Have We Been Fair to Marx?

by Grant Babcock

I have just finished reading a gleeful call for a revisitation to Marxist thought, In Praise of Marx, by a British gentleman named Terry Eagleton who is a literary theorist with a PhD from Trinity College. I want to take a moment to respond to his article because he has articulated very succinctly a view I feel merits discussion.

Eagleton’s position, shortly, is this: Marx has been unfairly held responsible for the various terrors inflicted by various nominally communist regimes in a manner that would be akin to holding Jesus responsible for the Inquisition. Marx, after all, envisioned a stateless future emerging out of an advanced industrialized society; Russia and China were hardly fully industrialized at the time of their revolutions and ended up with not statelessness but dictatorship, and so can hardly be characterized as Marxist.

Eagleton then points out that nominally capitalist nations have their own share of blood on their hands, a fact that seems to be conveniently overlooked by critics of Marx. Capitalism ignores its own victims. Marx, meanwhile, is a “profoundly moral thinker” who, while celebrating capitalism’s defeat of feudal privilege, asks “embarrassing questions” about capitalism’s inequities. The rest of the article is mostly a discussion of several misconceptions about Marxism (not all of them are misconceptions, I think, but that’s neither here nor there).

So, if the future Marx envisioned was nothing like the horrors perpetrated under Stalin and Mao, can we blame Marxism for the tragedies of historical state communism?

Yes. Yes we can.

The reason is that the process Marx advocated could only have ended in tears. To understand why, we need to get into some economics: specifically, the socialist calculation debate. Ludwig von Mises, whom Eagleton quotes approvingly for his praise of Marxism’s ability to cut across demographic and national boundaries, posited a second great problem confronting Marxist academics (or, indeed, anyone else advocating a planned economy).

Before Mises, the only major problem Marxists believed stood in the way of implementing communism was the incentive problem, i.e., why will people work if their compensation is not linked to their effort? This would be no problem, the Marxists said, because under communism, work would be a desirable form of self-fulfillment rather than the alienating drudgery of the capitalist mode of production. Mises pointed out a second problem—without a system of market prices, communism lacks a rational basis for making decisions about managing the means of production. This insight was so important that “Oskar Lange, then of the University of California and later chief economic planner in Poland’s Politburo, even proposed a statue of Mises for having directed socialist attention to the problem of economic calculation” (source).

Nobel Prize winner Freidrich Hayek added a twist to Mises’s argument—no central planner could possibly possess all the raw data needed to make an informed decision. I will present both Mises’s and Hayek’s positions in turn.

The usual knock on communism is that while it is high minded and ethically motivated, it doesn’t work in practice—this is part of the family of claims that Eagleton is addressing with his contention that communism, as Marx envisioned it, was not in fact put into practice in Russia and China. What I hope to show is that the problem has never been that communism doesn’t work “in practice.” If Mises and Hayek are right, the problems are far deeper than problems of implementation. In fact, Marxism’s vision for the future is not coherent and does not follow from the process Marxists believe will result in a transition from capitalism to communism. In addition to defeating Marx’s ethical claim that the transition to communism is desirable, this will also put to rest his economic/historical claim that communism is inevitable.

Under a capitalist economy, and to a lesser degree under a mixed economy like we have in the United States and most of the world, the means of production are held by people either individually or in groups called corporations. The means of production are constantly being reallocated through market exchanges. Productive resources are moved from less to more successful firms. These market interactions provide an external feedback mechanism for firms and individuals on their decisions in the form of profit or loss.

In a communist economy, and to a lesser degree under a mixed economy like we have in the United States and most of the world, the means of production are held in common and society is run as if it were one large firm. The means of production are allocated according to an economic plan and can be reallocated according to a new plan should the new plan be preferred for some reason. Depending on the version of Marxism in question, the plan might be generated and chosen by efficiency experts, by plebiscite, by a rotating panel of citizens, or some combination of these methods. Such an economy, to the degree to which it is communist, would be equivalent to a single capitalist firm in a vacuum—i.e. not embedded in a system of market exchanges and therefore not capable of experiencing profits or losses. In fact, it will lack any sort of feedback whatsoever.

This is the “calculation problem” first outlined by Ludwig von Mises. Communism allegedly is to manage the productive process to fulfill human needs for everyone’s benefit. Even supposing that a planner was able to formulate what “human needs” were without a price system, this would be of no help to them in organizing the means of production. They might attempt some sort of technical optimization, minimizing the use of this or that resource or maximizing the output of this or that product, or optimizing whatever ratios they choose. But the result of this process would only tell us the implications of the planners’ choices about what to optimize, not whether the plan they produced was better or worse than any other technically optimal plan. The final choice of plan will be essentially arbitrary, and totally divorced from providing for human welfare.

The upshot of all this is that central planners, to the extent they are successful in controlling the entire economy, destroy the data they need to make decisions. When some parts of the world economy remain market-based, the central planners will have a rough starting point for their calculations, and so might limp along, even experience large amounts of economic growth by copying the methods that have worked for others. But world communism would have no such frame of reference. At first, the exchange ratios that existed at the end of the capitalist period might be reasonable helpful, but soon the material conditions of the world and the value judgments of the people in it would change, and eventually these changes would be great enough that the old prices would be completely irrelevant, and when that happens, the only options for the global communist society would be enduring poverty or market reforms.

Mises’s critique of communism is totally devastating and ought to have been the final word on the matter; this was not the case. Mises’s student, Friedrich Hayek, eventually made his own contribution to the debate, building on Mises’s work.

In his essay “The Use of Knowledge in Society,” Hayek points out that whereas when economists and engineers attack problems, they take certain information as “given.” But in the case of economic planning, the relevant data is not all “given” to any one mind and, moreover, could never be so given. The “knowledge of the particular circumstances of time and place” is inextricably contextual. The economic problem, shortly, is not how things will end up given complete knowledge and perfect rationality (as the neoclassicists sometimes seem to think), but instead that such complete knowledge has never existed and is impossible in principle.

In light of these considerations, the question then becomes, who should do the planning? Should there be a single, comprehensive plan for the whole economy, or a polycentric system, with multiple independent planners interacting with each other? We obviously must prefer the decentralized model. The problem is then how the efforts of the decentralized actors are to be coordinated—but this is precisely the problem that the price system solves. The network of market exchanges can be viewed as transmitting the relevant information in highly compacted form from one planner to another.

Because the communists’ goal is ill-formed—for reasons outlined above—what is likely to happen in practice is that once the means of production are seized and managed by a dictatorship of the proletariat (as Marx advocates as the beginning of the transition to communism), rather than class distinctions evaporating and “government” as we know it ceasing to exist, the planning class will become a new government that will have elements of technocracy and totalitarianism—i.e., we would expect exactly what happened in China and Russia. It is of course hypothetically possible that instead society would revert to a state of private property, but it seems unlikely that the communist planners will turn around on a dime. Historically, it has taken decades of widespread death and poverty before we see any such reversal of policy.

Given the critiques of Mises and Hayek, probably the only refuge left for a Marx apologist is in some form of “market” socialism. This is, of course, an obvious contradiction in terms, but the “post-scarcity” Marxists have seldom balked at having their cake and trying to eat it, too, so perhaps a more thorough refutation is warranted. I leave that discussion to another writer on another day.