F. A. von Hayek

On 7 April 2021, RNH Academic Director Professor Hannes H. Gissurarson was interviewed on television and radio on the occasion of his new book of 884 pages in two volumes, Twenty-Four Conservative-Liberal Thinkers, published in Brussels at the end of 2020 by the think tank New Direction. In Thjodmal, a television programme for subscribers to Morgunbladid, Gissurarson said to journalist Andres Magnusson that of the twenty-four thinkers in his new book he personally regarded Friedrich A. von Hayek as the most profound. He had reinforced the arguments for two seminal, yet little-understood ideas from Adam Smith: that one man’s profit did not necessarily mean another man’s loss; and that order could develop without anyone doing any ordering. Hayek had also strengthened the argument of Ludwig von Mises for the unfeasibility of socialism, pointing out that the dispersal of knowledge required the dispersal of power. Gissurarson added that an important message of his book was that the free market was a necessary and not a sufficient condition for a free society: what was indispensable was a moral foundation, respect for ancient traditions and virtues.

Snorri Sturluson

In The Mirror, a news-related radio programme of the government-owned National Broadcasting Service, Gissurarson explained to reporter Bogi Agustsson why he included Icelandic chronicler Snorri Sturluson in his book. Snorri had presented two medieval ideas which John Locke had developed further in his defence of the 1688 Glorious Revolution: that kings were subject to the same law as others and that they could be dethroned if they violated their unwritten contract with the people. In Heimskringla, Snorri described the conflict between the ancient law based on fellowship, Genossenschaft, and the modern law based on lordship, Herrschaft: this was essentially the contrast between law by common consent and royal decrees. In a famous speech by Einar from Thvera Snorri had in fact been expressing his own view that the Icelanders should be the king’s friends, not his subjects. Gissurarson noted that Snorri was also the author of a saga about poet-warrior Egil Skallagrimsson who had plausibly been called the first individual in a modern sense, having a rich emotional life, and asserting himself in a feud with the Norwegian royal family. One reason why the celebrated Icelandic sagas were written down, or perhaps composed, was that the Icelanders may have felt the need to redefine their identity as the Norwegian kings were trying to subdue them and to turn Iceland into a tributary. Gissurarson said that the evaluation of Snorri had to some extent been negatively influenced by his cousin, historian Sturla Thordson, a committed royalist.

In the Market, the televised business programme of Frettabladid, Gissurarson agreed with economic journalist Thordur Gunnarsson that a left-wing wave might be rising among young people. But this was a common tendency of any new generation, he observed, with the exception of the 1980s and 1990s when socialists everywhere had been almost incapicitated by the abysmal failure of socialism in Russia and China, at the same time as Thatcher and Reagan, inspired by Hayek and Milton Friedman, had implemented ambitious and successful programmes of liberalisation. When challenged about Friedman’s controversial theory on the social responsibility of business, Gissurarson expressed his agreement with Friedman. Company managers should not use the profits they were earning for their shareholders to subsidise causes they themselves personally liked. Instead they should pay out full dividends and allow individual shareholders to allocate their own money as they pleased. But of course business had to operate within the limits of the law, including the unwritten law of customs, traditions, habits, manners, and precedents.

Photo: Mbl./Eggert

The three largest newspapers in Iceland have all published interviews with Professor Hannes H. Gissurarson, RNH Academic Director, on the occasion of his new book, Twenty-Four Conservative-Liberal Thinkers, being published by the think tank New Direction in Brussels in two volumes at the end of 2020. In the online journal Visir on 27 March 2021, Gissurarson said that the distinction between avarice and enlightened self-interest was morally crucial, but that the magic of the market, demonstrated by Adam Smith, was to harness both sentiments for the common good. The publisher of his book was connected to the European conservative and reformist parties, but it should be recalled that many of the thinkers in the book had been politically active. Snorri Sturluson served as Iceland’s Lawspeaker for a long period; Edmund Burke was a member of the British House of Commons; Benjamin Constant, Frédéric Bastiat and Alexis de Tocqueville were all members of the French legislative assembly, and Tocqueville served for a while as Foreign Minister; Lord Acton was an adviser to Gladstone; Carl Menger was a member of the Upper Chamber of the Austrian Parliament; Wilhelm Röpke was an adviser to Adenauer and Erhard; and both Friedrich von Hayek and Milton Friedman were advisers to Thatcher and Reagan. Other thinkers had however preferred the tranquillity of monasteries or universities, trying to understand rather than to change the world. Gissurarson categorically rejected the common assertion that the 2007–9 financial crisis had sounded the death knell for conservative liberalism or ‘neoliberalism’. Indeed, Hayek’s interpretation of economic crises, that they were usually caused by a prior monetary expansion, seemed appropriate in this case; and the worldwide response to the crisis was to provide banks with liquidity, whereas Friedman’s main criticism of the United States Federal Reserve Board during the Great Depression had been its failure to do so.

In Frettabladid on 30 March, Gissurarson defined a conservative liberal as someone who wanted to conserve liberty as the hard-won product of Western civilisation while recognising that in principle it could be extended to and enjoyed by all. He mentioned that he had been personally acquainted with five of the thinkers in the book, Hayek, Karl R. Popper, Friedman, James M. Buchanan and Robert Nozick. They had all been impressive personalities. In particular, Friedman had been witty and lively. Gissurarson added that he felt Snorri Sturluson and St. Thomas Aquinas both belonged in this group, even if conservative liberalism as a political position really only began to emerge with the Glorious Revolution of 1688 in the United Kingdom. Both Snorri and Aquinas had advocated limited government, the former with reference to the old German tradition of consent, the latter by applying the concept of natural law.

In Morgunbladid on 31 March, Gissurarson recalled that he had thirty-five years earlier written his doctoral dissertation at Oxford on Hayek’s conservative liberalism. He had since then modified his views in two ways. First, he was now more sympathetic than some thinkers in the liberal tradition to the idea of nationality, the respect for one’s cultural heritage and the will of a nation to build her own state, as did the Norwegians in 1905, the Finns in 1917 and the Icelanders and the three Baltic nations in 1918. Secondly, he felt even stronger than before that political reforms should facilitate the mutual adjustments of individuals, instead of imposing upon them designs from above. Conservative liberals wanted evolution, not revolution. Gissurarson said that conservative liberalism did not depend on a utilitarian calculus. Man was a choosing agent, not a maximising machine, and there was more to life than material goods. A competitive economy was necessary, but not sufficient. What was also required was honesty, hard work, thriftiness, prudence, civility, punctuality and other traditional virtues. Life had to provide continuity and some predictability, at the same time as it should produce challenges and reward creativity. Thus, within the conservative-liberal tradition there was a fruitful tension between tradition and innovation. Gissurarson stressed that mankind had never had it so good as today, because of freedom, but that hopefully modern man would not only come to appreciate it if he, or she, lost it.

RNH Academic Director, Professor Hannes H. Gissurarson, met with the President of Iceland, Dr. Gudni Th. Johannesson, at his residence, Bessastadir, on 30 March 2021 and gave him a copy of his recent 884 pages book, Twenty-Four Conservative-Liberal Thinkers, published by the Brussels think tank New Direction in two volumes. The book is also available free of charge online. Of the thinkers included two are Nordic, Snorri Sturluson and Anders Chydenius. Gissurarson was personally acquainted with five of the thinkers, Friedrich von Hayek, Karl R. Popper, Milton Friedman, James M. Buchanan, and Robert Nozick. Afterwards, Gissurarson and the President had a long chat on history. Before he was elected President, Dr. Johannesson, a professional historian, participated in some RNH events: for example, he chaired a lecture given in 2012 by Professor Bent Jensen on Nordic communism, and he read a paper on new evidence on the 2008 bank collapse at a seminar in 2015.

In 1867, the Habsburg Empire was reconstituted, after a defeat against Prussia the year before which meant that Austria gave up her role as leader of the German states. The defeat was a blessing in disguise because now the Habsburgs could turn their attention to necessary internal reforms. They accepted the division of their Empire into two parts, the old domains in Austria and elsewhere in the North and West, often called Cisleithania because the river of Leitha divided them from the rest, and the Kingdom of Hungary, sometimes called Transleithania, which became an independent state under the Habsburgs. In the next half a century the dual monarchy, forming a large free-trade area, enjoyed peace and prosperity and Vienna became one of the greatest cultural centres of Europe, with the second capital, Budapest, also flourishing. One of the most prominent representatives of Austrian science in this golden age was the economist Carl Menger who died exactly one hundred years ago, on 26 February 1921.

Menger revolutionised economics with his marginal analysis. Despite his profound insights, Adam Smith, the father of modern economics, had wrongly believed that the value of goods was determined by their costs of production: If it cost twice the labour to kill a beaver than a dear, then one beaver would exchange for two deer. But there were obvious problems with the labour theory of value. If it was ten times more difficult to catch a rare edible frog than a deer, it did not follow that the frog was ten times more valuable. An old wine was usually more valuable than a new one, whereas new bread was more valuable than old. Mozart and Salieri may have spent equal time on their compositions, but those of Mozart were much more valuable.

What Menger did to explain value was as simple as it was brilliant. He broke a good into units. For a thirsty man, the first cup of water is delicious, but as the number of cups he consumes increases, the value of each of them goes down, to the point when an additional cup does not provide more satisfaction than something else on offer. This is the point where the ‘marginal utility’ of water (as it was later called) will be equal to the price offered for the cup of water in the marketplace, or for something else with the same capacity to satisfy a human need. The marginal utility of a good is the utility of an additional unit, which usually decreases with increased consumption, until demand meets supply at a mutually acceptable price.

This was a Copernican Revolution in economics: Just as it had been discovered that the Earth and other planets revolve around the sun, instead of the sun revolving around the Earth, it was now realised that goods derived their value from the subjective evaluation of consumers at the margin. Man was in the centre, not human products. It was the substitute value, or opportunity cost, of a good which was important, not its production cost. A madman might spend days in constructing a sand castle, but it would be valueless without any buyers.

With his subjective theory of value, Menger was able to refute two political ideas popular in late nineteenth century, Georgism and Marxism. Henry George taught that land was a special good because it had not been produced and was irreproducible. It existed more or less in fixed amount which meant that increased demand for it would simply raise the profit of landowners without them making any effort themselves: this was the notorious ‘unearned increment’ of land. Karl Marx taught that labour was a special good because without it nothing could be produced. Indeed it was labour that created all value, he believed. The capitalists however, Marx added, deprived the labour force of the true value of their contribution by exploiting their own superior bargaining position, forcing their employees to work long hours and seizing the ‘surplus value’ thus created.

Menger showed that these theories of exploitation under capitalism were built on outdated theories of value. Both land and labour were goods which were valued and hence  priced in the market according to their marginal utility, not according to their cost of production. There was nothing special about these goods, as goods. What mattered was the value of these goods in the eyes of their consumers.

Menger also pointed out a deficiency in Adam Smith’s conception of the economic process. For Smith, market exchanges took place in space, almost instantly. On their desert island, Robinson Crusoe and Man Friday could exchange pieces of fish and fruit to their mutual benefit on the same day. The Poles sold corn to the Portuguese in exchange for wine in the same month. Menger pointed out, however, that one of the characteristics of a developed market order was that transactions took place not only in space but also in time. People plan and prepare for future exchanges, not least by investing in capital goods which they then use to produce consumer goods. This introduces ignorance and uncertainty as crucial features of the market process, categories that two of Menger’s most distinguished disciples, Ludwig von Mises and Friedrich von Hayek, were trenchantly to analyse. Mises pointed out that would-be socialist planners could not in the absence of market prices for capital goods make relevant calculations and estimates about the future. Hayek explained how the market process was first and foremost a process of acquiring, utilising and transmitting the dispersed knowledge necessary to coordinate human behaviour peacefully and productively.

Although Menger thus made a real and lasting contribution to the science of economics, ranking as one of the greatest economists of all time, his story is sadly also about what was not to be. As Austria’s most distinguished economist, he was appointed tutor to the Austrian-Hungarian Crown Prince, Rudolf, and accompanied him on his travels around Europe (somewhat like Adam Smith accompanied his student, the Duke of Buccleauch, on his travels). Menger’s lectures to the Crown Prince have recently been rediscovered, and they are a lucid and even uncompromising exposition of the case for a free economy, based on private property, free trade, and limited government. But Crown Prince Rudolf was tragically to commit suicide, for reasons that are still not entirely clear, and the reforms begun in 1867 did not continue and fully extend to the many nationalities under Habsburg rule other than the Hungarians. Moreover, when the assassination of the next Crown Prince, Franz Ferdinand, was organised by the Serbian secret service the dual monarchy was not allowed to punish the Serbians accordingly. The United Kingdom foolishly decided to enter a war that the French and the Russians wanted to wage in defence of Serbia against Germany and Austria-Hungary, with disastrous consequences, not least after the United States also needlessly and foolishly decided to enter. It almost meant the end of Western civilisation.

When Menger died in 1921, the old Habsburg Empire lay in ruins. It had certainly not been perfect but what replaced it was much worse, as an unlikely source, Czech writer Milan Kundera, later commented: ‘The Austrian empire had the great opportunity of making Central Europe into a strong, unified state. But the Austrians, alas, were divided between an arrogant Pan-German nationalism and their own Central European mission. They did not succeed in building a federation of equal nations, and their failure has been the misfortune of the whole of Europe. Dissatisfied, the other nations of Central Europe blew apart their empire in 1918, without realizing that, in spite of its inadequacies, it was irreplaceable. After the First World War, Central Europe was therefore transformed into a region of small, weak states, whose vulnerability ensured first Hitler’s conquest and ultimately Stalin’s triumph.’ Menger could not take solace in the later revival of Austrian economics and in the rebirth of what I would call conservative liberalism under Thatcher and Reagan in the last quarter of the twentieth century.

But the most important lesson to be learned from Menger and the Austrian example is: maintain private property, free trade, and limited government, and solve the problem of nationalities by as much devolution as possible. Let the European Union not repeat the mistakes of the Danubian Monarchy. Build a European federation of equal nations, and only present yourself as a strong unified state to the outside (for example to the Russians or the Chinese). Switzerland can act as a strong state outwardly, even if inwardly she is divided up into many semi-autonomous political units.

American political philosopher John Rawls, one of the best-known left-wing thinkers of the twentieth century, would have been one hundred years old yesterday: He was born on 21 February 1921, and passed away on 24 November 2002. Even if Rawls was perhaps over-estimated in the academy, there is no denying that he posed an important question: How could we derive or construct a society in which the worst off would be as well off as they could be? He thought that a society which provided the best living standards possible for the poorest part of the population would be a just and desirable one. In this he was different from another left-wing icon, French economist Thomas Piketty who is more worried, it seems, about the rich than the poor. Piketty wants to bring down the rich, not to lift up the poor. But most normal people would think with Rawls that poverty is a problem, even a social evil, whereas they might differ from him by regarding affluence as a solution, something to be welcomed. We are not all like Gore Vidal who said that every time a friend succeeded, a little something inside him died.

In his Theory of Justice published in 1971, Rawls conducted a thought experiment: On what type of society would a group of enlightened and rational human beings agree if they did not know how they would themselves fare in that type of society? This group was, in other words, deliberating under Rawls’ famous ‘veil of ignorance’, a device designed to eliminate personal preferences and special interests, just like Plato deprived his philosopher-kings of property and family ties, and like Adam Smith envisaged ‘an impartial spectator’. In a long and intricate argument, Rawls tried to demonstrate that his group under the veil of ignorance would choose a society in which people enjoyed equal political liberties but where the worst off would be as well off as they could be. In other words, wealth should be redistributed from the rich to the poor up to the point when the redistribution would be counter-productive which is when the poor would end up with less than under other alternatives.

There are several weaknesses in Rawls’ complicated edifice, as Robert Nozick, Antony Flew, Jan Narveson, John R. Lucas and other philosophers have pointed out. How should we define the worst off? Would they include alcoholics and depressives, and if so, why? Rawls ignores the process by which some people come to be better, or worse, off than others. Why should the more productive for example be taxed in order to redistribute goods to the less productive? Rawls would grant the point that the more productive should not be taxed so heavily that they would cease to contribute significant amounts of money to the Treasury. But somebody like Ayn Rand would say, then, that he would just limit the robbery of the rich to the extent that they would not choose to emigrate, either ‘internally’ by producing less or ‘externally’ by leaving for a low-tax country where people have not yet learned of Rawls’ theory of justice (from Sweden to Switzerland). Or in other words, the rich should be turned into milking cows for the poor but they should not be killed or starved: the goal would be to maximise their milk production available to others.

However, some would argue that individuals should not be regarded as resources for others, or as milking cows rather than persons. Imagine, as Nozick does, that there are several Robinson Crusoes on as many islands and that they are isolated from one another for many years. Some of them will have hit upon more fertile islands than others; and some of them will have worked harder than others. As a result, their living standards come to vary. Now they suddenly discover one another, perhaps through new transport technology. Does this mean that the poorer ones have some claim on the assets of the more affluent ones? Why would that be? There is no treasure chest lying ready to be redistributed as there is in Robert Louis Stevenson’s novel. Let us then continue the saga and the Crusoes start to trade with one another, to their mutual benefit. But this would not create a treasure chest, either, because they would simply pay one another the required price for the goods and services that they are buying and selling. The point is of course that there is no such thing as distribution: there is only redistribution where assets are taken from some and transferred to others (often with a lot of these assets disappearing in the process).

Economic liberals would say that Rawls is operating under the illusion of the treasure chest which does not belong to anyone and which Harvard-educated philosophers may distribute at will. The fact of the matter is, economic liberals would say, that individuals are entitled to the wealth they create themselves with their labour, their abilities, talents, and skills. Assume that Iceland has an income distribution that a Rawlsian would consider just, in which the worst off group is better off than it would be under any other type of system (and this is indeed the case: the level of absolute poverty in Iceland is about the lowest in the world). Then Milton Friedman comes along to give a lecture, charging each guest 50 dollars in admission fee. People flock to his lecture and fill the meeting hall to capacity, in total 500 people. After the event Friedman is richer by 25,000 dollars and the 500 listeners are poorer each by 50 dollars. Yes, the income distribution has become less equal. But where is the injustice? Who has been done down by this? Are the worst off in society really worse off by this transaction between Friedman and his audience than they would have been if it had not taken place? And would Friedman, or any other person of exceptional abilities (artists, sportsmen, entertainers, and so on), find any reason to develop and exercise their special talents and to visit Iceland to share those talents with others, if most or all of the income derived from the events organised would invariably be seized by government?

Rawls has an answer to this objection. It is that nature distributes abilities arbitrarily and that therefore people do not deserve them. Some are simply born with greater abilities than others. He is partly right. The abilities individuals receive from nature are strictly speaking not deserved. But individuals make different use of the talents with which they are born: some develop them, others waste them. Surely those who develop them deserve the additional income they derive from having done so. It is difficult to distinguish between the contribution of nature and the contribution of the individual, but this is a difficulty which weakens rather than strengthens Rawls’ case. But more importantly, even if people do not deserve the abilities with which they are born, they may be entitled to them. These abilities may be an integral part of their personality, just as their eyes or kidneys are. Few would advocate seizing a person and forcing her to give up one of her eyes in an operation so that a blind person would gain one eye. This may for technical reasons still be a purely theoretical question, but the example of the kidneys is not. There is something intuitively wrong with the argument that you have to give up one of your kidneys, against your will, just so that somebody who desperately needs a kidney can survive. Here the main point is again that you are not owned by others. You are not from a herd of milking cows. You have a distinct personality; and the abilities, skills and talents with which you are born and which you have subsequently developed and cultivated, form an integral part of your personality.

Perhaps the chief weakness of Rawls’ theory of justice is that it is not really a theory of justice, in the traditional sense. It is about prudence. It is a strategic move made by those who fear the worst in an unknown future. The individuals Rawls puts under a veil of ignorance fear ending up in the group of the worst off. Therefore they prudently postulate that the good society would be one in which the worst off would be as well off as they could be. But normal individuals are motivated by hope no less than fear. They prepare both for the best and the worst. They might, under Rawls’ veil of ignorance, decide to support a society where there would be a safety net, under which nobody needed to fall, but that then people would be free to create as much wealth as they could, provided they would obey the principles of a decent society: ‘Juris praecepta sunt haec: Honeste vivere, alterum non laedere, suum cuique tribuere.’ The basic principles of law are: to live honorably, not to harm any other person, and to render each his (or her) own.

Therefore, while the question where the worst off are as well off as they could be, is not the only question to be asked of the good or decent society, it remains an important question. And where would that be, on present evidence? A group of economists have been trying to measure economic freedom over countries and over decades (in space and time, as it were) and to see whether there are any relationships between economic freedom and other statistical aggregates. The results are remarkable. If you divide the 162 jurisdictions they survey into quartels according to economic freedom, in 2018 the average GDP per capita in the top quartile was 44,198 dollars, compared to 5,754 dollars in the bottom quartile. For a Rawlsian it is however more interesting how the worst off fare. In 2018, the average income of the poorest 10 per cent in the top quartile was 12,293 dollars, compared to 1,558 dollars in the bottom quartile. This is amazing: the average income of the poorest 10 per cent in the freest economies was more than twice the average per-capita income in the least free economies.

Thus, even if we would adopt Rawls’ prudential approach (abandoning the quest for justice in the traditional sense) and concentrate on where the worst off would as well off as they could be, we would reach capitalism, the system of private property, free trade, and limited government. This is of course something the poor of the world know in their hearts, without having had the benefit of reading learned treatises by Harvard philosophers. Everywhere they try to get from more to less socialism: from Mexico to Texas, from Cuba to Florida, from China to Hong Kong, and from North Korea to South Korea.

Friedrich von Hayek and Ludwig von Mises in New York on 7 March 1956. Photo: Bettina Bien Greaves.

One hundred and one years ago a lecture was given at the Austrian Economic Society which turned out to be one of the seminal events in European intellectual history. It was given in the second week of January 1920 by Austrian economist Ludwig von Mises in Vienna, and what he did was to analyse the socialist economic programme: the abolition of private property rights to the means of production. The topic was highly relevant. Led by Vladimir Lenin, socialists, or communists, had seized power in Russia two years earlier, in November 1917, and it seemed to many that a world revolution was imminent. Communists had briefly taken power in Hungary and Bavaria, and communist parties had much support both in Germany and Austria, in the midst of the rubble after the First World War.

Mises did not employ the usual arguments against communism (although he certainly agreed with them): that under a regime of common property there would not be sufficient incentives for people to make an effort, and that centralisation of economic power could threaten individual freedom. His analysis was different. He asked how the planners who under communism would replace the capitalists and make decisions about production could rationally do so. How could they, if the means of production were not privately owned and transferable between individuals and their companies, compare different alternatives? It is not a problem to choose between 100 and 500 litres of petroleum. The latter is obviously preferable. But what about the choice between 100 litres of petroleum and 100 litres of water, or wine, or some other valuable liquid? In what kind of units can the alternatives be compared?

This, in a nutshell, is what Mises called the calculation problem. It is that the planners cannot make calculations about the estimated costs of different alternatives. This is a problem which is solved spontaneously in a free market where the means of production are priced in a process of exchanges, according to what economists call their marginal utility, or their capacity to satisfy human needs. If you have to choose between transporting timber by road or ship, you can compare the prices of the capital goods required for each alternative and make decisions based on your calculations. But you have no such prices to guide you under a system where all the means of production, all the capital goods, are owned by the state and not priced in a process of exchange. Under capitalism, if wheat becomes much more valuable than milk over the long term, then a landowner will turn a pasture into a cornfield. When an industrial manager has to decide between oil, coal or hydroelectric power as sources of energy, he can compare costs in a common unit, the price.

Mises pointed out that a modern economy is complex and dynamic: there are always some changes taking place, not only normal wear and tear of capital goods such as buildings and machinery, but also unforeseen events such as new technology or a change in demand, or good or bad harvests, not to forget the biblical droughts and plagues. How were the planners to cope with such changes? The father of communism, Karl Marx, had notoriously refused to describe how to implement his ideas. He was not going to write any recipes of the kitchens of the future, as he contemptously put it. Lenin had only vaguely addressed the issue, saying that after the proletarian revolution the whole economy would be organised on the line of the post office. He did not offer any real guidance after the Bolshevik coup in November 1917, only exhorting his subjects to work harder, and keep accurate accounts, and execute all speculators. In a newspaper article in 1918, he had pointed out that Russia possessed enormous resources, ore in the Urals, coal in Western Siberia, oil in the Caucasus, peat in Central Russia, plenty of timber and ample waterpower. But how much of each resource should be developed, and when and how?

Mises’ conclusion was that socialism was impossible to implement in the sense in which its proponents wanted. It could of course be imposed by terror. But the planners could never rationally allocate effort between different alternatives, because they could never calculate or estimate their real costs. When Mises gave his lecture, another well-known economist, Joseph Schumpeter, was in the audience. He suggested, as a thought experiment, that the socialist government would issue an equal amount of money to each citizen and allow them to choose between goods. In this process goods could be priced and allocated. Mises responded that this did not solve the fundamental problem about economic calculation under socialism, which was how to price production goods, not consumption goods. If the means of production were not privately owned, then they could not be exchanged, and if they were not exchanged, production goods could not be properly priced.

By his forceful analysis of the impossible economic task faced by would-be planners, Mises influenced a generation of highly gifted economists: Friedrich von Hayek in Austria, Wilhelm Röpke in Germany, Bertil Ohlin in Sweden, Trygve Hoff in Norway and Lionel Robbins in England. Some socialists later recognised the problem of calculation that Mises had demonstrated. In response, they presented what was called ‘market socialism’, where managers of government-owned enterprises were instructed to exchange capital goods in a competitive process. But Mises was not convinced. He stressed that the process of pricing capital goods in a process of exchanges could not be simulated: Under socialism, even the market socialism envisaged by some, there was no role for entrepreneurs and venture capitalists who make decisions at their own risk.

When communism collapsed under its own weight in the late 1980s, Mises stood vindicated. Certainly enforced accumulation of capital was possible under communism. Resources could be forcibly transferred from agriculture to industry in an effort to modernise the economy, as Stalin did in the 1930s. But what was not possible was to make decisions in such a way that resources were allocated into their most efficient or productive uses, for the consumers. Thus, in the long run communism was bound to lag behind capitalism. This is precisely what happened, not only in the Soviet Union but everywhere else. Compare China, even after she partially reintroduced capitalism, to the other three Chinese economies, of Taiwan, Hong Kong and Singapore. Recall the disastrous socialist experiments in Allende’s Chile, in Ne Win’s Burma, in Mengistu’s Ethiopia and now in Venezuela and compare them to the great strides out of poverty in most of the world in the last forty years. In his critique of socialism and communism, Mises was, and is, right.

(Gissurarson’s column in The Conservative, 21 February 2021.)