Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 102
A Radical Prescription For the Socialist Bloc
It is generally agreed, both inside and outside
Eastern Europe, that the only cure for their
intensifying and grinding poverty is to abandon socialism and central
planning, and to adopt
private property rights and a free-market economy. But a critical
problem is that Western
conventional wisdom counsels going slowly, "phasing-in" freedom, rather
than taking the
always-reviled path of radical and comprehensive social change.
Gradualism, and piecemeal change, is always held up
as the sober, practical, responsible,
and compassionate path of reform, avoiding the sudden shocks, painful
dislocations, and
unemployment brought on by radical change.
In this, as in so many areas, however, the
conventional wisdom is wrong. It is becoming
ever clearer to East Europeans that the only practical and realistic
path, the only path toward
reform that truly works and works quickly, is the total abolition of
socialism and statism
across-the-board.
For one thing, as we have seen in the Soviet Union,
gradual reform provides a convenient
excuse to the vested interests, monopolists, and inefficient sluggards
who are the beneficiaries of
socialism, to change nothing at all. Combine this resistance with the
standard bureaucratic inertia
endemic under socialism, and meaningful change is reduced to mere
rhetoric and lip service.
But more fundamentally, since the market economy is
an intricate, interconnected
latticework, a seamless web, keeping some controls and not others
creates more dislocations, and
perpetuates them indefinitely.
A striking case is the Soviet Union. The reformers
wish to abolish all price controls, but
they worry that this course, amidst an already inflationary
environment, would greatly aggravate
inflation. Unfortunately, the East Europeans, in their eagerness to
absorb pro-capitalist literature,
have imbibed Western economic fallacies that focus on price increases
as "inflation" rather than
on the monetary expansion which causes the increased prices.
In Soviet Russia and in Poland, the governments
have been pouring an enormous number
of rubles and zlotys into circulation, which has increased price
levels. In both countries, severe
price controls have disguised the price inflation, and have also
created massive shortages of
goods. As in most other examples of price control, the authorities then
tried to assuage
consumers by imposing especially severe price controls on consumer
necessities, such as soap,
meat, citrus fruit, or fuel. As an inevitable result, these valued
items end up in particularly short
supply.
If the governments went cold turkey and abolished
all the controls, there would indeed be
a large one-shot rise in most prices, particularly in consumer goods
suffering most from the
scarcity imposed by controls. But this would only be a one-shot
increase, and not of the
continuing and accelerating kind characteristic of monetary expansion.
And, furthermore, what
consolation is it for a consumer to have the price of an item be cheap
if he or she can't find it?
Better to have a bar of soap cost ten rubles and be available than to
cost two rubles and never
appear. And, of course, the market price--say of ten rubles--is not at
all arbitrary, but is
determined by the demands of the consumers themselves.
Total decontrol eliminates dislocations and
restrictions at one fell swoop, and gives the
free market the scope to release people's energies, increase production
enormously, and direct
resources away from misallocations and toward the satisfaction of
consumers. It should never be
forgotten that the "miracle" of West German recovery from the economic
depths after World
War II occurred because Ludwig Erhard and the West Germans dismantled
the entire structure of
price and wage controls at once and overnight, on the glorious day of
July 7, 1949.
In addition, the East European countries are
starved for capital to develop their economy,
and capital will only be supplied,
whether by domestic savers or by foreign investors,
when: (1) there is a genuine stock market, a market in shares of
ownership titles to assets; and (2)
the currency is genuinely convertible into hard currencies. Part of the
immediate West German
reform was to make the mark convertible into hard currencies.
If all price controls should be removed
immediately, and currencies made convertible and
a full-fledged stock market established, what then should be done about
the massive state-owned
sector in the socialist bloc? A vital question, since the overwhelming
bulk of capital assets in the
socialist countries are state-owned.
Many East Europeans now realize that it is hopeless
to try to induce state enterprises to be
efficient, or to pay attention to prices, costs, or profits. It is
becoming clearer to everyone that
Ludwig von Mises was right: only genuinely private firms, private
owners of the means of
production, can be truly responsive to profit-and-loss incentives. And
moreover, the only genuine
price system, reflecting costs and profit opportunities, arises from
actual markets--from buying
and selling by private owners of property.
Obviously, then, all state firms and operations
should be privatized immediately--the
sooner the better. But, unfortunately, many East Europeans committed to
privatization are
reluctant to push for this remedy because they complain that people
don't have the money to
purchase the mountain of capital assets, and that it seems almost
impossible for the state to price
such assets correctly.
Unfortunately, these free-marketeers are not
thinking radically enough. Not only may
private citizens under socialism not have the money to buy state
assets, but there is a serious
question about what the state is supposed to do with all the money, as
well as the moral question
of why the state deserves to amass this money from its long-suffering
subjects.
The proper way to privatize is, once again, a
radical one: allowing their present users to
"homestead" these assets, for example, by granting pro-rata negotiable
shares of ownership to
workers in the various firms. After this one mighty stroke of universal
privatization, prices of
ownership shares on the market will fluctuate in accordance with the
productivity and the success
of the assets and the firms in question.
Critics of homesteading typically denounce such an
idea as a "giveaway" of "windfall
gains" to the recipients. But in fact, the homesteaders have already
created or taken these
resources and lifted them into production, and any ensuing gains (or
losses) will be the result of
their own productive and entrepreneurial actions.
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