George Walford: Mises, Marx and Markets

David Ramsay Steele, 1992, From Marx to Mises, post-capitalist society and the challenge of economic calculation. Chicago: Open Court. 6 x 9 in., 458 pages. $17.95 paper, $39.95 cloth. Reviewed by George Walford

Remember Lenin, and his claim that imperialism was the highest and final stage of capitalism? The empires he knew have gone but capitalism continues, bringing insecurity, poverty, slumps and unemployment but managing to maintain increasing numbers of people, many millions of them at a standard of living never before approached. Meanwhile the attempt at a different society, permitting the market only a narrow range of activity, collapses in ruins. David Ramsay Steele comes forward to argue that we cannot sensibly expect anything different, that only the market can provide the information needed for a viable modern economy. This, ‘the economic calculation argument,’ was first put forward by Ludwig von Mises in the 1920s, and Steele holds that it shows ‘socialism’ to be ‘impossible’ (his inverted commas).

Since the 1830s, when ‘socialism’ was introduced as a name for Robert Owen’s theories, the term has been stretched to the point where it loses specific meaning; by its opponents if not by its supporters, it gets applied to even the gentlest restraint upon the freedom of the market. Steele does not ignore the verbal complications which result, but his arguments for the impracticality of socialism apply with full force only to those versions in which the market is to be replaced (mainly if not entirely) by purposeful planning.

Belief in the feasibility of intentional control, over the details of production, exchange and distribution, arises largely from a failure to realise how the effects of a single change ramify through a complex and integrated economy. An increase in the price of copper, for example, affects the price not only of every product containing this metal but also of many that do not, for it inclines producers to increase their use of possible substitutes. These changes, in turn, bring shifts in demand for everything going into the production of this metal, its substitutes, and the things in any way associated with them. An alteration in the supply or price of one factor of production can bring thousands, and ultimately millions, of resulting changes, and the market performs all these adjustments automatically. It even corrects (a point Steele does not make) for the prospect of a change in the price of any commodity. Steele argues that no regulated economy would be able to compete in responsiveness, and experience of bureaucracy in other connections bears him out; it is notoriously difficult to move. The market adjusts readily to local conditions, the goods available in one shopping street differing from those in the next according to demand, while planning has to impose its own standards on the consumers. An industrial or post-industrial economy is too complicated to plan; it needs the feature that Marx calls anarchy of production and that can equally well be called freedom of action.

The belief that costs of production would not affect a socialist, communist or anarcho-socialist society does not stand up to examination. On the assumption (Steele would probably prefer ‘recognition’) that resources are limited, any given production entails a corresponding restriction somewhere else. Should this field (ton of steel, hour of labour-time or whatever) be devoted to project A or project B? Whatever the answer, the alternative project will be reduced accordingly. This reduction is the cost of the product, and it applies whatever the principle on which society operates.

A point Steele does not take up (he is sufficiently independent of fashion for neither ‘ecology’ nor ‘conservation’ nor ‘green’ to appear in his index) is that this shows up more clearly now than it did in the early days of socialist theorising. In Marx’s time exhaustion of planetary resources was hardly an issue; it seemed to be only social restrictions that prevented production in unlimited quantities. Now this has changed; we have been obliged to recognise that features of the planet ignored by earlier generations, such as the ozone layer and the ability to absorb the energy wasted as heat, also contribute to industrial production and, like other resources, get consumed in doing so. Used in this project they are no longer available for that, and the argument extends beyond material goods; a given area of land cannot be used, at the same time, for both a quarry and a nature reserve, and the same hours cannot be devoted both to production and to meditation.

Our usual assumption, that a society has to be either planned or unplanned, has limited validity; the choice lies, rather, between centralised and decentralised planning, the imposition of an overall plan restricting the scope available to individual people. Far from excluding planning, the economic calculation approach rather encourages people to engage in it, expecting each household, for example, to plan its purchases of food for the week ahead.

One has only to walk through the streets of any great city to see that the market society (more strictly the market-and-state society) produces some results which no civilized person can accept with equanimity. The Misesian argument does not imply otherwise. It does not present the market and its consequences as necessarily desirable, claiming only that no other system provides the information needed in the operation of a complex and sophisticated economy. And, in Steele’s version at least, it does not say the market must be left to operate unmodified. Listening to advocates of nonmarket socialism on the virtues of their untested favourite, we need to remember how fine market capitalism could be made to sound if we had only the theories of its supporters before us, without the demonstrated effects of its actual working. The totally free market, unaffected by political control, has no more existed, and has no more prospect of coming into existence, than pure socialism Steele and von Mises both take it for granted that people generally would not be satisfied to accept what socialised production might find it convenient to offer; they would want their individual preferences met.

Steele writes briskly and straightforwardly, developing his theme with careful explicitness, working out implications, answering critics and discussing variations. The book is tightly organised; it would not be surprising to learn that it began as a diagrammatic schema, this being developed through stages to the present richness of detail; if so, then so much the better for this method of working. When I first met the author, a good many years ago, he supported anarcho-capitalism, arguing for a market free of all intervention by the state. In this book he evinces greater restraint, being more concerned to show the impossibility of operating a sophisticated economic system by intentional control alone. To my mind he makes his case, and with nonmarket socialism ruled out as unworkable, the question arises: What can be done? Is any intervention fatal or some degree of it acceptable? After a long discussion of this question, Steele ends up with an acceptance, to some extent against von Mises, of piecemeal modification of the market, though pointing out that it will be expensive: ‘Henceforth, in part due to von Mises’ efforts, it may be accepted as truistical that private property in the means of production, a functioning market in factors, substantially free financial markets, and a diversity of levels of income and wealth, have to be preserved, as institutional equivalents of a clean water supply and proper sanitation. Yet these fundamental presuppositions of a great and affluent society still leave open an enormous range of feasible government interventions.’ Elsewhere he notes that the market functions best when individuals are left free ‘within limits.’

This change, from advocacy of purely free-market capitalism to an acceptance of some political control, is a move from utopianism into realistic consideration of actual social issues, for the totally free market, unaffected by political control, has no more existed, and has no more prospect of coming into existence, than pure socialism. The market assumes general respect for private property; without this it cannot function. We have become so accustomed to this condition that it hardly appears as a restriction, but it is by no means inherent in humankind and has not been irremovably established even now; witness the elaborate and expensive systems of education, law and police needed to maintain it. This apparatus is maintained almost entirely by the centralised state, and alternative methods proposed by enthusiastic privatisers, for example those recommended in David Friedman’s Machinery of Freedom, amount to little more than substituting a number of mini-states for one big one. We have already experienced that condition; in Europe it was known as feudalism, and it imposed severe restraints upon the market. It is under the centralised state that the market has achieved its greatest success, and we have no reason for thinking it could function equally well without political control.

Displaying a wide range of reference, the book yet stays close to its subject; a broader view shows the market to be one of many systems which function most successfully when their internal operations (the adjective is important) are left free of conscious control. The point becomes obvious when one tries to imagine walking by intentional management of each separate muscle, and a modern motorcar is an improvement on earlier models largely because it performs automatically functions such as control of timing, mixture and voltage which used to require the driver’s attention. Human progress has consisted largely in relegating conscious control to the periphery, leaving internal activities free to carry out their own self-adustment, and the Misesian argument against Marxism amounts to demonstrating the impracticality of its attempt to move society in the opposite direction. Listing the misunderstandings of which Marxism has been guilty, Steele mentions as perhaps the deepest of them ‘the theory that whatever humans create they can and should completely understand and control’ ‘Completely’ is the operative word; better to focus attention where it is needed.

The journal Horse and Hound is said to have reviewed, from its own special standpoint, that account of Lady Chatterley’s games with the gamekeeper. Following this example, what does systematic ideology have to say about From Marx to Mises? This study does not talk of impossibilities, but it does agree with Steele to the extent of finding a communist society, as envisaged by Marx and his followers, to be extremely improbable. This follows from the persistence of a majority identified with ideologies closer to the market than to socialism. Steele enjoys the support of centuries of practice, overwhelmingly though not invariably successful, to which the Marxists can oppose only theory and argument.

Like any other argument, the economic calculation one rests upon assumptions, and among the most important of these stands what the technical jargon of s.i. calls economic individualism; not, certainly, in its primal rawness, but restrained only to the extent of accepting the institution of private property. Steele and von Mises both take it for granted that people generally would not be satisfied to accept what socialised production might find it convenient to offer; they would want their individual preferences met. Long experience goes to confirm the validity of this; the eidostatic majority tend to value their personal interests above the welfare of society as a whole, and even the minority of eidodynamics have their primal individualism less eliminated than repressed; pushed down beneath an intellectual conviction of the superior value of collectivism it continues to influence their behaviour. The modified economic individualism on which the functioning of the market relies is likely to persist, and – especially given his acceptance of intervention as feasible, offering scope for the eidodynamics to act – IC can go a long way with David Steele on the issues discussed in his book.

One condition, for establishment of a viable and stable society, is reconciliation of the effectiveness of the market with the concern for the wellbeing of the community displayed by the socialists, communists and ararchists. The way towards it begins to appear when we accept that far from having failed (as the revolutionaries often claim) market capitalism under the state has been only too terribly successful; this suggests that it needs restraint rather than replacement.

I found From Marx to Mises both instructive and enjoyable. Readers interested to know what economic arrangements might be expected in what we can perhaps call an ideological society (meaning one affording all the major ideologies full expression in both theory and practice) will find the eidostatic side of it well developed. David Steele does not, so far as I know, subscribe to s.i.; when his work, starting from a different point, reaches similar conclusions for the part of the social system it covers, this comes as valuable confirmation. The book also offers remarkably good value; very well produced, it costs about half the amount English publishers tend to charge for books of similar size and quality.

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T. W. Rhys Davids, discussing theories of transmigration and the implications of Karma, the doctrine that action in one life decides position in the next, speaks of ‘the heavy hand of the immeasurable past we cannot escape.’ Plato, in the Phaedo, expresses a similar idea, and Marx remarked that although we make our own history we do not have a free hand in doing so. (He went on to assume that under socialism we would have this freedom). In s.i. a similar effect results from the enduring influence of the earlier, lower, simpler ideologies which persist as the base on which more developed ones rest.

from Ideological Commentary Number 60, May 1993.