No, Socialism Does Not "Sound Good In Theory"
Politics and Activism

No, Socialism Does Not "Sound Good In Theory"

The Myth Needs To Stop

2364
ChronoZoom

Have you ever heard the phrase, “socialism sounds good in theory, but it fails in practice?” As any in depth reading of the 20th century will show, the latter charge is evidently true. However, socialism, and centralized economies in general, also have a fundamental theoretical issue that many of its proponents fail to take seriously.

Have you ever considered how we determine the price of everything we buy? I feel comfortable assuming that you haven’t, and in full disclosure I hadn’t either until very recently. But it's a question that warrants some deliberation. Let’s explore:

Firstly, the price of one thing kind of depends on the price of everything else. For example, the price of a laptop depends on the price of each of the components that go into it; and the prices of those components are dependent on the price of the labor that goes into mining and collecting the resources those parts are made of; and the price of that labor depends on a near infinite number of factors, all of which must be evaluated on a case-by-case basis that takes into consideration differences in people talents, abilities, and interests. Further, one must also consider more subtle factors such as climate, geography, culture, and politics, all of which indirectly affect something’s price. And I won’t even begin to talk about the risks that entrepreneurs take when pursuing business ventures, because trying to assign a monetary value to risk is impossible irrespective of the special circumstances of a particular situation.

Not only must a supplier calculate the costs incurred and risks associated with bringing a final product to market, but he must also negotiate with consumers – because entrepreneurs will only turn a profit if their product sells; and in order for it to sell customers must be willing to pay the cost; and for that to happen consumers must believe that the benefits they receive will outweigh the costs incurred from purchasing it.

So how exactly do we account for all of those relevant factors and come to an agreement on what something is worth? Doing so for one product appears hard enough, but just imagine trying to do that for every single good and service that gets exchanged. Then imagine trying to do that every single day – because prices of capital products change on a day-to-day basis.

This is called combinatorial explosion, and it’s a fundamental problem with computing. When trying to determine something’s worth, the number of combinations that one has to examine grows exponentially, so fast that even the most powerful computers we have will require an intolerable amount of time to examine them. Exacerbating the problem of combinatorial explosion is the fact that what constitutes value itself is highly subjective. Perhaps you’d be willing to pay more for a hybrid than a pickup truck if you have a job that requires you to commute; and perhaps the opposite would be true if you own a landscaping company. Regardless of what example we use, its obvious that some people value some things more and some things less, and thus you can’t assign definitive monetary value to a product without regard to individuals tastes and preferences – in other words, you need feedback.

Although price calculation is an irreducibly complex problem, it’s one that needs to be solved – and from a purely theoretical standpoint, it’s one that socialism fails to address. Ludwig von Misses elaborated on this idea in his work Economic Calculation in the Socialist Commonwealth. His critique of socialism, popularly known as the Impossibility Thesis, goes as follows:

The very definition of Socialism is that all the means of production belong to the government. Spin it any way you want to, that they belong to everybody, or to nobody, or to the government, but the important point is that there is no buying and selling of means of production. Nobody can buy or sell steel or coal or a factory, because it is illegal for anyone to own them. That would be Capitalism, if a private person owned any means of production whatsoever and could do with it as he pleased.

So, socialism abolishes private property of capital goods and natural resources. Since the socialist State is sole owner of the material factors of production, they can no longer be exchanged. Without exchange there can be no feedback and hence no market prices. Without market prices, the State cannot calculate the cost of production for the goods it produces. In the absence of economic calculation of profit and loss, socialist planners cannot know the most valuable uses of scarce resources – thereby making the socialist economy, from a theoretical perspective, strictly impossible.

So how have we solved this problem? Obviously there is some phenomenon that works as a price calculator otherwise we wouldn’t have prices.

Well, herein lies the genius of market systems: they provide a distributive computational solution to the problem of overwhelming combinatorial complexity. Because no single person can account for all of the relevant factors that affect prices, the only solution is to leave people free to figure it out on their own. Here is a more technical analysis of how this works:

All people make monetary bids for goods according to their subjective valuations, leading to the emergence of objective monetary exchange ratios, which relate the values of all consumer goods to one another. Entrepreneurs seeking to maximize monetary profit bid against one another to acquire the services of the productive factors currently available and owned by these same consumers.

In this competitive process, each and every type of productive service is objectively appraised in monetary terms according to its ultimate contribution to the production of consumer goods. There thus comes into being the market’s monetary price structure, a genuinely “social” phenomenon in which every unit of exchangeable goods and services is assigned a socially significant cardinal number and which has its roots in the minds of every single member of society yet must forever transcend the contribution of the individual human mind.

So, rather than being set by an arbitrary authority from the top-down, contrary to what advocates of socialism might argue, prices actually emerge out of a collective process of people making individual value judgments and price appraisals from the bottom-up – and in effect, markets act as a de-facto price calculator by facilitating exchanges of goods and services between individuals.

Now I would be remiss if I didn’t admit that markets have issues, and of course our free enterprise system doesn't always live up to our highest expectations. However, when examining issues of the economic variety, one must always stay grounded in reality. Obviously if you use some hypothetical utopia or dreamland that has never existed as the basis for comparison our society will certainly fall short; but when compared to other societies, historical and present, we stack up among the best in the world.

Further, so long as we grant people the liberty to make their own choices, inequities will always exist; and as a consequence there will always be some people who are less well off than we would like. This doesn't mean we should do nothing to help those people who fall through the cracks, and it doesn't mean that all socialists are cranks. What it does mean, however, is that we shouldn’t strive for perfection in the form of a socialist utopia – because once you understand that the world is incomprehensibly complex, that humans are imperfect and imperfect creatures cannot produce something perfect, you come to understand what an absolute miracle it is that our society functions as well as it does.

Report this Content
This article has not been reviewed by Odyssey HQ and solely reflects the ideas and opinions of the creator.
Politics and Activism

I Asked 22 People 4 Questions About George Floyd, And It's Clear Black Lives NEED To Matter More

Change can't happen tomorrow, because we're already 100 years behind today.

Taylar Banks

May 25, 2020: the day that will forever be remembered as the day George Floyd lost his life at the hands of cops.

The day that systematic racism again reared its head at full force in 2020.

Keep Reading... Show less

The worlds of beauty and fashion often collide, whether for good or bad. In both, underrepresentation has always been, and remains to be, a major unresolved issue. After the recent killing of George Floyd, many people are rightfully enraged, compounded by the fact his death in police custody wasn't an isolated incident.

Police brutality against Black people is not new, and isn't going away till we start dedicating resources to fighting it. Many of us, as individuals, have only begun in the last week scratching the surface of what it means to educate ourselves on race, historical race relations, and how to be an ally to the Black community.

Keep Reading... Show less
Health and Wellness

Feel A Lil' Better: Because You Can Still Connect While Disconnecting From Social Media

Your weekly wellness boost from Odyssey.

No matter how good (or bad) you'd describe your health, one thing is for sure: a little boost is ALWAYS a good idea. Whether that's reading a new, motivating book, or listening to a song that speaks to your soul, there are plenty of resources to help your health thrive on any given day.

I don't know if you've heard, but there's a lot going on right now, particularly in relation to George Floyd's death, Black Lives Matter, and public protest of racial injustice in the United States. While we can all agree that this deserves conversations, change, and actionable good, social media arguments with Great Aunt Linda are not where social change begins and ends. Spending too much time scrolling through your phone has never been healthy, but now it's even more addicting — what does that one person from my hometown say about this? How can I further education within discussions? Am I posting enough?

Keep Reading... Show less

I don't know about you, but reading is at the top of my to-do list this summer... especially with all the social distancing I'll still be doing. If, like me, you're hoping to pick up a romantic page-turner (or a couple dozen), here are 23 romance novels by Black authors you'll absolutely LOVE reading.

Keep Reading... Show less
Politics and Activism

12 Ways To Help The #BlackLivesMatter Movement If You CAN'T Protest

We can all do better. Join the fight against racial injustice.

The current state of the world has created the perfect storm for change in America. But with change there is always risk. Although protests have sprung up all across America, COVID-19 is still a very real risk. Luckily, you can help bring about change from the comfort of your own home. And no, I don't mean just by posting a black square on social media.

Keep Reading... Show less
Lifestyle

22 Black-Owned Etsy Shops With The Perfect Gifts For Everyone In Your Life — Including You

Treat yourself and your loved ones while supporting Black creatives and artisans.

R-KI-TEKT, Pontie Wax, Lovely Earthlings, and blade + bloom on Etsy

The world is taking action against the injustices and under-representation plaguing Black lives, and one small but impactful thing you can do to actively make a difference is support Black-owned businesses.

Etsy is likely one of your go-to sites for gift-buying, but have you ever paid attention to which independent artists and sellers you're buying from?

Keep Reading... Show less
Health and Wellness

True Self-Care Is HARD, That Face Mask Isn't Actually Going To Solve Your Problems

There's a line between self-care and self-destruction.

Anyone who hasn't been living under a rock for the past few years has seen something somewhere about self-care whether it was on Facebook, Twitter, or their Instagram feed. Oftentimes it's pictures of celebrities or influencers sipping green smoothies or slathering on mud masks with #selfcare. It's posts like these that made me realize that "self-care" has become the ultimate buzz word, soaring in popularity but in the process, it's lost most of its original meaning. It's time to set the record straight and reclaim the term.

Although self-care has been around for quite some time, within the past few years it's been misconstrued and commodified as our capitalist society tends to do with things it thinks can be profited off. Self-care is now being peddled as something that can be bought and sold on the shelf at Target rather than something that takes real work to achieve. This fake self-care movement is not only enabling people to over-indulge themselves, but it has created a crutch for people to avoid the responsibility of taking true care of themselves. Instead of doing the work that needs to be done, many people fall into the trap of rewarding themselves for doing nothing at all — this can quickly become an unhealthy coping mechanism, especially with corporations cheering us on (to buy their next product). Long, hard day at work? Just grab your third iced coffee of the day! Fight with your SO? Buy that 50-dollar face mask, it'll make you feel better! This is how self-care becomes self-sabotage and self-destructive.

Keep Reading... Show less

Minorities are consistently under-represented in our day-to-day lives, notably in the world of fashion. It's likely you're looking for a way to support black artists. Whether that's the case or you're just a fashion-lover in general, these brands aren't just some of the best black-owned fashion brands — they're some of the most innovative brands of our time, period.

From luxury staples to fun accessories and loungewear, these brands aren't just stunning names you should definitely be following on Instagram, each honors the founder's roots in unique ways with the power of storytelling through artistic expression that manifests in pieces we can't wait to wear.

Keep Reading... Show less
Facebook Comments