The Pros and Cons of Socialism; H. Hazlitt

Henry Hazlitt is well known to Freeman read ers as author, columnist, editor, lecturer, and practitioner of freedom. This review article is reprinted by permission from the January 6, 1973 issue of Human Events. 148 The book is well-written, at moments even eloquent. Mr. Har rington has a gift for phrase making. Perhaps this accounts for his success in becoming head of the American Socialist party. His erudition is impressive. He seems to have read, in the original Ger man, practically everything that Marx and Engels ever wrote. He 1973 THE PROS AND CONS OF SOCIALISM 149 has flashes of an ingratiating can dor. Yet his boqk as a whole is a long, repetitious and tedious con demnation of capitalism and an extravagant eulogy of socialism. Capitalism is represented as the sum of all evil. Socialism, on the other hand, may not bring an earthly paradise - it is only "finite," as Harrington stops him self to concede at one point - but whatever evil remains after it has been achieved will hardly be worth talking about.

Socialism may be finite, but Harrington's errors are not. I hardly know where to begin in pointing them out, and must con fine myself to a few random sam ples, of first some theoretical and then some factual errors. Labor Theory of Value Harrington is a devout Marxist, and swallows practically every thing, including the labor theory of value. He sets out to prove that labor is productive, but that capi tal is not. He does this mainly by rhetoric: "It is not capital or the market or abstention from con sumption that produces wealth; it is man (p. 77)." This is an ab surdly false antithesis. He may a~ well have written: "It is not work that creates wealth, but man." He even calls it a brilliant "animating insight," first seen by Marx, "that men create wealth." Well, let's take an elementary case. A man, using an ax, chops down a tree. Did the man chop down the tree, or did the ax do it?

Obviously it was the combination, the manusing-an-ax, that was needed to chop down the tree. It could not have been done without both. To argue, as Marx-cum-Har rington do, that the services of the man should be paid for but the services of the ax should not be paid for, is to argue that the man who made the ax should not be paid. Suppose, now, that the woods man is supplied with a power-saw instead of an ax, so that he can now cut down six times as many trees a day as before. Is he to be paid six times as much per day on the argument that his productivity has increased sixfold, with no com pensation for the use of the power saw ? Yet the increase in produc tivity has been made possible solely by the substitution of the power-saw. If power-saws are not paid for they will not be produced. If the principle of noncompensation for capital is universalized there will be no economic progress, but de cay and impoverishment.

Harrington does not seem to have even a glimmering of this elementary truth. He appears to assume that capitalist production goes on automatically, and even 150 THE FREEMAN March goes on increasing automatically, regardless of compensation or noncompensation, incentives or de terrents. I do not remember that the word "incentive" ever appears in his book; certainly it does not get into the index. Production, Harrington assumes, goes on increasing - even fright eningly fast - because of improve ments in "technology." But that improvements in technology would never have been possible without capital accumulation, and that cap ital accumulation - produced only by saving and investment - would never have taken place without compensation and rewards, seems never to have occurred to him. All the immense and acceler ative progress in productivity in the modern world has been the result of increasing capital ac cumulation, of more and better tools and machines. Yet Harring ton is blind to this. Not only does he not believe in profit, but he is constantly advocating confiscatory taxation and outright seizures that would eventually destroy the whole basis of production.

The Exploitation Theory It is probably needless to add that Harrington plumps without reservation for the Marxian theory that "labor" is everywhere "exploited" by the "capitalist." He does this by the naive argument (pp. 94-96) that there is such a thing as profit - i.e., that the gross sales value of the prod uct that the entrepreneur creates is greater than its cost of produc tion. Ergo, somebody must be be ing robbed of this "surplus," and it must be the workers! There is a bundle of fallacies here. First, Harrington assumes that profit is something automatic and certain. Millions of business men, including the managers and stockholders of recent outstanding loss-makers, like Penn-Central, Litton Industries, Ampex, Boise Cascade, Pan-Am, and so on, wish that were true. Over the years, some 40 per cent of corporations, by number, report losses. Harrington, again following Marx and others, confidently speaks of "the rate of profit." No such "rate" exists. Profit is dif ferent in every industry, in every firm, and in every year. Statisti cians can figure a mathematical average, of course (though that doesn't help the losers).

In 1970 all manufacturing cor porations in the U.S. reported an average profit after federal income tax of four cents per dollar of sales. Even if this were what economists call pure profits, it doesn't prove that any workers were robbed. Moreover, in an inflationary pe riod like the present, orthodox 1973 THE PROS AND CONS OF SOCIALISM 151 bookkeeping practices greatly overstate real profits. Even in normal times such bookkeeping "profits" include, especially in small firms, what should more properly be imputed to interest, rent, or the wages of management. In fact, pure profits go only to those entrepreneurs who succeed in creating economic values in excess of their costs. This they can normally do only if they are above average efficiency. Many economists now hold that in a non-expanding economy the profits of one entrepreneur tend to be offset by the losses of another, and that in such an economy no net "pure" profits exist. However that may be, neither profits nor production are ever automatic.

A Bundle of Errors But we must move on from ele mentary economics to Harring ton's numerous factual errors. He is concerned to show that "labor" is constantly producing more but not getting paid for it. Our productive system, he holds, expands "geometrically" but pays wages only in "arithmetic incre ments." If this were so, there would obviously be a progressive decline in the proportion of the "social dividend" going to labor. Then how explain that in 1971, according to official statistics, 70 per cent of total personal income came from wages, salaries, and other labor disbursements, but less than 3 per cent from divi dends? Or how it has happened that, in the five years, say, from 1965 to 1970, of tile money avail able for distribution between the employes and the shareowners of the country's corporations, the employes· received more than seven-eighths, and the share own ers less than one-eighth? Or that, if we count only the money that was actually paid out in dividends, the corporation employes in that period got 14 times as much as the stockholders?

Harrington keeps contending that wages haven't held their own against the rising cost of Iiving. The evidence against him is over whelming. A sample figure: In the 30-year period from 1939 to 1969 average actual weekly wages paid in manufacturing rose from $23.64 to $129.51 - an increase of 448 per cent .. Even when we ad just for the rise in living costs, real wages rose 108 per cent in that period. Misinterpretation of·Marx Harrington seems no more re liable concerning the writer Marx himself than concerning economic theory or fact. He has a tough time following Marx's obfusca tions, flounderings, tergiversa tions, and tactical zigs and zags.

152 THE FREEMAN March Though Marx repeatedly de manded the "dictatorship" of the proletariat, Harrington explains he really didn't mean it, but "used the word 'dictatorship' to describe democracy" (p. 54)! In an equal gem, on the next page, he assures us that Marx was "certainly rev olutionary, but also a. moderate"! As a revolutionary, when the word is used seriously, means one who demands forcible overthrow of the government by armed rebellion or civil war, with whatever shooting, bombing, or slaughter may be necessary, I personally find visual izing a "moderate" revolutionist somewhat difficult. But for Harrington words seem to have lost their dictionary mean ings. We find this when he comes to the key concept of "socialism" itself. He abhors any existing Socialist or Communist regime. From the horrifying facts that he cites about the history of social ism or communism in Russia, China, or Cuba, the "militarization of work," (229), the resemblance to a "barracks," (242), the slave camps, the crop failures, plummet ing industrial production, the deaths of millions of peasants by starvation, the espionage, suppres sion and assassinations, this book could stand as a damning indict ment of socialism or communism everywhere.

But Harrington does not come to that conclusion. None of these are the failures of socialism but of an "anti-Socialist 'socialism'." For real socialism, don't you see, must be "democratic," peaceful, harmonious, voluntary; and every body so far has taken the wrong route. Coercion Inevitable Harrington simply rufuses to recognize that socialism by its very nature must depend on co ercion and dictatorship to make it work. For where there is no pri vate property, no comparative profits or losses, no competitive prices or competitive wages, there is no guide as to who should turn out what, or how much of it. Everybody must be arbitrarily assigned to his job, as in an army, by orders originating from· the High Command at the top. One looks in vain for a clear definition of socialism in these pages. It does not mean, apparent ly, government ownership of the means of production, as we had all previously supposed, because that can lead to "anti-Socialist 'social ism'" and dictatorship. We are told that the "essence" of social ism is "democracy," but even if one believes the two to be compat ible, this is embarrassingly vague.

Harrington reveals his real pipe-dream on page 344. Here we come to "the vision of socialism 1973 THE PROS AND CONS OF SOCIALISM 153 itself" - a world in which "man's social productivity will reach such heights that compulsory work will no longer be necessary. And as more and more things are provided free, money, that universal equiv alent by means of which necessi ties are rationed, will disappear." It would be brutal to analyze this utopian dream realistically, and I refrain. What is amazing is how, with all his kno'wing allusions to scores of authors, Harrington has man aged to insulate himself so com pletely from any knowledge of real economics or of even the most famous refutations of Marxist socialism. Harrington's Most Glaring Omission: Mises and Others In all these pages you will not find a single reference to .Boehm Bawerk, to Pareto, to John Bates Clark, to Frank Knight to Wilhelm Roepke, to Murray Rothbard. You will, indeed (p. 296), find seven lines quoted out of context from F. A. Hayek, which represents the author of The Road to Serfdom as drawing "Socialist conclusions"

when he was in fact doing pre cisely the opposite. The treatment of the quotation alone shakes one's confidence in the dependability of every other citation or its inter pretation in the entire Harring ton book. But the most glaring omission is the name of Ludwig von Mises, whose SociaUsm: A n Economic and Sociological Analysis, first published in Germany in 1922, and available in an English trans lation in four editions from 1936 to 1969, is the most thorough and devastating analysis of socialism ever penned. The Mises book, as its title im plies, examines socialism from al most every possible aspect - its doctrine of violence as well as that of the collective ownership of the means of production; its ideal of equality; its relation to problems of sex and the family; its pro posed solution of the problem of production as well as of distribu tion; its probable operation under both static and dynamic condi tions; its national and interna tional consequences.

It considers particular forms of socialism and pseudo-socialism; the doctrine of the class war and the materialist conception of his tory; various Socialist criticisms of capitalistic tendencies or alleged tendencies; Socialistic ethics; and finally various forms of "gradual socialism" and "destructionism." It is amazing how many of his criticisms of 40 or 50 years ago anticipated the essentially destruc tionist proposals now made by Harrington. But this is because these "new proposals are merely 154 THE FREEMAN March repetitions or rehashes of what Socialists and other anticapital ists have been advocating over the decades. No open-minded reader can fail to be impressed by the closeness of Dr. Mises' reasoning, the rigor of his logic, the power and pene tration of his thought. The con tention most closely associated with his name is that full social ism is certain to fail because it is incapable by its very nature of solving the problem of economic calculation.

A· completely Socialist society would not know how to distribute its labor, capital, land and other factors of production to the best advantage. It would not know which commodities or services it was producing at a social profit and which at a social loss. It would not know what any worker, or what any factor, was actually con tribu ting to the production of economic values. Unable to determine any work er's productive contribution, the Socialist society would be unable to fix his reward proportionately or know how to maximize his in centives. The greatest difficulty to .the realization of socialism in Mises' view, in short, is intellectual. It is not a mere matter of goodwill, or of willingness to cooperate ener getically without personal reward. "Even angels, if they were en dowed only with human reason, could not form a Socialist com munity." Capitalism solves this problem of economic calculation through private ownership, and by money prices of both consum ers' and producers' goods which are fixed in the competition of the open market.

Ludwingvon Mises Mises' Social,ism is an economic classic written in our time. It is one of the author's three master pieces, of which the other two are The Theory of Money and Credit and Human Action. ~ HAVEN BRADFORD Gow FOR US to love our country, said Edmund Burke, our country must be lovely. If Burke meant that only a country which is lovely is loved by its people, then he was mistaken, for it is true that many Germans loved Nazi Germany. But if we understand Burke's remark to mean that for a country to be worthy of admiration, it must be lovely, then Burke certainly made a valid observation. But what causes a country to be lovely? The British statesman had a ready reply. The country that is lovely, wrote Burke, is per meated with the spirit of religion and the spirit of the gentleman both being essential to the survi val of any tolerable civil social order. The "spirit of religion" is a complicated te~m. But what I think Burke meant is a reverence for God and a corresponding acknowl edgement of an authority higher Mr. Gow of Fall River, Massachusetts, is a student majoring in philosophy and intellectual history.