Front Page Titles (by Subject) 5: The Productivity of Labour - Socialism: An Economic and Sociological Analysis
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5: The Productivity of Labour - Ludwig von Mises, Socialism: An Economic and Sociological Analysis 
Socialism: An Economic and Sociological Analysis, trans. J. Kahane, Foreword by F.A. Hayek (Indianapolis: Liberty Fund, 1981).
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The Productivity of Labour
The old “distributivist” theories were based on the assumption that it only needed equal distribution for everyone to have if not riches, at least a comfortable existence. This seemed so obvious, that hardly any trouble was taken to prove it. At the beginning Socialism took over this assumption in its entirety, and expected that comfort for all would be achieved by an equal distribution of the social income. Only when the criticisms of their opponents drew their attention to the fact that equal distribution of the income obtained by the whole economic society would scarcely improve the conditions of the masses at all, did they set up the proposition that capitalist methods of production restrict the productivity of labour, and that Socialism would remove these limitations and multiply production to ensure for everyone a life in comfortable circumstances. Without troubling about the fact that they had not succeeded in disproving the assertion of the liberal school that productivity under Socialism would sink so low that want and poverty would be general, socialist writers began to promulgate fantastic assertions about the increase in productivity to be expected under Socialism.
Kautsky mentions two ways of achieving increased production by a transition from capitalistic to socialistic methods of production. One is the concentration of all production in the best concerns and the closing down of the less efficient.71 That this is a means of increasing production cannot be denied, but it is a means which operates most effectively under the regime of an exchange-economy. Competition ruthlessly eliminates all inferior productive undertakings and concerns. That it does so is a constant source of complaint from those involved, and because of it the weaker undertakings demand State subsidies, special consideration in public contracts, and in general restriction of freedom of competition in every possible way. Kautsky is forced to admit that trusts formed by private enterprise exploit these means to the utmost, so as to obtain higher productivity, and in fact he frankly regards them as the forerunners of the social revolution. It is more than questionable whether the socialist State would feel the same necessity to carry out similar improvements in production. Would it not continue an unprofitable undertaking rather than provoke local prejudice by its discontinuance? The private entrepreneur closes down without much ado undertakings that no longer pay; and in this way he compels the worker to change his locality and sometimes even his occupation. Undoubtedly this involves initial hardships for the people concerned, but it is to the general advantage, since it makes possible a cheaper and better provisioning of the market. Would the Socialist State do likewise? Would it not, on the contrary, be constrained for political reasons to avoid local discontent? On most state railways all reforms of this kind are frustrated by the attempt to avoid the harm to particular districts which would result from the elimination of superfluous branch offices, workshops, and power stations. Even the army administration has encountered parliamentary opposition when for military reasons it has been desired to withdraw a garrison from a particular place.
His second method of achieving increased production, viz., “economies of every description,” on his own admission, Kautsky already finds operating under the trust of today. He particularly mentions economies of materials, transport charges, advertisements and publicity costs.72 As far as economies in materials and transport are concerned, experience shows that nothing is operated with less economy and with more waste of labour and material of every kind than public services and undertakings. Private enterprise on the other hand naturally induces the owner to work with the greatest economy in his own interest.
Of course the Socialist state would save all advertising expenses, all the costs of commercial travellers and agents. But it is more than probable that it would employ many more persons in the service of the apparatus of distribution. Wartime experience has taught us how cumbrous and expensive the social apparatus of distribution can be. Were the costs of bread, flour, meat, sugar, and other cards really less than the costs of advertisement? Has the enormous personnel required to run a rationing system been cheaper than the expenditure on commercial travellers and agents?
Socialism would eliminate the small retailers. But in their place it must set up distributive centers which would not be cheaper. Co-operative stores do not employ less hands than the retail stores organized on modern lines, and many of them, because of their large expenses, could not compete with the latter if they were not granted privileges of exemption from taxation.
Speaking generally, it must be said that it is inadmissible to pick out special costs in capitalist society, and then at once to infer from the fact that they would disappear in a socialist society, that the productivity of the latter would surpass that of the former. It is necessary to compare the total costs and the total yields of both systems. The fact that the electromobile needs no gasoline is no proof that it is cheaper to run than the gasoline-powered car.
The weakness of Kautsky’s argument is evident, when he asserts that “by the application of these two methods a proletarian regime could raise production to such a high level that it would be possible to increase wages considerably and at the same time reduce the hours of labour.” Here he is making an assertion for which he offers no proof whatever.73
And it is no better with the other arguments that are often brought forward to prove the supposed higher productivity of a socialistic society. When for example people argue that under Socialism everyone capable of work will have to work, they are sadly mistaken as to the number of idlers under Capitalism.
The Position of the Individual Under Socialism
[71. ]Kautsky, Die soziale Revolution, II, pp. 21 ff.
[72. ]Kautsky, Die soziale Revolution, II, p. 26.
[73. ]In the years of controlled economy we heard quite often of frozen potatoes, rotten fruit, spoiled vegetables. Did such things not happen formerly? Certainly. But they happened less often. The merchant whose fruit spoiled suffered monetary loss, and that made him careful in the future. If he did not take better care he was ruined at last. He ceased to direct production and was removed to a place in economic life where he could do no more harm. But it is otherwise with the goods which the state deals in. Here there is no individual interest behind the commodities. Here officials trade, whose responsibility is so divided that no one gets particularly excited about a small misfortune.