Criticism of socialism
Criticism of socialism is any critique of socialist economics and socialist models of organization and their feasibility, as well as the political and social implications of adopting such a system. Some critiques are not necessarily directed toward socialism as a system but rather toward the socialist movement, parties, or existing states. Some critics consider socialism to be a purely theoretical concept that should be criticized on theoretical grounds, such as in the economic calculation problem and the socialist calculation debate, while others hold that certain historical examples exist and that they can be criticized on practical grounds. Because there are many types of socialism, most critiques are focused on a specific type of socialism, that of the command economy and the experience of Soviet-type economies that may not apply to all forms of socialism. Different models of socialism conflict with each other over questions of property ownership, economic coordination and how socialism is to be achieved. Critics of specific models of socialism might be advocates of a different type of socialism.
According to the Austrian School economist Ludwig von Mises, an economic system that does not use money, financial calculation, and market pricing would be unable to effectively value capital goods and coordinate production, and therefore in his view socialism is impossible because it lacks the necessary information to perform economic calculation in the first place. Another central argument leveled against socialist systems based on economic planning is based on the use of dispersed knowledge. Socialism is unfeasible in this view because information cannot be aggregated by a central body and effectively used to formulate a plan for an entire economy, because doing so would result in distorted or absent price signals; this is known as the economic calculation problem. Other economists criticize models of socialism based on neoclassical economics for their reliance on the faulty and unrealistic assumptions of economic equilibrium and Pareto efficiency.
Some philosophers have criticized the aims of socialism, arguing that equality erodes away at individual diversities and that the establishment of an equal society would have to entail strong coercion. Many critics point to the mass killings under communist regimes as an indictment of socialism; some socialists respond that they were aberrations, point to mass deaths they argued were caused by capitalism and imperialism, and some say that they are not the socialist model they support. Economic liberals and right-libertarians view private ownership of the means of production and the market exchange as natural entities or moral rights which are central to their conceptions of freedom and liberty and view the economic dynamics of capitalism as immutable and absolute. As a result, they perceive public ownership of the means of production and economic planning as infringements upon liberty.
Critique of centralized planning
Distorted or absent price signals
The economic calculation problem is a criticism of central economic planning which exists in some forms of socialism. It was first proposed in 1854 by the Prussian economist Hermann Heinrich Gossen. It was subsequently expounded in 1902 by the Dutch economist Nicolaas Pierson, in 1920 by Ludwig von Mises and later by Friedrich Hayek. The problem referred to is that of how to distribute resources rationally in an economy. The free market relies on the price mechanism, wherein people individually have the ability to decide how resources should be distributed based on their willingness to give money for specific goods or services. The price conveys embedded information about the abundance of resources as well as their desirability which in turn allows—on the basis of individual consensual decisions—corrections that prevent shortages and surpluses. Mises and Hayek argued that this is the only possible solution and without the information provided by market prices socialism lacks a method to rationally allocate resources. Those who agree with this criticism argue it is a refutation of socialism and that it shows that a socialist planned economy could never work. The debate raged in the 1920s and 1930s and that specific period of the debate has come to be known by economic historians as "the Socialist Calculation Debate".Mises argued in a famous 1920 article "Economic Calculation in the Socialist Commonwealth" that the pricing systems in socialist economies were necessarily deficient because if government owned the means of production, then no prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not "objects of exchange", unlike final goods, therefore they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently. This led him to declare "that rational economic activity is impossible in a socialist commonwealth". Mises developed his critique of socialism more completely in his 1922 book Socialism, An Economic and Sociological Analysis.
Mises argued that a socialist system based upon a planned economy would not be able to allocate resources effectively due to the lack of price signals. Because the means of production would be controlled by a single entity, approximating prices for capital goods in a planned economy would be impossible. His argument was that socialism must fail economically because of the economic calculation problem—the impossibility of a socialist government being able to make the economic calculations required to organize a complex economy. Mises projected that without a market economy there would be no functional price system which he held essential for achieving rational and efficient allocation of capital goods to their most productive uses. According to Mises, socialism would fail as demand cannot be known without prices. These arguments were elaborated by subsequent Austrian economists such as Hayek and students such as Hans Sennholz. In 1977, Hayek argued that "prices are an instrument of communication and guidance which embody more information than we directly have" and "the whole idea that you can bring about the same order based on the division of labor by simple direction falls to the ground.... f you need prices, including the prices of labor, to direct people to go where they are needed, you cannot have another distribution except the one from the market principle".
Hungarian economist János Kornai has written that "the attempt to realize market socialism... produces an incoherent system, in which there are elements that repel each other: the dominance of public ownership and the operation of the market are not compatible".
Proponents of laissez-faire capitalism argue that although private monopolies do not have any actual competition, there are many potential competitors watching them and if they were delivering inadequate service, or charging an excessive amount for a good or service, investors would start a competing enterprise. The anarcho-capitalist economist Hans-Hermann Hoppe argues that in the absence of prices for the means of production, there is no cost-accounting which would direct labor and resources to the most valuable uses. According to Tibor Machan, "ithout a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals".
According to economist Milton Friedman: "The loss part is just as important as the profit part. What distinguishes the private system from a government socialist system is the loss part. If an entrepreneur's project doesn't work, he closes it down. If it had been a government project, it would have been expanded, because there is not the discipline of the profit and loss element".
Proponents of chaos theory argue that it is impossible to make accurate long-term predictions for highly complex systems such as an economy.
Pierre-Joseph Proudhon raises similar calculational issues in his General Idea of the Revolution in the 19th Century, but he also proposes certain voluntary arrangements which would also require economic calculation. Leon Trotsky, a fierce proponent of decentralized economic planning, argued that centralized economic planning would be "insoluble without the daily experience of millions, without their critical review of their own collective experience, without their expression of their needs and demands and could not be carried out within the confines of the official sanctums" and "ven if the Politburo consisted of seven universal geniuses, of seven Marxes, or seven Lenins, it will still be unable, all on its own, with all its creative imagination, to assert command over the economy of 170 million people". In contrast to the lack of a marketplace, market socialism can be viewed as an alternative to the traditional socialist model. Theoretically, the fundamental difference between a traditional socialist economy and a market socialist economy is the existence of a market for the means of production and capital goods. Socialist market abolitionists reply that while advocates of capitalism and the Austrian School in particular recognize equilibrium prices do not exist, they nonetheless claim that these prices can be used as a rational basis when this is not the case, hence markets are not efficient. According to market abolitionists socialists, decentralized planning allows for a spontaneously self-regulating system of stock control to come about and that in turn decisively overcomes the objections raised by the economic calculation argument that any large scale economy must necessarily resort to a system of market prices.
Suppression of economic democracy and self-management
Central planning is also criticized by elements of the radical left. Libertarian socialist economist Robin Hahnel notes that even if central planning overcame its inherent inhibitions of incentives and innovation, it would nevertheless be unable to maximize economic democracy and self-management, which he believes are concepts that are more intellectually coherent, consistent and just than mainstream notions of economic freedom.As Hahnel explains: "Combined with a more democratic political system, and redone to closer approximate a best-case version, centrally planned economies no doubt would have performed better. But they could never have delivered economic self-management, they would always have been slow to innovate as apathy and frustration took their inevitable toll, and they would always have been susceptible to growing inequities and inefficiencies as the effects of differential economic power grew. Under central planning neither planners, managers, nor workers had incentives to promote the social economic interest. Nor did impending markets for final goods to the planning system enfranchise consumers in meaningful ways. But central planning would have been incompatible with economic democracy even if it had overcome its information and incentive liabilities. And the truth is that it survived as long as it did only because it was propped up by unprecedented totalitarian political power".