Rent-Seeking, Hierarchy and Centralization: Why the Soviet Union Collapsed So Fast and What it Means for Market Economies

Austrian Theory and Economic Organization

“…In fact, consumer goods markets existed to about the same extent in the Soviet Union as they did in Lange's model of market socialism (Nell 2010b). The problem, as Mises (1996Mises ( [1949) explained, is that without a capital goods market, the consumer goods market is not a true market-producing firms must be able to bid on capital goods in order to produce what consumers demand efficiently and in the right amounts-just as the "internal markets" that large corporations create to try to determine the cost of intermediate goods (see Carson,chapter 3) are not true markets, and mirror the pseudo-markets of Soviet firm managers (see Nell 2010a).…”

“…It is implicit when, for example, they argue that labor-saving home appliances and falling food prices (which, they say, come with economic growth) help the poor more than they help the rich or oppose lump-sum taxes on the grounds that they are essentially regressive because a $1,000 tax affects the poor more than the rich (it is a clear double standard to not apply the logic in reverse) (Horwitz 2009;Lynch 1971;Matthews 1997: 193). Nell (2013) explores in more detail the flaws in Rothbard's argument (see also Burczak 2013 andMiller 1989a). 4 Burczak (2013) shows that the error is linked to another double standard, in which he sees a "join-or-starve" coercive situation for workers with regard to unions, but not when they face a "private" monopolistic employer and fear of starvation.…”

“…The Rothbardian conclusions regarding "demonstrated preferences" are entirely unwarranted: all "demonstrations" of preference are not equal, and all relevant preferences are not demonstrated. The demonstrated preferences concept has a very obvious flaw: It conflates willingness to pay and ability to pay (Nell 2013), treating them as interchangeable and implicitly assuming that anyone wishing to purchase something will be able to do so.…”

“…Individuals are influenced by what those around them purchase, but also the prices and availability of goods is determined by what the most active producers and consumers have already purchased. Despite modeling many evolutionary attributes of markets, Austrians also fail to account for the endogenous effect on preferences that must occur, and must in turn affect the society, in an evolutionary system-especially one in which preferences play the large role that they do in markets (see Nell 2013 andHodgson 1998: 165).…”

“…David Schweickart proposes a market socialism he calls "Economic Democracy" that completely eliminates the stock market and replaces interest paid to private individuals with a general capital tax. 12 New market socialists should know better: in the Soviet Union a capital charge was introduced (similar to Schweickart's tax), and investment was highly inefficient and contributed to "misallocation" of resources and shortages of critical consumer goods (Nell 2010a). Although Keynes (1936: 378) argued that animal spirits affect "aggregate demand" and cause business cycles, and hence "that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment," economists long before and long after Keynes have recognized the role of the investor and private creditors in resource allocation.…”