Marxian Economics vs. Neo-Classical Economics

Wow, I forgot this debate exists. Well I still have more stuff I typed out, so: === Marx cannot explain why Communism failed === Marx wanted the workers to rise up and throw out the capitalists, which is what happened in the USSR and Mao’s China. Marx believed that once the workers collectively owned the means of production, everything would be well and good. However, as Ludwin von Mises has famously explained, collective ownership requires a command economy (someone in control) for the following reason: under a capitalist system, I own only my own labor and am paid only for what I produce. Under a Marxist system, I collectively own “my share” of what everyone produces. Thus, if there are 10,000 people in a Communist country, I would own 1/10,000th of everyone else’s labor. However, this system is very difficult to police. How do I know that everyone is working equally as hard as me? [Answer, I don’t; the USSR was notorious for having problems with motivating its workers without the incentive of pay]. How do I know that everyone is sharing what they produce? The only way to enforce my 1/10,000th ownership over everyone else’s labor is to have a central government enforcing my ownership rights. The central government plans the entire economy (which is known as a command economy), rather than leaving the economy to the market forces of supply and demand. The problem with a command economy, however, is two-fold. First, the economy has no way of knowing how to allocate resources. Government bureaucrats would have to simply “guess” how much of a given product people might want in a command economy. The USSR was notorious for never having enough toothpaste in stock because of the failure of government planning. Ludwig von Mises and Friedrich Hayek described this problem as the “economic calculation problem” – that supply and demand do a good job of funneling resources to where they are wanted and needed, but central planning does not. As Tibor R. Machan has explained, "Without a market in which allocations can be made in obedience to the law of supply and demand, it is difficult or impossible to funnel resources with respect to actual human preferences and goals." [6] For example, during Gorbachev’s reign, he decided that factories should start producing more expensive goods. [7] Gorbachev’s centrally planned decision forced factories to move away from producing everyday consumer goods. [7] Supply for everyday goods - like toothpaste, bread, and shoes – suddenly went way down. [7] As a result, the prices of these everyday commodities skyrocketed. [7] People were understandably upset. [7] Central planning is a horrible system. Supply and demand do a much better job of allocating resources where they are needed. Maoist China’s Great Leap Forward, during which Mao forced peasant farmers to produce steel in their backyards, rather than grow crops, is a good example of how central planning can allocate resources to really inefficient uses. Mao’s steel-making venture resulted in really poor quality steel, and it resulted in millions of peasants dying of starvation because not enough food was grown. Central planning is *bad.* The second problem with central planning in a Communist economy is that not every business idea succeeds. In fact, in the United States, almost nine out of ten new businesses fail. [8] In a Communist economy, the state loses money for each failed enterprise. [8] In a market-based system, the risk-taker (the capitalist) eats the loss. Fundamentally, this problem stems from Marx’s misunderstanding of the value that a capitalist adds to a product. The capitalist earns a high rate of return because the capitalist takes the *entire risk* of the business venture on his shoulders. If he succeeds, he may reap huge profits. If he fails, he may go massively into debt and end up living on the street. Thus, Marx’s theory is really, really wrong to assert that workers should get 100% of a company’s profits and should overthrow their capitalist overlords because capitalists add nothing of value. In the United States, the entire intellectual property system is built on the acknowledgement for the need to balance the risk-reward calculation of “capitalists.” No risk-taking would mean an economy would eventually stagnate and fail, which is exactly what happened to the USSR. In sum, Marx was wrong, basically about everything. Vote Con. [6] http://media.hoover.org... [7] http://library.thinkquest.org... [8] http://wiki.answers.com... [a surprisingly insightful response and where I got my idea for this argument from]