Common Sense with Paul Jacob

If the economists marvel that demonstrations based on impeccable evidence have absolutely no influence over those who hear and understand them, we have only to refer them to the history of all dogmas, and to the study of the psychology of crowds. We have not triumphed over a doctrine when we have shown its chimerical nature. We do not attack dreams with argument; nothing but recurring experience can show that they are dreams. In order to comprehend the present force of Socialism it must be considered above all as a belief, and we then discover it to be founded on a very secure psychologic basis. It matters very little to its immediate success that it may be contrary to social and economic necessities. The history of all beliefs, and especially of religious beliefs, sufficiently proves that their success has most often been entirely independent of the proportion of truth that they might contain.

Gustave Le Bon, Psychologie du Socialisme (1896), translated as The Psychology of Socialism (1899).

A man who believes he is beaten is already more than half conquered.

Francis Marion Crawford, Mr. Isaacs (1882), Chapter VIII.

It turns out, of course, that Mises was right. The Soviet system has long been dogged by a method of pricing that produced grotesque misallocations of effort. The difficulties were not so visible in the early days of Soviet industrialization or in the post-Second World War reconstruction period. The dams and mills and entire new cities of the nineteen-thirties astonished the world, as did the Chinese Great Leap Forward of the nineteen-fifties, which performed similar miracles from a still lower base. But those undertakings, like the building of the Pyramids or the Great Wall, depended less on economic coordination than on the political capacity for marshalling vast labor forces. Inefficiency set in when projects had to be joined into a complex whole — a process that required knowing how much things should cost. Then, as Mises foresaw, setting prices became a hopeless problem, because the economy never stood still long enough for anyone to decide anything correctly. 

Robert Heilbroner admitting, seven decades after Ludwig von Mises published “Economic Calculation in the Socialist Commonwealth” (1920), that central planning boards could not order goods by value, since there existed no private property and capital markets with which to do the task; in “After Communism,” The New Yorker (September 3, 1990). Heilbroner was a life-long socialist and author of the popular history of economics, The Worldly Philosophers (1953).

Without economic calculation there can be no economy. Hence, in a socialist state wherein the pursuit of economic calculation is impossible, there can be — in our sense of the term — no economy whatsoever. In trivial and secondary matters rational conduct might still be possible, but in general it would be impossible to speak of rational production any more. There would be no means of determining what was rational, and hence it is obvious that production could never be directed by economic considerations. 

Ludwig von Mises, “Die Wirtschaftsrechnung im sozialistischen Gemeinwesen,” Archiv für Sozialwissenschaft und Sozialpolitik, volume 47, issue 1, pp. 86–121, translated into English by S. Adler as “Economic Calculation in the Socialist Commonwealth,” for F.A. Hayek, editor, Collectivist Economic Planning (1935).