Middle-of-the-Road Policy Leads to Socialism

Mises vs. Mises: The Death of Socialism

by Gary North

The most influential thing that Ludwig von Mises (1881-1973) ever wrote was a brief article in 1920 on socialist economic calculation.

He argued that socialist central planning is impossible, because without a system of free markets, nobody knows what anything costs, and therefore nobody knows what anything is worth.

That argument convinced a whole generation of young men to abandon socialism. F. A. Hayek was one of them. Wilhelm Roepke was another. There were dozens of them, and for a time they became pioneers of Austrian school economics. But, one by one, they abandoned the position. There were various reasons, but none of the recruits of the early 1920s remained a supporter by 1950. Hayek stuck with more of it than most of them did and so did Roepke. They ceased to be Austrian school economists.

In 1950, Mises gave a lecture, and that lecture became an article. The article was widely read in Misesean in circles, which were outside of academia. It was a great article. It had a great title. In fact, it probably was best title he ever came up with. It was even a great marketing title. Here was the title: “Middle-of-the-Road Policy Leads to Socialism.”

The article was published in a collection of articles written by Mises and collected by Mises: Planning for Freedom. It was published in 1952. It was the most effective book Mises ever wrote in terms of getting his ideas across to laymen. The lectures were easy to understand, and the book sold pretty well. I am not saying it was his greatest book, but I think it is probably the best book for somebody with no training in economics to be introduced to Austrian school economics. The Mises Institute makes available both the book and the article.

Let me summarize it for you. Mises argued that state intervention distorts the free market economy. These distortions lead to public complaints by voters that the economy is not working properly. The voters pressure the government to fix it, so the government passes another law. Law by law, distortion by distortion, the economy gets worse. The society does not start out on a path to socialism, but the interventions of the market expand the state’s power, so the result is ultimately the establishment of a socialist economy. He wrote: “The middle-of-the-road policy is not an economic system that can last. It is a method for the realization of socialism by installments.”

In the last section, he denied that socialism is inevitable. But his article offered only evidence to the contrary. He lamented:

Even in this country which owes to a century of “rugged individualism” the highest standard of living ever attained by any nation, public opinion condemns laissez-faire. In the last fifty years thousands of books have been published to indict capitalism and to advocate radical interventionism, the welfare state and socialism. The few books which tried to explain adequately the working of the free market economy were hardly noticed by the public.

He ended the essay with this:

The impact of this state of affairs is that practically very little is done to preserve the system of private enterprise. There are only middle-of-the-roaders who think they have been successful when they have delayed for some time an especially ruinous measure. They are always in retreat. They put up today with measures which only ten or twenty years ago they would have considered as undiscussable. They will in a few years acquiesce in other measures which they today consider as simply out of the question. What can prevent the coming of totalitarian socialism is only a thorough change in ideologies. What we need is neither anti-socialism nor anti-communism but an open positive endorsement of that system to which we owe all the wealth that distinguishes our age from the comparatively straitened conditions of ages gone by.

In a related development, another economist from Austria, although not an Austrian school economist, Harvard professor Joseph Schumpeter, delivered a speech in late 1949 titled “The March into Socialism.” It was not the same thesis that Mises argued, but its conclusion was much the same. It was much more pessimistic than Mises’s speech, and Mises’s speech was very pessimistic. In early January, Schumpeter was revising the speech. He died at his desk. He planned to complete it the next day for publication. Fortunately, it was in good shape, and it was published as the final chapter in the third edition (1950) of his 1942 book, Capitalism, Socialism and Democracy.

What was wrong with all this? This: it ignored Mises’s original article. Mises showed in 1920 that all socialist economic planning is irrational. It cannot come to fruition. It must break down. That should have been the most optimistic single call to intellectual arms of the 20th century. It did convince a lot of young men, including Hayek, that socialism could not work.

MISES WAS RIGHT

In the late 1980s, the Soviet Union’s economy finally disintegrated. Beginning in July of 1989, coal miners would no longer deliver coal, and that ended the whole experiment in 1991. Yet almost to the very end, nobody saw this coming. I mean nobody. The best that anyone did was Judy Shelton, but her book was late: 1989.

The whole thing came down in a period of about five years. The symbol of it was the tearing down of the Berlin Wall in 1989. Yet in 1985, when Gorbachev came into power, virtually nobody believed that anything like this could happen. It came on the whole world unexpectedly. Why? Because the world categorically refused to believe that Mises’s 1920 article was correct.

Finally, in September 1990, socialist and multi-millionaire economist Robert Heilbroner wrote an article for the New Yorker titled “After Communism.” In that article, he admitted that Mises had been right all along in 1920, and that the entire economics profession, which had either dismissed or ignored that article, had been wrong. He said it in three words: “Mises was right.” That admission, of course, never got picked up by the profession. But it was an accurate comment. Yet Heilbroner had never even mentioned Mises in the textbook that made him rich: The Worldly Philosophers. The 60-year blackout had been in force, and he was part of it.

Here was a situation in which Mises had the correct analysis in 1920 on why the whole experiment could not possibly survive. He had the answer to the speech he gave in 1950. It was sitting in front of his nose. Nobody in the world was better equipped to show why the middle-of-the-road policy cannot possibly lead to socialism, because socialism is like the far side of a trestle, and the trestle is built on rotten wood. There was no way for the train to get across the trestle to socialism without collapsing the trestle.

This is exactly what happened. Communism never came to fruition, because the Communist planners behind the Iron Curtain were never able to make the planning system work long enough to bring in the Communist paradise.

Socialism did not collapse in the Soviet Union because of ideas. It collapsed because thousands of coal miners refused to deliver the coal. The miners simply stopped producing. They said that was what they were going to do, and they said it was going to bring down the economy, and they did it. We forget that. Even today, there is almost no mention of the miners’ strike as the cause of the collapse. But that was the trigger that did it. Other workers then began strikes. It spread. Of course, the whole system was coming apart, for all reasons Mises said it would come apart.

Here was a situation in which inside of Mises’s head was a solution to thesis, antithesis, and synthesis. Only there was no synthesis; the socialist planning systems simply collapsed. Communist leaders looted the Communist Party’s treasury, sent money to their bank accounts in Switzerland, sold state enterprises to themselves and cronies, and today we have the result: Putin. It is not Communism. It is not capitalism. It is Putinism.

In any case, those of us who took both essays seriously never sat down in a systematic way and said that Mises’s essay in 1920 would overcome Mises’s lecture in 1950. Mises never did. Hayek never did. Rothbard never did. Nobody did. Yet that was what happened.

CONCLUSION

Sometimes the answer to a problem is right under our noses. George Orwell put it best in 1946: “To see what is in front of one’s nose needs a constant struggle.”