This means that the market is automatically skewed in favour of the wealthy and so "[l]eaving everything to the market means that the rich may be able to realise even the most frivolous element of their desires, while the poor may not be able even to survive -- thus the world spends twenty times more research money on slimming drugs than on malaria, which claims more than a million lives and debilitates millions more in developing countries every year." [Ha-Joon Chang, Bad Samaritans, p. 172 and p. 174]
In other words, markets are always biased in favour of effective demand, i.e. in favour of the demands of people with money, and so can never (except in the imaginary abstractions of neo-classical economics) allocate the necessities of life to those who need them the most. Thus a simple redistribution of wealth (via militant unions or the welfare state, for example) could make previously "bad" investments good simply because the new income allows those who had previously needed, but could not afford, the good or service in question to purchase it. So just because something makes a loss under one distribution of income does not mean that it is an inefficient use of resources in the sense of meeting human needs (and could make a profit under another, more equal, distribution of wealth). So the "efficient" allocation of resources in terms of price (i.e., profit) is often no such thing as the wealthy few skews market decisions in their favour.
It is important to remember that, for the "Austrians", preferences are demonstrated through action in the market and they are not interested in opinions, thus any preference which is not expressed by action is irrelevant to them. So any attempt to collectively prioritise, say, building decent housing for all, provide health care for everyone, abolish poverty, and so forth are all considered "inefficient" uses of resources as those who receive them would not, normally, be able to afford them and, consequently, do not really desire them anyway (as they, needless to say, do not express that desire by market exchanges!). Yet this ignores the awkward fact that in the market, people can only act if they have money to make their preferences known. Thus those who have a need but no money do not count when determining if the market is efficient or not. There is simply no room for the real people who can be harmed by real markets. As economist Amartya Sen argues, the workings of a "pure" capitalist market, as desired by "Austrians" economists and other propertarians, "can be problematic since the actual consequences of the operation of these entitlements can, quite possibly, include rather terrible results. It can, in particular, lead to the violation of the substantive freedom of individuals to achieve those things to which they have reason to attach great importance, including escaping avoidable morality, being well nourished and healthy, being able to read, write and count and so on." In fact, "even gigantic famines can result without anyone's [right] libertarian rights (including property rights) being violated. The destitutes such as the unemployed or the impoverished may starve precisely because their 'entitlements' . . . do not give them enough food." Similarly, "deprivation" such as "regular undernourishment", the "lack of medical care for curable illnesses" can "coexist with all [right] libertarian rights (including rights of property ownership) being fully satisfied." [Development as Freedom, p. 66]
All of which, it must be stressed, is ignored in the "Austrian" case against socialism. Ultimately, if providing food to a rich person's pets makes a profit then it becomes a more economical and efficient use of the resource than providing food to famine victims who cannot purchase food on the market. So it should never be forgotten that the "Austrians" insist that only preferences demonstrated in action are real. So if you cannot act on the market (i.e., buy something) then your need for it is not real. In other words, if a person loses their job and, as a consequence, loses their home then, according to this logic, they do not "need" a home as their "demonstrated preference" (i.e., their actual choices in action) shows that they genuinely value living under a bridge (assuming they gain the bridge owners agreement, of course).
As an aside, this obvious fact shows that the "Austrian" assertion that intervention in the market always reduces social utility cannot be supported. The argument that the market maximises utility is based on assuming a given allocation of resources before the process of free exchange begins. If someone does not have sufficient income to, say, buy food or essential medical treatment then this is not reflected in the market. If wealth is redistributed and they then they get access to the goods in question, then (obviously) their utility has increased and it is a moot point whether social utility has decreased as the disutility of the millionaire who was taxed to achieve it cannot be compared to it. Significantly, those "Austrians" who have sought to prove that all intervention in the market reduces social utility have failed. For example, as one dissident "Austrian" economist notes, while Murray Rothbard "claimed he offered a purely deductive" argument that state intervention always reduced social utility "his case [was] logically flawed." He simply assumed that social utility was reduced although he gave no reason for such an assumption as he admitted that interpersonal comparisons of utility were impossible. For someone "who asks that his claims be tested only by their logic", his ultimate conclusions about state intervention "do not follow" and exhibit "a careless self-contradiction" [David L. Prychitko, Markets, Planning and Democracy, p. 189, p. 111 and p. 110]
In summary, then, in terms of feedback saying that if something made a profit then it was efficiently produced confuses efficiency and need with profitability and effective demand. Something can make a profit by imposing costs via externalities and lowering quality. Equally, a good may not make a profit in spite of there being a need for it simply because people cannot afford to pay for it.
As such, Mises was wrong to assert that "[b]etween production for profit and production for need, there is no contrast." [Socialism, p. 143] In fact, it seems incredible that anyone claiming to be an economist could make such a comment. As Proudhon and Marx (like Smith and Ricardo before them) made clear, a commodity in order to be exchanged must first have a use-value (utility) to others. Thus production for profit, by definition, means production for "use" -- otherwise exchange would not happen. What socialists were highlighting by contrasting production for profit to need was, firstly, that need comes after profit and so without profit a good will not be produced no matter how many people need it. Secondly, it highlights the fact that during crises capitalism is marked by an over-production of goods reducing profits, so stopping production, while people who need those goods go without them. Thus capitalism is marked by homeless people living next to empty housing and hungry people seeing food exported or destroyed in order to maximise profit. Ultimately, if the capitalist does not make a profit then it is a bad investment -- regardless of whether it could be used to meet people's needs and so make their lives better. In other words, Mises ignores the very basis of capitalism (production for profit) and depicts it as production aiming at the direct satisfaction of consumers.
Equally, that something makes a profit does not mean that it is an efficient use of resources. If, for example, that profit is achieved by imposing pollution externalities or by market power then it cannot be said that society as a whole, rather than the capitalists, have benefited. Similarly, non-market based systems can be seen to be more efficient than market based ones in terms of outcome. For example, making health care available to all who need it rather than those who can afford it is economically "inefficient" in "Austrian" eyes but only an ideologue would claim that we should not do so because of this particularly as we can point to the awkward fact that the more privatised health care systems in the USA and Chile are more inefficient than the nationalised systems elsewhere in the world. Administration costs are higher and the societies in question pay far more for an equivalent level of treatment. Of course, it could be argued that the privatised systems are not truly private but the awkward fact remains -- the more market based system is worse, in terms of coverage of the population, cost for treatment, bureaucracy and health outcomes per pound spent.
In addition, in a highly unequal society costs are externalised to those at the bottom of the social hierarchy. The consequences are harmful, as suggested by the newspeak used to disguise this reality. For example, there is what is called "increasing flexibility of the labour market." "Flexibility" sounds great: rigid structures are unappealing and hardly suitable for human growth. In reality, as Noam Chomsky points out "[f]lexibility means insecurity. It means you go to bed at night and don't know if you have a job tomorrow morning. That's called flexibility of the labour market, and any economist can explain that's a good thing for the economy, where by 'the economy' now we understand profit-making. We don't mean by 'the economy' the way people live. That's good for the economy, and temporary jobs increase flexibility. Low wages also increase job insecurity. They keep inflation low. That's good for people who have money, say, bondholders. So these all contribute to what's called a 'healthy economy,' meaning one with very high profits. Profits are doing fine. Corporate profits are zooming. But for most of the population, very grim circumstances. And grim circumstances, without much prospect of a future, may lead to constructive social action, but where that's lacking they express themselves in violence." [Keeping the Rabble in Line, pp. 283-4] So it simply cannot be assumed that what is good for the economy (profits) equates to what to good for people (at least the working class).
Thus the "Austrians" prizes profitability above all and this assumption is at the root of the "Calculation Argument" against socialism, but this only makes sense only insofar as efficiency is confused with profit. The market will invest in coal if profits are higher and, in so doing, contribute to global warming. It will deny medical care to the sick (no profits and so it is inefficient) while contributing to, say, a housing bubble because it makes short-term profits by providing loans to people who really cannot afford it. It will support all kinds of economic activity, regardless of the wider impact, and so "efficiency" (i.e., profits) can, and does, contradict both wisdom and ethics and so, ultimately, an efficient allocation of resources to meet people's needs.
Lastly, our critique has so far ignored the periodic crises that hit capitalist economies which produce massive unemployment and social disruption -- crises that are due to subjective and objective pressures on the operation of the price mechanism (see section C.7 for details). In the upswing, when expectations are buoyant, firms will invest and produce a mutually reinforcing expansion. However, the net effect of such decisions eventually leads to over-investment, excess capacity and over-production -- mal-investment and the waste of the embodied resources. This leads to lower than expected profits, expectations change for the worse and the boom turns into bust, capital equipment is scrapped, workers are unemployed and resources are either wasted or left idle.
In a crisis we see the contradiction between use value and exchange value come to a head. Workers are no less productive than when the crisis started, the goods and services they create are no less needed than before. The means of production are just productive as they were. Both are just as capable as before of affording for everyone a decent standard of living. Even though people are homeless, housing stands empty. Even though people need goods, production is stopped. Even though people want jobs, workplaces are closed. Yet, according to the logic of "exact" "economic calculation", production is now "inefficient" and should be closed-down, workers made unemployed and expected to find work by forcing down the wages of those lucky enough to remain employed in the hope that the owners of the means of life will find it profitable to exploit them as much as before (for when hard times arrive it is never long until somebody suggests that the return of prosperity requires sacrifices at the bottom of the heap and, needless to say, the "Austrian" economists are usually the first to do so).
This suggests that the efficient allocation of resources becomes meaningless if its reality is a cycle where consumers go without essential goods due to scarcity and high prices followed by businesses going bust because of over-production and low prices. This process ruins large numbers of people's lives, not to mention wasting vast stocks of productive equipment and goods. There are always people who need the over-produced goods and so the market adds to uncertainty as there is a difference between the over-production of goods and the over-production of commodities. If more goods were produced in a communist society this may signify a waste of resources but it would not, as under capitalism, produce a crisis situation as well!So in a real capitalist economy, there are numerous reasons for apparently rational investment decisions going wrong. Not that these investments produce goods which people do not need, simply that "exact" "economic calculation" indicates that they are not making a profit and so are an "inefficient" use of resources. However, it is question begging in the extreme to argue that if (thanks to a recession) workers can no longer buy food then is it an "efficient" allocation of resources that they starve. Similarly, during the Great Depression, the American government (under the New Deal) hired about 60% of the unemployed in public works and conservation projects. These saw a billion trees planted, the whooping crane saved, the modernisation of rural America, and the building of (among others) the Cathedral of Learning in Pittsburgh, the Montana state capitol, New York's Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority as well as building or renovating 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, 1,000 airfields as well as employing 50,000 teachers and rebuilding the country's entire rural school system. Can all these schemes really be considered a waste of resources simply because they would never have made a capitalist a profit?
Of course, our discussion is affected by the fact that "actually existing" capitalism has various forms of state-intervention. Some of these "socialise" costs and risks, such as publicly funded creation of an infrastructure and Research and Development (R&D). Given that much R&D is conducted via state funding (via universities, military procurements, and so on) and (of course!) the profits of such research are then privatised, question arises would the initial research have gone ahead if the costs had not been "socialised"? Would Mises' "exact" calculation have resulted in, say, the internet being developed? If, as seems likely, not, does not mean our current use of the World Wide Web is an inefficient use of resources? Then there are the numerous state interventions which exist to ensure that certain activities become "efficient" (i.e., profitable) such as specifying and defending intellectual property rights, the limited liability of corporations and enforcing capitalist property rights (in land, for example). While we take this activity for granted when evaluating capitalism, they are serious imperfections in the market and so what counts as an "efficient" use of resources. Other state interventions aim to reduce uncertainty and stabilise the market, such as welfare maintaining aggregate demand.
Removing these "imperfections" in the market would substantially affect the persuasiveness of Mises' case. "What data we do have," notes Doug Henwood, "don't lend any support to the notion that the nineteenth century was more 'stable' than the twentieth . . . the price level bounced all over the place, with periods of inflation alternating with periods of deflation, and GDP growth in the last three decades . . . was similarly volatile. The busts were savage, resulting in massive bank failures and very lean times for workers and farmers." [After the New Economy, p. 242] Looking at business cycle data for America, what becomes clear is that some of those regular nineteenth century slumps were extremely long: the Panic of 1873, for example, was followed by a recession that lasted 5 1/2 years. The New York Stock Exchange closed for ten days and 89 of the country's 364 railroads went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876, during a time which became known as the Long Depression. Construction work lagged, wages were cut, real estate values fell and corporate profits vanished.
Given this, given the tendency of capitalism to crisis and to ignore real needs in favour of effective demand, it is far better to be roughly right than precisely wrong. In other words, the economic calculation that Mises celebrates regularly leads to situations where people suffer because it precisely shows that workplaces should shut because, although nothing had changed in their productivity and the need of their products, they can no longer make a profit. Saying, in the middle of a crisis, that people should be without work, be homeless and go hungry because economic calculation proves they have no need for employment, homes and food shows the irrationality of glorifying "economic calculation" as the be all and end all of resource allocation.
In summary, then, not only is libertarian communism possible, capitalism itself makes economic calculation problematic and resource allocation inefficient. Given the systematic uncertainty which market dynamics imply and the tendencies to crisis inherent in the system, "economic calculation" ensures that resources are wasted. Using the profit criteria as the measure of "efficiency" is also problematic as it ensures that real needs are ignored and places society in frequent situations (crises) where "economic calculation" ensures that industries close, so ensuring that goods and services people need are no longer produced. As Proudhon put it, under capitalism there is "a miserable oscillation between usury and bankruptcy." [Proudhon's Solution of the Social Problem, p. 63] For anarchists, these drawbacks to capitalist allocation are obvious. Equally obvious is the reason why Mises failed to discuss them: ultimately, like neo-classical economics, the "Austrian" school seeks to eulogise capitalism rather than to understand it.