But after nearly nine decades this model faces collapse, much like the Soviet collapse after sixty-seven years. This article explores the modern socialist model, updates the economic calculation problem identified by von Mises in 1920 and explains why it still fails in today’s socialism. And finally we predict the consequences for governments and their state-issued currencies.

Introduction

It is presidential election year in the United States. The choice is between the Republican’s or the Democrat’s socialism, the former being a milder version of the latter. A further difference is President Trump’s administration increasingly pays the government’s bills by socialising money, while great-uncle Joe wants to tax the rich even more (which in practice means not the rich but the middle and lower classes) as well as defoliating  the magic money tree.

In Britain, those of us who rejoiced at a free marketeer becoming Prime Minister with a strong electoral mandate have experienced a greater clampdown on personal freedom than imposed by any British government since post-war rationing. Admittedly, Covid-19 and its lockdowns were not foreseen, but will the British ever regain any of their hitherto restricted freedoms? And those of us with long memories are reflecting that the imposition of taxes — the socialising of our earnings — under the Conservatives is almost always more onerous than under Labour. It was not meant to be like that.

One way or the other, the establishment’s socialisation of our wealth, money and freedom “creeps in this petty pace day to day until the last syllable of recorded time”. Whether we like it or not, we are all socialists now. It is a fact of our lives, if not our inclinations. The destruction of our money and what wealth we have left is claimed to be for the common good, as opposed to capitalism, which the socialists tell us enriches the few and is deeply immoral. They, the socialists, have captured the moral high ground, leading us to their higher plain. They allege it is progress towards a better humanity. Their utopian view sees the end of social inequality as its final goal, and as Man progresses towards it the human race will discard capitalism and the class wars that go with it.

No longer should we define socialism by its post-Marxian objective, the acquisition by the state of the means of production and the ending of property ownership. The failure of the organising state to produce goods demanded by the consumer was fully exposed by the collapse of the USSR and the ending of the Chinese state’s monopoly on production. But that has not stopped socialism, which has simply evolved into a new form dominated by the social democratic model. The title is itself a contradiction. Social is laudable and democratic is inclusive but put them together and the state has been handed power over its electors by its electors.

The social democratic philosophy begs some fundamental questions. If it is a better system than the alleged evils of capitalism, why does social cooperation not evolve towards it at the behest of ordinary people without the need for an organising government? Why are leaders required to coerce, organise and force people to part with their income and wealth for their own common good? Who benefits?

Those who are said to benefit are the sick and the poor through the redistribution of wealth. But the evidence is overwhelming that a state bureaucracy is not better at this humane function than independent charities. The socialist’s rebuttal is that no one should have to rely on charity, to which those who value their freedom are normally too dull-witted to respond by asking, why not, when the alternative is state coercion backed by imprisonment?

Claims of morality are a thin cover, a disguise for wealth transfer from ordinary people to the state. The state is now an organisation that leeches on its electors in order to pursue its own separate agenda. We must therefore put claims of morality to one side if we are to understand the damage socialism has done to ordinary people and their economic progress. No longer ambitious for the acquisition of the means of production, modern socialism has evolved into a fascist form, a fact which when pointed out to social democrats leads to instant denial and horror, because in their language it is right wing and extreme, wrongly associated with free market capitalism.

Being fascists without knowing it

The accusation that social democratic planning is fascism is easily proved. Some claim fascism’s origins were in the nineteenth century, when European philosophers expressed ideas which were only later described as fascist. But the fascist movement proper started in Italy, when Benito Mussolini, then an avowed Marxist, was the most forceful Italian proponent of the Marxian paradise to come.

In 1914 on the declaration of the Great War Italian communists declared it to be a fight between imperialists and exploiters of the proletariat. In their view, the proletariat should stand aside and not be exploited by either side, waiting for the inevitable civil war which would pave the way to the destruction of capitalism, giving power to the workers.

Having initially taken the Italian communist position of abstaining from war, Mussolini then aligned himself with the nationalists against the imperialist Austrians. It was an opportunist move and a grab for support from the communist rank and file. Following the First World War, the Italian communist party movement faltered, and Mussolini with his new fascist party stepped into the void. Members left the communists and joined Mussolini’s fascists in droves, because there was little discernible difference between Mussolini’s socialism and that of the Italian Marxists. His 1919 manifesto was anti-capitalist and posed as socialism with renewed vigour. From there, it evolved into advocating aggressive interventionism, and then towards Nazism which was developing in parallel. The Nazi economic creed was simple: capitalists can own the means of production so long as they obey the commands of the state. In other words, business was directed and regulated instead of owned by the state.

It neatly describes the socialism of today. Socialists no longer deem it necessary for the state to own the means of production, it merely controls it by regulation, directing it by selective subsidies and taxes. It also exposes the intellectual ignorance of the useful idiots who blindly follow slogans.

The loss of the means of economic calculation

We have established that the objectives of today’s social democrats are little different in principal from those of the fascists in the interwar years. But this modifies our analysis from that of Ludwig von Mises in 1920, who wrote an important essay titled “Economic Calculation in the Socialist Commonwealth”[i], which sparked what became known as the socialist calculation debate. Mises demonstrated why public ownership of the means of production was bound to fail. Central to his argument was the state’s inability to make the calculations necessary to allocate the means of production, a function which can only be attempted successfully by independent entrepreneurs putting their own resources on the line.

Today’s institutional socialism is now fascist instead of being on the Marxist lines which were debated between Mises and socialist economists a century ago. The failure of Marxist socialism was for the reasons Mises predicted. It must still apply today to that portion of a socialist economy that relates to government spending which is not redistributed in the form of welfare payments or put out to private sector contracts by means of competitive tender. What then remains of government expenditure will lack the basis of economic calculation, which cannot be performed. But welfare distributions and government contracts raise a separate issue, the distortion of an economy by state-directed spending into spending that would not otherwise occur, and the wasteful use of all forms of capital which would otherwise be deployed more efficiently by private enterprise.

Economic activities that remain under free market principles, whereby entrepreneurs seek to profit by anticipating the needs and wants of consumers successfully, are now heavily regulated and restricted. State bureaucrats effectively control the forms and characteristics of goods and services offered by producers. They claim to protect the consumer from unscrupulous capitalist profiteers. Sometimes, regulations imposed by the state succeed in this objective, but it is wrong to argue that free markets would not have matched or even provided higher standards of product than those framed by the state’s regulatory regime, because it is manifestly in every producers’ interest to produce the best product for the market, unless, that is, the state regulator protects the producer from competition. This is too often the case.

Why bureaucracy fails and free markets succeed