Posted by on December 17, 2020 10:51 am
Categories: Competition & Regulation

By Allen Gindler, courtesy of FEE, via Fundacion BASES


If we consider economics to be an objective science, its rules should also have universal meaning and use, despite differences in social order. However, socialists in the materialist camp are committed to the idea that common ownership of the means of production would change the way economic laws develop under socialism . Basically, they reject the notion of universality and objectivity of economic norms by suggesting that they would change along with social change.



Thus, the communists adhered to the Marxist idea that socialism would rectify a law of “surplus value”, put an end to the “exploitation” of workers and effectively regulate the aspects of the economy related to production, distribution and consumption. . They tried to eliminate the market regulation mechanism and replace it with directives from the authority in charge of central planning. The Bolsheviks enthusiastically set to work: they eradicated private property, collectivized everything and everyone, and established a planned economy.


Did they effectively destroy market relationships as they thought they would?


No. In contrast to common perception, socialism has been incapable of ending the market economy. The market went underground and became a black market. Black markets also existed in capitalist countries, but they worked underground because they traded illegal goods and services. The black market under socialism served the same purpose, but the list of goods and services included mostly innocent everyday consumer items that people under capitalism could easily buy in stores. There was no production of jeans in the Soviet Union, but like all their peers abroad, young Soviets wore jeans.


Virtually all groups of personal consumption products found their way to the black market at some point and in some places. Everything from the lids of the jars to the toilet paper was subject to black market relationships.


The official exchange rate of the ruble against the dollar was 0.66 to one in 1980. But no one, except the party nomenclature, could enjoy such a favorable exchange rate. At the same time, the black market was offering four rubles for one US dollar.


The price was 180-250 rubles for a pair depending on the brand, which was almost twice the monthly salary of a beginning engineer. A visiting nurse charged a ruble for an injection if the patient lived on the fifth floor. The price reached 1.5 rubles for patients who lived on the fifth floor and above. A plumber happily repaired a faucet for just a bottle of vodka.



Therefore, in the Soviet Union, any important commodity had two prices: one real and one virtual. The state fixed the first price through some obscure methods; the usual mechanism of supply and demand established the second price in the market. If you were lucky, after several hours of standing in line, you could buy goods at the state price. However, due to the chronic lack of everything for everyone, the same product could be bought on the black market at a much higher price.


The virtual price became real on the black market and reflected the real value of the goods to the buyer. The presence of two price tags is a confirmation of Ludwig von Mises’s thesis on the impossibility of economic calculations under socialism. At the same time, it is proof of the immortality and immutability of the economic laws of the free market, even under a totalitarian regime. Therefore, two economic systems and two sets of prices coexist under socialism.


People were forced to use black market services, even under penalty of severe punishment, even the death penalty. Almost the entire society was involved in various corruption schemes to maintain a certain standard of living. There was a paradoxical situation when the supermarket shelves were empty, but the refrigerators in the houses were more or less full. Regardless of the proclaimed successes, the socialist economy could not compete with its capitalist counterparts.


The black market was filled with smuggled goods from abroad, as well as goods produced in clandestine workshops. But more often, everyday products were specifically kept away from retail to create a shortage and sell them on the black market at a speculative price. Socialism had undermined the normal flows of production, distribution and consumption by ignoring the objective laws of the economy. However, a clandestine market and the intrinsic entrepreneurial spirit of the people helped them survive the socialist madness.


Regardless of the proclaimed successes of the Soviet economy reported by the leaders of the Communist Party, the socialist economy was unable to compete with its capitalist counterparts. The communists decided to create a system that somehow mimicked the work that a free market had done successfully and automatically for centuries. Therefore, they introduced socialist competition that was supposed to replace free market competition. It was surely an unsuitable and unfortunate replacement. The rewards for the winners in capitalist competition were much higher than for the winners under socialism. For example, the capitalist winner enjoyed a significant increase in welfare.


Furthermore, the main winner of free market competition was society as a whole. This is a natural characteristic of a free market economy and the main reason why the evolution of human societies selected this mode of production. A competition during socialism gave the winners some publicity, a certificate of honor, perhaps a trip to a “sanatorium” (that is, a healthy spa ), and other goodies that people normally did not appreciate. But more importantly, society as a whole did not enjoy a significant improvement in well-being.



People were not sufficiently stimulated and underpaid, which explained the lower labor productivity compared to capitalist countries. Furthermore, this is despite the notion that the means of production, at last, belong to the workers themselves. People had a famous saying that can be considered the quintessence of Soviet-style socialism: “They [the government] pretend to pay, and we pretend to work.”


Socialism is a set of systems that try to artificially inhibit the free flow of objective economic laws, creating subjective barriers in the form of specific legislation and punitive policies. Socialists mistakenly think that if they attack private property and market relations, economic laws will also change. They have assumed the task that, in principle, does not have a rational solution. Nothing good comes from the idea of ​​ignoring or violating the fundamental laws of economics. These laws continue to exist, regardless of opinions and the lack of recognition of their true character and the impossibility of changing them.


Socialism disrupts the evolutionary process and leads society to a dead end. The desperate economic situation of ordinary people in Venezuela , Cuba and North Korea – the remnants of socialist enterprises – is a direct result of the construction of a society that challenges the natural action of the fundamental law of the economy. As a rule, socialist regimes bought time by employing slave labor, looting, coercion, and everything else that an aggressive totalitarian regime could offer. However, in the end, the means that supported socialist life were exhausted, and then they returned to natural and healthy market relationships, where the laws of economics work for the benefit of the human race.


The same laws of the market economy have worked in different human societies: from prehistoric times to the post-industrial era, but even so, socialists continue to entertain the idea of ​​manipulating these forces of nature.


Allen Gindler writes for the Mises Institute.