Friday, June 3, 2011

Why are there no Austrian Socialists?

That is the title of an article by P. J. Boettke (1995; reprinted in Boettke 2000), and I have just finished reading it. While that article is a rich and genuinely interesting treatment of a myriad of topics – such as ethics, claims about the value-free nature of Austrian economics, and economic methodology – Boettke makes a point early on in the article that deserves further analysis:
“Wieser may have been a mild Fabian in political persuasion, but his insight concerning how the decentralized decisions in the private market economy would outperform a centralized economy precisely because of the ‘knowledge problem’ in the latter would become a theme repeatedly stressed by subsequent generations of Austrians in their battles with advocates of socialist and interventionist policies” (Boettke 1995: 36–37).
It is perfectly true that if by “socialist” we mean “Marxist” or “Communist,” then there are no Austrian advocates of “socialism.” If by “socialist” one means “social democrat” or an advocate of a mixed economy, then it is clear that one wing of the early Austrian school was actually compatible with social democracy.

Hayek was once asked about the 1920s history of the Austrian school, and his answer is instructive:
“LEIJONHUFVUD: In economics, let me come back to a question we have touched upon before. In the twenties in Vienna, was there such a thing as an Austrian school in economics? Did you and your contemporaries perceive identification with a school?

HAYEK: Yes, yes. Although at the same time [we were] very much aware of the division between not only Meyer and Mises but already [Friedrich von] Wieser and Mises. You see, we were very much aware that there were two traditions—the [Eugen von] Böhm-Bawerk tradition and the Wieser tradition—and Mises was representing the Böhm-Bawerk tradition, and Meyer was representing the Wieser tradition.

LEIJONHUFVUD: And where did the line between the two go? Was there a political or politically ideological line involved?

HAYEK: Very little. Böhm-Bawerk had already been an outright liberal, and Mises even more, while Wieser was slightly tainted with Fabian socialist sympathies. In fact, it was his great pride to have given the scientific foundation for progressive taxation. But otherwise there wasn’t really—I mean, Wieser, of course, would have claimed to be liberal, but he was using it much more in a later sense, not a classical liberal (Nobel Prize-Winning Economist: Friedrich A. von Hayek (1983), pp. 49–50).
In other words, there was a split in the Austrian school in the 1920s between (1) the classical liberal wing of Eugen von Böhm-Bawerk/Mises (which evolved into modern American libertarianism), and (2) the wing of von Wieser, whose members (or at least some of them) were leaning towards Fabian socialism, and was clearly becoming more like modern progressive liberalism or social democracy (see also Shearmur 1996: 29). Hayek claims that there were “very little” political differences between the two wings, and yet if we turn to the role of Eugen von Philippovich von Philippsberg (1858–1917), it looks like a different story to me.

Eugen von Philippovich von Philippsberg was a student of Carl Menger, and then taught at the University of Freiburg im Breisgau. He returned to the University of Vienna in 1893 as a professor of economics (Hülsmann 2007: 83). Philippovich was already in favour of state intervention before he taught at Vienna, and on his return as a Professor in 1893,
he immediately joined the Vienna Fabians. The group organized public conferences and discussions to promote the idea of government intervention in the service of a “social” agenda, which primarily concerned the support of the working-class poor. Philippovich’s personal and intellectual qualities made him the center of the Vienna Fabians and helped spread their influence among academics and businessmen. These activities were so successful that Fabian ideas eventually were incorporated into the programs of all Austrian political parties” (Hülsmann 2007: 83).
So we have an early Austrian who was an explicit member of the Vienna Fabians and was the “center of the Vienna Fabians.” In fact, von Philippovich was at the centre of the Austrian “social” liberal movement:
“Against the seeming hopelessness and isolation of classic Liberalism in German Austria, however, a new generation of younger, social Liberals evolved in Vienna in the mid- and later 1890s. The radicalism and optimism of the Viennese Fabians reflected their limited constituency responsibilities and their freedom of the constraints of membership in a large, diversified bourgeois party …. Viennese social Liberalism was rich in its associational life and in its points of intellectual and administrative influence, but its ideological and moral center point was the Social Political movement launched in 1893 by Eugen von Philippovich, Michael Hainisch, Julius Ofner, and Otto Wittelshbfer. They were soon joined by a wide circle of university academics, lawyers, and state officials, many of whom, like Josef Redlich, wrote for the new social Liberal weekly Die Zeit. These Viennese Fabians were of crucial importance in determining the course of the final generation of Austrian Liberalism before the war. Philippovich especially, with his irenic attempt to reconcile the historicism of Schmoller and the more theoretical, classical traditions of Austrian economics, served at the University of Vienna as a powerful moral and pedagogical influence on hundreds of young academics, journalists, and government bureaucrats after 1893 in reviving a semblance of post-Liberal bourgeois culture” (Boyer 1978: 76–77).
The aims of the Austrian Fabians are described in von Philippovich (1896), which, unfortunately, I can’t get hold of, but his views summed up by J. W. Boyer:
“ … the Fabians were social instrumentalists who sought to improve bourgeois society without destroying its fundamental private capitalist rationale. Much of Philippovich’s scholarly work in economics considered reformist policy questions such as housing reform, tax policy and wage rates, and social insurance for private employees as well as the more general problem of bourgeois solidarism as a mediatory mode between capitalism and socialism” (Boyer 1978: 80–81).
One can turn to von Philippovich’s writings on this, though again I have not yet read them:
Eugen von Philippovich, 1906. Grundriss der Politischen Oekonomie (vol. 1; 6th edn), Allgemeine Volkswirthschaftslehre, Tubingen (pp. 14–19; 206–209; 408–414).

Eugen von Philippovich, 1905. “Individuelle Verantwortlichkeit und gegenseitige Hilfe im Wirtschaftsleben” [“Individual Responsibility and Mutual Assistance in Economic Life”], Zeitschrift fur Volkswvirtschaft, Sozialpolitik und Verwaltung 14: 547–570.
Friedrich von Wieser was born in 1851, and took a degree from the University of Vienna in 1872. After historical interests, he came to study economics after reading Carl Menger’s Grundsatze (for Wieser’s life, see Schumpeter 1997: 298ff; Schumpeter and Achille Loria 1927). From 1903 he succeeded Menger at the University of Vienna where he taught economics along with his brother-in-law Eugen von Böhm-Bawerk. Friedrich von Wieser was the teacher of Friedrich August von Hayek. A. O. Ebenstein, in his Friedrich Hayek: A Biography (Chicago, 2003), provides a good summary of von Wieser’s economics:
“Wieser was more corporatist and intervention-minded than Böhm-Bawerk and Menger. Hayek recalled that when he was a student, he was ‘very much aware that there were two traditions’ in the Austrian school — the ‘Böhm-Bawerk tradition and the Wieser tradition. Wieser was slightly tainted with Fabian socialist sympathies. Hayek observed of his later relationship with Mises, who ‘represented the Böhm-Bawerk tradition,’ that ‘I perhaps most profited from his teaching because I came to him as a trained economist, trained in a parallel branch of Austrian economics from which he gradually, but never completely, won me over” (Ebenstein 2003: 26).
Moreover, according to Hayek, classical liberalism/libertarianism was not the major or defining ideology in the discussion group called the “Geistkreis” that Hayek and J. Herbert Fürth founded in 1921:
LEIJONHUFVUD: Now, in the twenties, were most of the economists in Vienna at that time liberals in the traditional sense?

HAYEK: No, no. Very few. Strigl was not; he was, if anything, a socialist. Shams was not. Morgenstern—was not. I think it reduces to Haberler, Machlup, and myself.

LEIJONHUFVUD: So my previous question was: Was there an Austrian school? and you said yes, definitely.

HAYEK: Theoretically, yes.

LEIJONHUFVUD: In theory.

HAYEK: In that sense, the term, the meaning of the term, has changed. At that time, we would use the term Austrian school quite irrespective of the political consequences which grew from it. It was the marginal utility analysis which to us was the Austrian school.

LEIJONHUFVUD: Deriving from Menger, via either Wieser or Bohm-Bawerk?

HAYEK: Yes, yes.

LEIJONHUFVUD: The association with liberal ideological beliefs was not yet there?

HAYEK: Well, the Menger/Bohm-Bawerk/Mises tradition had always been liberal, but that was not regarded as the essential attribute of the Austrian school. It was that wing which was the liberal wing of the school.

LEIJONHUFVUD: And the Geistkreis was not predominately liberal?

HAYEK: No, far from it.

LEIJONHUFVUD: And what about Mises’s seminar?

HAYEK: Again, not. I mean you had [Ewald] Schams and Strigl there; and Engel-Janoschi, the historian; and Kaufmann, who certainly was not in any sense a liberal; Schutz, who hardly was—he was perhaps closer to us; Voegelin, who was not ….

LEIJONHUFVUD: So in the revival of interest in the Austrian school that has taken place in recent years in the United States …

HAYEK: It means the Mises school (Nobel Prize-Winning Economist: Friedrich A. von Hayek, pp. 54–56).
According to Hayek, it was “marginal utility analysis” that was the defining attribute of the Austrian school, not Classical liberalism. And Hayek himself had been an adherent of Fabian socialism as Wieser’s student in the 1920s before he was influenced by Mises (Ebenstein 2003: 40–41).

So what we in fact have is four early Austrians who were connected to Fabian socialism:
(1) Eugen von Philippovich, a leader of Austrian social liberalism;
(2) Friedrich von Wieser;
(3) the early Hayek, and
(4) Richard von Strigl (who was, according to Hayek, “if anything, a socialist”).
There were Austrian socialists of the social democratic variety, and modern Austrians have ignored them, and questions about how early Austrian economics was compatible with Fabian socialism. A more serious question would also be: why are there no Austrian social democrats today?

These seem like promising research questions to me.

Appendix: The Early Austrian School



BIBLIOGRAPHY

Boettke, P. J. 1995. “Why are there no Austrian socialists? Ideology, science and the Austrian school,” Journal of the History of Economic Thought 17: 35–56.

Boettke, P. J. 2000. Calculation and Coordination: Essays on Socialism and Transitional Political Economy, Routledge, New York. 7–28.

Boyer, J. W. 1978. “Freud, Marriage, and Late Viennese Liberalism: A Commentary from 1905,” Journal of Modern History 50.1: 72–102.

Ebenstein, A. O. 2003. Friedrich Hayek: A Biography, University of Chicago Press, Chicago.

Hülsmann, J. G. 2007. Mises: The Last Knight of Liberalism, Ludwig von Mises Institute, Auburn, Ala.

Nobel Prize-Winning Economist: Friedrich A. von Hayek. Interviewed by Earlene Graver, Axel Leijonhufvud, Leo Rosten, Jack High, James Buchanan, Robert Bork, Thomas Hazlett, Armen A. Alchian, Robert Chitester, Regents of the University of California, 1983.

Philippovich, Eugen von, 1896. “Alt- und Neu-Oesterreich,” Die Zeit (August 29).

Philippovich, Eugen von, 1905. “Individuelle Verantwortlichkeit und gegenseitige Hilfe im Wirtschaftsleben” [“Individual Responsibility and Mutual Assistance in Economic Life”] Zeitschrift fur Volkswvirtschaft, Sozialpolitik und Verwaltung 14: 547–570.

Philippovich, Eugen von, 1906. Grundriss der Politischen Oekonomie (vol. 1; 6th edn), Allgemeine Volkswirthschaftslehre, Tubingen.

Schumpeter, J. A. 1997. Ten Great Economists (rev. edn), Routledge, London.

Schumpeter, J. and J. B. Achille Loria, 1927. “Obituary: Friedrich von Wieser,” Economic Journal 37.146: 328–335.

Shearmur, J. 1996. Hayek and After: Hayekian Liberalism as a Research Programme, Routledge, London.

34 comments:

  1. Have you considered that an admirer of Hayek, Social Democratic Chancellor Helmut Schmidt, could be considered an Austrian social democrat?
    ----------------------------------------------
    Nope, social democrat doesn't match the definition of socialist even closely.

    Scientific Socialism (first usage of the word) has always had a narrow and specific meaning, relating only to a worker-controlled industry, and apportionment and allocation from a common pool of resources.

    Social democracies aren't worker-controlled societies, because nationalising an industry is not the same thing as turning it to the workers. One of the early heroes of western social democrats, Kwame Nkrumah, was pretty strict in dealing with workers in Ghana's nationalised industries, whose demands were suppressed harshly supposedly for national good. And the very fact that people working for a social democratic government earn an income and buy goods and services (perhaps from the government itself) shows that people do own something and that nothing is available in a common pool. The average social democrat is just a plain and simple capitalist. That's because nothing other than capitalism was never possible at all, aside from chaos.

    Interventions work within limits of capitalism, not outside it. Example: whenever a government levies a tax, the market decides the economic incidence of the tax, which differs from the legal incidence. The government may determine tax rates, but never the total tax revenues it earns.

    This is not meant as a cheap jab, but Marxists have often shown better knowledge of economics than many social democrats, with Marxists having been critics of price controls, incomes policies, countercyclical policies (like destroying crop and cattle) and other "crack-brained interventions", that (as Marx wrote to Engels) "aggravate an existing a crisis".

    It is simply misleading to lump in social democrats and socialists together. There are no similarities between them.

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  2. Is this comment supposed to be a quotation of Helmut Schmidt??

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  3. No no no no! Sorry.

    I divided my comment into two parts with a dividing line, so that you know it deals with two different things.

    I understand it bothers internet users when a poster shifts the topic suddenly, so I keep it in mind.

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  4. social democrat doesn't match the definition of socialist even closely.

    (1) Marxist socialism/command economy systems and (2) mixed economy, social democracy are indeed two different things.

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  5. Well, to complicate things further, Marx criticized central planning and did not believe in command economies either! He thought governments were really bad at managing the economy.

    See the 9th paragraph of this letter. http://www.marxists.org/archive/marx/works/1851/letters/51_02_03.htm

    So socialism is not even what we had in the Soviet Union, which was ultimately also a capitalist economy (given that it had to buy and sells goods with the capitalist world). Marx's socialism is just a nonexistent fairy tale.

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  6. Marx thought of history progressing through different stages:

    1. Primitive Communism: as in co-operative tribal societies.

    2. Slave Society: a development of tribal progression to city-state; Aristocracy is born.

    3. Feudalism: aristocrats are the ruling class; merchants evolve into capitalists.

    4. Capitalism: capitalists are the ruling class, who create and employ the proletariat.

    5. Socialism: workers gain class consciousness, and via proletarian revolution depose the capitalist dictatorship of the bourgeoisie, replacing it in turn with dictatorship of the proletariat through which the socialization of the means of production can be realized.

    6. Communism: a classless and stateless society

    http://en.wikipedia.org/wiki/Marxism

    But it is obvious that stage (5) was what Marx presumbly would have endorsed as a transition to (6).

    I am not sure it makes any sense to say the Soviet Union was a "capitalist economy". Capitalist in what sense?

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  7. It’s certainly conceivable that someone could support ending the boom/bust cycle with 100% specie reserve banking but still believe that there is a role for government in helping the poor. I see two separate issues. I also believe that Keynesian-style “demand management” is ultimately an adventure in wealth transfer generally from the poor to rich, unsophisticated to the sophisticated. Only the rich and sophisticated can follow absurd fluctuations in financial assets brought about by funny money dilution and manipulation.

    Further, in a Rothbardian society, large groups could acquire large swaths of land and live in a voluntary socialist environment of property sharing, financial support and other “progressive” personal values and not be subject to personal regulation and violation by a “red-state” voting mob. There is no necessity that these parcels necessarily even be contiguous.

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  8. The Soviet Union did have to sell to foreign markets and buy from them in order to run many of their activities, right? It did have to engage in a trade of resources to fund its early development, no? A formerly agrarian region does not industrialise out of the blue - it had to obtain the benefit of productive capacities of capitalist economies.

    In the early days of the Soviet Union, it also hired many American and German engineers, in order that they train local workers and assist in bringing in industrial practices. Were these imported engineers not paid a salary? Did the Soviet Union not have to send real resources in order to obtain currency that would be accepted by these foreign engineers?

    Had the Soviet Union been a complete autarky - and it was close to being one, due to its large size - and taken the long, hard path of industrialising with zero foreign resources and zero foreign help, it could be properly established that it was something other than capitalism. Then, all its resources would have been allocated by planning and bureaucracy. However, it was a beneficiary and a user of capitalist production (be it of human resources or natural resources or produced goods) that came from abroad.

    Some of your radical anarchist friends who comment on this blog agree with me. It's that lot which always insists the Soviet Union was a "state capitalist" system, and that "true socialism" didn't exist in the Soviet Union.

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  9. Because most people don't bother about the theoretical content of different types of economic thinking, they just reduce everything to their alledged policy prescriptions. I think that what characterizes Austrian economics is their logical method, their subjectivism (though not exclusive to them) and their theory of interest and capital (which leads to several explainations of the business cycle). It really get me nuts when people conflate Austrian economics with libertarianism, anarcho-capitalism or whatever.

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  10. Further, in a Rothbardian society,

    Given the choice, I'd prefer the big rock candy mountains.

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  11. Regarding my “socialism in Rothbardland” comment, there would be nothing to stop .02%, 10%, 51% or 97% of the population from joining in. There would be nothing to stop them from engaging in a fiat money system employing techniques of aggregate demand management either, except that reality would probably set in and they wouldn’t like the results. The rule is the prohibition on the initiation of force.

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  12. Pete Boettke likes to explain the rise of Keynesianism as a convenient rationalization of foolish prejudice. Here he is quoting Luigi Zingales

    Keynesianism has conquered the hearts and minds of politicians and ordinary people alike because it provides a theoretical justification for irresponsible behaviour.

    Considering that Austrian Economics as we know it today is sustained as an organized entity by generous funding from wealthy propertarian ideologues (Mercatus Center @GMU, LVMI, Cato institute (long ago)), we may consider explanations that reflect this fact.

    Wealthy left wing ideologues do exist, but probably favor schools of thought that are inclined to produce technocrats and researchers into specific markets or issues, rather than the disconnected "armchair" Austrian approach (although this is unfair to some fine austrian scholars).

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  13. Hayek said the same thing in 1977. I made the audio recording.

    Mr. Hayek: You’re perfectly right, but I’d like to add one thing. You see, another political element was that, of course, politicians just lapped the argument and Keynes taught them if you outspend your income and run a deficit, you’re doing good to the people in general. The politicians didn’t want to hear anything more than that – to be told that irresponsible spending was a beneficial thing and that’s how the thing became so influential.

    http://hayekcenter.org/?p=2701

    BTW, LVMI has nothing to do with the Koch family.

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  14. "The Soviet Union did have to sell to foreign markets and buy from them in order to run many of their activities, right?"

    Just because it traded with other nations doesn't make it "capitalist".

    We are talking about the internal structure of its domestic economy, not its trade policy.
    How can you refer to a command economy with little private property as "capitalist."

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  15. "Mr. Hayek: You’re perfectly right, but I’d like to add one thing. You see, another political element was that, of course, politicians just lapped the argument and Keynes taught them if you outspend your income and run a deficit, you’re doing good to the people in general."

    (1) Hayek is neglecting the important fact that Keynesian won out because economists in general thought his Austrian theories were rubbish.

    (2) Even the Marshallian neoclassicals at Cambridge in 1931 thought his business cyle theory was garbage.

    (3) Moreover, his solution - "do nothing" - was tried in Weimar Germany. Look how that turned out.

    (4) And Hayek repudiated his earlier views late in life and basically agreed with Friedman over the need for monetary intevention to prevent secondary deflation.

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  16. All you’re doing is just trying to say some folks didn’t agree with the Austrians at a particular point in time. Certainly doesn’t disprove them by saying “hey, some folks said it was garbage, therefore it has to be garbage.”

    Inflating the money supply in Weimar Germany is not consistent with anything the Austrian school would advocate. Not even close. So what an austrian would suggest to do in response to a problem that they wouldnt even create in the first place is irrelevant.

    Keynesianism did not “win out,” it just appealed to government bureaucrats and politicians precisely for the reasons Hayek explained. Keynesianism was able to perpetuate itself not because it is sound economics, but because politicians can use it to finance wars, welfare, and to fool the general public into thinking their spending and inflation programs cured recessions. They do no such thing, never have never will,in fact, the Keynesian "solutions" are the source of our problems

    These statements you listed do not disprove the Austrian school, or anything related to it, and certainly these responses do not even constitute a legitimate rebuttal to the fact that Keynesian economics was no more than a fraudulent attempt to justify the stealing of wages from British laborers through inflation after the war. It is a scheme based upon theft and fraud and redistribution of wealth from the poor to the rich. It did not “win out” over anything.

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  17. "All you’re doing is just trying to say some folks didn’t agree with the Austrians at a particular point in time. Certainly doesn’t disprove them "

    I have not asserted that the rejection of Austrian theory in the 1930s "proves" that it is wrong. The point is that there was a genuine and sincere belief amongst many economists that Hayek's theories were unconvincing. In the warped world of Austrian apologists, they lost out in the 1930s only because of corrupt politicians and "evil" Keynesians.

    "Inflating the money supply in Weimar Germany is not consistent with anything the Austrian school would advocate."

    Show me evidence that Weimar Germany during the depression was "inflating the money supply."

    Weimar Germany like many other countries over the period 1929-1933 was hit by deflation and money supply collapse:

    “Economic breakdown led to political upheaval which in turn destroyed the international status quo. Germany was the most striking example of this complex interaction. Without the depression Hitler would not have gained power. Mass unemployment reinforced all the resentments against Versailles and the Weimar democracy that had been smouldering since 1919. Overnight the National Socialists were transformed into a major party; their representation in the Reichstag rose from 12 deputies in 1928 to 107 in 1930. The deflationary policies of the Weimar leaders sealed the fate of the Republic. Chancellor Brüning, who took office in March 1930, saw in deflation a device to free Germany from reparations” Adamthwaite, A. P. 1977. The Making of the Second World War, Allen & Unwin, London and Boston. p. 34.

    You have pretty much showed us how ignorant you are.

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  18. On the collapse of the money supply in Weimar Germany over 1930/1931:

    in the summer of 1931 .... the money supply had fallen by over 25 per cent since 1930.

    Anthony James Nicholls, Freedom with responsibility: the social market economy in Germany, 1918-1963, p. 53.

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  19. @BobRoddis

    As a movement libertarian you're probably well aware of all the following:

    "LVMI has nothing to do with the Koch family."

    That's true; LVMI and it's resident scholars hew very closely to lines set out by their own patriarch, Lew Rockwell...

    in this interview you can see virtually all of the seemingly unconnected quirks of the LVMI brought together in one man.

    1. Confederate sympathies/ antipathy toward Lincoln, and antipathy to civil rights laws/ jurisprudence.

    2. Natural Elites (Hoppe's Monarchism)

    3. The state is inherently evil in all its forms.

    4. Not racists!!! They just have a lot of friends on the Stormfront message boards is all.

    5. Opposition to immigration on specious private property grounds.

    The only thing missing really is the obsession with conspiracy theories.

    The Austrian economics we have is the Austrianism that 'they' pay for.

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  20. Soviet Union is only state capitalism.

    http://anarchism.pageabode.com/afaq/secH3.html#sech313

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  21. Lord Keynes writes: "How can you refer to a command economy with little private property as "capitalist." "

    Actually, the Soviet Union might be considered capitalism from a Misean perspective. From Human Action:

    "Government-operated enterprises and the Russian Soviet economy are, by the mere fact that they buy and sell on markets, connected with the capitalist system. They themselves bear witness to this connection by calculating in terms of money. They thus utilize the intellectual methods of the capitalist system that they fanatically condemn...."

    Mises said elsewhere that government industries really just mimic the market -- this the failure of them might be an example of the failure of markets. He also says:

    "Private ownership of the means of production (market economy or capitalism) and public ownership of the means of production (socialism or communism) can never be confounded with one another; they cannot be mixed or combined; no gradual transition leads from one of them to the other; they are mutually incompatible. With regard to the same factors of production there can only exist private control or public control.
    "In the first case there is a market, there are market prices for all factors of production, and economic calculation is possible. In the second case, all these things are absent.

    "A socialist system with a market is as self-contradictory as is the notion of a triangular square. The essential mark of socialism is that one will alone acts. It is immaterial whose will it is. The director may be anointed king or a dictator, ruling by virtue of his charisma.... The socialist system is a system without a market or market prices for the factors of production, and without competition; it means the unrestricted centralization and unification of the conduct of all affairs in the hands of one authority..."

    "Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it can choose between social cooperation and the disintegration of society..."

    Taken together, we have: (1) The Russian system buys and sells on markets, and calculate in terms of money. (2) Private ownership and public ownership are two distinct things. They can never be the same or "combined" in anyway. (3) A market system is completely absent in socialism and everything is controlled by "one authority." (4) A socialist system with any kind of a market is completely contradictory, like a triangular square. (5) Socialism can never even be realized.

    Thus, the Soviet Union could not have been socialist but a form of capitalism (or something else) according to Mises himself, as the USSR had some kind of market, socialism can never have a market, there can be no "mixed economy," and socialism is something that cannot even exist.

    --Successfulbuild

    ReplyDelete
  22. Lord Keynes writes: "How can you refer to a command economy with little private property as "capitalist." "

    Actually, the Soviet Union might be considered capitalism from a Misean perspective. From Human Action:

    "Government-operated enterprises and the Russian Soviet economy are, by the mere fact that they buy and sell on markets, connected with the capitalist system. They themselves bear witness to this connection by calculating in terms of money. They thus utilize the intellectual methods of the capitalist system that they fanatically condemn...."

    Mises said elsewhere that government industries really just mimic the market -- this the failure of them might be an example of the failure of markets. He also says:

    "Private ownership of the means of production (market economy or capitalism) and public ownership of the means of production (socialism or communism) can never be confounded with one another; they cannot be mixed or combined; no gradual transition leads from one of them to the other; they are mutually incompatible. With regard to the same factors of production there can only exist private control or public control.
    "In the first case there is a market, there are market prices for all factors of production, and economic calculation is possible. In the second case, all these things are absent.

    "A socialist system with a market is as self-contradictory as is the notion of a triangular square. The essential mark of socialism is that one will alone acts. It is immaterial whose will it is. The director may be anointed king or a dictator, ruling by virtue of his charisma.... The socialist system is a system without a market or market prices for the factors of production, and without competition; it means the unrestricted centralization and unification of the conduct of all affairs in the hands of one authority..."

    "Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it can choose between social cooperation and the disintegration of society..."

    Taken together, we have: (1) The Russian system buys and sells on markets, and calculate in terms of money. (2) Private ownership and public ownership are two distinct things. They can never be the same or "combined" in anyway. (3) A market system is completely absent in socialism and everything is controlled by "one authority." (4) A socialist system with any kind of a market is completely contradictory, like a triangular square. (5) Socialism can never even be realized.

    Thus, the Soviet Union could not have been socialist but a form of capitalism (or something else) according to Mises himself, as the USSR had some kind of market, socialism can never have a market, there can be no "mixed economy," and socialism is something that cannot even exist.

    --Successfulbuild

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  23. LK, as long as goods of capitalist output and production existed in the Soviet Union, it was a capitalist economy.

    Where did the Soviet Union obtain information about what level of prices to charge for some of the goods it distributed within its territory? It got that information from the prices being offered and bid on international capitalist market. It was still imperfect, but it was as close to a reasonable approximation bureaucrats could make. Otherwise, how would they decide out of the blue how much should be charged for a pen with respect to a sweater with respect to steel, and so on?

    Had they determined all output, production, distribution, and prices from scratch, they could have been considered something at all different from capitalism. And even if they didn't, the very fact that they used prices and wages at all (albeit government-determined) in order to determine allocation of goods meant that they did not plan every allocation of every resource, but simply charged a price and saw how workers, suppliers, and consumers would react to them. Just the way they do it in...capitalism?

    Besides, there was some semblance of property in the Soviet Union. It was either state property or private property, on limits defined by the 1937 constitution. How much of the Soviet Union was commons? Not too much of it. There aren't many large commons farms or commons steel plants or commons towns that we know of in the Soviet Union. It was an imitation of capitalism. Somebody owned something, and there were prices and wages involved in transfer of title of something.

    Were we to speak of a subsistence level societies in the Third World, where people grow, graze, and survive on common land and common resources - only then do we speak of something other than capitalism.

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  24. Keynesians did not win out over anything. It just appealed to bureaucrats and politicians in power because it enabled them to deficit spend and create inflation and claim that they were “curing” economic problems. They were in fact causing them and exacerbating them. It also enables them to finance all kinds of welfare and warfare without directly taxing its citizens.

    For politicians, it sounded like a good deal. That’s exactly what Keynes was going for. To influence policy, not to create an economic theory that would be followed by generations of economists. In fact, Hayek said in that interview with Buckley, that Keynes would go on a public campaign to convince people not to subscribe to his theories beyond the time period in which he advocated them. Unfortuantley he died before he could do this.

    Your claiming that German hyperinflation in the Weimar was not caused by an increase in the money supply? German hyperinflation was caused by an expansion of the money supply to finance their war efforts. They completely debased the mark. Price controls, excessive amounts of debt, not to mention the war itself are not consistent with libertarianism or the Austrian school whatsoever. So saying what an Austrian would do in response to a situation caused by policies that they would not advocate for in the first place is irrelevant.

    Check the inflation in numbers chart
    http://wiki.mises.org/wiki/Inflation_in_the_Weimar_Republic

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  25. "LK, as long as goods of capitalist output and production existed in the Soviet Union, it was a capitalist economy"

    And yet the Soviet Union after 1945 conducted most of its trade with other communist countries:

    The Soviet Union conducted the bulk of its foreign economic activities with communist countries, particularly those of Eastern Europe. In 1988 Soviet trade with socialist countries amounted to 62 percent of total Soviet foreign trade. Between 1965 and 1988, trade with the Third World made up a steady 10 to 15 percent of the Soviet Union's foreign trade. Trade with the industrialized West, especially the United States, fluctuated, influenced by political relations between East and West, as well as by the Soviet Union's short-term needs. In the 1970s, during the period of détente, trade with the West gained in importance at the expense of trade with socialist countries. In the early and mid-1980s, when relations between the superpowers were poor, however, Soviet trade with the West decreased in favor of increased integration with Eastern Europe.

    http://en.wikipedia.org/wiki/Foreign_trade_of_the_Soviet_Union

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  26. "It just appealed to bureaucrats and politicians in power because it enabled them to deficit spend and create inflation and claim that they were “curing” economic problems."

    = ideological stupidity.

    "Your claiming that German hyperinflation in the Weimar was not caused by an increase in the money supply?"

    I am claiming no such thing. My comments above refer not to Weimar hyperinflation, but to Weimar Germany policy from 1930-1933.

    My comments:

    "(3) Moreover, his solution - "do nothing" - was tried in Weimar Germany [that is, from 1930-1933]. Look how that turned out."
    ....
    "Show me evidence that Weimar Germany during the depression was 'inflating the money supply.' Weimar Germany like many other countries over the period 1929-1933 was hit by deflation and money supply collapse"

    Read my comments properly. That fact your can't refute them, but resort to a straw man by dragging up Weiamr hyperinflation speaks volumes.

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  27. The fact that nothing you have never even came close to posting anything on this blog that comes even remotely close to refuting anything related to the Austrian school speaks volumes.

    You didn’t specify 30 to 33 in your initial comment that I responded too. However, price controls certainly do not constitute doing nothing. That’s considered intervention. The whole problem of hyperinflation and the subsequent problems that ensued were caused by monetary intervention and currency debasement which are totally inconsistent with any policy that an Austrian would likely advocate. (I can’t speak for all Austrians)

    Doing nothing, and letting individuals in the free market sort things out voluntarily would likely have been the Austrian solution to a problem created by policies that Austrians would likely not advocate in the first place.

    Doing nothing can’t solve the problem over night, and certainly was not the cause of the problem in general. I can’t speak for all Austrians, but doing nothing is not was caused any of Germany’s problems. However, it is safe to say most Austrians would have liked to avoid the situation all together and avoid engaging in the policies that created the hyperinflationary episode.

    Perhaps higher interest rates too cool off the inflation could have been a policy proposal? Again, I can’t speak for all Austrians but I could see some of them suggesting this.


    In the end, I was tryin to suggest that the hyper inflation was caused by an expansion of the money supply. The policies thereafter were still considered interventionalism with regards to the price controls.

    The specific time window which you referred to is no indictment on the Austrians school in any form, if that is what you were going for.

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  28. "The specific time window which you referred to is no indictment on the Austrians school in any form, if that is what you were going for. "

    On the contrary, an Austrian polciy of "doing nothing," dismantling government or even more savage government spending cuts would have collapsed the Wiemar economy to even greater extent and inflicted even gretaer suffering on the German people, radicalizing even further and driving them into hands of extremists like communists and Nazis.
    That is the point I am making above. Politicians in the late 1930s and 1940s were well aware of this and did not think Hayek's deflationary solution was either (1) remotely convincing or (2) moral.

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  29. "It is simply misleading to lump in social democrats and socialists together. There are no similarities between them."

    This appears to me correct. I think Hayek et all were more concerned with worker control over anything else. It followed from their understanding of economics -- and their lauding of the entrepreneur.

    Social democrats -- especially Fabians -- had and have a tendency to be elitist (Keynes is a classic example of this). They have a distinct -- and I feel, correct -- distrust of the masses running their own economic system democratically (through collective, Soviets, syndicates etc).

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  30. I am not sure if this has been mentioned yet, but there are some market socialists who have adopted some ideas from Austrian Economics.

    Theodore A. Burczak has written a book about a version of market socialism focused on worker's cooperatives operating in a mixed economy system with private property and markets. He incorporates some of Hayek's ideas on the "knowledge problem" and more in his thought.

    Here is a link to Burczak's book at the University of Michigan Press website if anybody is interested: http://press.umich.edu/titleDetailDesc.do?id=93585

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  31. "Scientific Socialism (first usage of the word) has always had a narrow and specific meaning". Prateek Sanjay. June 3, 2011 3:20 AM

    You are right when you state that Scientific Socialism has a narrow and specific meaning.

    However, you fail to realize that this very narrow and specific meaning is what differentiates Scientific Socialism from other, pre-existent forms of socialism, some of which pre-dated Scientific Socialism.

    Let me put it this way: the "Scientific" adjective qualifies the "Socialism" noun. This implies that there are other, non-Scientific varieties of Socialism, one of which was Fabian socialism.

    "Well, to complicate things further, Marx criticized central planning and did not believe in command economies either! He thought governments were really bad at managing the economy.

    "See the 9th paragraph of this letter.
    http://www.marxists.org/archive/marx/works/1851/letters/51_02_03.htm"

    Prateek Sanjay. June 3, 2011 5:41 AM

    That is an exceedingly idiosyncratic reading of that letter.

    In it Marx is expounding ideas about monetary policy (as we would say nowadays). He does not mention fiscal policy at all.

    However, you mention "central planning" and "command economies" without differentiation of fiscal and monetary policies.

    Further, Marx is criticizing "the theory of Mr. Loyd and tutti frutti [all sorts of others], from Ricardo onwards" and advancing a different theory, implying opposite prescriptions for the Bank of England (i.e. Britain's central bank).

    Finally, let me comment on the use of the "central planning" and "command economies" terms. As Scientific Socialism, they also have a "narrow and specific meaning", within Austrian thought. It's not evident that the meaning you, presumably an Austrian commenter, attribute to them corresponds to the meaning social democrats have in mind.

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  32. "Theodore A. Burczak has written a book about a version of market socialism"

    I've reviewed that book (here). It is interesting, if flawed.

    The key problem with it is that he tries to squeeze his market socialism into Marx and completely ignores Proudhon whose mutualism is very close to his own ideas. If he had read more of the genuine libertarian tradition his book would have benefited. Also, he fails to discuss the negative aspects of markets.

    Iain
    An Anarchist FAQ

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  33. Kevin Carson is an Austrian and a Mutualism.

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  34. Kevin Carson uses subjectivity methodology but defends LTV, not sure if that disqualifies him though.

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