Friday, July 01, 2005

Marx's Critical Errors

I don't know if this is original, I'm certainly not an expert in this field, but I'd like to share some of the observations I've made about socialist ideology. A lot of this is obviously garnered from bits and pieces of stuff I've read but don't want to go back and organize. Regardless, it's only a blog, and so I will argue in this and subsequent posts that Marxists have made 3 critical errors in the formulation of their political theories. These are:

1) They failed to recognize the difficulty of efficient allocation of material resources in a society.

2) They made incorrect assumptions concerning the malleability of human nature and human conduct.

3) Closely related to #2, they failed to turn their analytical tools toward the examination of themselves and their own movement.

In my opinion, these errors have led directly to the failure of one socialist state after another in the last 100 years and cement the impracticality of Marxist ideals.

Point #3 is covered in this previous post of mine.

Regarding the first point:

In capitalist market societies, the most severe penalties are reserved for those who allocate capital in an inefficient manner. The investor who makes an unwise investment will be severely penalized through the loss, in some cases the total loss, of their wealth. As a result, capital is allocated very carefully and with meticulous attention to detail. The task of allocating capital is usually left to super-specialized experts in that field directly related to the project at hand. The effect of this is that very little capital is wasted, and this accrues to the good of all citizens in the society. The worker in a capitalist society can usually rest assured that his or her efforts will go toward the elevation of living standards for the whole society whether it be his or her own living standards or those of others. Very little of their effort will go to waste, and so everyone receives more of the benefit of that wealth creation.

By contrast, the centrally controlled economies of Soviet style governments are usually very wasteful of capital. Allocation of capital is often political and is done by bureaucrats with agendas other than efficiency. The workers can see this and are therefore not motivated to achieve optimal productivity. The overall effect is a lower standard of living for most people than might have been possible. Often the entire economy eventually collapses under this inefficiency.

The error that Marx made and that Marxists continue to make is to assume that capital allocation is a trivial matter. Their assumption is that once capital is in hand it is a simple matter to turn it to good use, but the very opposite is manifestly the case. It is hard to imagine a more motivated group of managers than capitalists who are under the threat of economic ruination if they make a mistake. It is hard to imagine how a group of bureaucrats with a government sinecure could possible match the performance of capitalist investors, and yet that is just the bet that Marxists have always made.

This is an impossibly intractable problem for Marxists. The whole point of Marxism is that allocation of excess wealth produced by workers would be under the authority not of capitalists but of the workers themselves in a "democratic" fashion. But this kind of politics is absolutely the worst way to make critical decisions of capital allocation. The fatal inefficiency of Marxists economies is therefore inevitable.