Criticisms of socialism

Criticisms of socialism
GDP PPP Per Capita IMF 2008.svg
General categories
Microeconomics · Macroeconomics
History of economic thought
Methodology · Mainstream & heterodox
Technical methods
Mathematical economics
Game theory  · Optimization
Computational · Econometrics
Experimental · National accounting
Fields and subfields

Behavioral · Cultural · Evolutionary
Growth · Development · History
International · Economic systems
Monetary and Financial economics
Public and Welfare economics
Health · Education · Welfare
Population · Labour · Managerial
Business · Information
Industrial organization · Law
Agricultural · Natural resource
Environmental · Ecological
Urban · Rural · Regional · Geography


Journals · Publications
Categories · Topics · Economists

Business and Economics Portal
This box: view · talk · edit

Criticism of socialism refers to a critique of socialist models of economic organization, their efficiency and feasibility; as well as the political and social implications of such a system. Some criticisms are not directed toward socialism as a system, but are directed toward the socialist movement, socialist political parties or existing socialist states. Some critics consider socialism to be a purely theoretical concept that should be criticized on theoretical grounds; others hold that certain historical examples exist and that can be criticized on practical grounds. Because socialism is a broad concept, some criticisms presented in this article will only apply a specific model of socialism that may differ sharply from other types of socialism.

Economic liberals, pro-capitalist libertarians, and some classical liberals view private enterprise, private ownership of the means of production, and the market exchange as a natural and/or moral phenomena, central to their conceptions of freedom and liberty. Contrawise, members of these three groups may perceive public ownership of the means of production, cooperatives, and state-sponsored economic planning as infringements on liberty.

Critics from the neoclassical school of economics criticize socialist theories that promote state-ownership and/or centralization of capital on the grounds that there is a lack of incentive in state institutions to act on information as efficiently as managers in capitalist firms do because they lack a hard budget constraint (profit and loss mechanism), resulting in reduced overall economic welfare for society.[1] Critics from the Austrian school of economics argue that socialist systems based on economic planning are unfeasible because they lack the information to perform economic calculation in the first place due to a lack of price signals and a free price system, which they believe are required for rational economic calculation.[2] Critics of the socialist political movement often criticize the internal conflicts of the socialist movement as creating a sort of "responsibility void."

The criticisms presented below may not apply to all forms of socialism as some forms of socialism advocate state ownership of capital in a market economy, while other forms advocate state-directed economic planning and state-ownership of capital. Other strands of socialist thought reject state ownership altogether and instead argue for participatory economics and non-governmental worker-cooperative ownership of the means of production. It is important to note that many socialist theories and models are opposed to, and often criticize, other types of socialism for various reasons.


Distorted or absent price signals

The economic calculation problem is a criticism of socialist economics, or more precisely central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek.[3][4] The problem referred to is that of how to distribute resources rationally in an economy. The free market solution is the price mechanism, wherein people individually have the ability to decide how a good should be distributed based on their willingness to give money for it. 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.[5]

Ludwig von 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.[5] This led him to declare "...that rational economic activity is impossible in a socialist commonwealth.".[3] Mises developed his critique of socialism more completely in his 1922 book Socialism, an Economic and Sociological Analysis.

Friedrich Hayek argued in 1977 that "prices are an instrument of communication and guidance which embody more information than we directly have", and therefore "the whole idea that you can bring about the same order based on the division of labor by simple direction falls to the ground". He further argued that "if 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."[6]

Ludwig von 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. Socialism would fail as demand cannot be known without prices, according to Mises.

The socialist planner, therefore, is left trying to steer the collectivist economy blindfolded. He cannot know what products to produce, the relative quantities to produce, and the most economically appropriate way to produce them with the resources and labor at his central command. This leads to "planned chaos," as Mises called it, or to the "planned anarchy" to which Pravda referred.... Even if we ignore the fact that the rulers of socialist countries have cared very little for the welfare of their own subjects; even if we discount the lack of personal incentives in socialist economies; and even if we disregard the total lack of concern for the consumer under socialism; the basic problem remains the same: the most well-intentioned socialist planner just does not know what to do. The heart of Mises' argument against socialism is that central planning by the government destroys the essential tool — competitively formed market prices — by which people in a society make rational economic decisions.[7]

These arguments were elaborated by subsequent Austrian economists such as Friedrich Hayek[8] and students such as Hans Sennholz.

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.[9] Hungarian economist Janos 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."[10]

Proponents of capitalism argue that although private monopolies don't 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.[11][12]

In her book How We Survived Communism & Even Laughed,[13] Slavenka Drakulić claims that a major contributor to the fall of socialist planned economies in the former Soviet bloc was the failure to produce the basic consumer goods that its people desired. She argues that, because of the makeup of the leadership of these regimes, the concerns of women got particularly short shrift. She illustrates this, in particular, by the system's failure to produce washing machines. If a state-owned industry is able to keep operating with losses, it may continue operating indefinitely producing things that are not in high consumer demand. If consumer demand is too low to sustain the industry with voluntary payments by consumers then it is tax-subsidized. This prevents resources (capital and labor) from being applied to satisfying more urgent consumer demands. 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."[14]

Proponents of chaos theory argue that it is impossible to make accurate long-term predictions for highly complex systems such as an economy.[15]

Pierre-Joseph Proudhon raises similar calculational issues in his General Idea of the Revolution in the 19th Century but also proposes certain voluntary arrangements, which would also require economic calculation.[16]

Leon Trotsky, a proponent of decentralized 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 "Even 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."[17]

Mises argued that real-world implementation of free market and socialist principles provided empirical evidence for which economic system leads to greatest success:

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.[18]

According to Tibor R. Machan, "Without 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."[19]

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.

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.[20]

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."[20]

Slow or stagnant technological advance

Milton Friedman, an economist, argued that socialism, by which he meant state ownership over the means of production, impedes technological progress due to competition being stifled. As evidence, he said that we need only look to the U.S. to see where socialism fails, by observing that the most technologically backward areas are those where government owns the means of production.[21] Without a reward system, it is argued, many inventors or investors would not risk time or capital for research. This was one of the reasons for the United States patent system and copyright law.

Socialism has proved no more efficient at home than abroad. What are our most technologically backward areas? The delivery of first class mail, the schools, the judiciary, the legislative system – all mired in outdated technology. No doubt we need socialism for the judicial and legislative systems. We do not for mail or schools, as has been shown by Federal Express and others, and by the ability of many private schools to provide superior education to underprivileged youngsters at half the cost of government schooling..... We all justly complain about the waste, fraud and inefficiency of the military. Why? Because it is a socialist activity – one that there seems no feasible way to privatize. But why should we be any better at running socialist enterprises than the Russians or Chinese? By extending socialism far beyond the area where it is unavoidable, we have ended up performing essential government functions far less well than is not only possible but than was attained earlier. In a poorer and less socialist era, we produced a nationwide network of roads and bridges and subway systems that were the envy of the world. Today we are unable even to maintain them.[21]

Reduced incentives

Some critics of socialism argue that income sharing reduces individual incentives to work, and therefore incomes should be individualized as much as possible.[22] Critics of socialism have argued that in any society where everyone holds equal wealth there can be no material incentive to work, because one does not receive rewards for a work well done. They further argue that incentives increase productivity for all people and that the loss of those effects would lead to stagnation. John Stuart Mill in The Principles of Political Economy (1848) said:

It is the common error of Socialists to overlook the natural indolence of mankind; their tendency to be passive, to be the slaves of habit, to persist indefinitely in a course once chosen. Let them once attain any state of existence which they consider tolerable, and the danger to be apprehended is that they will thenceforth stagnate; will not exert themselves to improve, and by letting their faculties rust, will lose even the energy required to preserve them from deterioration. Competition may not be the best conceivable stimulus, but it is at present a necessary one, and no one can foresee the time when it will not be indispensable to progress.[23]

However, he 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.[24] 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.[25]

The economist John Kenneth Galbraith has criticized communal forms of socialism that promote egalitarianism in terms of wages/compensation as unrealistic in its assumptions about human motivation:

This hope [that egalitarian reward would lead to a higher level of motivation], one that spread far beyond Marx, has been shown by both history and human experience to be irrelevant. For better or worse, human beings do not rise to such heights. Generations of socialists and socially oriented leaders have learned this to their disappointment and more often to their sorrow. The basic fact is clear: the good society must accept men and women as they are.[26]

Reduced prosperity

According to economist Hans-Hermann Hoppe, countries where the means of production are socialized are not as prosperous as those where the means of production are under private control.[27] Ludwig von Mises, a classical liberal economist, argued that aiming for more equal incomes through state intervention necessarily leads to a reduction in national income and therefore average income. Consequently, the socialist chooses 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.[28]

Criticism of market socialism

Marxists criticize this form of socialism because it does not end commodity production, alienates individuals from the products of their labor, atomizes individuals and creates a degenerate commercialized culture. Libertarian socialists and anarchists argue that market socialism fails to see any alternatives outside of the narrow confines of market-based or state-based solutions.[29]

Social and political effects

Friedrich Hayek in The Road to Serfdom, argued that the more even distribution of wealth through the nationalization of the means of production advocated by certain socialists cannot be achieved without a loss of political, economic, and human rights. According to Hayek, 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.[30]

Hayek was critical of the bias shown by university teachers and intellectuals towards socialist ideals. He argued that socialism is not a working class movement as socialists contend, but rather "the construction of theorists, deriving from certain tendencies of abstract thought with which for a long time only the intellectuals were familiar; and it required long efforts by the intellectuals before the working classes could be persuaded to adopt it as their program."[31]

Winston Churchill argued that socialism inevitably evolves into a totalitarian regime:

A socialist policy is abhorrent to the British ideas of freedom. Socialism is inseparably interwoven with totalitarianism and the object worship of the state. It will prescribe for every one where they are to work, what they are to work at, where they may go and what they may say. Socialism is an attack on the right to breathe freely. No socialist system can be established without a political police. They would have to fall back on some form of Gestapo, no doubt very humanely directed in the first instance.[32]

Several theorists have shown that bad economic theory leads directly to bad practice, and the two cannot be separated. For example, Milton Friedman argued that the absence of voluntary economic activity makes it too easy for repressive political leaders to grant themselves coercive powers. Friedman's view was also shared by Friedrich Hayek and John Maynard Keynes, both of whom believed that capitalism is vital for freedom to survive and thrive.[33][34]

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." He recommends market socialism instead.[35]

Objectivists criticize socialism as devaluing the individual, and making people incapable of choosing their own values, as decisions are made centrally. They also reject socialism's indifference to property rights.[36]


Sociobiologist Edward O. Wilson said: "Karl Marx was right, socialism works, it is just that he had the wrong species",[37] arguing that while ants and other social insects appear to live in communist-like societies, they only do so because they are compelled to do so as a result of their basic biology. Since they lack reproductive independence, worker ants, being sterile, need their ant-queen to survive as a colony and a species and individual ants cannot reproduce without a queen, thus being forced to live in centralized societies. Humans, however, do possess reproductive independence so they can give birth to offspring without the need of a "queen", and in fact humans enjoy their maximum level of Darwinian fitness only when they look after themselves and their families, while finding innovative ways to use the societies they live in for their own benefit.[38] On the other hand, left-wing philosopher Peter Singer argues in his book A Darwinian Left that the view of human nature provided by evolution (e.g., evolutionary psychology) is compatible with and should be incorporated into the ideological framework of the Left.

Socialism was strongly criticized in the 1878 papal encyclical Quod Apostolici Muneris by Pope Leo XIII. It was again strongly criticized in the 1931 letter Quadragesimo Anno.

Fascism fundamentally opposes Marxian socialism because of its emphasis on nationalism above class struggle, ethnic purity and the struggle of nations. Fascism views the nation to be more important than class, and favored a corporatist mixed economy that encouraged class collaboration as opposed to class struggle. Furthermore, the goals of fascism differ from most socialist philosophies.

See also

Case studies

Further reading

  • Friedrich Hayek (1988). The Fatal Conceit: The Errors of Socialism. University Of Chicago Press. ISBN 0-226-32068-5. 
  • Friedrich Hayek (1997). Socialism and War: Essays, Documents, Reviews. University Of Chicago Press. ISBN 0-226-32058-8. 


  1. ^
  2. ^ Ludwig Von Mises, Socialism, pg 119
  3. ^ a b Von Mises, Ludwig (1990) (pdf). Economic calculation in the Socialist Commonwealth. Ludwig von Mises Institute. Retrieved 2008-09-08. 
  4. ^ F. A. Hayek, (1935), "The Nature and History of the Problem" and "The Present State of the Debate," om in F. A. Hayek, ed. Collectivist Economic Planning, pp. 1-40, 201-43.
  5. ^ a b Fonseca, Gonçalo L. (200?). "The socialist calculation debate". HET. Retrieved 2007-04-03. "The information here has not been reviewed independently for accuracy, relevance and/or balance and thus deserves a considerable amount of caution. As a result, I would prefer not to be cited as reliable authorities on anything. However, I do not mind being listed as a general internet resource. ([1])" 
  6. ^ Reason Magazine, The Road to Serfdom, Foreseeing the Fall. Friedrich Hayek interviewed by Thomas W. Hazlett
  7. ^ The impossibility of socialism
  8. ^ F. A. Hayek, (1935), "The Nature and History of the Problem" and "The Present State of the Debate," in F. A. Hayek, ed. Collectivist Economic Planning, pp. 1-40, 201-43.
  9. ^ Hans-Hermann Hoppe. A Theory of Socialism and Capitalism [2]. Kluwer Academic Publishers. page 46 in PDF.
  10. ^ Ollman, Bertell; David Schweickart, (1998). Market Socialism: The Debate Among Socialists. Routledge. p. 7. ISBN 0415919665. 
  11. ^ "The Myth of Natural Monopoly", by Thomas DiLorenzo
  12. ^ "The Development Of The Theory Of Monopoly Price", by Joseph Salerno
  13. ^ ISBN 0-06-097540-7
  14. ^ Interview with Milton Friedman. July 31, 1991 Stanford California
  15. ^
  16. ^ Proudhon, Pierre J. General Idea of the Revolution in the 19th Century, third study.
  17. ^ Writings, 1932-33 P.96, Leon Trotsky.
  18. ^ Socialism: An Economic and Sociological Analysis by Ludwig von Mises.
  19. ^ Machan, R. Tibor, Some Skeptical Reflections on Research and Development, Hoover Press
  20. ^ a b Hahnel, Robin. The ABC's of Political Economy, Pluto Press, 2002, 262
  21. ^ a b Milton Friedman. We have Socialism Q.E.D., Op-Ed in New York Times December 31, 1989 [3]
  22. ^ Zoltan J. Acs & Bernard Young. Small and Medium-Sized Enterprises in the Global Economy. University of Michigan Press, page 47, 1999.
  23. ^ Mill, John Stuart. The Principles of Political Economy, Book IV, Chapter 7.
  24. ^ Mill, John Stuart and Benthem, Jeremy edited by Ryan, Alan. (2004). Utilitarianism and other essays. London: Penguin Books. pp. 11. ISBN 0-140-43272-8. 
  25. ^ Wilson, Fred (2007). "John Stuart Mill: Political Economy". Stanford Encyclopedia of Philosophy. Stanford University. Retrieved 2009-05-04. 
  26. ^ John Kenneth Galbraith, The Good Society: The Humane Agenda, (Boston, MA: Houghton Mifflin Co., 1996), 59-60."
  27. ^ Hans-Hermann Hoppe. A Theory of Socialism and Capitalism [4].
  28. ^ Ludwig von Mises, Socialism: An Economic and Sociological Analysis, Indianapolis, IN: Liberty Fund, Inc.. 1981, trans. J. Kahane, IV.30.21
  29. ^
  30. ^ Friedrich Hayek, The Road to Serfdom, Routledge (2001), ISBN 0415255430.
  31. ^ F.A. Hayek. The Intellectuals and Socialism. (1949).
  32. ^ Alan O. Ebenstein. Friedrich Hayek: A Biography. (2003). University of Chicago Press. ISBN 0226181502 p.137
  33. ^ Friedrich Hayek (1944). The Road to Serfdom. University Of Chicago Press. ISBN 0-226-32061-8. 
  34. ^ Bellamy, Richard (2003). The Cambridge History of Twentieth-Century Political Thought. Cambridge University Press. pp. 60. ISBN 0-521-56354-2. 
  35. ^ Self, Peter. Socialism. A Companion to Contemporary Political Philosophy, editors Goodin, Robert E. and Pettit, Philip. Blackwell Publishing, 1995, p.339 "Extreme equality overlooks the diversity of individual talents, tastes and needs, and save in a utopian society of unselfish individuals would entail strong coercion; but even short of this goal, there is the problem of giving reasonable recognition to different individual needs, tastes (for work or leisure) and talents. It is true therefore that beyond some point the pursuit of equality runs into controversial or contradictory criteria of need or merit."
  36. ^ Socialism
  37. ^ Wade, Nicholas (1998-05-12). "Scientist at Work: Edward O. Wilson; From Ants to Ethics: A Biologist Dreams Of Unity of Knowledge". The New York Times. Retrieved 2010-04-30. 
  38. ^

External links

Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Criticisms of communism — can be divided in two broad categories: Those concerning themselves with the practical aspects of 20th century Communist state and those concerning themselves with communist principles and theory. Although they often overlap, these two categories …   Wikipedia

  • Criticisms of communist party rule — Part of the series on Communism …   Wikipedia

  • Criticisms of Marxism — This article is about criticisms of Marxism, a branch of socialism. For criticisms of socialism in general, see Criticisms of socialism. See also Criticisms of Communist party rule for a discussion on specific criticisms of Communist states. Part …   Wikipedia

  • Criticisms of Communist party rule — This article only discusses criticisms that are specific to Communist states and not necessarily to other forms of socialism. See criticisms of socialism and criticisms of Marxism for discussions of literature and viewpoints objecting to… …   Wikipedia

  • Socialism — This article is about socialism as an economic system and political philosophy. For socialism as a specific stage of socioeconomic development in Marxist theory, see Socialism (Marxism) …   Wikipedia

  • Criticisms of the labour theory of value — often arise from an economic criticism of Marxism. Contents 1 Microeconomic theory 2 Supply and demand 3 Jevons 4 Menger s critique …   Wikipedia

  • Criticisms of anarcho-capitalism — Part of the Politics series on Anarchism …   Wikipedia

  • Criticisms of Salvador Allende — Statue of Allende in Constitución Square, in front of La Moneda Palace Salvador Allende, President of Chile, has inspired a variety of perceptions regarding his policies, personality and performance as a head of state. Around the world,… …   Wikipedia

  • Criticisms of welfare — The notion, and the extent of, the modern welfare state has been criticised on both economic and social grounds, from both the Left and the Right of the political spectrum. Contents 1 Libertarian Conservative criticisms 2 Socialist Anarchist… …   Wikipedia

  • SOCIALISM — Introduction The words socialism and socialist were first used about the year 1830 but the origin of the ideas which led to the establishment of the modern labor movement goes back to the time of the French Revolution. For a variety of reasons… …   Encyclopedia of Judaism

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”