The Problem with Socialism by Thomas Dilorenzo
In THE PROBLEM WITH SOCIALISM, Thomas DiLorenzo, an economics professor at Loyola University in Maryland, presents the arguments--both theoretical as well as practical, why socialism inevitably fails.
The "Problem" suggested in the title is actually a trifold problem, covering three practical obstacles to socialism, which the author terms: INCENTIVE, KNOWLEDGE, and CALCULATION. The author cites concrete examples to illuminate each of the three. I confess I only knew of the first issue.
INCENTIVE PROBLEM
The author shows an early instance of the "incentive problem" by looking at the American pilgrims--especially the settlement at Jamestown. Their early form of government was a disaster. This happened because "all of the pilgrims were indentured servants who had no financial stake in the fruits of their own labor." Later, when the settlers became property owners, things changed drastically. Then, "each man realized that by loafing or shirking, he was paying the full cost of such behavior in the form of lost profits. At the same time, everyone realized that increased effort led to increased rewards."
KNOWLEDGE PROBLEM
In any business, there are complex processes necessary to make the business succeed. Citing a sample pizza store as an example, we see that there are countless supplies required in order for this business to operate. In capitalism, no one needs to "plan" these systems out; rather, numerous businesses compete to provide the services and goods needed. The store can sell pizzas "without any government 'planner' consciously dictating how to make pizzas, how many to make, or where pizza parlors should be located."
In socialism, there must needs be lots of "planners" to make this happen. But how could that work? It doesn't, suggests Professor Dilorenzo: "No government planner or group of government planners with the most powerful computers available could conceivably possess and utilize all of the constantly changing information that is needed to produce even the most common and simple consumer goods." Nobel prize-winning Hayek called this mistake the “fatal conceit "of socialism."
CALCULATION PROBLEM
In capitalism, business owners make decisions on goods and labor based on actual market prices. In socialism, however, there is no true foundation for such decisions--it's all about "plans," which may or may not be valid. Therefore, decisions are inevitably wrong: "Under socialism, where government owns all the means of production and capital “markets” are nonexistent, and resources are allocated by bureaucrats to meet 'plans' that might have no basis in economic reality."
The author makes an interesting point about the practical impact of socialism. It doesn't matter if you are fairly elected to promote socialism, or whether you instituted the system by force: "In either case everyone in society is subjected to the coercive forces of the state in enforcing its plans for the whole society." For example, the latest health care law in the U.S. will "have the same effect on American society whether it was imposed by democratic politics or by a dictator."
The professor points out the ultimate dilemma a socialist leader will face. When things begin to go south, a statesman can either admit failure, or switch methods, and forcefully continue the failed approach: "The democratic statesman who sets out to plan economic life will soon be confronted with the alternative of either assuming dictatorial powers or abandoning his plans and admitting failure."
All in all, I found THE PROBLEM WITH SOCIALISM to be a serious, profound read--albeit a bit of a tough read. Do not expect to just breeze through this book. There is a LOT to mull over here; the issues are not trivial "soundbites" ready for the news, but rather, they are arguments worthy of serious consideration and study.
Advance Review Copy courtesy of Edelweiss Book Distributors.
