from Marginal Revolution: "The End of Free College in England"

"It seems to have been a largely pro-education, egalitarian development, at least according to a new research paper by Richard Murphy, Judith Scott-Clayton, and Gillian Wyness:

Despite increasing financial pressures on higher education systems throughout the world, many governments remain resolutely opposed to the introduction of tuition fees, and some countries and states where tuition fees have been long established are now reconsidering free higher education. This paper examines the consequences of charging tuition fees on university quality, enrollments, and equity. To do so, we study the English higher education system which has, in just two decades, moved from a free college system to one in which tuition fees are among the highest in the world. Our findings suggest that England’s shift has resulted in increased funding per head, rising enrollments, and a narrowing of the participation gap between advantaged and disadvantaged students. In contrast to other systems with high tuition fees, the English system is distinct in that its income-contingent loan system keeps university free at the point of entry, and provides students with comparatively generous assistance for living expenses. We conclude that tuition fees, at least in the English case supported their goals of increasing quality, quantity, and equity in higher education.

I have long been of the view that free tuition for U.S. state schools would be an educational disaster."

Marx the Man

Stolen shamelessly from the Foundation for Economic Education:

Richard M. Ebeling

Tuesday, February 14, 2017

When Karl Marx died in March 1883, only about a dozen people attended his funeral at a cemetery in London, England, including family members. Yet, for more than a century after his death – and even until today – there have been few thinkers whose ideas have been as influential on various aspects of modern world history. Indeed, as some have said, no other faith or belief-system has had such a worldwide impact as Marxism, since the birth of Christianity and the rise of Islam.

In attempt to make a “better” world, communist regimes have killed as many as 200 million people in the 20th century.

Marx’s critique of capitalism and capitalist society has shaped much of the social thinking in Western countries that led to the welfare state and extensive government intervention into economic affairs. And it served as the ideological banner that inspired the socialist and communist revolutions of the twentieth century – beginning in Russia in 1917 and still retaining political power today in such countries as Cuba, North Korea, Vietnam, and China.

In the name of the Marxian vision of a “new society” and a “new man,” socialist and communist revolutions led to the mass murders, enslavement, torture, and starvation of tens of millions of people around the world. Historians have estimated that in the attempt to make that “new” and “better” socialist world, communist regimes have killed as many as, maybe, 200 million people in the twentieth century.

Marx’s Private Life

Karl Marx was born on May 5, 1818, in the Rhineland town of Trier. His parents were Jewish, with a long line of respected rabbis on both sides of the family. But to follow a legal career in the Kingdom of Prussia at the time, Karl Marx’s father converted to Protestantism. Karl’s own religious training was limited; at an early age he rejected all belief in a Supreme Being.

After studying for a time in Bonn, he transferred to the University of Berlin to work on a doctoral degree in philosophy. But he was generally a lazy and good-for-nothing student. The money that his father sent to him for tuition at the University was spent on food and drink, with many of his nights spent at coffee houses and taverns getting drunk and arguing about Hegelian philosophy with other students. He finally acquired his doctoral degree by submitting his dissertation to the University of Jena in eastern Germany.

Marx would not allow his illegitimate child to visit their mother when he was at home.

Marx’s only real jobs during his lifetime were as occasional reporters for or editors of newspapers and journals most of which usually closed in a short period of time, either because of small readership and limited financial support or political censorship by the governments under which he was living.

His political activities as a writer and activist resulted in his having to move several times, including to Paris and Brussels, finally ending up in London in 1849, where he lived for the rest of his life, with occasional trips back to the European continent.

Though Marx was “middle class” and even “Victorian” in many of his everyday cultural attitudes, this did not stop him from breaking his marriage vows and committing adultery. He had sex enough times with the family maid that she bore him an illegitimate son – and this under the same roof with his wife and his legitimate children (of which he had seven, with only three living to full adulthood).

But he would not allow his illegitimate child to visit their mother in his London house whenever he was at home, and the boy could only enter the house through the kitchen door in the back of the house. In addition, he had his friend, longtime financial benefactor, and intellectual collaborator, Fredrick Engels, claim parentage of the child so to avoid any social embarrassment falling upon himself due to his infidelity.

As historian Paul Johnson explained in his book, Intellectuals (1988):

In all his researches into the iniquities of British capitalism, he came across many instances of low-paid workers but he never succeeded in unearthing one who was paid literally no wages at all. Yet such a worker did exist, in his own household ... This was Helen Demuth [the life-long family maid]. She got her keep but was paid nothing ... She was a ferociously hard worker, not only cleaning and scrubbing, but managing the family budget ... Marx never paid her a penny ...

In 1849-50 ... [Helen] became Marx’s mistress and conceived a child ... Marx refused to acknowledge his responsibility, then or ever, and flatly denied the rumors that he was the father… [The son] was put out to be fostered by a working-class family called Lewis but allowed to visit the Marx household [to see his mother]. He was, however, forbidden to use the front door and obliged to see his mother only in the kitchen.

Marx was terrified that [the boy’s] paternity would be discovered and that this would do him fatal damage as a revolutionary leader and seer ... [Marx] persuaded Engels to acknowledge [the boy] privately, as a cover story for family consumption. But Engels ... was not willing to take the secret to the grave. Engels died, of cancer of the throat, on 5 August 1895; unable to speak but unwilling that Eleanor [one of Marx’s daughters] should continue to think her father unsullied, he wrote on a slate: ‘Freddy [the boy’s name] is Marx’s son ...

Marx’s Mean and Mendacious Manner

In temperament, Marx could be cruel and authoritarian. He treated people with whom he disagreed in a crude and mean way, often ridiculing them in public gatherings. Marx had no hesitation about being a hypocrite; when he wanted something from someone he would flatter them in letters or conversation, but then attack them in nasty language behind their backs to others. He often used racial slurs and insulting words to describe the mannerisms or appearance of his opponents in the socialist movement.   

For instance, in an 1862 letter to Frederick Engels, Marx described leading nineteenth-century German socialist, Ferdinand Lassalle, in the following way:

The Jewish Nigger Lassalle ... fortunately departs at the end of this week ... It is now absolutely clear to me that, as both the shape of his head and his hair texture shows – he descends from the Negros who joined Moses’ flight from Egypt (unless his mother or grandmother on the paternal side hybridized with a nigger). Now this combination of Germanness and Jewishness with a primarily Negro substance creates a strange product. The pushiness of the fellow is also nigger-like.

In Marx’s mind, the Jew in bourgeois society encapsulated the essence of everything he considered despicable in the capitalist system, and only with the end of the capitalist system would there be an end to most of those unattractive qualities. Here is Marx’s conception of the Jewish mind in nineteenth century Europe, from his essay "On the Jewish Question" (1844):

What is the secular basis of Judaism? Practical need, self-interest. What is the worldly cult of the Jew? Haggling. What is his worldly god? Money! ... Money is the jealous god of Israel before whom no other god may exist.

Money degrades all the gods of mankind and converts them into commodities ... What is contained abstractly in the Jewish religion – contempt for theory, for art, for history, for man as an end in himself ... The social emancipation of the Jew is the emancipation of society from Jewishness.

(Marx’s caricaturing description of the asserted “Jewish mindset” rings amazingly similar to those that were later written by the Nazi “race-scientists” of the 1930s, who also condemned Jews for the same self-interested pursuit of money and the resulting degenerative influence that they believed Jews had upon the German people.)

Marx was also what some might label as a plagiarist. From 1852 to 1862, Marx worked as a European correspondent for the New York Daily Tribune. Marx found it too burdensome to grind out the expected two articles per week, for which he was relatively well paid. Instead, he spent his time participating in revolutionary intrigues and researching, reading, and writing for what became his famous work, Das Kapital.

During Marx’s decade of employment with the newspaper, Friedrich Engels wrote about one-third of his articles. Marx’s name still appeared on the by-lines.

A Filthy Home and a Personality to Match

Many found Marx’s personal appearance and manner off-putting or even revolting. In 1850, a spy for the Prussian police visited Marx’s home in London under the pretense of a German revolutionary. The report the spy wrote was shared with the British Ambassador in Berlin.  The report said, in part:

[Marx] leads the existence of a Bohemian intellectual. Washing, grooming and changing his linen are things he does rarely, and he is often drunk. Though he is frequently idle for days on end, he will work day and night with tireless endurance when he has much work to do.

He has no fixed time for going to sleep or waking up. He often stays up all night and then lies down fully clothed on the sofa at midday, and sleeps till evening, untroubled by the whole world coming or going through [his room] ... 

There is not one clean and solid piece of furniture. Everything is broken, tattered and torn, with half an inch of dust over everything and the greatest disorder everywhere ...

When you enter Marx’s room smoke and tobacco fumes make your eyes water ... Everything is dirty and covered with dust, so that to sit down becomes a hazardous business. Here is a chair with three legs. On another chair the children are playing cooking. This chair happens to have four legs. This is the one that is offered to the visitor, but the children’s cooking has not been wiped away and if you sit down you risk a pair of trousers.

Another report on meeting Marx was given by Gustav Techow, a Prussian military officer who had joined the Berlin insurrectionists during the failed revolution of 1848. Techow had to escape to Switzerland after being sentenced and imprisoned for treason. The revolutionary group with whom Techow associated in Switzerland sent him to London and he spent time with Marx.

In a letter to his revolutionary associates, Techow described his impression of Marx, the man and his mind. The picture was of a power-lusting personality who had contempt for both friends and foes:

He gave me the impression of both outstanding intellectual superiority and a most impressive personality. If he had had as much heart as brain, as much love as hate, I would have gone through fire with him despite the fact that he not only did not hide his contempt for me, but as the end was quite explicit about it ...

I regret, because of our cause, that this man does not have, together with his outstanding intelligence, a noble heart to place at our disposal. I am convinced that everything good in him has been devoured by the most dangerous personal ambitions. He laughs at the fools who repeat after him his proletarian catechism, just as he laughs at [other] communists ... and also at the bourgeoisie ...

Despite all of his assurances to the contrary, perhaps precisely because of them, I left with the impression that personal domination is the end-all of his every activity ... And [Marx considers that] all of his old associates are, despite their considerable talents, well beneath and behind him and should they ever dare to forget that, he will put them back in their places with the impudence worth of a Napoleon.

Playbook for Revolution and Mass Murder

Marx’s desire to destroy the institutions of society and his blood-thirst towards enemies in the coming communist revolution was captured in his plan of action, written with Engels, for the Central Committee of the Communist League in March 1850. It reads like the literal playbook for what Vladimir Lenin did in undertaking the Bolshevik Revolution in Russia.

He stated that the goal of the organization was “the overthrow of the privileged classes,” initially in cooperation with the petty and liberal “bourgeois” political parties. Marx warned that these democratic parties only want to establish a liberal agenda of reduced government spending, more secure private property rights and some welfare programs for the poor. Instead, Marx said,

Its our interest and our task to make the revolution permanent until all the more or less propertied classes have been driven from their ruling positions, until the proletariat has conquered state power and until the association of the proletarians has progressed sufficiently far – not only in one country but in all the leading countries of the world ...

Our concern cannot simply be to modify private property, but to abolish it, not to hush up class antagonisms but to abolish classes, not to improve the existing society but to found a new one.

In the process of overthrowing the liberal democratic order that assumes power following the end of the monarchical rulers, Marx said that the revolutionary proletariat needed to form armed “councils” outside of the democratic government’s authority and control. This is the very method Lenin insisted upon in Russia in the form of “Soviets” after the abdication of the Russian czar in March 1917 and in opposition to the newly established provisional democratic government that replaced the Russian monarchy.

Marx insisted that the feudal lands were not to be turned into peasant-owned private farms. No, instead, they were to be taken over by the state and transformed into collective farms upon which all among rural population will be made to live and work. And all industries had to be nationalized under an increasingly centralized and all-powerful proletarian government, to assure the end of capitalism and “bourgeois” democracy.

In addition, Marx said, the communist leaders must work to ensure that the immediate revolutionary excitement is not suddenly suppressed after the victory. On the contrary,

... it must be sustained as long as possible. Far from opposing the so-called excesses – instances of popular vengeance against hated individuals or against public buildings with which hateful memories are associated – the workers’ party must not only tolerate these actions but must even give them direction.

In other words, Marx was insisting upon fostering a frenzy of “vengeance against hated individuals” that clearly meant terror and mass murder. And this, too, was the signpost that Lenin followed in assuring the triumph of his revolution in Russia.

The Foundation for Real Tragedy

How did Marx become an advocate of mass murder and dictatorship in place of liberal democracy and social peace? What intellectual influences worked on him that lead to his becoming the visionary advocate of what he came to call “scientific socialism” and the belief that the “laws of history” dictated the inevitable doom of capitalism and the inescapable triumph of communism?

And how did his conception of mankind’s destiny create the foundation for the human tragedy of “socialism-in-practice” in the twentieth century?

Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.

Excerpt from Ludvig von Mises' "Liberalism" (1972)

6. The Psychological Roots of Antiliberalism

It cannot be the task of this book to discuss the problem of social cooperation otherwise than with rational arguments. But the root of the opposition to liberalism cannot be reached by resort to the method of reason. This opposition does not stem from the reason, but from a pathological mental attitude—from resentment and from a neurasthenic condition that one might call a Fourier complex, after the French socialist of that name.

Concerning resentment and envious malevolence little need be said. Resentment is at work when one so hates somebody for his more favorable circumstances that one is prepared to bear heavy losses if only the hated one might also come to harm. Many of those who attack capitalism know very well that their situation under any other economic system will be less favorable. Nevertheless, with full knowledge of this fact, they advocate a reform, e.g., socialism, because they hope that the rich, whom they envy, will also suffer under it. Time and again one hears socialists say that even material want will be easier to bear in a socialist society because people will realize that no one is better off than his neighbor.

At all events, resentment can still be dealt with by rational arguments. It is, after all, not too difficult to make clear to a person who is filled with resentment that the important thing for him cannot be to worsen the position of his better situated fellow men, but to improve his own.

The Fourier complex is much harder to combat. What is involved in this case is a serious disease of the nervous system, a neurosis, which is more properly the concern of the psychologist than of the legislator. Yet it cannot be neglected in investigating the problems of modern society. Unfortunately, medical men have hitherto scarcely concerned themselves with the problems presented by the Fourier complex. Indeed, they have hardly been noticed even by Freud, the great master of psychology, or by his followers in their theory of neurosis, though it is to psychoanalysis that we are indebted for having opened up the path that alone leads to a coherent and systematic understanding of mental disorders of this kind.

Scarcely one person in a million succeeds in fulfilling his life’s ambition. The upshot of one’s labors, even if one is favored by fortune, remains far inferior to what the wistful daydreams of youth allowed one to hope for. Plans and desires are shattered on a thousand obstacles, and one’s powers prove too weak to achieve the goals on which one has set one’s heart. The failure of his hopes, the frustration of his schemes, his own inadequacy in the face of the tasks that he has set himself—these constitute every man’s most deeply painful experience—they are, indeed, the common lot of man.

There are two ways in which man can react to this experience.

One way is indicated by the practical wisdom of Goethe:

Dost thou fancy that I should hate life,

Should flee to the wilderness,

Because not all my budding dreams have blossomed?

his Prometheus cries. And Faust recognizes at the “highest moment” that “the last word of wisdom” is:

No man deserves his freedom or his life

Who does not daily win them anew.

Such a will and such a spirit cannot be vanquished by any earthly misfortune. He who accepts life for what it is and never allows himself to be overwhelmed by it does not need to seek refuge for his crushed self-confidence in the solace of a “saving lie.” If the longed-for success is not forthcoming, if the vicissitudes of fate destroy in the twinkling of an eye what had to be painstakingly built up by years of hard work, then he simply multiplies his exertions. He can look disaster in the eye without despairing.

The neurotic cannot endure life in its real form. It is too raw for him, too coarse, too common. To render it bearable he does not, like the healthy man, have the heart to “carry on in spite of everything.” That would not be in keeping with his weakness. Instead, he takes refuge in a delusion. A delusion is, according to Freud, “itself something desired, a kind of consolation”; it is characterized by its “resistance to attack by logic and reality.” It by no means suffices, therefore, to seek to talk the patient out of his delusion by conclusive demonstrations of its absurdity. In order to recuperate, the patient himself must overcome it. He must learn to understand why he does not want to face the truth and why he takes refuge in delusions.

Only the theory of neurosis can explain the success enjoyed by Fourierism, the mad product of a seriously deranged brain. This is not the place to adduce evidence of Fourier’s psychosis by quoting passages from his writings. Such descriptions are of interest only to the psychiatrist and, perhaps, also to people who derive a certain pleasure from reading the productions of a lewd phantasy. But the fact is that Marxism, when it is obliged to leave the field of pompous dialectical rhetoric and the derision and defamation of its opponents and to make a few meager remarks pertinent to the issue, never has anything different to advance from what Fourier, the “utopian,” had to offer. Marxism is likewise unable to construct a picture of a socialist society without making two assumptions already made by Fourier that contradict all experience and all reason. On the one hand, it assumes that the “material substratum” of production, which is “already present in nature without the need of productive effort on the part of man,” stands at our disposal in such abundance that it need not be economized; hence the faith of Marxism in a “practically limitless increase in production.” On the other hand, it assumes that in a socialist community work will change from “a burden into a pleasure”—indeed, that it will become “the primary necessity of life.” Where a superfluity of all goods abounds and work is a pleasure, it is, doubtless, an easy matter to establish a land of Cockaigne.

Marxism believes that from the height of its “scientific socialism” it is entitled to look down with contempt on romanticism and romantics. But in reality its own procedure is no different from theirs. Instead of removing the impediments that stand in the way of the realization of its desires, it too prefers to let all obstacles simply fade away in the mists of phantasy.

In the life of the neurotic the “saving lie” has a double function. It not only consoles him for past failure, but holds out the prospect of future success. In the case of social failure, which alone concerns us here, the consolation consists in the belief that one’s inability to attain the lofty goals to which one has aspired is not to be ascribed to one’s own inadequacy, but to the defectiveness of the social order. The malcontent expects from the overthrow of the latter the success that the existing system has withheld from him. Consequently, it is entirely futile to try to make clear to him that the utopia he dreams of is not feasible and that the only foundation possible for a society organized on the principle of the division of labor is private ownership of the means of production. The neurotic clings to his “saving lie,” and when he must make the choice of renouncing either it or logic, he prefers to sacrifice logic. For life would be unbearable for him without the consolation that he finds in the idea of socialism. It tells him that not he himself, but the world, is at fault for having caused his failure; and this conviction raises his depressed self-confidence and liberates him from a tormenting feeling of inferiority.

Just as the devout Christian could more easily endure the misfortune that befell him on earth because he hoped for a continuation of personal existence in another, better world, where those who on earth had been first would be last and the last would be first; so, for modern man, socialism has become an elixir against earthly adversity. But whereas the belief in immortality, in a recompense in the hereafter, and in resurrection formed an incentive to virtuous conduct in this life, the effect of the socialist promise is quite different. It imposes no other duty than that of giving political support to the party of socialism; but at the same time it raises expectations and demands.

This being the character of the socialist dream, it is understandable that every one of the partisans of socialism expects from it precisely what has so far been denied to him. Socialist authors promise not only wealth for all, but also happiness in love for everybody, the full physical and spiritual development of each individual, the unfolding of great artistic and scientific talents in all men, etc. Only recently Trotsky stated in one of his writings that in the socialist society “the average human type will rise to the heights of an Aristotle, a Goethe, or a Marx. And above this ridge new peaks will rise.”1 The socialist paradise will be the kingdom of perfection, populated by completely happy supermen. All socialist literature is full of such nonsense. But it is just this nonsense that wins it the most supporters.

One cannot send every person suffering from a Fourier complex to the doctor for psychoanalytic treatment; the number of those afflicted with it is far too great. No other remedy is possible in this case than the treatment of the illness by the patient himself. Through self-knowledge he must learn to endure his lot in life without looking for a scapegoat on which he can lay all the blame, and he must endeavor to grasp the fundamental laws of social cooperation.

A beginner’s guide to socialist economics

From Human

By Marian L. Tupy

In recent years, I have given a number of presentations to high-school and college students on the importance of economic freedom and persistent threat of socialism – as witnessed, for example, by the recent economic meltdown in Venezuela. One problem that I have encountered is that young people today do not have a personal memory of the Cold War, let alone an understanding of social and economic arrangements in the Soviet bloc, which, I suspect are either downplayed or ignored in American school curricula. As a result, I have written a basic guide to socialist economics, drawing on my personal experience growing up under communism. I hope that this – somewhat longer piece – will be read by the millennials, who are so often drawn to failed ideas of yore.

As a boy growing up in communist Czechoslovakia, I would, for many years, walk by a building site that was to become a local public health facility or clinic. The construction of this small and ugly square-shaped building was slow and shoddy. Parts of the structure were falling apart even while the rest of it was still being built.

Recently, I returned to Slovakia. One day, while driving through the capital of Bratislava, I noticed a brand new suburb that covered a hill that was barren a mere two years before. The sprawling development of modern and beautiful houses came with excellent roads and a large supermarket. It provided a home, privacy, and safety for hundreds of families.

How was it possible for a private company to plan, build, and sell an entire suburb in less than two years, but impossible for a communist central planner to build one small building in almost a decade?

A large part of the answer lies in “incentives.” The company that built the suburb in Slovakia did not do so out of love for humanity. The company did so, because its owners (i.e., shareholders or capitalists) wanted to make a profit. As Adam Smith, the founding father of economics, wrote in 1776, “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.”

In a normally functioning market, it is rare for only one company to provide a certain kind of good or service. The people who bought the houses in the suburb that I saw did not have to do so. They could have bought different houses built by different developers in different parts of town at different prices. Competition, in other words, forces capitalists to come up with better and cheaper products – a process that benefits us all.

Communists opposed both profit and competition. They saw profit-making as useless and immoral. In their view, capitalists did not work in the conventional sense. The real work of building the bridges and plowing the fields was done by the workers. The capitalists simply pocketed the company’s profits once the workers’ wages have been paid out. Put differently, communist believed that the capitalist class exploited the working class – and that was incompatible with the communist goal of a classless and egalitarian society.

But capitalists are neither useless nor immoral. For example, capitalists often invest in new technologies. Companies that have revolutionized our lives, like Apple and Microsoft, received their initial funding from private investors. Because their own money is on the line, capitalists tend to be much better at spotting good investment opportunities than government bureaucrats. That is why capitalist economies, not communist ones, are the leaders in technological innovation and progress.

Moreover, by investing in new technologies and by creating new companies, capitalists provide consumers with a mind-boggling variety of goods and services, create employment for billions of people, and contribute trillions of dollars in tax revenue. Of course, all investment involves at least some level of risk. Capitalists reap huge profits only when they invest wisely. When they make bad investments, capitalists often face financial ruin.

Unfortunately, communists did not share the above views and banned private investment, private property, risk-taking and profit-making. All large privately held enterprises, like shoe factories and steel mills, were nationalized. A vast majority of small privately held enterprises, like convenience stores and family farms, were also taken over by the state. The expropriated owners seldom received any compensation. Everyone now became a worker and everyone worked for the state.

In order to prevent new income inequalities and new classes from emerging, everyone was paid more-or-less equally. That proved to be a major problem. Since people did not make more money when they worked harder, few of them worked hard. The communists tried to motivate or incentivize the workforce through propaganda. Posters of strong and determined workers were ubiquitous throughout the former Soviet empire. Movies about hardworking miners and farmers were supposed to instill the population with socialist zeal.


Propaganda alone could not increase the productivity of communist workers to Western levels. To incentivize the workforce, communist regimes resorted to terror. Workers who slacked off on the job were sometimes convicted of sabotage and shot. More often, they were sent to the Gulag – a system of forced labor camps. Sometimes, the authorities arrested and punished completely innocent people on purpose. Arbitrary terror, the communists believed, made the rest of the workforce more productive.

In the end, tens of millions of people in the Soviet Union, China, Cambodia, and other communist countries were sent to labor camps. The living and working conditions in the camps were inhuman and millions of people perished. My great uncle, who was accused and convicted of being a supporter of the underground democratic opposition in communist Czechoslovakia, was sent to mine uranium for the Soviet nuclear arms program. Working without any protection from radiation, he died of cancer.

By the late 1980s, communist regimes lost much of their revolutionary zeal. Terror and fear subsided, and productivity declined further. Thus, in the late 1980s, an average industrial worker in Western Europe was almost eight times as productive as his Polish counterpart. Put differently, in the same time and with the same resources that a Polish worker needed to produce $1 worth of goods, a Western European worker could produce $8 worth of goods.

Just as they replaced the profit motive with propaganda and terror, so the communists replaced competition with monopolistic production. Under capitalism, companies compete for customers by slashing prices and improving quality. Thus, a teenager today can choose between jeans made by Diesel, Guess, Calvin Klein, Levi’s and many others.

Communists thought that such competition was both wasteful and irrational. Instead, communist countries tended to have one monopolistic producer of cars, shoes, washing machines, etc. But, problems soon arose. Since producers in communist countries did not have to compete against anyone, they did not have any incentive to improve their products. Compare, for example, the BMW 850 that went into production in West Germany in 1989 and the Trabant that was made in East Germany at the same time.

Communist producers were protected from domestic competition by having a monopoly. They were also protected from foreign competition by prohibitively high import tariffs or an outright ban on imports. Put differently, they had a “captive” consumer base. The Trabant car manufacturer did not have to worry about losing consumers, since the latter had nowhere else to go.

Moreover, the workers at the Trabant car plant received the same salary irrespective of the number of cars they produced. As a result, they produced fewer cars than were needed. People in East Germany had to wait for many years, sometimes decades, before they were able to buy one. Indeed, shortages of most consumer goods, from important items such as cars to mundane items such as sugar, were ubiquitous. Endless queuing became a part of everyday life.

Under capitalism, shortages are generally avoided through the movement of prices. Some prices, like those of national currencies traded globally, change virtually every second. Other prices change more slowly. If there is a shortage of strawberries, for example, their price will rise. As a result, fewer people will be able to buy strawberries. On the upside, the people who value strawberries the most and are willing to pay the higher price will always find them.

The movement of prices provides important information for the capitalists. Capitalists take their money and invest it in more profitable business ventures. If the price of something is rising, not enough of it is being produced. Investors rush in with new capital, hoping to make a profit. Production increases. The economy as a whole thus tends toward an “equilibrium” or a point at which capital is distributed roughly where it is needed.

Prices are an important source of information, but where do they come from? In a capitalist economy, nobody sets prices. They emerge “spontaneously” in the market place. Every time I buy a cup of coffee on the way to work, for example, I incrementally increase the price of the coffee bean. Every time I fail to buy my usual morning cup of coffee because I am late for work, I decrease its price by a tiny amount. If everyone stopped buying coffee, its price would collapse.

Communists banned profit, capitalists, competition, free trade and much (if not all) private property – all of which are necessary for accurate prices to emerge. Instead, tens of millions of prices for items ranging from tractors to a loaf of bread were set annually (or every few years) by government bureaucrats. Since they could neither accurately predict how much bread would be produced (i.e., supplied) nor how much bread would be consumed (i.e., demanded), the bureaucrats almost always got the prices wrong.

Price-setting made shortages associated with low productivity worse. If the price of flour was set too high, bakeries would bake too little bread and bread would disappear from shops altogether. If the price of flour was set too low, too much bread would be baked and much of it would end up rotten. Put differently, communist economies were very inefficient.

To complicate matters, communists sometimes mispriced items intentionally. The price of meat, for example, was kept too low year after year out of political considerations. Low prices created an impression of affordability. On their trips abroad, communist officials would often boast that the workers in the Soviet empire could buy more meat and other produce than their Western counterparts. In reality, shops were often empty. As a consequence, money was of limited use. To get around shortages, many people in communist countries resorted to bartering goods and favors (or services).

Under communism, the state owned all production facilities, such as factories, shops and farms. In order to have something to trade with one another, people first had to “steal” from the state. A butcher, for example, stole meat and exchanged it for vegetables that the greengrocer stole. The process was inefficient, but it was also morally corrupting. Lying and stealing became widely used and trust between people declined. Far from fostering brotherhood between people, communism made everyone suspicious and resentful.

Of course, not everyone was equally affected by shortages. Government officials and their families could generally avoid the daily hardships of life under communism by having access to special shops, schools, and hospitals. Communism started as a movement for greater equality. In reality, it was a return to feudalism. Like feudal societies, communist societies had an aristocracy composed of the communist party members. Like feudal societies, communist societies had a population of serfs with limited or no rights and little possibility of social mobility. Like feudal societies, communist societies were held together by brute force.


I am sometimes asked why, if communism was so inefficient, it had survived as long as it did. Part of the reason rests in the brute force with which the communists kept themselves in power. Part of it rests in the emergence of smugglers, who made the economy run more smoothly. When, for example, a communist shoe factory ran out of glue, the factory manager called his contact in the “shadow” or “underground” economy. The latter would then obtain the glue by smuggling it out of the glue factory or from abroad. Smuggling was illegal, of course, but it was preferable to dealing with the government bureaucracy – which could take years. So, in a sense, communism’s longevity can be ascribed to the emergence of a quasi-market in goods a favors (or services).

This article originally appeared in CapX.