Criticism of socialism

Distorted or absent price signals chart: political intervention in the creation of prices on a free market through supply and demand leads to a deviation from the equilibrium price, according to socialism's critics, causing a multitude of undesirable side effects. 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 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 (supply and demand) 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. 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 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, "[w]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 "[e]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 (relying solely on calculation in kind) 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". == Critique of public enterprise ==

Slow or stagnant technological advance , winner of the Nobel Memorial Prize in Economic Sciences in 1976, member of the Chicago school of economics and a well-known opponent of socialism Economist Milton Friedman argued that socialism, by which he meant state ownership over the means of production, impedes technological progress due to competition being stifled. He noted that "we need only look to the United States to see where socialism fails" by observing that the "most technologically backward areas are those where government owns the means of production". In The Principles of Political Economy (1848), John Stuart Mill wrote: Mill later altered his views and adopted a socialist perspective, adding chapters to his Principles of Political Economy in defense of a socialist outlook and defending some socialist causes. Within this revised work, he also made the radical proposal that the whole wage system be abolished in favour of a co-operative wage system. Nonetheless, some of his views on the idea of flat taxation remained, albeit in a slightly toned-down form. He did support some of the socialist principles such as the ones that promoted greater equality and would improve conditions for workers like cooperative ownership and profit-sharing agreements. He believed that worker cooperatives could coordinate incentives more fairly through "partnership... in one of two forms: in some cases, association of the labourers with the capitalist, in others, and perhaps finally in all, association of labourers among themselves" (Mill, Principles). However, he was still skeptical of the centralized socialist systems that condensed power in the state. He warned in On Liberty that "the worth of a State, in the long run, is the worth of the individuals composing it" (Mill, 1859), being scared of if the state took over everything, the individual initiative would die. He was also worried that if competition were to be eliminated entirely it could reduce efficiency and innovation, which for economic progress, are very important. Miller's position can be seen as a middle ground, incorporating the beneficial aspects of socialism while avoiding the potential cons. == Reduced prosperity ==

studies comparing communism and capitalism. Austrian school economist Hans-Hermann Hoppe argued that countries where the means of production are nationalized are not as prosperous as those where the means of production are under private control ("prosperous" is defined in terms of GDP). However, not all socialists subscribe to the idea of nationalization, some preferring socialisation instead. Another Austrian school economist, Ludwig von Mises, argued that aiming for more equal incomes through state intervention necessarily leads to a reduction in national income and therefore average income. Consequently, he says that the socialist chooses the objective of a more equal distribution of income on the assumption that the marginal utility of income to a poor person is greater than that to a rich person. According to Mises, this mandates a preference for a lower average income over inequality of income at a higher average income. He sees no rational justification for this preference, and he also states that there is little evidence that the objective of greater income equality is achieved. Mises also says: "The only certain fact about Russian affairs under the Soviet regime with regard to which all people agree is: that the standard of living of the Russian masses is much lower than that of the masses in the country which is universally considered as the paragon of capitalism, the United States of America. If we were to regard the Soviet regime as an experiment, we would have to say that the experiment has clearly demonstrated the superiority of capitalism and the inferiority of socialism". A 2025 study estimated that socialist experiments across the world reduced annual GDP growth by two percent points due to the lack of informative price mechanisms, dispersed knowledge, property rights and soft budget constraints == Social and political effects ==

, author of The Road to Serfdom In The Road to Serfdom, Friedrich Hayek argued that the more even distribution of wealth through the nationalization of the means of production cannot be achieved without a loss of political, economic, and human rights. He argued that to achieve control over means of production and distribution of wealth it is necessary for such socialists to acquire significant powers of coercion. Hayek argued that the road to socialism leads society to totalitarianism and argued that fascism and Nazism were the inevitable outcome of socialist trends in Italy and Germany during the preceding period. Thus, held Hayek, moving leftward from capitalism to socialism is actually moving rightward, from capitalism to fascism. These ideas are encapsulated in the "horseshoe theory". A similar argument has been made by critics such as Dinesh D'Souza, who hold that because the full German name of the German Nazi Party was Nationalsozialistische Deutsche Arbeiterpartei, and because "Nationalsozialistische" translates to "National Socialism," fascism is actually a type of socialism, and so many socialists are Nazis. Peter Self criticizes the traditional socialist planned economy and argues against pursuing "extreme equality" because he believes it requires "strong coercion" and does not allow for "reasonable recognition [for] different individual needs, tastes (for work or leisure) and talents". Self holds that while a socialist planned economy provides substantially greater freedom than is present in capitalism—under which the vast majority of people are coerced by the threat of starvation to work for the profit of a small capitalist class—adding markets to socialism improves freedom and efficiency. Accordingly, Self recommends market socialism instead of either capitalism or non-market socialism. Critics of socialism cite the Soviet Union and Venezuela as examples of countries where socialism has failed. == Claims of leadership corruption ==

Some critics of socialism see socialism as a type of political state organization instead of as a type of socioeconomic structure (as is traditional). These thinkers generally criticize what they term "socialist states" rather than "socialism." Milton Friedman argued that the absence of private economic activity would enable political leaders to grant themselves coercive powers, powers that, under a capitalist system, would instead be granted by a capitalist class, which Friedman found preferable. == Mass killings ==

Many commentators on the political right point to the mass killings under communist regimes, claiming them as an indictment of socialism. The Black Book of Communism has been one of the most elaborate and popular works to make this point. Defenders of socialism state that the mass killings under communist regimes were aberrations caused by specific authoritarian regimes and not caused by socialism itself. == See also ==