Front Page Titles (by Subject) 5: The Planned Economy - Socialism: An Economic and Sociological Analysis
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5: The Planned Economy - 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 Planned Economy
The so-called planned economy (Planwirtschaft) is a more recent variety of Socialism.
Every attempt to realize Socialism comes up quickly against insurmountable difficulties. This is what happened to Prussian State Socialism. The failure of nationalization was so striking that it could not be overlooked. Conditions in government undertakings were not such as to encourage further steps along the road to state and municipal control. The blame for this was thrown upon the officials. It had been a mistake to exclude the “business man.” In some way or other the abilities of the entrepreneur must be brought to the service of Socialism. From this notion came the arrangement of “mixed” enterprises. Instead of complete nationalization or municipalization we have the private undertaking in which the state or municipality is interested. In this way, on the one side, regard is paid to the demand of those who think it is not right that the state and municipalities should not share in the yield of undertakings carried on under their august sway. (Of course the State might get and gets its share more effectively by taxation without exposing the public finances to the possibility of loss. On the other hand it is thought by this system to bring all the active powers of the entrepreneur into the service of the common enterprise—a gross error. For as soon as representatives of the government take part in administration all the hindrances which cripple the initiative of public officials come into play. The “mixed” form of undertaking makes it possible to exempt employees and workers from the regulations applying to public officials and thereby to mitigate slightly the harmful effects which the official spirit exerts upon the profitability of undertakings. The mixed undertakings have certainly turned out better on the whole than the purely governmental undertakings. But this no more shows that Socialism is practicable than do the good results occasionally shown by individual public undertakings. That it is possible under certain favourable circumstances to carry on a public enterprise with some success in the midst of an economic society otherwise based on private property in the means of production does not prove that a complete socialization of society is practicable.
During the Great War the authorities in Germany and Austria tried, under war Socialism, to leave to the entrepreneurs the direction of nationalized undertakings. The haste with which socialist measures were adopted under very difficult war conditions and the fact that at the outset no one had any clear idea of the fundamental implications of the new policy, nor of the lengths to which it was to be carried, left no other means open. The direction of individual branches of production was made over to compulsory associations of employers, who were put under government supervision. Price regulation on the one hand and drastic taxation of profits on the other hand were to ensure that the employer was no more than an employee sharing the yield.37 The system worked very badly. Nevertheless it was necessary to adhere to it, unless all attempts at Socialism were to be abandoned, because no one knew anything better to put in its place. The memorandum of the German Economic Ministry (May 7th, 1919), drawn up by Wissell and Moellendorff, states in plain words, that there was nothing else for a socialist government to do but to maintain the system known during the war as “war economy.” “A socialist government” it says “cannot ignore the fact that, because of a few abuses, public opinion is being poisoned by interested criticisms against a systematic planned economy; it may improve the planned system; it may reorganize the old bureaucracy; it may even in the form of self-government make over the responsibility to the people concerned in the business; but it must proclaim itself an adherent of the compulsory planned economy: that is to say an adherent of the most unpopular concepts of duty and coercion.”38
Planned economy is a scheme of a socialist community that attempts to solve in a particular way the insoluble problem of the responsibility of the acting organ. Not only is the idea on which this attempt is based deficient, but the solution itself is only a sham, and that the creators and supporters of this scheme should overlook this, is particularly characteristic of the mental attitude of officialdom. The self-government granted to individual areas and to individual branches of production is important only in minor matters, for the centre of gravity of economic activity lies in the adjustment between individual areas and individual branches of production. This adjustment can only proceed uniformly; if this is not provided for, the whole plan would have to be regarded as syndicalist. In fact Wissell and Möllendorff envisage a State Economic Council which has “supreme control of the German economic system in co-operation with the highest competent organs of the State.”39 In essence, therefore, the whole proposal comes to nothing more than that responsibility for the economic administration is to be shared between the ministers and a second authority.
The Socialism of the planned economy is distinguished from the State Socialism of the Prussian State under the Hohenzollerns chiefly by the fact that the privileged position in business control and in the distribution of income, which the latter allotted to the Junkers and the bureaucrats, is here assigned to the ci-devant entrepreneur. This is an innovation dictated by the change in the political situation resulting from the catastrophe which has overwhelmed the Crown, the nobility, the bureaucracy and the officer class; apart from this it is without significance for the problem of Socialism.
In the last few years, a new word has been found for that which was covered by the expression “planned economy”: State Capitalism, and no doubt in the future many more proposals for the salvaging of Socialism will be brought forward. We shall learn many new names for the same old thing. But the thing, not its names, is what matters, and all schemes of this sort will not alter the nature of Socialism.
[37. ]On War Socialism and its consequences, see my Nation, Staat und Wirtschaft, pp. 140 ff.
[38. ]Denkschrift des Reichswirtschaftsministeriums, reprinted in Wissell, p. 106.
[39. ]Denkschrift des Reichswirtschaftsministeriums, reprinted in Wissell, p. 116.