The Pros and Cons of Socialism

Henry Hazlitt

Henry Hazlitt is well known to Freeman readers as author, columnist, editor, lecturer, and practitioner of freedom. This review article is reprinted by permission from the January 6, ¹973 issue of Human Events.

Michael Harrington’s massive book on socialism is a strange and baffling performance. What is baffling first of all is how such a book — so piously reflecting the century-old and long-discredited Marxian ideology, vocabulary and prophecies — can come to be written in this day and country. Even more baffling is how its author manages to combine such a formidable range of book-learning and current factual knowledge with such profound ignorance of basic economics and of the devastating refutations of Marx that have appeared over the last century.

The book is well-written, at moments even eloquent. Mr. Harrington has a gift for phrase-making. Perhaps this accounts for his success in becoming head of the American Socialist party. His erudition is impressive. He seems to have read, in the original German, practically everything that Marx and Engels ever wrote. He has flashes of an ingratiating candor. Yet his book as a whole is a long, repetitious and tedious condemnation of capitalism and an extravagant eulogy of socialism.

Capitalism is represented as the sum of all evil. Socialism, on the other hand, may not bring an earthly paradise — it is only "finite," as Harrington stops himself to concede at one point — but whatever evil remains after it has been achieved will hardly be worth talking about.

Socialism may be finite, but Harrington’s errors are not. I hardly know where to begin in pointing them out, and must confine myself to a few random samples, of first some theoretical and then some factual errors.

Labor Theory of Value

Harrington is a devout Marxist, and swallows practically everything, including the labor theory of value. He sets out to prove that labor is productive, but that capital is not. He does this mainly by rhetoric: "It is not capital or the market or abstention from consumption that produces wealth; it is man (p. 77)." This is an absurdly false antithesis. He may as well have written: "It is not work that creates wealth, but man." He even calls it a brilliant "animating insight," first seen by Marx, "that men create wealth."

Well, let’s take an elementary case. A man, using an ax, chops down a tree. Did the man chop down the tree, or did the ax do it? Obviously it was the combination, the man-using-an-ax, that was needed to chop down the tree. It could not have been done without both. To argue, as Marx-cum-Harrington do, that the services of the man should be paid for but the services of the ax should not be paid for, is to argue that the man who made the ax should not be paid.

Suppose, now, that the woodsman is supplied with a power-saw instead of an ax, so that he can now cut down six times as many trees a day as before. Is he to be paid six times as much per day on the argument that his productivity has increased sixfold, with no compensation for the use of the power-saw? Yet the increase in productivity has been made possible solely by the substitution of the power-saw.

If power-saws are not paid for they will not be produced. If the principle of noncompensation for capital is universalized there will be no economic progress, but decay and impoverishment.

Harrington does not seem to have even a glimmering of this elementary truth. He appears to assume that capitalist production goes on automatically, and even goes on increasing automatically, regardless of compensation or noncompensation, incentives or deterrents. I do not remember that the word "incentive" ever appears in his book; certainly it does not get into the index.

Production, Harrington assumes, goes on increasing — even frighteningly fast — because of improvements in "technology." But that improvements in technology would never have been possible without capital accumulation, and that capital accumulation — produced only by saving and investment — would never have taken place without compensation and rewards, seems never to have occurred to him.

All the immense and accelerative progress in productivity in the modern world has been the result of increasing capital accumulation, of more and better tools and machines. Yet Harrington is blind to this. Not only does he not believe in profit, but he is constantly advocating confiscatory taxation and outright seizures that would eventually destroy the whole basis of production.

The Exploitation Theory

It is probably needless to add that Harrington plumps without reservation for the Marxian theory that "labor" is everywhere "exploited" by the "capitalist." He does this by the naive argument (pp. 94-96) that there is such a thing as profit i.e., that the gross sales value of the product that the entrepreneur creates is greater than its cost of production. Ergo, somebody must be being robbed of this "surplus," and it must be the workers!

There is a bundle of fallacies here. First, Harrington assumes that profit is something automatic and certain. Millions of businessmen, including the managers and stockholders of recent outstanding loss-makers, like Penn-Central, Litton Industries, Ampex, Boise Cascade, Pan-Am, and so on, wish that were true. Over the years, some 40 per cent of corporations, by number, report losses.

Harrington, again following Marx and others, confidently speaks of "the rate of profit." No such "rate" exists. Profit is different in every industry, in every firm, and in every year. Statisticians can figure a mathematical average, of course (though that doesn’t help the losers).

In 1970 all manufacturing corporations in the U.S. reported an average profit after federal income tax of four cents per dollar of sales. Even if this were what economists call pure profits, it doesn’t prove that any workers were robbed.

Moreover, in an inflationary period like the present, orthodox bookkeeping practices greatly overstate real profits. Even in normal times such bookkeeping "profits" include, especially in small firms, what should more properly be imputed to interest, rent, or the wages of management.

In fact, pure profits go only to those entrepreneurs who succeed in creating economic values in excess of their costs. This they can normally do only if they are above average efficiency. Many economists now hold that in a non-expanding economy the profits of one entrepreneur tend to be offset by the losses of another, and that in such an economy no net "pure" profits exist. However that may be, neither profits nor production are ever automatic.

A Bundle of Errors

But we must move on from elementary economics to Harrington’s numerous factual errors.

He is concerned to show that "labor" is constantly producing more but not getting paid for it. Our productive system, he holds, expands "geometrically" but pays wages only in "arithmetic increments." If this were so, there would obviously be a progressive decline in the proportion of the "social dividend" going to labor.

Then how explain that in 1971, according to official statistics, 70 per cent of total personal income came from wages, salaries, and other labor disbursements, but less than 3 per cent from dividends? Or how it has happened that, in the five years, say, from 1965 to 1970, of the money available for distribution between the employees and the shareowners of the country’s corporations, the employees received more than seven-eighths, and the share owners less than one-eighth? Or that, if we count only the money that was actually paid out in dividends, the corporation employees in that period got 14 times as much as the stockholders?

Harrington keeps contending that wages haven’t held their own against the rising cost of living. The evidence against him is overwhelming. A sample figure: In the 30-year period from 1939 to 1969 average actual weekly wages paid in manufacturing rose from $23.64 to $129.51 — an increase of 448 per cent. Even when we adjust for the rise in living costs, real wages rose 108 per cent in that period.

Misinterpretation of Marx

Harrington seems no more reliable concerning the writer Marx himself than concerning economic theory or fact. He has a tough time following Marx’s obfuscations, flounderings, tergiversations, and tactical zigs and zags.

Though Marx repeatedly demanded the "dictatorship" of the proletariat, Harrington explains he really didn’t mean it, but "used the word ‘dictatorship’ to describe democracy" (p. 54)! In an equal gem, on the next page, he assures us that Marx was "certainly revolutionary, but also a moderate"! As a revolutionary, when the word is used seriously, means one who demands forcible overthrow of the government by armed rebellion or civil war, with whatever shooting, bombing, or slaughter may be necessary, I personally find visualizing a "moderate" revolutionist somewhat difficult.

But for Harrington words seem to have lost their dictionary meanings. We find this when he comes to the key concept of "socialism" itself. He abhors any existing Socialist or Communist regime. From the horrifying facts that he cites about the history of socialism or communism in Russia, China, or Cuba, the "militarization of work," (229), the resemblance to a "barracks," (242), the slave camps, the crop failures, plummeting industrial production, the deaths of millions of peasants by starvation, the espionage, suppression and assassinations, this book could stand as a damning indictment of socialism or communism everywhere.

But Harrington does not come to that conclusion. None of these are the failures of socialism but of an "anti-Socialist `socialism’." For real socialism, don’t you see, must be "democratic," peaceful, harmonious, voluntary; and everybody so far has taken the wrong route.

Coercion Inevitable

Harrington simply refuses to recognize that socialism by its very nature must depend on coercion and dictatorship to make it work. For where there is no private property, no comparative profits or losses, no competitive prices or competitive wages, there is no guide as to who should turn out what, or how much of it. Everybody must be arbitrarily assigned to his job, as in an army, by orders originating from the High Command at the top.

One looks in vain for a clear definition of socialism in these pages. It does not mean, apparently, government ownership of the means of production, as we had all previously supposed, because that can lead to "anti-Socialist ‘socialism’" and dictatorship. We are told that the "essence" of socialism is "democracy," but even if one believes the two to be compatible, this is embarrassingly vague.

Harrington reveals his real pipe-dream on page 344. Here we come to "the vision of socialism itself"— a world in which "man’s social productivity will reach such heights that compulsory work will no longer be necessary. And as more and more things are provided free, money, that universal equivalent by means of which necessities are rationed, will disappear." It would be brutal to analyze this utopian dream realistically, and I refrain.

What is amazing is how, with all his knowing allusions to scores of authors, Harrington has managed to insulate himself so completely from any knowledge of real economics or of even the most famous refutations of Marxist socialism.

Harrington’s Most Glaring Omission: Mises and Others

In all these pages you will not find a single reference to Böhm-Bawerk, to Pareto, to John Bates Clark, to Frank Knight to Wilhelm Roepke, to Murray Rothbard. You will, indeed (p. 296), find seven lines quoted out of context from F. A. Hayek, which represents the author of The Road to Serfdom as drawing "Socialist conclusions" when he was in fact doing precisely the opposite. The treatment of the quotation alone shakes one’s confidence in the dependability of every other citation or its interpretation in the entire Harrington book.

But the most glaring omission is the name of Ludwig von Mises, whose Socialism: An Economic and Sociological Analysis, first published in Germany in 1922, and available in an English translation in four editions from 1936 to 1969, is the most thorough and devastating analysis of socialism ever penned.

The Mises book, as its title implies, examines socialism from almost every possible aspect — its doctrine of violence as well as that of the collective ownership of the means of production; its ideal of equality; its relation to problems of sex and the family; its proposed solution of the problem of production as well as of distribution; its probable operation under both static and dynamic conditions; its national and international consequences.

It considers particular forms of socialism and pseudo-socialism; the doctrine of the class war and the materialist conception of history; various Socialist criticisms of capitalistic tendencies or alleged tendencies; Socialistic ethics; and finally various forms of "gradual socialism" and "destructionism."

It is amazing how many of his criticisms of 40 or 50 years ago anticipated the essentially destructionist proposals now made by Harrington. But this is because these "new proposals are merely repetitions or rehashes of what Socialists and other anti-capitalists have been advocating over the decades.

No open-minded reader can fail to be impressed by the closeness of Dr. Mises’ reasoning, the rigor of his logic, the power and penetration of his thought. The contention most closely associated with his name is that full socialism is certain to fail because it is incapable by its very nature of solving the problem of economic calculation.

A completely Socialist society would not know how to distribute its labor, capital, land and other factors of production to the best advantage. It would not know which commodities or services it was producing at a social profit and which at a social loss. It would not know what any worker, or what any factor, was actually contributing to the production of economic values.

Unable to determine any worker’s productive contribution, the Socialist society would be unable to fix his reward proportionately or know how to maximize his incentives.

The greatest difficulty to the realization of socialism in Mises’ view, in short, is intellectual. It is not a mere matter of goodwill, or of willingness to cooperate energetically without personal reward. "Even angels, if they were endowed only with human reason, could not form a Socialist community." Capitalism solves this problem of economic calculation through private ownership, and by money prices of both consumers’ and producers’ goods which are fixed in the competition of the open market.

Mises’ Socialism is an economic classic written in our time. It is one of the author’s three masterpieces, of which the other two are The Theory of Money and Credit and Human Action.


"Socialism" By Michael Harrington (1972) Saturday Review Press, N.Y. 436 pages, $12.50

"Socialism: An Economic and Sociological Analysis" By Ludwig von Mises (1936, 1951, 1953, 1969) London: Jonathan Cape 599 pages, 3.75 

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