Implications of the Calculation Problem

The discussion of gender relations closed the first part of the book. In part two, Mises turned to examining socialism on its own terms. After the exposition of the socialist-calculation argument (he reprinted the 1920 article), he set out to discuss its further implications.

Moral Hazard—The Other Nemesis of Socialism

Having dealt with the consequences that in one way or another resulted from the inability of a socialist management to calculate the contributions of the various factors of production, Mises pointed out that there was another, equally “insurmountable obstacle” for the realization of the socialist scheme:

It is impossible to find a form of organization which makes the economic action of the individual independent of the co-operation of other citizens without leaving it open to all the risks of mere gambling.24

The Feeble and Compromising John Stuart Mill

Mises devoted particular attention to the discussion of time wages. According to a widespread opinion, the economic theory of time wages had refuted the standard charge against the socialists, namely, that their schemes would suffer from incentives problems that were absent under capitalism. On this issue the socialists had found an unexpected ally in John Stuart Mill, long regarded as the patron saint of classical liberalism.

The Law of Association

After his analysis of the workings of socialist societies, Mises turned to the doctrine of the inevitability of socialism. Karl Marx and his followers had claimed that social evolution led with the necessity of natural law toward the establishment of socialism. The driving forces in this process were (a) the dialectics of class struggle and (b) the tendency inherent in capitalism for the emergence of monopolies, which centralize economic decision-making and thus prepare the advent of the centrally planned economy of socialism.

Monopoly Theory

Having dealt with the theory of class struggle, Mises turned to exhibit B in the Marxist case for the historical inevitability of socialism: monopoly theory. To do so, he examined not only the Marxist doctrine that capitalism produces ever more economic concentration, but also the emerging neo-classical theory of monopoly prices, which had been widely used as an indictment of the market economy and as a prima facie justification for government intervention in the form of anti-trust policies.

Christian Ethics versus the Market?

Having completed the analysis of the factual questions on socialism, Mises turned to a critique of the ethical doctrines that had served to justify socialist schemes. Here he devoted particular attention to Christianity and examined the question of how much it supported a free society, and how much it would tend to justify violations of private property.

Socialism = Destructionism

Mises’s analysis of socialism left nothing intact of the grandiose edifice that Marx and many other generations of socialist writers had worked to build.59 But then what was the true significance of socialism? The answer seemed by now to be apparent:

Hayek and the Bureau for Claims Settlements

According to Article 248 of the Treaty, the new Austria had to pay damages to foreign governments and their citizens. These foreign beneficiaries were not limited to the Entente powers, but included the non-German territories of the old Austria, which according to the stipulations of the Treaty were counted as states “associated” with the Entente. Article 248 had largely been copied from an analogous provision in the Treaty of Versailles, which concerned the much less complicated case of Germany.