Why Communism Failed; B. B. Greaves

107 Why Communism Failed by Bettina Bien Greaves Editors'note:Thisarticle,writtenfor FEE'sop ed program,has been carriedby newspapersin Alabama, Arkansas, California,Indiana, Mis souri" New Jersey, New York, Pennsylvania, and, in Spanish-languagetranslation,in New Mexico,New York, Mexico,andthe Dominican Republic. T hree years after the Russian Revolution, an Austrian economist, Ludwig von Mises, argued that Communism would fail and explained why. Communism, or socialism,couldn't succeed, Mises wrote in 1920,because it had abol ished free markets so that officials had no market prices to guide them in planning production. Mises was relatively unknown when he made his contro versial forecast, but he acquired some internation al renown later as the leading spokesman of the Austrian (free market) school of economics. Since his death in 1973, his theories have gained new adherents, some now even in Eastern Europe.

The Soviet Union was launched with high hopes. Planning was to be done by a central com mittee, insuring plenty for everyone. The state was to wither away. But things didn't work out that way.The Soviet state soon became one of the most oppressive in the world. Millions of Russians starved in the 1920sand 1930s. As Mises pointed out, the raw materials, labor, tools, and machines used in socialist production Mrs. Greaves is a member ofthe senior staff of The Foun dation for Economic Education. From 1951 to 1969 she was a regular participant in Ludwig von Mises' graduate seminar in economic theory at New York University. are outside the market. They are owned by gov ernment and controlled by government planners. Noone can buy or sell them. No market prices can develop for them because they aren't ex changeable. Modern production is time-consuming and complicated. Producers must consider alternatives when deciding what to produce. And they must consider various means of production when decid ing how to produce. Raw materials, tools, and machines must be devoted to the most urgent pro jects and not wasted on lessurgent ones.

Consider, for instance, the planning of a new railroad. Should it be built at all? If so, where? And how? Is building the railroad more urgent than constructing a bridge, building a dam to pro duce electricity,developing oil fields,or cultivating more land? No central planner, even with a staff of statisticians, could master the countless possibili ties. Machines might be substituted to some extent for labor; wood, aluminum, or new synthetic mate rials might be substituted for iron. But how willthe planners decide? To make these decisions, planners must know the relative values-the exchange ratios or market pricesof the countless factors of production involved. But when these factors are government owned, there are no trades, and thus, no market prices. Without market prices, the planners have no clues as to the relative values of iron, aluminum, lumber, the new synthetics, or of railroads, oil fields,farm land, power plants, bridges, or housing.

Without market prices for the factors of produc tion, the planners are at a loss as to how to coordi108 THE FREEMAN • MARCH 1991 nate and channel production to satisfythe most urgent needsof consumers. More than 70 years have passedsince the Rus sian Revolution and 45 years since the end of WorldWarII.Whythen do the Russianpeoplestill lack adequate housingand many everydayitems? Why does agriculturalproducerot in the fieldsfor lackofequipmentto harvestandtransportit? Why are factories and oil fields so poorly maintained that productiondeclines?Becausethe raw materi als, tools, machines,factories, and farms are not privatelyowned.Withoutthe bidsandoffersofpri vate owners,pricesreflectingtheir relativemarket valuescannotdevelop.And withoutmarketprices, it is impossibleto coordinateproductionactivities so that the goodsand servicesconsumersneedwill be available.That is why Communismfails.

In a competitiveeconomy,wherefactorsofproduction are privatelyowned, these problems are solveddailyas ownerscalculatethe monetaryval ues of the various factors and then buy, sell, and trade them as seemsdesirable.As Miseswrote in 1920,"Everystep that·takes us awayfrom private ownershipof the means of production and from the use of moneyalsotakes us awayfrom rational economics." Today,even Communistsare comingto recog nizethat Miseswas right.The U.S.S.R.,a socialist society without private property and monetary calculation, is still "floundering in the ocean of possible and conceivable economic combina tions," as Mises foresaw in 1920, "without the compassof economiccalculation."Will she now take the important step Mises recommended of introducing private ownership of the means of production? D BASIC COMMUNISM Its Rise, Spread and Debacle in the 20th Century by Clarence B. Carson BasicCommunismis the first major attempt to capture the Communist movement whole and place it in historical perspective. It is a book for reading, for reference, and for grasping what has happened to and is happening to our world in the 20th century.

570pages in length, BasicCommunismfeatures: • Author's Preface • Chronology of major events in Communism from the late 18th century to the present • Biographical sketches of major characters • Notes for all citations • Glossary • Bibliography • Index Published by The American Textbook Committee, and available from FEE. Mail, phone,or FAX your orderto: The Foundationfor EconomicEducation 30 SouthBroadway Irvington-on-Hudson,NewYork 10533 (914)591-7230 FAX: (914)591-8910 $29.95cloth 109 Foreign Investment Helps Americans by Cecil E. Bohanon and T. Norman Van Cott A mericans' fear of foreigners owning U.S. based economic wealth has taken on epi . demic proportions. Never mind that past periods of rapid U ~S. economic growth have been accompanied by foreign investors' active partici pation in the economy, the fear that "they" will own "us" is now endemic to the U.S. economic cul ture. Not surprisingly, political and media entrepreneurs have trotted out various proposals for government to restrict foreigners' access to "our" wealth.