Typically we would not do a spin-off article about a lesson so soon, but what the heck! If it fits why not? As you probably remember, we inflicted on you our latest lesson in Austrian Economics just yesterday (Austrian Economics For Dummies - Division of Labour). Now we are going to put to practice what we learned. Yes, Austrian Economics is inherently practical because it originates in reality. What a refreshing point of view, isn't it?
THE FAILURE OF SOCIALISM
Division of labour
The benefits of the division of labour are many but for our purposes the most important element is a simple one; the division of labour works through self-interest. For us this is the most important element because it opposes what socialist doctrine says. For socialists (and communists) "good" is defined as what is "good for society". For us, "good" is defined as what is "good for each and every one of us independently".
The problem with the socialist point of view is that the division of labour is based on the self-interest of each and every labourer. The very notion of "good for society" precludes (or denies) seeking the "good" of each individual person as individuals. As such, the individual self-interest of…well… individuals is something that must be opposed because it is not -by definition- the "good of society". Therefore and at its most basic, socialism prevents the very engine that produces division of labour. Let's be clear. The point is not that socialism has a defect that can be fixed, the point is that socialism at its most basic theoretical level, opposes the division of labour. This opposition is not something that can be "fixed" by "tweaking" how socialism operates, but this is exactly what socialists attempt to do. They recognize that the division of labour produces innumerable benefits but since they cannot accept self-interest as the source of "good", they attempt to "manage" the division of labour. They did and continue to do so through innumerable interventions in the free market, through government specialization, taxation, subsidies, incentives, management of education and so on. Every step they take they must force and direct the division of labour because they have killed its engine. Is then any wonder that socialist economies have the tendency to perform very poorly? It then any wonder that socialist societies have the tendency to dissolve once borrowed money runs out? Of course not. What is a wonder is how it is possible that so many people still believe the socialist fairy tale.
Basically, socialism attempts to substitute the wisdom of all labourers (all 7+ billion of them) by the so-called wisdom of think-tanks, politicians and other "enlightened" group of people. What are their chances of succeeding?
What division of labour tells us is that the "good of society" comes from the "good of the individual" and not the other way around. People matter as individuals. As a consequence of this, so-called "socialist economics" are a joke… and a bad one at that. The concepts embedded in socialist economic theories originate not in reality but in a fairy-tale theory and as a consequence, we get fairy-tale economic results.
The division of labour happens because of human and environmental inequalities. These inequalities are the engine driving specialization which in turn drives productivity increases. The division of labour then further intensifies those inequalities. As with any specialization, some people will be better at one thing and some at another. Among those things that people are better at, is making money. The inevitable consequence of this conclusion is that the appearance of rich people is not due to the "exploitation of workers" but because of the natural process of specialization due to division of labour. Socialist taxation policies are regressive -in the sense that they regress us into a lower productivity scenario- because they punish people simply for being good at a specific specialization. But the whole point of a division of labour is to increase productivity where we all benefit. If we punish people that are good at getting rich, we are simply curtailing the production of wealth and because of this we are all less wealthy. In essence what socialism does is to take away the tools (capital) that rich people have to become richer. No tools means no more (or less) riches. This, of course, seems horrible and in a sense it is, but there is no other way. The laws of nature dictate that if we all want to be richer and wealthier, then we must allow people to become richer and wealthier and because of the division of labour this necessarily implies very rich people. The benefit of so doing is that wealth spills over all of us. Rich people are not rich in isolation; they are rich through productive activities which satisfy our needs. Basically, they create goods, services and jobs which make us all better off.
Another drive of socialism is seeking to achieve the Walhalla state of "equality" which is nothing but yet another fairy-tale. Under socialism we are all supposed to be "equal" in terms of wealth to satisfy our needs (see Piketty Fences). But consider what equality really means. As our natural state is in-equality, this means that we must take from those who have more and give to those who have less. Which means, again, that we are punishing those who are good at producing wealth. Which ends up diminishing everybody's wealth.
Civilization is only possible because of the existence of the division of labour. Civilization needs increased productivity so that we may satisfy our more pressing needs first and then move on to satisfy less pressing ones. As soon as we have food, shelter and clothing we begin to look at arts and sciences and leisure, not before. Civilization is the outcome of the division of labour. But as we have stated above, socialism is downright hostile to the division of labour. Which means that socialism is the enemy of civilization. The statement "taxes are the price we pay for civilization" is a magnificent piece of propaganda and disinformation. In reality, taxation (by removing capital from people who are good at getting wealthy) is the destroyer of productivity and hence civilization. Through taxation governments destroy civilization. Socialism (or more precisely communism-light) is particularly good at so doing. No wonder that so-called communist or socialist societies are a disaster and they disintegrate as soon as borrowed money runs out!
Distribution of population
Division of labour pushes specialization and as such people will migrate where their specialization can be more effective. As a consequence of this we have cities and farms; we have technology hubs and higher learning and research centres and so on. All this does not happen by coincidence, it happens due to the constant pressure of the division of labour. In so doing, people become more specialized and hence more productive which benefits us all.
However, the one constant in socialism is that it must manage everything "for the good of society". Which means that it must manage where people migrate and what they do there. In so doing they further curtail increases in productivity.
Countries have all kinds of rules as to immigration and the culmination of such stupidity was implemented in the USSR where there were internal passports for USSR citizens limiting where they may go. Not only countries curtail immigration and migration, they curtail where you may settle and once you are there what you may or may not do. In most cities and towns there are millions of rules and regulations as to where you may build, what kind of house or apartment you may build, what you may do with such facilities (industrial, rental, living quarters and so on), where you may place a store, and so on. The pile of regulations is endless. All these rules and regulations curtail the movement of people and their activities. In addition to this, governments attempt regulate locations for specializations through taxation and subsidies. Think about it. Governments attempt to force the creation of areas for specializations where there are no natural conditions for this to occur. Is then a surprise that typical government boondoggles fail catastrophically and end up being gigantic wastes of money? Of course not.
Governments prevent the division of labour from acting effectively and efficiently. Free markets do as much as possible to counter this toxic effect, but there is only so much they can do when confronted with people with guns and badges.
Note: please see the Glossary if you are unfamiliar with certain words.