Why the “New Socialist Man” Runs into Trouble

“The knowledge encoded in the profit/loss system that emerges in a free market cannot be recovered by a socialist Leviathan.”

Throughout the nineteenth century, economic socialism was given its intellectual foundations by the Utopian Socialists such as Charles Fourier and Robert Owen—and by the “Scientific” Socialists Karl Marx and Friedrich Engels. Austrian economics was only founded in 1873, with the publication of Carl Menger’s Principles of Economics. So while the greatest economic theory was still finding its legs, the task of refuting socialism fell into the laps of the classical economists.

These economists argued that under-centralized control of the means of production and provision of consumer goods to each person “according to his needs,” workers would have no incentive to be productive. Absent the dangling carrot that is the profit motive, no one would put effort into his duties. John Stuart Mill wrote: “Competition may not be the best conceivable stimulus, but it is at present a necessary one, and no one can foresee the time when it will not be indispensable to progress.” The socialists responded that there would be a “New Socialist Man,” who would work to the benefit of the community and, hence, would not require monetary profit in the first place.

These classical economists implicitly conceded that if the so-called incentive problem could be solved, then a socialist economy could be as productive and allow as much wealth creation as could a capitalist one. There was no principled argument against coercive government takeover of vast swathes of the economy. The best that the intellectual descendants of Adam Smith could do was argue that such a society would be “unrealistic.” But unrealistic is a far stretch from impossible, especially to the socialist, “we’ll-mold-man-according-to-our-vision,” thinker.