Throughout history, the notion that “the definition of insanity is doing the same thing repeatedly while expecting different results” has gained significant traction. While its origins remain uncertain—often attributed to figures such as Albert Einstein, Mark Twain, and Benjamin Franklin—it thoroughly encapsulates the folly of persistence in ineffective methods. This maxim resonates deeply today as we reflect on lessons from the past, which continue to shape our current circumstances.
In this vein, let us revisit historical miscalculations that have led us to the present madness. One such case involved a well-intentioned Italian economist who endeavored to construct a theoretical framework for a socialist economy. He aimed to distill the complex teachings of Marx into a practical model for a centrally planned economy that promised security and plenty for everyone. Below is an exploration of this intriguing pursuit.
In 1908, Enrico Barone, an ambitious Italian economist, experienced an epiphany one sleepless night. Forgoing a meal, he gazed into the vastness of space and envisioned something extraordinary.
To his astonishment, amidst the darkness, Barone perceived the glimmer of a socialist utopia made possible through “scientific management” by a Ministry of Production. He believed that such an arrangement could yield “maximum collective welfare.”
Swiss Cheese
The concept was straightforward: if a cohort of scholars could determine optimal pricing for all goods and services, supply and demand could be harmonized, thereby eliminating poverty, unemployment, and the potential for unforeseen events.
However, this reliance on academic forecasts raises considerable questions. For instance, how would these experts adjust the price of a pizza if an unexpected heatwave severely impacted wheat crops?
Would government-mandated thin crust act as a solution? Chances are, by the time they recalibrated their pricing models, pizzerias would already find themselves out of dough, unable to adapt due to restrictive price controls. Such a scenario would lead to artificial shortages compounded by government interference.
Upon closer inspection, Barone’s ideas reveal themselves as fundamentally flawed. Ludwig von Mises, the Austrian economist, dissected Barone’s proposals in his seminal 1920 essay, Economic Calculation in the Socialist Common Wealth. He effectively identified and exposed the flaws in Barone’s reasoning, transforming it into something akin to Swiss cheese.
Mises argued that, in a socialist framework, rational economic calculation becomes impossible. In the absence of private ownership of production means, efforts to allocate resources efficiently are doomed to fail.
Without market-driven prices formed through voluntary exchange, establishing realistic prices becomes unattainable. This distortion in the production-consumption dynamic exacerbates oversupply and scarcity to absurd levels.
Ludwig von Mises’s Century of Validation
Planners invariably fail to achieve their goals, with absurdities becoming commonplace. A notable example of this is the scenes in socialist economies: supermarkets often have long lines of people but empty shelves. You might even find restrooms lacking toilet seats—how is that possible?
Despite these shortcomings, proponents of socialism embraced Barone’s confusing theories, using them to reinforce their ideological fantasies. They saw an opportunity to assume control over people’s lives, seeking to reshape society according to their vision.
In stark contrast, mainstream economists responded to Mises’s insights with resistance, often dismissing his work, a trend that continues today.
The ideas Barone proposed—intended as a practical interpretation of Marx—spread like wildfire across Eastern Europe in the early 20th century. Later iterations emerged in countries like France, the UK, the United States, and Japan, intersecting with Keynesian and Chicago school economic theories.
Instead of directly fixing prices through a Central Planning Board, it was decided that a Central Bank could manipulate aggregate demand data, controlling the entire economy through adjustments in credit pricing. Furthermore, governments began allowing ongoing deficits to further their agendas.
Mises’s critiques of market socialism from nearly a century ago have been unequivocally validated by the downfall of Soviet socialism. Today, his warnings ring true amidst the chaos experienced by the people of Venezuela.
The outcomes of government intervention never change: stagnation, inflation, declining living standards, and social unrest. Regrettably, these patterns are likely to repeat time and again.
In conclusion, despite the reluctance of many to acknowledge it, Mises’s principles are materializing in the United States and similar economies. In systems where money—a form of private property—is discreetly seized through the deleterious effects of centralized planning, the implications of increasing debt issuance are becoming all too clear.
Sincerely,
MN Gordon
for Economic Prism
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