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Old September 15th, 2015, 10:43 AM   #1
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An economic perspective of socialism

Why Socialism Must Always Fail: Ludwig Von Mises on Economic Calculation under Socialism
BY EMMANUEL FORGOLOU


“Without calculation, economic activity is impossible. Since under Socialism economic calculation is impossible, under Socialism there can be no economic activity in our sense of the word … All economic change, therefore, would involve operations the value of which could neither be predicted beforehand nor ascertained after they had taken place. Everything would be a leap in the dark. Socialism is the renunciation of rational economy.” — Ludwig von Mises,


Economic calculation in a capitalist economy

Under capitalism every individual plays a dual role in the determination of economic values. First as a consumer, secondly as a producer. As a consumer, he establishes the valuation of goods and services ready for consumption. As a producer, he allocates productive resources to the uses that yield the highest product. This is the very essence of the free market mechanism, which ensures rationality in production and consumption alike.
As a consumer, each individual spends his money on the goods and services that best satisfy his needs. The pattern of consumer preferences is conveyed to producers in the form of prices. This is the crucial function performed by market prices under capitalism.
Prices of consumer goods and services are the signals producers use to determine what goods and services are to be produced. Let’s look at how this works.
Let’s say that shampoo has a high price on it. This means that consumers value shampoo a lot, which is why they are willing to pay such a high price for it. The high price acts as a signal to producers. It tells them that they can make a large profit by producing and selling shampoo. As a result, they will shift resources to the production of shampoo. The end result is that more resources will be used to produce shampoo because this good is highly valued by consumers.
A high price indicates to producers that consumers place a high value on a certain good or service. From the producers’ perspective, the high price means that they can realize a large profit by producing and selling this good or service. Thus the pursuit of profit induces producers to direct more resources to the good or service in question.
In contrast, a low price signals that consumers do not particularly value a good or service. The low price shrinks the producers’ profit margin, so they will naturally shift resources away from this good or service. As a result, rationality is achieved by producing more of the goods and services that are highly valued by consumers and less of those that are not preferred by consumers.
The market mechanism also achieves rationality in production. Again, the role of prices is essential. In this case the signals guiding the actions of producers are the prices of productive resources (land, labor, capital, technology). A high price for a certain factor of production indicates that this resource will raise the cost of production and thus lower the producers’ profit margin. Therefore producers will end up using less of this particular resource.
In contrast, a low price for a resource signals that producers can lower the cost of production and thus increase their profit margin by using this factor of production. The end result is rationality in production by lowering costs through the increased use of less costly resources and the corresponding reduced use of costlier ones.
This is the very essence of the price system that ensures rationality in consumption and production alike. This is because prices are formed as the result of the actions of consumers who spend their own money on the goods and services they desire and resource owners who sell the resources they own in the market.


Economic calculation under socialism: “a leap in the dark”


Since under socialism there is no private ownership, those actions are rendered impossible. In the most consistent versions of socialism (such as the War Communism implemented right after the Russian Revolution), money is abolished and goods and services are distributed by governmental decree. This is a bona fide recipe for total irrationality.
More “moderate” versions of socialism do not eliminate money. They allow individuals to have some income which they can spend as they see fit. This enables the establishment of prices for consumer goods and services, which give socialist planners (who play the role of “producers” under socialism) some signals as to the goods and services that need to be produced.
However, this signal is distorted, as consumers do not earn their income in a free market. Instead, their income is determined by socialist planners, who arbitrarily set the prices of resources (rents, wages, interest rates). Resource prices set in this manner are totally disconnected from the facts of reality, as there are no price signals conveying to planners information about those facts.”
Since, by definition, productive resources are not privately owned under socialism, there can be no market where the prices of those resources are formed by the interaction by demand and supply.
Even if socialist planners have some knowledge of the goods and services that need to be produced, the obstacles they face in selecting the proper methods of production are impossible to overcome. In the absence of private ownership of the factors of production, there be no market where the prices of those resources are established.
In producing any good or service, socialist planners are confronted with a vast array of resource combinations. Some processes are more land-intensive, others more labor-intensive, still others more capital-intensive. Furthermore, there is an enormous variety of different types of land, labor, and capital. Similarly, there is a multitude of technologies to choose from.
Without the guidance of price signals, there is only one way of selecting among those alternatives: The planners’ whim. This exposes the utter irrationality of socialism, eloquently expressed in Mises’ statement that “Everything would be a leap in the dark.”


The problems of socialism are not based on the irrationality or dishonesty of public planners

Mises’ critique does not even address the critical issue of incentives. He did not claim that, since the profit motive is absent under socialism, bureaucrats have no incentive to try to follow the guidance of reason in their production decisions. To the contrary, Mises readily accepted that government officials are totally dedicated to the efficient production of goods and services.
The problem he identified was not lack of motivation on the part of planners. Instead, the cause of socialism’s irrationality is that those highly motivated and competent civil servants have no rational mechanism to guide their productive efforts and thus any decisions they make are necessarily arbitrary. Their position is akin to that of the captain of a ship in the midst of the ocean without a compass. No matter how able he is, any efforts he makes to set the course of his ship are doomed from the outset.
Although Mises’ analysis is purely economic, it illustrates the effects of an abstract philosophic principle in an economic practical context. That principle is that capitalism is the only economic system based on reason, while socialism rests on arbitrary whim. While capitalism cannot be effectively defended solely on economic grounds, Mises’ exposition is of tremendous value to philosophical defenders of capitalism.

http://capitalismmagazine.com/2000/0...der-socialism/
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Last edited by Sabcat; September 15th, 2015 at 10:46 AM.
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Old September 15th, 2015, 12:16 PM   #2
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Why Socialism Must Always Fail: Ludwig Von Mises on Economic Calculation under Socialism
BY EMMANUEL FORGOLOU


“Without calculation, economic activity is impossible. Since under Socialism economic calculation is impossible, under Socialism there can be no economic activity in our sense of the word … All economic change, therefore, would involve operations the value of which could neither be predicted beforehand nor ascertained after they had taken place. Everything would be a leap in the dark. Socialism is the renunciation of rational economy.” — Ludwig von Mises,


Economic calculation in a capitalist economy

Under capitalism every individual plays a dual role in the determination of economic values. First as a consumer, secondly as a producer. As a consumer, he establishes the valuation of goods and services ready for consumption. As a producer, he allocates productive resources to the uses that yield the highest product. This is the very essence of the free market mechanism, which ensures rationality in production and consumption alike.
As a consumer, each individual spends his money on the goods and services that best satisfy his needs. The pattern of consumer preferences is conveyed to producers in the form of prices. This is the crucial function performed by market prices under capitalism.
Prices of consumer goods and services are the signals producers use to determine what goods and services are to be produced. Let’s look at how this works.
Let’s say that shampoo has a high price on it. This means that consumers value shampoo a lot, which is why they are willing to pay such a high price for it. The high price acts as a signal to producers. It tells them that they can make a large profit by producing and selling shampoo. As a result, they will shift resources to the production of shampoo. The end result is that more resources will be used to produce shampoo because this good is highly valued by consumers.
A high price indicates to producers that consumers place a high value on a certain good or service. From the producers’ perspective, the high price means that they can realize a large profit by producing and selling this good or service. Thus the pursuit of profit induces producers to direct more resources to the good or service in question.
In contrast, a low price signals that consumers do not particularly value a good or service. The low price shrinks the producers’ profit margin, so they will naturally shift resources away from this good or service. As a result, rationality is achieved by producing more of the goods and services that are highly valued by consumers and less of those that are not preferred by consumers.
The market mechanism also achieves rationality in production. Again, the role of prices is essential. In this case the signals guiding the actions of producers are the prices of productive resources (land, labor, capital, technology). A high price for a certain factor of production indicates that this resource will raise the cost of production and thus lower the producers’ profit margin. Therefore producers will end up using less of this particular resource.
In contrast, a low price for a resource signals that producers can lower the cost of production and thus increase their profit margin by using this factor of production. The end result is rationality in production by lowering costs through the increased use of less costly resources and the corresponding reduced use of costlier ones.
This is the very essence of the price system that ensures rationality in consumption and production alike. This is because prices are formed as the result of the actions of consumers who spend their own money on the goods and services they desire and resource owners who sell the resources they own in the market.


Economic calculation under socialism: “a leap in the dark”


Since under socialism there is no private ownership, those actions are rendered impossible. In the most consistent versions of socialism (such as the War Communism implemented right after the Russian Revolution), money is abolished and goods and services are distributed by governmental decree. This is a bona fide recipe for total irrationality.
More “moderate” versions of socialism do not eliminate money. They allow individuals to have some income which they can spend as they see fit. This enables the establishment of prices for consumer goods and services, which give socialist planners (who play the role of “producers” under socialism) some signals as to the goods and services that need to be produced.
However, this signal is distorted, as consumers do not earn their income in a free market. Instead, their income is determined by socialist planners, who arbitrarily set the prices of resources (rents, wages, interest rates). Resource prices set in this manner are totally disconnected from the facts of reality, as there are no price signals conveying to planners information about those facts.”
Since, by definition, productive resources are not privately owned under socialism, there can be no market where the prices of those resources are formed by the interaction by demand and supply.
Even if socialist planners have some knowledge of the goods and services that need to be produced, the obstacles they face in selecting the proper methods of production are impossible to overcome. In the absence of private ownership of the factors of production, there be no market where the prices of those resources are established.
In producing any good or service, socialist planners are confronted with a vast array of resource combinations. Some processes are more land-intensive, others more labor-intensive, still others more capital-intensive. Furthermore, there is an enormous variety of different types of land, labor, and capital. Similarly, there is a multitude of technologies to choose from.
Without the guidance of price signals, there is only one way of selecting among those alternatives: The planners’ whim. This exposes the utter irrationality of socialism, eloquently expressed in Mises’ statement that “Everything would be a leap in the dark.”


The problems of socialism are not based on the irrationality or dishonesty of public planners

Mises’ critique does not even address the critical issue of incentives. He did not claim that, since the profit motive is absent under socialism, bureaucrats have no incentive to try to follow the guidance of reason in their production decisions. To the contrary, Mises readily accepted that government officials are totally dedicated to the efficient production of goods and services.
The problem he identified was not lack of motivation on the part of planners. Instead, the cause of socialism’s irrationality is that those highly motivated and competent civil servants have no rational mechanism to guide their productive efforts and thus any decisions they make are necessarily arbitrary. Their position is akin to that of the captain of a ship in the midst of the ocean without a compass. No matter how able he is, any efforts he makes to set the course of his ship are doomed from the outset.
Although Mises’ analysis is purely economic, it illustrates the effects of an abstract philosophic principle in an economic practical context. That principle is that capitalism is the only economic system based on reason, while socialism rests on arbitrary whim. While capitalism cannot be effectively defended solely on economic grounds, Mises’ exposition is of tremendous value to philosophical defenders of capitalism.

Why Socialism Must Always Fail: Ludwig Von Mises on Economic Calculation under Socialism - Capitalism Magazine
Ironicaly the socialists never talk about how private business owners are forced to either give up their business or give up their control. They are forced to make their employees part owners even though their employees didn't build that. The whole you didn't build that meme is based around justifying this notion. I just love how they paint this rosy picture and point at every nation in the world, pick something specific from it and say see look socialism works. I love how they accuse me of being a hypocrite when they say your participating in Medicare, but when I reply did I have a choice, I get silence. Yeah just pin the socialists to the truth and watch it fall. Come on Bernie Sanders, win it for the socialists, lets get your religion out from under the rock so ALL the American people can see all the truth of it.
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Old September 15th, 2015, 12:26 PM   #3
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Introduction to How Socialism Works - HowStuffWorks

Quote:
The political and economic theory of socialism was created with the vision of a utopian society in mind. Contrary to other economic systems, there is no real consensus on how the ideal socialist society should function. Dozens of forms of socialism exist, all with differing ideas about economic planning, community size and many other factors. Despite the variations in socialist thought, every version advocates the benefits of cooperation among the people, steering clear of the "evils" of competition associated with capitalism.

So how does socialism compare to capitalism and communism? And were there ever any successful socialist societies? Is the movement still alive today? In the next section, we'll take a look at the principles of the theory.

*




Helpful Socialism-related Terms:

Capitalism: Economic system in which individuals or corporations own land and means of production. Capitalist societies encourage competition and personal profit.

Communism: This political and economic system advocates equal labor and equal shares of the benefits derived from labor. However, according to Frederick Engels' "Principles of Communism," the system is more militant than socialism.

Nationalization: The transfer of industry or private property to the control of the government. Under select nationalization, the government takes control of only some industries. Complete nationalization transfers total control to the government, as in the case of the Soviet Union, following the Bolshevik Revolution.

Dystopia: The opposite of utopia, dystopia is a fictional place with terrible quality of life, due to oppression, misery and terror.

Mixed economy: An economy that utilizes some capitalist and some socialist principles. The government usually controls some aspects, but private individuals and corporations control others. A mixed economy relies on the law of supply and demand to determine production and prices.

Planned economy: Economic system controlled entirely by the government. Rates of production, incomes and the price of goods and services are regulated by the government, instead of by demand.

Imperialism: System of beliefs advocating the development of empires, usually to exert political, military or economic domination over other countries or colonies.
Mine is a lot less slanted to support capitalism. Capitalism has destroyed the majority of income for the majority of the population in the world. It is focused on a few having it all. You can verify that from the income gap.
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Old September 15th, 2015, 12:31 PM   #4
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Originally Posted by coke View Post
Ironicaly the socialists never talk about how private business owners are forced to either give up their business or give up their control. They are forced to make their employees part owners even though their employees didn't build that. The whole you didn't build that meme is based around justifying this notion. I just love how they paint this rosy picture and point at every nation in the world, pick something specific from it and say see look socialism works. I love how they accuse me of being a hypocrite when they say your participating in Medicare, but when I reply did I have a choice, I get silence. Yeah just pin the socialists to the truth and watch it fall. Come on Bernie Sanders, win it for the socialists, lets get your religion out from under the rock so ALL the American people can see all the truth of it.
Bernie has a LONG list of how he has dealt with businesses.

The thing Bernie Sanders says about inequality that no other candidate will touch - The Washington Post

Quote:
Our economic goals have to be redistributing a significant amount of [wealth] back from the top 1 percent,” Sanders said in a recent interview, even if that redistribution slows the economy overall.

“Unchecked growth – especially when 99 percent of all new income goes to the top 1 percent – is absurd,” he said. “Where we’ve got to move is not growth for the sake of growth, but we’ve got to move to a society that provides a high quality of life for all of our people. In other words, if people have health care as a right, as do the people of every other major country, then there’s less worry about growth. If people have educational opportunity and their kids can go to college and they have child care, then there’s less worry about growth for the sake of growth.”
Sen. Bernie Sanders, challenging Clinton for 2016 bid
View Photos
The longest serving independent in Congress fights to win left-leaning Democrats inclined to heed his fiery call to action.

Sanders’s position inverts decades of orthodoxy among liberal and conservative candidates alike, by prizing redistribution above all else. It taps into the mounting frustration in America, particularly among more liberal voters, with the widening gap between the rich and everyone else.

It is this kind of unorthodoxy that has helped galvanize liberal voters in New Hampshire and Iowa and elevate Sanders in early polls. It is also represents a sharp challenge to front-runner Hillary Rodham Clinton, who wants to maintain broad appeal even as she expands her support among liberal Democrats.
Taxing the rich, using anti-trust laws to break the monopolies so a few don't control the entire market, but rather there's competition in the marketplace causing increase in wages as employers seek to recruit the best workers, and enforcing and creating rights and tax breaks for the middle class so they grow is his plan and a plan that made our nation great.

It took years of stopping taxes on the rich and destroying middle class wages by deleting state and federal workers, shipping manufacturing jobs overseas and refusing to raise the minimum wage. They planned that economy to help the rich get richer, bust all the New Deal agencies, and create a pool of poverty to impose their desires on to the masses.

The right has been redistributing wealth for decades and taking from the middle class and poor and giving welfare to the rich.
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Old September 15th, 2015, 12:45 PM   #5
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Bernie has a LONG list of how he has dealt with businesses.

The thing Bernie Sanders says about inequality that no other candidate will touch - The Washington Post



Taxing the rich, using anti-trust laws to break the monopolies so a few don't control the entire market, but rather there's competition in the marketplace causing increase in wages as employers seek to recruit the best workers, and enforcing and creating rights and tax breaks for the middle class so they grow is his plan and a plan that made our nation great.

It took years of stopping taxes on the rich and destroying middle class wages by deleting state and federal workers, shipping manufacturing jobs overseas and refusing to raise the minimum wage. They planned that economy to help the rich get richer, bust all the New Deal agencies, and create a pool of poverty to impose their desires on to the masses.

The right has been redistributing wealth for decades and taking from the middle class and poor and giving welfare to the rich.
You claim the right is to blame, as usual. You claim that more government is the solution with higher taxes. Yet you have got some of your wishes and here we are. The highest income in the United States is Washington DC area. You claim the evil evil rich are the problem, yet you worship the idea of a larger more involved government.

21,995,000 to 12,329,000: Government Employees Outnumber Manufacturing Employees 1.8 to 1
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Old September 15th, 2015, 12:49 PM   #6
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You claim the right is to blame, as usual. You claim that more government is the solution with higher taxes. Yet you have got some of your wishes and here we are. The highest income in the United States is Washington DC area. You claim the evil evil rich are the problem, yet you worship the idea of a larger more involved government.

21,995,000 to 12,329,000: Government Employees Outnumber Manufacturing Employees 1.8 to 1
Yet the government produces nothing. NOTHING.

It absorbs over 50% of the wealth and produces nothing.
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Old September 15th, 2015, 12:53 PM   #7
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You claim the right is to blame, as usual. You claim that more government is the solution with higher taxes. Yet you have got some of your wishes and here we are. The highest income in the United States is Washington DC area. You claim the evil evil rich are the problem, yet you worship the idea of a larger more involved government.

21,995,000 to 12,329,000: Government Employees Outnumber Manufacturing Employees 1.8 to 1
We have more government under republicans than under democrats. The control over abortions which used to be a right is out of control. Corporations control the food we eat, the wages we get and the amount of pollution we must suck up in our neighborhoods, as well as not being able to stop an emminent domain take over of our property.

We have LESS government and more ACCOUNTABLE government under democrats because we don't have privatization of institutions that receive billions of our tax dollars and over whom we have no recourse. No action to even VIEW what they are doing with the money.
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Old September 15th, 2015, 12:54 PM   #8
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Yet the government produces nothing. NOTHING.

It absorbs over 50% of the wealth and produces nothing.
What does the government do with its "wealth" ? Military, VA hospitals, roads, levees, public health, public education.

What do corporations do with the 50%+ welfare checks they get?
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Old September 15th, 2015, 12:56 PM   #9
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We have more government under republicans than under democrats. The control over abortions which used to be a right is out of control. Corporations control the food we eat, the wages we get and the amount of pollution we must suck up in our neighborhoods, as well as not being able to stop an emminent domain take over of our property.

We have LESS government and more ACCOUNTABLE government under democrats because we don't have privatization of institutions that receive billions of our tax dollars and over whom we have no recourse. No action to even VIEW what they are doing with the money.
how can you say this when I just gave you a story showing that government employees outnumber manufacturing employees for the first time ever?
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Old September 15th, 2015, 12:56 PM   #10
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Introduction to How Socialism Works - HowStuffWorks



Mine is a lot less slanted to support capitalism. Capitalism has destroyed the majority of income for the majority of the population in the world. It is focused on a few having it all. You can verify that from the income gap.
A.) what is the economic theory?

B.) sure. Sounds great. Who is stopping you? What I'm saying is I don't want to participate.

The whole Medicare or social security arrangements are just stupid. Anytime. Anytime you have the opportunity to get any of your money back from the government...take it. If you wouldn't your stupid.

If you returned home from vacation to find your house burglarized and as you were calling it in you noticed a trail of cash from your safe down your stairs would you not pick it up?
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