Implications of the Calculation Problem

The discussion of gender relations closed the first part of the book. In part two, Mises turned to examining socialism on its own terms. After the exposition of the socialist-calculation argument (he reprinted the 1920 article), he set out to discuss its further implications.

Payment for work would be quite arbitrary. For the methods of calculating value used in a free economic society based on private ownership of the means of production would be inaccessible to it since, as we have seen, such imputation is impossible in a socialistic society. Economic facts would clearly limit the power of society to reward the labourer arbitrarily; in the long run the wage total can in no circumstances exceed the income of society. Within this limit, however, the community is free to act. It can decide to pay all work equally, regardless of quality; it can just as easily make a distinction between the various hours of work, according to the quality of the work rendered. But in both cases it must reserve the right to decide the particular distribution of the products.¹⁸

In practice this meant that the individual members were defenseless against arbitrary decisions taken by the community or rather, as it was in practice, by those in charge of the central decisions. The directors of the socialist commonwealth would decide about the “allocation” of all factors of production. This implied not only that they decide how each stretch of land should be used, but also how to allocate “human resources.” The directors would be in a position to give orders to individuals and families, telling them where to move and live, and when to move on. They would do this not out of bad faith or personal abuse of power, but because it was in the very nature of socialism (common ownership of all the means of production, which includes labor) that the individual had to submit to the will of central planners. It was obvious that socialism was anything but a reign of liberty:

The Socialist Community is a great authoritarian association in which orders are issued and obeyed. This is what is implied by the words “planned economy” and the “abolition of the anarchy of production.” The inner structure of a socialist community is best understood if we compare it with the inner structure of an army.¹⁹

Socialism could not alter the fact that the individual mind was free, but the mind cannot express itself if all physical means of expression are under the control of the authorities. “No censor, no emperor, no pope, has ever possessed the power to suppress intellectual freedom which would be possessed by a socialist community.”²⁰ This may seem obvious to us now, but in 1922, this assertion seemed to be contradicted by recent events in Russia, where a new artistic avant-garde had risen under the Soviet regime. Mises remained unshaken:

The nationalization of intellectual life, which must be attempted under Socialism, must make all intellectual progress impossible. It is possible to deceive oneself about this because, in Russia, new kinds of art have become the fashion. But the authors of these innovations were already working, when the Soviet came into power. They sided with it because, not having been recognized hitherto, they entertained hopes of recognition from the new regime. The great question, however, is whether later innovators will be able to oust them from the position they have now gained.²¹

Subsequent events proved his point. Long before the Soviet empire collapsed in 1989, the artistic and intellectual institutions in the countries of Eastern Europe had enshrined the avant-garde of the 1920s and 1930s into eternal standards of truth and beauty, just as the writings of Marx and Engels were treated as holy writ. The Bolshoi Ballet in Moscow dutifully continued the revolutionary tradition, and the Berliner Ensemble faithfully replicated the plays of Bertold Brecht in the same way they had always been played.

Mises also restated the more conventional arguments concerning work and motivation. Starting from the distinction between immediate satisfaction derived from labor (the satisfaction derived from the work itself) and indirect satisfaction (remuneration), Mises contested the assumption that the establishment of a socialist regime would by itself turn whatever work had to be performed into a pure joy. Absurd as it was, this assumption was pervasive among socialists. Mises observed that in a socialist regime, the individual worker would reap but a fraction of the return of his labors. There was therefore a strong incentive for each member of a socialist society to avoid hard work:

So far as can be judged there is no convincing reason for supposing that labour under Socialism would be more productive than under Capitalism. On the contrary it can be asserted that under a system which provides no incentive to the worker to overcome the irksomeness of labour and to strive his utmost, the productivity of labour must inevitably decline.²²

Mises argued that this problem went beyond the supply of labor. It also affected the supply of capital. The decision to save one's income increases the capital available for productive ventures. As in the case of all capital goods, the benefits derived from saving do not accrue primarily to the capitalist himself, but to the consumers. In modern parlance, saving is a “public good.” But where is the incentive to save in a socialist regime?

To maintain and accumulate capital involves costs. It involves sacrificing present satisfactions in order that greater satisfactions may be obtained in the future. Under Capitalism the sacrifice... has to be made by the possessors of the means of production, and those who, by limiting consumption, are on the way to being possessors of the means of production. The advantage which they thereby procure for the future does indeed not entirely accrue to them. They are obliged to share it with those whose incomes are derived from work, since other things being equal, the accumulation of capital increases the marginal productivity of labour and therewith wages. But the fact that, in the main, the gain of not living beyond their means (i.e. not consuming capital) and saving (i.e. increasing capital) does pay them is a sufficient stimulus to incite them to maintain and extend it. And this stimulus is the stronger the more completely their immediate needs are satisfied. For the less urgent are those present needs, which are not satisfied when provision is made for the future, the easier it is to make the sacrifice. Under Capitalism the maintenance and accumulation of capital is one of the functions of the unequal distribution of property and income.²³