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<title> I.1 Isn't libertarian socialism an oxymoron?</title>

</head>
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<h1>I.1 Isn't libertarian socialism an oxymoron?</h1>

<p>
In a word, no. This question is often asked by those who have come 
across the so-called "libertarian" right. As discussed in 
<a href="secA1.html#seca13">section A.1.3</a>, the word 
<i>"libertarian"</i> has been used by anarchists for far longer 
than the pro-free market right have been using it. In fact, anarchists 
have been using it as a synonym for anarchist for over 150 years, since 
1858. In comparison, widespread use of the term by the so-called 
"libertarian" right dates from the 1970s in America (with, from the 
1940s onwards, limited use by a few individuals). Indeed, outside of 
North America <i>"libertarian"</i> is still essentially used as an 
equivalent of <i>"anarchist"</i> and as a shortened version of 
<i>"libertarian socialist."</i> As Noam Chomsky notes:
</p><p>
<blockquote><i>
"Let me just say regarding the terminology, since we happen to be 
in the United States, we have to be rather careful. Libertarian in 
the United States has a meaning which is almost the opposite of 
what it has in the rest of the world traditionally. Here, 
libertarian means ultra right-wing capitalist. In the European 
tradition, libertarian meant socialist. So, anarchism was sometimes 
called libertarian socialism, a large wing of anarchism, so we have 
to be a little careful about terminology."</i> [<b>Reluctant Icon</b>]
</blockquote>
</p><p>
This in itself does not prove that the term <i>"libertarian 
socialist"</i> is free of contradiction. However, as we will show below, 
the claim that the term is self-contradictory rests on the assumption 
that socialism requires the state in order to exist and that socialism 
is incompatible with liberty (and the equally fallacious claim that 
capitalism is libertarian and does not need the state). This assumption, 
as is often true of many objections to socialism, is based on a 
misconception of what socialism is, a misconception that many 
authoritarian socialists and the state capitalism of Soviet Russia 
have helped to foster. In reality it is the term <i>"state socialism"</i> 
which is the true oxymoron. 
</p><p>
Sadly many people take for granted the assertion of many on the right 
and left that socialism equals Leninism or Marxism and ignore the rich 
and diverse history of socialist ideas, ideas that spread from communist
and individualist-anarchism to Leninism. As Benjamin Tucker once noted,
<i>"the fact that State Socialism . . . has overshadowed other forms of
Socialism gives it no right to a monopoly of the Socialistic idea."</i> 
[<b>Instead of a Book</b>, pp. 363-4] Unfortunately, many on the left 
combine with the right to do exactly that. Indeed, the right (and, of
course, many on the left) consider that, by definition, "socialism" 
<b>is</b> state ownership and control of the means of production, along 
with centrally planned determination of the national economy (and 
so social life).
</p><p>
Yet even a quick glance at the history of the socialist movement indicates
that the identification of socialism with state ownership and control is
not common. For example, Anarchists, many Guild Socialists, council
communists (and other libertarian Marxists), as well as followers of Robert
Owen, all rejected state ownership. Indeed, anarchists recognised that
the means of production did not change their form as capital when the
state took over their ownership nor did wage-labour change its nature
when it is the state employing labour (for example, see 
<a href="secH3.html#sech313">section H.3.13</a>). For anarchists state 
ownership of capital is not socialistic in the slightest. Indeed, as 
Tucker was well aware, state ownership turned <b>everyone</b> into a 
proletarian (bar the state bureaucracy) -- hardly a desirable 
thing for a political theory aiming for the end of wage slavery!
</p><p>
So what <b>does</b> socialism mean? Is it compatible with libertarian
ideals? What do the words <i>"libertarian"</i> and <i>"socialism"</i> actually 
mean? It is temping to use dictionary definitions as a starting point, 
although we should stress that such a method holds problems as different 
dictionaries have different definitions and the fact that dictionaries are 
rarely politically sophisticated. Use one definition, and someone else will 
counter with one more to their liking. For example, <i>"socialism"</i> 
is often defined as <i>"state ownership of wealth"</i> and <i>"anarchy"</i> 
as <i>"disorder."</i> Neither of these definitions are useful when discussing 
political ideas, particularly anarchism as, obviously, no form of anarchism
would be socialist by such a definition nor do anarchists seek disorder. 
Therefore, the use of dictionaries is not the end of a discussion and 
often misleading when applied to politics. 
</p><p>
Libertarian, though, is generally defined to mean someone who upholds the
principles of liberty, especially individual liberty of thought and action.
Such a situation cannot but be encouraged by socialism, by free access to
the means of life. This is because in such a situation people associate
as equals and so. as John Most and Emma Goldman once argued, the 
<i>"system of communism logically excludes any and every relation between 
master and servant, and means really Anarchism."</i> [<i>"Talking about Anarchy"</i>, 
p. 28, <b>Black Flag</b>, no. 228, p. 28] In other words, by basing itself on
free association and self-management in every aspect of life the anarchist form 
of socialism cannot but be libertarian.
</p><p>
In other words, there is a reason why anarchists have used the term libertarian
for over 150 years! More to the point, why assume that the right's recent 
appropriation of the word be considered the base point? That implies that
private property defends individual liberty rather than suppresses it. 
Such an assumption, as anarchists have argued from the start of anarchism
as a distinct socio-political theory, is wrong. As we discussed earlier 
(see <a href="secB4.html">section B.4</a>, for example), capitalism denies 
liberty of thought and action within the workplace (unless one is the 
boss, of course). As one staunch defender of capitalism (and a classical 
liberal often listed as a forefather of right-wing "libertarianism") glibly
noted, the capitalist <i>"of course exercises power over the workers"</i>,
although <i>"he cannot exercise it arbitrarily"</i> thanks to the market
but within this limit <i>"the entrepreneur is free to give full rein to 
his whims"</i> and <i>"to dismiss workers offhand"</i> [Ludwig von Mises, 
<b>Socialism</b>, p. 443 and  p. 444] Right-wing "libertarians" are utterly 
blind to the liberty-destroying hierarchies associated with private property, 
perhaps unsurprisingly as they are fundamentally pro-capitalist and 
anti-socialist (equally unsurprisingly, genuine libertarians tend to call 
them "propertarians"). As left-wing economist Geoffrey M. Hodgson correctly 
notes:
<p><blockquote><i>
"By their own logic, [such] market individualists are forced to disregard
the organisational structure of the firm, or to falsely imagine that
markets exist inside it. To do otherwise would be to admit that a
system as dynamic as capitalism depends upon a mode of organisation
from which markets are excluded . . . This . . . allows market 
individualists to ignore the reality of non-market organisations
in the private sector . . . They can thus ignore the reality of 
control and authority within the private capitalist corporation
but remain critical of public sector bureaucracy and state planning."</i>
[<b>Economics and Utopia</b>, pp. 85-6]
</blockquote></p><p>
The propertarian perspective inevitably generates massive contradictions, 
such as admitting that both the state and private property share a common
monopoly of decision making over a given area yet opposing only the former 
(see <a href="secF1.html">section F.1</a>). As anarchists have long pointed 
out, the hierarchical social relations associated with private property
have nothing to do with individual liberty. Removing the state but
keeping private property would, therefore, not be a step forward: <i>"A 
fine business we would make if we destroyed the State and replaced it 
with a mass of little States! killing a monster with one head and keeping 
a monster with a thousand heads!"</i> [Carlo Cafiero, <i>"Anarchy and 
Communism"</i>, pp. 179-86, <b>The Raven</b>, No. 6, p. 181] 
</p><p>
This is why we argue that anarchism is more than just a stateless society,
for while a society without a state is a necessary condition for anarchy
it is not sufficient -- private hierarchies also limit freedom. Hence
Chomsky:
</p><p>
<blockquote>
<i>"It's all generally based on the idea that hierarchic and authoritarian 
structures are not self-justifying. They have to have a justification
. . . For example, your workplace is one point of contact and association. 
So, workplaces ought to be democratically controlled by participants . . .  
there are all kinds of ways in which people interact with one another. The 
forms of organisation and association that grow out of those should be, 
to the extent possible, non-authoritarian, non-hierarchic, managed and 
directed by the participants."</i> [<b>Reluctant Icon</b>]
</blockquote>
</p><p>
Therefore, anarchists argue, <b>real</b> libertarian ideas <b>must</b> be based 
on workers self-management, i.e. workers must control and manage the 
work they do, determining where and how they do it and what happens to the 
fruit of their labour, which in turn means the elimination of wage labour. 
Or, to use Proudhon's words, the <i>"abolition of the proletariat."</i> 
[<b>Selected Writings of Pierre-Joseph Proudhon</b>, p. 179] Unless this
is done then the majority of people will become subject to the authoritarian
social relationships the likes of Mises and other right-wing 
"libertarians" support. As one communist-anarchist put it:
</p><p>
<blockquote><i>
"It is because the individual does not own himself, and is not permitted 
to be his true self. He has become a mere market commodity, an instrument 
for the accumulation of property -- for others . . . Individuality is 
stretched on the Procrustes bed of business . . . If our individuality 
were to be made the price of breathing, what ado there would be about 
the violence done to the personality! And yet our very right to food, 
drink and shelter is only too often conditioned upon our loss of 
individuality. These things are granted to the propertyless millions 
(and how scantily!) only in exchange for their individuality -- they 
become the mere instruments of industry."</i> [Max Baginski, <i>"Stirner: 
The Ego and His Own"</i>, pp. 142-151, <b>Mother Earth</b>, Vol. II, No. 3, 
p. 150]
</blockquote></p><p>
Socialism, anarchists argue, can only mean a 
classless and anti-authoritarian (i.e. libertarian) society in which people 
manage their own affairs, either as individuals or as part of a group 
(depending on the situation). In other words, it implies self-management 
in all aspects of life -- including work. It has always struck anarchists 
as somewhat strange and paradoxical (to say the least) that a system of 
<i>"natural"</i> liberty (Adam Smith's term, misappropriated by supporters 
of capitalism) involves the vast majority having to sell that liberty in 
order to survive. Thus to be consistently libertarian is, logically, to
advocate self-management, and so socialism (see 
<a href="secG4.html#secg42">section G.4.2</a>). This explains the long standing
anarchist opposition to the phoney "individualism" associated with classical 
liberalism (so-called right-wing "libertarian" ideology, although better 
termed "propertarian" to avoid confusion). Thus we find Emma Goldman dismissing
<i>"this kind of individualism"</i> in <i>"whose name . . . social oppression
are defended and held up as virtues."</i> [<b>Red Emma Speaks</b>, p. 112]
</p><p>
As we will discuss in
<a href="secI3.html#seci33">section I.3.3</a>, socialisation is 
advocated to ensure the elimination of wage labour and is a common theme 
of all genuine forms of socialism. In theory at least, anarchist argue 
that state socialism does not eliminate wage labour, rather it universalises 
it. In fact, state socialism shows that socialism is <b>necessarily</b> 
libertarian, not statist. For if the state owns the workplace, then 
the producers do not, and so they will not be at liberty to manage 
their own work but will instead be subject to the state as the boss. 
Moreover, replacing the capitalist owning class by  state officials 
in no way eliminates wage labour; in fact it makes it worse in many 
cases. Therefore "socialists" who argue for nationalisation of the 
means of production are <b>not</b> socialists (which means that the 
Soviet Union and the other so-called "socialist" countries are 
<b>not</b> socialist nor are parties which advocate nationalisation 
socialist). 
</p><p>
Indeed, attempts to associate socialism with the state misunderstands
the nature of socialism. It is an essential principle of socialism that
(social) inequalities between individuals must be abolished to ensure
liberty for all (<b>natural</b> inequalities cannot be abolished, nor do 
anarchists desire to do so). Socialism, as Proudhon put it, <i>"is egalitarian
above all else."</i> [<b>No Gods, No Masters</b>, vol. 1, p. 57] This applies 
to inequalities of power as well, especially to <b>political</b> power. And
any hierarchical system (particularly the state) is marked by inequalities
of power -- those at the top (elected or not) have more power than 
those at the bottom. Hence the following comments provoked by the
expulsion of anarchists from the social democratic Second International:
</p><p><blockquote>
<i>"It could be argued with much more reason that we are the most
logical and most complete socialists, since we demand for every 
person not just his [or her] entire measure of the wealth of society 
but also his [or her] portion of social power, which is to say, the 
real ability to make his [or her] influence felt, along with that of 
everybody else, in the administration of public affairs."</i> 
[Malatesta and Hamon, <b>Op. Cit.</b>, vol. 2, p. 20]
</blockquote></p><p>
The election of someone to administer public affairs <b>for you</b> is not
having a portion of social power. It is, to use of words of Emile
Pouget (a leading French anarcho-syndicalist) <i>"an act of abdication,"</i> 
the delegating of power into the hands of a few. [<b>Op. Cit.</b>, p. 67] 
This means that <i>"<b>[a]ll political power inevitably creates a privileged
situation</b> for the men who exercise it. Thus it violates, from the
beginning, the equalitarian principle."</i> [Voline, <b>The Unknown 
Revolution</b>, p. 249]
</p><p>
From this short discussion we see the links between libertarian and
socialism. To be a true libertarian requires you to support workers'
control otherwise you support authoritarian social relationships. To
support workers' control, by necessity, means that you must ensure
that the producers own (and so control) the means of producing and 
distributing the goods they create. Without ownership, they cannot 
truly control their own activity or the product of their labour. The 
situation where workers possess the means of producing and distributing 
goods is socialism. Thus to be a true libertarian requires you to be a
socialist.
</p><p>
Similarly, a true socialist must also support individual liberty of
thought and action, otherwise the producers "possess" the means 
of production and distribution in name only. If the state owns the 
means of life, then the producers do not and so are in no position
to manage their own activity. As the experience of Russia under
Lenin shows, state ownership soon produces state control and the
creation of a bureaucratic class which exploits and oppresses the 
workers even more so than their old bosses. Since it is an essential 
principle of socialism that inequalities between people must be 
abolished in order to ensure liberty, it makes no sense for a 
genuine socialist to support any institution based on inequalities 
of power (and as we discussed in <a href="secB2.html">section B.2</a>, 
the state is just such 
an institution). To oppose inequality and not extend that opposition
to inequalities in power, especially <b>political</b> power, suggests
a lack of clear thinking. Thus to be a true socialist requires you 
to be a libertarian, to be for individual liberty and opposed to 
inequalities of power which restrict that liberty.
</p><p>
Therefore, rather than being an oxymoron, <i>"libertarian socialism"</i> 
indicates that true socialism must be libertarian and that a libertarian
who is not a socialist is a phoney. As true socialists oppose wage 
labour, they must also oppose the state for the same reasons. Similarly,
consistent libertarians must oppose wage labour for the same reasons 
they must oppose the state. So, libertarian socialism rejects the idea 
of state ownership and control of the economy, along with the state as 
such. Through workers' self-management it proposes to bring an end to 
authority, exploitation, and hierarchy in production. This in itself will 
increase, not reduce, liberty. Those who argue otherwise rarely claim that 
political democracy results in less freedom than political dictatorship.
</p><p>
One last point. It could be argued that many social anarchists smuggle 
the state back in via communal ownership of the means of life. This, 
however, is not the case. To argue so confuses society with the state. 
The communal ownership advocated by collectivist and communist 
anarchists is not the same as state ownership. This is because it 
is based on horizontal relationships between the actual workers and 
the "owners" of social capital (i.e. the federated communities as a 
whole, which includes the workers themselves we must stress), not vertical 
ones as in nationalisation (which are between state bureaucracies and its
"citizens"). Also, such communal ownership is based upon letting 
workers manage their own work and workplaces. This means that it is
based upon, and does not replace, workers' self-management. In addition, 
all the members of an anarchist community fall into one of three categories:  
</p><p><ol>
	(1) producers (i.e. members of a collective or self-employed 
	    artisans);<br> 
	(2) those unable to work (i.e. the  old, sick and so on, who 
	    <b>were</b> producers); or <br>
	(3) the young (i.e. those who <b>will be</b> producers).
</ol></p><p>
Therefore, workers' self-management within a framework of communal
ownership is entirely compatible with libertarian and socialist ideas
concerning the possession of the means of producing and distributing 
goods by the producers themselves. Far from there being any contradiction 
between libertarianism and socialism, libertarian ideals imply socialist 
ones, and vice versa. As Bakunin put it in 1867:
</p><p><blockquote>
<i>"We are convinced that freedom without Socialism is privilege and 
injustice, and that Socialism without freedom is slavery and 
brutality."</i> [<b>Bakunin on Anarchism</b>, p. 127] 
</blockquote></p><p>
History has proven him correct. Rather that libertarian socialism
being the oxymoron, it is state socialism and libertarian capitalism 
that are. Both historically (in terms of who first used the word)
and logically (in terms of opposing all hierarchical organisations) 
it is anarchists who should be called libertarians, <b>not</b> the
propertarian right.
</p>

<a name="seci11"><h2>I.1.1 Is socialism impossible?</h2></a>

<p>
In 1920, the right-wing economist Ludwig von Mises declared socialism 
to be impossible. A leading member of the "Austrian" school of 
economics, he argued this on the grounds that without private ownership 
of the means of production, there cannot be a competitive market for 
production goods and without a market for production goods, it is 
impossible to determine their values. Without knowing their values, 
economic rationality is impossible and so a socialist economy would 
simply be chaos: <i>"the absurd output of a senseless apparatus."</i> 
For Mises, socialism meant central planning with the economy 
<i>"subject to the control of a supreme authority."</i> [<i>"Economic 
Calculation in the Socialist Commonwealth"</i>, pp. 87-130, 
<b>Collectivist Economic Planning</b>, F.A von Hayek (ed.), p. 104 and 
p. 106] While applying his <i>"economic calculation argument"</i> to 
Marxist ideas of a future socialist society, his argument, it is claimed, is 
applicable to <b>all</b> schools of socialist thought, including libertarian 
ones. It is on the basis of his arguments that many right-wingers claim 
that libertarian (or any other kind of) socialism is impossible in 
principle.
</p><p>
Yet as David Schweickart observes <i>"[i]t has long been recognised that 
Mises's argument is logically defective. Even without a market in 
production goods, their monetary values can be determined."</i> [<b>Against 
Capitalism</b>, p. 88] In other words, economic calculation based on prices 
is perfectly possible in a libertarian socialist system. After all, to 
build a workplace requires so many tonnes of steel, so many bricks, so 
many hours of work and so on. If we assume a mutualist society, then the 
prices of these goods can be easily found as the co-operatives in question 
would be offer their services on the market. These commodities would be the 
inputs for the construction of production goods and so the latter's monetary 
values can be found.
</p><p>
Ironically enough, Mises <b>did</b> mention the idea of such a mutualist 
system in his initial essay. <i>"Exchange relations between production-goods 
can only be established on the basis of private ownership of the means of 
production"</i> he asserted. <i>"When the 'coal syndicate' provides the 
'iron syndicate' with coal, no price can be formed, except when both 
syndicates are the owners of the means of production employed in their 
business. This would not be socialisation but workers' capitalism and 
syndicalism."</i> [<b>Op. Cit.</b>, p. 112] However, his argument is flawed 
for numerous reasons.
</p><p>
First, and most obvious, socialisation
(as we discuss in <a href="secI3.html#seci33">section I.3.3</a>) simply
means free access to the means of life. As long as those who join a
workplace have the same rights and liberties as existing members then 
there is socialisation. A market system of co-operatives, in other 
words, is <b>not</b> capitalist as there is no wage labour involved 
as a new workers become full members of the syndicate, with the same 
rights and freedoms as existing members. Thus there are no hierarchical 
relationships between owners and wage slaves (even if these owners also 
happen to work there). As all workers' control the means of production 
they use, it is not capitalism.
</p><p>
Second, nor is such a system usually called, as Mises suggests, 
<i>"syndicalism"</i> but rather mutualism and he obviously considered 
its most famous advocate, Proudhon and his <i>"fantastic dreams"</i> 
of a mutual bank, as a socialist. [<b>Op. Cit.</b>, p. 88] Significantly, 
Mises subsequently admitted that it was <i>"misleading"</i> to call 
syndicalism workers' capitalism, although <i>"the workers are the owners 
of the means of production"</i> it was <i>"not genuine socialism, that 
is, centralised socialism"</i>, as it <i>"must withdraw productive 
goods from the market. Individual citizens must not dispose of the 
shares in the means of production which are allotted to them."</i> 
Syndicalism, i.e., having those who do the work control of it, 
was <i>"the ideal of plundering hordes"</i>! [<b>Socialism</b>, 
p. 274fn, p. 270, p. 273 and p. 275]
</p><p>
His followers, likewise, concluded that "syndicalism" was not 
capitalism with Hayek stating that there were <i>"many 
types of socialism"</i> including <i>"communism, syndicalism, 
guild socialism"</i>. Significantly, he indicated that Mises
argument was aimed at systems based on the <i>"central direction 
of all economic activity"</i> and so <i>"earlier systems of more 
decentralised socialism, like guild-socialism or syndicalism, 
need not concern us here since it seems now to be fairly generally 
admitted that they provide no mechanism whatever for a rational 
direction of economic activity."</i> [<i>"The Nature and History 
of the Problem"</i>, pp. 1-40, <b>Collectivist Economic Planning</b>, 
F.A von Hayek (ed.),p. 17,  p. 36 and p. 19] Sadly he failed to 
indicate who <i>"generally admitted"</i> such a conclusion. More 
recently, Murray Rothbard urged the state to impose private shares 
onto the workers in the former Stalinist regimes of Eastern Europe 
as ownership was <i>"not to be granted to collectives or co-operatives or 
workers or peasants holistically, which would only bring back the ills of 
socialism in a decentralised and chaotic syndicalist form."</i> [<b>The 
Logic of Action II</b>, p. 210] 
</p><p>
Third, syndicalism usually refers to a strategy (revolutionary
unionism) used to achieve (libertarian) socialism rather than 
the goal itself (as Mises himself noted in a tirade against
unions, <i>"Syndicalism is nothing else but the French word for 
trade unionism"</i> [<b>Socialism</b>, p. 480]). It could be
argued that such a mutualist system could be an aim for some 
syndicalists, although most were and still are in favour of 
libertarian communism (a simple fact apparently unknown to 
Mises). Indeed, Mises ignorance of syndicalist thought is 
striking, asserting that the <i>"market is a consumers' democracy. 
The syndicalists want to transform it into a producers' democracy."</i> 
[<b>Human Action</b>, p. 809] Most syndicalists, however, aim to
<b>abolish</b> the market and <b>all</b> aim for workers' control
of production to <b>complement</b> (not replace) consumer choice. 
Syndicalists, like other anarchists, do not aim for workers' 
control of consumption as Mises asserts. Given that 
Mises asserts that the market, in which one person can have a 
thousand votes and another one, is a <i>"democracy"</i> his 
ignorance of syndicalist ideas is perhaps only one aspect of a 
general ignorance of reality.
</p><p>
More importantly, the whole premise of his critique of mutualism
is flawed. <i>"Exchange relations in productive goods"</i> he
asserted, <i>"can only be established on the basis of private 
property in the means of production. If the Coal Syndicate 
delivers coal to the Iron Syndicate a price can be fixed only 
if both syndicates own the means of production in industry."</i> 
[<b>Socialism</b>, p. 132] This may come as a surprise to the
many companies whose different workplaces sell each other their 
products! In other words, capitalism itself shows that workplaces 
owned by the same body (in this case, a large company) can exchange 
goods via the market. That Mises makes such a statement 
indicates well the firm basis of his argument in reality. Thus 
a socialist society can have extensive autonomy for its 
co-operatives, just as a large capitalist firm can:
</p><p>
<blockquote>
<i>"the entrepreneur is in a position to separate the calculation of 
each part of his total enterprise in such a way that he can determine 
the role it plays within his whole enterprise. Thus he can look at 
each section as if it were a separate entity and can appraise it 
according to the share it contributes to the success of the total 
enterprise. Within this system of business calculation each section 
of a firm represents an integral entity, a hypothetical independent 
business, as it were. It is assumed that this section 'owns' a 
definite part of the whole capital employed in the enterprise, that 
it buys from other sections and sells to them, that it has its own 
expenses and its own revenues, that its dealings result either in 
a profit or in a loss which is imputed to its own conduct of affairs 
as distinguished from the result of the other sections. Thus the 
entrepreneur can assign to each section's management a great deal 
of independence . . . Every manager and submanager is responsible for 
the working of his section or subsection. It is to his credit if the 
accounts show a profit, and it is to his disadvantage if they 
show a loss. His own interests impel him toward the utmost care 
and exertion in the conduct of his section's affairs."</i> [<b>Human 
Action</b>, pp. 301-2]
</blockquote>
</p><p>
So much, then, for the notion that common ownership makes it impossible
for market socialism to work. After all, the libertarian community can
just as easily separate the calculation of each part of its enterprise
in such a way as to determine the role each co-operative plays in its
economy. It can look at each section as if it were a separate entity
and appraise it according to the share it contributes as it is assumed
that each section "owns" (i.e., has use rights over) its definite part.
It can then buy from, and sell to, other co-operatives and a profit 
or loss can be imputed to evaluate the independent action of each 
co-operative and so their own interests impel the co-operative workers 
toward the utmost care and exertion in the conduct of their co-operative's
affairs.
</p><p>
So to refute Mises, we need only repeat what he himself argued about large 
corporations! Thus there can be extensive autonomy for workplaces under 
socialism and this does not in any way contradict the fact that <i>"all 
the means of production are the property of the community."</i> 
[<i>"Economic Calculation in the Socialist Commonwealth"</i>, 
<b>Op. Cit.</b>, p. 89] Socialisation, in other words, does <b>not</b> 
imply central planning but rather free access and free association. In 
summary, then, Mises confused property rights with use rights, possession 
with property, and failed to see now a mutualist system of socialised 
co-operatives exchanging products can be a viable alternative to the 
current exploitative and oppressive economic regime.
</p><p>
Such a mutualist economy also strikes at the heart of Mises' 
claims that socialism was <i>"impossible."</i> Given that he 
accepted that there may be markets, and hence market prices, 
for consumer goods in a socialist economy his claims of the 
impossibility of socialism seems unfounded. For Mises, 
the problem for socialism was that <i>"because no production-good 
will ever become the object of exchange, it will be impossible 
to determine its monetary value."</i> [<b>Op. Cit.</b>, p. 92] 
The flaw in his argument is clear. Taking, for example,
coal, we find that it is both a means of production and of
consumption. If a market in consumer goods is possible for
a socialist system, then competitive prices for production
goods is also possible as syndicates producing production-goods
would also sell the product of their labour to other syndicates
or communes. As Mises admitted when discussing one scheme of
guild socialism, <i>"associations and sub-associations maintain a
mutual exchange-relationship; they receive and give as if they
were owners. Thus a market and market-prices are formed."</i>
Thus, when deciding upon a new workplace, railway or house, the 
designers in question do have access to competitive prices with 
which to make their decisions. Nor does Mises' argument work against 
communal ownership in such a system as the commune would be buying 
products from syndicates in the same way as one part of a company 
can buy products from another part of the same company under 
capitalism. That goods produced by self-managed syndicates have 
market-prices does not imply capitalism for, as they abolish wage 
labour and are based on free-access (socialisation), it is a form 
of socialism (as socialists define it, Mises' protestations that 
<i>"this is incompatible with socialism"</i> not-with-standing!). 
[<b>Socialism</b>, p. 518]
</p><p>
Murray Rothbard suggested that a self-managed system would fail, 
and a system <i>"composed exclusively of self-managed enterprises 
is impossible, and would lead . . . to calculative chaos and 
complete breakdown."</i> When <i>"each firm is owned jointly by 
all factor-owners"</i> then <i>"there is no separation at all 
between workers, landowners, capitalists, and entrepreneurs. 
There would be no way, then, of separating the wage incomes 
received from the interest or rent incomes or profits received. 
And now we finally arrive at the real reason why the economy 
cannot consist completely of such firms (called 'producers'
co-operatives'). For, without an external market for wage rates,
rents, and interest, there would be no rational way for entrepreneurs
to allocate factors in accordance with the wishes of the consumers.
No one would know where he could allocate his land or his labour
to provide the maximum monetary gains. No entrepreneur would know
how to arrange factors in their most value-productive combination
to earn greatest profit. There could be no efficiency in production
because the requisite knowledge would be lacking."</i> [quoted by
David L. Prychitko, <b>Markets, Planning and Democracy</b>, p. 135 
and p. 136]
</p><p>
It is hard to take this argument seriously. Consider, for example,
a pre-capitalist society of farmers and artisans. Both groups of
people own their own means of production (the land and the tools
they use). The farmers grow crops for the artisans who, in turn,
provide the farmers with the tools they use. According to Rothbard,
the farmers would have no idea what to grow nor would the artisans
know which tools to buy to meet the demand of the farmers nor which
to use to reduce their working time. Presumably, both the farmers
and artisans would stay awake at night worrying what to produce,
wishing they had a landlord and boss to tell them how best to use
their labour and resources. 
</p><p>
Let us add the landlord class to this society. Now the landlord can 
tell the farmer what to grow as their rent income indicates how to 
allocate the land to its most productive use. Except, of course, it
is still the farmers who decide what to produce. Knowing that they
will need to pay rent (for access to the land) they will decide to
devote their (rented) land to the most profitable use in order to 
both pay the rent and have enough to live on. Why they do not seek
the most profitable use without the need for rent is not explored 
by Rothbard. Much the same can be said of artisans subject to a boss,
for the worker can evaluate whether an investment in a specific new 
tool will result in more income or reduced time labouring or whether
a new product will likely meet the needs of consumers. Moving from 
a pre-capitalist society to a post-capitalist one, it is clear that 
a system of self-managed co-operatives can make the same decisions 
without requiring economic masters. This is unsurprising, given
that Mises' asserted that the boss <i>"of course exercises power 
over the workers"</i> but that the <i>"lord of production is the 
consumer."</i> [<b>Socialism</b>, p. 443] In which case, the boss 
need not be an intermediary between the real "lord" and those who 
do the production!
</p><p>
All in all, Rothbard confirms Kropotkin's comments that economics
(<i>"that pseudo-science of the bourgeoisie"</i>) <i>"does not cease 
to give praise in every way to the benefits of individual property"</i>
yet <i>"the economists do not conclude, 'The land to him who cultivates 
it.' On the contrary, they hasten to deduce from the situation, 'The 
land to the lord who will get it cultivated by wage earners!'"</i> 
[<b>Words of a Rebel</b>, pp. 209-10] In addition, Rothbard implicitly 
places "efficiency" above liberty, preferring dubious "efficiency" gains 
to the actual gains in freedom which the abolition of workplace autocracy
would create. Given a choice between liberty and "efficiency", the 
genuine anarchist would prefer liberty. Luckily, though, workplace 
liberty increases efficiency so Rothbard's decision is a wrong one. It 
should also be noted that Rothbard's position (as is usually the case) 
is directly opposite that of Proudhon, who considered it <i>"inevitable"</i>
that in a free society <i>"the two functions of <b>wage-labourer</b> 
on the one hand, and of <b>proprietor-capitalist-contractor</b> 
on the other, become equal and inseparable in the person of every 
workingman"</i>. This was the <i>"first principle of the new economy, 
a principle full of hope and of consolation for the labourer without 
capital, but a principle full of terror for the parasite and for the 
tools of parasitism, who see reduced to naught their celebrated 
formula: <b>Capital, labour, talent</b>!"</i> [<b>Proudhon's Solution 
of the Social Problem</b>, p. 165 and p. 85]
</p><p>
And it does seem a strange co-incidence that someone born into a 
capitalist economy, ideologically supporting it with a passion and
seeking to justify its class system just happens to deduce from a 
given set of axioms that landlords and capitalists happen to 
play a vital role in the economy! It would not take too much time to 
determine if someone in a society without landlords or capitalists 
would also logically deduce from the same axioms the pressing economic 
necessity for such classes. Nor would it take long to ponder why Greek 
philosophers, like Aristotle, concluded that slavery was natural. And 
it does seem strange that centuries of coercion, authority, statism, 
classes and hierarchies all had absolutely no impact on how society 
evolved, as the end product of real history (the capitalist economy) 
just happens to be the same as Rothbard's deductions from a few 
assumptions predict. Little wonder, then, that "Austrian" economics 
seems more like rationalisations for some ideologically desired result 
than a serious economic analysis.
</p><p>
Even some dissident "Austrian" economists recognise the weakness of
Rothbard's position. Thus <i>"Rothbard clearly misunderstands the 
general principle behind producer co-operatives and self-management 
in general."</i> In reality, <i>"[a]s a democratic method of enterprise 
organisation, workers' self-management is, in principle, fully compatible 
with a market system"</i> and so <i>"a market economy comprised of 
self-managed enterprises is consistent with Austrian School theory 
. . . It is fundamentally a <b>market-based system</b> . . . that doesn't
seem to face the epistemological hurdles . . . that prohibit rational 
economic calculation"</i> under state socialism. Sadly, socialism is
still equated with central planning, for such a system <i>"is certainly 
not socialism. Nor, however, is it capitalism in the conventional 
sense of the term."</i> In fact, it is not capitalism at all and if
we assume that free access to resources such as workplaces and credit,
then it most definitely <b>is</b> socialism (<i>"Legal ownership is not 
the chief issue in defining workers' self-management -- management is. 
Worker-managers, though not necessarily the legal owners of all the 
factors of production collected within the firm, are free to experiment 
and establish enterprise policy as they see fit."</i>). [David L. 
Prychitko, <b>Op. Cit.</b>, p. 136, p. 135, pp. 4-5, p. 4 and p. 135]
This suggests that non-labour factors can be purchased from other 
co-operatives, credit provided by mutual banks (credit co-operatives) 
at cost and so forth. As such, a mutualist system is perfectly feasible.
</p><p>
Thus economic calculation based on competitive market prices 
is possible under a socialist system. Indeed, we see examples 
of this even under capitalism. For example, the Mondragon 
co-operative complex in the Basque Country indicate that a 
libertarian socialist economy can exist and flourish. Perhaps
it will be suggested that an economy needs stock markets to
price companies, as Mises did. Thus investment is <i>"not 
a matter for the mangers of joint stock companies, it is 
essentially a matter of the capitalists"</i> in the <i>"stock 
exchanges"</i>. Investment, he asserted, was <i>"not a matter 
of wages"</i> of managers but of <i>"the capitalist who buys 
and sell stocks and shares, who make loans and recover them, 
who make deposits in the banks."</i> [<b>Socialism</b>, p. 139]
</p><p>
It would be churlish to note that the members of co-operatives
under capitalism, like most working class people, are more than
able to make deposits in banks and arrange loans. In a mutualist
economy, workers will not loose this ability just because the
banks are themselves co-operatives. Similarly, it would be 
equally churlish but essential to note that the stock market is 
hardly the means by which capital is actually raised within 
capitalism. As David Engler points out, <i>"[s]upporters of the 
system . . . claim that stock exchanges mobilise funds for 
business. Do they? When people buy and sell shares, 'no investment
 goes into company treasuries . . . Shares simply change hands 
for cash in endless repetition.' Company treasuries get funds 
only from new equity issues. These accounted for an average of 
a mere 0.5 per cent of shares trading in the US during the 1980s."</i> 
[<b>Apostles of Greed</b>, pp. 157-158] This is echoed by David
Ellerman:
<p></p>
<blockquote>
<i>"In spite of the stock market's large symbolic value, it is
notorious that it has relatively little to do with the production 
of goods and services in the economy (the gambling industry aside). 
The overwhelming bulk of stock transactions are in second-hand 
shares so that the capital paid for shares usually goes to other 
stock traders, not to productive enterprises issuing new shares."</i> 
[<b>The Democratic Worker-Owned Firm</b>, p. 199]
</blockquote>
</p><p>
This suggests that the <i>"efficient allocation of capital in 
production does not require a stock market (witness the small 
business sector [under capitalism])."</i> <i>"Socialist firms,"</i> 
he notes, <i>"are routinely attacked as being inherently inefficient
because they have no equity shares exposed to market valuation.
If this argument had any merit, it would imply that the whole
sector of unquoted closely-held small and medium-sized firms in
the West was 'inherently inefficient' -- a conclusion that must
be viewed with some scepticism. Indeed, in the comparison to 
large corporations with publicly-traded shares, the closely-held
firms are probably <b>more</b> efficient users of capital."</i>
[<b>Op. Cit.</b>, p. 200 and p. 199]
</p><p>
In terms of the impact of the stock market on the economy there is 
good reason to think that this <b>hinders</b> economic efficiency 
by generating a perverse set of incentives and misleading information 
flows and so their abolition would actually <b>aid</b> production and 
productive efficiency). 
</p><p>
Taking the first issue, the existence of a stock market has serious 
(negative) effects on investment. As Doug Henwood notes, there <i>"are 
serious communication problems between managers and shareholders."</i> 
This is because <i>"[e]ven if participants are aware of an upward bias to 
earnings estimates [of companies], and even if they correct for it, 
managers would still have an incentive to try to fool the market. If 
you tell the truth, your accurate estimate will be marked down by a 
sceptical market. So, it's entirely rational for managers to boost 
profits in the short term, either through accounting gimmickry or 
by making only investments with quick paybacks."</i> So, managers 
<i>"facing a market [the stock market] that is famous for its 
preference for quick profits today rather than patient long-term 
growth have little choice but to do its bidding. Otherwise, their 
stock will be marked down, and the firm ripe for take-over."</i> 
While <i>"[f]irms and economies can't get richer by starving 
themselves"</i> stock market investors <i>"can get richer when 
the companies they own go hungry -- at least in the short term. 
As for the long term, well, that's someone else's problem the 
week after next."</i> [<b>Wall Street</b>, p. 171]
</p><p>
Ironically, this situation has a parallel with Stalinist central
planning. Under that system the managers of State workplaces had an 
incentive to lie about their capacity to the planning bureaucracy.
The planner would, in turn, assume higher capacity, so harming
honest managers and encouraging them to lie. This, of course, 
had a seriously bad impact on the economy. Unsurprisingly, the
similar effects caused by capital markets on economies subject
to them are as bad as well as downplaying long term issues and 
investment. In addition, it should be noted that stock-markets 
regularly experiences bubbles and subsequent bursts. Stock markets 
may reflect the collective judgements of investors, but it says 
little about the quality of those judgements. What use are 
stock prices if they simply reflect herd mentality, the delusions
of people ignorant of the real economy or who fail to see a 
bubble? Particularly when the real-world impact when such
bubbles burst can be devastating to those uninvolved with the
stock market?
</p><p>
In summary, then, firms are <i>"over-whelmingly self-financing -- 
that is, most of their investment expenditures are funded through 
profits (about 90%, on longer-term averages)"</i> The stock markets provide
<i>"only a sliver of investment funds."</i> There are, of course, some
<i>"periods like the 1990s, during which the stock market serves
as a conduit for shovelling huge amounts of cash into speculative
venues, most of which have evaporated . . . Much, maybe most, of
what was financed in the 1990s didn't deserve the money."</i> Such
booms do not last forever and are <i>"no advertisement for the
efficiency of our capital markets."</i> [Henwood, <b>After the New 
Economy</b>, p. 187 and p. 188] 
</p><p>
Thus there is substantial reason to question the suggestion that a 
stock market is necessary for the efficient allocation of capital.
There is no need for capital markets in a system based on mutual 
banks and networks of co-operatives. As Henwood concludes, <i>"the 
signals emitted by the stock market are either irrelevant or harmful 
to real economic activity, and that the stock market itself counts 
little or nothing as a source of finance. Shareholders . . . have 
no useful role."</i> [<b>Wall Street</b>, p. 292]
</p><p>
Then there is also the ironic nature of Rothbard's assertion that 
self-management would ensure there <i>"could be no efficiency in 
production because the requisite knowledge would be lacking."</i> 
This is because capitalist firms are hierarchies, based on top-down 
central planning, and this hinders the free flow of knowledge and
information. As with Stalinism, within the capitalist firm 
information passes up the organisational hierarchy and becomes 
increasingly simplified and important local knowledge and details 
lost (when not deliberately falsified to ensure continual employment 
by suppressing bad news). The top-management takes decisions based 
on highly aggregated data, the quality of which is hard to know.
The management, then, suffers from information and knowledge 
deficiencies while the workers below lack sufficient autonomy to 
act to correct inefficiencies as well as incentive to 
communicate accurate information and act to improve the 
production process. As Cornelius Castoriadis correctly noted:
</p><p>
<blockquote>
<i>"Bureaucratic planning is nothing but the extension to the 
economy as a whole of the methods created and applied by 
capitalism in the 'rational' direction of large production
units. If we consider the most profound feature of the
economy, the concrete situation in which people are placed,
we see that bureaucratic planning is the most highly 
perfected realisation of the spirit of capitalism; it
pushes to the limit its most significant tendencies. Just 
as in the management of a large capitalist production unit,
this type of planning is carried out by a separate stratum
of managers . . . Its essence, like that of capitalist 
production, lies in an effort to reduce the direct producers
to the role of pure and simple executants of received orders,
orders formulated by a particular stratum that pursues its
own interests. This stratum cannot run things well, just as
the management apparatus . . . [in capitalist] factories 
cannot run things well. The myth of capitalism's productive
efficiency at the level of the individual factory, a myth
shared by bourgeois and Stalinist ideologues alike, cannot
stand up to the most elemental examination of the facts, and
any industrial worker could draw up a devastating indictment 
against capitalist 'rationalisation' <b>judged on its own terms.</b>
</i></blockquote>
</p><p>
<blockquote><i>
"First of all, the managerial bureaucracy does not <b>know</b> what
it is supposed to be managing. The reality of production escapes
it, for this reality is nothing but the activity of the producers,
and the producers do not inform the managers . . . about what is
really taking place. Quite often they organise themselves in such
a way that the managers won't be informed (in order to avoid 
increased exploitation, because they feel antagonistic, or quite
simply because they have no interest: It isn't <b>their</b> business).
</i></blockquote>
</p><p>
<blockquote><i>
"In the second place, the way in which production is organised is
set up entirely against the workers. They always are being asked,
one way or another, to do more work without getting paid for it.
Management's orders, therefore, inevitably meet with fierce 
resistance on the part of those who have to carry them out."</i> 
[<b>Political and Social Writings</b>, vol. 2, pp. 62-3]
</blockquote>
<p></p>
This is <i>"the same objection as that Hayek raises against the possibility
of a planned economy. Indeed, the epistemological problems that
Hayek raised against centralised planned economies have been 
echoed within the socialist tradition as a problem within the
capitalist firm."</i> There is <i>"a real conflict within the 
firm that parallels that which Hayek makes about any centralised
economy."</i> [John O'Neill, <b>The Market</b>, p. 142] This is 
because workers have knowledge about their work and workplace
that their bosses lack and a self-managed co-operative workplace
would motivate workers to use such information to improve the
firm's performance. In a capitalist workplace, as in a Stalinist
economy, the workers have no incentive to communicate this
information as <i>"improvements in the organisation and methods of 
production initiated by workers essentially profit capital, which 
often then seizes hold of them and turns them against the workers.
The workers know it and consequently they restrict their 
participation in production . . . They restrict their output;
they keep their ideas to themselves . . . They organise among
themselves to carry out their work, all the while keeping up
a facade of respect for the official way they are supposed to
organise their work."</i> [Castoriadis, <b>Op. Cit.</b>, 
pp. 181-2] An obvious example would be concerns that management
would seek to monopolise the workers' knowledge in order to 
accumulate more profits, better control the workforce or replace 
them (using the higher productivity as an excuse). Thus 
self-management rather than hierarchy enhances the flow and 
use of information in complex organisations and so improves 
efficiency.
<p></p>
This conclusion, it should be stressed, is not idle speculation 
and that Mises was utterly wrong in his assertions related to 
self-management. People, he stated, <i>"err"</i> in thinking 
that profit-sharing <i>"would spur the worker on to a more 
zealous fulfilment of his duties"</i> (indeed, it <i>"must lead straight 
to Syndicalism"</i>) and it was <i>"nonsensical to give 'labour' 
. . . a share in management. The realisation of such a postulate 
would result in syndicalism."</i> [<b>Socialism</b>, p. 268, p. 269 and 
 p. 305] Yet, as we note in <a href="secI3.html#seci32">section I.3.2</a>, 
the empirical evidence is overwhelmingly against Mises (which suggests 
why "Austrians" are so dismissive of empirical evidence, as it exposes 
flaws in the great chains of deductive reasoning they so love). In 
fact, workers' participation in management and profit sharing enhance 
productivity. In one sense, though, Mises is right, in that capitalist 
firms will tend not to encourage participation or even profit sharing 
as it shows to workers the awkward fact that while the bosses 
may need them, they do not need the bosses. As 
discussed in <a href="secJ5.html#secj512">section J.5.12</a>, 
bosses are fearful that such schemes 
<b>will</b> lead to "syndicalism" and so quickly stop them in order
to remain in power -- in spite (or, more accurately, because) of 
the efficiency and productivity gains they result in. 
</p><p>
<i>"Both capitalism and state socialism,"</i> summarises Ellerman, 
<i>"suffer from the motivational inefficiency of the employment 
relation."</i> <b>Op. Cit.</b>, pp. 210-1] Mutualism would be 
<b>more</b> efficient as well as freer for, once the stock market 
and workplace hierarchies are removed, serious blocks and distortions 
to information flow will be eliminated.
</p><p>
Unfortunately, the state socialists who replied to Mises in the 
1920s and 1930s did not have such a libertarian economy in mind. 
In response to Mises initial challenge, a number of economists 
pointed out that Pareto's disciple, Enrico Barone, had already, 
13 years earlier, demonstrated the theoretical possibility of a 
<i>"market-simulated socialism."</i> However, the principal attack on 
Mises's argument came from Fred Taylor and Oscar Lange (for a 
collection of their main papers, see <b>On the Economic Theory of 
Socialism</b>). In light of their work, Hayek shifted the 
question from theoretical impossibility to whether the theoretical
solution could be approximated in practice. Which raises an interesting 
question, for if (state) socialism is <i>"impossible"</i> (as Mises 
assured us) then what <b>did</b> collapse in Eastern Europe? If the 
"Austrians" claim it <b>was</b> "socialism" then they are in the 
somewhat awkward position that something they assure us is 
<i>"impossible"</i> existed for decades. Moreover, it should be 
noted that both sides of the argument accepted the idea of central 
planning of some kind or another. This means that most of the 
arguments of Mises and Hayek did not apply to libertarian socialism, 
which rejects central planning along with every other form of 
centralisation. 
</p><p>
Nor was the response by Taylor and Lange particularly convincing 
in the first place. This was because it was based far more on 
neo-classical capitalist economic theory than on an appreciation 
of reality. In place of the Walrasian <i>"Auctioneer"</i> (the "god in 
the machine" of general equilibrium theory which ensures that all 
markets clear) Taylor and Lange presented the <i>"Central Planning Board"</i> 
whose job it was to adjust prices so that all markets cleared. Neo-classical 
economists who are inclined to accept Walrasian theory as an adequate account 
of a working capitalist economy will be forced to accept the validity of 
their model of "socialism." Little wonder Taylor and Lange were 
considered, at the time, the victors in the "socialist calculation" 
debate by most of the economics profession (with the collapse of the Soviet 
Union, this decision has been revised somewhat -- although we must point out 
that Taylor and Lange's model was not the same as the Soviet system, a 
fact conveniently ignored by commentators). 
</p><p>
Unfortunately, given that Walrasian theory has little bearing to 
reality, we must also come to the conclusion that the Taylor-Lange 
"solution" has about the same relevance (even ignoring its 
non-libertarian aspects, such as its basis in state-ownership, 
its centralisation, its lack of workers' self-management and so 
on). Many people consider Taylor and Lange as fore-runners of 
<i>"market socialism."</i> This is incorrect -- rather than being market 
socialists, they are in fact "neo-classical" socialists, building 
a "socialist" system which mimics capitalist economic <b>theory</b> 
rather than its <b>reality</b>. Replacing Walrus's mythical creation 
of the <i>"Auctioneer"</i> with a planning board does not really get 
to the heart of the problem! Nor does their vision of "socialism" 
have much appeal -- a re-production of capitalism with a planning 
board and a more equal distribution of money income. Anarchists 
reject such "socialism" as little more than a nicer version of 
capitalism, if that.
</p><p>
With the collapse of the Soviet Union, it has been fashionable to 
assert that <i>"Mises was right"</i> and that socialism is impossible
(of course, <b>during</b> the cold war such claims were ignored as
the Soviet threat had to boosted and used as a means of social
control and to justify state aid to capitalist industry). Nothing 
could be further from the truth as these countries were not socialist 
at all and did not even approximate the (libertarian) socialist 
idea (the only true form of socialism). The Stalinist countries 
had authoritarian <i>"command economies"</i> with bureaucratic 
central planning, and so their failure cannot be taken as proof 
that a decentralised, libertarian socialism cannot work. Nor can 
Mises' and Hayek's arguments against Taylor and Lange be used 
against a libertarian mutualist or collectivist system as such a 
system is decentralised and dynamic (unlike the "neo-classical" 
socialist model). Libertarian socialism of this kind did, 
in fact, work remarkably well during the Spanish Revolution in 
the face of amazing difficulties, with increased productivity and 
output in many workplaces as well as increased equality and liberty 
(see <a href="secI8.html">section I.8</a>).
</p><p>
Thus the <i>"calculation argument"</i> does not prove that socialism is
impossible. Mises was wrong in asserting that <i>"a socialist system 
with a market and market prices is as self-contradictory as is the 
notion of a triangular square."</i> [<b>Human Action</b>, p. 706] This 
is because capitalism is not defined by markets as such but rather by 
wage labour, a situation where working class people do not have free 
access to the means of production and so have to sell their labour 
(and so liberty) to those who do. If quoting Engels is not <b>too</b> 
out of place, the <i>"object of production -- to produce commodities -- 
<b>does not import</b> to the instrument the character of capital"</i> 
as the <i>"production of commodities is one of the preconditions 
for the existence of capital . . . as long as the producer sells 
only <b>what he himself</b> produces, he is not a capitalist; he 
becomes so only from the moment he makes use of his instrument <b>to 
exploit the wage labour of others</b>."</i> [<b>Collected Works</b>, 
Vol. 47, pp. 179-80] In this, as noted in 
<a href="secC2.html#secc21">section C.2.1</a>, Engels was merely echoing Marx
(who, in turn, was simply repeating Proudhon's distinction between property
and possession). As mutualism eliminates wage labour by self-management and 
free access to the means of production, its use of markets and prices (both 
of which pre-date capitalism) does not mean it is not socialist (and as 
we note in <a href=secG1.html#secg11>section G.1.1</a> Marx, Engels, 
Bakunin and Kropotkin, like Mises, acknowledged Proudhon as being a 
socialist).  This focus on the market, as David Schweickart suggests, is 
no accident:
</p><p>
<blockquote>
<i>"The identification of capitalism with the market is a pernicious
error of both conservative defenders of <b>laissez-faire</b> [capitalism]
and most left opponents . . . If one looks at the works of the major
apologists for capitalism . . . one finds the focus of the apology
always on the virtues of the market and on the vices of central
planning. Rhetorically this is an effective strategy, for it is
much easier to defend the market than to defend the other two
defining institutions of capitalism. Proponents of capitalism know
well that it is better to keep attention toward the market and
away from wage labour or private ownership of the means of production."</i> 
[<i>"Market Socialism: A Defense"</i>, pp. 7-22, <b>Market Socialism: 
the debate among socialists</b>, Bertell Ollman (ed.), p. 11]
</blockquote>
</p><p>
The theoretical work of such socialists as David Schweickart (see his books
<b>Against Capitalism</b> and <b>After Capitalism</b>) present an extensive 
discussion of a dynamic, decentralised market socialist system which has 
obvious similarities with mutualism -- a link which some Leninists recognise 
and stress in order to discredit market socialism via guilt-by-association 
(Proudhon <i>"the anarchist and inveterate foe of Karl Marx . . . put 
forward a conception of society, which is probably the first detailed 
exposition of a 'socialist market.'"</i> [Hillel Ticktin, <i>"The Problem 
is Market Socialism"</i>, pp. 55-80, <b>Op. Cit.</b>, p. 56]). So far, 
most models of market socialism have not been fully libertarian, but 
instead involve the idea of workers' control within a framework of state 
ownership of capital (Engler in <b>Apostles of Greed</b> is an exception 
to this, supporting community ownership). Ironically, while these Leninists 
reject the idea of market socialism as contradictory and, basically, not 
socialist they usually acknowledge that the transition to Marxist-communism 
under their workers' state would utilise the market.
</p><p>
So, as anarchist Robert Graham points out, <i>"Market socialism is but 
one of the ideas defended by Proudhon which is both timely and controversial 
. . . Proudhon's market socialism is indissolubly linked with his notions 
of industrial democracy and workers' self-management."</i> [<i>"Introduction"</i>, 
P-J Proudhon, <b>General Idea of the Revolution</b>, p. xxxii] As we
discuss in <a href="secI3.html#seci35">section I.3.5</a> Proudhon's system of 
agro-industrial federations can be seen as a non-statist way of protecting 
self-management, liberty and equality in the face of market forces (Proudhon, 
unlike individualist anarchists, was well aware of the negative aspects of 
markets and the way market forces can disrupt society). Dissident economist
Geoffrey M. Hodgson is right to suggest that Proudhon's system, in which 
<i>"each co-operative association would be able to enter into contractual 
relations with others"</i>, could be <i>"described as an early form of 
'market socialism'"</i>. In fact, <i>"instead of Lange-type models, 
the term 'market socialism' is more appropriately to such systems. Market 
socialism, in this more appropriate and meaningful sense, involves producer 
co-operatives that are owned by the workers within them. Such co-operatives 
sell their products on markets, with genuine exchanges of property rights"</i>
(somewhat annoyingly, Hodgson incorrectly asserts that <i>"Proudhon described
himself as an anarchist, not a socialist"</i> when, in reality, the French 
anarchist repeatedly referred to himself and his mutualist system as socialist). 
[<b>Economics and Utopia</b>, p. 20, p. 37 and p. 20]
</p><p>
Thus it is possible for a socialist economy to allocate resources using 
markets. By suppressing capital markets and workplace hierarchies, a 
mutualist system will improve upon capitalism by removing an important 
source of perverse incentives which hinder efficient use of resources as 
well as long term investment and social responsibility in addition to 
reducing inequalities and increasing freedom. As David Ellerman once 
noted, many <i>"still look at the world in bipolar terms: capitalism or 
(state) socialism."</i> Yet there <i>"are two broad traditions of 
socialism: <b>state socialism</b> and <b>self-management socialism</b>. 
State socialism is based on government ownership of major industry, 
while self-management socialism envisions firms being worker 
self-managed and not owned or managed by the government."</i> 
[<b>Op. Cit.</b>, p. 147] Mutualism is a version of the second 
vision and anarchists reject the cosy agreement between mainstream
Marxists and their ideological opponents on the propertarian right
that only state socialism is "real" socialism.
</p><p>
Finally, it should be noted that most anarchists are not mutualists
but rather aim for (libertarian) communism, the abolition of money.
Many do see a mutualist-like system as an inevitable stage in a
social revolution, the transitional form imposed by the objective
conditions facing a transformation of a society marked by thousands 
of years of oppression and exploitation (collectivist-anarchism 
contains elements of both mutualism and communism, with most of
its supporters seeing it as a transitional system). This is 
discussed in <a href="secI2.html#seci22">section I.2.2</a>, while
<a href="secI1.html#seci13">section I.1.3</a> indicates why most
anarchists reject even non-capitalist markets. So does Mises's 
argument mean that a socialism that abolishes the market (such as 
libertarian communism) is impossible? Given that the vast majority 
of anarchists seek a libertarian communist society, this is an 
important question. We address it in the 
<a href="secI1.html#seci12">next section</a>.
</p>

<a name="seci12"><h2>I.1.2 Is libertarian communism impossible?</h2></a> 

<p>In a word, no. While the <i>"calculation argument"</i> (see 
<a href="secI1.html#seci11">last section</a>) is often used 
by propertarians (so-called right-wing "libertarians") as <b>the</b> 
basis for the argument that communism (a moneyless society) is impossible, 
it is based on certain false ideas of what prices do, the nature of the
market and how a communist-anarchist society would function. This is 
hardly surprising, as Mises based his theory on a variation of neo-classical 
economics and the Marxist social-democratic (and so Leninist) ideas of 
what a "socialist" economy would look like. So there has been little 
discussion of what a true (i.e. libertarian) communist society would 
be like, one that utterly transformed the existing conditions of 
production by workers' self-management and the abolition of both 
wage-labour <b>and</b> money. However, it is useful here to indicate exactly 
why communism would work and why the <i>"calculation argument"</i> is 
flawed as an objection to it. 
</p><p>
Mises argued that without money there was no way a socialist economy 
would make "rational" production decisions. Not even Mises denied 
that a moneyless society could estimate what is likely to be needed 
over a given period of time (as expressed as physical quantities of 
definite types and sorts of objects). As he argued, <i>"calculation <b>in 
natura</b> in an economy without exchange can embrace consumption-goods 
only."</i> His argument was that the next step, working out which 
productive methods to employ, would not be possible, or at least 
would not be able to be done "rationally," i.e. avoiding waste 
and inefficiency. The evaluation of producer goods <i>"can only be 
done with some kind of economic calculation. The human mind cannot 
orient itself properly among the bewildering mass of intermediate 
products and potentialities without such aid. It would simply stand 
perplexed before the problems of management and location."</i> Thus
we would quickly see <i>"the spectacle of a socialist economic order 
floundering in the ocean of possible and conceivable economic 
combinations without the compass of economic calculation."</i> 
[<i>"Economic Calculation in the Socialist Commonwealth"</i>, pp. 87-130, 
<b>Collectivist Economic Planning</b>, F.A. von Hayek (ed.), 
p. 104, p. 103 and p. 110] Hence the claim that monetary calculation 
based on market prices is the only solution.
</p><p>
This argument is not without its force. How can a producer be 
expected to know if tin is a better use of resources than iron 
when creating a product if all they know is that iron and tin
are available and suitable for their purpose? Or, if we have
a consumer good which can be made with A + 2B or 2A + B 
(where A and B are both input factors such as steel, oil
electricity, etc.) how can we tell which method is more efficient
(i.e. which one used least resources and so left the most
over for other uses)? With market prices, Mises' argued, it 
is simple. If A cost $10 and B $5, then clearly method
one would be the most efficient ($20 versus $25). Without
the market, Mises argued, such a decision would be impossible
and so every decision would be <i>"groping in the dark."</i> 
[<b>Op. Cit.</b>, p. 110]
</p><p>
Mises' argument rests on three flawed assumptions, two against communism 
and one for capitalism. The first two negative assumptions are that 
communism entails central planning and that it is impossible to make 
investment decisions without money values. We discuss why each is 
wrong in this section. Mises' positive assumption for capitalism, 
namely that markets allow exact and efficient allocation of resources, 
is discussed in <a href="secI1.html#seci15">section I.1.5</a>.
</p><p>
Firstly, Mises assumes a centralised planned economy. As Hayek
summarised, the crux of the matter was <i>"the impossibility of 
a rational calculation in a centrally directed economy from which 
prices are necessarily absent"</i>, one which <i>"involves planning 
on a most extensive scale -- minute direction of practically all 
productive activity by one central authority"</i>. Thus the <i>"one 
central authority has to solve the economic problem of distributing 
a limited amount of resources between a practically infinite number 
of competing purposes"</i> with <i>"a reasonable degree of accuracy, 
with a degree of success equally or approaching the results of 
competitive capitalism"</i> is what <i>"constitutes the problem of 
socialism as a method."</i> [<i>"The Nature and History of the 
Problem"</i>, pp. 1-40, <b>Op. Cit.</B>, p. 35, p. 19 and pp. 16-7]
</p><p>
While this was a common idea in Marxian social democracy (and the 
Leninism that came from it), centralised organisations are rejected 
by anarchism. As Bakunin argued, <i>"where are the intellects powerful 
enough to embrace the infinite multiplicity and diversity of real 
interests, aspirations, wishes, and needs which sum up the collective 
will of the people? And to invent a social organisation that will 
not be a Procrustean bed upon which the violence of the State will
more or less overtly force unhappy society to stretch out?"</i> 
Moreover, a socialist government, <i>"unless it were endowed with 
omniscience, omnipresence, and the omnipotence which the theologians 
attribute to God, could not possibly know and foresee the needs of 
its people, or satisfy with an even justice those interests which 
are most legitimate and pressing."</i> [<b>Bakunin on Anarchism</b>,
pp. 268-9 and p. 318] For Malatesta, such a system would require
<i>"immense centralisation"</i> and would either be <i>"an impossible
thing to achieve, or, if possible, would end up as a colossal and 
very complex tyranny."</i> [<b>At the Caf</b>, p. 65]
</p><p>
Kropotkin, likewise, dismissed the notion of central planning as
the <i>"economic changes that will result from the social revolution
will be so immense and so profound . . . that it will be impossible
for one or even a number of individuals to elaborate the social
forms to which a further society must give birth. The elaboration
of new social forms can only be the collective work of the masses."</i>
[<b>Words of a Rebel</b>, p. 175] The notion that a <i>"strongly 
centralised Government"</i> could <i>"<b>command</b> that a 
prescribed quantity"</i> of a good <i>"be sent to such a place 
on such a day"</i> and be <i>"received on a given day by a
specified official and stored in particular warehouses"</i> was 
not only <i>"undesirable"</i> but also <i>"wildly Utopian."</i> 
During his discussion of the benefits of free agreement against
state tutelage, Kropotkin noted that only the former allowed the 
utilisation of <i>"the co-operation, the enthusiasm, the local 
knowledge"</i> of the people. [<b>The Conquest of Bread</b>, 
pp. 82-3 and p. 137] 
</p><p>
Kropotkin's own experience had shown how the <i>"high functionaries"</i> 
of the Tsarist bureaucracy <i>"were simply charming in their innocent 
ignorance"</i> of the areas they were meant to be administrating and 
how, thanks to Marxism, the socialist ideal had <i>"lost the character 
of something that had to be worked out by the labour organisations 
themselves, and became state management of industries -- in fact, 
state socialism; that is, state capitalism."</i> As an anarchist, 
he knew that governments become <i>"isolated from the masses"</i> 
and so <i>"the very success of socialism"</i> required <i>"the 
ideas of no-government, of self-reliance, of free initiative 
of the individual"</i> to be <i>"preached side by side with those 
of socialised ownership and production."</i> Thus it was essential
that socialism was decentralised, federal and participatory, that the 
<i>"structure of the society which we longed for"</i> was <i>"worked 
out, in theory and practice, from beneath"</i> in by <i>"all labour 
unions"</i> with <i>"a full knowledge of local needs of each trade 
and each locality."</i> [<b>Memoirs of a Revolutionist</b>, p. 184, 
p. 360, p. 374-5 and p. 376]
</p><p>
So anarchists can agree with Mises that central planning cannot work 
in practice as its advocates hope. Or, more correctly, Mises agreed 
with the anarchists, as we had opposed central planning first. We have 
long recognised that no small body of people can be expected to know 
what happens in society and plan accordingly (<i>"No single brain nor 
any bureau of brains can see to this organisation."</i> [Issac Puente,
<b>Libertarian Communism</b>, p. 29]). Moreover, there is the 
pressing question of freedom as well, for <i>"the despotism of 
[the 'socialist'] State would be equal to the despotism of the present state, 
increased by the economic despotism of all the capital which would 
pass into the hands of the State, and the whole would be multiplied 
by all the centralisation necessary for this new State. And it is for 
this reason that we, the Anarchists, friends of liberty, we intend 
to fight them to the end."</i> [Carlo Cafiero, <i>"Anarchy and 
Communism"</i>, pp. 179-86, <b>The Raven</b>, No. 6, p. 179]
</p><p>
As John O'Neill summarises, the <i>"argument against centralised planning 
is one that has been articulated within the history of socialist planning 
as an argument for democratic and decentralised decision making."</i> 
[<b>The Market</b>, p. 132] So, for good economic and political reasons, 
anarchists reject central planning. This central libertarian socialist
position feeds directly into refuting Mises' argument, for while a 
<b>centralised</b> system would need to compare a large (<i>"infinite"</i>)
number of possible alternatives to a large number of possible needs, this 
is not the case in a <b>decentralised</b> system. Rather than a vast 
multitude of alternatives which would swamp a centralised planning agency, 
one workplace comparing different alternatives to meet a specific need 
faces a much lower number of possibilities as the objective technical 
requirements (use-values) of a project are known and so local knowledge 
will eliminate most of the options available to a small number which 
can be directly compared. 
</p><p>
As such, removing the assumption of a central planning body automatically 
drains Mises' critique of much of its force -- rather than an <i>"the 
ocean of possible and conceivable economic combinations"</i> faced by a 
central body, a specific workplace or community has a more limited number 
of possible solutions for a limited number of requirements. Moreover, 
any complex machine is a product of less complex goods, meaning that 
the workplace is a consumer of other workplace's goods. If, as Mises 
admitted, a customer can decide between consumption goods without the 
need for money then the user and producer of a <i>"higher order"</i>
good can decide between consumption goods required to meet their needs. 
</p><p>
In terms of decision making, it is true that a centralised planning
agency would be swamped by the multiple options available to it. 
However, in a decentralised socialist system individual workplaces 
and communes would be deciding between a much smaller number of 
alternatives. Moreover, unlike a centralised system, the individual
firm or commune knows exactly what is required to meet its needs,
and so the number of possible alternatives is reduced as well (for
example, certain materials are simply technically unsuitable for 
certain tasks). 
</p><p>
Mises' other assumption is equally flawed. This is that without the market, 
no information is passed between producers beyond the final outcome of
production. In other words, he assumed that the final product is all that
counts in evaluating its use. Needless to say, it is true that without
more information than the name of a given product it is impossible to
determine whether using it would be an efficient utilisation of resources.
Yet more information can be provided which can be used to inform 
decision making. As socialists Adam Buick and John Crump point out, 
<i>"at the level of the individual production unit or industry,
the only calculations that would be necessary in socialism would be
calculations in kind. On the one side would be recorded the resources
(materials, energy, equipment, labour) used up in production and on the
other the amount of good produced, together with any by-products. . . .
Socialist production is simply the production of use values from use
values, and nothing more."</i> [<b>State Capitalism: The Wages System 
Under New Management</b>, p. 137] Thus any good used as an input into a 
production process would require the communication of this kind of
information. 
</p><p>
The generation and communication of such information implies a 
decentralised, horizontal network between producers and consumers. 
This is because what counts as a use-value can only be determined
by those directly using it. Thus the production of use-values from
use-values cannot be achieved via central planning, as the central
planners have no notion of the use-value of the goods being used
or produced. Such knowledge lies in many hands, dispersed throughout 
society, and so socialist production implies decentralisation. 
Capitalist ideologues claim that the market allows the utilisation
of such dispersed knowledge, but as John O'Neill notes, <i>"the market 
may be one way in which dispersed knowledge can be put to good 
effect. It is not . . . the only way"</i>. <i>"The strength of 
the epistemological argument for the market depends in part on 
the implausibility of assuming that all knowledge could be 
centralised upon some particular planning agency"</i> he stresses,
but Mises' <i>"argument ignores, however, the existence of the 
decentralised but predominantly non-market institutions for the 
distribution of knowledge . . . The assumption that only the 
market can co-ordinate dispersed non-vocalisable knowledge is 
false."</i> [<b>Op. Cit.</b>, p. 118 and p. 132]
</p><p>
So, in order to determine if a specific good is useful to a person, 
that person needs to know its "cost." Under capitalism, the notion 
of cost has been so associated with <b>price</b> that we have to put 
the word "cost" in quotation marks. However, the real cost of, say, 
writing a book, is not a sum of money but so much paper, so much energy, 
so much ink, so much human labour. In order to make a rational decision 
on whether a given good is better for meeting a given need than another, 
the would-be consumer requires this information. However, under capitalism 
this information is <b>hidden</b> by the price.
</p><p>
Somewhat ironically, given how "Austrian" economics tends to stress that
the informational limitations are at the root of its <i>"impossibility"</i>
of socialism, the fact is that the market hides a significant amount of 
essential information required to make a sensible investment decision.
This can be seen from an analysis of Mises' discussion on why 
labour-time cannot replace money as a decision-making tool. Using 
labour, he argued, <i>"leaves the employment of material factors 
of production out of account"</i> and presents an example of 
two goods, P and Q, which take 10 hours to produce. P takes 8 hours 
of labour, plus 2 units of raw material A (which is produced by an 
hour's socially necessary labour). Q takes 9 hours of labour and 
one unit of A. He asserts that in terms of labour P and Q <i>"are 
equivalent, but in value terms P is more valuable than Q. The former 
is false, and only the later corresponds to the nature and purpose 
of calculation."</i> [<i>"Economic Calculation in the Socialist 
Commonwealth"</i>, <b>Op. Cit.</b>, p. 113]
</p><p>
The flaw in his argument is clear. Assuming that an hour of socially 
necessary labour is 10 then, in price terms, P would have 80 of 
direct labour costs, with 20 of raw material A while Q would have 
90 of direct labour and 10 of A. Both cost 100 so it hard to see
how this <i>"corresponds to the nature and purpose of calculation"</i>!
Using less of raw material A is a judgement made <b>in addition</b> 
to <i>"calculation"</i> in this example. The question of whether to
economise on the use of A simply cannot be made using prices. If P, 
for example, can only be produced via a more ecologically destructive 
process than Q or if the work process by which P is created is marked 
by dull, mindless work but Q's is more satisfying for the people 
involved than Q may be considered a better decision. Sadly, that 
kind of information is <b>not</b> communicated by the price mechanism.
</p><p>
As John O'Neill points out, <i>"Mises' earlier arguments against socialist 
planning turned on an assumption about commensurability. His central 
argument was that rational economic decision-making required a single 
measure on the basis of which the worth of alternative states of affairs 
could be calculated and compared."</i> [<b>Ecology, Policy and Politics</b>, 
p. 115] This central assumption was unchallenged by Taylor and Lange 
in their defence of "socialism", meaning that from the start the 
debate against Mises was defensive and based on the argument that 
socialist planning could mimic the market and produce results which 
were efficient from a capitalist point of view. 
</p><p>
Anarchists question whether using prices means basing all decision 
making on one criterion and ignoring all others is a rational thing 
to do. As O'Neill suggests, <i>"the relative scarcity of items . . . 
hardly exhaust the full gamut of information that is distributed 
throughout society which might be relevant to the co-ordination of 
economic activities and plans."</i> [<b>The Market</b>, p. 196] 
Saying that a good costs 10 does not tell you much about 
the amount of pollution its production or use generates, under 
what conditions of labour it was produced, whether its price is
affected by the market power of the firm producing it, whether it is
produced in an ecologically sustainable way, and so forth. Similarly,
saying that another, similar, good costs 9 does not tell you whether
than 1 difference is due to a more efficient use of inputs or whether
it is caused by imposing pollution onto the planet.
</p><p>
And do prices <b>actually</b> reflect costs? The question of 
profit, the reward for owning capital and allowing others to 
use it, is hardly a cost in the same way as labour, resources and 
so on (attempts to explain profits as an equivalent sacrifice as 
labour have always been ridiculous and quickly dropped). When 
looking at prices to evaluate efficient use for goods, you cannot
actually tell by the price if this is so. Two goods may have 
the same price, but profit levels (perhaps under the influence 
of market power) may be such that one has a higher cost price 
than another. The price mechanism fails to indicate which uses 
least resources as it is influenced by market power. Indeed, 
as Takis Fotopoulos notes, <i>"[i]f . . . both central planning 
and the market economy inevitably lead to concentrations of 
power, then neither the former nor the latter can produce the 
sort of information flows and incentives which are necessary 
for the best functioning of any economic system."</i> [<b>Towards 
an Inclusive Democracy</b>, p. 252] Moreover, a good produced under 
a authoritarian state which represses its workforce could have 
a lower price than one produced in a country which allowed 
unions to organise and has basic human rights. The repression 
would force down the cost of labour, so making the good in 
question appear as a more "efficient" use of resources. In 
other words, the market can mask inhumanity as "efficiency"
and actually reward that behaviour by market share.
</p><p>
In other words, market prices can be horribly distorted in that they 
ignore quality issues. Exchanges therefore occur in light of 
false information and, moreover, with anti-social motivations -- to 
maximise short-term surplus for the capitalists regardless of losses to 
others. Thus they distort valuations and impose a crass, narrow and 
ultimately self-defeating individualism. Prices are shaped by more 
than costs, with, for example, market power increasing market prices 
far higher than actual costs. Market prices also fail to take into 
account public goods and so bias allocation choices against them not 
to mention ignoring the effects on the wider society, i.e. beyond the 
direct buyers and sellers. Similarly, in order to make rational 
decisions relating to using a good, you need to know <b>why</b> the 
price has changed for if a change is permanent or transient implies 
different responses. Thus the current price is not enough in itself.
Has the good become more expensive temporarily, due, say, to a strike? 
Or is it because the supply of the resource has been exhausted? Actions 
that are sensible in the former situation will be wrong in the other. 
As O'Neill suggests, <i>"the information [in the market] is passed back 
without dialogue. The market informs by 'exit' -- some products find a 
market, others do not. 'Voice' is not exercised. This failure of dialogue 
. . . represents an informational failure of the market, not a virtue . . . 
The market . . . does distribute information . . . it also blocks a 
great deal."</i> [<b>Op. Cit.</b>, p. 99]
</p><p>
So a purely market-based system leaves out information on which to 
base rational resource allocations (or, at the very least, hides it). 
The reason for this is that a market system measures, at best, 
preferences of <b>individual</b> buyers among the <b>available</b> 
options. This assumes that all the pertinent use-values that are 
to be outcomes of production are things that are to be consumed 
by the individual, rather than use-values that are collectively 
enjoyed (like clean air). Prices in the market do not measure 
social costs or externalities, meaning that such costs are not 
reflected in the price and so you cannot have a rational price 
system. Similarly, if the market measures only preferences amongst 
things that can be monopolised and sold to individuals, as 
distinguished from values that are enjoyed collectively, then it 
follows that information necessary for rational decision-making 
in production is not provided by the market. In other words, 
capitalist "calculation" fails because private firms are oblivious 
to the social cost of their labour and raw materials inputs. 
</p><p>
Indeed, prices often <b>mis</b>-value goods as companies can gain a
competitive advantage by passing costs onto society (in the form
of pollution, for example, or de-skilling workers, increasing
job insecurity, and so on). This externalisation of costs is 
actually rewarded in the market as consumers seek the lowest
prices, unaware of the reasons <b>why</b> it is lower (such information
cannot be gathered from looking at the price). Even if we assume
that such activity is penalised by fines later, the damage is
still done and cannot be undone. Indeed, the company may be able
to weather the fines due to the profits it originally made by
externalising costs (see <a href="secE3.html">section E.3</a>).
Thus the market creates a perverse incentive to subsidise their 
input costs through off-the-book social and environmental 
externalities. As Chomsky suggests:
</p><p>
<blockquote>
<i>"it is by now widely realised that the economist's 'externalities
can no longer be consigned to footnotes. No one who gives a moment's
thought to the problems of contemporary society can fail to be 
aware of the social costs of consumption and production, the
progressive destruction of the environment, the utter irrationality
of the utilisation of contemporary technology, the inability of a
system based on profit or growth-maximisation to deal with needs
that can only be expressed collectively, and the enormous bias this
system imposes towards maximisation of commodities for personal
use in place of the general improvement of the quality of life."</i>
[<b>Radical Priorities</b>, pp. 190-1]
</blockquote>
</p><p>
Prices hide the actual costs that production involved for the 
individual, society, and the environment, and instead boils 
everything down into <b>one</b> factor, namely price. There is 
a lack of dialogue and information between producer and consumer. 
</p><p>
Moreover, without using another means of cost accounting instead 
of prices how can supporters of capitalism know there is a 
correlation between actual and price costs? One can determine 
whether such a correlation exists by measuring one against the
other. If this cannot be done, then the claim that prices measure 
costs is a tautology (in that a price represents a cost and we 
know that it is a cost because it has a price). If it can be 
done, then we can calculate costs in some other sense than in 
market prices and so the argument that only market prices 
represent costs falls. Equally, there may be costs (in terms of
quality of life issues) which <b>cannot</b> be reflected in price 
terms.
</p><p>
Simply put, the market fails to distribute all relevant
information and, particularly when prices are at disequilibrium, 
can communicate distinctly <b>misleading</b> information. In the 
words of two South African anarchists, <i>"prices in capitalism 
provided at best incomplete and partial information that obscured 
the workings of capitalism, and would generate and reproduce 
economic and social inequalities. Ignoring the social character 
of the economy with their methodological individualism, economic 
liberals also ignored the social costs of particular choices and 
the question of externalities."</i> [Michael Schmidt and Lucien 
van der Walt, <b>Black Flame</b>, p. 92] This suggests that prices 
cannot be taken to reflect real costs any more that they can 
reflect the social expression of the valuation of goods. They 
are the result of a conflict waged over these goods and those 
that acted as their inputs (including, of course, labour). Market 
and social power, much more than need or resource usage, decides 
the issue. The inequality in the means of purchasers, in the market
power of firms and in the bargaining position of labour and capital 
all play their part, so distorting any relationship a price may 
have to its costs in terms of resource use. Prices are misshapen.
</p><p>
Little wonder Kropotkin asked whether <i>"are we not yet bound to 
analyse that compound result we call price rather than to accept 
it as a supreme and blind ruler of our actions?"</i> [<b>Fields, 
Factories and Workshops Tomorrow</b>, p. 71] It is precisely these 
<b>real</b> costs, hidden by price, which need to be communicated 
to producers and consumers for them to make informed and rational 
decisions concerning their economic activity.
</p><p>
It is useful to remember that Mises argued that it is the <b>complexity</b> 
of a modern economy that ensures money is required: <i>"Within the 
narrow confines of household economy, for instance, where the father can 
supervise the entire economic management, it is possible to determine the 
significance of changes in the processes of production, without such aids 
to the mind [as monetary calculation], and yet with more or less of 
accuracy."</i> However, <i>"the mind of one man alone -- be it ever so 
cunning, is too weak to grasp the importance of any single one among the
countlessly many goods of higher order. No single man can ever master all 
the possibilities of production, innumerable as they are, as to be in a 
position to make straightway evident judgements of value without the aid
of some system of computation."</i> [<b>Op. Cit.</b>, p. 102]
</p><p>
A libertarian communist society would, it must be stressed, use various 
<i>"aids to the mind"</i> to help individuals and groups to make economic 
decisions. This would reduce the complexity of economic decision making, 
by allowing different options and resources to be compared to each other. 
Hence the complexity of economic decision making in an economy with a 
multitude of goods can be reduced by the use of rational algorithmic 
procedures and methods to aid the process. Such tools would aid decision 
making, not dominate it as these decisions affect humans and the planet 
and should never be made automatically.
</p><p>
That being the case, a libertarian communist society would quickly develop 
the means of comparing the real impact of specific <i>"higher order"</i> 
goods in terms of their real costs (i.e. the amount of labour, energy 
and raw materials used plus any social and ecological costs). Moreover,
it should be remembered that production goods are made up on inputs of 
other goods, that is, higher goods are made up of consumption goods of 
a lower order. If, as Mises admits, calculation without money is possible
for consumption goods then the creation of <i>"higher order"</i> goods can be
also achieved and a record of its costs made and communicated to those
who seek to use it.
</p><p>
While the specific <i>"aids to the mind"</i> as well as "costs" and their 
relative weight would be determined by the people of a free society, we 
can speculate that it would include direct and indirect labour, 
externalities (such as pollution), energy use and materials, and 
so forth. As such, it must be stressed that a libertarian communist 
society would seek to communicate the "costs" associated with 
any specific product as well as its relative scarcity. In other words,
it needs a means of determining the objective or absolute costs associated 
with different alternatives as well as an indication of how much of a given 
good is available at a given it (i.e., its scarcity). Both of these 
can be determined without the use of money and markets. 
</p><p>
<a href="secI4.html">Section I.4</a> discusses possible frameworks 
for an anarchist economy, including suggestions for libertarian 
communist economic decision-making processes. In terms of 
<i>"aids to the mind"</i>, these include methods to compare goods
for resource allocation by indicating the absolute costs
involved in producing a good and the relative scarcity of a 
specific good, among other things. Such a framework is necessary 
because <i>"an appeal to a necessary role for practical 
judgements in decision making  is <b>not</b> to deny any role to general 
principles. Neither . . . does it deny any place for the use of 
technical rules and algorithmic procedures . . . Moreover, there 
is a necessary role for rules of thumb, standard procedures, the 
default procedures and institutional arrangements that can be 
followed unreflectively and which <b>reduce</b> the scope for <b>explicit</b> 
judgements comparing different states of affairs. There are limits 
in time, efficient use of resources and the dispersal of knowledge 
which require rules and institutions. Such rules and institutions 
can free us for space and time for reflective judgements where 
they matter most."</i> [John O'Neill, <b>Ecology, Policy and Politics</b>,
pp. 117-8] It is these <i>"rules and institutions need themselves to be 
open to critical and reflective appraisal."</i> [O'Neill, <b>The
Market</b>, p. 118] 
</p><p>
Economic decisions, in other words, cannot be reduced down to one factor
yet Mises argued that anyone <i>"who wished to make calculations in regard to 
a complicated process of production will immediately notice whether he has 
worked more economically than others or not; if he finds, from reference 
to the exchange values obtaining in the market, that he will not be able 
to produce profitably, this shows that others understand how to make better 
use of the higher-order goods in question."</i> [<b>Op. Cit.</b>, pp. 97-8] 
However, this only shows whether someone has worked more <b>profitably</b> 
than others, not whether it is more economical. Market power automatically 
muddles this issue, as does the possibility of reducing the monetary cost 
of production by recklessly exploiting natural resources and labour, 
polluting, or otherwise passing costs onto others. Similarly, the issue
of wealth inequality is important, for if the production of luxury goods 
proves more profitable than basic essentials for the poor does this show 
that producing the former is a better use of resources? And, of course, 
the key issue of the relative strength of market power between workers
and capitalists plays a key role in determining "profitably." 
</p><p>
Basing your economic decision making on a single criteria, namely profitability, 
can, and does, lead to perverse results. Most obviously, the tendency for 
capitalists to save money by not introducing safety equipment (<i>"To 
save a dollar the capitalist build their railroads poorly, and along 
comes a train, and loads of people are killed. What are their lives to 
him, if by their sacrifice he has saved money?"</i> [Emma Goldman, <b>A 
Documentary History of the American Years</b>, vol. 1, p. 157]). 
Similarly, it is considered a more "efficient" use of resources to 
condemn workers to deskilling and degrading work than "waste" resources 
in developing machines to eliminate or reduce it (<i>"How many machines 
remain unused solely because they do not return an immediate profit to 
the capitalist! . . . How many discoveries, how many applications of 
science remain a dead letter solely because they don't bring the capitalist 
enough!"</i> [Carlo Cafiero, <i>"Anarchy and Communism"</i>, pp. 179-86, 
<b>The Raven</b>, No. 6, p. 182]). Similarly, those investments which 
have a higher initial cost but which, in the long run, would have, say, 
a smaller environmental impact would not be selected in a profit-driven system.
</p><p>
This has seriously irrational effects, because the managers of capitalist 
enterprises are obliged to choose technical means of production which produce 
the cheapest results. All other considerations are subordinate, in particular 
the health and welfare of the producers and the effects on the environment.
The harmful effects resulting from "rational" capitalist production
methods have long been pointed out. For example, speed-ups, pain, stress,
accidents, boredom, overwork, long hours and so on all harm the physical
and mental health of those involved, while pollution, the destruction of
the environment, and the exhaustion of non-renewable resources all have
serious effects on both the planet and those who live on it. As green
economist E. F. Schumacher argued:
</p><p><blockquote>
<i>"But what does it <b>mean</b> when we say that something is uneconomic? 
. . . [S]omething is uneconomic when it fails to earn an adequate profit 
in terms of money. The method of economics does not, and cannot, produce
any other meaning . . . The judgement of economics . . . is an extremely
<b>fragmentary</b> judgement; out of the large number of aspects which in
real life have to be seen and judged together before a decision can be taken, 
economics supplies only one -- whether a money profit accrues <b>to those 
who undertake it</b> or not."</i> [<b>Small is Beautiful</b>,
pp. 27-8]
</blockquote></p><p>
Schumacher stressed that <i>"about the <b>fragmentary</b> nature of the 
judgements of economics there can be no doubt whatever. Even with the 
narrow compass of the economic calculus, these judgements are necessarily 
and <b>methodically</b> narrow. For one thing, they give vastly more weight 
to the short than to the long term. . . [S]econd, they are based on a 
definition of cost which excludes all 'free goods' . . . [such as the]
environment, except for those parts that have been privately appropriated. 
This means that an activity can be economic although it plays hell with 
the environment, and that a competing activity, if at some cost it protects 
and conserves the environment, will be uneconomic."</i> Moreover, <i>"[d]o 
not overlook the words 'to those who undertake it.' It is a great error to
assume, for instance, that the methodology of economics is normally applied 
to determine whether an activity carried out by a group within society yields 
a profit to society as a whole."</i> [<b>Op. Cit.</b>, p. 29] 
</p><p>
To claim that prices include all these "externalities" is nonsense. If 
they did, we would not see capital moving to third-world countries with 
few or no anti-pollution or labour laws. At best, the "cost" of pollution 
would only be included in a price if the company was sued successfully 
in court for damages -- in other words, once the damage is done. Ultimately, 
companies have a strong interest in buying inputs with the lowest prices, 
regardless of <b>how</b> they are produced. In fact, the market rewards 
such behaviour as a company which was socially responsible would be 
penalised by higher costs, and so market prices. It is reductionist 
accounting and its accompanying <i>"ethics of mathematics"</i> that 
produces the <i>"irrationality of rationality"</i> which plagues 
capitalism's exclusive reliance on prices (i.e. profits) to measure 
"efficiency."
</p><p>
Ironically enough, Mises also pointed to the irrational nature
of the price mechanism. He stated (correctly) that there are
<i>"extra-economic"</i> elements which <i>"monetary calculation 
cannot embrace"</i> because of <i>"its very nature."</i> He 
acknowledged that these <i>"considerations themselves can scarcely 
be termed irrational"</i> and, as examples, listed <i>"[i]n any 
place where men regard as significant the beauty of a neighbourhood 
or a building, the health, happiness and contentment of mankind,
the honour of individuals or nations."</i> He also noted that 
<i>"they are just as much motive forces of rational conduct as 
are economic factors"</i> but they <i>"do not enter into exchange 
relationships."</i> How rational is an economic system which ignores 
the <i>"health, happiness and contentment"</i> of people? Or 
the beauty of their surroundings? Which, moreover, penalises
those who take these factors into consideration? For anarchists,
Mises comments indicate well the inverted logic of capitalism. That 
Mises can support a system which ignores the needs of individuals, 
their happiness, health, surroundings, environment and so on by 
<i>"its very nature"</i> says a lot. His suggestion that we assign 
monetary values to such dimensions begs the question and has 
plausibility only if it assumes what it is supposed to prove. 
[<b>Op. Cit.</b>, p. 99-100] Indeed, the person who would put 
a price on friendship simply would have no friends as they simply 
do not understand what friendship is and are thereby excluded from 
much which is best in human life. Likewise for other <i>"extra-economic"</i> 
goods that individual's value, such as beautiful places, happiness, the 
environment and so on. 
</p><p>
So essential information required for sensible decision making would 
have to be recorded and communicated in a communist society and used
to evaluate different options using agreed methods of comparison. 
This differs drastically from the price mechanism as it recognises 
that mindless, automatic calculation is impossible in social choices. 
Such choices have an unavoidable ethical and social dimension simply 
because they involve other human beings and the environment. As Mises 
himself acknowledged, monetary calculation does not capture such 
dimensions. 
</p><p>
We, therefore, need to employ practical judgement in making 
choices aided by a full understanding of the <b>real</b> social 
and ecological costs involved using, of course, the appropriate 
<i>"aids to the mind."</i> Given that an anarchist society would be 
complex and integrated, such aids would be essential but, due to its 
decentralised nature, it need not embrace the price mechanism. It can 
evaluate the efficiency of its decisions by looking at the <b>real</b> 
costs involved to society rather than embrace the distorted system of 
costing explicit in the price mechanism (as Kropotkin once put it, 
<i>"if we analyse <b>price</b>"</i> we must <i>"make a distinction 
between its different elements"</i>. [<b>Op. Cit.</b>, p. 72]).
</p><p>
In summary, then, Mises considered only central planning as genuine 
socialism, meaning that a decentralised communism was not addressed. 
Weighting up the pros and cons of how to use millions of different 
goods in the millions of potential situations they could be used 
would be impossible in a centralised system, yet in decentralised 
communism this is not an issue. Each individual commune and syndicate 
would be choosing from the few alternatives required to meet their 
needs. With the needs known, the alternatives can be compared -- 
particularly if agreed criteria (<i>"aids to the mind"</i>) are 
utilised and the appropriate agreed information communicated.
</p><p>
Efficient economic decision making in a moneyless "economy" is possible,
assuming that sufficient information is passed between syndicates and
communes to evaluate the relative and absolute costs of a good. Thus,
decisions can be reached which aimed to reduce the use of goods in 
short supply or which take large amounts of resources to produce (or
which produce large externalities to create). While a <b>centralised</b> 
system would be swamped by the large number of different uses and 
combinations of goods, a <b>decentralised</b> communist system would 
not be. 
</p><p>
Thus, anarchists argue that Mises was wrong. Communism <b>is</b> 
viable, but only if it is <b>libertarian</b> communism. Ultimately, 
though, the real charge is not that socialism is <i>"impossible"</i> 
but rather that it would be inefficient, i.e., it would allocate 
resources such that too much is used to achieve specified goals 
and that there would be no way to check that the allocated 
resources were valued sufficiently to warrant their use in the 
first place. While some may portray this as a case of planning
against markets (no-planning), this is false. Planning occurs 
in capitalism (as can be seen from any business), it is a question 
of whether capitalism ensures that more plans can be co-ordinated
and needs meet by means of relative prices and profit-loss accounting
than by communism (free access and distribution according to need). 
As such, the question is does the capitalist system adds additional 
problems to the efficient co-ordination of plans? Libertarian
communists argue, yes, it does (as we discuss at length in 
<a href="secI1.html#seci15">section I.1.5</a>).
</p><p>
All choices involve lost possibilities, so the efficient use of
resources is required to increase the possibilities for creating
other goods. At best, all you can say is that by picking options 
which cost the least a market economy will make more resources 
available for other activities. Yet this assumption crucially 
depends equating "efficient" with profitable, a situation which 
cannot be predicted beforehand and which easily leads to 
inefficient allocation of resources (particularly if we are 
looking at meeting human needs). Then there are the costs of using 
money for if we are talking of opportunity costs, of the freeing up 
of resources for other uses, then the labour and other resources 
used to process money related activities should be included. While 
these activities (banking, advertising, defending property, and
so forth) are essential to a capitalist economy, they are not needed
and unproductive from the standpoint of producing use values or 
meeting human need. This would suggest that a libertarian communist 
economy would have a productive advantage over a capitalist economy
as the elimination of this structural waste intrinsic to capitalism 
will free up a vast amount of labour and materials for socially useful 
production. This is not to mention the so-called "costs" which are no 
such thing, but relate to capitalist property rights. Thus "rent" may 
be considered a cost under capitalism, but would disappear if those 
who used a resource controlled it rather than pay a tribute to gain
access to it. As Kropotkin argued, <i>"the capitalist system makes us 
pay for everything three or four times its labour value"</i> thanks 
to rent, profit, interest and the actions of middle men. Such system 
specific "costs" hide the actual costs (in terms of labour and resource
use) by increasing the price compared to if we <i>"reckon our expenses 
in labour"</i>. [<b>Op. Cit.</b>, p. 68]
</p><p>
Moreover, somewhat ironically, this "economising" of resources which 
the market claims to achieve is not to conserve resources for future 
generations or to ensure environmental stability. Rather, it is to 
allow <b>more</b> goods to be produced in order to accumulate more 
capital. It could be argued that the market forces producers to 
minimise costs on the assumption that lower costs will be more likely 
to result in higher profits. However, this leaves the social impact 
of such cost-cutting out of the equation. For example, imposing 
externalities on others does reduce a firm's prices and, as a result, 
is rewarded by the market however alienating and exhausting work 
or rising pollution levels does not seem like a wise thing to 
do. So, yes, it is true that a capitalist firm will seek to 
minimise costs in order to maximise profits. This, at first 
glance, could be seen as leading to an efficient use of 
resources until such time as the results of this become clear. 
Thus goods could be created which do not last as long as they 
could, which need constant repairing, etc. So a house produced 
"efficiently" under capitalism could be a worse place to live 
simply because costs were reduced by cutting corners (less 
insulation, thinner walls, less robust materials, etc.). In addition, 
the collective outcome of all these "efficient" decisions could be 
socially inefficient as they reduce the quality of life of those
subject to them as well as leading to over-investment, over-production, 
falling profits and economic crisis. As such, it could be argued that 
Mises' argument exposes more difficulties for capitalism rather than 
for anarchism. 
</p><p>
Finally, it should be noted that most anarchists would question the 
criteria Hayek and Mises used to judge the relative merits of communism 
and capitalism. As the former put it, the issue was <i>"a distribution 
of income independent of private property in the means of production 
and a volume of output which was at least approximately the same or 
even greater than that procured under free competition."</i> [<i>"The 
Nature and History of the Problem"</i>, <b>Op. Cit.</b>, p. 37] Thus
the issue is reduced to that of output (quantity), not issues of freedom
(quality). If slavery or Stalinism <b>had</b> produced more output
than free market capitalism, that would not make either system desirable
This was, in fact, a common argument against Stalinism during the 1950s 
and 1960s when it <b>did</b> appear that central planning was producing 
more goods (and, ironically, by the propertarian right against the 
welfare state for, it should be remembered, that volume of output, like 
profitability and so "efficiency", in the market depends on income 
distribution and a redistribution from rich to poor could easily 
result in more output becoming profitable). Similarly, that capitalism 
produces more alcohol  and Prozac to meet the higher demand for dulling the 
minds of those trying to survive under it would <b>not</b> be an argument 
against libertarian communism! As we discuss in <a href="secI4.html">section I.4</a>,
while anarchists seek to meet material human needs we do not aim, as
under capitalism, to sacrifice all other goals to that aim as capitalism
does. Thus, to state the obvious, the aim for maximum volume of output
only makes sense under capitalism as the maximum of human happiness and
liberty may occur with a lower volume of output in a free society. The 
people of a society without oppression, exploitation and alienation will 
hardly act in identical ways, nor seek the same volume of output, as
those in one, like capitalism, marked by those traits!
</p><p>
Moreover, the volume of output is a somewhat misleading criteria as it totally 
ignores its distribution. If the bulk of that volume goes to a few, then that
is hardly a good use of resources. This is hardly an academic concern as can be 
seen from the Hayek influenced neo-liberalism of the 1980s onwards. As economist
Paul Krugman notes, the value of the output of an average worker <i>"has risen 
almost 50 percent since 1973. Yet the growing concentration of income in the 
hands of a small minority had proceeded so rapidly that we're not sure whether 
the typical American has gained anything from rising productivity."</i> This 
means that wealth have flooded upwards, and <i>"the lion's share of economic 
growth in America over the past thirty years has gone to a small, wealthy 
minority."</i> [<b>The Conscience of a Liberal</b>, p. 124 and p. 244] 
</p><p>
To conclude. Capitalist "efficiency" is hardly rational and for a fully 
human and ecological efficiency libertarian communism is required. As
Buick and Crump point out, <i>"socialist society still has to be concerned 
with using resources efficiently and rationally, but the criteria of 
'efficiency' and 'rationality' are not the same as they are under 
capitalism."</i> [<b>Op. Cit.</b>, p. 137] Under communist-anarchism, 
the decision-making system used to determine the best use of resources 
is not more or less "efficient" than market allocation, because it goes 
beyond the market-based concept of "efficiency." It does not seek to mimic 
the market but to do what the market fails to do. This is important, 
because the market is not the rational system its defenders often claim. 
While reducing all decisions to one common factor is, without a doubt, 
an easy method of decision making, it also has serious side-effects 
<b>because</b> of its reductionistic basis. The market makes decision 
making simplistic and generates a host of irrationalities and 
dehumanising effects as a result. So, to claim that communism will 
be "more" efficient than capitalism or vice versa misses the point. 
Libertarian communism will be "efficient" in a totally different way 
and people will act in ways considered "irrational" only under the 
narrow logic of capitalism.
</p><p>
For another critique of Mises, see Robin Cox's <i>"The 'Economic Calculation' 
controversy: unravelling of a myth"</i> [<b>Common Voice</b>, Issue 3]
</p>

<a name="seci13"><h2>I.1.3 What is wrong with markets anyway?</h2></a>

<p>A lot. Markets soon result in what are termed <i>"market forces,"</i> 
impersonal forces which ensure that the people in the economy 
do what is required of them in order for the economy to function. 
The market system, in capitalist apologetics, is presented to appear 
as a regime of freedom where no one forces anyone to do anything, 
where we "freely" exchange with others as we see fit. However, the 
facts of the matter are somewhat different, since the market often 
ensures that people act in ways <b>opposite</b> to what they desire or 
forces them to accept "free agreements" which they may not actually 
desire. Wage labour is the most obvious example of this, for, as we 
indicated in <a href="secB4.html">section B.4</a>, most people have 
little option but to agree to work for others. 
</p><p>
We must stress here that not all anarchists are opposed to the market.
Individualist anarchists favour it while Proudhon wanted to modify it 
while retaining competition. For many, the market equals capitalism 
but this is not the case as it ignores the fundamental issue of
(economic) class, namely who owns the means of production. Capitalism
is unique in that it is based on wage labour, i.e. a market for labour
as workers do not own their own means of production and have to sell
themselves to those who do. Thus it is entirely possible for a market 
to exist within a society and for that society <b>not</b> to be capitalist. 
For example, a society of independent artisans and peasants selling 
their product on the market would not be capitalist as workers would 
own and control their means of production. Similarly, Proudhon's 
competitive system of self-managed co-operatives and mutual banks 
would be non-capitalist (and socialist) for the same reason. 
Anarchists object to capitalism due to the quality of the 
social relationships it generates between people (i.e. it 
generates authoritarian ones). If these relationships are 
eliminated then the kinds of ownership which do so are anarchistic.
Thus the issue of ownership matters only in-so-far it generates 
relationships of the desired kind (i.e. those based on liberty,
equality and solidarity). To concentrate purely on "markets" or
"property" means to ignore social relationships and the key aspect
of capitalism, namely wage labour. That right-wingers do this is
understandable (to hide the authoritarian core of capitalism) but
why (libertarian or other) socialists should do so is less clear.
</p><p>
In this section of the FAQ we discuss anarchist objections to the
market <b>as such</b> rather than the capitalist market. The workings 
of the market do have problems with them which are independent of, or 
made worse by, the existence of wage-labour. It is these problems
which make most anarchists hostile to the market and so desire a
(libertarian) communist society. So, even if we assume a mutualist 
(a libertarian market-socialist) system of competing self-managed 
workplaces, then communist anarchists would argue that market 
forces would soon result in many irrationalities occurring. 
</p><p>
Most obviously, operating in a market means submitting to the profit 
criterion. This means that however much workers might want to employ 
social criteria in their decision making, they cannot. To ignore 
profitability would cause their firm to go bankrupt. Markets, therefore, 
create conditions that compel producers to decide things which are not 
be in their, or others, interest, such as introducing deskilling 
or polluting technology, working longer hours, and so on, in order
to survive on the market. For example, a self-managed workplace 
will be more likely to invest in safe equipment and working practices, 
this would still be dependent on finding the money to do so and may 
still increase the price of their finished product. So we could point 
to the numerous industrial deaths and accidents which are due to market 
forces making it unprofitable to introduce adequate safety equipment 
or working conditions, (conservative estimates for industrial deaths 
in the USA are between 14,000 and 25,000 per year plus over 2 million 
disabled), or to increased pollution and stress levels which shorten 
life spans.
</p><p>
This tendency for self-managed firms to adjust to market forces by 
increasing hours, working more intensely, allocating resources to 
accumulating equipment rather than leisure time or consumption can
be seen in co-operatives under capitalism. While lacking bosses may
reduce this tendency in a post-capitalist economy, it will not 
eliminate it. This is why many socialists, including anarchists, 
call the way markets force unwilling members of a co-operatives make 
such unpleasant decisions a form of "self-exploitation" (although 
this is somewhat misleading, as there no exploitation in the capitalist
sense of owners appropriating unpaid labour). For communist-anarchists,
a market system of co-operatives <i>"has serious limitations"</i> as 
<i>"a collective enterprise is not necessarily a commune -- nor is it 
necessarily communistic in its outlook."</i> This is because it can end up
<i>"competing with like concerns for resources, customers, privileges,
and even profits"</i> as they <i>"become a particularistic interest"</i> and
<i>"are subjected to the same social pressures by the market in which
they must function."</i> This <i>"tends increasingly to encroach on their
higher ethical goals -- generally, in the name of 'efficiency',
and the need to 'grow' if they are to survive, and the overwhelming
temptation to acquire larger earnings."</i> [Murray Bookchin, <b>Remaking 
Society</b>, pp. 193-4] 
</p><p>
Similarly, a market of
self-managed firms would still suffer from booms and slumps as the
co-operatives response to changes in prices would still result in 
over-production
(see <a href="secC7.html#secc72">section C.7.2</a>) 
and over-investment (see <a href="secC7.html#secc73">section C.7.3</a>).
While the lack of non-labour income would help reduce the severity
of the business cycle, it seems unlikely to eliminate it totally.
Equally, many of the problems of market-increased uncertainty and 
the destabilising aspects of price signals discussed in 
<a href="secI1.html#seci15">section I.1.5</a> are just as
applicable to all markets, including post-capitalist ones.
</p><p>
This is related to the issue of the <i>"tyranny of small decisions"</i> 
we highlighted in <a href="secB6.html">section B.6</a>. This suggests 
that the aggregate effect of individual decisions produces social 
circumstances which are irrational and against the interests of those 
subject to them. This is the case with markets, where competition results 
in economic pressures which force its participants to act in certain ways,
ways they would prefer not to do but, as isolated individuals or workplaces, 
end up doing due to market forces. In markets, it is rational for people 
try to buy cheap and sell dear. Each tries to maximise their income 
by either minimising their costs or maximising their prices, not because 
they particularly want to but because they need to as taking into account 
other priorities is difficult as there is no means of finding them 
out and deeply inadvisable as it is competitively suicidal as it 
places burdens on firms which their competitors need not face. 
</p><p>
As we noted in <a href="secE3.html">section E.3</a>, markets tend to 
reward those who act in anti-social ways and externalise costs (in 
terms of pollution and so on). In a market economy, it is impossible 
to determine whether a low cost reflects actual efficiency or a 
willingness to externalise, i.e., impose costs on others. Markets 
rarely internalise external costs. Two economic agents who strike a 
market-rational bargain between themselves need not consider the 
consequences of their bargain for other people outside their bargain, 
nor the consequences for the earth. In reality, then, market exchanges 
are never bilateral agreements as their effects impact on the wider 
society (in terms of, say, pollution, inequality and so on). This
awkward fact is ignored in the market. As the left-wing economist 
Joan Robinson put it: <i>"In what industry, in what line of business, 
are the true social costs of the activity registered in its accounts? 
Where is the pricing system that offers the consumer a fair choice between
air to breath and motor cars to drive about in?"</i> [<b>Contribution
to Modern Economics</b>, p. 10]
</p><p>
While, to be fair, there will be a reduced likelihood for a workplace 
of self-employed workers to pollute their own neighbourhoods in a free 
society, the competitive pressures and rewards would still be there
and it seems unlikely that they will be ignored, particularly if 
survival on the market is at stake so communist-anarchists fear that
while not having bosses, capitalists and landlords would mitigate some 
of the irrationalities associated with markets under capitalism, it 
will not totally remove them. While the market may be free, people 
would not be.
</p><p>
Even if we assume that self-managed firms resist the temptations and
pressures of the market, any market system is also marked by a 
continuing need to expand production and consumption. In terms of 
environmental impact, a self-managed firm must still make profits in
order to survive and so the economy must grow. As such, every market
system will tend to expand into an environment which is of fixed size.
As well as placing pressure on the planet's ecology, this need to
grow impacts on human activity as it also means that market forces ensure 
that work continually has to expand. Competition means that 
we can never take it easy, for as Max Stirner argued, <i>"[r]estless 
acquisition does not let us take breath, take a calm <b>enjoyment</b>. 
We do not get the comfort of our possessions . . . Hence it is at 
any rate helpful that we come to an agreement about <b>human</b> labours 
that they may not, as under competition, claim all our time and toil."</i> 
[<b>The Ego and Its Own</b>, p. 268] Value needs to be created, and that 
can only be done by labour and so even a non-capitalist market system
will see work dominate people's lives. Thus the need to survive on the
market can impact on broader (non-monetary) measures of welfare, with
quality of life falling as a higher GDP is created as the result 
of longer working hours with fewer holidays. Such a regime may, perhaps,
be good for material wealth but it is not great for people.
</p><p>
The market can also block the efficient use of resources. For example,
for a long time energy efficient light-bulbs were much more expensive 
than normal ones. Over the long period, however, they used far less 
energy than normal ones, meaning less need to produce more energy (and 
so burn coal and oil, for example). However, the high initial price 
ensured that most people continued to use the less efficient bulbs and 
so waste resources. Much the same can be said of alternative forms of 
energy, with investment in (say) wind energy ignored in favour of 
one-use and polluting energy sources. A purely market system would not
allow decisions which benefit the long-term interests of people to
be made (for example, by distributing energy-efficient light-bulbs 
freely or at a reduced cost) as these would harm the profits of those
co-operatives which tried to do so.
</p><p>
Also, markets do not reflect the values of things we do not put a price
upon (as we argued in <a href="secB5.html">section B.5</a>). 
It cannot protect wilderness, for 
example, simply because it requires people to turn it into property and 
sell it as a commodity. If you cannot afford to visit the new commodity, 
the market turns it into something else, no matter how much you value 
it. The market also ignores the needs of future generations as they 
always discount the value of the long term future. A payment to be made 
1,000 years from now (a mere speck in geological time) has a market value 
of virtually zero according to any commonly used discount rate. Even 50 
years in the future cannot be adequately considered as competitive 
pressures force a short term perspective on people harmful to present 
and future generations, plus the ecology of the planet.
</p><p>
Then there are corrosive effects of the market on human personalities. 
As we have argued elsewhere (see <a href="secB1.html#secb13">section B.1.3</a>),
competition in a free market creates numerous problems -- for example, 
the creation of an <i>"ethics of mathematics"</i> and the strange inversion 
of values in which things (property/money) become more important than people.
This can have a de-humanising effect, with people becoming cold-hearted 
calculators who put profits before people. This can be seen in capitalism, 
where economic decisions are far more important than ethical ones -- 
particularly as such an inhuman mentality can be rewarded on the market. 
Merit does not necessarily breed success, and the successful do not 
necessarily have merit. The truth is that, in the words of Noam Chomsky, 
<i>"wealth and power tend to accrue to those who are ruthless, cunning, 
avaricious, self-seeking, lacking in sympathy and compassion, subservient 
to authority and willing to abandon principle for material gain, and so on
. . . Such qualities might be just the valuable ones for a war of all 
against all."</i> [<b>For Reasons of State</b>, pp. 139-140] 
</p><p>
Needless to be said, if the market does reward such people with success 
it can hardly be considered as a <b>good</b> thing. A system which 
elevates making money to the position of the most important individual 
activity will obviously result in the degrading of human values and an 
increase in neurotic and psychotic behaviour. Little wonder, as Alfie 
Kohn has argued, competition can have serious negative effects on us 
outside of work, with it damaging both our personal psychology and our 
interpersonal relationships. Thus competition <i>"itself is responsible 
for the development of a lower moral standard"</i> which places winning 
at any cost above fairness and justice. Kohn quotes Nathan Ackerman, the
father of family therapy, who noted that the <i>"strife of competition 
reduces empathic sympathy, distorts communication, impairs the mutuality 
of support and sharing, and decreases the satisfaction of personal need."</i> 
[<b>No Contest</b>, p. 163 and pp. 142-3] Thus, the market can impoverish 
us as individuals, sabotaging self-esteem, promoting conformity, ruining 
relationships and making us less than what we could be. This is a 
problem of markets as such, not only capitalist ones and so 
non-capitalist markets could make us less human and more a robot. 
</p><p>
All market decisions are crucially conditioned by the purchasing power 
of those income groups that can back their demands with money. Not
everyone can work (the sick, the very old, children and so forth) and
for those who can, personal circumstances may impact on their income.
Moreover, production has become so interwoven that it <i>"is utterly 
impossible to draw a distinction between the work of each"</i> and so 
we should <i>"put the <b>needs</b> above the <b>works</b>, and first 
of all to recognise <b>the right to live</b>, and later on <b>the 
right to well-being</b> for all those who took their share in production."</i> 
This is particularly the case as <i>"the needs of the individual, do not 
always correspond to his <b>works</b>"</i> -- for example, <i>"a man of 
forty, father of three children, has other needs than a young man of 
twenty"</i> and <i>"the woman who suckles her infant and spends sleepless 
nights at its bedside, cannot do as much <b>work</b> as the man who has 
slept peacefully."</i> [Kropotkin, <b>Conquest of Bread</b>, p. 170 and 
p. 171] This was why communist-anarchists like Kropotkin stressed the
need not only to abolish wage-labour but also money, the wages system.
</p><p>
So it goes without saying that purchasing power (demand) and need are not 
related, with people often suffering simply because they do not have the 
money required to purchase, say, health care, housing or food for themselves
or their families. While economic distress may be less in a non-capitalist
market system, it still would exist as would the fear of it. The market 
is a continuous bidding for goods, resources, and services, with
those who have the most purchasing power the winners. This means that the
market system is the worst one for allocating resources when purchasing
power is unequally distributed (this is why orthodox economists make the
convenient assumption of a <i>"given distribution of income"</i> when they 
try to show that a capitalist allocation of resources is the best one via 
<i>"Pareto optimality"</i>). While a mutualist system should reduce
inequality drastically, it cannot be assumed that inequalities will not 
increase over time. This is because inequalities in resources leads to 
inequalities of power on the market and, assuming self-interest, any trade 
or contract will benefit the powerful more than the powerless, so re-enforcing 
and potentially increasing the inequalities and power between the parties. 
Similarly, while an anarchist society would be created with people driven 
by a sense of solidarity and desire for equality, markets tend to erode
those feelings and syndicates or communes which, thanks to the resources 
they control (such as rare raw materials or simply the size of their 
investments reducing competitive pressures) have an advantage on the 
market may be tempted to use their monopoly power vis--vis other 
groups in society to accrue more income for themselves at the expense 
of less fortunate syndicates and communes. This could degenerate back 
into capitalism as any inequalities that exist between co-operatives 
would be increased by competition, forcing weaker co-operatives to fail 
and so creating a pool of workers with nothing to sell but their labour. 
The successful co-operatives could then hire those workers and so re-introduce
wage labour. So these possibilities could, over time, lead to a return a 
post-capitalist market system to capitalism if the inequalities become 
so great that the new rich become so alienated from the rest of society 
they recreate wage-labour and, by necessity, a state to enforce a desire 
for property in land and the means of production against public opinion.
</p><p>
All this ensures that the market cannot really provide the information
necessary for rational-decision making in terms of ecological impact
as well as human activity and so resources are inefficiently allocated. 
We all suffer from the consequences of that, with market forces 
impoverishing our environment and quality of life. Thus are plenty of 
reasons for concluding that efficiency and the market not only do not 
necessarily coincide, but, indeed, necessarily do not coincide. Indeed, 
rather than respond to individual needs, the market responds to money 
(more correctly, profit), which by its very nature provides a distorted 
indication of individual preferences (and does not take into account 
values which are enjoyed collectively, such as clean air, or 
<b>potentially</b> enjoyed, such as the wilderness a person may never 
visit but desires to see exist and protected).
</p><p>
This does not mean that social anarchists propose to "ban" the market --
far from it. This would be impossible. What we do propose is to convince
people that a profit-based market system has distinctly <b>bad</b> effects 
on individuals, society and the planet's ecology, and that we can organise
our common activity to replace it with libertarian communism. As Max
Stirner argued, competition <i>"has a continued existence"</i> because
<i>"all do not attend to <b>their</b> <b>affair</b> and come to an 
<b>understanding</b> with each other about it . . . . Abolishing 
competition is not equivalent to favouring the guild. The difference 
is this: In the <b>guild</b> baking,  etc., is the affair of the 
guild-brothers; in <b>competition</b>, the affair of chance competitors; 
in the <b>union</b>, of those who require baked goods, and therefore my 
affair, yours, the affair of neither guildic nor the concessionary baker, 
but the affair of the <b>united.</b>"</i> [<b>Op. Cit.</b>, p. 275]
</p><p>
Therefore, social anarchists do not appeal purely to altruism in their 
struggle against the de-humanising effects of the market, but also to 
to egoism: the simple fact that co-operation and mutual aid is in our 
best interests as individuals. By co-operating and controlling <i>"the 
affairs of the united,"</i> we can ensure a free society which is worth 
living in, one in which the individual is not crushed by market forces 
and has time to fully develop his or her individuality and uniqueness:
</p><p><blockquote>
<i>"Solidarity is therefore the state of being in which Man attains the
greatest degree of security and wellbeing; and therefore egoism itself, 
that is the exclusive consideration of one's own interests, impels Man 
and human society towards solidarity."</i> [Errico Malatesta, <b>Anarchy</b>, 
p. 30]
</blockquote>
</p><p>
In conclusion then, communist-anarchists argue that even non-capitalist 
markets would result in everyone being so busy competing to further their 
"self-interest" that they would loose sight of what makes life worth living 
and so harm their <b>actual</b> interests. Ultimately, what counts as 
self-interest is shaped by the surrounding social system. The pressures 
of competing may easily result in short-term and narrow interests taking 
precedence over richer, deeper needs and aspirations which a communal system 
could allow to flourish by providing the social institutions by which 
individuals can discuss their joint interests, formulate them and act 
to achieve them. That is, even non-capitalist markets would result in 
people simply working long and hard to survive on the market rather than 
<b>living</b>. If one paradox of authoritarian socialism is that it makes 
everyone miserable by forcing them to altruistically look out for the 
happiness of others, market-based libertarian socialism could produce 
the potential paradox of making everyone miserable by the market forcing 
them to pursue a limited notion of self-interest which ensures that they 
do not have the time or opportunity to really be happy and at one with 
themselves and others.
<p>
In other words, bosses act as they do under capitalism in part because markets
force them to. Getting rid of bosses need not eliminate all the economic pressures
which influence the bosses' decisions and, in turn, could force groups of workers
to act in similar ways. Thus a competitive system would undermine many of the 
benefits which people sought when they ended capitalism. This is why some socialists
inaccurately call socialist schemes of competing co-operatives "self-managed 
capitalism" or "self-exploitation" -- they are simply drawing attention to the 
negative aspects of markets which getting rid of the boss cannot solve. 
Significantly, Proudhon was well aware of the negative aspect of market forces 
and suggested various institutional structures, such as the ago-industrial 
federation, to combat them (so while in favour of competition he was, unlike 
the individualist anarchists, against the free market). Communist anarchists,
unsurprisingly, argue that individualist anarchists tend to stress the positive 
aspects of competition while ignoring or downplaying its negative sides. While, 
undoubtedly, capitalism makes the negative side of competition worse than it could 
be it does not automatically follow that a non-capitalist market would not have 
similar, if smaller, negative aspects to it.
</p>

<a name="seci14"><h2>I.1.4 If capitalism is exploitative, then isn't 
socialism as well?</h2></a> 

<p>
Some libertarian Marxists (as well as Leninists) claim that non-communist 
forms of socialism are just "self-managed" capitalism. Strangely, propertarians 
(the so-called "libertarian" right) also say yes to this question, arguing that 
socialist opposition to exploitation does not imply socialism but what they 
also call "self-managed" capitalism. Thus some on the left proclaim anything 
short of communism is a form of capitalism while, on the right, some proclaim 
that communism is exploitative and only a market system (which they 
erroneously equate to capitalism) is non-exploitative.
</p><p>
Both are wrong. First, and most obviously, socialism does not equal
communism (and vice versa). While there is a tendency on both right 
and left to equate socialism with communism (particularly Marxism),
in reality, as Proudhon once noted, socialism <i>"was not founded as 
a sect or church; it has seen a number of different schools."</i> 
[<b>Selected Writings of Pierre-Joseph Proudhon</b>, p. 177] Only 
a few of these schools are communist, just as only a few of them are 
libertarian. Second, not all socialist schools aim to abolish the 
market and payment by deed. Proudhon, for example, opposed communism 
and state socialism just as much as he opposed capitalism. Third, capitalism 
does not equal the market. The market predates capitalism and, for some 
libertarian socialists, will survive it. Even from a Marxist position, 
a noted in  <a href="secI.html#seci11">section I.1.1</a>, the defining 
feature of capitalism is <b>wage labour</b>, not the market.
</p><p>
Why some socialists desire to reduce the choices facing humanity to 
either communism or some form of capitalism is frankly strange, but also 
understandable because of the potential dehumanising effects of market 
systems (as shown under capitalism). Why the propertarian right wishes 
to do so is more clear, as it aims to discredit all forms of socialism 
by equating them to communism (which, in turn, it equates to central 
planning and Stalinism).
</p><p>
Yet this is not a valid inference to make. Opposition to capitalism can 
imply both socialism (distribution according to deed, or selling the 
product of ones labour) and communism (distribution according to need,
or a moneyless economy). The theory is a critique of capitalism, based
on an analysis of that system as being rooted in the exploitation of
labour (as we discussed in <a href="secC2.html">section C.2</a>), i.e.,
it is marked by workers not being paid the full-value of the goods 
they create. This analysis, however, is not necessarily the 
basis of a socialist economy although it <b>can</b> be considered this 
as well. As noted, Proudhon used his critique of capitalism as an 
exploitative system as the foundation of his proposals for mutual 
banking and co-operatives. Marx, on the other hand, used a similar 
analysis as Proudhon's purely as a critique of capitalism while hoping 
for communism. Robert Owen used it as the basis of his system of labour 
notes while Kropotkin argued that such a system was just the wages-system
under another form and a free society <i>"having taken possession of
all social wealth, having boldly proclaimed the right of all to this
wealth . . . will be compelled to abandon any system of wages, whether
in currency or labour-notes."</i> [<b>The Conquest of Bread</b>, p. 167]
</p><p>
In other words, though a system of co-operative selling on the market 
(what is mistakenly termed "self-managed" capitalism by some) or 
exchanging labour-time values would not be communism, it is <b>not</b> 
capitalism. This is because the workers are not separated from the 
means of production. Therefore, the attempts by propertarians to 
claim that it is capitalism are false, an example of misinformed 
insistence that virtually <b>every</b> economic system, bar state 
socialism and feudalism, is capitalist. However, it could be 
argued that communism (based on free access and communal 
ownership of all resources including the product of labour) would 
mean that workers are exploited by non-workers (the young, the 
sick, the elderly and so on). As communism abolishes the link between
performance and payment, it could be argued that the workers under 
communism would be just as exploited as under capitalism, although 
(of course) not by a class of capitalists and landlords but by the
community. As Proudhon put it, while the <i>"members of a community,
it is true, have no private property"</i> the community itself <i>"is
proprietor"</i> and so communism <i>"is inequality, but not as 
property is. Property is the exploitation of the weak by the strong.
Communism is the exploitation of the strong by the weak."</i> 
[<b>What is Property?</b>, p. 250]
</p><p>
Needless to say, subsequent anarchists rejected Proudhon's blanket
opposition to all forms of communism, rejecting this position as
only applicable to authoritarian, not libertarian, communism. 
Which, it must be remembered, was the only kind around when this
was written in 1840 (as we noted in <a href="secH1.html">section H.1</a>, 
what was known as communism in Proudhon's time was authoritarian). 
Suffice to say, Proudhon's opposition to communism shares little with 
that of the Propertarian-right, which reflects the sad lack of 
personal empathy (and so ethics) of the typical defender of capitalism.
However, the notion that communism (distribution according to need)
rather than socialism (distribution according to deed) is exploitative
misses the point as far as communist anarchism goes. This is because 
of two reasons. 
</p><p>
Firstly, <i>"Anarchist Communism . . . means voluntary Communism, 
Communism from free choice."</i> [Alexander Berkman, <b>What is 
Anarchism</b>, p. 148] This means it is not imposed on anyone but 
is created and practised only by those who believe in it. 
</p><p>
Therefore it would  be up to the communities and syndicates to decide 
how they wish to distribute the products of their labour and 
individuals to join, or create, those that meet their ideas of right 
and wrong. Some may decide on equal pay, others on payment in terms 
of labour time, yet others on communistic associations. The important 
thing to realise is that individuals and the co-operatives they join 
will decide what to do with their output, whether to exchange it or to 
distribute it freely. Hence, because it is based on free agreement, 
communism-anarchism cannot be exploitative. Members of a commune or 
co-operative which is communistic are free to leave, after all. 
Needless to say, the co-operatives will usually distribute their 
product to others within their confederation and exchange with the 
non-communist ones in a different manner. We say "usually" for in 
the case of emergencies like earthquakes and so forth the situation 
would call for, and produce, mutual aid just as it does today to
a large degree, even under capitalism. 
</p><p>
The reason why capitalism is exploitative is that workers <b>have</b> 
to agree to give the product of their labour to another (the boss, 
the landlord) in order to be employed in the first place (see 
<a href="secB4.html">section B.4</a>). While they can choose who to
be exploited by (and, to varying degrees, pick the best of the 
limited options available to them) they cannot avoid selling their
liberty to property owners (a handful do become self-employed and
some manage to join the exploiting class, but not enough to
make either a meaningful option for the bulk of the working class).
In libertarian communism, by contrast, the workers themselves agree to 
distribute part of their product to others (i.e. society as a whole, 
their neighbours, friends, and so forth). It is based on free agreement, 
while capitalism is marked by power, authority, and the firm (invisible)
hand of market forces (supplemented, as necessary, by the visible fist
of the state). As resources are held in common under anarchism, people 
always have the option of working alone if they so desired 
(see <a href="secI3.html#seci37">section I.3.7</a>). 
</p><p>
Secondly, unlike under capitalism, there is no separate class which 
is appropriating the goods produced. The so-called "non-workers" in 
a libertarian communist society have been, or will be, workers. As the 
noted Spanish anarchist De Santillan pointed out, <i>"[n]aturally, children, 
the aged and the sick are not considered parasites. The children will be 
productive when they grow up. The aged have already made their contribution 
to social wealth and the sick are only temporarily unproductive."</i> 
[<b>After the Revolution</b>, p. 20] In other words, over their life time, 
everyone contributes to society and so using the "account book" 
mentality of capitalism misses the point. As Kropotkin put it:
</p><p>
<blockquote>
<i>"Services rendered to society, be they work in factory or field, or 
mental services, <b>cannot be</b> valued in money. There can be no 
exact measure of value (of what has been wrongly-termed exchange value), 
nor of use value, with regard to production. If two individuals work 
for the community five hours a day, year in year out, at different 
work which is equally agreeable to them, we may say that on the whole 
their labour is equivalent. But we cannot divide their work, and say 
that the result of any particular day, hour, or minute of work of the 
one is worth the result of a minute or hour of the other."</i> 
[<b>Conquest of Bread</b>, p. 168]
</blockquote>
</p><p>
So it is difficult to evaluate how much an individual worker or 
group of workers actually contribute to society. This can be seen
whenever workers strike, particularly so-called "key" areas like
transport. Then the media is full of accounts of how much the 
strike is costing "the economy" and it is always far more
than that of the wages lost in strike action. Yet, according to 
capitalist economics, the wages of a worker are equal to their 
contribution to production -- no more, no less. Striking workers, in
other words, should only harm the economy to the value of their wages
yet, of course, this is obviously not the case. This is because of the 
interconnected nature of any advanced economy, where contributions of
individuals are so bound together.
</p><p>
Needless to say, this does not imply that a free people would tolerate 
the able-bodied simply taking without contributing towards the mass of 
products and services society. As we discuss in 
<a href="secI4.html#seci414">section I.4.14</a>, such people will be
asked to leave the community and be in the same situation as those 
who do not wish to be communists.
</p><p>
Ultimately, the focus on calculating exact amounts and on the 
evaluation of contributions down to the last penny is exactly 
the kind of narrow-minded account-book mentality which makes most 
people socialists in the first place. It would be ironic if, in the 
name of non-exploitation, a similar accounting mentality to that 
which records how much surplus value is extracted from workers 
under capitalism is continued into a free society. It makes 
life easier not to have to worry whether you can afford to 
visit the doctors or dentists, not to have to pay for use of roads 
and bridges, know that you can visit a public library for a book 
and so forth. For those who wish to spend their time calculating 
such activities and seeking to pay the community for them 
simply because they hate the idea of being "exploited" by the 
"less" productive, the ill, the young or the old then we are sure 
that a libertarian communist society will accommodate them (although 
we are sure that emergencies will be an exception and they will
be given free access to communal hospitals, fire services and
so forth). 
</p><p>
Thus the notion that communism would be exploitative like capitalism
misses the point. While all socialists accuse capitalism for failing to 
live up to its own standards, of not paying workers the full product of
their labour, most do not think that a socialist society should seek to
make that full payment a reality. Life, for libertarian communists, is 
just too complex and fleeting to waste time and energy calculating exactly 
the contribution of each to society. As Malatesta put it:
</p><p>
<blockquote>
<i>"I say that <b>the worker has the right to the entire product of
his work</b>: but I recognise that this right is only a formula
of abstract justice; and means, in practice, that there should be
no exploitation, that everyone must work and enjoy the fruits of
their labour, according to the custom agreed among them.</i>
</blockquote>
</p><p>
<blockquote>
<i>"Workers are not isolated beings that live for themselves and for
themselves, but social beings . . . Moreover, it is impossible, the
more so with modern production methods, to determine the exact 
labour that each worker contributed, just as it is impossible to
determine the differences in productivity of each worker or 
each group of workers, how much is due to the fertility of the
soil, the quality of the implements used, the advantages or
difficulties flowing from the geographical situation or the social
environment. Hence, the solution cannot be found in respect to
the strict rights of each person, but must be sought in fraternal
agreement, in solidarity."</i> [<b>At the Caf</b>, pp. 56-7]
</blockquote>
</p><p>
All in all, most anarchists reject the notion that people sharing the
world (which is all communism really means) equates to them being 
exploited by others. Rather than waste time trying to record the 
minutiae of who contributed exactly what to society, most anarchists
are happy if people contribute to society roughly equal amounts of
time and energy and take what they need in return. To consider such
a situation of free co-operation as exploitative is simply ridiculous
(just as well consider the family as the exploitation of its working
members by their non-working partners and children). Those who do 
are free to leave such an association and pay their own way in 
everything (a task which would soon drive home the simplicity and 
utility of communism, most anarchists would suggest).
</p>

<a name="seci15"><h2>I.1.5 Does capitalism efficiently allocate resources?</h2></a> 

<p>
We have discussed, in <a href="secI1.html#seci11">section I.1.1</a>, the
negative effects of workplace hierarchy and stock markets and, in
<a href="secI1.html#seci12">section I.1.2</a>, the informational
problems of prices and the limitations in using profit as the sole 
criteria for decision making for the efficient allocation of resources.
As such, anarchists have reason to doubt the arguments of the "Austrian" 
school of economics that (libertarian) socialism is impossible, as first 
suggested by Ludwig Von Mises in 1920. [<i>"Economic Calculation in the Socialist 
Commonwealth"</i>, <b>Collectivist Economic Planning</b>, F.A von Hayek (ed.),  pp. 87-130]
Here, we discuss why anarchists also have strong reason to question the 
underlying assumption that capitalism efficiently allocates resources and
how this impacts on claims that "socialism" is impossible. This is based
on an awareness of the flaws in any (implicit) assumption that all prices are 
at equilibrium, the issue of uncertainty, the assumption that human well-being 
is best served by market forces and, lastly, the problem of periodic economic 
crisis under capitalism.
</p><p>
The first issue is that prices only provide adequate knowledge for rational 
decision making only if they are at their equilibrium values as this equates 
supply and demand. Sadly, for the "Austrian" school and its arguments against 
socialism, it rejects the notion that prices could be at equilibrium. While 
modern "Austrian" economics is keen to stress its (somewhat underdeveloped) 
disequilibrium analysis of capitalism, this was not always the case. When 
Mises wrote his 1920 essay on socialism his school of economics was considered 
a branch of the neo-classicalism and this can be seen from Mises' critique 
of central planning. In fact, it would be fair to say that the neo-"Austrian" 
focus of prices as information and (lip-service to) disequilibrium flowed 
from the Economic Calculation debate, specifically the awkward fact that 
their more orthodox neo-classical peers viewed Lange's "solution" as answering 
Mises and Hayek.
</p><p>
Thus there is a fundamental inconsistency in Mises' argument, namely
that while Austrian economics reject the notion of equilibrium and the 
perfect competition of neo-classical economics he nonetheless maintains 
that market prices are the correct prices and can be used to make rational 
decisions. Yet, in any real market, these correct prices must be ever 
changing so making the possibility that <i>"precise"</i> economic decisions 
by price can go wrong on a large scale (i.e., in slumps). In other words,
Mises effectively assumed away uncertainty and, moreover, failed to 
mention that this uncertainty is increased dramatically within capitalism.
</p><p>
This can be seen from modern "Austrian" economics which, after the Economic
Calculation debates of the 1920s and 1930s, moved increasingly away from 
neo-classical equilibrium theory. However, this opened up a whole new can 
of worms which, ironically, weakened the "Austrian" case against socialism.
For the modern "Austrian" economist, the economy is considered not to be
in equilibrium, with entrepreneur being seen as the means by which it
brought towards it. Thus <i>"this approach postulates a tendency for profit 
opportunities to be <b>discovered</b> and <b>grasped</b> by routine-resisting 
entrepreneurial market participants"</i>, with this <i>"tending to nudge the 
market in the equilibrative direction."</i> Lip-service is paid to the obvious
fact that entrepreneurs can make errors but <i>"<b>there is no tendency for 
entrepreneurial errors to be made.</b> The tendency which the market 
generates toward greater mutual awareness, is not offset by any equal 
but opposite tendency in the direction of diminishing awareness"</i> and so
the <i>"entrepreneurial market process may indeed reflect a systematically 
equilibrative <b>tendency</b>, but this by no means constitutes a <b>guaranteed</b> 
unidirectional, flawlessly converging trajectory."</i> All this results on
the <i>"speculative actions of entrepreneurs who see opportunities for pure 
profit in the conditions of disequilibrium."</i> [Israel M. Kirzner, 
<i>"Entrepreneurial Discovery and the Competitive Market Process: An 
Austrian Approach"</i>,  pp. 60-85, <b>Journal of Economic Literature</b>,
Vol. 35, No. 1, p. 71, p. 73,  p. 82, p. 72 and p. 68]
</p><p>
When evaluating this argument, it is useful to remember that <i>"postulate"</i> 
means <b>"to assume without proof to be true"</b> or <b>"to take as self-evident."</b>
At its most simple, this argument ignores how entrepreneurial activity
pushes an economy <b>away</b> from equilibrium (unlike radical economists,
only a few "Austrian" economists, such as those who follow Ludwig Lachmann,
recognise that market forces have both equilibrating <b>and</b> disequilibrium 
effects, acknowledged in passing by Kirzner: <i>"In a world of incessant change, 
they argue, it is precisely those acts of entrepreneurial boldness which must 
frustrate any discovery efforts made by fellow entrepreneurs."</i> [<b>Op. Cit.</b>,
p. 79]). In other words, market activity can lead to economic crisis and
inefficient allocation decisions. A successful entrepreneur will, by their 
actions, frustrate the plans of others, most obviously those of his competitors 
but also those who require the goods they used to produce their commodities
and those whose incomes are reduced by the new products being available. It 
staggers belief to think that <b>every</b> action by a firm will be step 
towards equilibrium or a better co-ordination of plans, particularly if you
include <b>unsuccessful</b> entrepreneurs into the process. In other words, 
the market can be as discoordinating as it can be co-ordinating and it cannot
be "postulated" beforehand which will predominate at any given time.
</p><p>
There is an obvious example of entrepreneurial activity which leads to 
increasing disequilibrium, one (ironically) drawn straight from "Austrian"
economics itself. This is the actions of bankers extending credit and so 
deviating from the "natural" (equilibrium) rate of interest. As one 
post-Keynesian economist notes, this, the "Austrian" theory of the business 
cycle, <i>"not only proved to be vulnerable to the Cambridge capital critique 
. . . , but also appeared to reply upon concepts of equilibrium (the 'natural 
rate of interest', for example) that were inconsistent with the broader 
principles of Austrian economic theory."</i> [J.E. King, <b>A history of 
post Keynesian economics since 1936</b>, p. 230] As we discussed 
in <a href="secC8.html">section C.8</a>, this kind of activity is to be 
expected of entrepreneurs seeking to make money from meeting market demand.
The net result of this activity is a tendency <b>away</b> from equilibrium.
This can be generalised for all markets, with the profit seeking activities
of some businesses frustrating the plans of others. Ultimately, the 
implication that all entrepreneurial  activity is stabilising, virtuous 
arbitrage that removes disequilibria is unconvincing as the suggestion 
that the misinformation conveyed by disequilibrium prices can cause 
very substantial macroeconomic distortions for only one good (credit).  
Surely, the argument as regards interest rates can apply to other 
disequilibrium prices, with responses to unsustainable prices for other 
goods being equally capable of generating mal-investment (which only 
becomes apparent when the prices adjust towards their "natural" levels).
After all, any single price distortion leads to all other prices becoming
distorted because of the ramifications for exchange ratios throughout the 
economy.
<p></p>
One of the reasons why neo-classical economists stress equilibrium is that
prices only provide the basis for rational calculation only in that state
for disequilibrium prices can convey extremely misleading information. When 
people trade at disequilibrium prices, it has serious impacts on the
economy (which is why neo-classical economics abstracts from it). As one
economist notes, if people <i>"were to buy and sell at prices which did not 
clear the market"</i> then once <i>"such trading has taken place, there can be 
no guarantee that, even if an equilibrium exists, the economy will ever 
converge to it. In fact, it is likely to move in cycles around the equilibrium."</i> 
This <i>"is more than a mere supposition. It is an accurate description of what 
does happen in the real world."</i> [Paul Ormerod, <b>The Death of Economics</b>, 
pp. 87-8] Once we dismiss the ideologically driven <i>"postulate"</i> of "Austrian"
economics, we can see how these opportunities for "pure profit" (and, of 
course, a corresponding pure lose for the buyer) impacts on the economy and
how the market system adds to uncertainty. As dissident economist Steve Keen 
puts it:
</p><p>
<blockquote>
<i>"However, a change in prices in one market will affect consumer demand in all 
other markets. This implies that a move towards equilibrium by one market 
could cause some or all others to move away from equilibrium. Clearly it is 
possible that this . . . might never settle down to equilibrium.</i>
</blockquote>
</p><p>
<blockquote>
<i>"This will be especially so if trades actually occur at disequilibrium -- 
as in practice they must . . . A disequilibrium trade will mean that the 
people on the winning side of the bargain -- sellers if the price is higher 
than equilibrium -- will gain real income at the expense of the losers, 
compared to the alleged standard of equilibrium. This shift in income 
distribution will then affect all other markets, making the dance of many 
markets even more chaotic."</i> [<b>Debunking Economics</b>, p. 169]
</blockquote>
</p><p>
That prices can, and do, convey extremely misleading information is something
which "Austrians" have a tendency to downplay. Yet in economies closer to 
their ideal (for example, nineteenth century America) there were many more 
recessions (usually triggered by financial crises arising from the collapse 
of speculative bubbles) than in the twentieth and so the economy was 
fundamentally more unstable, resulting in the market "precisely" investing 
in the "wrong" areas. Of course, it could be argued that there was not really 
free market capitalism then (e.g., protectionism, no true free banking due to 
regulation by state governments and so on) yet this would be question begging 
in the extreme (particularly since the end of the 20th and dawn of the 21st 
centuries saw speculative crises precisely in those areas which were regulated 
least).
</p><p>
Thus, the notion that prices can ensure the efficient allocation of resources
is question begging. If prices are in disequilibrium, as "Austrians" suggest,
then the market does not automatically ensure that they move towards equilibrium.
Without equilibrium, we cannot say that prices provide companies sufficient 
information to make rational investment decisions. They may act on price 
information which is misleading, in that it reflects temporary highs or lows
in the market or which is a result of speculative bubbles. An investment decision 
made on the <b>mis</b>-information implied in disequilibrium prices is as likely 
to produce mal-investment and subsequent macro-economic distortions as decisions
made in light of the interest rate not being at its "natural" (equilibrium)
value. So unless it is assumed that the market is in equilibrium when an investment
decision is made then prices can reflect misinformation as much as information.
These, the obvious implications of disequilibrium, help undermine Mises' arguments 
against socialism. 
</p><p>
Even if we assume that prices are at or, at best, near equilibrium 
when investment decisions are made, the awkward fact is that these
prices do not tell you prices in the future nor what will be bought 
when production is finished. Rather, they tell you what was <b>thought</b> 
to be profitable before <b>investment began</b>. There are always 
differences between the prices used to cost various investments and 
the prices which prevail on the market when the finished goods are 
finally sold, suggesting that the market presents systematically misleading 
signals. In addition, rival companies respond to the same price
signals by undertaking long term investments at the same time, so 
creating the possibility of a general crisis of over-accumulate and 
over-production when they are complete. As we discussed in 
<a href="secC7.html#secc72">section C.7.2</a>, this is a key factor in
the business cycle. Hence the recurring possibility of over-production, 
when the aggregate response to a specific market's rising price results 
in the market being swamped by good, so driving the market price down. 
Thus the market is marked by uncertainty, the future is not known. So 
it seems ironic to read Mises asserting that <i>"in the socialist 
commonwealth every economic change becomes an undertaking whose success 
can be neither appraised in advance nor later retrospectively determined. 
There is only groping in the dark."</i> [<b>Op. Cit.</b>, p. 110] 
</p><p>
In terms of <i>"appraised in advance"</i>, Mises is essentially assuming 
that capitalists can see the future. In the real world, rather than in 
the unreal world of capitalist economics, the future is unknown and, 
as a result, success can only be guessed at. This means that any 
investment decision under <b>real</b> capitalism is, equally, <i>"groping 
in the dark"</i> because there is no way to know, before hand, whether 
the expectations driving the investment decisions will come to be.
As Mises himself noted as part of his attack on socialism, 
<i>"a static state is impossible in real life, as our economic data 
are for ever changing"</i> and so, needless to say, the success of an
investment <b>cannot</b> be appraised beforehand with any real degree 
of certainty. Somewhat ironically, Mises noted that <i>"the static 
nature of economic activity is only a theoretical assumption 
corresponding to no real state of affairs, however necessary it 
may be for our thinking and for the perfection of our knowledge 
of economics."</i> [<b>Op. Cit.</b>, p. 109] Or, for that matter, our 
critique of socialism! This can be seen from one his examples
against socialism:
</p><p>
<blockquote>
<i>"Picture the building of a new railroad. Should it be built at all,
and if so, which out of a number of conceivable roads should be
built? In a competitive and monetary economy, this question would
be answered by monetary calculation. The new road will render less
expensive the transport of some goods, and it may be possible to
calculate whether this reduction of expense transcends that involved
in the building and upkeep of the next line. That can only be 
calculated in money."</i> [<b>Op. Cit.</b>, p. 108]
</blockquote>
</p><p>
It <i>"may be possible"</i>? Not before hand. At best, an investor could
<b>estimate</b> the willingness of firms to swap to the new railroad and
whether those expected costs will result in a profit on both fixed
and running costs. The construction costs can be estimated, although 
unexpected price rises in the future may make a mockery of these too,
but the amount of future income cannot. Equally, the impact of 
building the new railroad will change the distribution of income as
well, which in turn affects prices across the market and people's
consumption decisions which, in turn, affects the profitability of
new railroad investment. Yet all this is ignored in order to attack
socialism.
</p><p>
In other words, Mises assumes that the future can be accurately 
predicted in order to attack socialism. Thus he asserts that
a socialist society <i>"would issue an edict and decide for or against 
the projected building. Yet this decision would depend at best upon 
vague estimates; it would never be based upon the foundation of an 
exact calculation of value."</i> [<b>Op. Cit.</b>, p. 109] Yet any 
investment decision in a <b>real</b> capitalist economy depends  
<i>"at best upon vague estimates"</i> of future market conditions 
and expected returns on the investment. This is because accounting 
is backward looking, while investment depends on the unknowable 
future.
</p><p>
In other words, <i>"people recognise that their economic future is 
uncertain (nonergodic) and cannot be reliably predicted from existing 
market information. Consequently, investment expenditures on production 
facilities and people's desire to save are typically based on differing 
expectations of an unknowable, uncertain future."</i> This means that
in an uncertain world future profits <i>"can neither be reliably 
forecasted from existing market information, nor endogenously 
determined via today's planned saving propensity of income earners
. . . Thus, unless one assumes that entrepreneurs can accurately 
predict the future from here to eternity, current expectations of 
prospective yield must depend on the animal optimism or pessimism 
of entrepreneurs"</i> [Paul Davidson, <b>John Maynard Keynes</b>,
pp. 62-3] So, yes, under capitalism you can determine the money cost 
(price) of a building but the decision to build is based on estimates
and guesses of the future, to use Mises' words <i>"vague estimates."</i> 
A change in the market can mean that even a building which is 
constructed exactly to expected costs does not produce a profit
and so sits empty. Even in terms of <i>"exact calculation"</i> of 
inputs these can change, so undermining the projected final 
cost and so its profit margin.
</p><p>
For a good explanation of the problems of uncertainty, we must 
turn to Keynes who placed it at the heart of his analysis of 
capitalism. <i>"The actual results of an investment over a long 
term of years,"</i> argued Keynes, <i>"very seldom agree with the 
initial expectation"</i> since <i>"our existing knowledge does not 
provide a sufficient basis for a calculated mathematical 
expectation. In point of fact, all sorts of considerations 
enter into the market valuation which are in no way relevant 
to the prospective yield."</i> He stressed that <i>"human decisions 
affecting the future, whether personal or political or economic, 
cannot depend on strict mathematical expectation, since the basis 
for making such calculations does not exist."</i> He also suggested
that the <i>"chief result"</i> of wage flexibility <i>"would be to 
cause a great instability of prices, so violent perhaps as to make
business calculations futile."</i> [<b>The General Theory</b>, p. 152, 
pp. 162-3 and  p. 269] 
</p><p>
Much the same can be said of other prices as well. As Proudhon argued decades 
before Mises proclaimed socialism impossible, profit is ultimately an unknown 
value. Under capitalism wages are the <i>"least that can be given"</i> to a 
worker: <i>"that is, we do not know."</i> The <i>"price of the merchandise put upon 
the market"</i> by the capitalist will be the <i>"highest that he can obtain; 
that is, again, we do not know."</i> Economics <i>"admits"</i> that <i>"the 
prices of merchandise and labour . . . can be <b>estimated</b>"</i> and <i>"that 
estimation is essentially an arbitrary operation, which never can lead to sure 
and certain conclusions."</i> Thus capitalism is based on <i>"the relation 
between two unknowns"</i> which <i>"cannot be determined."</i> [<b>System 
of Economical Contradictions</b>, p. 64] 
</p><p>
So under capitalism <b>all</b> decisions are <i>"groping in the dark"</i>.
Which can, and does, lead to inefficient allocations of resources:
</p><p>
<blockquote>
<i>"It leads, that is to say, to <b>misdirected</b> investment. But 
over and above this it is an essential characteristic of the boom that 
investments which will in fact yield, say, 2 per cent. in 
conditions of full employment are made in the expectation of a 
yield of, say, 6 per cent., and are valued accordingly. When the 
disillusion comes, this expectation is replaced by a contrary 
'error of pessimism', with the result that the investments, which 
would in fact yield 2 per cent. in conditions of full employment, 
are expected to yield less than nothing; and the resulting collapse 
of new investment then leads to a state of unemployment in which 
the investments, which would have yielded 2 per cent. in 
conditions of full employment, in fact yield less than nothing. 
We reach a condition where there is a shortage of houses, but 
where nevertheless no one can afford to live in the houses that 
there are."</i> [Keynes, <b>Op. Cit.</b>, pp. 321-2]
</blockquote>
</p><p>
Thus uncertainty and expectations of profit can lead to massive allocation 
inefficiencies and waste. Of course Mises pays lip-service to this uncertainty 
of markets. He noted that there are <i>"ceaseless alternations in other 
economic data"</i> and that exchange relations are <i>"subject to constant 
. . . fluctuations"</i> but those <i>"fluctuations disturb value calculations 
only in the slightest degree"</i>! He admitted that <i>"some mistakes are 
inevitable in such a calculation"</i> but rest assured <i>"[w]hat remains 
of uncertainty comes into the calculation of the uncertainty of future 
conditions, which is an inevitable concomitant of the dynamic nature of 
economic life."</i> [<b>Op. Cit.</b>, p. 98, p. 110 and p. 111] So, 
somewhat ironically, Mises assumed that, when attacking socialism, that 
prices are so fluid that no central planning agency could ever compute 
their correct price and so allocated resources inefficiently yet, when 
it comes to capitalism, prices are not so fluid that they make investment
decisions difficult!
</p><p>
The question is, does capitalism reduce or increase these uncertainties?
We can suggest that capitalism adds two extra layers of uncertainty. As
with any economy, there is the uncertainty that produced goods will meet 
an actual need of others (i.e., that it has a use-value). The market
adds another layer of uncertainty by adding the need for its price 
to exceed costs a market. Finally, capitalism adds another level of 
uncertainty in that the capitalist class must make suffice profits as 
well. Thus, regardless of how much people need a specific good if 
capitalists cannot make a profit from it then it will not be produced.
</p><p>
Uncertainty will, of course, afflict a communist-anarchist society. 
Mistakes in resource allocation will happen, with some goods over 
produced at times and under-produced at others. However, a communist 
society removes the added uncertainty associated with a capitalist 
economy as such mistakes do <b>not</b> lead to general slumps as 
losses result in the failure of firms and rising unemployment. In 
other words, without Mises' precise economic calculation society 
will no longer be afflicted by the uncertainty associated with the 
profit system.
</p><p>
Significantly, there are developments within capitalism which point 
to the benefits of communism in reducing uncertainty. This is the
rise of the large-scale corporation. In fact, many capitalist firms 
expand precisely to reduce the uncertainties associated with market 
prices and their (negative) impact on the plans they make. Thus companies 
integrate horizontally by take-over to gain more control over investment 
and supply decisions as well as vertically to stabilise costs and secure 
demand for necessary inputs.
</p><p>
As economist John Kenneth Galbraith noted, when investment is large, 
<i>"[n]o form of market uncertainty is so serious as that involving the 
terms and conditions on which capital is obtained."</i> As a result 
internal funds are used as <i>"the firm has a secure source of capital"</i> 
and <i>"no longer faces the risks of the market."</i> This applies to other 
inputs, for a <i>"firm cannot satisfactorily foresee and schedule future 
action or prepare for contingencies if it does not know what its prices
will be, what its sales will be, what its costs, including labour
and capital costs, will be and what will be available at these
costs. If the market is uncontrolled, it will not know these 
things . . . Much of what the firm regards as planning consists
in minimising uncontrolled market influences."</i> This partly explains
why firms grow (the other reason is to dominate the market and reap
oligopolistic profits). The <i>"market is superseded by vertical 
integration"</i> as the firm <i>"takes over the source of supply or 
the outlet"</i>. This <i>"does not eliminate market uncertainty"</i> 
but rather replaces <i>"the large and unmanageable uncertainty as to 
the price"</i> of inputs with <i>"smaller, more diffuse and more 
manageable uncertainties"</i> such as the costs of labour. A
large firm can only control the market, by <i>"reducing or eliminating
the independence of action"</i> of those it sells to or buys from. This
means the behaviour of others can be controlled, so that <i>"uncertainty
as to that behaviour is reduced."</i> Finally, advertising is used to
influence the amount sold. Firms also <i>"eliminate market uncertainty"</i>
by <i>"entering into contracts specifying prices and amounts to be 
provided or bought for substantial periods of time."</i> Thus <i>"one 
of the strategies of eliminating market uncertainty is to eliminate the 
market."</i> [<b>The New Industrial State</b> p. 47, pp. 30-6 and p. 47]
</p><p>
Of course, such attempts to reduce uncertainty within capitalism are 
incomplete and subject to breakdown. Such planning systems can come 
into conflict with others (for example, the rise of Japanese corporations 
in the 1970s and 1980s and subsequent decline of American industrial 
power). They are centralised, hierarchically structured and based 
on top-down central planning (and so subject to the informational 
problems we highlighted in <a href="secI1.html#seci12">section I.1.2</a>). 
Market forces can reassert themselves, making a mockery of even 
the best organised plans. However, these attempts at transcending
the market within capitalism, as incomplete as they are, show a
major problem with relying on markets and market prices to allocate
resources. They add an extra layer of uncertainty which ensure that
investors and firms are as much in the dark about their decisions
as Mises argued central planners would be. As such, to state as
Mises does that production in socialism can <i>"never be based upon 
the foundation of an exact calculation of value"</i> is somewhat
begging the question. [<b>Op. Cit.</b>, p. 109] This is because 
knowing the <i>"exact"</i> price of an investment is meaningless 
as the key question is whether it makes a profit or not -- and
that is unknown when it is made and if it makes a loss, it is
still a waste of resources! So it does not follow that a knowledge 
of current prices allows efficient allocation of resources (assuming, 
of course, that profitability equates to social usefulness). 
</p><p>
In summary, Mises totally ignored the issues of uncertainty (we do 
not, and cannot, know the future) and the collective impact of 
individual decisions. Production and investment decisions are made 
based on expectations about future profits, yet these (expected) 
profits depend (in part) on what other decisions are being, and 
will be, made. This is because they will affect the future aggregate 
supply of a good and so market price, the price of inputs and the 
distribution of effective demand. In the market-based (and so 
fragmented and atomistic) decision-making Mises assumes, any 
production and investment decisions are made on the basis on 
unavoidable ignorance of the actions of others and the results 
of those actions. Of course there is uncertainty which would affect 
every social system (such as the weather, discovery of new sources 
of energy, raw materials and technology, changing customer needs, 
and so forth). However, market based systems add extra levels of
uncertainty by the lack of communication between decision-makers
as well as making profit the be-all-and-end-all of economic rationalism.
</p><p>
So in terms of Mises' claim that only capitalism ensures that success 
can be <i>"appraised in advance"</i>, it is clear that in reality that
system is as marked by <i>"groping in the dark"</i> as any other. What
of the claim that only markets can ensure that a project's success is 
<i>"later retrospectively determined"</i>? By this, Mises makes a flawed
assumption -- namely the dubious notion that what is profitable is right. 
Thus economically is identified with profitably. So even if we assume 
prices provide enough information for rational decision making, that 
the economy jumps from one state of equilibrium to another and that 
capitalists can predict the future, the awkward fact is that maximising 
profit does not equal maximising human well-being.
</p><p>
Neither well-being nor efficiency equals profitability as the latter does 
not take into account <b>need</b>. Meeting needs is not <i>"retrospectively
determined"</i> under capitalism, only profit and loss. An investment
may fail not because it is not needed but because there is no effective 
demand for it due to income inequalities. So it is important to remember 
that the distribution of income determines whether something is an 
"efficient" use of resources or not. As Thomas Balogh noted, real 
income <i>"is measured in terms of a certain set of prices ruling 
in a given period and that these prices will reflect the prevailing 
distribution of income. (With no Texan oil millionaires here would be 
little chance of selling a baby blue Roll-Royce . . . at a price ten 
times the yearly income of a small farmer or sharecropper)."</i> 
[<b>The Irrelevance of Conventional Economics</b>, pp. 98-9] The 
market demand for commodities, which allocates resources between 
uses, is based not on the tastes of consumers but on the distribution 
of purchasing power between them. This, ironically, was mentioned by 
Mises as part of his attack on socialism, arguing that the central
planners could not use current prices for <i>"the transition to 
socialism must, as a consequence of the levelling out of the 
differences in income and the resultant re-adjustments in consumption, 
and therefore production, change all economic data."</i> [<b>Op. Cit.</b>, 
p. 109] He did not mention the impact this has in terms of "efficiency" 
or profitability! After all, what is and is not profitable ("efficient") 
depends on effective demand, which in turn depends of a specific income 
distribution. Identical production processes become efficient and inefficient 
simply by a redistribution of income from the rich to the poor, and vice 
versa. Similarly, changes in market prices may make once profitably 
investments unprofitable, without affecting the needs they were 
satisfying. And this, needless to say, can have serious impacts on 
human well-being.
</p><p>
As discussed in <a href="secC1.html#secc15">section C.1.5</a>, this becomes 
most obvious during famines. As Allan Engler points out, <i>"[w]hen people 
are denied access to the means of livelihood, the invisible hand of market 
forces does not intervene on their behalf. Equilibrium between supply 
and demand has no necessary connection with human need. For example, 
assume a country of one million people in which 900,000 are without 
means of livelihood. One million bushels of wheat are produced. The 
entire crop is sold to 100,000 people at $10 a bushel. Supply and 
demand are in equilibrium, yet 900 000 people will face starvation."</i> 
[<b>Apostles of Greed</b>, pp. 50-51] In case anyone thinks that this 
just happens in theory, the example of numerous famines (from the
Irish famine of the 1840s to those in African countries in 1980s) 
gives a classic example of this occurring in practice, with rich
landowners exporting food to the other nations while millions 
starve in their own.
</p><p>
So the distributional consequences of the market system play havoc with
any attempt to define what is and is not an "efficient" use of resources.
As markets inform by 'exit' only -- some products find a market, others 
do not -- 'voice' is absent. The operation of 'exit' rather than 'voice'
leaves behind those without power in the marketplace. For example, the
wealthy do not buy food poisoned with additives, the poor consume it. This
means a division grows between two environments: one inhabited by those
with wealth and one inhabited by those without it. As can be seen from 
the current capitalist practice of "exporting pollution" to developing
countries, this problem can have serious ecological and social effects.
So, far from the market being a <i>"democracy"</i> based on <i>"one dollar, 
one vote,"</i> it is an oligarchy in which, for example, the <i>"79,000 
Americans who earned the minimum wage in 1987 have the same influence 
[or <i>"vote"</i>] as Michael Milken, who 'earned' as much as all of them 
combined."</i> [Michael Albert and Robin Hahnel, <b>The Political Economy
of Participatory Economics</b>, p. 21] One dissident economist states 
the blindly obvious, namely that the <i>"market and democracy clash at 
a fundamental level. Democracy runs on the principle of 'one man (one 
person), one vote.' The market runs on the principle of 'one dollar, 
one vote.' Naturally, the former gives equal weight to each person, 
regardless of the money she/he has. The latter gives greater weight 
to richer people."</i> This means that the market is automatically 
skewed in favour of the wealthy and so <i>"[l]eaving everything to the 
market means that the rich may be able to realise even the most frivolous 
element of their desires, while the poor may not be able even to survive 
-- thus the world spends twenty times more research money on slimming 
drugs than on malaria, which claims more than a million lives and 
debilitates millions more in developing countries every year."</i> 
[Ha-Joon Chang, <b>Bad Samaritans</b>, p. 172 and p. 174]
</p><p>
In other words, markets are always biased in favour of effective demand, 
i.e. in favour of the demands of people with money, and so can never 
(except in the imaginary abstractions of neo-classical economics) 
allocate the necessities of life to those who need them the most. 
Thus a simple redistribution of wealth (via militant unions or 
the welfare state, for example) could make previously "bad" 
investments good simply because the new income allows those who had 
previously needed, but could not afford, the good or service in question to 
purchase it. So just because something makes a loss under one distribution
of income does not mean that it is an inefficient use of resources in the
sense of meeting human needs (and could make a profit under another, more
equal, distribution of wealth). So the "efficient" allocation of resources 
in terms of price (i.e., profit) is often no such thing as the wealthy 
few skews market decisions in their favour. 
</p><p>
It is important to remember that, for the "Austrians", preferences are 
demonstrated through action in the market and they are not interested 
in opinions, thus any preference which is not expressed by action is 
irrelevant to them. So any attempt to collectively prioritise, say, 
building decent housing for all, provide health care for everyone, 
abolish poverty, and so forth are all considered "inefficient" uses 
of resources as those who receive them would not, normally, be able 
to afford them and, consequently, do not really desire them anyway 
(as they, needless to say, do not express that desire by market 
exchanges!). Yet this ignores the awkward fact that in the market, 
people can only act if they have money to make their preferences 
known. Thus those who have a need but no money do not count when 
determining if the market is efficient or not. There is simply no 
room for the real people who can be harmed by real markets. As 
economist Amartya Sen argues, the workings of a "pure" capitalist 
market, as desired by "Austrians" economists and other propertarians, 
<i>"can be problematic since the actual consequences of the operation 
of these entitlements can, quite possibly, include rather terrible 
results. It can, in particular, lead to the violation of the substantive 
freedom of individuals to achieve those things to which they have reason 
to attach great importance, including escaping avoidable morality, being 
well nourished and healthy, being able to read, write and count and so 
on."</i> In fact, <i>"even gigantic famines can result without anyone's 
[right] libertarian rights (including property rights) being violated. 
The destitutes such as the unemployed or the impoverished may starve 
precisely because their 'entitlements' . . . do not give them enough 
food."</i> Similarly, <i>"deprivation"</i> such as <i>"regular 
undernourishment"</i>, the <i>"lack of medical care for curable 
illnesses"</i> can <i>"coexist with all [right] libertarian rights 
(including rights of property ownership) being fully satisfied."</i> 
[<b>Development as Freedom</b>, p. 66] 
</p><p>
All of which, it must be stressed, is ignored in the "Austrian" 
case against socialism. Ultimately, if providing food to a rich 
person's pets makes a profit then it becomes a more economical 
and efficient use of the resource than providing food to 
famine victims who cannot purchase food on the market. So it 
should never be forgotten that the "Austrians" insist that only 
preferences demonstrated in action are real. So if you cannot act
on the market (i.e., buy something) then your need for it is not
real. In other words, if a person loses their job and, as a consequence,
loses their home then, according to this logic, they do not "need"
a home as their "demonstrated preference" (i.e., their actual choices 
in action) shows that they genuinely value living under a bridge
(assuming they gain the bridge owners agreement, of course).
</p><p>
As an aside, this obvious fact shows that the "Austrian" 
assertion that intervention in the market <b>always</b>
reduces social utility cannot be supported. The argument
that the market maximises utility is based on assuming a
given allocation of resources before the process of free
exchange begins. If someone does not have sufficient income
to, say, buy food or essential medical treatment then this
is not reflected in the market. If wealth is redistributed
and they then they get access to the goods in question, then
(obviously) their utility has increased and it is a moot point
whether social utility has decreased as the disutility of the
millionaire who was taxed to achieve it cannot be compared to
it. Significantly, those "Austrians" who have sought to prove
that all intervention in the market reduces social utility
have failed. For example, as one dissident "Austrian" economist
notes, while Murray Rothbard <i>"claimed he offered a purely 
deductive"</i> argument that state intervention always reduced 
social utility <i>"his case [was] logically flawed."</i> He
simply assumed that social utility was reduced although he
gave no reason for such an assumption as he admitted that 
interpersonal comparisons of utility were impossible. For 
someone <i>"who asks that his claims be tested only by their 
logic"</i>, his ultimate conclusions about state intervention 
<i>"do not follow"</i> and exhibit <i>"a careless self-contradiction"</i> 
[David L. Prychitko, <b>Markets, Planning and Democracy</b>, p. 189, 
p. 111 and p. 110]
</p><p>
In summary, then, in terms of feedback saying that if something made a 
profit then it was efficiently produced confuses efficiency and need 
with profitability and effective demand. Something can make a profit
by imposing costs via externalities and lowering quality. Equally, a
good may not make a profit in spite of there being a need for it simply 
because people cannot afford to pay for it. 
</p><p>
As such, Mises was wrong to assert that <i>"[b]etween production for 
profit and production for need, there is no contrast."</i> [<b>Socialism</b>, 
p. 143] In fact, it seems incredible that anyone claiming to be
an economist could make such a comment. As Proudhon and Marx 
(like Smith and Ricardo before them) made clear, a commodity 
in order to be exchanged must first have a use-value (utility) to 
others. Thus production for profit, by definition, means production 
for "use" -- otherwise exchange would not happen. What socialists 
were highlighting by contrasting production for profit to need 
was, firstly, that need comes after profit and so without profit
a good will not be produced no matter how many people need it.
Secondly, it highlights the fact that during crises capitalism 
is marked by an over-production of goods reducing profits, so
stopping production, while people who need those goods go without
them. Thus capitalism is marked by homeless people living next
to empty housing and hungry people seeing food exported or 
destroyed in order to maximise profit. Ultimately, if the capitalist
does not make a profit then it is a bad investment -- regardless 
of whether it could be used to meet people's needs and so make 
their lives better. In other words, Mises ignores the very basis 
of capitalism (production for profit) and depicts it as production 
aiming at the direct satisfaction of consumers.
</p><p>
Equally, that something makes a profit does not mean that it is an 
efficient use of resources. If, for example, that profit is achieved
by imposing pollution externalities or by market power then it cannot
be said that society as a whole, rather than the capitalists, have 
benefited. Similarly, non-market based systems can be seen to 
be more efficient than market based ones in terms of outcome. For 
example, making health care available to all who need it rather than
those who can afford it is economically "inefficient" in "Austrian"
eyes but only an ideologue would claim that we should not do so because 
of this particularly as we can point to the awkward fact that the 
more privatised health care systems in the USA and Chile are 
more inefficient than the nationalised systems elsewhere in the world. 
Administration costs are higher and the societies in question pay far 
more for an equivalent level of treatment. Of course, it could be argued 
that the privatised systems are not truly private but the awkward fact 
remains -- the more market based system is worse, in terms of coverage 
of the population, cost for treatment, bureaucracy and health outcomes 
per pound spent.
</p><p>
In addition, in a highly unequal society  costs are externalised 
to those at the bottom of the social hierarchy. The consequences 
are harmful, as suggested by the newspeak used to disguise this 
reality. For example, there is what is called "increasing 
flexibility of the labour market." "Flexibility" sounds great: 
rigid structures are unappealing and hardly suitable for human 
growth. In reality, as Noam Chomsky points out <i>"[f]lexibility 
means insecurity. It means you go to bed at night and don't know if you 
have a job tomorrow morning. That's called flexibility of the labour 
market, and any economist can explain that's a good thing for the economy, 
where by 'the economy' now we understand profit-making. We don't mean 
by 'the economy' the way people live. That's good for the economy, and 
temporary jobs increase flexibility. Low wages also increase job 
insecurity. They keep inflation low. That's good for people who have 
money, say, bondholders. So these all contribute to what's called 
a 'healthy economy,' meaning one with very high profits. Profits are doing
fine. Corporate profits are zooming. But for most of the population, very
grim circumstances. And grim circumstances, without much prospect of a
future, may lead to constructive social action, but where that's lacking
they express themselves in violence."</i> [<b>Keeping the Rabble in Line</b>, 
pp. 283-4] So it simply cannot be assumed that what is good for the 
economy (profits) equates to what to good for people (at least the 
working class). 
</p><p>
Thus the "Austrians" prizes profitability above all and this assumption
is at the root of the "Calculation Argument" against socialism, but this
only makes sense only insofar as efficiency is confused with profit. The 
market will invest in coal if profits are higher and, in so doing, 
contribute to global warming. It will deny medical care to the sick 
(no profits and so it is inefficient) while contributing to, say, a 
housing bubble because it makes short-term profits by providing loans 
to people who really cannot afford it. It will support all kinds of 
economic activity, regardless of the wider impact, and so "efficiency" 
(i.e., profits) can, and does, contradict both wisdom and ethics and
so, ultimately, an efficient allocation of resources to meet people's
needs. 
</p><p>
Lastly, our critique has so far ignored the periodic crises that hit 
capitalist economies which produce massive unemployment and 
social disruption -- crises that are due to subjective and objective 
pressures on the operation of the price mechanism (see <a href="secC7.html">section C.7</a> 
for details). In the upswing, when expectations are buoyant, firms 
will invest and produce a mutually reinforcing expansion. However, 
the net effect of such decisions eventually leads to over-investment, 
excess capacity and over-production -- mal-investment and the waste 
of the embodied resources. This leads to lower than expected profits, 
expectations change for the worse and the boom turns into bust, 
capital equipment is scrapped, workers are unemployed and resources 
are either wasted or left idle.
</p><p>
In a crisis we see the contradiction between use value and exchange 
value come to a head. Workers are no less productive than when the
crisis started, the goods and services they create are no less 
needed than before. The means of production are just productive as they 
were. Both are just as capable as before of affording for everyone a 
decent standard of living. Even though people are homeless, housing 
stands empty. Even though people need goods, production is stopped. 
Even though people want jobs, workplaces are closed. Yet, according 
to the logic of <i>"exact"</i> "economic calculation", production is 
now "inefficient" and should be closed-down, workers made unemployed 
and expected to find work by forcing down the wages of those lucky 
enough to remain employed in the hope that the owners of the means of 
life will find it profitable to exploit them as much as before (for 
when hard times arrive it is never long until somebody suggests that 
the return of prosperity requires sacrifices at the bottom of the 
heap and, needless to say, the "Austrian" economists are usually the 
first to do so).
</p><p>
This suggests that the efficient allocation of resources becomes 
meaningless if its reality is a cycle where consumers go without 
essential goods due to scarcity and high prices followed by businesses 
going bust because of over-production and low prices. This process ruins 
large numbers of people's lives, not to mention wasting vast stocks of 
productive equipment and goods. There are always people who need the 
over-produced goods and so the market adds to uncertainty as there is a 
difference between the over-production of goods and the over-production 
of commodities. If more goods were produced in a communist society this
may signify a waste of resources but it would not, as under capitalism, 
produce a crisis situation as well! 
<p></p>
So in a real capitalist economy, there are numerous reasons for apparently 
rational investment decisions going wrong. Not that these investments 
produce goods which people do not need, simply that <i>"exact"</i> 
"economic calculation" indicates that they are not making a profit 
and so are an "inefficient" use of resources. However, it is question
begging in the extreme to argue that if (thanks to a recession) workers 
can no longer buy food then is it an "efficient" allocation of resources 
that they starve. Similarly, during the Great Depression, the American 
government (under the New Deal) hired about 60% of the unemployed in 
public works and conservation projects. These saw a billion trees 
planted, the whooping crane saved, the modernisation of rural America, 
and the building of (among others) the Cathedral of Learning in Pittsburgh, 
the Montana state capitol, New York's Lincoln Tunnel and Triborough Bridge 
complex, the Tennessee Valley Authority as well as building or renovating 
2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 
bridges, 700,000 miles of roads, 1,000 airfields as well as employing 
50,000 teachers and rebuilding the country's entire rural school system.
Can all these schemes really be considered a waste of resources
simply because they would never have made a capitalist a profit?
</p><p>
Of course, our discussion is affected by the fact that "actually
existing" capitalism has various forms of state-intervention. Some
of these "socialise" costs and risks, such as publicly funded 
creation of an infrastructure and Research and Development (R&D). 
Given that much R&D is conducted via state funding (via universities, 
military procurements, and so on) and (of course!) the profits 
of such research are then privatised, question arises would 
the initial research have gone ahead if the costs had not 
been "socialised"? Would Mises' <i>"exact"</i> calculation have 
resulted in, say, the internet being developed? If, as seems likely,
not, does not mean our current use of the World Wide Web is an 
inefficient use of resources? Then there are the numerous state 
interventions which exist to ensure that certain activities become 
"efficient" (i.e., profitable) such as specifying and defending
intellectual property rights, the limited liability of corporations 
and enforcing capitalist property rights (in land, for example). While 
we take this activity for granted when evaluating capitalism, they are
serious imperfections in the market and so what counts as an 
"efficient" use of resources. Other state interventions aim to 
reduce uncertainty and stabilise the market, such as welfare 
maintaining aggregate demand.
</p><p>
Removing these "imperfections" in the market would substantially affect 
the persuasiveness of Mises' case. <i>"What data we do have,"</i> notes 
Doug Henwood, <i>"don't lend any support to the notion that the 
nineteenth century was more 'stable' than the twentieth . . . the 
price level bounced all over the place, with periods of inflation 
alternating with periods of deflation, and GDP growth in the last 
three decades . . .  was similarly volatile. The busts were savage, 
resulting in massive bank failures and very lean times for workers 
and farmers."</i> [<b>After the New Economy</b>, p. 242] Looking 
at business cycle data for America, what becomes clear is that 
some of those regular nineteenth century slumps were extremely 
long: the Panic of 1873, for example, was followed by a recession 
that lasted 5 1/2 years. The New York Stock Exchange closed for 
ten days and 89 of the country's 364 railroads went bankrupt. A 
total of 18,000 businesses failed between 1873 and 1875. Unemployment 
reached 14% by 1876, during a time which became known as the Long 
Depression. Construction work lagged, wages were cut, real estate 
values fell and corporate profits vanished.
</p><p>
Given this, given the tendency of capitalism to crisis and to ignore 
real needs in favour of effective demand, it is far better to be roughly
right than precisely wrong. In other words, the economic calculation that
Mises celebrates regularly leads to situations where people suffer
because it precisely shows that workplaces should shut because, although
nothing had changed in their productivity and the need of their products, 
they can no longer make a profit. Saying, in the middle of a crisis, that
people should be without work, be homeless and go hungry because economic
calculation proves they have no need for employment, homes and food shows
the irrationality of glorifying "economic calculation" as the be all and 
end all of resource allocation.
</p><p>
In summary, then, not only is libertarian communism possible, capitalism itself 
makes economic calculation problematic and resource allocation inefficient. 
Given the systematic uncertainty which market dynamics imply and the 
tendencies to crisis inherent in the system, "economic calculation" 
ensures that resources are wasted. Using the profit criteria as the 
measure of "efficiency" is also problematic as it ensures that real 
needs are ignored and places society in frequent situations (crises) 
where "economic calculation" ensures that industries close, so ensuring 
that goods and services people need are no longer produced. As Proudhon 
put it, under capitalism there is <i>"a miserable oscillation between usury 
and bankruptcy."</i> [<b>Proudhon's Solution of the Social Problem</b>, 
p. 63] For anarchists, these drawbacks to capitalist allocation are
obvious. Equally obvious is the reason why Mises failed to discuss 
them: ultimately, like neo-classical economics, the "Austrian" school 
seeks to eulogise capitalism rather than to understand it. 
</p>

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