                  I.1 Isn't libertarian socialism an oxymoron?

   In a word, no. This question is often asked by those who have come
   across the so-called "libertarian" right. As discussed in [1]section
   A.1.3, the word "libertarian" has been used by anarchists for far
   longer than the pro-free market right have been using it. In fact,
   anarchists have been using it as a synonym for anarchist for over 150
   years, since 1858. In comparison, widespread use of the term by the
   so-called "libertarian" right dates from the 1970s in America (with,
   from the 1940s onwards, limited use by a few individuals). Indeed,
   outside of North America "libertarian" is still essentially used as an
   equivalent of "anarchist" and as a shortened version of "libertarian
   socialist." As Noam Chomsky notes:

     "Let me just say regarding the terminology, since we happen to be in
     the United States, we have to be rather careful. Libertarian in the
     United States has a meaning which is almost the opposite of what it
     has in the rest of the world traditionally. Here, libertarian means
     ultra right-wing capitalist. In the European tradition, libertarian
     meant socialist. So, anarchism was sometimes called libertarian
     socialism, a large wing of anarchism, so we have to be a little
     careful about terminology." [Reluctant Icon]

   This in itself does not prove that the term "libertarian socialist" is
   free of contradiction. However, as we will show below, the claim that
   the term is self-contradictory rests on the assumption that socialism
   requires the state in order to exist and that socialism is incompatible
   with liberty (and the equally fallacious claim that capitalism is
   libertarian and does not need the state). This assumption, as is often
   true of many objections to socialism, is based on a misconception of
   what socialism is, a misconception that many authoritarian socialists
   and the state capitalism of Soviet Russia have helped to foster. In
   reality it is the term "state socialism" which is the true oxymoron.

   Sadly many people take for granted the assertion of many on the right
   and left that socialism equals Leninism or Marxism and ignore the rich
   and diverse history of socialist ideas, ideas that spread from
   communist and individualist-anarchism to Leninism. As Benjamin Tucker
   once noted, "the fact that State Socialism . . . has overshadowed other
   forms of Socialism gives it no right to a monopoly of the Socialistic
   idea." [Instead of a Book, pp. 363-4] Unfortunately, many on the left
   combine with the right to do exactly that. Indeed, the right (and, of
   course, many on the left) consider that, by definition, "socialism" is
   state ownership and control of the means of production, along with
   centrally planned determination of the national economy (and so social
   life).

   Yet even a quick glance at the history of the socialist movement
   indicates that the identification of socialism with state ownership and
   control is not common. For example, Anarchists, many Guild Socialists,
   council communists (and other libertarian Marxists), as well as
   followers of Robert Owen, all rejected state ownership. Indeed,
   anarchists recognised that the means of production did not change their
   form as capital when the state took over their ownership nor did
   wage-labour change its nature when it is the state employing labour
   (for example, see [2]section H.3.13). For anarchists state ownership of
   capital is not socialistic in the slightest. Indeed, as Tucker was well
   aware, state ownership turned everyone into a proletarian (bar the
   state bureaucracy) -- hardly a desirable thing for a political theory
   aiming for the end of wage slavery!

   So what does socialism mean? Is it compatible with libertarian ideals?
   What do the words "libertarian" and "socialism" actually mean? It is
   temping to use dictionary definitions as a starting point, although we
   should stress that such a method holds problems as different
   dictionaries have different definitions and the fact that dictionaries
   are rarely politically sophisticated. Use one definition, and someone
   else will counter with one more to their liking. For example,
   "socialism" is often defined as "state ownership of wealth" and
   "anarchy" as "disorder." Neither of these definitions are useful when
   discussing political ideas, particularly anarchism as, obviously, no
   form of anarchism would be socialist by such a definition nor do
   anarchists seek disorder. Therefore, the use of dictionaries is not the
   end of a discussion and often misleading when applied to politics.

   Libertarian, though, is generally defined to mean someone who upholds
   the principles of liberty, especially individual liberty of thought and
   action. Such a situation cannot but be encouraged by socialism, by free
   access to the means of life. This is because in such a situation people
   associate as equals and so. as John Most and Emma Goldman once argued,
   the "system of communism logically excludes any and every relation
   between master and servant, and means really Anarchism." ["Talking
   about Anarchy", p. 28, Black Flag, no. 228, p. 28] In other words, by
   basing itself on free association and self-management in every aspect
   of life the anarchist form of socialism cannot but be libertarian.

   In other words, there is a reason why anarchists have used the term
   libertarian for over 150 years! More to the point, why assume that the
   right's recent appropriation of the word be considered the base point?
   That implies that private property defends individual liberty rather
   than suppresses it. Such an assumption, as anarchists have argued from
   the start of anarchism as a distinct socio-political theory, is wrong.
   As we discussed earlier (see [3]section B.4, for example), capitalism
   denies liberty of thought and action within the workplace (unless one
   is the boss, of course). As one staunch defender of capitalism (and a
   classical liberal often listed as a forefather of right-wing
   "libertarianism") glibly noted, the capitalist "of course exercises
   power over the workers", although "he cannot exercise it arbitrarily"
   thanks to the market but within this limit "the entrepreneur is free to
   give full rein to his whims" and "to dismiss workers offhand" [Ludwig
   von Mises, Socialism, p. 443 and p. 444] Right-wing "libertarians" are
   utterly blind to the liberty-destroying hierarchies associated with
   private property, perhaps unsurprisingly as they are fundamentally
   pro-capitalist and anti-socialist (equally unsurprisingly, genuine
   libertarians tend to call them "propertarians"). As left-wing economist
   Geoffrey M. Hodgson correctly notes:

     "By their own logic, [such] market individualists are forced to
     disregard the organisational structure of the firm, or to falsely
     imagine that markets exist inside it. To do otherwise would be to
     admit that a system as dynamic as capitalism depends upon a mode of
     organisation from which markets are excluded . . . This . . . allows
     market individualists to ignore the reality of non-market
     organisations in the private sector . . . They can thus ignore the
     reality of control and authority within the private capitalist
     corporation but remain critical of public sector bureaucracy and
     state planning." [Economics and Utopia, pp. 85-6]

   The propertarian perspective inevitably generates massive
   contradictions, such as admitting that both the state and private
   property share a common monopoly of decision making over a given area
   yet opposing only the former (see [4]section F.1). As anarchists have
   long pointed out, the hierarchical social relations associated with
   private property have nothing to do with individual liberty. Removing
   the state but keeping private property would, therefore, not be a step
   forward: "A fine business we would make if we destroyed the State and
   replaced it with a mass of little States! killing a monster with one
   head and keeping a monster with a thousand heads!" [Carlo Cafiero,
   "Anarchy and Communism", pp. 179-86, The Raven, No. 6, p. 181]

   This is why we argue that anarchism is more than just a stateless
   society, for while a society without a state is a necessary condition
   for anarchy it is not sufficient -- private hierarchies also limit
   freedom. Hence Chomsky:

     "It's all generally based on the idea that hierarchic and
     authoritarian structures are not self-justifying. They have to have
     a justification . . . For example, your workplace is one point of
     contact and association. So, workplaces ought to be democratically
     controlled by participants . . . there are all kinds of ways in
     which people interact with one another. The forms of organisation
     and association that grow out of those should be, to the extent
     possible, non-authoritarian, non-hierarchic, managed and directed by
     the participants." [Reluctant Icon]

   Therefore, anarchists argue, real libertarian ideas must be based on
   workers self-management, i.e. workers must control and manage the work
   they do, determining where and how they do it and what happens to the
   fruit of their labour, which in turn means the elimination of wage
   labour. Or, to use Proudhon's words, the "abolition of the
   proletariat." [Selected Writings of Pierre-Joseph Proudhon, p. 179]
   Unless this is done then the majority of people will become subject to
   the authoritarian social relationships the likes of Mises and other
   right-wing "libertarians" support. As one communist-anarchist put it:

     "It is because the individual does not own himself, and is not
     permitted to be his true self. He has become a mere market
     commodity, an instrument for the accumulation of property -- for
     others . . . Individuality is stretched on the Procrustes bed of
     business . . . If our individuality were to be made the price of
     breathing, what ado there would be about the violence done to the
     personality! And yet our very right to food, drink and shelter is
     only too often conditioned upon our loss of individuality. These
     things are granted to the propertyless millions (and how scantily!)
     only in exchange for their individuality -- they become the mere
     instruments of industry." [Max Baginski, "Stirner: The Ego and His
     Own", pp. 142-151, Mother Earth, Vol. II, No. 3, p. 150]

   Socialism, anarchists argue, can only mean a classless and
   anti-authoritarian (i.e. libertarian) society in which people manage
   their own affairs, either as individuals or as part of a group
   (depending on the situation). In other words, it implies
   self-management in all aspects of life -- including work. It has always
   struck anarchists as somewhat strange and paradoxical (to say the
   least) that a system of "natural" liberty (Adam Smith's term,
   misappropriated by supporters of capitalism) involves the vast majority
   having to sell that liberty in order to survive. Thus to be
   consistently libertarian is, logically, to advocate self-management,
   and so socialism (see [5]section G.4.2). This explains the long
   standing anarchist opposition to the phoney "individualism" associated
   with classical liberalism (so-called right-wing "libertarian" ideology,
   although better termed "propertarian" to avoid confusion). Thus we find
   Emma Goldman dismissing "this kind of individualism" in "whose name . .
   . social oppression are defended and held up as virtues." [Red Emma
   Speaks, p. 112]

   As we will discuss in [6]section I.3.3, socialisation is advocated to
   ensure the elimination of wage labour and is a common theme of all
   genuine forms of socialism. In theory at least, anarchist argue that
   state socialism does not eliminate wage labour, rather it universalises
   it. In fact, state socialism shows that socialism is necessarily
   libertarian, not statist. For if the state owns the workplace, then the
   producers do not, and so they will not be at liberty to manage their
   own work but will instead be subject to the state as the boss.
   Moreover, replacing the capitalist owning class by state officials in
   no way eliminates wage labour; in fact it makes it worse in many cases.
   Therefore "socialists" who argue for nationalisation of the means of
   production are not socialists (which means that the Soviet Union and
   the other so-called "socialist" countries are not socialist nor are
   parties which advocate nationalisation socialist).

   Indeed, attempts to associate socialism with the state misunderstands
   the nature of socialism. It is an essential principle of socialism that
   (social) inequalities between individuals must be abolished to ensure
   liberty for all (natural inequalities cannot be abolished, nor do
   anarchists desire to do so). Socialism, as Proudhon put it, "is
   egalitarian above all else." [No Gods, No Masters, vol. 1, p. 57] This
   applies to inequalities of power as well, especially to political
   power. And any hierarchical system (particularly the state) is marked
   by inequalities of power -- those at the top (elected or not) have more
   power than those at the bottom. Hence the following comments provoked
   by the expulsion of anarchists from the social democratic Second
   International:

     "It could be argued with much more reason that we are the most
     logical and most complete socialists, since we demand for every
     person not just his [or her] entire measure of the wealth of society
     but also his [or her] portion of social power, which is to say, the
     real ability to make his [or her] influence felt, along with that of
     everybody else, in the administration of public affairs." [Malatesta
     and Hamon, Op. Cit., vol. 2, p. 20]

   The election of someone to administer public affairs for you is not
   having a portion of social power. It is, to use of words of Emile
   Pouget (a leading French anarcho-syndicalist) "an act of abdication,"
   the delegating of power into the hands of a few. [Op. Cit., p. 67] This
   means that "[a]ll political power inevitably creates a privileged
   situation for the men who exercise it. Thus it violates, from the
   beginning, the equalitarian principle." [Voline, The Unknown
   Revolution, p. 249]

   From this short discussion we see the links between libertarian and
   socialism. To be a true libertarian requires you to support workers'
   control otherwise you support authoritarian social relationships. To
   support workers' control, by necessity, means that you must ensure that
   the producers own (and so control) the means of producing and
   distributing the goods they create. Without ownership, they cannot
   truly control their own activity or the product of their labour. The
   situation where workers possess the means of producing and distributing
   goods is socialism. Thus to be a true libertarian requires you to be a
   socialist.

   Similarly, a true socialist must also support individual liberty of
   thought and action, otherwise the producers "possess" the means of
   production and distribution in name only. If the state owns the means
   of life, then the producers do not and so are in no position to manage
   their own activity. As the experience of Russia under Lenin shows,
   state ownership soon produces state control and the creation of a
   bureaucratic class which exploits and oppresses the workers even more
   so than their old bosses. Since it is an essential principle of
   socialism that inequalities between people must be abolished in order
   to ensure liberty, it makes no sense for a genuine socialist to support
   any institution based on inequalities of power (and as we discussed in
   [7]section B.2, the state is just such an institution). To oppose
   inequality and not extend that opposition to inequalities in power,
   especially political power, suggests a lack of clear thinking. Thus to
   be a true socialist requires you to be a libertarian, to be for
   individual liberty and opposed to inequalities of power which restrict
   that liberty.

   Therefore, rather than being an oxymoron, "libertarian socialism"
   indicates that true socialism must be libertarian and that a
   libertarian who is not a socialist is a phoney. As true socialists
   oppose wage labour, they must also oppose the state for the same
   reasons. Similarly, consistent libertarians must oppose wage labour for
   the same reasons they must oppose the state. So, libertarian socialism
   rejects the idea of state ownership and control of the economy, along
   with the state as such. Through workers' self-management it proposes to
   bring an end to authority, exploitation, and hierarchy in production.
   This in itself will increase, not reduce, liberty. Those who argue
   otherwise rarely claim that political democracy results in less freedom
   than political dictatorship.

   One last point. It could be argued that many social anarchists smuggle
   the state back in via communal ownership of the means of life. This,
   however, is not the case. To argue so confuses society with the state.
   The communal ownership advocated by collectivist and communist
   anarchists is not the same as state ownership. This is because it is
   based on horizontal relationships between the actual workers and the
   "owners" of social capital (i.e. the federated communities as a whole,
   which includes the workers themselves we must stress), not vertical
   ones as in nationalisation (which are between state bureaucracies and
   its "citizens"). Also, such communal ownership is based upon letting
   workers manage their own work and workplaces. This means that it is
   based upon, and does not replace, workers' self-management. In
   addition, all the members of an anarchist community fall into one of
   three categories:

   (1) producers (i.e. members of a collective or self-employed artisans);
       (2) those unable to work (i.e. the old, sick and so on, who were
       producers); or
       (3) the young (i.e. those who will be producers).

   Therefore, workers' self-management within a framework of communal
   ownership is entirely compatible with libertarian and socialist ideas
   concerning the possession of the means of producing and distributing
   goods by the producers themselves. Far from there being any
   contradiction between libertarianism and socialism, libertarian ideals
   imply socialist ones, and vice versa. As Bakunin put it in 1867:

     "We are convinced that freedom without Socialism is privilege and
     injustice, and that Socialism without freedom is slavery and
     brutality." [Bakunin on Anarchism, p. 127]

   History has proven him correct. Rather that libertarian socialism being
   the oxymoron, it is state socialism and libertarian capitalism that
   are. Both historically (in terms of who first used the word) and
   logically (in terms of opposing all hierarchical organisations) it is
   anarchists who should be called libertarians, not the propertarian
   right.

I.1.1 Is socialism impossible?

   In 1920, the right-wing economist Ludwig von Mises declared socialism
   to be impossible. A leading member of the "Austrian" school of
   economics, he argued this on the grounds that without private ownership
   of the means of production, there cannot be a competitive market for
   production goods and without a market for production goods, it is
   impossible to determine their values. Without knowing their values,
   economic rationality is impossible and so a socialist economy would
   simply be chaos: "the absurd output of a senseless apparatus." For
   Mises, socialism meant central planning with the economy "subject to
   the control of a supreme authority." ["Economic Calculation in the
   Socialist Commonwealth", pp. 87-130, Collectivist Economic Planning,
   F.A von Hayek (ed.), p. 104 and p. 106] While applying his "economic
   calculation argument" to Marxist ideas of a future socialist society,
   his argument, it is claimed, is applicable to all schools of socialist
   thought, including libertarian ones. It is on the basis of his
   arguments that many right-wingers claim that libertarian (or any other
   kind of) socialism is impossible in principle.

   Yet as David Schweickart observes "[i]t has long been recognised that
   Mises's argument is logically defective. Even without a market in
   production goods, their monetary values can be determined." [Against
   Capitalism, p. 88] In other words, economic calculation based on prices
   is perfectly possible in a libertarian socialist system. After all, to
   build a workplace requires so many tonnes of steel, so many bricks, so
   many hours of work and so on. If we assume a mutualist society, then
   the prices of these goods can be easily found as the co-operatives in
   question would be offer their services on the market. These commodities
   would be the inputs for the construction of production goods and so the
   latter's monetary values can be found.

   Ironically enough, Mises did mention the idea of such a mutualist
   system in his initial essay. "Exchange relations between
   production-goods can only be established on the basis of private
   ownership of the means of production" he asserted. "When the 'coal
   syndicate' provides the 'iron syndicate' with coal, no price can be
   formed, except when both syndicates are the owners of the means of
   production employed in their business. This would not be socialisation
   but workers' capitalism and syndicalism." [Op. Cit., p. 112] However,
   his argument is flawed for numerous reasons.

   First, and most obvious, socialisation (as we discuss in [8]section
   I.3.3) simply means free access to the means of life. As long as those
   who join a workplace have the same rights and liberties as existing
   members then there is socialisation. A market system of co-operatives,
   in other words, is not capitalist as there is no wage labour involved
   as a new workers become full members of the syndicate, with the same
   rights and freedoms as existing members. Thus there are no hierarchical
   relationships between owners and wage slaves (even if these owners also
   happen to work there). As all workers' control the means of production
   they use, it is not capitalism.

   Second, nor is such a system usually called, as Mises suggests,
   "syndicalism" but rather mutualism and he obviously considered its most
   famous advocate, Proudhon and his "fantastic dreams" of a mutual bank,
   as a socialist. [Op. Cit., p. 88] Significantly, Mises subsequently
   admitted that it was "misleading" to call syndicalism workers'
   capitalism, although "the workers are the owners of the means of
   production" it was "not genuine socialism, that is, centralised
   socialism", as it "must withdraw productive goods from the market.
   Individual citizens must not dispose of the shares in the means of
   production which are allotted to them." Syndicalism, i.e., having those
   who do the work control of it, was "the ideal of plundering hordes"!
   [Socialism, p. 274fn, p. 270, p. 273 and p. 275]

   His followers, likewise, concluded that "syndicalism" was not
   capitalism with Hayek stating that there were "many types of socialism"
   including "communism, syndicalism, guild socialism". Significantly, he
   indicated that Mises argument was aimed at systems based on the
   "central direction of all economic activity" and so "earlier systems of
   more decentralised socialism, like guild-socialism or syndicalism, need
   not concern us here since it seems now to be fairly generally admitted
   that they provide no mechanism whatever for a rational direction of
   economic activity." ["The Nature and History of the Problem", pp. 1-40,
   Collectivist Economic Planning, F.A von Hayek (ed.),p. 17, p. 36 and p.
   19] Sadly he failed to indicate who "generally admitted" such a
   conclusion. More recently, Murray Rothbard urged the state to impose
   private shares onto the workers in the former Stalinist regimes of
   Eastern Europe as ownership was "not to be granted to collectives or
   co-operatives or workers or peasants holistically, which would only
   bring back the ills of socialism in a decentralised and chaotic
   syndicalist form." [The Logic of Action II, p. 210]

   Third, syndicalism usually refers to a strategy (revolutionary
   unionism) used to achieve (libertarian) socialism rather than the goal
   itself (as Mises himself noted in a tirade against unions, "Syndicalism
   is nothing else but the French word for trade unionism" [Socialism, p.
   480]). It could be argued that such a mutualist system could be an aim
   for some syndicalists, although most were and still are in favour of
   libertarian communism (a simple fact apparently unknown to Mises).
   Indeed, Mises ignorance of syndicalist thought is striking, asserting
   that the "market is a consumers' democracy. The syndicalists want to
   transform it into a producers' democracy." [Human Action, p. 809] Most
   syndicalists, however, aim to abolish the market and all aim for
   workers' control of production to complement (not replace) consumer
   choice. Syndicalists, like other anarchists, do not aim for workers'
   control of consumption as Mises asserts. Given that Mises asserts that
   the market, in which one person can have a thousand votes and another
   one, is a "democracy" his ignorance of syndicalist ideas is perhaps
   only one aspect of a general ignorance of reality.

   More importantly, the whole premise of his critique of mutualism is
   flawed. "Exchange relations in productive goods" he asserted, "can only
   be established on the basis of private property in the means of
   production. If the Coal Syndicate delivers coal to the Iron Syndicate a
   price can be fixed only if both syndicates own the means of production
   in industry." [Socialism, p. 132] This may come as a surprise to the
   many companies whose different workplaces sell each other their
   products! In other words, capitalism itself shows that workplaces owned
   by the same body (in this case, a large company) can exchange goods via
   the market. That Mises makes such a statement indicates well the firm
   basis of his argument in reality. Thus a socialist society can have
   extensive autonomy for its co-operatives, just as a large capitalist
   firm can:

     "the entrepreneur is in a position to separate the calculation of
     each part of his total enterprise in such a way that he can
     determine the role it plays within his whole enterprise. Thus he can
     look at each section as if it were a separate entity and can
     appraise it according to the share it contributes to the success of
     the total enterprise. Within this system of business calculation
     each section of a firm represents an integral entity, a hypothetical
     independent business, as it were. It is assumed that this section
     'owns' a definite part of the whole capital employed in the
     enterprise, that it buys from other sections and sells to them, that
     it has its own expenses and its own revenues, that its dealings
     result either in a profit or in a loss which is imputed to its own
     conduct of affairs as distinguished from the result of the other
     sections. Thus the entrepreneur can assign to each section's
     management a great deal of independence . . . Every manager and
     submanager is responsible for the working of his section or
     subsection. It is to his credit if the accounts show a profit, and
     it is to his disadvantage if they show a loss. His own interests
     impel him toward the utmost care and exertion in the conduct of his
     section's affairs." [Human Action, pp. 301-2]

   So much, then, for the notion that common ownership makes it impossible
   for market socialism to work. After all, the libertarian community can
   just as easily separate the calculation of each part of its enterprise
   in such a way as to determine the role each co-operative plays in its
   economy. It can look at each section as if it were a separate entity
   and appraise it according to the share it contributes as it is assumed
   that each section "owns" (i.e., has use rights over) its definite part.
   It can then buy from, and sell to, other co-operatives and a profit or
   loss can be imputed to evaluate the independent action of each
   co-operative and so their own interests impel the co-operative workers
   toward the utmost care and exertion in the conduct of their
   co-operative's affairs.

   So to refute Mises, we need only repeat what he himself argued about
   large corporations! Thus there can be extensive autonomy for workplaces
   under socialism and this does not in any way contradict the fact that
   "all the means of production are the property of the community."
   ["Economic Calculation in the Socialist Commonwealth", Op. Cit., p. 89]
   Socialisation, in other words, does not imply central planning but
   rather free access and free association. In summary, then, Mises
   confused property rights with use rights, possession with property, and
   failed to see now a mutualist system of socialised co-operatives
   exchanging products can be a viable alternative to the current
   exploitative and oppressive economic regime.

   Such a mutualist economy also strikes at the heart of Mises' claims
   that socialism was "impossible." Given that he accepted that there may
   be markets, and hence market prices, for consumer goods in a socialist
   economy his claims of the impossibility of socialism seems unfounded.
   For Mises, the problem for socialism was that "because no
   production-good will ever become the object of exchange, it will be
   impossible to determine its monetary value." [Op. Cit., p. 92] The flaw
   in his argument is clear. Taking, for example, coal, we find that it is
   both a means of production and of consumption. If a market in consumer
   goods is possible for a socialist system, then competitive prices for
   production goods is also possible as syndicates producing
   production-goods would also sell the product of their labour to other
   syndicates or communes. As Mises admitted when discussing one scheme of
   guild socialism, "associations and sub-associations maintain a mutual
   exchange-relationship; they receive and give as if they were owners.
   Thus a market and market-prices are formed." Thus, when deciding upon a
   new workplace, railway or house, the designers in question do have
   access to competitive prices with which to make their decisions. Nor
   does Mises' argument work against communal ownership in such a system
   as the commune would be buying products from syndicates in the same way
   as one part of a company can buy products from another part of the same
   company under capitalism. That goods produced by self-managed
   syndicates have market-prices does not imply capitalism for, as they
   abolish wage labour and are based on free-access (socialisation), it is
   a form of socialism (as socialists define it, Mises' protestations that
   "this is incompatible with socialism" not-with-standing!). [Socialism,
   p. 518]

   Murray Rothbard suggested that a self-managed system would fail, and a
   system "composed exclusively of self-managed enterprises is impossible,
   and would lead . . . to calculative chaos and complete breakdown." When
   "each firm is owned jointly by all factor-owners" then "there is no
   separation at all between workers, landowners, capitalists, and
   entrepreneurs. There would be no way, then, of separating the wage
   incomes received from the interest or rent incomes or profits received.
   And now we finally arrive at the real reason why the economy cannot
   consist completely of such firms (called 'producers' co-operatives').
   For, without an external market for wage rates, rents, and interest,
   there would be no rational way for entrepreneurs to allocate factors in
   accordance with the wishes of the consumers. No one would know where he
   could allocate his land or his labour to provide the maximum monetary
   gains. No entrepreneur would know how to arrange factors in their most
   value-productive combination to earn greatest profit. There could be no
   efficiency in production because the requisite knowledge would be
   lacking." [quoted by David L. Prychitko, Markets, Planning and
   Democracy, p. 135 and p. 136]

   It is hard to take this argument seriously. Consider, for example, a
   pre-capitalist society of farmers and artisans. Both groups of people
   own their own means of production (the land and the tools they use).
   The farmers grow crops for the artisans who, in turn, provide the
   farmers with the tools they use. According to Rothbard, the farmers
   would have no idea what to grow nor would the artisans know which tools
   to buy to meet the demand of the farmers nor which to use to reduce
   their working time. Presumably, both the farmers and artisans would
   stay awake at night worrying what to produce, wishing they had a
   landlord and boss to tell them how best to use their labour and
   resources.

   Let us add the landlord class to this society. Now the landlord can
   tell the farmer what to grow as their rent income indicates how to
   allocate the land to its most productive use. Except, of course, it is
   still the farmers who decide what to produce. Knowing that they will
   need to pay rent (for access to the land) they will decide to devote
   their (rented) land to the most profitable use in order to both pay the
   rent and have enough to live on. Why they do not seek the most
   profitable use without the need for rent is not explored by Rothbard.
   Much the same can be said of artisans subject to a boss, for the worker
   can evaluate whether an investment in a specific new tool will result
   in more income or reduced time labouring or whether a new product will
   likely meet the needs of consumers. Moving from a pre-capitalist
   society to a post-capitalist one, it is clear that a system of
   self-managed co-operatives can make the same decisions without
   requiring economic masters. This is unsurprising, given that Mises'
   asserted that the boss "of course exercises power over the workers" but
   that the "lord of production is the consumer." [Socialism, p. 443] In
   which case, the boss need not be an intermediary between the real
   "lord" and those who do the production!

   All in all, Rothbard confirms Kropotkin's comments that economics
   ("that pseudo-science of the bourgeoisie") "does not cease to give
   praise in every way to the benefits of individual property" yet "the
   economists do not conclude, 'The land to him who cultivates it.' On the
   contrary, they hasten to deduce from the situation, 'The land to the
   lord who will get it cultivated by wage earners!'" [Words of a Rebel,
   pp. 209-10] In addition, Rothbard implicitly places "efficiency" above
   liberty, preferring dubious "efficiency" gains to the actual gains in
   freedom which the abolition of workplace autocracy would create. Given
   a choice between liberty and "efficiency", the genuine anarchist would
   prefer liberty. Luckily, though, workplace liberty increases efficiency
   so Rothbard's decision is a wrong one. It should also be noted that
   Rothbard's position (as is usually the case) is directly opposite that
   of Proudhon, who considered it "inevitable" that in a free society "the
   two functions of wage-labourer on the one hand, and of
   proprietor-capitalist-contractor on the other, become equal and
   inseparable in the person of every workingman". This was the "first
   principle of the new economy, a principle full of hope and of
   consolation for the labourer without capital, but a principle full of
   terror for the parasite and for the tools of parasitism, who see
   reduced to naught their celebrated formula: Capital, labour, talent!"
   [Proudhon's Solution of the Social Problem, p. 165 and p. 85]

   And it does seem a strange co-incidence that someone born into a
   capitalist economy, ideologically supporting it with a passion and
   seeking to justify its class system just happens to deduce from a given
   set of axioms that landlords and capitalists happen to play a vital
   role in the economy! It would not take too much time to determine if
   someone in a society without landlords or capitalists would also
   logically deduce from the same axioms the pressing economic necessity
   for such classes. Nor would it take long to ponder why Greek
   philosophers, like Aristotle, concluded that slavery was natural. And
   it does seem strange that centuries of coercion, authority, statism,
   classes and hierarchies all had absolutely no impact on how society
   evolved, as the end product of real history (the capitalist economy)
   just happens to be the same as Rothbard's deductions from a few
   assumptions predict. Little wonder, then, that "Austrian" economics
   seems more like rationalisations for some ideologically desired result
   than a serious economic analysis.

   Even some dissident "Austrian" economists recognise the weakness of
   Rothbard's position. Thus "Rothbard clearly misunderstands the general
   principle behind producer co-operatives and self-management in
   general." In reality, "[a]s a democratic method of enterprise
   organisation, workers' self-management is, in principle, fully
   compatible with a market system" and so "a market economy comprised of
   self-managed enterprises is consistent with Austrian School theory . .
   . It is fundamentally a market-based system . . . that doesn't seem to
   face the epistemological hurdles . . . that prohibit rational economic
   calculation" under state socialism. Sadly, socialism is still equated
   with central planning, for such a system "is certainly not socialism.
   Nor, however, is it capitalism in the conventional sense of the term."
   In fact, it is not capitalism at all and if we assume that free access
   to resources such as workplaces and credit, then it most definitely is
   socialism ("Legal ownership is not the chief issue in defining workers'
   self-management -- management is. Worker-managers, though not
   necessarily the legal owners of all the factors of production collected
   within the firm, are free to experiment and establish enterprise policy
   as they see fit."). [David L. Prychitko, Op. Cit., p. 136, p. 135, pp.
   4-5, p. 4 and p. 135] This suggests that non-labour factors can be
   purchased from other co-operatives, credit provided by mutual banks
   (credit co-operatives) at cost and so forth. As such, a mutualist
   system is perfectly feasible.

   Thus economic calculation based on competitive market prices is
   possible under a socialist system. Indeed, we see examples of this even
   under capitalism. For example, the Mondragon co-operative complex in
   the Basque Country indicate that a libertarian socialist economy can
   exist and flourish. Perhaps it will be suggested that an economy needs
   stock markets to price companies, as Mises did. Thus investment is "not
   a matter for the mangers of joint stock companies, it is essentially a
   matter of the capitalists" in the "stock exchanges". Investment, he
   asserted, was "not a matter of wages" of managers but of "the
   capitalist who buys and sell stocks and shares, who make loans and
   recover them, who make deposits in the banks." [Socialism, p. 139]

   It would be churlish to note that the members of co-operatives under
   capitalism, like most working class people, are more than able to make
   deposits in banks and arrange loans. In a mutualist economy, workers
   will not loose this ability just because the banks are themselves
   co-operatives. Similarly, it would be equally churlish but essential to
   note that the stock market is hardly the means by which capital is
   actually raised within capitalism. As David Engler points out,
   "[s]upporters of the system . . . claim that stock exchanges mobilise
   funds for business. Do they? When people buy and sell shares, 'no
   investment goes into company treasuries . . . Shares simply change
   hands for cash in endless repetition.' Company treasuries get funds
   only from new equity issues. These accounted for an average of a mere
   0.5 per cent of shares trading in the US during the 1980s." [Apostles
   of Greed, pp. 157-158] This is echoed by David Ellerman:

     "In spite of the stock market's large symbolic value, it is
     notorious that it has relatively little to do with the production of
     goods and services in the economy (the gambling industry aside). The
     overwhelming bulk of stock transactions are in second-hand shares so
     that the capital paid for shares usually goes to other stock
     traders, not to productive enterprises issuing new shares." [The
     Democratic Worker-Owned Firm, p. 199]

   This suggests that the "efficient allocation of capital in production
   does not require a stock market (witness the small business sector
   [under capitalism])." "Socialist firms," he notes, "are routinely
   attacked as being inherently inefficient because they have no equity
   shares exposed to market valuation. If this argument had any merit, it
   would imply that the whole sector of unquoted closely-held small and
   medium-sized firms in the West was 'inherently inefficient' -- a
   conclusion that must be viewed with some scepticism. Indeed, in the
   comparison to large corporations with publicly-traded shares, the
   closely-held firms are probably more efficient users of capital." [Op.
   Cit., p. 200 and p. 199]

   In terms of the impact of the stock market on the economy there is good
   reason to think that this hinders economic efficiency by generating a
   perverse set of incentives and misleading information flows and so
   their abolition would actually aid production and productive
   efficiency).

   Taking the first issue, the existence of a stock market has serious
   (negative) effects on investment. As Doug Henwood notes, there "are
   serious communication problems between managers and shareholders." This
   is because "[e]ven if participants are aware of an upward bias to
   earnings estimates [of companies], and even if they correct for it,
   managers would still have an incentive to try to fool the market. If
   you tell the truth, your accurate estimate will be marked down by a
   sceptical market. So, it's entirely rational for managers to boost
   profits in the short term, either through accounting gimmickry or by
   making only investments with quick paybacks." So, managers "facing a
   market [the stock market] that is famous for its preference for quick
   profits today rather than patient long-term growth have little choice
   but to do its bidding. Otherwise, their stock will be marked down, and
   the firm ripe for take-over." While "[f]irms and economies can't get
   richer by starving themselves" stock market investors "can get richer
   when the companies they own go hungry -- at least in the short term. As
   for the long term, well, that's someone else's problem the week after
   next." [Wall Street, p. 171]

   Ironically, this situation has a parallel with Stalinist central
   planning. Under that system the managers of State workplaces had an
   incentive to lie about their capacity to the planning bureaucracy. The
   planner would, in turn, assume higher capacity, so harming honest
   managers and encouraging them to lie. This, of course, had a seriously
   bad impact on the economy. Unsurprisingly, the similar effects caused
   by capital markets on economies subject to them are as bad as well as
   downplaying long term issues and investment. In addition, it should be
   noted that stock-markets regularly experiences bubbles and subsequent
   bursts. Stock markets may reflect the collective judgements of
   investors, but it says little about the quality of those judgements.
   What use are stock prices if they simply reflect herd mentality, the
   delusions of people ignorant of the real economy or who fail to see a
   bubble? Particularly when the real-world impact when such bubbles burst
   can be devastating to those uninvolved with the stock market?

   In summary, then, firms are "over-whelmingly self-financing -- that is,
   most of their investment expenditures are funded through profits (about
   90%, on longer-term averages)" The stock markets provide "only a sliver
   of investment funds." There are, of course, some "periods like the
   1990s, during which the stock market serves as a conduit for shovelling
   huge amounts of cash into speculative venues, most of which have
   evaporated . . . Much, maybe most, of what was financed in the 1990s
   didn't deserve the money." Such booms do not last forever and are "no
   advertisement for the efficiency of our capital markets." [Henwood,
   After the New Economy, p. 187 and p. 188]

   Thus there is substantial reason to question the suggestion that a
   stock market is necessary for the efficient allocation of capital.
   There is no need for capital markets in a system based on mutual banks
   and networks of co-operatives. As Henwood concludes, "the signals
   emitted by the stock market are either irrelevant or harmful to real
   economic activity, and that the stock market itself counts little or
   nothing as a source of finance. Shareholders . . . have no useful
   role." [Wall Street, p. 292]

   Then there is also the ironic nature of Rothbard's assertion that
   self-management would ensure there "could be no efficiency in
   production because the requisite knowledge would be lacking." This is
   because capitalist firms are hierarchies, based on top-down central
   planning, and this hinders the free flow of knowledge and information.
   As with Stalinism, within the capitalist firm information passes up the
   organisational hierarchy and becomes increasingly simplified and
   important local knowledge and details lost (when not deliberately
   falsified to ensure continual employment by suppressing bad news). The
   top-management takes decisions based on highly aggregated data, the
   quality of which is hard to know. The management, then, suffers from
   information and knowledge deficiencies while the workers below lack
   sufficient autonomy to act to correct inefficiencies as well as
   incentive to communicate accurate information and act to improve the
   production process. As Cornelius Castoriadis correctly noted:

     "Bureaucratic planning is nothing but the extension to the economy
     as a whole of the methods created and applied by capitalism in the
     'rational' direction of large production units. If we consider the
     most profound feature of the economy, the concrete situation in
     which people are placed, we see that bureaucratic planning is the
     most highly perfected realisation of the spirit of capitalism; it
     pushes to the limit its most significant tendencies. Just as in the
     management of a large capitalist production unit, this type of
     planning is carried out by a separate stratum of managers . . . Its
     essence, like that of capitalist production, lies in an effort to
     reduce the direct producers to the role of pure and simple
     executants of received orders, orders formulated by a particular
     stratum that pursues its own interests. This stratum cannot run
     things well, just as the management apparatus . . . [in capitalist]
     factories cannot run things well. The myth of capitalism's
     productive efficiency at the level of the individual factory, a myth
     shared by bourgeois and Stalinist ideologues alike, cannot stand up
     to the most elemental examination of the facts, and any industrial
     worker could draw up a devastating indictment against capitalist
     'rationalisation' judged on its own terms.

     "First of all, the managerial bureaucracy does not know what it is
     supposed to be managing. The reality of production escapes it, for
     this reality is nothing but the activity of the producers, and the
     producers do not inform the managers . . . about what is really
     taking place. Quite often they organise themselves in such a way
     that the managers won't be informed (in order to avoid increased
     exploitation, because they feel antagonistic, or quite simply
     because they have no interest: It isn't their business).

     "In the second place, the way in which production is organised is
     set up entirely against the workers. They always are being asked,
     one way or another, to do more work without getting paid for it.
     Management's orders, therefore, inevitably meet with fierce
     resistance on the part of those who have to carry them out."
     [Political and Social Writings, vol. 2, pp. 62-3]

   This is "the same objection as that Hayek raises against the
   possibility of a planned economy. Indeed, the epistemological problems
   that Hayek raised against centralised planned economies have been
   echoed within the socialist tradition as a problem within the
   capitalist firm." There is "a real conflict within the firm that
   parallels that which Hayek makes about any centralised economy." [John
   O'Neill, The Market, p. 142] This is because workers have knowledge
   about their work and workplace that their bosses lack and a
   self-managed co-operative workplace would motivate workers to use such
   information to improve the firm's performance. In a capitalist
   workplace, as in a Stalinist economy, the workers have no incentive to
   communicate this information as "improvements in the organisation and
   methods of production initiated by workers essentially profit capital,
   which often then seizes hold of them and turns them against the
   workers. The workers know it and consequently they restrict their
   participation in production . . . They restrict their output; they keep
   their ideas to themselves . . . They organise among themselves to carry
   out their work, all the while keeping up a facade of respect for the
   official way they are supposed to organise their work." [Castoriadis,
   Op. Cit., pp. 181-2] An obvious example would be concerns that
   management would seek to monopolise the workers' knowledge in order to
   accumulate more profits, better control the workforce or replace them
   (using the higher productivity as an excuse). Thus self-management
   rather than hierarchy enhances the flow and use of information in
   complex organisations and so improves efficiency.

   This conclusion, it should be stressed, is not idle speculation and
   that Mises was utterly wrong in his assertions related to
   self-management. People, he stated, "err" in thinking that
   profit-sharing "would spur the worker on to a more zealous fulfilment
   of his duties" (indeed, it "must lead straight to Syndicalism") and it
   was "nonsensical to give 'labour' . . . a share in management. The
   realisation of such a postulate would result in syndicalism."
   [Socialism, p. 268, p. 269 and p. 305] Yet, as we note in [9]section
   I.3.2, the empirical evidence is overwhelmingly against Mises (which
   suggests why "Austrians" are so dismissive of empirical evidence, as it
   exposes flaws in the great chains of deductive reasoning they so love).
   In fact, workers' participation in management and profit sharing
   enhance productivity. In one sense, though, Mises is right, in that
   capitalist firms will tend not to encourage participation or even
   profit sharing as it shows to workers the awkward fact that while the
   bosses may need them, they do not need the bosses. As discussed in
   [10]section J.5.12, bosses are fearful that such schemes will lead to
   "syndicalism" and so quickly stop them in order to remain in power --
   in spite (or, more accurately, because) of the efficiency and
   productivity gains they result in.

   "Both capitalism and state socialism," summarises Ellerman, "suffer
   from the motivational inefficiency of the employment relation." Op.
   Cit., pp. 210-1] Mutualism would be more efficient as well as freer
   for, once the stock market and workplace hierarchies are removed,
   serious blocks and distortions to information flow will be eliminated.

   Unfortunately, the state socialists who replied to Mises in the 1920s
   and 1930s did not have such a libertarian economy in mind. In response
   to Mises initial challenge, a number of economists pointed out that
   Pareto's disciple, Enrico Barone, had already, 13 years earlier,
   demonstrated the theoretical possibility of a "market-simulated
   socialism." However, the principal attack on Mises's argument came from
   Fred Taylor and Oscar Lange (for a collection of their main papers, see
   On the Economic Theory of Socialism). In light of their work, Hayek
   shifted the question from theoretical impossibility to whether the
   theoretical solution could be approximated in practice. Which raises an
   interesting question, for if (state) socialism is "impossible" (as
   Mises assured us) then what did collapse in Eastern Europe? If the
   "Austrians" claim it was "socialism" then they are in the somewhat
   awkward position that something they assure us is "impossible" existed
   for decades. Moreover, it should be noted that both sides of the
   argument accepted the idea of central planning of some kind or another.
   This means that most of the arguments of Mises and Hayek did not apply
   to libertarian socialism, which rejects central planning along with
   every other form of centralisation.

   Nor was the response by Taylor and Lange particularly convincing in the
   first place. This was because it was based far more on neo-classical
   capitalist economic theory than on an appreciation of reality. In place
   of the Walrasian "Auctioneer" (the "god in the machine" of general
   equilibrium theory which ensures that all markets clear) Taylor and
   Lange presented the "Central Planning Board" whose job it was to adjust
   prices so that all markets cleared. Neo-classical economists who are
   inclined to accept Walrasian theory as an adequate account of a working
   capitalist economy will be forced to accept the validity of their model
   of "socialism." Little wonder Taylor and Lange were considered, at the
   time, the victors in the "socialist calculation" debate by most of the
   economics profession (with the collapse of the Soviet Union, this
   decision has been revised somewhat -- although we must point out that
   Taylor and Lange's model was not the same as the Soviet system, a fact
   conveniently ignored by commentators).

   Unfortunately, given that Walrasian theory has little bearing to
   reality, we must also come to the conclusion that the Taylor-Lange
   "solution" has about the same relevance (even ignoring its
   non-libertarian aspects, such as its basis in state-ownership, its
   centralisation, its lack of workers' self-management and so on). Many
   people consider Taylor and Lange as fore-runners of "market socialism."
   This is incorrect -- rather than being market socialists, they are in
   fact "neo-classical" socialists, building a "socialist" system which
   mimics capitalist economic theory rather than its reality. Replacing
   Walrus's mythical creation of the "Auctioneer" with a planning board
   does not really get to the heart of the problem! Nor does their vision
   of "socialism" have much appeal -- a re-production of capitalism with a
   planning board and a more equal distribution of money income.
   Anarchists reject such "socialism" as little more than a nicer version
   of capitalism, if that.

   With the collapse of the Soviet Union, it has been fashionable to
   assert that "Mises was right" and that socialism is impossible (of
   course, during the cold war such claims were ignored as the Soviet
   threat had to boosted and used as a means of social control and to
   justify state aid to capitalist industry). Nothing could be further
   from the truth as these countries were not socialist at all and did not
   even approximate the (libertarian) socialist idea (the only true form
   of socialism). The Stalinist countries had authoritarian "command
   economies" with bureaucratic central planning, and so their failure
   cannot be taken as proof that a decentralised, libertarian socialism
   cannot work. Nor can Mises' and Hayek's arguments against Taylor and
   Lange be used against a libertarian mutualist or collectivist system as
   such a system is decentralised and dynamic (unlike the "neo-classical"
   socialist model). Libertarian socialism of this kind did, in fact, work
   remarkably well during the Spanish Revolution in the face of amazing
   difficulties, with increased productivity and output in many workplaces
   as well as increased equality and liberty (see [11]section I.8).

   Thus the "calculation argument" does not prove that socialism is
   impossible. Mises was wrong in asserting that "a socialist system with
   a market and market prices is as self-contradictory as is the notion of
   a triangular square." [Human Action, p. 706] This is because capitalism
   is not defined by markets as such but rather by wage labour, a
   situation where working class people do not have free access to the
   means of production and so have to sell their labour (and so liberty)
   to those who do. If quoting Engels is not too out of place, the "object
   of production -- to produce commodities -- does not import to the
   instrument the character of capital" as the "production of commodities
   is one of the preconditions for the existence of capital . . . as long
   as the producer sells only what he himself produces, he is not a
   capitalist; he becomes so only from the moment he makes use of his
   instrument to exploit the wage labour of others." [Collected Works,
   Vol. 47, pp. 179-80] In this, as noted in [12]section C.2.1, Engels was
   merely echoing Marx (who, in turn, was simply repeating Proudhon's
   distinction between property and possession). As mutualism eliminates
   wage labour by self-management and free access to the means of
   production, its use of markets and prices (both of which pre-date
   capitalism) does not mean it is not socialist (and as we note in
   [13]section G.1.1 Marx, Engels, Bakunin and Kropotkin, like Mises,
   acknowledged Proudhon as being a socialist). This focus on the market,
   as David Schweickart suggests, is no accident:

     "The identification of capitalism with the market is a pernicious
     error of both conservative defenders of laissez-faire [capitalism]
     and most left opponents . . . If one looks at the works of the major
     apologists for capitalism . . . one finds the focus of the apology
     always on the virtues of the market and on the vices of central
     planning. Rhetorically this is an effective strategy, for it is much
     easier to defend the market than to defend the other two defining
     institutions of capitalism. Proponents of capitalism know well that
     it is better to keep attention toward the market and away from wage
     labour or private ownership of the means of production." ["Market
     Socialism: A Defense", pp. 7-22, Market Socialism: the debate among
     socialists, Bertell Ollman (ed.), p. 11]

   The theoretical work of such socialists as David Schweickart (see his
   books Against Capitalism and After Capitalism) present an extensive
   discussion of a dynamic, decentralised market socialist system which
   has obvious similarities with mutualism -- a link which some Leninists
   recognise and stress in order to discredit market socialism via
   guilt-by-association (Proudhon "the anarchist and inveterate foe of
   Karl Marx . . . put forward a conception of society, which is probably
   the first detailed exposition of a 'socialist market.'" [Hillel
   Ticktin, "The Problem is Market Socialism", pp. 55-80, Op. Cit., p.
   56]). So far, most models of market socialism have not been fully
   libertarian, but instead involve the idea of workers' control within a
   framework of state ownership of capital (Engler in Apostles of Greed is
   an exception to this, supporting community ownership). Ironically,
   while these Leninists reject the idea of market socialism as
   contradictory and, basically, not socialist they usually acknowledge
   that the transition to Marxist-communism under their workers' state
   would utilise the market.

   So, as anarchist Robert Graham points out, "Market socialism is but one
   of the ideas defended by Proudhon which is both timely and
   controversial . . . Proudhon's market socialism is indissolubly linked
   with his notions of industrial democracy and workers' self-management."
   ["Introduction", P-J Proudhon, General Idea of the Revolution, p.
   xxxii] As we discuss in [14]section I.3.5 Proudhon's system of
   agro-industrial federations can be seen as a non-statist way of
   protecting self-management, liberty and equality in the face of market
   forces (Proudhon, unlike individualist anarchists, was well aware of
   the negative aspects of markets and the way market forces can disrupt
   society). Dissident economist Geoffrey M. Hodgson is right to suggest
   that Proudhon's system, in which "each co-operative association would
   be able to enter into contractual relations with others", could be
   "described as an early form of 'market socialism'". In fact, "instead
   of Lange-type models, the term 'market socialism' is more appropriately
   to such systems. Market socialism, in this more appropriate and
   meaningful sense, involves producer co-operatives that are owned by the
   workers within them. Such co-operatives sell their products on markets,
   with genuine exchanges of property rights" (somewhat annoyingly,
   Hodgson incorrectly asserts that "Proudhon described himself as an
   anarchist, not a socialist" when, in reality, the French anarchist
   repeatedly referred to himself and his mutualist system as socialist).
   [Economics and Utopia, p. 20, p. 37 and p. 20]

   Thus it is possible for a socialist economy to allocate resources using
   markets. By suppressing capital markets and workplace hierarchies, a
   mutualist system will improve upon capitalism by removing an important
   source of perverse incentives which hinder efficient use of resources
   as well as long term investment and social responsibility in addition
   to reducing inequalities and increasing freedom. As David Ellerman once
   noted, many "still look at the world in bipolar terms: capitalism or
   (state) socialism." Yet there "are two broad traditions of socialism:
   state socialism and self-management socialism. State socialism is based
   on government ownership of major industry, while self-management
   socialism envisions firms being worker self-managed and not owned or
   managed by the government." [Op. Cit., p. 147] Mutualism is a version
   of the second vision and anarchists reject the cosy agreement between
   mainstream Marxists and their ideological opponents on the propertarian
   right that only state socialism is "real" socialism.

   Finally, it should be noted that most anarchists are not mutualists but
   rather aim for (libertarian) communism, the abolition of money. Many do
   see a mutualist-like system as an inevitable stage in a social
   revolution, the transitional form imposed by the objective conditions
   facing a transformation of a society marked by thousands of years of
   oppression and exploitation (collectivist-anarchism contains elements
   of both mutualism and communism, with most of its supporters seeing it
   as a transitional system). This is discussed in [15]section I.2.2,
   while [16]section I.1.3 indicates why most anarchists reject even
   non-capitalist markets. So does Mises's argument mean that a socialism
   that abolishes the market (such as libertarian communism) is
   impossible? Given that the vast majority of anarchists seek a
   libertarian communist society, this is an important question. We
   address it in the [17]next section.

I.1.2 Is libertarian communism impossible?

   In a word, no. While the "calculation argument" (see [18]last section)
   is often used by propertarians (so-called right-wing "libertarians") as
   the basis for the argument that communism (a moneyless society) is
   impossible, it is based on certain false ideas of what prices do, the
   nature of the market and how a communist-anarchist society would
   function. This is hardly surprising, as Mises based his theory on a
   variation of neo-classical economics and the Marxist social-democratic
   (and so Leninist) ideas of what a "socialist" economy would look like.
   So there has been little discussion of what a true (i.e. libertarian)
   communist society would be like, one that utterly transformed the
   existing conditions of production by workers' self-management and the
   abolition of both wage-labour and money. However, it is useful here to
   indicate exactly why communism would work and why the "calculation
   argument" is flawed as an objection to it.

   Mises argued that without money there was no way a socialist economy
   would make "rational" production decisions. Not even Mises denied that
   a moneyless society could estimate what is likely to be needed over a
   given period of time (as expressed as physical quantities of definite
   types and sorts of objects). As he argued, "calculation in natura in an
   economy without exchange can embrace consumption-goods only." His
   argument was that the next step, working out which productive methods
   to employ, would not be possible, or at least would not be able to be
   done "rationally," i.e. avoiding waste and inefficiency. The evaluation
   of producer goods "can only be done with some kind of economic
   calculation. The human mind cannot orient itself properly among the
   bewildering mass of intermediate products and potentialities without
   such aid. It would simply stand perplexed before the problems of
   management and location." Thus we would quickly see "the spectacle of a
   socialist economic order floundering in the ocean of possible and
   conceivable economic combinations without the compass of economic
   calculation." ["Economic Calculation in the Socialist Commonwealth",
   pp. 87-130, Collectivist Economic Planning, F.A. von Hayek (ed.), p.
   104, p. 103 and p. 110] Hence the claim that monetary calculation based
   on market prices is the only solution.

   This argument is not without its force. How can a producer be expected
   to know if tin is a better use of resources than iron when creating a
   product if all they know is that iron and tin are available and
   suitable for their purpose? Or, if we have a consumer good which can be
   made with A + 2B or 2A + B (where A and B are both input factors such
   as steel, oil electricity, etc.) how can we tell which method is more
   efficient (i.e. which one used least resources and so left the most
   over for other uses)? With market prices, Mises' argued, it is simple.
   If A cost $10 and B $5, then clearly method one would be the most
   efficient ($20 versus $25). Without the market, Mises argued, such a
   decision would be impossible and so every decision would be "groping in
   the dark." [Op. Cit., p. 110]

   Mises' argument rests on three flawed assumptions, two against
   communism and one for capitalism. The first two negative assumptions
   are that communism entails central planning and that it is impossible
   to make investment decisions without money values. We discuss why each
   is wrong in this section. Mises' positive assumption for capitalism,
   namely that markets allow exact and efficient allocation of resources,
   is discussed in [19]section I.1.5.

   Firstly, Mises assumes a centralised planned economy. As Hayek
   summarised, the crux of the matter was "the impossibility of a rational
   calculation in a centrally directed economy from which prices are
   necessarily absent", one which "involves planning on a most extensive
   scale -- minute direction of practically all productive activity by one
   central authority". Thus the "one central authority has to solve the
   economic problem of distributing a limited amount of resources between
   a practically infinite number of competing purposes" with "a reasonable
   degree of accuracy, with a degree of success equally or approaching the
   results of competitive capitalism" is what "constitutes the problem of
   socialism as a method." ["The Nature and History of the Problem", pp.
   1-40, Op. Cit., p. 35, p. 19 and pp. 16-7]

   While this was a common idea in Marxian social democracy (and the
   Leninism that came from it), centralised organisations are rejected by
   anarchism. As Bakunin argued, "where are the intellects powerful enough
   to embrace the infinite multiplicity and diversity of real interests,
   aspirations, wishes, and needs which sum up the collective will of the
   people? And to invent a social organisation that will not be a
   Procrustean bed upon which the violence of the State will more or less
   overtly force unhappy society to stretch out?" Moreover, a socialist
   government, "unless it were endowed with omniscience, omnipresence, and
   the omnipotence which the theologians attribute to God, could not
   possibly know and foresee the needs of its people, or satisfy with an
   even justice those interests which are most legitimate and pressing."
   [Bakunin on Anarchism, pp. 268-9 and p. 318] For Malatesta, such a
   system would require "immense centralisation" and would either be "an
   impossible thing to achieve, or, if possible, would end up as a
   colossal and very complex tyranny." [At the Caf, p. 65]

   Kropotkin, likewise, dismissed the notion of central planning as the
   "economic changes that will result from the social revolution will be
   so immense and so profound . . . that it will be impossible for one or
   even a number of individuals to elaborate the social forms to which a
   further society must give birth. The elaboration of new social forms
   can only be the collective work of the masses." [Words of a Rebel, p.
   175] The notion that a "strongly centralised Government" could "command
   that a prescribed quantity" of a good "be sent to such a place on such
   a day" and be "received on a given day by a specified official and
   stored in particular warehouses" was not only "undesirable" but also
   "wildly Utopian." During his discussion of the benefits of free
   agreement against state tutelage, Kropotkin noted that only the former
   allowed the utilisation of "the co-operation, the enthusiasm, the local
   knowledge" of the people. [The Conquest of Bread, pp. 82-3 and p. 137]

   Kropotkin's own experience had shown how the "high functionaries" of
   the Tsarist bureaucracy "were simply charming in their innocent
   ignorance" of the areas they were meant to be administrating and how,
   thanks to Marxism, the socialist ideal had "lost the character of
   something that had to be worked out by the labour organisations
   themselves, and became state management of industries -- in fact, state
   socialism; that is, state capitalism." As an anarchist, he knew that
   governments become "isolated from the masses" and so "the very success
   of socialism" required "the ideas of no-government, of self-reliance,
   of free initiative of the individual" to be "preached side by side with
   those of socialised ownership and production." Thus it was essential
   that socialism was decentralised, federal and participatory, that the
   "structure of the society which we longed for" was "worked out, in
   theory and practice, from beneath" in by "all labour unions" with "a
   full knowledge of local needs of each trade and each locality."
   [Memoirs of a Revolutionist, p. 184, p. 360, p. 374-5 and p. 376]

   So anarchists can agree with Mises that central planning cannot work in
   practice as its advocates hope. Or, more correctly, Mises agreed with
   the anarchists, as we had opposed central planning first. We have long
   recognised that no small body of people can be expected to know what
   happens in society and plan accordingly ("No single brain nor any
   bureau of brains can see to this organisation." [Issac Puente,
   Libertarian Communism, p. 29]). Moreover, there is the pressing
   question of freedom as well, for "the despotism of [the 'socialist']
   State would be equal to the despotism of the present state, increased
   by the economic despotism of all the capital which would pass into the
   hands of the State, and the whole would be multiplied by all the
   centralisation necessary for this new State. And it is for this reason
   that we, the Anarchists, friends of liberty, we intend to fight them to
   the end." [Carlo Cafiero, "Anarchy and Communism", pp. 179-86, The
   Raven, No. 6, p. 179]

   As John O'Neill summarises, the "argument against centralised planning
   is one that has been articulated within the history of socialist
   planning as an argument for democratic and decentralised decision
   making." [The Market, p. 132] So, for good economic and political
   reasons, anarchists reject central planning. This central libertarian
   socialist position feeds directly into refuting Mises' argument, for
   while a centralised system would need to compare a large ("infinite")
   number of possible alternatives to a large number of possible needs,
   this is not the case in a decentralised system. Rather than a vast
   multitude of alternatives which would swamp a centralised planning
   agency, one workplace comparing different alternatives to meet a
   specific need faces a much lower number of possibilities as the
   objective technical requirements (use-values) of a project are known
   and so local knowledge will eliminate most of the options available to
   a small number which can be directly compared.

   As such, removing the assumption of a central planning body
   automatically drains Mises' critique of much of its force -- rather
   than an "the ocean of possible and conceivable economic combinations"
   faced by a central body, a specific workplace or community has a more
   limited number of possible solutions for a limited number of
   requirements. Moreover, any complex machine is a product of less
   complex goods, meaning that the workplace is a consumer of other
   workplace's goods. If, as Mises admitted, a customer can decide between
   consumption goods without the need for money then the user and producer
   of a "higher order" good can decide between consumption goods required
   to meet their needs.

   In terms of decision making, it is true that a centralised planning
   agency would be swamped by the multiple options available to it.
   However, in a decentralised socialist system individual workplaces and
   communes would be deciding between a much smaller number of
   alternatives. Moreover, unlike a centralised system, the individual
   firm or commune knows exactly what is required to meet its needs, and
   so the number of possible alternatives is reduced as well (for example,
   certain materials are simply technically unsuitable for certain tasks).

   Mises' other assumption is equally flawed. This is that without the
   market, no information is passed between producers beyond the final
   outcome of production. In other words, he assumed that the final
   product is all that counts in evaluating its use. Needless to say, it
   is true that without more information than the name of a given product
   it is impossible to determine whether using it would be an efficient
   utilisation of resources. Yet more information can be provided which
   can be used to inform decision making. As socialists Adam Buick and
   John Crump point out, "at the level of the individual production unit
   or industry, the only calculations that would be necessary in socialism
   would be calculations in kind. On the one side would be recorded the
   resources (materials, energy, equipment, labour) used up in production
   and on the other the amount of good produced, together with any
   by-products. . . . Socialist production is simply the production of use
   values from use values, and nothing more." [State Capitalism: The Wages
   System Under New Management, p. 137] Thus any good used as an input
   into a production process would require the communication of this kind
   of information.

   The generation and communication of such information implies a
   decentralised, horizontal network between producers and consumers. This
   is because what counts as a use-value can only be determined by those
   directly using it. Thus the production of use-values from use-values
   cannot be achieved via central planning, as the central planners have
   no notion of the use-value of the goods being used or produced. Such
   knowledge lies in many hands, dispersed throughout society, and so
   socialist production implies decentralisation. Capitalist ideologues
   claim that the market allows the utilisation of such dispersed
   knowledge, but as John O'Neill notes, "the market may be one way in
   which dispersed knowledge can be put to good effect. It is not . . .
   the only way". "The strength of the epistemological argument for the
   market depends in part on the implausibility of assuming that all
   knowledge could be centralised upon some particular planning agency" he
   stresses, but Mises' "argument ignores, however, the existence of the
   decentralised but predominantly non-market institutions for the
   distribution of knowledge . . . The assumption that only the market can
   co-ordinate dispersed non-vocalisable knowledge is false." [Op. Cit.,
   p. 118 and p. 132]

   So, in order to determine if a specific good is useful to a person,
   that person needs to know its "cost." Under capitalism, the notion of
   cost has been so associated with price that we have to put the word
   "cost" in quotation marks. However, the real cost of, say, writing a
   book, is not a sum of money but so much paper, so much energy, so much
   ink, so much human labour. In order to make a rational decision on
   whether a given good is better for meeting a given need than another,
   the would-be consumer requires this information. However, under
   capitalism this information is hidden by the price.

   Somewhat ironically, given how "Austrian" economics tends to stress
   that the informational limitations are at the root of its
   "impossibility" of socialism, the fact is that the market hides a
   significant amount of essential information required to make a sensible
   investment decision. This can be seen from an analysis of Mises'
   discussion on why labour-time cannot replace money as a decision-making
   tool. Using labour, he argued, "leaves the employment of material
   factors of production out of account" and presents an example of two
   goods, P and Q, which take 10 hours to produce. P takes 8 hours of
   labour, plus 2 units of raw material A (which is produced by an hour's
   socially necessary labour). Q takes 9 hours of labour and one unit of
   A. He asserts that in terms of labour P and Q "are equivalent, but in
   value terms P is more valuable than Q. The former is false, and only
   the later corresponds to the nature and purpose of calculation."
   ["Economic Calculation in the Socialist Commonwealth", Op. Cit., p.
   113]

   The flaw in his argument is clear. Assuming that an hour of socially
   necessary labour is 10 then, in price terms, P would have 80 of
   direct labour costs, with 20 of raw material A while Q would have 90
   of direct labour and 10 of A. Both cost 100 so it hard to see how
   this "corresponds to the nature and purpose of calculation"! Using less
   of raw material A is a judgement made in addition to "calculation" in
   this example. The question of whether to economise on the use of A
   simply cannot be made using prices. If P, for example, can only be
   produced via a more ecologically destructive process than Q or if the
   work process by which P is created is marked by dull, mindless work but
   Q's is more satisfying for the people involved than Q may be considered
   a better decision. Sadly, that kind of information is not communicated
   by the price mechanism.

   As John O'Neill points out, "Mises' earlier arguments against socialist
   planning turned on an assumption about commensurability. His central
   argument was that rational economic decision-making required a single
   measure on the basis of which the worth of alternative states of
   affairs could be calculated and compared." [Ecology, Policy and
   Politics, p. 115] This central assumption was unchallenged by Taylor
   and Lange in their defence of "socialism", meaning that from the start
   the debate against Mises was defensive and based on the argument that
   socialist planning could mimic the market and produce results which
   were efficient from a capitalist point of view.

   Anarchists question whether using prices means basing all decision
   making on one criterion and ignoring all others is a rational thing to
   do. As O'Neill suggests, "the relative scarcity of items . . . hardly
   exhaust the full gamut of information that is distributed throughout
   society which might be relevant to the co-ordination of economic
   activities and plans." [The Market, p. 196] Saying that a good costs
   10 does not tell you much about the amount of pollution its production
   or use generates, under what conditions of labour it was produced,
   whether its price is affected by the market power of the firm producing
   it, whether it is produced in an ecologically sustainable way, and so
   forth. Similarly, saying that another, similar, good costs 9 does not
   tell you whether than 1 difference is due to a more efficient use of
   inputs or whether it is caused by imposing pollution onto the planet.

   And do prices actually reflect costs? The question of profit, the
   reward for owning capital and allowing others to use it, is hardly a
   cost in the same way as labour, resources and so on (attempts to
   explain profits as an equivalent sacrifice as labour have always been
   ridiculous and quickly dropped). When looking at prices to evaluate
   efficient use for goods, you cannot actually tell by the price if this
   is so. Two goods may have the same price, but profit levels (perhaps
   under the influence of market power) may be such that one has a higher
   cost price than another. The price mechanism fails to indicate which
   uses least resources as it is influenced by market power. Indeed, as
   Takis Fotopoulos notes, "[i]f . . . both central planning and the
   market economy inevitably lead to concentrations of power, then neither
   the former nor the latter can produce the sort of information flows and
   incentives which are necessary for the best functioning of any economic
   system." [Towards an Inclusive Democracy, p. 252] Moreover, a good
   produced under a authoritarian state which represses its workforce
   could have a lower price than one produced in a country which allowed
   unions to organise and has basic human rights. The repression would
   force down the cost of labour, so making the good in question appear as
   a more "efficient" use of resources. In other words, the market can
   mask inhumanity as "efficiency" and actually reward that behaviour by
   market share.

   In other words, market prices can be horribly distorted in that they
   ignore quality issues. Exchanges therefore occur in light of false
   information and, moreover, with anti-social motivations -- to maximise
   short-term surplus for the capitalists regardless of losses to others.
   Thus they distort valuations and impose a crass, narrow and ultimately
   self-defeating individualism. Prices are shaped by more than costs,
   with, for example, market power increasing market prices far higher
   than actual costs. Market prices also fail to take into account public
   goods and so bias allocation choices against them not to mention
   ignoring the effects on the wider society, i.e. beyond the direct
   buyers and sellers. Similarly, in order to make rational decisions
   relating to using a good, you need to know why the price has changed
   for if a change is permanent or transient implies different responses.
   Thus the current price is not enough in itself. Has the good become
   more expensive temporarily, due, say, to a strike? Or is it because the
   supply of the resource has been exhausted? Actions that are sensible in
   the former situation will be wrong in the other. As O'Neill suggests,
   "the information [in the market] is passed back without dialogue. The
   market informs by 'exit' -- some products find a market, others do not.
   'Voice' is not exercised. This failure of dialogue . . . represents an
   informational failure of the market, not a virtue . . . The market . .
   . does distribute information . . . it also blocks a great deal." [Op.
   Cit., p. 99]

   So a purely market-based system leaves out information on which to base
   rational resource allocations (or, at the very least, hides it). The
   reason for this is that a market system measures, at best, preferences
   of individual buyers among the available options. This assumes that all
   the pertinent use-values that are to be outcomes of production are
   things that are to be consumed by the individual, rather than
   use-values that are collectively enjoyed (like clean air). Prices in
   the market do not measure social costs or externalities, meaning that
   such costs are not reflected in the price and so you cannot have a
   rational price system. Similarly, if the market measures only
   preferences amongst things that can be monopolised and sold to
   individuals, as distinguished from values that are enjoyed
   collectively, then it follows that information necessary for rational
   decision-making in production is not provided by the market. In other
   words, capitalist "calculation" fails because private firms are
   oblivious to the social cost of their labour and raw materials inputs.

   Indeed, prices often mis-value goods as companies can gain a
   competitive advantage by passing costs onto society (in the form of
   pollution, for example, or de-skilling workers, increasing job
   insecurity, and so on). This externalisation of costs is actually
   rewarded in the market as consumers seek the lowest prices, unaware of
   the reasons why it is lower (such information cannot be gathered from
   looking at the price). Even if we assume that such activity is
   penalised by fines later, the damage is still done and cannot be
   undone. Indeed, the company may be able to weather the fines due to the
   profits it originally made by externalising costs (see [20]section
   E.3). Thus the market creates a perverse incentive to subsidise their
   input costs through off-the-book social and environmental
   externalities. As Chomsky suggests:

     "it is by now widely realised that the economist's 'externalities
     can no longer be consigned to footnotes. No one who gives a moment's
     thought to the problems of contemporary society can fail to be aware
     of the social costs of consumption and production, the progressive
     destruction of the environment, the utter irrationality of the
     utilisation of contemporary technology, the inability of a system
     based on profit or growth-maximisation to deal with needs that can
     only be expressed collectively, and the enormous bias this system
     imposes towards maximisation of commodities for personal use in
     place of the general improvement of the quality of life." [Radical
     Priorities, pp. 190-1]

   Prices hide the actual costs that production involved for the
   individual, society, and the environment, and instead boils everything
   down into one factor, namely price. There is a lack of dialogue and
   information between producer and consumer.

   Moreover, without using another means of cost accounting instead of
   prices how can supporters of capitalism know there is a correlation
   between actual and price costs? One can determine whether such a
   correlation exists by measuring one against the other. If this cannot
   be done, then the claim that prices measure costs is a tautology (in
   that a price represents a cost and we know that it is a cost because it
   has a price). If it can be done, then we can calculate costs in some
   other sense than in market prices and so the argument that only market
   prices represent costs falls. Equally, there may be costs (in terms of
   quality of life issues) which cannot be reflected in price terms.

   Simply put, the market fails to distribute all relevant information
   and, particularly when prices are at disequilibrium, can communicate
   distinctly misleading information. In the words of two South African
   anarchists, "prices in capitalism provided at best incomplete and
   partial information that obscured the workings of capitalism, and would
   generate and reproduce economic and social inequalities. Ignoring the
   social character of the economy with their methodological
   individualism, economic liberals also ignored the social costs of
   particular choices and the question of externalities." [Michael Schmidt
   and Lucien van der Walt, Black Flame, p. 92] This suggests that prices
   cannot be taken to reflect real costs any more that they can reflect
   the social expression of the valuation of goods. They are the result of
   a conflict waged over these goods and those that acted as their inputs
   (including, of course, labour). Market and social power, much more than
   need or resource usage, decides the issue. The inequality in the means
   of purchasers, in the market power of firms and in the bargaining
   position of labour and capital all play their part, so distorting any
   relationship a price may have to its costs in terms of resource use.
   Prices are misshapen.

   Little wonder Kropotkin asked whether "are we not yet bound to analyse
   that compound result we call price rather than to accept it as a
   supreme and blind ruler of our actions?" [Fields, Factories and
   Workshops Tomorrow, p. 71] It is precisely these real costs, hidden by
   price, which need to be communicated to producers and consumers for
   them to make informed and rational decisions concerning their economic
   activity.

   It is useful to remember that Mises argued that it is the complexity of
   a modern economy that ensures money is required: "Within the narrow
   confines of household economy, for instance, where the father can
   supervise the entire economic management, it is possible to determine
   the significance of changes in the processes of production, without
   such aids to the mind [as monetary calculation], and yet with more or
   less of accuracy." However, "the mind of one man alone -- be it ever so
   cunning, is too weak to grasp the importance of any single one among
   the countlessly many goods of higher order. No single man can ever
   master all the possibilities of production, innumerable as they are, as
   to be in a position to make straightway evident judgements of value
   without the aid of some system of computation." [Op. Cit., p. 102]

   A libertarian communist society would, it must be stressed, use various
   "aids to the mind" to help individuals and groups to make economic
   decisions. This would reduce the complexity of economic decision
   making, by allowing different options and resources to be compared to
   each other. Hence the complexity of economic decision making in an
   economy with a multitude of goods can be reduced by the use of rational
   algorithmic procedures and methods to aid the process. Such tools would
   aid decision making, not dominate it as these decisions affect humans
   and the planet and should never be made automatically.

   That being the case, a libertarian communist society would quickly
   develop the means of comparing the real impact of specific "higher
   order" goods in terms of their real costs (i.e. the amount of labour,
   energy and raw materials used plus any social and ecological costs).
   Moreover, it should be remembered that production goods are made up on
   inputs of other goods, that is, higher goods are made up of consumption
   goods of a lower order. If, as Mises admits, calculation without money
   is possible for consumption goods then the creation of "higher order"
   goods can be also achieved and a record of its costs made and
   communicated to those who seek to use it.

   While the specific "aids to the mind" as well as "costs" and their
   relative weight would be determined by the people of a free society, we
   can speculate that it would include direct and indirect labour,
   externalities (such as pollution), energy use and materials, and so
   forth. As such, it must be stressed that a libertarian communist
   society would seek to communicate the "costs" associated with any
   specific product as well as its relative scarcity. In other words, it
   needs a means of determining the objective or absolute costs associated
   with different alternatives as well as an indication of how much of a
   given good is available at a given it (i.e., its scarcity). Both of
   these can be determined without the use of money and markets.

   [21]Section I.4 discusses possible frameworks for an anarchist economy,
   including suggestions for libertarian communist economic
   decision-making processes. In terms of "aids to the mind", these
   include methods to compare goods for resource allocation by indicating
   the absolute costs involved in producing a good and the relative
   scarcity of a specific good, among other things. Such a framework is
   necessary because "an appeal to a necessary role for practical
   judgements in decision making is not to deny any role to general
   principles. Neither . . . does it deny any place for the use of
   technical rules and algorithmic procedures . . . Moreover, there is a
   necessary role for rules of thumb, standard procedures, the default
   procedures and institutional arrangements that can be followed
   unreflectively and which reduce the scope for explicit judgements
   comparing different states of affairs. There are limits in time,
   efficient use of resources and the dispersal of knowledge which require
   rules and institutions. Such rules and institutions can free us for
   space and time for reflective judgements where they matter most." [John
   O'Neill, Ecology, Policy and Politics, pp. 117-8] It is these "rules
   and institutions need themselves to be open to critical and reflective
   appraisal." [O'Neill, The Market, p. 118]

   Economic decisions, in other words, cannot be reduced down to one
   factor yet Mises argued that anyone "who wished to make calculations in
   regard to a complicated process of production will immediately notice
   whether he has worked more economically than others or not; if he
   finds, from reference to the exchange values obtaining in the market,
   that he will not be able to produce profitably, this shows that others
   understand how to make better use of the higher-order goods in
   question." [Op. Cit., pp. 97-8] However, this only shows whether
   someone has worked more profitably than others, not whether it is more
   economical. Market power automatically muddles this issue, as does the
   possibility of reducing the monetary cost of production by recklessly
   exploiting natural resources and labour, polluting, or otherwise
   passing costs onto others. Similarly, the issue of wealth inequality is
   important, for if the production of luxury goods proves more profitable
   than basic essentials for the poor does this show that producing the
   former is a better use of resources? And, of course, the key issue of
   the relative strength of market power between workers and capitalists
   plays a key role in determining "profitably."

   Basing your economic decision making on a single criteria, namely
   profitability, can, and does, lead to perverse results. Most obviously,
   the tendency for capitalists to save money by not introducing safety
   equipment ("To save a dollar the capitalist build their railroads
   poorly, and along comes a train, and loads of people are killed. What
   are their lives to him, if by their sacrifice he has saved money?"
   [Emma Goldman, A Documentary History of the American Years, vol. 1, p.
   157]). Similarly, it is considered a more "efficient" use of resources
   to condemn workers to deskilling and degrading work than "waste"
   resources in developing machines to eliminate or reduce it ("How many
   machines remain unused solely because they do not return an immediate
   profit to the capitalist! . . . How many discoveries, how many
   applications of science remain a dead letter solely because they don't
   bring the capitalist enough!" [Carlo Cafiero, "Anarchy and Communism",
   pp. 179-86, The Raven, No. 6, p. 182]). Similarly, those investments
   which have a higher initial cost but which, in the long run, would
   have, say, a smaller environmental impact would not be selected in a
   profit-driven system.

   This has seriously irrational effects, because the managers of
   capitalist enterprises are obliged to choose technical means of
   production which produce the cheapest results. All other considerations
   are subordinate, in particular the health and welfare of the producers
   and the effects on the environment. The harmful effects resulting from
   "rational" capitalist production methods have long been pointed out.
   For example, speed-ups, pain, stress, accidents, boredom, overwork,
   long hours and so on all harm the physical and mental health of those
   involved, while pollution, the destruction of the environment, and the
   exhaustion of non-renewable resources all have serious effects on both
   the planet and those who live on it. As green economist E. F.
   Schumacher argued:

     "But what does it mean when we say that something is uneconomic? . .
     . [S]omething is uneconomic when it fails to earn an adequate profit
     in terms of money. The method of economics does not, and cannot,
     produce any other meaning . . . The judgement of economics . . . is
     an extremely fragmentary judgement; out of the large number of
     aspects which in real life have to be seen and judged together
     before a decision can be taken, economics supplies only one --
     whether a money profit accrues to those who undertake it or not."
     [Small is Beautiful, pp. 27-8]

   Schumacher stressed that "about the fragmentary nature of the
   judgements of economics there can be no doubt whatever. Even with the
   narrow compass of the economic calculus, these judgements are
   necessarily and methodically narrow. For one thing, they give vastly
   more weight to the short than to the long term. . . [S]econd, they are
   based on a definition of cost which excludes all 'free goods' . . .
   [such as the] environment, except for those parts that have been
   privately appropriated. This means that an activity can be economic
   although it plays hell with the environment, and that a competing
   activity, if at some cost it protects and conserves the environment,
   will be uneconomic." Moreover, "[d]o not overlook the words 'to those
   who undertake it.' It is a great error to assume, for instance, that
   the methodology of economics is normally applied to determine whether
   an activity carried out by a group within society yields a profit to
   society as a whole." [Op. Cit., p. 29]

   To claim that prices include all these "externalities" is nonsense. If
   they did, we would not see capital moving to third-world countries with
   few or no anti-pollution or labour laws. At best, the "cost" of
   pollution would only be included in a price if the company was sued
   successfully in court for damages -- in other words, once the damage is
   done. Ultimately, companies have a strong interest in buying inputs
   with the lowest prices, regardless of how they are produced. In fact,
   the market rewards such behaviour as a company which was socially
   responsible would be penalised by higher costs, and so market prices.
   It is reductionist accounting and its accompanying "ethics of
   mathematics" that produces the "irrationality of rationality" which
   plagues capitalism's exclusive reliance on prices (i.e. profits) to
   measure "efficiency."

   Ironically enough, Mises also pointed to the irrational nature of the
   price mechanism. He stated (correctly) that there are "extra-economic"
   elements which "monetary calculation cannot embrace" because of "its
   very nature." He acknowledged that these "considerations themselves can
   scarcely be termed irrational" and, as examples, listed "[i]n any place
   where men regard as significant the beauty of a neighbourhood or a
   building, the health, happiness and contentment of mankind, the honour
   of individuals or nations." He also noted that "they are just as much
   motive forces of rational conduct as are economic factors" but they "do
   not enter into exchange relationships." How rational is an economic
   system which ignores the "health, happiness and contentment" of people?
   Or the beauty of their surroundings? Which, moreover, penalises those
   who take these factors into consideration? For anarchists, Mises
   comments indicate well the inverted logic of capitalism. That Mises can
   support a system which ignores the needs of individuals, their
   happiness, health, surroundings, environment and so on by "its very
   nature" says a lot. His suggestion that we assign monetary values to
   such dimensions begs the question and has plausibility only if it
   assumes what it is supposed to prove. [Op. Cit., p. 99-100] Indeed, the
   person who would put a price on friendship simply would have no friends
   as they simply do not understand what friendship is and are thereby
   excluded from much which is best in human life. Likewise for other
   "extra-economic" goods that individual's value, such as beautiful
   places, happiness, the environment and so on.

   So essential information required for sensible decision making would
   have to be recorded and communicated in a communist society and used to
   evaluate different options using agreed methods of comparison. This
   differs drastically from the price mechanism as it recognises that
   mindless, automatic calculation is impossible in social choices. Such
   choices have an unavoidable ethical and social dimension simply because
   they involve other human beings and the environment. As Mises himself
   acknowledged, monetary calculation does not capture such dimensions.

   We, therefore, need to employ practical judgement in making choices
   aided by a full understanding of the real social and ecological costs
   involved using, of course, the appropriate "aids to the mind." Given
   that an anarchist society would be complex and integrated, such aids
   would be essential but, due to its decentralised nature, it need not
   embrace the price mechanism. It can evaluate the efficiency of its
   decisions by looking at the real costs involved to society rather than
   embrace the distorted system of costing explicit in the price mechanism
   (as Kropotkin once put it, "if we analyse price" we must "make a
   distinction between its different elements". [Op. Cit., p. 72]).

   In summary, then, Mises considered only central planning as genuine
   socialism, meaning that a decentralised communism was not addressed.
   Weighting up the pros and cons of how to use millions of different
   goods in the millions of potential situations they could be used would
   be impossible in a centralised system, yet in decentralised communism
   this is not an issue. Each individual commune and syndicate would be
   choosing from the few alternatives required to meet their needs. With
   the needs known, the alternatives can be compared -- particularly if
   agreed criteria ("aids to the mind") are utilised and the appropriate
   agreed information communicated.

   Efficient economic decision making in a moneyless "economy" is
   possible, assuming that sufficient information is passed between
   syndicates and communes to evaluate the relative and absolute costs of
   a good. Thus, decisions can be reached which aimed to reduce the use of
   goods in short supply or which take large amounts of resources to
   produce (or which produce large externalities to create). While a
   centralised system would be swamped by the large number of different
   uses and combinations of goods, a decentralised communist system would
   not be.

   Thus, anarchists argue that Mises was wrong. Communism is viable, but
   only if it is libertarian communism. Ultimately, though, the real
   charge is not that socialism is "impossible" but rather that it would
   be inefficient, i.e., it would allocate resources such that too much is
   used to achieve specified goals and that there would be no way to check
   that the allocated resources were valued sufficiently to warrant their
   use in the first place. While some may portray this as a case of
   planning against markets (no-planning), this is false. Planning occurs
   in capitalism (as can be seen from any business), it is a question of
   whether capitalism ensures that more plans can be co-ordinated and
   needs meet by means of relative prices and profit-loss accounting than
   by communism (free access and distribution according to need). As such,
   the question is does the capitalist system adds additional problems to
   the efficient co-ordination of plans? Libertarian communists argue,
   yes, it does (as we discuss at length in [22]section I.1.5).

   All choices involve lost possibilities, so the efficient use of
   resources is required to increase the possibilities for creating other
   goods. At best, all you can say is that by picking options which cost
   the least a market economy will make more resources available for other
   activities. Yet this assumption crucially depends equating "efficient"
   with profitable, a situation which cannot be predicted beforehand and
   which easily leads to inefficient allocation of resources (particularly
   if we are looking at meeting human needs). Then there are the costs of
   using money for if we are talking of opportunity costs, of the freeing
   up of resources for other uses, then the labour and other resources
   used to process money related activities should be included. While
   these activities (banking, advertising, defending property, and so
   forth) are essential to a capitalist economy, they are not needed and
   unproductive from the standpoint of producing use values or meeting
   human need. This would suggest that a libertarian communist economy
   would have a productive advantage over a capitalist economy as the
   elimination of this structural waste intrinsic to capitalism will free
   up a vast amount of labour and materials for socially useful
   production. This is not to mention the so-called "costs" which are no
   such thing, but relate to capitalist property rights. Thus "rent" may
   be considered a cost under capitalism, but would disappear if those who
   used a resource controlled it rather than pay a tribute to gain access
   to it. As Kropotkin argued, "the capitalist system makes us pay for
   everything three or four times its labour value" thanks to rent,
   profit, interest and the actions of middle men. Such system specific
   "costs" hide the actual costs (in terms of labour and resource use) by
   increasing the price compared to if we "reckon our expenses in labour".
   [Op. Cit., p. 68]

   Moreover, somewhat ironically, this "economising" of resources which
   the market claims to achieve is not to conserve resources for future
   generations or to ensure environmental stability. Rather, it is to
   allow more goods to be produced in order to accumulate more capital. It
   could be argued that the market forces producers to minimise costs on
   the assumption that lower costs will be more likely to result in higher
   profits. However, this leaves the social impact of such cost-cutting
   out of the equation. For example, imposing externalities on others does
   reduce a firm's prices and, as a result, is rewarded by the market
   however alienating and exhausting work or rising pollution levels does
   not seem like a wise thing to do. So, yes, it is true that a capitalist
   firm will seek to minimise costs in order to maximise profits. This, at
   first glance, could be seen as leading to an efficient use of resources
   until such time as the results of this become clear. Thus goods could
   be created which do not last as long as they could, which need constant
   repairing, etc. So a house produced "efficiently" under capitalism
   could be a worse place to live simply because costs were reduced by
   cutting corners (less insulation, thinner walls, less robust materials,
   etc.). In addition, the collective outcome of all these "efficient"
   decisions could be socially inefficient as they reduce the quality of
   life of those subject to them as well as leading to over-investment,
   over-production, falling profits and economic crisis. As such, it could
   be argued that Mises' argument exposes more difficulties for capitalism
   rather than for anarchism.

   Finally, it should be noted that most anarchists would question the
   criteria Hayek and Mises used to judge the relative merits of communism
   and capitalism. As the former put it, the issue was "a distribution of
   income independent of private property in the means of production and a
   volume of output which was at least approximately the same or even
   greater than that procured under free competition." ["The Nature and
   History of the Problem", Op. Cit., p. 37] Thus the issue is reduced to
   that of output (quantity), not issues of freedom (quality). If slavery
   or Stalinism had produced more output than free market capitalism, that
   would not make either system desirable This was, in fact, a common
   argument against Stalinism during the 1950s and 1960s when it did
   appear that central planning was producing more goods (and, ironically,
   by the propertarian right against the welfare state for, it should be
   remembered, that volume of output, like profitability and so
   "efficiency", in the market depends on income distribution and a
   redistribution from rich to poor could easily result in more output
   becoming profitable). Similarly, that capitalism produces more alcohol
   and Prozac to meet the higher demand for dulling the minds of those
   trying to survive under it would not be an argument against libertarian
   communism! As we discuss in [23]section I.4, while anarchists seek to
   meet material human needs we do not aim, as under capitalism, to
   sacrifice all other goals to that aim as capitalism does. Thus, to
   state the obvious, the aim for maximum volume of output only makes
   sense under capitalism as the maximum of human happiness and liberty
   may occur with a lower volume of output in a free society. The people
   of a society without oppression, exploitation and alienation will
   hardly act in identical ways, nor seek the same volume of output, as
   those in one, like capitalism, marked by those traits!

   Moreover, the volume of output is a somewhat misleading criteria as it
   totally ignores its distribution. If the bulk of that volume goes to a
   few, then that is hardly a good use of resources. This is hardly an
   academic concern as can be seen from the Hayek influenced
   neo-liberalism of the 1980s onwards. As economist Paul Krugman notes,
   the value of the output of an average worker "has risen almost 50
   percent since 1973. Yet the growing concentration of income in the
   hands of a small minority had proceeded so rapidly that we're not sure
   whether the typical American has gained anything from rising
   productivity." This means that wealth have flooded upwards, and "the
   lion's share of economic growth in America over the past thirty years
   has gone to a small, wealthy minority." [The Conscience of a Liberal,
   p. 124 and p. 244]

   To conclude. Capitalist "efficiency" is hardly rational and for a fully
   human and ecological efficiency libertarian communism is required. As
   Buick and Crump point out, "socialist society still has to be concerned
   with using resources efficiently and rationally, but the criteria of
   'efficiency' and 'rationality' are not the same as they are under
   capitalism." [Op. Cit., p. 137] Under communist-anarchism, the
   decision-making system used to determine the best use of resources is
   not more or less "efficient" than market allocation, because it goes
   beyond the market-based concept of "efficiency." It does not seek to
   mimic the market but to do what the market fails to do. This is
   important, because the market is not the rational system its defenders
   often claim. While reducing all decisions to one common factor is,
   without a doubt, an easy method of decision making, it also has serious
   side-effects because of its reductionistic basis. The market makes
   decision making simplistic and generates a host of irrationalities and
   dehumanising effects as a result. So, to claim that communism will be
   "more" efficient than capitalism or vice versa misses the point.
   Libertarian communism will be "efficient" in a totally different way
   and people will act in ways considered "irrational" only under the
   narrow logic of capitalism.

   For another critique of Mises, see Robin Cox's "The 'Economic
   Calculation' controversy: unravelling of a myth" [Common Voice, Issue
   3]

I.1.3 What is wrong with markets anyway?

   A lot. Markets soon result in what are termed "market forces,"
   impersonal forces which ensure that the people in the economy do what
   is required of them in order for the economy to function. The market
   system, in capitalist apologetics, is presented to appear as a regime
   of freedom where no one forces anyone to do anything, where we "freely"
   exchange with others as we see fit. However, the facts of the matter
   are somewhat different, since the market often ensures that people act
   in ways opposite to what they desire or forces them to accept "free
   agreements" which they may not actually desire. Wage labour is the most
   obvious example of this, for, as we indicated in [24]section B.4, most
   people have little option but to agree to work for others.

   We must stress here that not all anarchists are opposed to the market.
   Individualist anarchists favour it while Proudhon wanted to modify it
   while retaining competition. For many, the market equals capitalism but
   this is not the case as it ignores the fundamental issue of (economic)
   class, namely who owns the means of production. Capitalism is unique in
   that it is based on wage labour, i.e. a market for labour as workers do
   not own their own means of production and have to sell themselves to
   those who do. Thus it is entirely possible for a market to exist within
   a society and for that society not to be capitalist. For example, a
   society of independent artisans and peasants selling their product on
   the market would not be capitalist as workers would own and control
   their means of production. Similarly, Proudhon's competitive system of
   self-managed co-operatives and mutual banks would be non-capitalist
   (and socialist) for the same reason. Anarchists object to capitalism
   due to the quality of the social relationships it generates between
   people (i.e. it generates authoritarian ones). If these relationships
   are eliminated then the kinds of ownership which do so are anarchistic.
   Thus the issue of ownership matters only in-so-far it generates
   relationships of the desired kind (i.e. those based on liberty,
   equality and solidarity). To concentrate purely on "markets" or
   "property" means to ignore social relationships and the key aspect of
   capitalism, namely wage labour. That right-wingers do this is
   understandable (to hide the authoritarian core of capitalism) but why
   (libertarian or other) socialists should do so is less clear.

   In this section of the FAQ we discuss anarchist objections to the
   market as such rather than the capitalist market. The workings of the
   market do have problems with them which are independent of, or made
   worse by, the existence of wage-labour. It is these problems which make
   most anarchists hostile to the market and so desire a (libertarian)
   communist society. So, even if we assume a mutualist (a libertarian
   market-socialist) system of competing self-managed workplaces, then
   communist anarchists would argue that market forces would soon result
   in many irrationalities occurring.

   Most obviously, operating in a market means submitting to the profit
   criterion. This means that however much workers might want to employ
   social criteria in their decision making, they cannot. To ignore
   profitability would cause their firm to go bankrupt. Markets,
   therefore, create conditions that compel producers to decide things
   which are not be in their, or others, interest, such as introducing
   deskilling or polluting technology, working longer hours, and so on, in
   order to survive on the market. For example, a self-managed workplace
   will be more likely to invest in safe equipment and working practices,
   this would still be dependent on finding the money to do so and may
   still increase the price of their finished product. So we could point
   to the numerous industrial deaths and accidents which are due to market
   forces making it unprofitable to introduce adequate safety equipment or
   working conditions, (conservative estimates for industrial deaths in
   the USA are between 14,000 and 25,000 per year plus over 2 million
   disabled), or to increased pollution and stress levels which shorten
   life spans.

   This tendency for self-managed firms to adjust to market forces by
   increasing hours, working more intensely, allocating resources to
   accumulating equipment rather than leisure time or consumption can be
   seen in co-operatives under capitalism. While lacking bosses may reduce
   this tendency in a post-capitalist economy, it will not eliminate it.
   This is why many socialists, including anarchists, call the way markets
   force unwilling members of a co-operatives make such unpleasant
   decisions a form of "self-exploitation" (although this is somewhat
   misleading, as there no exploitation in the capitalist sense of owners
   appropriating unpaid labour). For communist-anarchists, a market system
   of co-operatives "has serious limitations" as "a collective enterprise
   is not necessarily a commune -- nor is it necessarily communistic in
   its outlook." This is because it can end up "competing with like
   concerns for resources, customers, privileges, and even profits" as
   they "become a particularistic interest" and "are subjected to the same
   social pressures by the market in which they must function." This
   "tends increasingly to encroach on their higher ethical goals --
   generally, in the name of 'efficiency', and the need to 'grow' if they
   are to survive, and the overwhelming temptation to acquire larger
   earnings." [Murray Bookchin, Remaking Society, pp. 193-4]

   Similarly, a market of self-managed firms would still suffer from booms
   and slumps as the co-operatives response to changes in prices would
   still result in over-production (see [25]section C.7.2) and
   over-investment (see [26]section C.7.3). While the lack of non-labour
   income would help reduce the severity of the business cycle, it seems
   unlikely to eliminate it totally. Equally, many of the problems of
   market-increased uncertainty and the destabilising aspects of price
   signals discussed in [27]section I.1.5 are just as applicable to all
   markets, including post-capitalist ones.

   This is related to the issue of the "tyranny of small decisions" we
   highlighted in [28]section B.6. This suggests that the aggregate effect
   of individual decisions produces social circumstances which are
   irrational and against the interests of those subject to them. This is
   the case with markets, where competition results in economic pressures
   which force its participants to act in certain ways, ways they would
   prefer not to do but, as isolated individuals or workplaces, end up
   doing due to market forces. In markets, it is rational for people try
   to buy cheap and sell dear. Each tries to maximise their income by
   either minimising their costs or maximising their prices, not because
   they particularly want to but because they need to as taking into
   account other priorities is difficult as there is no means of finding
   them out and deeply inadvisable as it is competitively suicidal as it
   places burdens on firms which their competitors need not face.

   As we noted in [29]section E.3, markets tend to reward those who act in
   anti-social ways and externalise costs (in terms of pollution and so
   on). In a market economy, it is impossible to determine whether a low
   cost reflects actual efficiency or a willingness to externalise, i.e.,
   impose costs on others. Markets rarely internalise external costs. Two
   economic agents who strike a market-rational bargain between themselves
   need not consider the consequences of their bargain for other people
   outside their bargain, nor the consequences for the earth. In reality,
   then, market exchanges are never bilateral agreements as their effects
   impact on the wider society (in terms of, say, pollution, inequality
   and so on). This awkward fact is ignored in the market. As the
   left-wing economist Joan Robinson put it: "In what industry, in what
   line of business, are the true social costs of the activity registered
   in its accounts? Where is the pricing system that offers the consumer a
   fair choice between air to breath and motor cars to drive about in?"
   [Contribution to Modern Economics, p. 10]

   While, to be fair, there will be a reduced likelihood for a workplace
   of self-employed workers to pollute their own neighbourhoods in a free
   society, the competitive pressures and rewards would still be there and
   it seems unlikely that they will be ignored, particularly if survival
   on the market is at stake so communist-anarchists fear that while not
   having bosses, capitalists and landlords would mitigate some of the
   irrationalities associated with markets under capitalism, it will not
   totally remove them. While the market may be free, people would not be.

   Even if we assume that self-managed firms resist the temptations and
   pressures of the market, any market system is also marked by a
   continuing need to expand production and consumption. In terms of
   environmental impact, a self-managed firm must still make profits in
   order to survive and so the economy must grow. As such, every market
   system will tend to expand into an environment which is of fixed size.
   As well as placing pressure on the planet's ecology, this need to grow
   impacts on human activity as it also means that market forces ensure
   that work continually has to expand. Competition means that we can
   never take it easy, for as Max Stirner argued, "[r]estless acquisition
   does not let us take breath, take a calm enjoyment. We do not get the
   comfort of our possessions . . . Hence it is at any rate helpful that
   we come to an agreement about human labours that they may not, as under
   competition, claim all our time and toil." [The Ego and Its Own, p.
   268] Value needs to be created, and that can only be done by labour and
   so even a non-capitalist market system will see work dominate people's
   lives. Thus the need to survive on the market can impact on broader
   (non-monetary) measures of welfare, with quality of life falling as a
   higher GDP is created as the result of longer working hours with fewer
   holidays. Such a regime may, perhaps, be good for material wealth but
   it is not great for people.

   The market can also block the efficient use of resources. For example,
   for a long time energy efficient light-bulbs were much more expensive
   than normal ones. Over the long period, however, they used far less
   energy than normal ones, meaning less need to produce more energy (and
   so burn coal and oil, for example). However, the high initial price
   ensured that most people continued to use the less efficient bulbs and
   so waste resources. Much the same can be said of alternative forms of
   energy, with investment in (say) wind energy ignored in favour of
   one-use and polluting energy sources. A purely market system would not
   allow decisions which benefit the long-term interests of people to be
   made (for example, by distributing energy-efficient light-bulbs freely
   or at a reduced cost) as these would harm the profits of those
   co-operatives which tried to do so.

   Also, markets do not reflect the values of things we do not put a price
   upon (as we argued in [30]section B.5). It cannot protect wilderness,
   for example, simply because it requires people to turn it into property
   and sell it as a commodity. If you cannot afford to visit the new
   commodity, the market turns it into something else, no matter how much
   you value it. The market also ignores the needs of future generations
   as they always discount the value of the long term future. A payment to
   be made 1,000 years from now (a mere speck in geological time) has a
   market value of virtually zero according to any commonly used discount
   rate. Even 50 years in the future cannot be adequately considered as
   competitive pressures force a short term perspective on people harmful
   to present and future generations, plus the ecology of the planet.

   Then there are corrosive effects of the market on human personalities.
   As we have argued elsewhere (see [31]section B.1.3), competition in a
   free market creates numerous problems -- for example, the creation of
   an "ethics of mathematics" and the strange inversion of values in which
   things (property/money) become more important than people. This can
   have a de-humanising effect, with people becoming cold-hearted
   calculators who put profits before people. This can be seen in
   capitalism, where economic decisions are far more important than
   ethical ones -- particularly as such an inhuman mentality can be
   rewarded on the market. Merit does not necessarily breed success, and
   the successful do not necessarily have merit. The truth is that, in the
   words of Noam Chomsky, "wealth and power tend to accrue to those who
   are ruthless, cunning, avaricious, self-seeking, lacking in sympathy
   and compassion, subservient to authority and willing to abandon
   principle for material gain, and so on . . . Such qualities might be
   just the valuable ones for a war of all against all." [For Reasons of
   State, pp. 139-140]

   Needless to be said, if the market does reward such people with success
   it can hardly be considered as a good thing. A system which elevates
   making money to the position of the most important individual activity
   will obviously result in the degrading of human values and an increase
   in neurotic and psychotic behaviour. Little wonder, as Alfie Kohn has
   argued, competition can have serious negative effects on us outside of
   work, with it damaging both our personal psychology and our
   interpersonal relationships. Thus competition "itself is responsible
   for the development of a lower moral standard" which places winning at
   any cost above fairness and justice. Kohn quotes Nathan Ackerman, the
   father of family therapy, who noted that the "strife of competition
   reduces empathic sympathy, distorts communication, impairs the
   mutuality of support and sharing, and decreases the satisfaction of
   personal need." [No Contest, p. 163 and pp. 142-3] Thus, the market can
   impoverish us as individuals, sabotaging self-esteem, promoting
   conformity, ruining relationships and making us less than what we could
   be. This is a problem of markets as such, not only capitalist ones and
   so non-capitalist markets could make us less human and more a robot.

   All market decisions are crucially conditioned by the purchasing power
   of those income groups that can back their demands with money. Not
   everyone can work (the sick, the very old, children and so forth) and
   for those who can, personal circumstances may impact on their income.
   Moreover, production has become so interwoven that it "is utterly
   impossible to draw a distinction between the work of each" and so we
   should "put the needs above the works, and first of all to recognise
   the right to live, and later on the right to well-being for all those
   who took their share in production." This is particularly the case as
   "the needs of the individual, do not always correspond to his works" --
   for example, "a man of forty, father of three children, has other needs
   than a young man of twenty" and "the woman who suckles her infant and
   spends sleepless nights at its bedside, cannot do as much work as the
   man who has slept peacefully." [Kropotkin, Conquest of Bread, p. 170
   and p. 171] This was why communist-anarchists like Kropotkin stressed
   the need not only to abolish wage-labour but also money, the wages
   system.

   So it goes without saying that purchasing power (demand) and need are
   not related, with people often suffering simply because they do not
   have the money required to purchase, say, health care, housing or food
   for themselves or their families. While economic distress may be less
   in a non-capitalist market system, it still would exist as would the
   fear of it. The market is a continuous bidding for goods, resources,
   and services, with those who have the most purchasing power the
   winners. This means that the market system is the worst one for
   allocating resources when purchasing power is unequally distributed
   (this is why orthodox economists make the convenient assumption of a
   "given distribution of income" when they try to show that a capitalist
   allocation of resources is the best one via "Pareto optimality"). While
   a mutualist system should reduce inequality drastically, it cannot be
   assumed that inequalities will not increase over time. This is because
   inequalities in resources leads to inequalities of power on the market
   and, assuming self-interest, any trade or contract will benefit the
   powerful more than the powerless, so re-enforcing and potentially
   increasing the inequalities and power between the parties. Similarly,
   while an anarchist society would be created with people driven by a
   sense of solidarity and desire for equality, markets tend to erode
   those feelings and syndicates or communes which, thanks to the
   resources they control (such as rare raw materials or simply the size
   of their investments reducing competitive pressures) have an advantage
   on the market may be tempted to use their monopoly power vis--vis
   other groups in society to accrue more income for themselves at the
   expense of less fortunate syndicates and communes. This could
   degenerate back into capitalism as any inequalities that exist between
   co-operatives would be increased by competition, forcing weaker
   co-operatives to fail and so creating a pool of workers with nothing to
   sell but their labour. The successful co-operatives could then hire
   those workers and so re-introduce wage labour. So these possibilities
   could, over time, lead to a return a post-capitalist market system to
   capitalism if the inequalities become so great that the new rich become
   so alienated from the rest of society they recreate wage-labour and, by
   necessity, a state to enforce a desire for property in land and the
   means of production against public opinion.

   All this ensures that the market cannot really provide the information
   necessary for rational-decision making in terms of ecological impact as
   well as human activity and so resources are inefficiently allocated. We
   all suffer from the consequences of that, with market forces
   impoverishing our environment and quality of life. Thus are plenty of
   reasons for concluding that efficiency and the market not only do not
   necessarily coincide, but, indeed, necessarily do not coincide. Indeed,
   rather than respond to individual needs, the market responds to money
   (more correctly, profit), which by its very nature provides a distorted
   indication of individual preferences (and does not take into account
   values which are enjoyed collectively, such as clean air, or
   potentially enjoyed, such as the wilderness a person may never visit
   but desires to see exist and protected).

   This does not mean that social anarchists propose to "ban" the market
   -- far from it. This would be impossible. What we do propose is to
   convince people that a profit-based market system has distinctly bad
   effects on individuals, society and the planet's ecology, and that we
   can organise our common activity to replace it with libertarian
   communism. As Max Stirner argued, competition "has a continued
   existence" because "all do not attend to their affair and come to an
   understanding with each other about it . . . . Abolishing competition
   is not equivalent to favouring the guild. The difference is this: In
   the guild baking, etc., is the affair of the guild-brothers; in
   competition, the affair of chance competitors; in the union, of those
   who require baked goods, and therefore my affair, yours, the affair of
   neither guildic nor the concessionary baker, but the affair of the
   united." [Op. Cit., p. 275]

   Therefore, social anarchists do not appeal purely to altruism in their
   struggle against the de-humanising effects of the market, but also to
   to egoism: the simple fact that co-operation and mutual aid is in our
   best interests as individuals. By co-operating and controlling "the
   affairs of the united," we can ensure a free society which is worth
   living in, one in which the individual is not crushed by market forces
   and has time to fully develop his or her individuality and uniqueness:

     "Solidarity is therefore the state of being in which Man attains the
     greatest degree of security and wellbeing; and therefore egoism
     itself, that is the exclusive consideration of one's own interests,
     impels Man and human society towards solidarity." [Errico Malatesta,
     Anarchy, p. 30]

   In conclusion then, communist-anarchists argue that even non-capitalist
   markets would result in everyone being so busy competing to further
   their "self-interest" that they would loose sight of what makes life
   worth living and so harm their actual interests. Ultimately, what
   counts as self-interest is shaped by the surrounding social system. The
   pressures of competing may easily result in short-term and narrow
   interests taking precedence over richer, deeper needs and aspirations
   which a communal system could allow to flourish by providing the social
   institutions by which individuals can discuss their joint interests,
   formulate them and act to achieve them. That is, even non-capitalist
   markets would result in people simply working long and hard to survive
   on the market rather than living. If one paradox of authoritarian
   socialism is that it makes everyone miserable by forcing them to
   altruistically look out for the happiness of others, market-based
   libertarian socialism could produce the potential paradox of making
   everyone miserable by the market forcing them to pursue a limited
   notion of self-interest which ensures that they do not have the time or
   opportunity to really be happy and at one with themselves and others.

   In other words, bosses act as they do under capitalism in part because
   markets force them to. Getting rid of bosses need not eliminate all the
   economic pressures which influence the bosses' decisions and, in turn,
   could force groups of workers to act in similar ways. Thus a
   competitive system would undermine many of the benefits which people
   sought when they ended capitalism. This is why some socialists
   inaccurately call socialist schemes of competing co-operatives
   "self-managed capitalism" or "self-exploitation" -- they are simply
   drawing attention to the negative aspects of markets which getting rid
   of the boss cannot solve. Significantly, Proudhon was well aware of the
   negative aspect of market forces and suggested various institutional
   structures, such as the ago-industrial federation, to combat them (so
   while in favour of competition he was, unlike the individualist
   anarchists, against the free market). Communist anarchists,
   unsurprisingly, argue that individualist anarchists tend to stress the
   positive aspects of competition while ignoring or downplaying its
   negative sides. While, undoubtedly, capitalism makes the negative side
   of competition worse than it could be it does not automatically follow
   that a non-capitalist market would not have similar, if smaller,
   negative aspects to it.

I.1.4 If capitalism is exploitative, then isn't socialism as well?

   Some libertarian Marxists (as well as Leninists) claim that
   non-communist forms of socialism are just "self-managed" capitalism.
   Strangely, propertarians (the so-called "libertarian" right) also say
   yes to this question, arguing that socialist opposition to exploitation
   does not imply socialism but what they also call "self-managed"
   capitalism. Thus some on the left proclaim anything short of communism
   is a form of capitalism while, on the right, some proclaim that
   communism is exploitative and only a market system (which they
   erroneously equate to capitalism) is non-exploitative.

   Both are wrong. First, and most obviously, socialism does not equal
   communism (and vice versa). While there is a tendency on both right and
   left to equate socialism with communism (particularly Marxism), in
   reality, as Proudhon once noted, socialism "was not founded as a sect
   or church; it has seen a number of different schools." [Selected
   Writings of Pierre-Joseph Proudhon, p. 177] Only a few of these schools
   are communist, just as only a few of them are libertarian. Second, not
   all socialist schools aim to abolish the market and payment by deed.
   Proudhon, for example, opposed communism and state socialism just as
   much as he opposed capitalism. Third, capitalism does not equal the
   market. The market predates capitalism and, for some libertarian
   socialists, will survive it. Even from a Marxist position, a noted in
   [32]section I.1.1, the defining feature of capitalism is wage labour,
   not the market.

   Why some socialists desire to reduce the choices facing humanity to
   either communism or some form of capitalism is frankly strange, but
   also understandable because of the potential dehumanising effects of
   market systems (as shown under capitalism). Why the propertarian right
   wishes to do so is more clear, as it aims to discredit all forms of
   socialism by equating them to communism (which, in turn, it equates to
   central planning and Stalinism).

   Yet this is not a valid inference to make. Opposition to capitalism can
   imply both socialism (distribution according to deed, or selling the
   product of ones labour) and communism (distribution according to need,
   or a moneyless economy). The theory is a critique of capitalism, based
   on an analysis of that system as being rooted in the exploitation of
   labour (as we discussed in [33]section C.2), i.e., it is marked by
   workers not being paid the full-value of the goods they create. This
   analysis, however, is not necessarily the basis of a socialist economy
   although it can be considered this as well. As noted, Proudhon used his
   critique of capitalism as an exploitative system as the foundation of
   his proposals for mutual banking and co-operatives. Marx, on the other
   hand, used a similar analysis as Proudhon's purely as a critique of
   capitalism while hoping for communism. Robert Owen used it as the basis
   of his system of labour notes while Kropotkin argued that such a system
   was just the wages-system under another form and a free society "having
   taken possession of all social wealth, having boldly proclaimed the
   right of all to this wealth . . . will be compelled to abandon any
   system of wages, whether in currency or labour-notes." [The Conquest of
   Bread, p. 167]

   In other words, though a system of co-operative selling on the market
   (what is mistakenly termed "self-managed" capitalism by some) or
   exchanging labour-time values would not be communism, it is not
   capitalism. This is because the workers are not separated from the
   means of production. Therefore, the attempts by propertarians to claim
   that it is capitalism are false, an example of misinformed insistence
   that virtually every economic system, bar state socialism and
   feudalism, is capitalist. However, it could be argued that communism
   (based on free access and communal ownership of all resources including
   the product of labour) would mean that workers are exploited by
   non-workers (the young, the sick, the elderly and so on). As communism
   abolishes the link between performance and payment, it could be argued
   that the workers under communism would be just as exploited as under
   capitalism, although (of course) not by a class of capitalists and
   landlords but by the community. As Proudhon put it, while the "members
   of a community, it is true, have no private property" the community
   itself "is proprietor" and so communism "is inequality, but not as
   property is. Property is the exploitation of the weak by the strong.
   Communism is the exploitation of the strong by the weak." [What is
   Property?, p. 250]

   Needless to say, subsequent anarchists rejected Proudhon's blanket
   opposition to all forms of communism, rejecting this position as only
   applicable to authoritarian, not libertarian, communism. Which, it must
   be remembered, was the only kind around when this was written in 1840
   (as we noted in [34]section H.1, what was known as communism in
   Proudhon's time was authoritarian). Suffice to say, Proudhon's
   opposition to communism shares little with that of the
   Propertarian-right, which reflects the sad lack of personal empathy
   (and so ethics) of the typical defender of capitalism. However, the
   notion that communism (distribution according to need) rather than
   socialism (distribution according to deed) is exploitative misses the
   point as far as communist anarchism goes. This is because of two
   reasons.

   Firstly, "Anarchist Communism . . . means voluntary Communism,
   Communism from free choice." [Alexander Berkman, What is Anarchism, p.
   148] This means it is not imposed on anyone but is created and
   practised only by those who believe in it.

   Therefore it would be up to the communities and syndicates to decide
   how they wish to distribute the products of their labour and
   individuals to join, or create, those that meet their ideas of right
   and wrong. Some may decide on equal pay, others on payment in terms of
   labour time, yet others on communistic associations. The important
   thing to realise is that individuals and the co-operatives they join
   will decide what to do with their output, whether to exchange it or to
   distribute it freely. Hence, because it is based on free agreement,
   communism-anarchism cannot be exploitative. Members of a commune or
   co-operative which is communistic are free to leave, after all.
   Needless to say, the co-operatives will usually distribute their
   product to others within their confederation and exchange with the
   non-communist ones in a different manner. We say "usually" for in the
   case of emergencies like earthquakes and so forth the situation would
   call for, and produce, mutual aid just as it does today to a large
   degree, even under capitalism.

   The reason why capitalism is exploitative is that workers have to agree
   to give the product of their labour to another (the boss, the landlord)
   in order to be employed in the first place (see [35]section B.4). While
   they can choose who to be exploited by (and, to varying degrees, pick
   the best of the limited options available to them) they cannot avoid
   selling their liberty to property owners (a handful do become
   self-employed and some manage to join the exploiting class, but not
   enough to make either a meaningful option for the bulk of the working
   class). In libertarian communism, by contrast, the workers themselves
   agree to distribute part of their product to others (i.e. society as a
   whole, their neighbours, friends, and so forth). It is based on free
   agreement, while capitalism is marked by power, authority, and the firm
   (invisible) hand of market forces (supplemented, as necessary, by the
   visible fist of the state). As resources are held in common under
   anarchism, people always have the option of working alone if they so
   desired (see [36]section I.3.7).

   Secondly, unlike under capitalism, there is no separate class which is
   appropriating the goods produced. The so-called "non-workers" in a
   libertarian communist society have been, or will be, workers. As the
   noted Spanish anarchist De Santillan pointed out, "[n]aturally,
   children, the aged and the sick are not considered parasites. The
   children will be productive when they grow up. The aged have already
   made their contribution to social wealth and the sick are only
   temporarily unproductive." [After the Revolution, p. 20] In other
   words, over their life time, everyone contributes to society and so
   using the "account book" mentality of capitalism misses the point. As
   Kropotkin put it:

     "Services rendered to society, be they work in factory or field, or
     mental services, cannot be valued in money. There can be no exact
     measure of value (of what has been wrongly-termed exchange value),
     nor of use value, with regard to production. If two individuals work
     for the community five hours a day, year in year out, at different
     work which is equally agreeable to them, we may say that on the
     whole their labour is equivalent. But we cannot divide their work,
     and say that the result of any particular day, hour, or minute of
     work of the one is worth the result of a minute or hour of the
     other." [Conquest of Bread, p. 168]

   So it is difficult to evaluate how much an individual worker or group
   of workers actually contribute to society. This can be seen whenever
   workers strike, particularly so-called "key" areas like transport. Then
   the media is full of accounts of how much the strike is costing "the
   economy" and it is always far more than that of the wages lost in
   strike action. Yet, according to capitalist economics, the wages of a
   worker are equal to their contribution to production -- no more, no
   less. Striking workers, in other words, should only harm the economy to
   the value of their wages yet, of course, this is obviously not the
   case. This is because of the interconnected nature of any advanced
   economy, where contributions of individuals are so bound together.

   Needless to say, this does not imply that a free people would tolerate
   the able-bodied simply taking without contributing towards the mass of
   products and services society. As we discuss in [37]section I.4.14,
   such people will be asked to leave the community and be in the same
   situation as those who do not wish to be communists.

   Ultimately, the focus on calculating exact amounts and on the
   evaluation of contributions down to the last penny is exactly the kind
   of narrow-minded account-book mentality which makes most people
   socialists in the first place. It would be ironic if, in the name of
   non-exploitation, a similar accounting mentality to that which records
   how much surplus value is extracted from workers under capitalism is
   continued into a free society. It makes life easier not to have to
   worry whether you can afford to visit the doctors or dentists, not to
   have to pay for use of roads and bridges, know that you can visit a
   public library for a book and so forth. For those who wish to spend
   their time calculating such activities and seeking to pay the community
   for them simply because they hate the idea of being "exploited" by the
   "less" productive, the ill, the young or the old then we are sure that
   a libertarian communist society will accommodate them (although we are
   sure that emergencies will be an exception and they will be given free
   access to communal hospitals, fire services and so forth).

   Thus the notion that communism would be exploitative like capitalism
   misses the point. While all socialists accuse capitalism for failing to
   live up to its own standards, of not paying workers the full product of
   their labour, most do not think that a socialist society should seek to
   make that full payment a reality. Life, for libertarian communists, is
   just too complex and fleeting to waste time and energy calculating
   exactly the contribution of each to society. As Malatesta put it:

     "I say that the worker has the right to the entire product of his
     work: but I recognise that this right is only a formula of abstract
     justice; and means, in practice, that there should be no
     exploitation, that everyone must work and enjoy the fruits of their
     labour, according to the custom agreed among them.

     "Workers are not isolated beings that live for themselves and for
     themselves, but social beings . . . Moreover, it is impossible, the
     more so with modern production methods, to determine the exact
     labour that each worker contributed, just as it is impossible to
     determine the differences in productivity of each worker or each
     group of workers, how much is due to the fertility of the soil, the
     quality of the implements used, the advantages or difficulties
     flowing from the geographical situation or the social environment.
     Hence, the solution cannot be found in respect to the strict rights
     of each person, but must be sought in fraternal agreement, in
     solidarity." [At the Caf, pp. 56-7]

   All in all, most anarchists reject the notion that people sharing the
   world (which is all communism really means) equates to them being
   exploited by others. Rather than waste time trying to record the
   minutiae of who contributed exactly what to society, most anarchists
   are happy if people contribute to society roughly equal amounts of time
   and energy and take what they need in return. To consider such a
   situation of free co-operation as exploitative is simply ridiculous
   (just as well consider the family as the exploitation of its working
   members by their non-working partners and children). Those who do are
   free to leave such an association and pay their own way in everything
   (a task which would soon drive home the simplicity and utility of
   communism, most anarchists would suggest).

I.1.5 Does capitalism efficiently allocate resources?

   We have discussed, in [38]section I.1.1, the negative effects of
   workplace hierarchy and stock markets and, in [39]section I.1.2, the
   informational problems of prices and the limitations in using profit as
   the sole criteria for decision making for the efficient allocation of
   resources. As such, anarchists have reason to doubt the arguments of
   the "Austrian" school of economics that (libertarian) socialism is
   impossible, as first suggested by Ludwig Von Mises in 1920. ["Economic
   Calculation in the Socialist Commonwealth", Collectivist Economic
   Planning, F.A von Hayek (ed.), pp. 87-130] Here, we discuss why
   anarchists also have strong reason to question the underlying
   assumption that capitalism efficiently allocates resources and how this
   impacts on claims that "socialism" is impossible. This is based on an
   awareness of the flaws in any (implicit) assumption that all prices are
   at equilibrium, the issue of uncertainty, the assumption that human
   well-being is best served by market forces and, lastly, the problem of
   periodic economic crisis under capitalism.

   The first issue is that prices only provide adequate knowledge for
   rational decision making only if they are at their equilibrium values
   as this equates supply and demand. Sadly, for the "Austrian" school and
   its arguments against socialism, it rejects the notion that prices
   could be at equilibrium. While modern "Austrian" economics is keen to
   stress its (somewhat underdeveloped) disequilibrium analysis of
   capitalism, this was not always the case. When Mises wrote his 1920
   essay on socialism his school of economics was considered a branch of
   the neo-classicalism and this can be seen from Mises' critique of
   central planning. In fact, it would be fair to say that the
   neo-"Austrian" focus of prices as information and (lip-service to)
   disequilibrium flowed from the Economic Calculation debate,
   specifically the awkward fact that their more orthodox neo-classical
   peers viewed Lange's "solution" as answering Mises and Hayek.

   Thus there is a fundamental inconsistency in Mises' argument, namely
   that while Austrian economics reject the notion of equilibrium and the
   perfect competition of neo-classical economics he nonetheless maintains
   that market prices are the correct prices and can be used to make
   rational decisions. Yet, in any real market, these correct prices must
   be ever changing so making the possibility that "precise" economic
   decisions by price can go wrong on a large scale (i.e., in slumps). In
   other words, Mises effectively assumed away uncertainty and, moreover,
   failed to mention that this uncertainty is increased dramatically
   within capitalism.

   This can be seen from modern "Austrian" economics which, after the
   Economic Calculation debates of the 1920s and 1930s, moved increasingly
   away from neo-classical equilibrium theory. However, this opened up a
   whole new can of worms which, ironically, weakened the "Austrian" case
   against socialism. For the modern "Austrian" economist, the economy is
   considered not to be in equilibrium, with entrepreneur being seen as
   the means by which it brought towards it. Thus "this approach
   postulates a tendency for profit opportunities to be discovered and
   grasped by routine-resisting entrepreneurial market participants", with
   this "tending to nudge the market in the equilibrative direction."
   Lip-service is paid to the obvious fact that entrepreneurs can make
   errors but "there is no tendency for entrepreneurial errors to be made.
   The tendency which the market generates toward greater mutual
   awareness, is not offset by any equal but opposite tendency in the
   direction of diminishing awareness" and so the "entrepreneurial market
   process may indeed reflect a systematically equilibrative tendency, but
   this by no means constitutes a guaranteed unidirectional, flawlessly
   converging trajectory." All this results on the "speculative actions of
   entrepreneurs who see opportunities for pure profit in the conditions
   of disequilibrium." [Israel M. Kirzner, "Entrepreneurial Discovery and
   the Competitive Market Process: An Austrian Approach", pp. 60-85,
   Journal of Economic Literature, Vol. 35, No. 1, p. 71, p. 73, p. 82, p.
   72 and p. 68]

   When evaluating this argument, it is useful to remember that
   "postulate" means "to assume without proof to be true" or "to take as
   self-evident." At its most simple, this argument ignores how
   entrepreneurial activity pushes an economy away from equilibrium
   (unlike radical economists, only a few "Austrian" economists, such as
   those who follow Ludwig Lachmann, recognise that market forces have
   both equilibrating and disequilibrium effects, acknowledged in passing
   by Kirzner: "In a world of incessant change, they argue, it is
   precisely those acts of entrepreneurial boldness which must frustrate
   any discovery efforts made by fellow entrepreneurs." [Op. Cit., p.
   79]). In other words, market activity can lead to economic crisis and
   inefficient allocation decisions. A successful entrepreneur will, by
   their actions, frustrate the plans of others, most obviously those of
   his competitors but also those who require the goods they used to
   produce their commodities and those whose incomes are reduced by the
   new products being available. It staggers belief to think that every
   action by a firm will be step towards equilibrium or a better
   co-ordination of plans, particularly if you include unsuccessful
   entrepreneurs into the process. In other words, the market can be as
   discoordinating as it can be co-ordinating and it cannot be
   "postulated" beforehand which will predominate at any given time.

   There is an obvious example of entrepreneurial activity which leads to
   increasing disequilibrium, one (ironically) drawn straight from
   "Austrian" economics itself. This is the actions of bankers extending
   credit and so deviating from the "natural" (equilibrium) rate of
   interest. As one post-Keynesian economist notes, this, the "Austrian"
   theory of the business cycle, "not only proved to be vulnerable to the
   Cambridge capital critique . . . , but also appeared to reply upon
   concepts of equilibrium (the 'natural rate of interest', for example)
   that were inconsistent with the broader principles of Austrian economic
   theory." [J.E. King, A history of post Keynesian economics since 1936,
   p. 230] As we discussed in [40]section C.8, this kind of activity is to
   be expected of entrepreneurs seeking to make money from meeting market
   demand. The net result of this activity is a tendency away from
   equilibrium. This can be generalised for all markets, with the profit
   seeking activities of some businesses frustrating the plans of others.
   Ultimately, the implication that all entrepreneurial activity is
   stabilising, virtuous arbitrage that removes disequilibria is
   unconvincing as the suggestion that the misinformation conveyed by
   disequilibrium prices can cause very substantial macroeconomic
   distortions for only one good (credit). Surely, the argument as regards
   interest rates can apply to other disequilibrium prices, with responses
   to unsustainable prices for other goods being equally capable of
   generating mal-investment (which only becomes apparent when the prices
   adjust towards their "natural" levels). After all, any single price
   distortion leads to all other prices becoming distorted because of the
   ramifications for exchange ratios throughout the economy.

   One of the reasons why neo-classical economists stress equilibrium is
   that prices only provide the basis for rational calculation only in
   that state for disequilibrium prices can convey extremely misleading
   information. When people trade at disequilibrium prices, it has serious
   impacts on the economy (which is why neo-classical economics abstracts
   from it). As one economist notes, if people "were to buy and sell at
   prices which did not clear the market" then once "such trading has
   taken place, there can be no guarantee that, even if an equilibrium
   exists, the economy will ever converge to it. In fact, it is likely to
   move in cycles around the equilibrium." This "is more than a mere
   supposition. It is an accurate description of what does happen in the
   real world." [Paul Ormerod, The Death of Economics, pp. 87-8] Once we
   dismiss the ideologically driven "postulate" of "Austrian" economics,
   we can see how these opportunities for "pure profit" (and, of course, a
   corresponding pure lose for the buyer) impacts on the economy and how
   the market system adds to uncertainty. As dissident economist Steve
   Keen puts it:

     "However, a change in prices in one market will affect consumer
     demand in all other markets. This implies that a move towards
     equilibrium by one market could cause some or all others to move
     away from equilibrium. Clearly it is possible that this . . . might
     never settle down to equilibrium.

     "This will be especially so if trades actually occur at
     disequilibrium -- as in practice they must . . . A disequilibrium
     trade will mean that the people on the winning side of the bargain
     -- sellers if the price is higher than equilibrium -- will gain real
     income at the expense of the losers, compared to the alleged
     standard of equilibrium. This shift in income distribution will then
     affect all other markets, making the dance of many markets even more
     chaotic." [Debunking Economics, p. 169]

   That prices can, and do, convey extremely misleading information is
   something which "Austrians" have a tendency to downplay. Yet in
   economies closer to their ideal (for example, nineteenth century
   America) there were many more recessions (usually triggered by
   financial crises arising from the collapse of speculative bubbles) than
   in the twentieth and so the economy was fundamentally more unstable,
   resulting in the market "precisely" investing in the "wrong" areas. Of
   course, it could be argued that there was not really free market
   capitalism then (e.g., protectionism, no true free banking due to
   regulation by state governments and so on) yet this would be question
   begging in the extreme (particularly since the end of the 20th and dawn
   of the 21st centuries saw speculative crises precisely in those areas
   which were regulated least).

   Thus, the notion that prices can ensure the efficient allocation of
   resources is question begging. If prices are in disequilibrium, as
   "Austrians" suggest, then the market does not automatically ensure that
   they move towards equilibrium. Without equilibrium, we cannot say that
   prices provide companies sufficient information to make rational
   investment decisions. They may act on price information which is
   misleading, in that it reflects temporary highs or lows in the market
   or which is a result of speculative bubbles. An investment decision
   made on the mis-information implied in disequilibrium prices is as
   likely to produce mal-investment and subsequent macro-economic
   distortions as decisions made in light of the interest rate not being
   at its "natural" (equilibrium) value. So unless it is assumed that the
   market is in equilibrium when an investment decision is made then
   prices can reflect misinformation as much as information. These, the
   obvious implications of disequilibrium, help undermine Mises' arguments
   against socialism.

   Even if we assume that prices are at or, at best, near equilibrium when
   investment decisions are made, the awkward fact is that these prices do
   not tell you prices in the future nor what will be bought when
   production is finished. Rather, they tell you what was thought to be
   profitable before investment began. There are always differences
   between the prices used to cost various investments and the prices
   which prevail on the market when the finished goods are finally sold,
   suggesting that the market presents systematically misleading signals.
   In addition, rival companies respond to the same price signals by
   undertaking long term investments at the same time, so creating the
   possibility of a general crisis of over-accumulate and over-production
   when they are complete. As we discussed in [41]section C.7.2, this is a
   key factor in the business cycle. Hence the recurring possibility of
   over-production, when the aggregate response to a specific market's
   rising price results in the market being swamped by good, so driving
   the market price down. Thus the market is marked by uncertainty, the
   future is not known. So it seems ironic to read Mises asserting that
   "in the socialist commonwealth every economic change becomes an
   undertaking whose success can be neither appraised in advance nor later
   retrospectively determined. There is only groping in the dark." [Op.
   Cit., p. 110]

   In terms of "appraised in advance", Mises is essentially assuming that
   capitalists can see the future. In the real world, rather than in the
   unreal world of capitalist economics, the future is unknown and, as a
   result, success can only be guessed at. This means that any investment
   decision under real capitalism is, equally, "groping in the dark"
   because there is no way to know, before hand, whether the expectations
   driving the investment decisions will come to be. As Mises himself
   noted as part of his attack on socialism, "a static state is impossible
   in real life, as our economic data are for ever changing" and so,
   needless to say, the success of an investment cannot be appraised
   beforehand with any real degree of certainty. Somewhat ironically,
   Mises noted that "the static nature of economic activity is only a
   theoretical assumption corresponding to no real state of affairs,
   however necessary it may be for our thinking and for the perfection of
   our knowledge of economics." [Op. Cit., p. 109] Or, for that matter,
   our critique of socialism! This can be seen from one his examples
   against socialism:

     "Picture the building of a new railroad. Should it be built at all,
     and if so, which out of a number of conceivable roads should be
     built? In a competitive and monetary economy, this question would be
     answered by monetary calculation. The new road will render less
     expensive the transport of some goods, and it may be possible to
     calculate whether this reduction of expense transcends that involved
     in the building and upkeep of the next line. That can only be
     calculated in money." [Op. Cit., p. 108]

   It "may be possible"? Not before hand. At best, an investor could
   estimate the willingness of firms to swap to the new railroad and
   whether those expected costs will result in a profit on both fixed and
   running costs. The construction costs can be estimated, although
   unexpected price rises in the future may make a mockery of these too,
   but the amount of future income cannot. Equally, the impact of building
   the new railroad will change the distribution of income as well, which
   in turn affects prices across the market and people's consumption
   decisions which, in turn, affects the profitability of new railroad
   investment. Yet all this is ignored in order to attack socialism.

   In other words, Mises assumes that the future can be accurately
   predicted in order to attack socialism. Thus he asserts that a
   socialist society "would issue an edict and decide for or against the
   projected building. Yet this decision would depend at best upon vague
   estimates; it would never be based upon the foundation of an exact
   calculation of value." [Op. Cit., p. 109] Yet any investment decision
   in a real capitalist economy depends "at best upon vague estimates" of
   future market conditions and expected returns on the investment. This
   is because accounting is backward looking, while investment depends on
   the unknowable future.

   In other words, "people recognise that their economic future is
   uncertain (nonergodic) and cannot be reliably predicted from existing
   market information. Consequently, investment expenditures on production
   facilities and people's desire to save are typically based on differing
   expectations of an unknowable, uncertain future." This means that in an
   uncertain world future profits "can neither be reliably forecasted from
   existing market information, nor endogenously determined via today's
   planned saving propensity of income earners . . . Thus, unless one
   assumes that entrepreneurs can accurately predict the future from here
   to eternity, current expectations of prospective yield must depend on
   the animal optimism or pessimism of entrepreneurs" [Paul Davidson, John
   Maynard Keynes, pp. 62-3] So, yes, under capitalism you can determine
   the money cost (price) of a building but the decision to build is based
   on estimates and guesses of the future, to use Mises' words "vague
   estimates." A change in the market can mean that even a building which
   is constructed exactly to expected costs does not produce a profit and
   so sits empty. Even in terms of "exact calculation" of inputs these can
   change, so undermining the projected final cost and so its profit
   margin.

   For a good explanation of the problems of uncertainty, we must turn to
   Keynes who placed it at the heart of his analysis of capitalism. "The
   actual results of an investment over a long term of years," argued
   Keynes, "very seldom agree with the initial expectation" since "our
   existing knowledge does not provide a sufficient basis for a calculated
   mathematical expectation. In point of fact, all sorts of considerations
   enter into the market valuation which are in no way relevant to the
   prospective yield." He stressed that "human decisions affecting the
   future, whether personal or political or economic, cannot depend on
   strict mathematical expectation, since the basis for making such
   calculations does not exist." He also suggested that the "chief result"
   of wage flexibility "would be to cause a great instability of prices,
   so violent perhaps as to make business calculations futile." [The
   General Theory, p. 152, pp. 162-3 and p. 269]

   Much the same can be said of other prices as well. As Proudhon argued
   decades before Mises proclaimed socialism impossible, profit is
   ultimately an unknown value. Under capitalism wages are the "least that
   can be given" to a worker: "that is, we do not know." The "price of the
   merchandise put upon the market" by the capitalist will be the "highest
   that he can obtain; that is, again, we do not know." Economics "admits"
   that "the prices of merchandise and labour . . . can be estimated" and
   "that estimation is essentially an arbitrary operation, which never can
   lead to sure and certain conclusions." Thus capitalism is based on "the
   relation between two unknowns" which "cannot be determined." [System of
   Economical Contradictions, p. 64]

   So under capitalism all decisions are "groping in the dark". Which can,
   and does, lead to inefficient allocations of resources:

     "It leads, that is to say, to misdirected investment. But over and
     above this it is an essential characteristic of the boom that
     investments which will in fact yield, say, 2 per cent. in conditions
     of full employment are made in the expectation of a yield of, say, 6
     per cent., and are valued accordingly. When the disillusion comes,
     this expectation is replaced by a contrary 'error of pessimism',
     with the result that the investments, which would in fact yield 2
     per cent. in conditions of full employment, are expected to yield
     less than nothing; and the resulting collapse of new investment then
     leads to a state of unemployment in which the investments, which
     would have yielded 2 per cent. in conditions of full employment, in
     fact yield less than nothing. We reach a condition where there is a
     shortage of houses, but where nevertheless no one can afford to live
     in the houses that there are." [Keynes, Op. Cit., pp. 321-2]

   Thus uncertainty and expectations of profit can lead to massive
   allocation inefficiencies and waste. Of course Mises pays lip-service
   to this uncertainty of markets. He noted that there are "ceaseless
   alternations in other economic data" and that exchange relations are
   "subject to constant . . . fluctuations" but those "fluctuations
   disturb value calculations only in the slightest degree"! He admitted
   that "some mistakes are inevitable in such a calculation" but rest
   assured "[w]hat remains of uncertainty comes into the calculation of
   the uncertainty of future conditions, which is an inevitable
   concomitant of the dynamic nature of economic life." [Op. Cit., p. 98,
   p. 110 and p. 111] So, somewhat ironically, Mises assumed that, when
   attacking socialism, that prices are so fluid that no central planning
   agency could ever compute their correct price and so allocated
   resources inefficiently yet, when it comes to capitalism, prices are
   not so fluid that they make investment decisions difficult!

   The question is, does capitalism reduce or increase these
   uncertainties? We can suggest that capitalism adds two extra layers of
   uncertainty. As with any economy, there is the uncertainty that
   produced goods will meet an actual need of others (i.e., that it has a
   use-value). The market adds another layer of uncertainty by adding the
   need for its price to exceed costs a market. Finally, capitalism adds
   another level of uncertainty in that the capitalist class must make
   suffice profits as well. Thus, regardless of how much people need a
   specific good if capitalists cannot make a profit from it then it will
   not be produced.

   Uncertainty will, of course, afflict a communist-anarchist society.
   Mistakes in resource allocation will happen, with some goods over
   produced at times and under-produced at others. However, a communist
   society removes the added uncertainty associated with a capitalist
   economy as such mistakes do not lead to general slumps as losses result
   in the failure of firms and rising unemployment. In other words,
   without Mises' precise economic calculation society will no longer be
   afflicted by the uncertainty associated with the profit system.

   Significantly, there are developments within capitalism which point to
   the benefits of communism in reducing uncertainty. This is the rise of
   the large-scale corporation. In fact, many capitalist firms expand
   precisely to reduce the uncertainties associated with market prices and
   their (negative) impact on the plans they make. Thus companies
   integrate horizontally by take-over to gain more control over
   investment and supply decisions as well as vertically to stabilise
   costs and secure demand for necessary inputs.

   As economist John Kenneth Galbraith noted, when investment is large,
   "[n]o form of market uncertainty is so serious as that involving the
   terms and conditions on which capital is obtained." As a result
   internal funds are used as "the firm has a secure source of capital"
   and "no longer faces the risks of the market." This applies to other
   inputs, for a "firm cannot satisfactorily foresee and schedule future
   action or prepare for contingencies if it does not know what its prices
   will be, what its sales will be, what its costs, including labour and
   capital costs, will be and what will be available at these costs. If
   the market is uncontrolled, it will not know these things . . . Much of
   what the firm regards as planning consists in minimising uncontrolled
   market influences." This partly explains why firms grow (the other
   reason is to dominate the market and reap oligopolistic profits). The
   "market is superseded by vertical integration" as the firm "takes over
   the source of supply or the outlet". This "does not eliminate market
   uncertainty" but rather replaces "the large and unmanageable
   uncertainty as to the price" of inputs with "smaller, more diffuse and
   more manageable uncertainties" such as the costs of labour. A large
   firm can only control the market, by "reducing or eliminating the
   independence of action" of those it sells to or buys from. This means
   the behaviour of others can be controlled, so that "uncertainty as to
   that behaviour is reduced." Finally, advertising is used to influence
   the amount sold. Firms also "eliminate market uncertainty" by "entering
   into contracts specifying prices and amounts to be provided or bought
   for substantial periods of time." Thus "one of the strategies of
   eliminating market uncertainty is to eliminate the market." [The New
   Industrial State p. 47, pp. 30-6 and p. 47]

   Of course, such attempts to reduce uncertainty within capitalism are
   incomplete and subject to breakdown. Such planning systems can come
   into conflict with others (for example, the rise of Japanese
   corporations in the 1970s and 1980s and subsequent decline of American
   industrial power). They are centralised, hierarchically structured and
   based on top-down central planning (and so subject to the informational
   problems we highlighted in [42]section I.1.2). Market forces can
   reassert themselves, making a mockery of even the best organised plans.
   However, these attempts at transcending the market within capitalism,
   as incomplete as they are, show a major problem with relying on markets
   and market prices to allocate resources. They add an extra layer of
   uncertainty which ensure that investors and firms are as much in the
   dark about their decisions as Mises argued central planners would be.
   As such, to state as Mises does that production in socialism can "never
   be based upon the foundation of an exact calculation of value" is
   somewhat begging the question. [Op. Cit., p. 109] This is because
   knowing the "exact" price of an investment is meaningless as the key
   question is whether it makes a profit or not -- and that is unknown
   when it is made and if it makes a loss, it is still a waste of
   resources! So it does not follow that a knowledge of current prices
   allows efficient allocation of resources (assuming, of course, that
   profitability equates to social usefulness).

   In summary, Mises totally ignored the issues of uncertainty (we do not,
   and cannot, know the future) and the collective impact of individual
   decisions. Production and investment decisions are made based on
   expectations about future profits, yet these (expected) profits depend
   (in part) on what other decisions are being, and will be, made. This is
   because they will affect the future aggregate supply of a good and so
   market price, the price of inputs and the distribution of effective
   demand. In the market-based (and so fragmented and atomistic)
   decision-making Mises assumes, any production and investment decisions
   are made on the basis on unavoidable ignorance of the actions of others
   and the results of those actions. Of course there is uncertainty which
   would affect every social system (such as the weather, discovery of new
   sources of energy, raw materials and technology, changing customer
   needs, and so forth). However, market based systems add extra levels of
   uncertainty by the lack of communication between decision-makers as
   well as making profit the be-all-and-end-all of economic rationalism.

   So in terms of Mises' claim that only capitalism ensures that success
   can be "appraised in advance", it is clear that in reality that system
   is as marked by "groping in the dark" as any other. What of the claim
   that only markets can ensure that a project's success is "later
   retrospectively determined"? By this, Mises makes a flawed assumption
   -- namely the dubious notion that what is profitable is right. Thus
   economically is identified with profitably. So even if we assume prices
   provide enough information for rational decision making, that the
   economy jumps from one state of equilibrium to another and that
   capitalists can predict the future, the awkward fact is that maximising
   profit does not equal maximising human well-being.

   Neither well-being nor efficiency equals profitability as the latter
   does not take into account need. Meeting needs is not "retrospectively
   determined" under capitalism, only profit and loss. An investment may
   fail not because it is not needed but because there is no effective
   demand for it due to income inequalities. So it is important to
   remember that the distribution of income determines whether something
   is an "efficient" use of resources or not. As Thomas Balogh noted, real
   income "is measured in terms of a certain set of prices ruling in a
   given period and that these prices will reflect the prevailing
   distribution of income. (With no Texan oil millionaires here would be
   little chance of selling a baby blue Roll-Royce . . . at a price ten
   times the yearly income of a small farmer or sharecropper)." [The
   Irrelevance of Conventional Economics, pp. 98-9] The market demand for
   commodities, which allocates resources between uses, is based not on
   the tastes of consumers but on the distribution of purchasing power
   between them. This, ironically, was mentioned by Mises as part of his
   attack on socialism, arguing that the central planners could not use
   current prices for "the transition to socialism must, as a consequence
   of the levelling out of the differences in income and the resultant
   re-adjustments in consumption, and therefore production, change all
   economic data." [Op. Cit., p. 109] He did not mention the impact this
   has in terms of "efficiency" or profitability! After all, what is and
   is not profitable ("efficient") depends on effective demand, which in
   turn depends of a specific income distribution. Identical production
   processes become efficient and inefficient simply by a redistribution
   of income from the rich to the poor, and vice versa. Similarly, changes
   in market prices may make once profitably investments unprofitable,
   without affecting the needs they were satisfying. And this, needless to
   say, can have serious impacts on human well-being.

   As discussed in [43]section C.1.5, this becomes most obvious during
   famines. As Allan Engler points out, "[w]hen people are denied access
   to the means of livelihood, the invisible hand of market forces does
   not intervene on their behalf. Equilibrium between supply and demand
   has no necessary connection with human need. For example, assume a
   country of one million people in which 900,000 are without means of
   livelihood. One million bushels of wheat are produced. The entire crop
   is sold to 100,000 people at $10 a bushel. Supply and demand are in
   equilibrium, yet 900 000 people will face starvation." [Apostles of
   Greed, pp. 50-51] In case anyone thinks that this just happens in
   theory, the example of numerous famines (from the Irish famine of the
   1840s to those in African countries in 1980s) gives a classic example
   of this occurring in practice, with rich landowners exporting food to
   the other nations while millions starve in their own.

   So the distributional consequences of the market system play havoc with
   any attempt to define what is and is not an "efficient" use of
   resources. As markets inform by 'exit' only -- some products find a
   market, others do not -- 'voice' is absent. The operation of 'exit'
   rather than 'voice' leaves behind those without power in the
   marketplace. For example, the wealthy do not buy food poisoned with
   additives, the poor consume it. This means a division grows between two
   environments: one inhabited by those with wealth and one inhabited by
   those without it. As can be seen from the current capitalist practice
   of "exporting pollution" to developing countries, this problem can have
   serious ecological and social effects. So, far from the market being a
   "democracy" based on "one dollar, one vote," it is an oligarchy in
   which, for example, the "79,000 Americans who earned the minimum wage
   in 1987 have the same influence [or "vote"] as Michael Milken, who
   'earned' as much as all of them combined." [Michael Albert and Robin
   Hahnel, The Political Economy of Participatory Economics, p. 21] One
   dissident economist states the blindly obvious, namely that the "market
   and democracy clash at a fundamental level. Democracy runs on the
   principle of 'one man (one person), one vote.' The market runs on the
   principle of 'one dollar, one vote.' Naturally, the former gives equal
   weight to each person, regardless of the money she/he has. The latter
   gives greater weight to richer people." This means that the market is
   automatically skewed in favour of the wealthy and so "[l]eaving
   everything to the market means that the rich may be able to realise
   even the most frivolous element of their desires, while the poor may
   not be able even to survive -- thus the world spends twenty times more
   research money on slimming drugs than on malaria, which claims more
   than a million lives and debilitates millions more in developing
   countries every year." [Ha-Joon Chang, Bad Samaritans, p. 172 and p.
   174]

   In other words, markets are always biased in favour of effective
   demand, i.e. in favour of the demands of people with money, and so can
   never (except in the imaginary abstractions of neo-classical economics)
   allocate the necessities of life to those who need them the most. Thus
   a simple redistribution of wealth (via militant unions or the welfare
   state, for example) could make previously "bad" investments good simply
   because the new income allows those who had previously needed, but
   could not afford, the good or service in question to purchase it. So
   just because something makes a loss under one distribution of income
   does not mean that it is an inefficient use of resources in the sense
   of meeting human needs (and could make a profit under another, more
   equal, distribution of wealth). So the "efficient" allocation of
   resources in terms of price (i.e., profit) is often no such thing as
   the wealthy few skews market decisions in their favour.

   It is important to remember that, for the "Austrians", preferences are
   demonstrated through action in the market and they are not interested
   in opinions, thus any preference which is not expressed by action is
   irrelevant to them. So any attempt to collectively prioritise, say,
   building decent housing for all, provide health care for everyone,
   abolish poverty, and so forth are all considered "inefficient" uses of
   resources as those who receive them would not, normally, be able to
   afford them and, consequently, do not really desire them anyway (as
   they, needless to say, do not express that desire by market
   exchanges!). Yet this ignores the awkward fact that in the market,
   people can only act if they have money to make their preferences known.
   Thus those who have a need but no money do not count when determining
   if the market is efficient or not. There is simply no room for the real
   people who can be harmed by real markets. As economist Amartya Sen
   argues, the workings of a "pure" capitalist market, as desired by
   "Austrians" economists and other propertarians, "can be problematic
   since the actual consequences of the operation of these entitlements
   can, quite possibly, include rather terrible results. It can, in
   particular, lead to the violation of the substantive freedom of
   individuals to achieve those things to which they have reason to attach
   great importance, including escaping avoidable morality, being well
   nourished and healthy, being able to read, write and count and so on."
   In fact, "even gigantic famines can result without anyone's [right]
   libertarian rights (including property rights) being violated. The
   destitutes such as the unemployed or the impoverished may starve
   precisely because their 'entitlements' . . . do not give them enough
   food." Similarly, "deprivation" such as "regular undernourishment", the
   "lack of medical care for curable illnesses" can "coexist with all
   [right] libertarian rights (including rights of property ownership)
   being fully satisfied." [Development as Freedom, p. 66]

   All of which, it must be stressed, is ignored in the "Austrian" case
   against socialism. Ultimately, if providing food to a rich person's
   pets makes a profit then it becomes a more economical and efficient use
   of the resource than providing food to famine victims who cannot
   purchase food on the market. So it should never be forgotten that the
   "Austrians" insist that only preferences demonstrated in action are
   real. So if you cannot act on the market (i.e., buy something) then
   your need for it is not real. In other words, if a person loses their
   job and, as a consequence, loses their home then, according to this
   logic, they do not "need" a home as their "demonstrated preference"
   (i.e., their actual choices in action) shows that they genuinely value
   living under a bridge (assuming they gain the bridge owners agreement,
   of course).

   As an aside, this obvious fact shows that the "Austrian" assertion that
   intervention in the market always reduces social utility cannot be
   supported. The argument that the market maximises utility is based on
   assuming a given allocation of resources before the process of free
   exchange begins. If someone does not have sufficient income to, say,
   buy food or essential medical treatment then this is not reflected in
   the market. If wealth is redistributed and they then they get access to
   the goods in question, then (obviously) their utility has increased and
   it is a moot point whether social utility has decreased as the
   disutility of the millionaire who was taxed to achieve it cannot be
   compared to it. Significantly, those "Austrians" who have sought to
   prove that all intervention in the market reduces social utility have
   failed. For example, as one dissident "Austrian" economist notes, while
   Murray Rothbard "claimed he offered a purely deductive" argument that
   state intervention always reduced social utility "his case [was]
   logically flawed." He simply assumed that social utility was reduced
   although he gave no reason for such an assumption as he admitted that
   interpersonal comparisons of utility were impossible. For someone "who
   asks that his claims be tested only by their logic", his ultimate
   conclusions about state intervention "do not follow" and exhibit "a
   careless self-contradiction" [David L. Prychitko, Markets, Planning and
   Democracy, p. 189, p. 111 and p. 110]

   In summary, then, in terms of feedback saying that if something made a
   profit then it was efficiently produced confuses efficiency and need
   with profitability and effective demand. Something can make a profit by
   imposing costs via externalities and lowering quality. Equally, a good
   may not make a profit in spite of there being a need for it simply
   because people cannot afford to pay for it.

   As such, Mises was wrong to assert that "[b]etween production for
   profit and production for need, there is no contrast." [Socialism, p.
   143] In fact, it seems incredible that anyone claiming to be an
   economist could make such a comment. As Proudhon and Marx (like Smith
   and Ricardo before them) made clear, a commodity in order to be
   exchanged must first have a use-value (utility) to others. Thus
   production for profit, by definition, means production for "use" --
   otherwise exchange would not happen. What socialists were highlighting
   by contrasting production for profit to need was, firstly, that need
   comes after profit and so without profit a good will not be produced no
   matter how many people need it. Secondly, it highlights the fact that
   during crises capitalism is marked by an over-production of goods
   reducing profits, so stopping production, while people who need those
   goods go without them. Thus capitalism is marked by homeless people
   living next to empty housing and hungry people seeing food exported or
   destroyed in order to maximise profit. Ultimately, if the capitalist
   does not make a profit then it is a bad investment -- regardless of
   whether it could be used to meet people's needs and so make their lives
   better. In other words, Mises ignores the very basis of capitalism
   (production for profit) and depicts it as production aiming at the
   direct satisfaction of consumers.

   Equally, that something makes a profit does not mean that it is an
   efficient use of resources. If, for example, that profit is achieved by
   imposing pollution externalities or by market power then it cannot be
   said that society as a whole, rather than the capitalists, have
   benefited. Similarly, non-market based systems can be seen to be more
   efficient than market based ones in terms of outcome. For example,
   making health care available to all who need it rather than those who
   can afford it is economically "inefficient" in "Austrian" eyes but only
   an ideologue would claim that we should not do so because of this
   particularly as we can point to the awkward fact that the more
   privatised health care systems in the USA and Chile are more
   inefficient than the nationalised systems elsewhere in the world.
   Administration costs are higher and the societies in question pay far
   more for an equivalent level of treatment. Of course, it could be
   argued that the privatised systems are not truly private but the
   awkward fact remains -- the more market based system is worse, in terms
   of coverage of the population, cost for treatment, bureaucracy and
   health outcomes per pound spent.

   In addition, in a highly unequal society costs are externalised to
   those at the bottom of the social hierarchy. The consequences are
   harmful, as suggested by the newspeak used to disguise this reality.
   For example, there is what is called "increasing flexibility of the
   labour market." "Flexibility" sounds great: rigid structures are
   unappealing and hardly suitable for human growth. In reality, as Noam
   Chomsky points out "[f]lexibility means insecurity. It means you go to
   bed at night and don't know if you have a job tomorrow morning. That's
   called flexibility of the labour market, and any economist can explain
   that's a good thing for the economy, where by 'the economy' now we
   understand profit-making. We don't mean by 'the economy' the way people
   live. That's good for the economy, and temporary jobs increase
   flexibility. Low wages also increase job insecurity. They keep
   inflation low. That's good for people who have money, say, bondholders.
   So these all contribute to what's called a 'healthy economy,' meaning
   one with very high profits. Profits are doing fine. Corporate profits
   are zooming. But for most of the population, very grim circumstances.
   And grim circumstances, without much prospect of a future, may lead to
   constructive social action, but where that's lacking they express
   themselves in violence." [Keeping the Rabble in Line, pp. 283-4] So it
   simply cannot be assumed that what is good for the economy (profits)
   equates to what to good for people (at least the working class).

   Thus the "Austrians" prizes profitability above all and this assumption
   is at the root of the "Calculation Argument" against socialism, but
   this only makes sense only insofar as efficiency is confused with
   profit. The market will invest in coal if profits are higher and, in so
   doing, contribute to global warming. It will deny medical care to the
   sick (no profits and so it is inefficient) while contributing to, say,
   a housing bubble because it makes short-term profits by providing loans
   to people who really cannot afford it. It will support all kinds of
   economic activity, regardless of the wider impact, and so "efficiency"
   (i.e., profits) can, and does, contradict both wisdom and ethics and
   so, ultimately, an efficient allocation of resources to meet people's
   needs.

   Lastly, our critique has so far ignored the periodic crises that hit
   capitalist economies which produce massive unemployment and social
   disruption -- crises that are due to subjective and objective pressures
   on the operation of the price mechanism (see [44]section C.7 for
   details). In the upswing, when expectations are buoyant, firms will
   invest and produce a mutually reinforcing expansion. However, the net
   effect of such decisions eventually leads to over-investment, excess
   capacity and over-production -- mal-investment and the waste of the
   embodied resources. This leads to lower than expected profits,
   expectations change for the worse and the boom turns into bust, capital
   equipment is scrapped, workers are unemployed and resources are either
   wasted or left idle.

   In a crisis we see the contradiction between use value and exchange
   value come to a head. Workers are no less productive than when the
   crisis started, the goods and services they create are no less needed
   than before. The means of production are just productive as they were.
   Both are just as capable as before of affording for everyone a decent
   standard of living. Even though people are homeless, housing stands
   empty. Even though people need goods, production is stopped. Even
   though people want jobs, workplaces are closed. Yet, according to the
   logic of "exact" "economic calculation", production is now
   "inefficient" and should be closed-down, workers made unemployed and
   expected to find work by forcing down the wages of those lucky enough
   to remain employed in the hope that the owners of the means of life
   will find it profitable to exploit them as much as before (for when
   hard times arrive it is never long until somebody suggests that the
   return of prosperity requires sacrifices at the bottom of the heap and,
   needless to say, the "Austrian" economists are usually the first to do
   so).

   This suggests that the efficient allocation of resources becomes
   meaningless if its reality is a cycle where consumers go without
   essential goods due to scarcity and high prices followed by businesses
   going bust because of over-production and low prices. This process
   ruins large numbers of people's lives, not to mention wasting vast
   stocks of productive equipment and goods. There are always people who
   need the over-produced goods and so the market adds to uncertainty as
   there is a difference between the over-production of goods and the
   over-production of commodities. If more goods were produced in a
   communist society this may signify a waste of resources but it would
   not, as under capitalism, produce a crisis situation as well!

   So in a real capitalist economy, there are numerous reasons for
   apparently rational investment decisions going wrong. Not that these
   investments produce goods which people do not need, simply that "exact"
   "economic calculation" indicates that they are not making a profit and
   so are an "inefficient" use of resources. However, it is question
   begging in the extreme to argue that if (thanks to a recession) workers
   can no longer buy food then is it an "efficient" allocation of
   resources that they starve. Similarly, during the Great Depression, the
   American government (under the New Deal) hired about 60% of the
   unemployed in public works and conservation projects. These saw a
   billion trees planted, the whooping crane saved, the modernisation of
   rural America, and the building of (among others) the Cathedral of
   Learning in Pittsburgh, the Montana state capitol, New York's Lincoln
   Tunnel and Triborough Bridge complex, the Tennessee Valley Authority as
   well as building or renovating 2,500 hospitals, 45,000 schools, 13,000
   parks and playgrounds, 7,800 bridges, 700,000 miles of roads, 1,000
   airfields as well as employing 50,000 teachers and rebuilding the
   country's entire rural school system. Can all these schemes really be
   considered a waste of resources simply because they would never have
   made a capitalist a profit?

   Of course, our discussion is affected by the fact that "actually
   existing" capitalism has various forms of state-intervention. Some of
   these "socialise" costs and risks, such as publicly funded creation of
   an infrastructure and Research and Development (R&D). Given that much
   R&D is conducted via state funding (via universities, military
   procurements, and so on) and (of course!) the profits of such research
   are then privatised, question arises would the initial research have
   gone ahead if the costs had not been "socialised"? Would Mises' "exact"
   calculation have resulted in, say, the internet being developed? If, as
   seems likely, not, does not mean our current use of the World Wide Web
   is an inefficient use of resources? Then there are the numerous state
   interventions which exist to ensure that certain activities become
   "efficient" (i.e., profitable) such as specifying and defending
   intellectual property rights, the limited liability of corporations and
   enforcing capitalist property rights (in land, for example). While we
   take this activity for granted when evaluating capitalism, they are
   serious imperfections in the market and so what counts as an
   "efficient" use of resources. Other state interventions aim to reduce
   uncertainty and stabilise the market, such as welfare maintaining
   aggregate demand.

   Removing these "imperfections" in the market would substantially affect
   the persuasiveness of Mises' case. "What data we do have," notes Doug
   Henwood, "don't lend any support to the notion that the nineteenth
   century was more 'stable' than the twentieth . . . the price level
   bounced all over the place, with periods of inflation alternating with
   periods of deflation, and GDP growth in the last three decades . . .
   was similarly volatile. The busts were savage, resulting in massive
   bank failures and very lean times for workers and farmers." [After the
   New Economy, p. 242] Looking at business cycle data for America, what
   becomes clear is that some of those regular nineteenth century slumps
   were extremely long: the Panic of 1873, for example, was followed by a
   recession that lasted 5 1/2 years. The New York Stock Exchange closed
   for ten days and 89 of the country's 364 railroads went bankrupt. A
   total of 18,000 businesses failed between 1873 and 1875. Unemployment
   reached 14% by 1876, during a time which became known as the Long
   Depression. Construction work lagged, wages were cut, real estate
   values fell and corporate profits vanished.

   Given this, given the tendency of capitalism to crisis and to ignore
   real needs in favour of effective demand, it is far better to be
   roughly right than precisely wrong. In other words, the economic
   calculation that Mises celebrates regularly leads to situations where
   people suffer because it precisely shows that workplaces should shut
   because, although nothing had changed in their productivity and the
   need of their products, they can no longer make a profit. Saying, in
   the middle of a crisis, that people should be without work, be homeless
   and go hungry because economic calculation proves they have no need for
   employment, homes and food shows the irrationality of glorifying
   "economic calculation" as the be all and end all of resource
   allocation.

   In summary, then, not only is libertarian communism possible,
   capitalism itself makes economic calculation problematic and resource
   allocation inefficient. Given the systematic uncertainty which market
   dynamics imply and the tendencies to crisis inherent in the system,
   "economic calculation" ensures that resources are wasted. Using the
   profit criteria as the measure of "efficiency" is also problematic as
   it ensures that real needs are ignored and places society in frequent
   situations (crises) where "economic calculation" ensures that
   industries close, so ensuring that goods and services people need are
   no longer produced. As Proudhon put it, under capitalism there is "a
   miserable oscillation between usury and bankruptcy." [Proudhon's
   Solution of the Social Problem, p. 63] For anarchists, these drawbacks
   to capitalist allocation are obvious. Equally obvious is the reason why
   Mises failed to discuss them: ultimately, like neo-classical economics,
   the "Austrian" school seeks to eulogise capitalism rather than to
   understand it.

References

   1. file://localhost/home/mauro/baku/debianize/maint/anarchy/secA1.html#seca13
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   7. file://localhost/home/mauro/baku/debianize/maint/anarchy/secB2.html
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  21. file://localhost/home/mauro/baku/debianize/maint/anarchy/secI4.html
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  44. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC7.html
