Anderson translation of Mises

Source

Anderson, Harald, A New Translation of Mises’ ‘Economic Calculation in the Socialist Commonwealth’ (April 13, 2012). Available at SSRN: https://ssrn.com/abstract=2039501 or http://dx.doi.org/10.2139/ssrn.2039501.

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Economic Calculation in the Socialist Commonwealth by Ludwig Mises

Introduction

Many socialists have never considered questions related to economics at the national level or have never tried to understand the preconditions under which people undertake business. Still others have studied economies of the past and present in great detail and endeavored to develop a theory of the economics of the “bourgeois” society. They have criticized the economic relationships of a “free” economy but have consistently neglected to apply the same vitriol and barbs that they apply in these cases (albeit not always with success) to the economy of the socialist state they desire. Economic realities always come up short in Utopians’ rosy pictures: They proclaim that in their land of milk and honey, roasted doves will fly into the mouths of waiting comrades; unfortunately, they neglect to show how this miracle is going to take place. When they do begin to be more explicit in terms of economics, their ship quickly capsizes (remember Proudhon’s “exchange bank” fantasy?), with the result that it is not difficult to point out their logical fallacies. When Marxism solemnly forbids its disciples to concern themselves with economic problems beyond the expropriation of the expropriators, it does the same thing as the Utopians, who neglect economic reality in their rosy pictures and focus their energy only on describing the external façade and the implicitly favorable consequences of their revolution.

Now, whether one regards the coming of socialism as an ineluctable necessity of human development and whether one considers the nationalization of the means of production as the greatest blessing or the worst disaster that can befall mankind, one must admit that investigations into the preconditions of economic operations on a socialist basis are not to be seen as just “a good mental exercise and a way of promoting political clarity and consistency.”[1] In an age in which we are getting nearer and nearer to socialism, and even in a certain sense are already there, research into the problems of the socialist economy acquires added importance for explaining what is going on around us. Analyses of the exchange economy no longer suffice for understanding economic developments in Germany and its eastern neighbors today. Our task here is to discuss elements of a socialist commonwealth with a considerably wide scope. Under these circumstances, an attempt to explain the nature of socialist society needs no special justification.

I. The Distribution of Consumption Goods in a Socialist Commonwealth

In a socialist commonwealth, all the means of production are the property of the community. Only the community can possess them and determine their use in production. It is self-evident that the community can exercise its powers only through special bodies, since it cannot otherwise buy and sell goods. The structure of this body and the question of how the communal will is achieved in it and through it is of subsidiary importance for us—this includes the choices of the body and, if the body consists of more than one single person, the decisions of the majority of its members.

The owner of production goods manufactures and thus becomes owner of consumption goods. He now has the choice of either consuming them himself or of letting others consume them. Such a choice does apply to the community when it owns the consumption goods that it received through production. It cannot itself consume—it must leave consumption to the people. Who is to do the consuming and what each is to consume is the problem of socialist distribution.

It is characteristic of socialism that the distribution of consumption goods must be independent of production and its economic preconditions. It is irreconcilable with the nature of communal ownership of production goods that even one part of the distribution should rely on an allocation of the yield that is economical with respect to the individual factors of production. It would be unthinkable to let a worker a priori enjoy the “full yield” of his work and then to subject the shares of the material factors of production to separate distribution. For, as we shall show, it lies in the very nature of socialist production that the contribution of individual factors of production to the yield of production cannot be ascertained, nor can it be estimated through examinations of the relationship between expenditures on production and income from yield.

The rationale for directing consumption goods to individual comrades is quite secondary to the problems we are confronting. Whether they allocate to each according to his need, such that the one who needs it more receives more than the one who needs it less, or whether they take each man’s standing into consideration, such that the superior man receives more than the inferior man, or whether they strive for equal distribution, such that each man receives as similar an amount as possible, or whether they take service to the community as the criterion for distribution, such that the more diligent man receives more than the lazy one—it will always be so that each man receives his apportionment from the community.

For the sake of simplicity, let us assume that goods are distributed according to a principle of equal treatment of all members of society.
It is not difficult to imagine some mechanisms that adjust each man’s apportionment according to age, sex, health, special job requirements, and so forth. Each comrade receives a bundle of coupons, redeemable within a certain period against a certain quantity of certain specified goods. And so he can eat several times a day, find permanent lodging, occasionally pursue pleasures, and get some new clothes every now and again. The degree to which this way of satisfying people’s needs will suffice or not depends on the productivity of the labor of the society.

It is not necessary that every man should consume the whole of his portion. He may let some of it rot without putting it to use, he can give it to another, or, provided that this is compatible with the nature of the good, store it for future use. He can even exchange some things. The beer drinker will happily forgo alcohol-free drinks if he can exchange them for more beer, and the teetotaler will be ready to abstain from spirits if he can get other pleasures through trading them. The art lover will wish to forgo a trip to the cinema so that he can hear more good music; the Philistine will wish to trade the tickets he has to art museums for pleasures he more readily understands. All of them will be ready to trade. However, only consumption goods will be able to be traded. In a socialist commonwealth, production goods are exclusively the property of the community—they are the inalienable property of the community, and thus res extra commercium.

Exchange can thus take place even within the narrow limits permitted by socialist regulations. It need not always take place in the form of direct exchanges. For the same reasons that indirect exchange has developed in other places, the advantages will become apparent to traders even in a socialist community. It follows that the socialist community will also leave room for the use of a universal medium of exchange, that is, money. Its role will be fundamentally the same in a socialist economy as in a free economy—in both it serves as the universal medium of exchange. Yet the significance of this role in a society where the means of production are owned by the community is different from its role in a society in which the means of production are privately owned. In the former case, the role is much narrower, since exchange in this society has a much narrower meaning, as it is confined to consumption goods. Since no production good will become an object of exchange, it will be impossible to determine its monetary value. In a socialist community, money cannot play the role it plays in a free economy in calculating the cost of production: under socialism, calculating value in terms of money is impossible.

The exchange equivalencies that develop from trade between comrades cannot go unnoticed by those responsible for directing production and distribution. They must take these equivalencies as their basis if they seek to allocate goods proportionately according to their reciprocal exchange values. If, in exchange, the rate of one cigar to five cigarettes arises, it will be impossible for the administration without good reason to declare that one cigar equals three cigarettes and thus assign one value to cigars and another to cigarettes. If tobacco coupons cannot be redeemed against cigars and cigarettes in proportions that are the same for everyone and if some people receive only cigars and others only cigarettes, either because they wish it so or because the redemption office can only provide one or the other without some delay, then the market exchange equivalencies have to be observed. Otherwise everybody who gets cigarettes would be at a disadvantage compared to those who get cigars, for the man who gets one cigar can exchange it for five cigarettes, even though the official price of the cigar is only three cigarettes.

Therefore, changes in the exchange equivalencies that develop from trade between comrades must compel the directors of the economy to make corresponding changes in their estimation of the demand for different consumption goods. Every time there is such a change, it indicates that relationship between the needs of comrades and their satisfaction has changed and that some goods are now more greatly desired than others. The economic administration will be anxious to bear this in mind in production. The administration will then strive to expand production of the more-desired article and to reduce that of the less-desired one. But there is one thing that the administration will not do: it will not leave it to the individual comrades to freely convert their tobacco rations against cigars or cigarettes according to their preference. If the administration gave comrades the right to choose cigars or cigarettes, then it could happen that the demand for cigars or cigarettes is greater than the supply that has been produced or that cigarettes or cigars will pile up in the distributing offices because there is no demand for them.

Of course, from the point of view of the labor theory of value, there is a simple solution to this problem: each comrade receives one mark per hour of work, which he can use to acquire another product that is worth one hour’s work, less a deduction to defray the costs of communal obligations, such as support for the unfit, cultural expenditures, and so forth. If we take the amount deducted for covering communal expenses as one half of the labor product, then each worker who works a full hour would have the right to acquire products that it takes a half hour’s work to produce. Accordingly, any article that is ready to be used or consumed, together with the means of using it, can be acquired from the market and then used or consumed by anybody with the means to pay twice the labor time needed to manufacture it. To make our problem clearer, let us assume that the community does not take a deduction from the worker to defray its obligations, but instead takes the means to do so through an income tax on its working members. In that way, every hour of work would carry with it the right to acquire goods that take an hour’s work to produce.

Regulating allocation in this way would be unworkable since labor is not a uniform and homogeneous quantity. Between various types of labor there is necessarily a qualitative difference, which leads to a different valuation according to the difference in the conditions of demand for and supply of their products: the supply of paintings cannot be increased caeteris paribus without damaging the quality of the product. You cannot give the worker who produces simple work in one hour the right to consume the product of one hour of highly qualified work. It is completely impossible in a socialist commonwealth to establish a relationship between the value of a product of labor to the community and its share of the yield of the whole community’s productive activities. The remuneration of labor can only be arbitrary: it cannot be based upon the economic value of the yield as in a free exchange economy with private property, since—as we will see— valuation is impossible in a socialist community. Economic realities set clear boundaries on the ability of the community to set wages arbitrarily: in no circumstances can the sum expended on wages exceed the income of the entire society for more than a brief time. Within these limits, however, it can do as it will: it can readily rule that all products of labor are to be of equal worth, so that every hour of work receives equal pay, regardless of its quality. It can even make a distinction between individual hours worked according to the quality of the work. Yet in both cases it must reserve the power to control the particular distribution of the labor product. It will never be able to decree that the person who has worked an hour will have the right to consume the product of an hour’s labor, even if you ignore the differences between the quality of labor and the products thereof, even if it were possible to determine how much work each product required. This is because beside the actual labor, the production of all economic goods entails the cost of materials. A product for which more raw material is needed cannot be reckoned of equal value to one for which less is needed.

II. The Nature of Economic Calculation

Every man who, in the course of his economic life, makes a choice between the satisfaction of two needs, only one of which can be satisfied, makes value judgments. These value judgments pertain immediately to the satisfaction only of the need itself. This applies first to first-order goods and then to higher-order goods.[Editor’s Note: In Menger’s Güterordnungen, first-order goods are consumer goods, while second-order goods are intermediate goods and raw materials. The highest-order goods are labor and overhead.] As a rule, a man who is in possession of his senses can establish the value of first-order goods immediately. Given clear relationships between goods, it is also possible for him to form an opinion about the significance to him of goods of a higher order without much trouble. But where the situation is more complicated and the relationship between goods is not so easily discernible, subtler means must be employed to value the raw and intermediate goods correctly—correctly only in the sense of the subject being valued and not in some objective or universal sense. It would not be difficult for a farmer who is managing his business without direct competition to make a decision between increasing livestock and expanding hunting. The choices of production to be followed are relatively few and the required expense and likely income entailed can be easily gauged. But it is quite a different matter when the choice lies between using a body of water to generate electricity and expanding coal mining and building plants that can extract energy from coal more efficiently. Here, there are many production choices and each of them is very far-reaching, and the requirements for new firms to succeed are so diverse that one cannot make a conclusion based solely on vague estimations—more precise calculations are required to make a decision on the business feasibility of each action.

Calculation is possible only with units. However, there is no unit that measures the subjective value of the usage of goods. Marginal utility does not represent any unit of value, since, as is generally known, the value of two units of a given stock is not twice as great as the value of one unit—it is necessarily more. Value is not a measure, it’s a gradation, a scale.[2] Even the businessman without direct competition in the middle of nowhere, where value is not immediately apparent, when he has to make a decision on the basis of more or less exact calculations, he cannot work on the basis of subjective value based on use alone. He must analyze the intersubstitutability of goods, on the basis of which he can then form his estimates. Normally, it will be impossible for him to reduce everything down to one unit of measurement. Rather, if he is lucky enough, he will trace all of the elements included in the calculation down to those economic goods whose value can be immediately estimated—that is, to the first-order goods and to the level of effort—for his calculations to have meaning. It is clear that this is only possible when the relationships between goods are very simple. For complicated and longer-term production processes, this would not suffice at all.

In an exchange economy, the objective exchange value of goods functions as the unit of economic calculation. The advantages are threefold. (1) First, it allows you to make your calculations on the basis of the value established by all firms that take part in exchange. The subjective use value of each person is, as a purely individual phenomenon, not directly comparable with the subjective values of other people. It only becomes so through exchange value, which arises from of the interplay of the subjective valuations of all the firms that take part in exchange. (2) Next, it gives control over the appropriate employment of goods to calculations on the basis of exchange value. Anyone who makes calculations regarding complicated production processes will immediately notice whether he has worked more efficiently than others or not: if a firm finds that production is not profitable in view of the rates of exchange prevailing on the market, this indicates that others are better at valuing the raw materials and intermediate goods in question. (3) Lastly, calculation by exchange value makes it possible to reduce values to a unit. Since goods are mutually substitutable according to the exchange relationships established in the market, any possible good can be chosen for this purpose. In monetary economy, it is money that is chosen for this purpose.

Monetary accounting has its limits. Money is no measure of value nor a measure of price. Value is not measured in money. Nor are prices measured in money—they exist through money. Money is not of stable value as an economic good, as people naïvely maintain in accepting that it is a “standard of deferred payments.” The exchange-relationship between goods and money is stable, even if it is affected by fluctuations (generally, not too violent ones) resulting not only from other economic goods but also from money itself. Granted, these fluctuations impact value calculations only a little, since, in view of the ceaseless changes in other economic conditions, calculations will tend to focus one’s attention on comparatively short periods of time only—periods in which “good” money (at least) tends to undergo smaller fluctuations in exchange relations on its part. The inadequacy of calculating value using money does not arise, for the most part, from the fact that accounting is done using a universal medium of exchange—money—but rather from the fact that accounting is based entirely on exchange value and not on value of use, which is subjective. Thus, all value-generating factors that are not subject to exchange transactions cannot be included in accounting. In calculating say, the profitability of erecting a hydroelectric dam, one cannot include the beauty of the waterfall that the power plant would diminish, as that would be to take into consideration a reduction of tourism and the like—things whose exchange value arises through traffic. And yet this could be a factor in deciding whether or not construction should go forth. We tend to call these factors “extra-economic.” This perhaps is appropriate, but our discussion is not about terminology. But one cannot call the considerations that lead these factors irrational, nor taking them into consideration. The beauty of a location or a building, health, people’s happiness and contentment, individual and national honor, provided people see them as meaningful and even if they are not substitutable through trade and thus cannot be exchanged, all of these are rational and, in the proper sense of the word, economical grounds for doing business. It lies in the very nature of monetary accounting that it cannot include these factors, but this cannot diminish the importance of monetary accounting for our economic actions. For all those ideal goods are first-order goods—we can immediately reckon their value, and thus it is not difficult to take them into consideration, even when they cannot be valued in terms of money. The fact that they cannot be reckoned in monetary terms does not make them harder to consider in reality—rather, that makes it easier. When we know precisely how expensive beauty, health, honor, and pride are to us, nothing can prevent us from paying the proper amount of attention to them. It may seem distressing to a sensitive spirit to balance spiritual goods against material ones. But that is not the fault of monetary accounting, it lies in the very nature of things. Even where judgments of value can be established directly without accounting for value or money, the necessity of choosing between material and spiritual satisfaction cannot be evaded. Even the isolated businessman without direct competition and the socialist state must choose between “ideal” and “material” goods. Those of a noble nature will never find it distressing to choose between honor and food. They will know how to behave in such circumstances. If one cannot eat honor, then one can do without food for the sake of honor. Only those who wish to be relieved of the agony of this decision, because they cannot bring themselves to renounce material comfort for the sake of spiritual advantages, see in the choice as a desecration of true values.

Monetary accounting has meaning only within the sphere of business organization. It serves to ensure that the disposition of economic goods is made in accordance with the rules of the economy. Economic goods only have part in this system in proportion to the extent to which they may be exchanged for money. Any application of monetary accounting beyond this leads to misunderstanding. Monetary accounting fails when we try to use it as a benchmark in historical investigations into the development of economic relationships—it fails when we try to use it to measure national wealth and income of a nation and when we wish to estimate the value of goods that cannot be traded, such as when we attempt to put a money value on the loss of men through emigration or war.[3] Attempts such as these are gimmicks for dilettantes, however much otherwise insightful economists may indulge in them.

Nevertheless within these limits—limits that it in economic reality never exceeds—monetary accounting provides everything that we require from economic calculation. It gives us a guide through the overwhelming abundance of economic potentialities. It permits us to extend to all higher-order goods the judgments of value that seem at first glance to apply only to goods ready to be consumed or, at best, to the production goods of the lowest goods-order. It lets their value be calculated and thereby gives us the foundation for every economic operation with higher-order goods. Without it, all production would be done with long outdated processes and estimating the best long-term capitalist use of materials would be a shot in the dark.

There are two preconditions to calculating value in terms of money. First, both the first-order and the higher-order goods must be tradable if they are to be subject thereto. Were they not tradable, then we could not derive their exchange relationships. It is true that even when a firm in the middle of nowhere exchanges labor and flour for bread, he undertakes the same considerations as when he exchanges bread for clothing at the market. Hence, we are correct, in a certain sense, when we designate every business dealing, even production by a firm that has no direct competition, as exchange.[4] Moreover, the mind of one man alone—even the most brilliant—is too weak to grasp the importance of any single one of the countless many higher-order goods. No one man can master all of the different innumerable possibilities of production so well that he could make accurate judgments of value without the aid of some system of computation. In an economic community based on the division labor, distributing the administrative control over economic goods across many individuals creates a kind of intellectual division of labor, without which production calculations and business would not be possible.

The second precondition is that a universally employed medium of exchange—a money—is in use and plays its role as medium in the exchange of raw and intermediate goods. If this were not the case, it would not be possible to reduce all exchange relationships to a common denominator.

Only under simple conditions can an economy get by without monetary accounting. Within the narrow confines of a household economy, for instance, where the father can oversee the entire workings of the business, it is possible to determine more or less accurately the impact of changes in the production processes without the support that monetary accounting gives. In such a case, the production process develops under a more relatively limited use of capital and determines the best productive use of goods in a less capitalist way. What is manufactured in a household is, as a rule, consumption goods or higher-order goods that are practically consumption goods. The division of labor is in its rudimentary stages: a single laborer controls the labor of a complete process of production of goods ready for consumption, from beginning to end. All of this is different in production by a developed society. It is not acceptable to search in the experiences of a bygone period of simple production for an argument for the possibility of a successful economic system that does not have monetary accounting.

You see, in the narrow confines of a closed household economy, it is possible to oversee the whole production process from beginning to end and to constantly judge whether one process or another yields more consumable goods. This is not possible with the interrelationships of our economy, which are more complicated and hence not comparable. It will be evident, even in the case of the socialist society, that 1,000 hl. of wine are better than 800, and society can readily decide whether it prefers 1,000 hl. of wine or 500 hl. of oil. No calculations are needed to make this decision: that is done by the will of the economic entities that are buying and selling. But once this decision has been made, then the real task of rational economic direction begins: to have the means (in an economic sense) serve the ends. This can happen only with the support of economic calculation. Without this support, the human mind gets lost in the bewildering number of intermediate products and production possibilities: it would stand there clueless to the issues of process and location.[5]

It is an illusion to imagine that natural calculation can take the place of monetary accounting in a socialist economy. In an economy without exchange, natural calculation can capture consumption goods only—it completely fails when dealing with higher-order goods. As soon as one puts aside freely established monetary prices for goods of a higher order, rational production becomes completely impossible. Every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.

It is easy to overlook this, considering that the socialism that exists around us is just socialistic oases in what is to a certain degree still a free economy with monetary exchange. In this one sense can we agree with the socialists’ assertion—which is otherwise completely untenable and advanced only as propaganda—to the effect that the nationalization and communalization of firms is not really socialism and that these firms in their business organization are so supported by the economic system of free exchange that surrounds them that the essential nature of a socialist economy cannot be seen in them. In state- and community-owned firms, technical improvements are introduced because people see their effect in similar domestic and foreign enterprises and because the private industries that produce the means of these improvements give the impetus for their introduction. In these firms, the advantages of reorganization can be seen clearly because they are surrounded by a society that is based on the private ownership of the means of production and on monetary exchange. Thus, they are able to do their calculations and keep their books, things that socialistic firms in a purely socialist environment cannot do.

You cannot conduct business without economic calculation. In a socialist commonwealth in which the pursuit of economic calculation is impossible, there can be no economy whatsoever, at least in our sense of the word. In trivial and secondary matters, it might be possible to buy and sell rationally, but in general it would be impossible to speak of rational production any more. There would be no means of determining what is rational, and hence production could never deliberately be focused on economic efficiency. The impact of this is clear, even beyond the implications for the provision of goods to men: the purpose of the market would be driven out of the very ground that is its proper domain. Would there be any such thing as a rational market at all, or indeed would thought be rational and logical? Historically, human reason developed out of economic life. Could it then hold on at all when driven away of this?

It may be the case that, for a while, the memory of the experiences of a competitive economy, collected over thousands of years, can prevent the complete collapse of the art of doing business. The older methods might be retained not because they are rational, but because they appear to be hallowed by tradition. They will have become irrational in the meantime, as they no longer correspond to the new relationships. They will undergo changes as economic thought degenerates and they will thus become uneconomic. The supply of goods will no longer proceed anarchically, that is true. All market transactions that serve to meet demand will be subject to the control of a supreme authority. Yet in place of an anarchic economy, the modes of production will be determined by an absurd apparatus. The wheels will turn, but they will run dry.

Imagine how it will be in the future socialist community. There will be hundreds and thousands of factories in operation. Very few of these will be producing wares ready for use—the majority of them will produce production and intermediate goods. All of these firms will be bound to one another. This connection brings every economic good through a series of stages until it is ready for use. But those who direct the economy will be completely lost in the unending mechanics of this process. They cannot determine whether it takes too long for a given output to be produced in a certain way or whether work and material have been wasted in its completion. How will they be able to decide whether one or another way of producing it is better? At best, they will only be able to compare the quality and quantity of the consumable end products produced, but they will only very rarely be in a position to compare the expenses entailed in production. They will know precisely, or think they know precisely, the ends to be achieved by their economic organization, and will have to regulate its activities accordingly, that is, they will have to attain those ends with the least expense. In order to find the cheapest way, they must calculate. This calculation can naturally be only a value computation—it is quite clear and requires no further proof that the computation cannot be technical and that it cannot be based upon the objective value of goods and services for consumption or use.

Now, in an economic system based on private ownership of the means of production, calculations of value are made independently by all members of society. These calculations take place through the participation of everyone in two ways: as consumers and as producers. As consumers, they establish a hierarchy of goods for use or for consumption. As producers, they put raw materials and intermediate goods to use in the way that corresponds to the highest output. In this way, all higher-order goods receive a hierarchical position that corresponds to the short-term requirements and production conditions within the society. Through the interplay of these two processes of valuation, people will ensure that economic principles wield control over use as well as production. Every system of scaled pricing arises from the fact that men at every point adjust their needs to match their economic calculations.

All this is necessarily absent from a socialist community. The economic administration may know exactly what goods are most urgently needed, but in so doing, they have found only what is, in fact, but one of the necessary prerequisites for economic calculation. They must manage without the other part, the valuation of the means of production. They may figure out the value attained by the totality of the means of production—this is of course identical with the value of all the needs thereby satisfied. They may also be able to calculate the value of any means of production by calculating the impact of its absence on the satisfaction of needs. But they cannot express this value as a price in monetary units, as can a competitive economy, wherein all prices can be commonly expressed in terms of money.

In a socialist economy which, while it need not necessarily dispense with money altogether but makes it impossible to express prices of the factors of production (including labor) in terms of money, money can play no role in economic calculation.[6]

Imagine building a new railroad. Should it be built at all and, if so, which one of the many conceivable routes should be built? In a freely competitive and monetary economy, this question would be answered by monetary accounting. The new route will reduce the cost of transporting certain goods, and we can then calculate whether the savings would exceed the building and overhead costs that the new road would require. This can be calculated only in money. It is not possible to reach the desired end merely by comparing various types of payments-in-kind and non-monetary savings. Where one cannot reduce the hours of labor at different skill-levels, iron, coal, all kinds of building material, machines, and other things necessary for the construction and upkeep of railroads to a single, common expression, then it is not possible to make calculations. Economic alignment is possible only when all of the goods in question can be expressed in terms of money. Certainly, monetary accounting is incomplete in many ways and has serious defects, but we have certainly nothing better to put in its place, and for the practical purposes of life, monetary accounting (under a sound monetary system) will always suffice. Were we to forgo that, any economic system of calculation would be absolutely impossible.

Of course, the socialist society will know how to look after itself. It will issue an edict and decide for or against the projected building. Yet this decision would be based on estimates that are at best vague—it would never be based on an exact calculation of value.

A static economy can thrive without economic calculation. For here the same events in economic life are ever recurring, and if we assume that the initial structure of the static socialist economy follows on the basis of the final form of the preceding free economy, we could imagine an economically and rationally controlled socialist production system. But this is possible only as a thought exercise. Completely leaving aside the fact that a static state is impossible in real life—as our economic data are constantly changing such that that the static nature of economic activity is only a theoretical assumption corresponding to no real state of affairs, however useful it may be for our thinking and for developing our knowledge of economics—we must still assume that the transition to socialism must, as a consequence of the leveling out of the differences in income and the resulting shifts in consumption and therefore production, result in changes in all economic data in such a way any connection with the final state of affairs in the previous free economy becomes impossible. But then we have a socialist economic order before us that sails around the ocean of possible and conceivable economic combinations without the compass of economic calculation.

In the socialist commonwealth, every economic change leads to an undertaking, the success of which cannot be estimated ahead of time or assessed after the fact. There are only shots in the dark. Socialism is the separation of reason from the economy.

III. Economic Calculation in the Socialist Commonwealth

Are we really dealing with the necessary consequences of common ownership on the means of production? Is there no way to connect some kind of economic calculation with a communal economy? In every great enterprise, each particular business or branch of business is to some extent independent in its accounting. They take account of the labor and materials separately, and it is always possible for each individual group to draw up its own balance sheet and to calculate the economic results of its activities from an accounting point of view. In this way, we can ascertain how much success each particular section has had and accordingly draw conclusions about reorganization, curtailment, abandonment, or expansion of existing groups and about the constitution of new ones. Admittedly, some mistakes are inevitable in such calculations. They arise partly from the difficulties that result from the allocation of overhead costs. Other mistakes arise from the necessity of calculating with what are in many respects not precisely measurable data, for example when, in determining the profitability of an activity, we calculate the amortization of the machines used on the basis of an assumed duration of their usefulness. Still, all such mistakes can be confined to certain narrow limits, so that they do not disturb the overall results of the calculation. The remaining uncertainty results from calculations of the uncertainty of future conditions, which is inevitable given the dynamic nature of the economy.

Now, it seems useful, by analogy, that we should attempt a separate estimation of the individual production groups in the socialist community. But it is quite impossible. For each separate calculation of the particular branches of one and the same enterprise depends exclusively on the fact that is precisely in market dealings that market prices are formed for all kinds of goods and services, which will be taken as the bases of calculation. Where there is no free market, there is no pricing mechanism; without a pricing mechanism, there is no economic calculation.

We might conceive of a way of allowing exchange between particular types of firms, so as to create exchange relations (prices) and thus create a basis for economic calculation even in the socialist community. Within the bounds of a uniform economy that has no private ownership of the means of production, individual labor groups could be set up as independent and authorized disposers, and although they have to behave in accordance with the directives of the supreme economic council, they would nevertheless transfer to each other material goods and services only against payment, which would have to be made in a common medium of exchange. It is roughly in this way that we can imagine the organization of a socialist business when we nowadays talk of complete socialization and the like. But we have still not come to the crucial point. Exchange relations between production goods can only be made on the basis of private ownership of the means of production. When the “coal syndicate” delivers coal to the “iron syndicate,” no price can be set—that would imply that both syndicates are the owners of the means of production of their firms. This would not be socialization but workers’ capitalism and syndicalism.

The matter is admittedly very simple for those socialist theorists who base their ideas on the labor theory of value:

As soon as society takes possession of the means of production and applies them to production in their directly socialized form, each individual’s labor, however different its specific utility may be, becomes a priori and directly the labor of the community. The amount of community labor invested in a product need not then be established indirectly: daily experience immediately tells us how much is necessary on average. The community can simply calculate how many hours of labor are to be invested in a steam engine, in a hectoliter of wheat from the last harvest, in 100 square meters of cloth of given quality…. To be sure, the community will also have to know how much labor is needed to produce any consumption good. It will have to arrange its production plan according to its means of production, to which labor especially belongs. The utility yielded by the various consumption goods, weighted against each other and against the amount of labor required to produce them, will ultimately determine the plan. People will make everything simple without the intermediation of this famous thing called “value.”[7]

It is not our task here to raise critical objections to the labor theory of value once again. These objections are of interest to us in this connection only to the degree that they are relevant to an assessment of the applicability of labor in the value computations of a socialist community.

At first glance, labor-based calculations also take into account the natural prerequisites for production, that is, those that lie outside the human sphere. The average amount of community time that is required to complete a task is governed by the law of diminishing returns, to the degree that it applies when production is subject to a variety of natural preconditions. If demand for a commodity increases and lower-quality natural resources must be exploited for that to happen, then the average time of community labor required to produce one unit also increases. If cheaper natural resources are discovered, the amount of necessary community labor diminishes.[8] Taking natural preconditions for production into account in this way suffices only to the degree that they are reflected in the amount of necessary community labor. But it is in this respect that valuation in terms of labor fails: it completely ignores the use of material factors of production. Assume the amount of necessary labor by the firm required for the production of P and Q to be 10 hours each. Further, in addition to labor, assume the production of both P and Q requires the raw material a, one unit of which is produced by an hour of necessary community labor. Production of P requires two units of a as well as eight hours’ labor, while production of Q requires one unit of a and nine hours’ labor. In terms of labor calculation, P and Q are the same; in value calculation, P must be worth more than Q. The former is false and only the latter corresponds to the nature and purpose of calculating. It is true that this surplus, whereby value calculations reckon P as more valuable than Q—that this material substrate “is given by nature without any addition from man.”[9] Still, if it is available in such limited quantities that it becomes an object of management, it must in some form be subject to value calculations.

The second defect in calculation in terms of labor is that it does not take different qualities of labor into account. For Marx, all human labor is economically similar, as it is always “the productive expenditure of human brain, brawn, nerve, hand, and so forth”:

Skilled labor counts only as intensified, or rather multiplied, simple labor, so that a smaller quantity of skilled labor is equal to a larger quantity of simple labor. Experience shows that skilled labor can always be reduced in this way to the terms of simple labor. No matter that a commodity be the product of the most highly skilled labor, its value can be equated with that of the product of simple labor, so that it represents merely a definite amount of simple labor.[10]

Böhm-Bawerk is not incorrect when he calls this argument “a theoretical juggle of almost stupefying naïveté.”[Editor’s Note: G. Huncke and H.F. Sennholz (South Holland, Ill.: Libertarian Press, 1959, p. 299) translate this as “a bit of legerdemain in the theorizing line that is astounding in its naiveté.”][11] The (To??)judge Marx’ view, one can fittingly posit whether it is possible to find a single uniform physiological measure of all human labor, be it physical or what we call intellectual. For it is certain that differences in ability and skill exist among men that cause the goods we produce and the services we perform to be of different quality. So, what is critical for deciding the question of whether labor-based accounting is suitable as a form of economic calculation is whether it is possible to bring different kinds of labor under a common denominator without the intermediation of the value that consumers put on the products of the labor. The proof Marx attempts to give misses the mark. Experience shows us that the exchange relationships of goods are not based on whether they were produced by simple or complex labor. But if it were established that the labor itself is the source of the exchange value, this would only be proof that a certain amount of simple labor is directly equal to a certain amount of complex labor. Not only has this not been established, but this is precisely what Marx is trying to demonstrate with his arguments.

The fact that wage rates imply a rate of substitution between simple and complex labor—something that Marx does not allude to in this context—is also no proof that such uniformity exists. The implicit comparison of wage rates is a result of market exchange, not its premise. Calculations based on labor would have to establish an arbitrary rate for substitution between complex and simple labor. This precludes its use for purposes of economic administration.

It was long supposed that the labor theory of value was indispensable to socialism, as it gave an ethical basis to the requirement for nationalizing the means of production. We now know that this is a mistake. Although most of socialism’s followers have used the theory in this way and even though Marx, however much he had a different view in principle, could not keep completely free of this mistake, it is clear, on the one hand, that the political call for the introduction of socialized production neither requires nor is able to get support from the labor theory of value. On the other hand, it is clear that even those who hold a different view of the nature and origin of economic value can have socialist attitudes. Indeed, in another sense, as we often say, the labor theory of value is an implicit necessity for those who support socialist means of production. Socialist production could generally appear to be rationally implementable only if there were some objective and recognizable unit of value that would permit economic calculations even in economies without trade and without money. Only labor could conceivably be considered as such.

IV. Responsibility and Initiative in a Communal Firm

The problem of responsibility and initiative in a socialist firm is closely connected with that of economic calculation. It is now universally accepted that “the exclusion of free initiative and individual responsibility, on which the successes of private enterprise depend,” constitutes the most serious menace to socialist economic organization.[12]

Most socialists silently gloss over this problem. Still others believe they can solve it by pointing at the directors of public companies: even though they do not own the means of production, companies flourish under their control. If society, instead of shareholders, were to become the owner of the means of production, nothing would change: the directors would not work worse for the community than for the shareholders who are calculating their own profits and losses.

We must distinguish between two groups of public companies and similar firms. In the first group, which consists mostly of smaller firms, a few individuals are united in a common enterprise in the legal form of the company (they are often the heirs of the founders of the firm or previous competitors who have merged). In these cases, the day-to-day direction and management of the business is in the hands of the shareholders themselves or at least of one part of the shareholders who do business in their own interest or in the interest of shareholders who are close relatives, such as wives, minors, and so forth. As board members or supervisory board members, as directors, or in some more attenuated legal capacity, they themselves have authoritative influence over the working of the company. This situation does not change, even if a portion of the stock is held by a financial consortium or a bank. In this case, the difference between a public company and a general partnership is its legal form.

The situation is quite different in the case of large-scale public companies, where only a fraction of the shareholders—major shareholders—participate in the actual control of the enterprise. These generally have the same interest in the firm’s success that an owner would have. Still, it may be that they have different interests from the vast majority of small shareholders, who are excluded from the management even if they own a majority of the shares. This can lead to loggerheads if, for example, the business of the firm is managed in a way that supports the interests of management but harms stockholders. This notwithstanding, it is clear that the real holders of power in companies run the business in their own interest, whether or not it coincides with that of shareholders. In the long run, it will generally be to the advantage of the solid administrator of a public company who wants to make more than short-term profit to support the interests of the shareholders and to avoid tampering in a way that might harm them. This holds true, first and foremost, for banks and financial groups, which should, for example, not put underwritten stocks for offerings that have not been launched at risk in the market, even though they enjoy profits from them. Thus, the success of companies arises from more than just ethical motivations.

The situation is completely different when a firm is nationalized. When we exclude the material interests of private individuals, strong motivation disappears, and when state and municipal firms succeed economically at all, they owe this to borrowing business organization from private enterprise or to the fact that they are constantly driven to reform and innovation by the businessmen from whom they purchase their machinery and raw materials.

After decades of attempts of socialism at the state and communal level, it is now generally accepted that there is no pressure to reform or improve production in communally owned firms, and that these firms are, in a word, a dead limb on the economic organism. Every attempt to breathe life into them has so far been in vain. They claimed it could be done through salary reforms. They wanted to get the managers of these firms to focus on output and thought that they could make them the equivalent of managers of large-scale public companies. This is a big mistake. The managers of large-scale public companies are bound up with the interests of the businesses they run in an entirely different way from what could be the case in public concerns, whatever the case may be. They are either already the owners of a not inconsiderable portion of the stock or they hope to become so in the future. Further, they are in a position to obtain profits by speculating with their company shares. They intend to bequeath their positions to, or at least secure part of their influence for, their heirs. Firms that are run as public companies do not owe their success to some portly general director who is somewhat similar in his way of thinking and feeling to a bureaucrat, but much more to the manager who has an interest by virtue of stock ownership and the stock promoter and the price maker—the very people whom the goal of nationalization and communalization is to drive out.

In the socialist sense, it is inconsistent when one uses these arguments in order to ensure the success of an economic order built on socialist foundations. All socialist systems—even that of Karl Marx and his orthodox supporters—are based on the assumption that, in a socialist community, conflict cannot arise between the interests of the individual and the community. Everybody will act in his own interest in doing his best because he is a part of the output of all economic activity. The obvious objection—that the individual cares very little about his own diligence and zealousness, but that he cares much more about everyone else’s—is either not considered by them at all or only inadequately. They believe they can construct a socialist community on the basis of the Categorical Imperative alone. How easy they make it for themselves is shown best by Kautsky when he says, “If socialism is a social necessity, then it would be human nature and not socialism that would have to readjust itself, if ever the two clashed.”[13] This is sheer utopianism.

But let’s grant these utopian expectations can actually be satisfied, that in a socialist community every individual will exert himself with no less zeal as he does today in a society where he is subjected to the pressure of free competition. But then the problem remains of how to measure the success of the economic activity in a socialist community, which has no economic calculation. If you cannot understand economics, you cannot behave economically.

A popular catchphrase tells us that you have to think less bureaucratically and more commercially in business in order to get your firm to work as economically as a private firm. Appoint merchants as management and then income will grow. Unfortunately this commercial mindedness is in no way something external that can be transferred at will. The nature of a merchant is not a personal characteristic that stems from innate talent, from studying at some school of commerce, from an apprenticeship in a commercial house, or even by being a business man for some period of time. Businessmen learn to think and act as merchants through their position in the economic process, and when that disappears, so do these skills. When a successful businessman is appointed manager of a communally owned firm, he may bring certain experiences from his previous position with him and be able to routinely make use of them for some time. Still, when he enters into his communally-owned function, he ceases to be a merchant and becomes as much a bureaucrat as any other public service employee. It is not a knowledge of bookkeeping, business organization, or the style of commercial correspondence or even a diploma from a business school that makes the merchant, but the characteristic position in the production process, which joins the interests of the firm together with his own. Hence, it does not solve the problem when Otto Bauer in his newly published work proposes that the director of the national central bank, who is to take over control of business, should be nominated by a committee that will include representatives of the teaching staff of the business schools.[14] Like Plato’s philosophers, the directors so appointed may well be the wisest and best of their kind, but they can never be merchants in their posts as leaders of a socialist community, even if they were so previously.

It is a common complaint that the management of community-owned businesses lacks initiative. They believe that this could be remedied through organizational changes. This also is a grievous mistake. The management of a communally-owned firm cannot be placed entirely in the hands of one individual, as people will be afraid that he will make mistakes that will inflict heavy damages on the community. But if the important decisions are dependent upon votes by the committee or the consent of appointed supervisors, barriers are imposed on the individual’s initiative. Committees are rarely inclined to introduce bold innovations. The lack of free initiative in public firms rests not on poor organization; it is inherent in the nature of those firms. One cannot transfer complete control over the factors of production to a public official, however high his rank, and the more strongly he is materially interested in the successful performance of his duties, the less possible this becomes. For, in practice, the propertyless manager can be held only morally responsible for losses. So, he compares the probability of material gain with that of moral loss alone. In contrast, an owner bears responsibility himself since he is one of the first in line to suffer the damages of unwisely conducted business. It is precisely in this that there is a characteristic difference between liberal **[Editor’s Note:** Mises uses the term liberal to mean classical liberal or libertarian. See Mises’s Liberalism: In the Classical Tradition, translated by R. Raico (Irvington-on-Hudson, NY: Foundation for Economic Education, 1985).] and socialist production.

V. The Latest Socialist Doctrines and the Problem of Economic Calculation

Ever since recent events helped socialist parties into power in Russia, Hungary, Germany, and Austria, and thus brought the possibility of socialist communalization programs ever closer to reality, even Marxist writers have begun to deal more closely with the problems of the constitution of a socialist commonwealth. But even now they still take care to avoid the crucial questions, leaving it to the contemptible “Utopians” to work them out. They themselves prefer to confine their attention to what is to be done in the immediate future: they draft studies about the path to Socialism only and not about Socialism itself. The only thing that we can glean from these writings is that the great problem of economic calculation in a socialist nation has not entered their heads.

To Otto Bauer, the nationalization of the banks seems to be the final and decisive step in the socialist nationalization program. If all banks are nationalized and merged into one single central bank, then its administrative board becomes

the supreme economic authority, the chief administrative organ of the whole economy. Only by nationalization of the banks does society obtain the power to regulate its labor according to a plan, and to distribute its resources among the various branches of production according to plan, and to adapt them to the nation’s needs according to plan.[15]

Bauer is not discussing the monetary arrangements that will prevail in the socialist commonwealth after the completion of the nationalization of the banks. Like other Marxists, he is trying to show how simply and obviously the future socialist order of society will evolve from the conditions prevailing in a developed capitalist economy. “It suffices to transfer to the people’s representatives the power now exercised by bank shareholders through the administrative boards they elect”[16] in order to socialize the banks and thus provide the keystone of the edifice of socialism. Bauer leaves his readers completely in the dark about the fact that the nature of the banks is entirely changed when they are nationalized and merged into one central bank. Once the banks merge into a single bank, their nature is wholly transformed: they are then in a position to spend their working capital without any limitation. Thus, the monetary system as we know it today will be destroyed by itself.[17] When moreover a single central bank is nationalized in a society that is otherwise already completely socialized, market dealings will be eliminated and all exchange transactions are quashed. Because the bank ceases to be a bank, its specific functions are extinguished, for there is no longer any place for it in such a society. It may be that the name “bank” is retained, that the Supreme Economic Council of the socialist community is called the Bank Directorate, and that they hold their meetings in a building formerly occupied by a bank. But it is no longer a bank: it fulfils none of those functions that banks fulfill in an economic system based on the private ownership of the means of production and the use of a general medium of exchange, money. It no longer gives out any credit, for in a socialist society there can understandably be no credit. Bauer himself does not tell us what a bank is, but in his book he begins the chapter on the nationalization of banks with the sentence: “All disposable capital… comes together in the banks.”[18] As a Marxist, should he not ask himself what the function of banks will be after the abolition of capital?

All the other writers who grapple with the problems of the constitution of the socialist commonwealth are guilty of similar glossing. They do not realize that by shutting down exchange and the ability of the market to set prices, the foundations of economic calculation are eliminated, and that something must take its place, if all business is not to be expunged, leading to complete chaos. They believe that socialist institutions might directly evolve from those of a capitalist economy. This is not the case at all. And it becomes all the more grotesque when we talk of banks, bank management, and similar things in a socialist commonwealth.

Reference to the conditions that have developed in Greater Russia and Hungary under Soviet rule proves nothing. What we see there is nothing but a picture of the elimination of an existing order of social production, for which a closed peasant household economy has been substituted. All branches of production that depend on the communal division of labor are in a state of entire dissolution. What is happening under the rule of Lenin and Trotsky is merely destruction and annihilation. Whether, as the liberals hold, these consequences are inevitable in socialism’s wake or whether this is only a result of the fact that the Soviet Republic is being attacked from abroad, as the socialists claim, is a question that is of no interest to us here. All that has to be established is that the socialist commonwealth of the Soviet government has not even touched the question of economic calculation and has no incentive to do so. Where things are still produced for the market in Soviet Russia, even in spite of governmental prohibitions, they are valued in terms of money, for private ownership of the means of production exists to that extent, and goods are sold against money. Even the government cannot deny the necessity of maintaining the monetary regime least for the transition period—indeed, through this, the government acknowledges that it has increased the amount of money in circulation.

Lenin’s statements in his essay on The Immediate Tasks of the Soviet Government are the best evidence that the nature of the problem we are discussing has not yet become apparent in Soviet Russia. In the dictator’s remarks, one thought keeps recurring, that the most immediate and pressing task of Russian communism is “the organization of accounting and control in those enterprises in which the capitalists have already been expropriated, and in all other enterprises.”[19] Even so, Lenin is far from realizing that an entirely new problem has arisen, one that cannot be solved with the intellectual means of “bourgeois” culture. Like a real, practical politician, he does not think about the tasks he will face tomorrow. He still sees monetary transactions around him and does not notice that as socialization continues, even money will lose its role as a common medium of exchange when private property and exchange disappear. The sense of Lenin’s remarks is that he will reintroduce into Soviet business “bourgeois” bookkeeping, which uses money for accounting. Therefore, he also wants to restore “bourgeois experts” to a state of grace.[20] For the rest, Lenin is as little aware as Bauer of the fact that the functions of banks in their current sense are inconceivable in a socialist commonwealth. He wants to go on with the “nationalization of the banks” and continue towards “transforming the banks into nodal points of public accounting under socialism.”[21]

Generally, Lenin’s ideas on the socialist economic system, to which he is striving to lead his people, are quite unclear. “The socialist state,” he says,

can arise only as a network of producers’ and consumers’ communes, which conscientiously keep account of their production and consumption, economize on labor, and steadily raise the productivity of labor, thus making it possible to reduce the working day to seven, six, and even fewer hours….[22]

Every factory, every village is a producers’ and consumers’ commune, whose right and duty it is to apply the general Soviet laws in their own way (“in their own way”, not in the sense of violating them, but in the sense that they can apply them in various forms) and in their own way to solve the problem of accounting in the production and distribution of goods.[23]

“Model communes must and will serve as educators, teachers, helping to raise the backward communes.” The successes of the model communes must be publicized in all their details in order to provide a good example. The communes that demonstrate good “business results” should be immediately rewarded “reducing the working day, raising remuneration, placing a larger amount of cultural or aesthetic facilities or values at their disposal, and so forth.”[24]

We see that Lenin’s ideal is a state of society in which the means of production are the property of the whole community, not of a few districts, municipalities, or even of the workers of the firm. His ideal is socialist and not syndicalist. This need not be specially emphasized for a Marxist like Lenin. This is not surprising of Lenin the theorist, but of Lenin the statesman, who is the leader of the syndicalist and smallholder peasant Russian revolution. However, at the moment we are engaged with the writer Lenin and may consider his ideals separately, without letting ourselves be disturbed by the picture of reality. According to Lenin the theorist, every large agricultural and industrial firm forms a part of the great community of labor. Those who are active in this have the right of self-direction; they exercise a profound influence on the equipment of production and again on the distribution of the goods they are assigned for consumption. Still, the equipment is the property of the whole society, and thus its product belongs to society as well, so that society may determine its distribution. How, we must now ask, is calculation in the economy carried out in a socialist commonwealth that is so organized? Lenin gives us a most inadequate answer by referring us back to statistics: We must carry statistics

to the people and make them popular so that the working people themselves may gradually learn to understand and see how long and in what way it is necessary to work, how much time and in what way one may rest, so that the comparison of the business results of the various communes may become a matter of general interest and study.[25]

We cannot infer from these sparse allusions what Lenin understands by statistics and whether he is thinking of monetary or natural calculation. In any case, we must refer to what we said above regarding the impossibility of discovering the money prices of production goods in a socialist commonwealth and about the difficulties that prevent natural calculation.[26] Statistics would only be applicable for economic calculation if it could go beyond natural calculation, whose ill-suitedness for these purposes we have already shown. Naturally, this is impossible where no exchange relations can be established between goods through trade.

Conclusion

In the light of what we can see in the arguments up to this point, it must be apparent that the champions of the socialist means of production, as opposed to one based on private ownership of the means of production, claim to have the merit of a greater rationale. We have no need to consider this opinion within the framework of this study, in so far as it is based on the assertion that, in free economic activity, the rationale of the economy cannot be perfect since certain forces are in action that hinder its completion. In this connection, we can occupy ourselves only with the economic and technical basis for this opinion. An unclear concept of technical rationality hovers around the advocates of this tenet, and it stands in antithesis to economic rationality, of which they also do not have a clear idea. They try to overlook the fact that “all technical rationality of production is identical with a low level of specific expenditure in production.”[27] They overlook the fact that technical calculation is not enough to recognize the “degree of efficiency in general and final terms”[28] of a process, that it can only distinguish individual events according to their significance; but that it can never lead us to those judgments that are required by the economy as a whole. It is only through the fact that technology can be oriented toward profitability that can we overcome the difficulties in examining this that arise from the complexity of the relations between the massive system of present-day production on the one hand and demand and the efficiency of enterprises and economic units on the other and that we get a complete view of the overall situation, which economically rational actions demand.[29]

It is an unclear view of the primacy of objective use value that dominates these theories. In truth, objective use value can have economic meaning for the economic administration only through its influence on establishing exchange relationships between economic goods through subjective use value. A second, unclear view is involved here: the personal judgment of the observer regarding the utility of goods as opposed to the judgments of the people participating in economic transactions. If anyone finds it “irrational” to spend so much on smoking, drinking, and similar pleasures as is spent in the economy, he is doubtlessly correct, given the point of view of his own values. But in so judging, he is ignoring the fact that business is only a search for a means, and that the prioritization of end goals, regardless of rational considerations that may influence the rankings, is a matter of desire and not of knowledge.

The knowledge of the fact that rational economic activity is impossible in a socialist community cannot, of course, be used as an argument either for or against socialism. Whoever is prepared to enter into socialism on ethical grounds with the understanding that fewer first-order goods will be provided under a system of common ownership of the means of production, or whoever desires socialism because of ascetic ideals will not allow himself to be influenced in his endeavors by that fact. Still less will those “culture” socialists be deterred who, like Muckle, expect from socialism first and foremost “the dissolution of that most terrible of all barbarities, capitalist rationalism.”[30] But whoever hopes for a rational economic system from socialism will be obliged to subject his views to scrutiny.