Socialism—The Tragedy Of An Idea: Possible? Inevitable? Desirable? [1st Edition] 3030578429, 9783030578428, 9783030578435

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Lajos Bokros

Socialism– The Tragedy of an Idea Possible? Inevitable? Desirable?

Socialism—The Tragedy of an Idea

Lajos Bokros

Socialism—The Tragedy of an Idea Possible? Inevitable? Desirable?

123

Lajos Bokros Central European University Vienna, Austria

ISBN 978-3-030-57842-8 ISBN 978-3-030-57843-5 https://doi.org/10.1007/978-3-030-57843-5

(eBook)

© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

In memoriam Ágnes Heller (1929–2019)

Preface

To write a book on another is tricky. To write one about five others is even more so. But sometimes, it is necessary, especially, when old and wholly discredited ideas come back in new clothing and claim their place under the sun as if they were new, with no antecedents, no history, no earned fame or disgrace. One such idea is about socialism. The concept of socialism as a necessary, or even desirable solution to most, if not all problems of capitalism and democracy would come back intermittently but surely as the wind to an ideological turbine. Modern capitalism and liberal democracy are outrageously imperfect—we have poverty, income and wealth inequality, environmental degradation, social exclusion, war, civil unrest, terrorism, etc.—so why not to try something else? But what is socialism? Soviet communism has surely been fatally discredited, but there should be many other, more viable, more efficient and at the same time more humane forms of state-sponsored, or perhaps even stateless collectivism. The impersonal and soulless market and the hopelessly alienated representative democracy—often captured by seemingly unbreakable special, even oligarchic interests—cannot be the ultimate achievements in human progress and in global institution building. There must be a conscious and solidaristic form of human cooperation in society instead of the seemingly blind and inhumane coordinaton of the markets. There should be a more direct way of individual participation in societal affairs than parlaments and parties. If there is to be further progressive development of humankind, more efficient and more humanistic institutions are to be discovered or invented. “Socialism with human face”. That was the slogan of the Communist Party of Czechoslovakia when initiating the “Prague Spring” more than 50 years ago. Although the experiment was brutally crushed by Soviet and other Warsaw Pact

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armies, the idea must have been supreme. Undoubtedly, nice and attractive. Life cannot turn out to be so cruel as to deny any possibility to realize it.1 Seventy plus years ago, during and immediately after WWII, socialism seemed to be not only possible but rather desirable. If not, then at least wholly inevitable. Western intellectuals were almost completely united in their rational acceptance of this new stage of development which seemed to be coming no matter what. Capitalism was considered irreparably damaged by thirty years of global war and a seemingly insoluble existential crisis.2 Socialism at that time was still not a discredited concept despite distortions in the Soviet Union. I was born in 1954, one year after Stalin had passed away. Socialism was an everyday harsh reality in my country, Hungary, which was under Soviet rule as a consequence of losing WWII in the foolish service of Nazi German interests and of the Yalta agreement. Since the communist party had very shallow roots in society, it compensated for it with a particularly overzealous leadership which wanted to accelerate the presumptive progress of Hungarian society toward communism at all costs. Mátyás Rákosi, general secretary of the Hungarian communist party, proudly declared himself the best disciple of Stalin. Throughout the tragic and checkered history of their country, curiously, Hungarian political leaders proved to be either radical, fierce, uncompromising freedom fighters or extremely obsequious servants of foreign interests.3 In this particular case, the latter type of behavior prevailed.

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Ironically, the crushing of the Prague Spring by Soviet tanks helped the idea to remain nice and attractive for long. Had it not been for the Warsaw Pact intervention, the initiative of the Communist Party of Czechoslovakia (KPC) may not have survived for long either; it may have succumbed to its own internal contradictions. Reforms in Central Europe under communism prove that clearly. Market-orientated reforms always introduced growing inconsistency into the command economy. See Bokros (2013). At the same time, the easing of censorship would have put the basic tenets of Soviet communism in jeopardy. If free speech and free press had truly been allowed, sooner rather than later the basic questions regarding the organizing principles of economic and social life would have come to the fore. Should private property be allowed? If yes, to what extent? Are there limits, restrictions, not to be overstepped by the natural growth of private enterprise? How far competition stemming from private activity could be tolerated? If economic competition is to be had, what about political competition? Should non-communist parties be legalized and allowed to participate in political life? Can free and fair elections be allowed? Is multiparty democracy incompatible with socialism? The list of such “impertinent” questions arising in a free speech, free press and free assembly environment would and must have been endless. 2 See Ernst Nolte (2000). Although his version of history is not without controversy, the crisis of capitalism in Central and Eastern Europe is clearly stated in his wide sweep of European history as a root cause of civil war based on extremist ideologies. The Marxist perspective is offered by Hobsbawm (1994), which is equally controversial. More balanced views on the Russian revolution are offered by Brown (2009) and Figes (1996). 3 See Paul Lendvai (2003).

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Why is it important at all? Hungarian society was almost completely hostile to Soviet communism. The new society in practice was very different from anything ideologically conceived. But the overwhelming majority of Western intellectuals did not know real communism.4 They were prisoners of their well-intentioned, but wholly superficial Weltanschauung of “liberté égalité, fraternité” reflecting the spirit (although not always the letter) of early Marxian political writings. They imagined and desired something much better when comparing their theoretical construct about socialism to the realities of Western European and American capitalism. This was the fountain of tremendous confusion.5 By the end of WWII, Western intellectuals had already established a curious and preplexed relationship to Soviet Communism. Those who viewed market capitalism obsolete, at least in its laissez-faire form, had no choice but to accept the brutal non-market orientation of Soviet communism, as a default option.6 They did not bother themselves to invent a new name for the economic aspect of the Stalinist Soviet model, they simply followed the Bolsheviks by calling it mandatory central planning. Those, like Karl Popper, who felt that the market mechanism should be preserved although in a controlled or regulated form, considered the mandatory character of central planning unnecessary. Those, like Friedrich Hayek, who realized that the suspension or elimination of markets would also restrict political freedom were sceptical even with, and rather hostile to, the non-socialist attempts of pervasive state intervention. Today, the global situation is very different. Soviet communism is no more. The Chinese and the Vietnamese have embraced the market and largely given up the command economy. Market-supplanting variations of socialism have retreated to the fringe and can be observed only in small, rather insignificant outposts. More importantly, those countries which repudiate market forces have sunken into abject 4

A small circle of Marxist intellectuals, while repudiating the Stalinist model of communism after 1956, tried desperately to remain faithful to Marxism by unearthing obscure writings of the great prophet, like the “Economic and Philosophical Manuscripts” and the “German Ideology” and declaring them to contain the original Marxian thoughts. Curiously, these were essays Marx himself chose not to publish. See Judt (2005) pp. 401–407. 5 In April, 1973, an international conference of leading leftist Western, Yugoslav and Polish émigré intellectuals was held in Reading, UK, organized by the university and a publishing house. The volume containing the papers presented in this conference was published next year (Kolakowski and Hampshire, 1974). One of the editors, the famous Polish dissident scholar wrote on the very first page of his introduction something extremely revealing. He mentioned that the original title of the book was intended to have been “What is wrong with the Socialist Idea” but later it was changed into a milder one: “Is there anything wrong with the Socialist Idea?” The final title of the book is even milder: “The Socialist Idea”. This painful metamorphosis speaks volumes about either the ignorance of Western intellectuals on the reality of socialism or their intellectual dishonesty and shows their desperate efforts to save something of a clearly utopian thought after it was finally and fatally discredited by the Warsaw Pact invasion of Czechoslovakia in August, 1968. 6 Karl Polanyi and Joseph Schumpeter did exactly that—with much reservation and some emotional aloofness. While Polanyi considered it also desirable, Schumpeter viewed it as merely and sadly inevitable.

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poverty (e.g., Cuba, Venezuela, North Korea). Hence, none of them represent attractive alternatives any longer. The concept of socialism has fundamentally altered in the developed world. The right and left division of the political and ideological spectrum holds no longer. Far right parties have adopted many of the etatist characteristics of former leftist worldviews, while far left parties have become much less tolerant with traditional liberal social values especially regarding migration or sexual orientation. Hence, extremist parties, both right and left, can be considered more socialists in economic affairs and more conservative in social affairs.7 The meaning of socialism has become blurred. The Great Recession, i.e., the global financial crisis of 2007–2009, unleashed tremendous anger and frustration with markets, capitalism and democracy. Socialism as a possible way out of the crisis registered yet another comeback. But this time around it is more a revolt against the establishment, the corrupt elites which were unable to prevent the global financial system from melting down. Ways to solve the crisis just added to the anger and frustration, when banks—and even bankers—were saved but not jobs. Moreover, events have amply demonstrated that capitalism and representative democracy might be captured by special interests. The question is whether these fundamental problems can be remedied within the market economy and representative democracy or there is a need for an even more comprehensive rethinking and rebuilding of economic and political institutions. If yes, socialism is always worth analyzing as a potential alternative. This book is about proving that socialism, whatever definition we apply for it, albeit feasible, is neither inevitable, nor desirable. That was not at all clear a century ago, although I believe, and try to show in the present book, it must have been. Irrefutable theoretical arguments for the undesirability of the Bolshevik variant were already provided one hundred years ago and were widely known.8 But substantive refutation of any concept comes only after its failure in reality. As a consequence, vigilance must be preserved. Rejecting socialism depends ultimately

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The best proof of this was the existence of the short-lived governing coalition between Movimento Cinque Stelle (M5S) and La Lega (formerly Lega Nord) in Italy in 2019. Both parties are populist, etatist and nationalist; that is why they were able to form a coalition in the first place. Less well known was the coalition of the Greek Syriza, a far left populist party, which governed in coalition with a small party called the Independent Greeks (ANEL), a right-wing radical party between 2015 and 2019. More of this uncomfortable marriage of convenience between strange bedfellows can happen in the future. Coalitions of extremist parties reflect the obsolescence of the conventional wisdom of labelling them left or right. See Bokros (2019). 8 See Sect. 2.1.

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on our values.9 Rational arguments mean very little. Either we believe in liberty or we give it up willingly. To strenghten our values and beliefs in liberal democracy with rational arguments—this book might be of significance. Vienna, Austria

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This is going to be a key point throughout this book. Enthusiastic devotees of liberalism and capitalism may not necessarily be different from ardent fans of Socialism and Communism in this regard. Both can claim that their credo is the only one based on “impartial” scientific, i.e., rational analysis. Marx has maintained that historical materialism is the only scientific way of approaching human development and as a consequence, it is irrefutable and unbiased when it foresees the inevitable arrival of socialism. Ludwig von Mises, the great Austrian libertarian, who was undoubtedly a teacher for Schumpeter, Hayek and Popper maintained that liberalism is an ideology based entirely on scientific grounds, hence excluding both values and emotions like optimism and pessimism. See Mises (1985), p. 61.

Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Personal Sketches with Historical Background . . . . . . . . . . . 1.2 Grappling with Socialism in the Middle of the Last Century . 1.3 Soviet Genesis—The Tragedy of Socialism . . . . . . . . . . . . .

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1 1 11 13

2 Is Socialism Possible? . . . . . . . . 2.1 What is Socialism? . . . . . . . 2.2 Two Books—Two Ruptures 2.3 The Duel in Five Books . . . 2.4 Das Problem . . . . . . . . . . .

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3 Is Socialism Inevitable? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Harmony of the Conservative and the Socialist Views . . . . . . . . . 3.2 The Liberal Answer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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4 Is Socialism Desirable? . . . . . . . . . 4.1 Individualism and Collectivism 4.2 Superiority of Socialism? . . . . 4.3 Reform = Retreat . . . . . . . . . . 4.4 State and Socialism . . . . . . . . 4.5 Money and Market . . . . . . . . . 4.6 Socialism and Democracy . . . . 4.7 Socialism and Fascism . . . . . . 4.8 Ramifications of Socialism . . .

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5 Concluding Remarks: Historicism Leads to Dictatorship . . . . . . . . . 149 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

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Chapter 1

Introduction

1.1 Personal Sketches with Historical Background The analysis to be found in this tome is based mainly on five famous books written by five distinguished scholars right in the middle of the last century. Four of them were published during WWII and within four years, an extremely short period of time. In order of chronology, but without order of importance, these books are the following: Joseph Alois Schumpeter: Capitalism, Socialism and Democracy, 1942; Karl Polanyi: The Great Transformation, 1944; Friedrich August Hayek: The Road to Serfdom, 1944; Karl Popper: The Open Society and Its Enemies, 1945. The last one came to light somewhat later. It is a magnificent book of Hannah Arendt: The Origins of Totalitarianism, published in 1951.1 While it is remarkable that the first four of the five was published within just four years; even more significant that they appeared in public during WWII. These were extremely important years, full of tensions and deprivations, first and foremost for the ongoing gigantic existential struggle against Nazism and fascism. The future of the free world and liberal democracy was on a knife’s edge. It was far from certain that the forces of liberal democracy would prevail.2 Another exceptional and extremely interesting feature of all these books is that they were written by scholars versed in, even stemming from, the German culture.3 1 Interestingly,

but purely by chance, this is also the order of chronology of birth for these scholars. Lukacs (2001) and (2010). 3 By the turn of the nineteenth and twentieth centuries, the German high culture was equally strong, important and widespread as the English or French-language culture. The hegemony of the USA was yet to be seen. It is quite appropriate to consider the belle époque of this first and Europe-led globalization as an inherently multicultural phenomenon. Many cities, now painfully unilingual, were vibrant Babels of multilingualism: Triest/Trieste/Trst (German, Italian, Slovenian), Thessaloniki/Salonika (Greek, Turkish), Skopje/Üsküp (Macedonian, Serbian, Turkish), Sarajevo (Bosniak, Croatian, Serbian, Turkish), Fiume/Rijeka (Italian, Croatian, Hungarian), Wilno/Vilna/Vilnius (Polish, Russian, Lithuanian), All of them had a significant Jewish population with or without a separate language. 2 See

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 L. Bokros, Socialism—The Tragedy of an Idea, https://doi.org/10.1007/978-3-030-57843-5_1

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1 Introduction

The first four had been born in the Austro-Hungarian Monarchy, a historically significant and venerable multiethnic state which, although it had been more than twenty years defunct by the time of their writing, still evoked a vivid memory. Schumpeter was the oldest: He came to the world in 1883, in the same year when Marx died and when nobody in his/her right mind had contemplated the eventual demise of the seven-hundred-years-old Central European multiethnic, multinational monarchy.4 Schumpeter spent more than half of his life in the Habsburg monarchy and died relatively young, at the age of 67 in January, 1950. He considered himself a conservative, a faithful adherent to market capitalism. Although he had Czech family ancestry, he viewed himself a German Austrian.5 Karl Polanyi6 was born in 1886 into a Jewish family in the then boomtown of Vienna, capital of the thriving Austro-Hungarian Monarchy. Despite being born there, he proudly regarded himself Hungarian. He attended Budapest University, which was a new center of academic excellence in the realm of Emperor Franz Josef at the turn of the twentieth century. He became a radical thinker, a member and the first leader of the famous Galilei Circle.7 He soon became skeptical about liberalism but was looking at radical socialism also with suspicion. Nevertheless, he remained an anti-capitalist through and through during his long, fruitful life. He died at the age of 78 in 1964.8 Friedrich A. Hayek was born in Vienna in 1899 in a family of leading scholars. He was a German Austrian without doubt and considered himself as such.9 He 4 The Austro-Hungarian Monarchy had eleven official languages: German, Czech, Slovene, Italian,

Polish and Ukrainian in the Austrian part (Cisleithania) and Hungarian, Croatian, Romanian, Serbian and Slovakian in the Hungarian one. While national grievances were multiple, the Monarchy was a proudly multiethnic, multinational, multi-religious entity. Could it be considered as a failed antecedent of the European Union? We will never know … 5 Although both his grandmothers were ethnically Czech, Schumpeter never learned that language and never regarded himself other than German Austrian. Assimilation of educated people who had been born into a rural or small town family of different ethnic origin into German culture when they became intellectuals was frequent. The Austro-Hungarian Monarchy was truly a multilingual melting pot for its more than half century of existence. 6 His name has to be written in Hungarian as Károly Polányi but, since he himself used mostly its Americanized form, I follow that usage throughout this book. 7 The Galilei Circle (Galilei Kör in Hungarian) was an association of free-thinking students from 1908 to 1919. Its aim was to promote unimpeded research in social sciences and the protection of the freedom of thought at universities, the financial and social support of poor students. By 1910, it was the most attended youth association which played a significant role in propagating radical, anti-feudal and civic ideas. During WWI, it became a pacifist outfit. In 1918, it was banned by the authorities and some of its leaders went to jail, including Ilona Duczynska, future wife of Karl Polanyi. 8 It is difficult to determine what exactly Karl Polanyi was by profession. Many streams of social sciences which today constitute separate disciplines were at that time still amalgamated in an organic stew. It is remarkable that Wikipedia has a hard time to pin down Polanyi; he is labeled by the website invariably as an economic historian, economic anthropologist, economic sociologist, political economist, historical sociologist and social philosopher. He was probably all in one. 9 While curious about his origin, whether he had Jewish ancestors or not, he explored the familiy tree and realized that his name is originally Czech (Hájek in Czech spelling), something which was

1.1 Personal Sketches with Historical Background

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served briefly in WWI and attended Vienna University thereafter. He was reading philosophy, psychology and political science and became highly impressed by the renowned scholars of the then famous Austrian school of economists, like Eugen Böhm von Bawerk, Carl Menger, Friedrich von Wieser and Ludwig von Mises. While having some socialist inclinations at the beginning, he became a staunch defender of liberalism and the market economy. He was awarded with the Nobel Prize in economics in 1974. He lived until 1992, long enough to be a witness of the fall of Soviet communism. Karl Popper was born in 1902, also in Vienna, three years after Hayek. After an equally fruitful and long life, he died in 1994, just two years later than Hayek. They can be considered almost perfect contemporaries. They knew each other and followed their intellectual career paths mutually and with great interest. Hayek helped Popper secure a job at the London School of Economics. Popper also attended the famous University of Vienna, but he was studying psychology and soon became more interested in philosophy (later he had no choice but immerse himself in economics, too). He was Jewish and German Austrian, quite typical among intellectuals at that time.10 Hannah Arendt is an outlier if we consider, not completely unreasonably, the previous four as a relatively tight-knit group. She is the only woman among these world renown scholars and the youngest one, having been born only in 1906. She is also exceptional because she was a German, having arrived to the world in a small community called Linden, now part of the city of Hanover. Like Popper, she was Jewish and a philosopher. She attended Marburg University during the brief period of the Weimar Republic and was a loyal disciple of Martin Heidegger.11 She died at nothing rare at that time in the leading metropolis of the Habsburg empire. Despite “accusations” from some intellectual colleagues, Jewish ancestry was not detected. 10 The increase of the proportion of Jews in so-called free professions, e.g., law, medicine, engineering, academia, and the arts, was significant throughout the existence of the Austro-Hungarian Monarchy as a consequence of almost unimpeded immigration, largely liberal politics, state and more or less uninterrupted, sometimes spectacular, economic growth. Jobs, especially brainintensive ones, were created by the tens of thousands which made it possible for diligent elements of ethnically, linguistically and religiously diverse groups of people to take advantage of the unprecedented broadening of life opportunities. Although the emergence of an intellectual class of Jewish origin gave rise to strong anti-semitic movements and ideologies, the half century of the Monarchy was later almost always remembered as happy peacetime later referred to as the “Belle Époque” (Die glückliche Friedenszeiten) even in German publications. On the basis of these exceptionally favorable conditions, everything pointed to a development which elevated Austrian achievements to the first row of global science. When it comes to intellectual excellence, Austria-Hungary was clearly punching well above its weight for a brief period of time (1867–1914). 11 Actually, she was much more than an enthusiastic student. She had a romantic relationship with the already famous professor as we know it today from two books written by Elisabeth Young-Bruehl (Hannah Arendt: For Love of the World. Yale University Press, 1982) and Elzbieta Ettinger (Hannah Arendt/Martin Heidegger. Yale University Press, 1995). While the first account was revealing and universally accepted, the second one has been received with remarkable hostility and has remained controversial ever since because it is alleged to have accused Hannah Arendt with lack of personal integrity given the fact that Martin Heidegger became a supporter of the NSDAP in Germany after 1933 even though he is considered a “Nazi-lite.” See Kolnai (1938), p. 207.

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the age of 69 in 1975, relatively young, before Hayek and Popper. She was a truly tragic figure, by far the most tragic out of the five. What are the most important common characteristics of the historical environment of these five distinguished scholars? For one thing, they started their careers in Mitteleuropa,12 a peculiar, but soon withering world strongly impregnated with the expanding and enriching German-language haute culture, something which had achieved the highest standards worldwide at that time, around the turn of the nineteenth and twentieth centuries. In their youth, they were thriving in and visibly enjoying an exceptionally favorable socio-political, scientific-cultural and literary– artistic environment,13 which, although not without its tensions and contradictions, made possible their progressing towards global renown and excellence. When these five were young, this Germanophile world looked like it was going to last in eternity.14 Then the world as they knew it suddenly collapsed and disappeared forever.15 They all tried to start a new life in a much more limited and restricted existence, but history decided otherwise. With the ascendancy of Nazism, first in Germany, later in Austria, too, they decided or were compelled to leave their homeland for the Anglo-Saxon world. All of them found a home either in England or in the USA. They gained world fame in the emerging Anglo-Saxon academic environment.16 As a consequence, now 12 Mitteleuropa is not just a geographic term in the German language but an economic and social space strongly conditioned with a special common culture. In addition, it is a well-known concept coined by Friedrich Neumann in 1915 during WWI. See Neumann (1915). As I described it in my previous book, “this concept reflects a rather unique culture and civilization that had existed for almost a millenium before 1900, has survived in various forms ever since, and with remarkable modifications, continues to exist even today. While Central Europe is a mere geographic expression, Mitteleuropa constitutes a unique culture with very special life feelings (lebensgefühl). It is a rather pessimistic and introvert culture reflecting several centuries of the peoples of the region in attaining state and status, i.e. political and economic development and emancipation despite having had a rather glorious past in the first five hundred years of their stately existence.” Bokros (2013), pp. 2–3. 13 One of the best summary of this flowering but at the same time visibly declining (decadent) cultural world is brought back to life by the young German historian of culture, Florian Illies in his best-selling book, entitled “1913”. Another hugely important reflection on this epoch is in Sándor Márai: The Withering World (2013). 14 And it was not only the permanence of a miraculous world, but also the brilliance of a culture and life feeling, taste of life (Lebensgefühl). The best description of it can be found in the autobiographic account of the Austrian writer Stefan Zweig: The World of Yesterday (Die Welt von Gestern). It is remarkable that Stefan Zweig wrote this famous book much later and in exile in Brazil, when and where the world of his youth was appearing only as a mirage. Tragically, he and his wife both committed suicide in Petrópolis, Brasil, in early 1942 at the height of Nazi power and world domination. 15 There has been a tremendous outpouring of new books on the basis of new and seemingly more impartial research about the causes and the origin of WWI at the first centenary of the cataclysmic tragedy. This book does not wish to repeat any of the findings, least take sides when it comes to the distribution of responsibility. All what is important here is that a fundamentally liberal and Europe-centered world and culture suddenly collapsed never to be reconstructed or resuscitated again. WWI proved clearly that “development,” whatever we mean by that, is never unilineal and far from deterministic. That will be an important conclusion when discussing socialism. 16 Social science got increasingly Americanized from the very beginning of the twentieth century. See Manicas (1987).

1.1 Personal Sketches with Historical Background

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all of them are regarded as British, American or Canadian scholars—in addition to being Austrian, Hungarian, German. How nice, how sad! This transformation—we can call it metamorphosis—is no coincidence.17 Thousands of people left the darkening German realm and not only intellectuals. Their natural escape route was via France and Great Britain, toward the USA, Canada, Australia or New Zealand.18 They contributed immensely to the intellectual and scientific development of their new homelands. Many scholars of German, Austrian or Hungarian and Czech origin made world-class science in the Anglo-Saxon cultural sphere.19 How and when these distinguished scholars left their original homelands? Schumpeter was relatively lucky. He was the oldest of the pack and had already established his career in the Habsburg era. It is also important that he was catholic; hence, much less disadvantaged then Jews after the collapse of the Monarchy. Moreover, he had already established close ties to England when he spent one year at the London School of Economics and visited Oxford and Cambridge universities. Last but not least, he imported a wife from the foggy island in 1907 who was daughter of a high level official of the Anglican church. As an already well-known, distinguished economist, he was invited to Berlin by Karl Kautsky to be a member of the Socialization Commission which was to prepare for the nationalization of several large enterprises in the newly born German republic. No longer a socialist himself, he felt he could exert a restraining influence on the first post bellum government of the new German republic, which was dominated by social democrats. But his stay in Berlin was very brief. In March, 1919, he accepted the invitation of Otto Bauer, his former fellow student, now minister of external affairs 17 Several factors contributed to their decision to emigrate from their vastly contracted countries and much shrunken intellectual environment. Losing WWI by Germany and Austria-Hungary and the disintegration of the latter is perhaps the original sin. The peace treaties of Versailles, Saint Germain and Trianon have significantly contributed to the feeling of catastrophe both at the intellectual and everyday level. Third, economic hardships were many and fast multiplying, making their negative impact immediately felt at academic and university circles. Fourth, the rise of national socialism first in Germany, then in Austria (after all, Hitler was born in Austria and he gained many followers there) put free thinking and academic liberty in jeopardy. Fifth, the unimpeded rise of anti-semitism and its becoming official government policy chilled the air and extinguished intellencual vibrancy, especially for scholars of Jewish origin. 18 It is no coincidence that all of them are either former British colonies or so-called white condominiums, fully impregnated with the best traditions of British liberal academic culture. Most oldfashioned classical liberals felt strongly attracted by this exceptional favorable environment when they realized that their German-language realm was to be extinguished. It was true not only for representatives of the social sciences and the humanities but equally important in case of natural scientists, engineers and technologists. 19 Countless German and Austrian Jews emigrated to the Anglo-Saxon world after Hitler came to power. Less well known is that the exodus of Hungarian scholars of Jewish origin started much earlier, right after WWI. Hungary became infamous by the introduction of its first anti-Jewish legislation in 1920. The law, popularly known as “numerus clausus,” restricted the number of students of Jewish origin to be admitted to faculties of natural sciences, economics, law, etc. This was the first step in the wholesale reversal of civic equality which led to four more and increasingly restrictive legislation against the Jews in Hungary in 1938, 1939, 1941, 1942.

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1 Introduction

in the first government of Karl Renner, the Austrian Social democrat, to become minister of finance of the new Austrian republic. Although his tenure in government did not last long in Vienna either, he made an impact on policy by opposing inflation and supporting a capital levy as the main source of amortizing war debt. After a short and unsuccessful career in banking, he returned to academia. He held a chair at the Bonn University between 1925 and 1932 while at the same time lecturing at Harvard University in 1927–28 and 1930. As a consequence, he was already a well-known figure in the USA when he decided to emigrate in 1932. He was almost 50 years old by then. Timing could not have been better or more auspicious. For the next twelve years, i.e., during the whole period of Hitler’s rule in Germany and fascism dominating Central and Eastern Europe, Schumpeter dedicated a tremendous amount of personal effort to assisting fellow economist colleagues displaced by Nazism. Schumpeter wrote and published a lot of articles and books originally in German, probably much more than in English in the last eighteen years of his life. Since he spent more time in Austrian-German banking, finance, government and science environment before finally settling down in American academia, it is not a surprise. But the point is that world fame arrived to him only in America, by the publication of his best known work: Capitalism, Socialism and Democracy. As already an American citizen these days, he could legitimately be regarded—and he also regarded himself— as an American scholar.20 Karl Polanyi was much less lucky with fate. As a progressive radical thinker, who supported the first republican government of Mihály Károlyi in the autumn of 1918, he decided to leave his homeland, Hungary, as early as in March, 1919, when the four-month-old Hungarian Communist party acquired power in the newly independent country and started a brutal Bolshevik-style dictatorship.21 Although the so-called Soviet Republic of Hungary (Magyar Tanácsköztársaság) proved to be very short-lived (it lasted only 133 days), the red terror practiced by it was immediately followed by an equally ferocious white terror unleashed by free officers’ corps, supported by Miklós Horthy, the former admiral of the Austro-Hungarian navy, the future regent of the soon reconstituted Kingdom of Hungary. The Horthy-regime, which lasted exactly for a quarter of a century, was fundamentally anti-semitic from its inception. Therefore, it was clear that there was no place for a prominent leftist Jewish intellectual in the small country sliding quickly into extreme right radical ethno-nationalism.

20 Gaining his citizenship of the USA was much facilitated by the fact that his second wife was American and he was already a distinguished member of the American Academy of Science. 21 The brand new Communist Party of Hungary was officially amalgamated with the much older Social Democratic Party of Hungary when Mihály Károlyi asked the latter to form a new and purely socialist government after the victorious Entente Cordiale powers handed over a new, for Hungary very disadvantageous demand for armistice demarcation lines. With this infamous Vix-note or memorandum the Western powers actually triggered, in fact, the bolshevik takeover in Hungary. It is also important to note that Lenin opposed the unification of the newly established Communist Party with the Social Democrats but Béla Kun decided to ignore his advice.

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Polanyi had spent his time in exile first in Vienna as a freelance journalist. Then, between 1924 and 1933, he was a senior editor of the liberal magazine, “The Austrian Economist” (Der Österreichische Volkswirt) which had been established in 1908. But after almost a decade of distinguished service as a prestigious journalist, he was asked to resign from his position when Hitler came to power. Even a liberal paper could not maintain a left-leaning editor at the time when clerical fascism was on quick rise in the small and weak republic of Austria. Polanyi went to London in 1933, together with so many of his contemporaries of Jewish origin. Their exodus can be regarded as the first, still mostly voluntary, wave of emigration from the former truly brilliant Kulturgebiet of Mitteleuropa. Their integration of British society was mostly successful although many of them ended up sooner rather than later in the USA or Canada. Polanyi moved to Vermont, USA, in 1940, when WWII was already under way. He accepted a lecturership at Bennington College where he taught a wide variety of subjects which later formed part of his most famous book, The Great Transformation. After the war, he received a teaching position at Columbia University in New York. Unfortunately, he could not settle in the city because his wife, a former communist, could not get an entry visa to the USA. Therefore, the family moved to Canada. Polanyi spent the rest of his life there while commuting to New York City. He died in Pickering, Canada, in 1964. His wife, the communist revolutionary, Ilona Duczynska, outlived him by 14 years.22 Friedrich August von Hayek was also born in Vienna just before the turn of the century, in 1899. As it was already noted, he was a German Austrian with no Jewish ancestry. He attended Vienna University and—like Schumpeter—was flirting first with socialist ideas, which were quite fashionable among young people, especially among university students at that time. But that was a very short and quickly abandoned detour for Hayek. He attended the university right after the war.23 He received 22 It is both important and interesting that Karl Polanyi had an equally talented and famous younger brother, Michael (Mihály) Polanyi, who was born in 1891, in Budapest, Hungary. Michael was truly a polymath, who made significant contributions not only to physical chemistry, but to economics and philosophy as well. After WWI and the subsequent revolutions he emigrated to Germany where he was appointed chemistry professor at the Kaiser Wilhelm Institute in Berlin. Obviously, he had to leave Germany in 1933. He went to England and received a professorship first in chemistry and later in social sciences. He was elected to the Royal Society in 1944. 23 Analyzing and comparing the lives of Schumpeter and Hayek, few people noticed the huge significance of timing. As it was mentioned already, Schumpeter attended Vienna University but well before WWI. He earned his Ph.D. in 1906, while learning from Carl Menger, Friedrich von Wieser and also from the world famous Eugen Böhm von Bawerk at the time of unbounded optimism. He was a star pupil and was appointed university professor and chair in Czernowitz, the capital of the then Austrian province of Bucovina in 1909. By the start of WWI in 1914, he was already a professor of political economy in Karl-Franzen University in Graz. He did not serve in the Great War. The contrast with Hayek’s career could not have been greater. Hayek was too young to attend university before WWI. He did serve in WWI for a full year and got injured in the Italian front. He also contracted the Spanish influenza epidemic but—fortunately—survived. He started his university studies right after the war, when the Austrian-Hungarian Monarchy disintegrated and then collapsed and disappeared altogether. The tragedy was hugely personal and social at the same time. Although

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his Ph.D. in 1921 (law) and 1923 (political science). Timing is everything—that was proven very clearly by the hugely diverging life experience of Schumpeter and Hayek.24 Ludwig von Mises played a crucial role not only in the intellectual formation of Hayek but in his professional career as well. With the active support of Mises, Hayek founded the Austrian Institute for Business Cycle Research, one of the first modern think tanks on Austrian soil. The institute started its work on January 1, 1927, as a private organization with the participation of Austrian businesses. The establishment of the research institute reflected two important trends. One was the growing awareness of the significance of gathering, analyzing and publishing reliable data on economic processes such as prices and production, credit and money. The other was the increasing realization of the enormity of the challenge posed by the business cycle, i.e., the widely fluctuating nature of capitalist economic activity and the dangers of economic crises spilling over to politics, thus putting the whole social fabric in jeopardy. It reflects a remarkable development in public consciousness right before the Great Depression which started in October, 1929.25 Hayek was a leading figure at the Institute until 1931 when he transferred to England and joined the London School of Economics and Social Research. It was not an escape from Nazism as Hitler was not in power as yet and Austria was still a relatively free country when it came to academia and scientific activity. Nevertheless, similarly as in the case of Schumpeter, to whom Hayek was not linked at all, timing could not have been more opportune and Hayek could not have been more fortunate. It is remarkable that Hayek, who first thought of his stay at the LSE as temporary, decided to remain in London after the Anschluss.26 His conscious decision was well reflected by the fact that he applied and gained British citizenship in the same year. He wrote his most famous book, The Road to Serfdom in Britain during WWII. Hayek also learned from Menger and Wieser, his mentor was not Böhm-Bawerk, but one of best disciples of the latter, an equally important figure of the Austrian school of economists: Ludwig von Mises. Hayek abandoned socialism when he read the famous book of Mises on socialism, which was published in 1922 in German (Die Gemeinwirtschaft: Untersuchungen über den Sozialismus. Jena, Gustav Fischer Verlag) I will refer to the English edition of this book which first appeared only in 1936. 24 The Economist run an article on Schumpeter, Hayek and Popper entitled “The exiles fight back” (August 25, 2018), and these differences are ignored. More rewarding comparisons are in Hayes (2009) and Notturno (2004). 25 In light of the political consequences of what in the USA is called the Great Depression (1929– 1933) and the Great Recession (2007–2009), today it is obvious to acknowledge the close interlinkages between economics and politics and the ambition to mitigate the negative impact of the economic cycle in order to avoid the emergence of extremist politics. But it was a completely new endeavor hundred years ago. 26 On March 12, 1938, the German army moved into Austria unopposed. Next day, the Austrian parliament accepted legislation about Austria joining the German Reich. While post-WWII views have tried to depict the move as an occupation followed by an ex-post legalization of a “fait accompli,” many Austrians considered the “Joining” (Anschluss) of their homeland to Germany as absolutely natural, logical and legitimate. The Treaty of Saint Germain explicitly forbade Austria to unite with Germany which shows very clearly that such a political aspiration did exist right after WWI with significant political support. See also Macartney (1926, 1937).

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Hayek earned fame and recognition as a British-Austrian economist before he went to Chicago in 1960. Despite staying in the USA for more than a decade, he always regarded himself British. Citizenship of the UK was of great significance for him and he never repudiated that. He is another example of a social scientist having gained global renown in the Anglo-Saxon world. As it has been indicated, Karl Popper can be considered a close contemporary and even a friend of Hayek. They had got to know each other by the time they attended Vienna University. Both were interested in philosophy, although Hayek put greater emphasis on economics. Popper was of Jewish origin but he received a Lutheran baptism because his parents had already converted to Christianity and had been assimilated Jews at that time.27 Popper started attending classes of various disciplines as a guest student at the University of Vienna as early as 1919, when he was just 17.28 He was soon attracted to Marxism and became an active member of the Association of Socialist Students. He joined the Social Democratic Party of Austria, a genuine Marxist formation by then. He took more time to turn to liberalism than Hayek. A bookish fellow and a private student, Popper undertook apprenticeship in furniture making. He got involved in various initiatives in social and health care before he finally earned a Ph.D. in psychology. He wrote several manuscripts in that discipline but was not very successful in publishing them. He visited the UK during unpaid leave in 1935 and 1936. By this time, he was actively seeking for a country where he could emigrate and secure an academic and teaching position. In 1937, he was successful in getting a chance to leave his homeland when he managed to secure a quite rewarding lecturership in Christchurch, New Zealand. He wrote his seminal work, The Open Society and Its Enemies there. But Popper did not live long in New Zealand. After WWII, he moved to London right to the LSE, where his contemporary and fellow Austrian friend was already working. In 1949, he moved to the University of London. As a recognition of his significant contribution to many areas of social science, he was knighted in 1965. Karl Popper is also called a British-Austrian scholar. Another shining example of someone, having originated from the Austrian-Hungarian Monarchy, reached world renown and global recognition in the Anglo-Saxon world. On the one hand, a sad story, especially from Central European perspective. On the other, a living example and proof of the still existing humanistic values of Western civilization. 27 Assimilation of Jews in the Austro-Hungarian Monarchy progressed at an accelerated pace until the very end of the existence of the empire. Despite observable tendencies of anti-semitism gathering strength and even gaining political recognition intermittently, the liberal state had sticked to its volition of holding up full formal equality in civic liberty and religious rights. While there was no way to violating these basic tenets of liberalism at that period, WWI represented a turning point in this regard, too. After the war, the trend of equality reversed, first at stealth, later very visibly. Likewise, the tendency of assimilation was also reversed. It is a question whether the assimilation of the Jews has progressed ever since, and even more so, whether it is a desirable process at all. 28 When one lives through a cataclysm, even three years of age gap may make a huge difference. Popper was simply too young to serve in WWI; hence, he could start university studies right after leaving secondary school.

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The Austrian connection remained important throughout the life of Popper. When he retired from academic life, he went back to Austria for family reasons. He returned to the UK for the rest of his life in 1986 after the death of his wife. But his ashes are buried in the Lainzer Cemetery in Vienna next to his wife. The cosmopolitan globe trotter, who did not leave his homeland out of free will, always felt compelled to return. So while the acquired epithet of “British” proudly stays, the nostalgic “Austrian” was never dropped either. Hannah Arendt was different not only for she was much younger than the male protagonists of my story but also because she never harbored any desire to go back to Germany for living there. After spending two years at Marburg University (1924– 1926) and studying under the overwhelming intellectual and personal influence of the already renowned Martin Heidegger, she attended Freiburg and Heidelberg universities from 1926 to 1929. She was learning voraciously also from such towering figures as the Austrian-German Edmund Husserl and the German-Swiss Karl Jaspers. These short five years was undoubtedly a shining period not only in her personal life but also in the history of postwar Germany.29 She dedicated herself completely to her beloved, chosen vocation, philosophy. After some “Wanderjahre” (years of wandering) in late Weimar Germany during the time of the Great Depression, she left for France via Czechoslovakia and Switzerland immediately after Hitler came to power. She immediately became a stateless refugee by losing her German citizenship. In 1940, she had to escape once again when the German army occupied France as a result of the Blitzkrieg. Having been detained and sent to an internment camp in the south of what soon became Vichy-France, she managed to escape from the camp in the prevailing administrative chaos. She was lucky to receive—together with her new husband, Heinrich Blücher—refugee visa from the USA in October, 1940. First they went to Marseilles, the “visa capital of Vichy-France” to pick up their papers illegally, then to Toulouse and, finally, to Lisbon and secured tickets for one of the last ships leaving Portugal for the New World. They arrived to New York in May, 1941. Thus, Hannah Arendt’s fate was a tragic chain of almost constant persecution and escape. She was finding a safe haven with calm waters and some happiness only while living in the USA for the rest of her life.30 That was absolutely necessary for her to write her most famous book, The Origins of Totalitarianism. Although the 29 “Hannah Arendt university years, from 1924 to 1929, were exactly the years of greatest stability for the troubled Weimar Republic. By the summer of 1924 the government’s program of economic stabilization had brought to a temporary end the worst period of inflation, and a change of government in financially troubled France had reduced the Germans’ feeling of being surrounded by vindictive extortionists. But just as this feeling was abating, the provisions of the Dawes plan were made known. The plan provided an Allied loan for the continuation of the German economic recovery and a scheme for reparations payments intended to protect Germany from further currency devaluations; it also involved Allied supervision of German banking and railroads and a special arrangement for German industry to contribute to the reparations payments. The Dawes plan was dubbed a “second Versailles,” particularly by the rightist parties, and even in the midst of recovery the process of political polarization that was eventually so disastrous for the republic continued.” Elisabeth Young-Bruehl (2004), p. 42. 30 This newfound love for the world is reflected in the subtitle of her very extensive and relatively new biography written by Elisabeth Young-Bruehl (2004): “For Love of the World”.

1.1 Personal Sketches with Historical Background

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book was published only in 1951, most of its professional content was compiled during WWII. Although it deals predominantly with fascism and Nazism, it has unmistakable relevance for the understanding of socialism, too.31

1.2 Grappling with Socialism in the Middle of the Last Century Eric Hobsbawm, the British Marxist historian, labeled the short twentieth century the “age of extremes.”32 Even though he was a radical leftist, even a communist, by no means a liberal, he did not deny the horrors of the twentieth century which included not only fascism and Nazism but also Soviet and Chinese communism. When he wrote his book, the unspeakable crimes of Stalinism were already of common knowledge, so an honest scholar, like him, could no longer ignore them. But it was not quite clear and straightforward as yet before and during WWII. The West had already been aware of mass terror, the vast network of prison camps, and the show trials which resulted in the wholesale extermination of not only “enemies” but increasingly more frequently tens of thousands of staunch supporters, and even leaders, of the Soviet state and the communist movement. Nevertheless, all these developments were and could still be regarded as an unnecessary aberration of an otherwise attractive ideology and a distortion—albeit a shameful one—of a new, otherwise magnificently promising economic and societal system which successfully abolished capitalist exploitation.33 My selection of the five scholars deliberately reflects this ambiguity. I have not chosen writers who were all and always convinced unequivocally that socialism was ab ovo and by definition unworkable. Had that been the selection criterion, Ludwig von Mises could and should have been one of the first to be included. He wrote a pamphlet about liberalism in German as early as in 1927 which contains a subchapter precisely on this issue.34 While it can be questioned whether by “unworkability” he 31 Although the first edition of Arendt’s book contained extensive references to Stalinism, her book was dealing overwhelmingly with the Nazi and fascists variations of totalitarianism. Some years later, however, the author clearly felt compelled to write a whole new chapter—called Epilogue—to the 1958 edition of the book. The title of this new chapter is very important: Thoughts about the Hungarian Revolution. As it is well known, the Hungarian uprising and short anti-Soviet revolution occured in late October early November, 1956, and—after some hesitation of Khruschvev and intensive deliberations in the Politburo of the Soviet Communist Party—it was mercilessly suppressed by the second intervention of the Red Army. As a consequence of these tragic events, Arendt probably lost all of her remaining illusions about soviet totalitarianism. See Arendt (1958), Chapter 14. The best analysis of Nazi, fascist, as well as Soviet and Chinese totalitarianism was given by Friedrich-Brzezinski (1963). Their book offers extensive references not only to Arendt’s work but also to Popper’s magnum opus. 32 See Hobsbawm (1995). 33 That was clearly the Trotskist view. See, e.g., Max Shachtman’s Foreword to the New Edition of Trotsky’s work (1961). 34 Ludwig von Mises (1927), Chapter 2, Subchapter 4: The Impracticability of Socialism.

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1 Introduction

meant outright impossibility or only the lack of efficiency, Mises never repudiated his own findings written in an earlier opus magnum about the complete unfeasibility of socialism.35 Contrary to Mises, Schumpeter, a fellow conservative, had a very different approach. Although after a whiff of sympathy, having been no longer a fan of socialism, he considered the internal contradictions of capitalism so entrenched that he regarded the development toward and finally into socialism inevitable.36 He was a pessimistic defender of capitalism at best and a reluctant promoter of socialism at worst. Hayek, himself attracted to socialism in his youth, became the most vivid and ardent defender of the free market system. He was much more optimistic than Schumpeter and by no means accepted the historical necessity of socialism. While he understood and acknowledged the attraction of socialist ideology and considered it an enormous existential challenge to freedom and Western civilization, he did not believe for a second that the societal system called communism was inevitable. Both Mises and Hayek spent a considerable amount of time, energy and ink to demonstrate that socialism was both inefficient and undesirable. Polanyi, in contrast, remained a socialist throughout his long life and not only because of the influence of his wife, who had been an active participant in the short-lived communist regime in 1919 in Hungary. He openly and clearly despised the free market system and was convinced that capitalism went too far by making labor, land and money so-called fictitious commodities.37 He was repelled by capitalism, but became skeptical about the merits and viability of communism at the last stage of his life. While a radical anti-capitalist all along, he can be justifiably regarded a moderate Socialist.38 Popper had stronger leftist leanings than most of the others in his youth. But later, he rejected Marxism completely because he realized that it was a historicist political philosophy leading necessarily to a rather violently superimposed closed society, dictatorship and totalitarianism in practice.39 Finally, as we have already seen, Hannah Arendt, who was fighting primarily against Nazi totalitarianism, accepted explicitly in 1958 that Soviet communism gave rise to the same inhumane totalitarian tendencies as Nazism and fascism. The brutal suppression of the Hungarian uprising by the Soviet army in November, 1956, offered her an opportunity and a moral impetus to confront her remaining illusions about 35 Ludwig

von Mises (2012). started his Prologue to the second part of his most famous book with the rethorical question: “Can capitalism survive?” He gave an unequivocal answer: “No. I do not think it can.” Schumpeter (1975), p. 61. 37 Polanyi (1946), Chapter 6, pp. 71–80. 38 See Polanyi Levitt (1990) and (1994). It is also interesting that Joseph Stiglitz in his Foreword to the 2001 reprint of Polanyi’s great book felt it important to emphasize the Polanyi was a staunch opponent of what he calls “market fundamentalism.” This was the way how Stiglitz felt about the message and relevance of Polanyi’s writings in the first year of the twenty-first century. The term “market fundamentalism” is of limited value. 39 That was probably the most important contribution of Popper to social sciences in general and to philosophy in particular. Although his devastating critique of Plato was far from universally shared by contemporary scholars, it gave rise to a fundamentally new approach to understanding the utopianism of all socialist streams. 36 Schumpeter

1.2 Grappling with Socialism in the Middle of the Last Century

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the allegedly humanitarian origin and humanist nature of Soviet communism.40 Her recognition of the anti-human and totalitarian tendencies embedded in a seemingly humanitarian ideology must have been a bitter moment not only for her but also for her husband, who, in his youth, was a Spartacist and participated in the aborted communist uprising in Germany in January, 1919. Thus, family relations represent an interesting parallel between Polanyi and Arendt. Another reason of why I have selected these five distinguished scholars is that they show a remarkable trend of intellectual and ideological development from Marxian or Marx-inspired socialism to liberalism or conservatism themselves. Generally, it is easier to refer to citations of political thinkers and activists who are convinced about the superiority and righteousness of their ideology all along. But it is much more rewarding to review the intellectual struggle of those who develop their ideas in stages and feel obliged to refute some of their early views. When they argue, they seem to wrestle, first and foremost, with themselves. Remembering and understanding their former way of thinking, they can argue in a much more plausible manner against those who are still in the prison of their original convictions. Their line of reasoning often reflects their own tortuous development, and they are in a desperate need of convincing themselves. Hence, their conclusions are especially well formulated and probably more convincing.41 This is particularly true for these five towering figures. Their search for the truth helps us a lot to gain a deeper insight into the intricacies of socialism, an idea itself evolving since then and ever since.

1.3 Soviet Genesis—The Tragedy of Socialism “The truth is that “objectivity”, though a most important and indispensable term, has several meanings. If objectivity means being impartial, neutral or inactive in one’s outlook, then I disclaim objectivity, for neither do I think that all things are equally good or bad … If objectivity means the faithful presentation of a thing according to its own essence and undistorted by one’s own feelings, then I may claim that I have at least made a sincere attempt to be objective.” Kolnai (1938), p. 19. 40 See

Preface to Part Three: Totalitarianism. June, 1966. Arendt (1951), pp. xxiii–xl. of the best examples of this painful journey is that of Ágnes Heller, the famous Hungarian philosopher who died in 2019 at the age of 90. She was an orthodox Marxist in her youth, an enthusiastic follower of Georg Lukacs (Lukács György in Hungarian), another famous Hungarian Marxist in the first half of the twentieth century. Later she repudiated Marxism and wrote immensely rewarding analyses on the real nature of communism. See, e.g., Fehér-Heller-Márkus (1983) Her personal intellectual struggle on the basis of her thoroughful appreciation, understanding, and staunch defense of humanism without regard to personal sacrifice makes her a shining example of the most noble traditions of Hungarian intellectual life. I dedicate this book to her memory. 41 One

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Four books made lasting impression on me when exploring the history and consequences of socialism in the twentieth century. One was written by Martin Malia, the famous Berkeley historian, specialist of Russian history. His best known work, “The Soviet Tragedy. A History of Socialism in Russia, 1917–1991” was published in 199442 when the author celebrated his 70th birthday (he was fortunate to live ten more years, enjoy the fame and see the impact of his outstanding writings). His powerful analysis and deeply substantive conclusions have made many of our traditional interpretations of Russian, Central, Eastern European and Asian socialism obsolete. He asked bold questions such as: Has the working class anything to do with socialism? Is the working class really interested in socialism? Is socialism the objective destiny of the working class with or without conscious and deliberate political action? Malia has offered negative answers to all these and other no less challenging, but surely impertinent questions from traditional Marxist point of view.43 More important, his answers are not only negative but fully convincing. This line of thinking justified the title of his book: Soviet tragedy. He showed eloquently that Soviet-style communism was not a progressive phase of economic and societal development in the short twentieth century. The other book which painted a sweeping historical picture and offered a new interpretation of what had transpired in the Soviet-Russian world in the name of early socialism was written by Orlando Figes, the renowned British historian, and published in 1996.44 Its title is “A People’s Tragedy. The Russian Revolution.” (Curiously, he does not seem to have read Malia’s book because it does not appear among his references.) Figes is a more left wing European historian who feels the tragedy of the Soviet experience as if it was his own. His work betrays a deep emotional affinity to the original ideals of socialism. That is why he finds it important to ask a somewhat unhistorical question: Was socialist democracy or democratic socialism possible in Russia instead of Communist dictatorship? His answer seems to be yes: “in wake of the Kornilov crisis, it seemed that the moment had come for the socialist parties to make the decisive break and form a government of their own. The Kadets, the major bourgeois partner of the coalition, had been thoroughly discredited by their support for the ‘counter-revolutionary’ general; while the socialist parties were being pulled by their own rank-and-file supporters toward Soviet power. The possibility was beginning to emerge during the first half of September that all major socialist parties (i.e., the Bolsheviks, the Mensheviks and the Socialist Revolutionaries, the so-called SRs) might come together for the formation of a government based exclusively on the Soviets and the other democratic organizations. It was a unique historical moment, a fleeting chance for the revolution to follow a different course … If this opportunity had been taken, Russia might have become a socialist democracy rather 42 Malia

(1994). basic tenets of classical Marxism regarding the historical role of the working class was already challenged by the turn of the nineteenth and twentieth centuries by no lesser figure as Eduard Bernstein in his two groundbreaking books, (1899) and (1901). The dense fog surrounding this crucial issue has thickened constantly ever since. 44 Figes (1996). 43 The

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than a Communist dictatorship; and, as a result, the bloody civil war – which by the autumn of 191745 was probably inevitable – might have lasted weeks instead of years”46 (italics mine). For the moment, forget about the civil war and concentrate on the “fleeting chance” in late 1917. There is no denial of alternatives in historical development. Decisions, made by eminent political leaders, matter. Decisions are conditioned not only by material and societal circumstances but also ideas and perceptions.47 There is no justification for historical determinism and no undisputable scientific reason for the concept of unilinear development. Even in narrow Europe-centric historism, the line of antiquity-feudalism-capitalism is a gross oversimplification. Hence, the venerable historical materialism of Marx and Engels does not hold. Likewise, there were many alternatives to historical development in Russia after the collapse of the tsarist autocracy and the three hundred years of reign of the Romanov dynasty. Democratic socialism might have been conceivable and could have been attempted even in Russia in 1917, indeed.48 The third book corroborating the importance of eventualities in the history of the Russian revolutions in 1917 was written by Richard Pipes, the renowned conservative Harvard scholar of Polish origin. Its title is “The Russian Revolution,” and it was published in 1990.49 The best example of his summary account of events right after the Bolshevik coup d’etat refers to the demand of the so-called Central Executive 45 “The term civil war is used in scholarly literature to denote two different patterns of armed struggle. It may be defined as simply an armed struggle between different social groups and classes within a society, and in that case we could say that the civil war in Russia started soon after October 1917, or even earlier. It may also be defined, however, as a struggle of groups within a society involving organized armies, territorial bases, and front lines, and then we could say that the civil war in Russia began with the Czech-SR uprising in the summer of 1918. The advance of the CzechSR troops, the Bolsheviks’ panic, Trotsky’s energetic efforts to create the Red Army, the execution of the Tsar Nicholas II, and the onset of the Red Terror – all these dramatic events of that summer have been extensively covered in the historical literature.” Brovkin (1987), p. 256. 46 Figes (1996), p. 464. 47 Lenin was by no means a democrat even in contemporary sense. He followed Marx’s teachings to the letter. According to him, bourgeois democracy was a fig leaf to conceal the exploitation of the working class. He held the view very consistently that “the proletarian democracy is million times more democratic than any bourgeois democracy; the soviet power was million times more democratic than the democratic bourgeois republic” (Lenin (1918), Chapter 2, p. 109.) His theoretical conviction does not justify too much hope for a democratic coalition with the other socialist parties. Nevertheless, his views were not always automatically accepted in the Bolshevik party and he lost a good number of votings even in the Central Comittee (CC) of the Bolshevik party. While the “role of the personality” in the twists and turns of history is very strong in Lenin’s case, it cannot be considered overwhelming or wholly determining the course of events even here. 48 See Pipes (1990), pp. 517–519. 49 This book is a second volume of a magnificent trilogy. The first was entitled “Russia under the Old Regime” and published exactly 20 years earlier, in 1974, when nobody was ever contemplating the collapse of communism. The second, “The Russian Revolution,” was published in 1990, but obviously written before the system change. The third volume, entitled “Russia under the Bolshevik Regime deals primarily with the civil war and its consequences. It was published in 1994. It has already benefited not only from the opening of Soviet archives but also from the renewed interest in the history of the now defunct communist system.

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1 Introduction

Committee (CEC) of the Soviets that the representatives of the Menshevik and SR parties be included in the Soviet government. This demand was backed up forcefully by the ultimatum of the largest trade union, the Union of Railroad Employees (Vikzhel), threatening with a nationwide strike and a subsequent paralyzation of the rail network if their demands were ignored.50 In the absence of Lenin and Trotsky, the Central Committee (CC) of the Bolshevik Party first surrendered to these demands. When Lenin and Trotsky joined the discussion next day and wanted to reverse this decision, they were roundly defeated in the CC. Although a few days later Lenin’s will not only prevailed but the “defeatists” were forced to resign from both the CC and Sovnarkom,51 this episode highlights another “fleeting chance” of the socialist parties working together in a more democratic government coalition. It indicates that the socialist revolution might have taken another, significantly more democratic course either before52 or even after53 the Bolshevik takeover. Referring to another key moment in the subsequent history of the revolution, there can be no irrefutable argument for excluding the eventual victory of the so-called Komuch government led by the SR party and supported by the Czech(oslovak) Legion in the second half of 1918,54 either. Although this government functioned for less 50 See

Brovkin (1987), pp. 21–24. narodnikh komissarov—the new name invented purposefully to depict the first Bolshevik government. 52 It is important to note, however, that democracy by contemporary Russian socialist parlance included only the socialist parties; these parties were regularly and customarily referring to themselves as the “democratic” ones. Significantly, elections to the soviets were restricted to the workers, solders and, later, the peasants. At the same time the Menshevik and the SR parties always remained faithful to the election of a more important legislative body (first the Constituent Assembly) on the basis of general, direct, equal and secret ballot. Contrary to Bolshevik thinking, the Menshevik and the SR never wanted to replace the future parliament with exclusive soviet power. On the basis of the experience gathered after the 1905 revolution, the soviets were supposed to maintain a controlling function over the government which was supposed to be answerable to the parliament (State Duma). The dual power (dvoevlastie), established after the February, 1917, revolution, was not meant to assign primary governing function to the soviets, either. For a long time, the soviets were quite reluctant to assume power, too. The idea of governmental power based on the soviets was advanced by Lenin first in his famous April Theses. But as the Bolsheviks had a minority position in the soviets, it was dropped in the aftermath of the botched July takeover attempt. It gained currency again in September, 1917. Then, it was an opportunistic turnabout by Lenin and the Bolshevik party when it achieved majority (bolshinstvo) in the Petrograd soviet and in many other soviets of the central industrial region in Russia. It was meant to camouflage the real intention of Lenin and the majority of the Bolshevik party members to acquire exclusive political power, which was attempted twice before October. (See Hough and Fainsod (1979), p. 59.) 53 The Menshevik and SR party delegates kept working in the soviet institutions until June 14, 1918, when they were expelled from the Central Executive Committee (CEC) of the soviets. After that, however, all desperate efforts of these opposition parties to gain majority in any of the soviets was effectively blocked by Bolshevik machinations, including sytematic and violent interference by the Cheka, the secret police of the Bolshevik government. No question that Lenin always despised multiparty democratic power and after his return from exile in April, 1917, his views almost always prevailed and ultimately determined the policy of the Bolshevik party. 54 Komuch stands for Committee of Members of the Constituent Assembly (Komitet chlenov uchreditelnogo sobrania). After the bolsheviks had disbanded the Constituent Assembly in January, 1918, 51 Soviet

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than six months in the second half of 1918 and collapsed quickly for a variety of reasons, the ultimate victory of the Bolsheviks in the very first phase of the civil war was far from preordained.55 The fourth book which constituted a novel interpretation and a sweeping new understanding of what transpired in the first year of the Bolshevik dictatorship was produced by Vladimir R. Brovkin, the famous émigré Russian historian, who meticulously analyzed the heroic struggle and the ultimate collapse of the Menshevik party in 1918. His book, entitled “The Mensheviks after October” was published in 1987, five years before the collapse of communism in Russia and the disintegration of the Soviet Union.56 The book is based on an amazingly ample and detailed use of Russian documents available at that time only in Western archives, predominantly of US institutions.57 It paints a vivid picture of the desperate struggle of the Menshevik and SR parties for socialist democracy. Having read the book, one cannot escape the impression that something like a “democratic socialism” might indeed have had a slight, fleeting chance of success in Russia even before the emergence of the Komuch government in Samara. Conventional wisdom considers Russia a country with the slightest democratic institutions and traditions—even today, more than a century later. In light of the oligarchic authoritarianism of president Vladimir Putin in the last two decades, there is little scope and justification for arguing against it, indeed. The history of tsarist Russia does not provide much proof for democratic development either. Nevertheless, one is surprised to discover how much proto-democracy evolved and how quickly it became widespread after the February, 1917, revolution.58 There were genuine and substantive debates not only in the State Duma but also in the quickly reconstituted Soviets of Workers’s and Soldiers’ Deputies, too.59 There were almost completely free elections for the latter for a while—and one might say, almost too frequently. many of its members from the SR party gathered in Samara in February and organized their activities from there. When the Czech Legion occupied the greater Volga region they formed a de facto government with the help of the Czechs in June. This government was in operation until the coup d’etat of Kolchak in November, 1918. See Brovkin (1987). 55 Brovkin (1994) and Pipes (1994). 56 Brovkin’s book proved to be the first masterpiece of a trilogy. The second book was dealing with the political parties and movements during the civil war (1918–1922); the third one describes the culture of the new socialist society in its early peaceful days. See Brovkin (1994) and (1998). It is important to recognize that the latter books were published after the collapse of communism; hence, the author was able to benefit from sources hitherto unavailable to scholarly research. 57 Boris Nikolaevsky Collection at the Hoover Institution on War, Revolution and Peace, Stanford, California; Archives of Russian and East European History and Culture, Columbia University, New York. 58 So much so that Pipes considered only the events of February, 1917, a genuine revolution and labelled the Bolshevik coup d’etat of October as a leftist counterrevolution. See Pipes (1990), p. 467. See also Yakovlev (2002). 59 The model did exist and the first soviets, formed after the 1905 revolution were vividly remembered. However, as it was already noted, Lenin was hesitating to designate the soviets as the principal institution of future socialist power. He considered the soviets as fundamentally weak and would have preferred the direct political power of the Bolshevik party. After the February revolution, the soviets refused to take any governmental responsibility and remained content with controlling (in

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1 Introduction

Despite subsequent but mostly futile attempts to close down specific daily papers, the press was almost completely free during the whole year of 1917, even for some withering months immediately after the Bolshevik takeover in October. Freedom of speech and assembly was also largely unconstrained.60 Curiously, Russia was more democratic during this short period than most belligerent countries, including those of the “entente cordiale” from Western Europe.61 Let us suppose for a fleeting moment that a broad coalition government of the three major socialist parties had been formed in September, 1917, under the auspices of the Soviet. With that the so-called dual power (dvoevlastie) would have ceased to exist. The formation of such a government may have prevented the October “revolution,” the unilateral Bolshevik takeover a month later and the exclusive political monopoly of Lenin’s party implemented soon thereafter. But then, the relevant question is: How such a fragile government would have addressed the main political issues of the day and how long such a government could have lasted? We know that there were irreconcilable differences among the three Socialist parties not only in ideology but in their fundamental political programs as well.62 The Menshevik and SR parties did not consider the building of socialism possible and desirable before mature capitalism. They welcomed the leading role of the working class in the February revolution but were convinced that the tiny little urban proletariat formed in the last two decades of the tsarist empire would be unable to build socialism in an overwhelmingly peasant, agrarian country.63 As a result, they probably would not have supported a wholesale nationalization of Russian industry. They might have insisted on something like a NEP-lite with a much more limited role for the state in the economy from the very beginning. That might not have satisfied the Bolsheviks; therefore, they ought to have left the government pretty soon. Then the Bolshevik many cases restricting) the activities of the Provisional Government. As we have already seen, when Lenin later realized that the Bolshevik party may eventually gain majority in the soviets, then he advanced the slogan once again: all power to the soviets! 60 Nevertheless, one of the most venerable democratic parties, that of the liberal Constitutional Democrats (Kadets), which had played a leading role in the Provisional Government between the February revolution and the Bolsevik coup d’etat in October was banned by Sovnarkom as early as December 12, 1917. 61 Without doubt, it was a very chaotic, raw, and sometimes anarchistic political process, indeed. Nevertheless, it was a genuine democracy, especially by contemporary standards. See Pipes (1990), Brown (2010) and Figes (2015). 62 Brovkin (1987), Malia (1994) and Figes (1996). 63 The SR was fundamentally a peasant party representing an agrarian version of socialism. They demanded the abolition of the large landholdings and the free distribution of agricultural land among the toiling masses. Nevertheless, they never preached the abolition of private property. The mensheviks were orthodox marxists and maintained that the emerging working class was the most important progressive force in the Russian empire. Their orthodox marxist views excluded the possibility of an imminent proletarian or socialist revolution. They insisted that social classes and their ideology cannot be formed without the appropriate mode of production. John Kautsky has formulated this view eloquently in the introduction of the English edition of his grandfather’s book: “the gravediggers of capitalism cannot bury it before capitalism has created them.” See Kautsky (1964), p. xxi.

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interpretation of socialism may not have gained such prominent currency in world history and leftist ideology. Moreover, the Menshevik and SR parties always insisted not only on electing a constituent assembly as it had been agreed by all socialist parties throughout 1917, but on the long-term preservation of parliamentary democracy as well. Consequently, they would have wished to form a new government according to electoral success. The results of the only multiparty election that took place in Soviet Russia on the basis of a mildly restricted franchise are well known and can serve as a good guide to assess relative strength in democratic competition. The SR party won more than 40% with almost 18 million votes, and the Bolsheviks only 24% with 10,6 million votes.64 There was a separate Ukrainian SR-led socialist block gaining almost 8%. While the Bolsheviks received the second largest number of votes, they could not have played the most important leading role in a truly democratic government if it had accurately reflected the election results. Had a coalition government been formed, such an arrangement would not have satisfied the Bolsheviks. Had parliamentary democracy prevailed in Russia, it is safe to assume that the Bolshevik party would probably have either stayed in opposition or played a destructive role in government. Most likely they would have continued their radical extremist behavior, undermining every constructive step of the coalition government exactly as it was happening between February and October, 1917.65 At the same time, they most likely would have kept preparing themselves and their faithful followers for an insurrection which, if successful, would have produced the same exclusive dictatorship somewhat later than it had happened in reality.66 Although a whole host of international and internal events may have colored this line of development, the end result must have been exactly the same. Why? Because a communist party at that time was by no means a democratic party. The Bolshevik party of Russia was clearly and unequivocally striving for the monopoly of power. Communist parties were born out of social democracy as a result of a deep ideological cleavage regarding, first and foremost, parliamentary democracy. As a consequence, the chances of democratic socialism under the leadership of a communist party were rather slim or completely nonexistent right after WWI. Social democrats and communists fought fiercely against each other from the very beginning of the latters’ existence and not only by words and shrill rethoric. Communism and democracy, whether socialist or liberal, proved to be absolutely incompatible, indeed.67 64 The Mensheviks received only 2.6% with hardly more than 1 million votes and the so-called Left SR 1% with less than half a million votes. The Constitutional Democrats (Kadets) gained 4.7% with 2 million votes. The overall result of liberal and other non-Socialist parties remained below 8%. National minority parties, especially with the vigorous showing of the Ukrainian SRs, carved out for themselves 13.4%. See Pipes (1990), p. 542. 65 Pipes (1990) and Figes (1996). 66 Figes (1996), p. 466 and 504. 67 It must have been quite clear for everybody who just wanted to know after the polemics among Karl Kautsky on one side and Lenin and Trotsky on the other. See Kautsky (1918), (1919) and

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1 Introduction

But it is probably not the end of the story. Communism and democracy might have been irreconcilable at the time of the Russian revolutions in 1917. However, it does not necessarily exclude compatibility between socialism and democracy. There might be alternative forms of socialism allowing multiparty elections on the basis of universal, secret, direct and equal franchise, supported by free press, freedom of speech and assembly. There is no fundamental reason to believe that parties introducing some or more socialism would always be incapable of functioning in a liberal democratic political environment and institutional setting. They may be even dominant in government for a long period of time. Steps toward socialism are not excluded at all.68 What is highly unlikely is that whatever “progress” labeled socialist is made, it becomes irreversible forever. Taken in this sense, socialism does not look like an earthly, mundane mission of enlightened society which can be accomplished as a superior grade of progress once for all. Historical development may take alternatives as a consequence of a wide variety of chance factors. Furthermore, progress may go into reverse even after having arrived at a stage which might have seemed desirable for everyone before, when at a subsequent phase it is repudiated by changing public opinion. This is a major problem. Human development sometimes, but not always, progresses in leaps and bounds. At the same time, significant steps forward may be followed by equally important steps backwards. Socialism is not something, once achieved, it always stays that way. Nothing is irreversible in human history. People may vote for a reversal of reforms in a free and democratic election or the achievements can wither away in stealth under a very different government. As a crucial example, socialization or nationalization of the means of production can be followed by wholesale privatization69 or vice versa. One of the most fundamental pillars of socialism, i.e., the collective or state ownership of most, if not all, means of production, can crumble as a result of a fundamental shift in public opinion and change in government. Hence, a complete or major reversal of what can be considered socialist progress cannot be excluded, indeed. We get closer and closer to what I wish to explore and, hopefully, demonstrate in this book. When discussing Russian socialism, Malia concluded that it led to a tragedy of a system. Figes broadened the horizon: He felt that it was not only a tragedy of a system, but a tragedy for the peoples of Russia and the Soviet Union. It

(1921) together with Lenin (1918) and Trotsky (1920). We will come back to this question and analyze it much more in detail in Sect. 2.3. 68 When social democratic parties came to political power, they achieved much socialism by introducing various measures improving the working and living conditions of the working class and limiting the influence of capital. Social democrats were dominating governments in Western Europe for long periods of time, especially after WWII and they contributed to what later came to be called a mixed economy with much state ownership in the means of production, with nationalization, progressive taxation and expansion of subsidized public services. 69 Curiously, this is exactly what happened after war communism failed and Lenin convinced the Bolshevik Party that Russia needed a new course, called New Economic Policy (NEP). See Sects. 4.3 and 4.5.

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was truly a people’s tragedy because the system was not only inefficient in economic terms but also thoroughly inhumane. As a result, it ultimately failed. This book tries to put socialism into an even wider context. Accepting the conclusion of those who declared socialism a tragedy of both a system and of all peoples on the receiving end of history, my intention is to prove that socialism, as we new it in the twentieth century, represents the tragedy of an utopian idea. History has proven that while socialism was in fact possible in a semi-Marxian, that is to say, in a Leninist-Stalinist-Maoist manner, socialism as a societal system superior to market capitalism and liberal democracy is impossible. What does it mean, tragedy of an idea? Many aspects can be discovered and discussed. To keep this introduction short, let me highlight only one. Socialism, as we learned about it, was one of the greatest humanistic ideas of the long nineteenth century. It was produced, first and foremost, by the contradictions and deep injustices of capitalism.70 But Schumpeter already noticed with a sharp eye that socialism, in general, and Marxism, in particular, was a fundamentally bourgeois product of the mind.71 Analyzing the role of intellectuals in Russian history, Pipes came to the same conclusion.72 No wonder that the idea was born and rapidly developing in the cracks and crevasses of Western civilization. This is an important point. By the nineteenth century, Western civilization allowed the ideas of liberty and equality to dominate to such an extent that the issue of liberty and equality of the oppressed and exploited resurfaced in a new gown. The general concepts were clear and eloquently worked out from the period of the enlightenment. The somewhat abstract philosophical ideas gained primary political significance by the French Revolution. As Schumpeter, the conservative Austrian-American economist rightfully added, by mid-century the aspiration for socialism was well accepted even in high society.73 The debate was not about their relevance and moral force but their practical meaning and political content. More importantly, their interrelationship came to the fore. Liberals put greater emphasis on liberty why socialists preferred equality. We have got to know by learning and experience that liberty and equality are complex concepts; they can be in harmony but, not infrequently, also in conflict. It was not so clear in the nineteenth century. Socialists could claim equality in the name of liberty and vice versa. The impressive Marxian edifice of economics, sociology, philosophy are cases in point. (The classical Marxist ideology as developed or distorted by faithful or revisionist followers is not.) This book, however, is not only about Marxism and its inner contradictions. My aim is different. I argue—as history has already halfway demonstrated—that Marxian 70 Popper

(1945).

71 “more than once we have seen good reason for interpreting socialism as a product of the bourgeois

mentality – there cannot be any doubt that Marx and Engels themselves were typical bourgeois intellectuals.” Schumpeter (1975), p. 312. 72 Pipes (1974). 73 “According to Engels, Marx in 1847 adopted the term “communist” in preference to the term “socialist” because socialism by that time acquired a flavor of bourgeois respectability.” Schumpeter (1975), p. 312.

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socialism, i.e., socialism as a societal system superior to developed and mature capitalism, and as an objective, inevitable result of class struggle in capitalism was unfeasible from the very beginning. As Soviet communism evolved and presented itself not only as one model but proclaimed itself as the only model of socialism for a long time, something resembling to the original humanistic blueprint continued becoming less and less realistic and relevant. The sad truth is that the Soviets were right. State ownership of the means of production, command economy, mandatory central planning, one-party dictatorship, oligarchic power structure and state slavery for labor were feasible not only because this monstrous edifice did actually exist but also because it was a rather coherent and consistent societal endeavor. We hate to admit but it was the only form of systemic socialism which had genuine political roots and gained firm societal underpinnings in countries of immature capitalism and could be realized for a long historical period of time.74 While the “existing socialism” as Brezhnev & Co. called it was truly existing, it not only made other conceivable forms of socialism impossible but rendered the whole original idea obsolete. The original Marxian dream based on historical materialism turned out to be unrealizable and, hence, utopian, much like any of its famous predecessors. At the same time, it kept millions in its grip who acted in its name while sincerely believing that it was realizable for more than a century. That is what I call the tragedy of an idea. This book explores the idea of socialism from three angles. As the subtitles indicate, first I will investigate the possibility of socialism. That is not a useless or superfluous exercise even though socialism existed. It is necessary because many adherents, starting with Kautsky and later followed by his dueling partner, Trotsky himself, declared the Soviet experiment illegitimate from the viewpoint of “true” socialism. By calling the Soviet system, a brutal and blatant betrayal of socialism, they implied and maintained that there ought to be a “genuine” one. Socialists who looked at the Soviet system and, especially, Stalinism with a grim face should have rediscovered the writings of such giants of orthodox Marxism as Karl Kautsky, who had spoken the truth already at the time when the Bolshevik experiment hardly started.75 Millions kept longing and groping for an imaginary better alternative by considering the original Marxian prescript still relevant. They could not accept that the only possible realization of socialism as a non-capitalist and non-market societal system was exactly what had actually been realized. Second, I wish to deal with the inevitability of socialism. Here the answer is no. But those who became disillusioned with capitalism keep considering socialism as an indispensable, unavoidable and soon-to-be-realized alternative. They are wrong. 74 Many authors emphasized the importance of the “Russian element” in the development of Soviet communism. They are absolutely right. Soviet communism was strongly rooted in Russian history. One of the most important determining factors was what Pipes described as lack of social cohesion. “Centuries of autocratic rule in a country with a predominantly natural economy had prevented the formation of strong lateral ties: Imperial Russia was mostly warp with little woof.” Pipes (1994), p. 491. He cited from Pavel Miliukov: “The fundamental difference which distinguishes Russia’s social structure from that of other civilized countries, can be characterized as a certain weakness or lack of strong cohesion or cementation of elements which form a social compound.” ibid. 75 See Kautsky (1918), (1919) and (1920) in Sect. 2.3.

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Socialism was not inevitable even in its Soviet or Communist form and, since history always develops in alternatives, it cannot be considered inevitable in the future either. There might be many socialists even in the USA who want to soften the hard inequalities of capitalism with a good dose of socialist policy. Nevertheless, even these left wing intellectuals think that socialism as a societal system should not replace capitalism.76 Finally, I want to discuss whether socialism is desirable as an important phase of human development, as a progressive framework of the human condition at all. My answer to this question will be negative again. Here I uphold the notion of liberty as something more important than equality whenever the two tend to come into conflict. Cases for such conflicts are not few and far between.77 And instead of providing a societal mechanism for compromise, socialism would almost always exacerbate the conflicts between them. With this line a reasoning I openly acknowledge my preference for liberalism as a guiding principle of my evolving worldview. I also confess that in my view there is no scientific inquiry without preexisting values. The honest researcher had better reveal the values driving his or her pen. There is absolutely no use of hiding them; no intellectual advantage or fame can be gained by that. Although I was a mild socialist in youth, I have grown out of it completely over time. I have learned about the true nature of “existing socialism” during the first half of my life through personal experience. But I was wrestling with the ideals of communism and socialism which were transplanted into my conscience by the socialist educational system as it existed in Hungary in the 1960s and early 1970s. The journey has been painful and required constant spiritual and moral struggle. I reached a more advanced stage in intellectual development when I embraced free market capitalism and liberal democracy. Throughout the 1980s and since 1989, I have played an active role in dismantling the socialist system not only in Hungary but in many other former communist countries in Central and Eastern Europe and many successor states of the former Soviet Union.78 Why does it matter? Because it is important to acknowledge that our thinking is driven very forcefully by our intrinsic values. There is no value-free science at all. We have to admit honestly and openly the values behind our argumentation. Pretending value-free pure objectivity does not hold. Aurel Kolnai is right.

76 There are innumerable instances for seemingly devastating critique of capitalism. One of the most famous and recently fashionable attempt was the book of the French scholar, Piketty (2014). But while the analysis and the critique was considered by enthusiastic leftists as crushingly powerful, they themselves complained about the bloodless, dull and enervate proposals for remedy. In a few years the whole prescription has been almost completely forgotten. 77 One of the first conflicts with brutal consequences was masterfully analyzed by Alexis de Tocqueville in one of his immortal books: “The Ancien Régime and the Revolution”. It was originally published in 1859 and intended to be the first volume of a grand study of the French Revolution of 1789. Unfortunately, Tocqueville died in 1859. 78 My book about the economics and culture of transition was published by the Central European University CEU Press. See Bokros (2013).

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That will be extremely important in my forthcoming analysis when I try to show that even the most sophisticated and seemingly objective, fact-based exposition of viewpoints can be traced back to some crucial underlying values, no matter whether it is openly acknowledged or not. The gigantic clash between communists and social democrats which started almost exactly one hundred years ago and lasted throughout the whole short twentieth century is a case in point. No matter how intelligent the exposed arguments were, ultimately they reflected, first and foremost, diametrically opposing fundamental values. That was true then and it is true even today.

Chapter 2

Is Socialism Possible?

2.1 What is Socialism? “What does “true” socialism mean except “the socialism which we like”?” Schumpeter (1975), p. 238.

Socialism existed. As a consequence, the book could be finished here. Why to ask about the possibility of socialism when it has already proved to be possible? On this level, the answer is crystal clear because there were various societal and political systems calling themselves socialist or communist throughout the short twentieth century.1 Hence, the question may seem completely superfluous. But it is not. Mises and other conservatives and liberals considered socialism unworkable, unfeasible and declared that the practical realizations of this broad ideological concept and political project as having proved actually nothing. Moreover, they were joined by socialist thinkers, who regarded the theoretical construct mostly faultless but strongly rejected the actual variations as a betrayal of what they considered “true” socialism.2 Even putting aside the problems of terminology, that is to say, when people have no common definition of socialism, the original idea, the concept of socialism as a society based on the communal or collective (state) ownership of the means of production allows a wide range of interpretations which makes the question of feasibility legitimate. There is no and has never been consensus on what socialism actually means. Although many people, including influential politicians and famous scholars, considered the really existing socialism of the twentieth century no socialism at all, important social movements and significant political formations were based on the unshakeable belief that socialism, as a system of earthly paradise, a beautiful world where all 1 China,

Vietnam, North Korea, as well as Cuba and Venezuela are proudly wearing the socialist label even today. But there are significant differences even among these five variations. 2 The Trotskists can be distinguished as the most vocal or remarkable representatives of this colorful bunch. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 25 L. Bokros, Socialism—The Tragedy of an Idea, https://doi.org/10.1007/978-3-030-57843-5_2

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2 Is Socialism Possible?

exploitation, inequality, misery and inhumanity would cease to exist is possible. The exploitation, inequality, misery and inhumanity experienced in existing capitalism supported and constantly reinforced the burning desire for something ideal, or at least more optimal, which can be called socialism.3 I will not follow those intellectuals who try desperately to formulate their own definition of socialism and, on that basis, refute, reject and repudiate the one that actually existed. I accept that what did exist in the wide Soviet sphere was a distinct civilization and there are good reasons to call it socialism. But even if not, it does not matter that much. If their leaders called it that way so be it. Discussing definitions is fundamentally fruitless. Schumpeter is actually right. It is more rewarding to hold the leaders of past socialisms accountable in such a way that we explore the true characteristics of their socialism and compare it to the ideology they held dear to themselves and propagated to the masses. Marxism or any other socialist inclined ideology will thus be relevant not in itself but as a valuable reference point for the ideology of those variations of socialism which did exist and called themselves as such. At the same time, it is completely irrelevant to view any school of socialism as something like the “true theoretical embodiment” of what ought to have been instead of what actually was. In this context, the preliminary conclusion is that socialism as a societal system was obviously possible with those constitutive elements and ingredients which determined its essential characteristics throughout its life in the twentieth century. At the same time, history has shown that socialism was not a realistic and realizable alternative with fundamentally different characteristics, including many of those established by Marx and his faithful disciples.4 Marxian socialism as a superior societal system

3 Despite considering him a false prophet, Popper praised Marx for his motivations. “One cannot do

justice to Marx without recognizing his sincerity…. He had a burning desire to help the oppressed, and was fully conscious of the need for proving himself in deeds, and not only in words…. His sincerity in his search for truth and his intellectual honesty distinguish him, I believe, from many of his followers… Marx’s interest in social science and social philosophy was fundamentally a practical interest. He saw in knowledge a means of promoting the progress of man.” Popper (2011), p. 294.

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27

proved to be unfeasible even though some of Marx’s practical demands, formulated as early as in 1848 in the Communist Manifesto, remained important starting points to socialist policies implemented in developed Western countries, and many of them have been actually realized.5 Popper was quite right in concluding that Marx’s prophecy, based on economic historicism and sociological determinism, was false.6 Nevertheless, we cannot ignore the reality of Western European socialism not only as a political movement but also as an economic and social system. Should it be considered a better embodiment of the original aspiration for socialism? There is no compelling reason to exclude it from the broad concept of socialism. But in contrast to Soviet communism, it can be regarded even less a realization of the original Marxian idea.7 Having accepted, as a working hypothesis, that socialism, which did exist, can be justifiably called at least one version of socialism, we can now proceed to highlighting and understanding its most important characteristics irrespective of the fact whether these characteristics correspond to the Marxian, Leninist, Trockist, Maoist or any other ideological blueprint. What were the most important basic elements and ingredients of what can be conveniently called Soviet-type communism in the short twentieth century? It is no longer Marx and Engels who constantly ridiculed those who wanted to speculate about the characteristics of true socialism but sharp-eyed contemporary analysts who can be invited to help us discover them.8 1. Collective ownership of the overwhelming majority of the means of production. By collective I mean either direct state control or Yugoslav workers’ self management, as well as Soviet-type kolkhozy and Chinese Communes. Put it in 4 By

the end of WWI, there were many people who still considered the Marxist blueprint as practically possible. By the end of WWII, their numbers dwindled considerably. Why? There might be two preliminary hypotheses. One is that the working class—at least in the Western world—was moving away from socialism, and therefore, the sociological underpinnings of what could have been regarded a Marxist scheme of social revolution were gradually disappearing. The other crucial element is the existence of the Soviet and Chinese versions of socialism which gradually but surely discredited the whole concept of socialism, Marxian and non-Marxian alike. 5 See Popper (2011) Ch. 18. “The Coming of Socialism” pp. 349–351. We come back to this issue in Sect. 4.6. 6 Popper maintained that there were only two possibilities. Either socialism is possible but then it does not conform with Marxist ideas or it does, but then it is next to impossible to consider it socialism. He showed that there was a “glaring contrast between the development of the Russian Revolution and Marx’s metaphysical theory of an economic reality and its ideological appearance”. As a consequence, Popper felt that “it is impossible to identify the Russian Revolution with the social revolution prophesied by Marx; it has in fact no similarity with it whatever” Popper (2011), p. 319. 7 If Popper is right, then Social Democratic piecemeal reforms can lead to a different type of socialism, indeed. But they would not conform with the Marxian idea. This logic reinforces my inference: Soviet communism was closer to the Marxian blueprint than its “revisionist” interpretations. I come back to this point in Sect. 4.8. 8 The most comprehensive description of “existing socialism” from political economy point of view is offered by Kornai (1992). Another detailed analysis is given by Bokros (2013).

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a negative way, the point is the elimination of private property and the suppression of the profit motive as the number one driver to, and criterion of, success in economic and societal life. 2. Mandatory central planning primarily with using physical targets. Command economy replacing the freedom of choice in the market. Dictatorship over needs9 and labor. Expropriation and administrative reallocation of savings by the state to investments determined by the state. Elimination of the corporate form of economic activity and market competition. The disintegration of money as a medium of exchange. 3. Exclusive political and overwhelming economic power of an undemocratic and uncontrollable institution, the communist party, indistinguishable and inseparable from the state. Complete (totalitarian) control over all aspects of public life and, not infrequently, the most important aspects of private life. No dividing line between the public and private spheres of existence. 4. Closed society with closed or closely controlled borders. Exports-imports of merchandise, labor, capital and ideas strictly restricted by the party-state. Depriving citizens of alternatives of foreign employment and investments. Nonconvertible currencies and non-transferable savings. Judiciary system subordinated to the party-state. Closely controlled arts, science and education. All socialist countries, all governing communist parties, having implemented the most basic, clearly ideologically driven wholesale expropriation measures destroying private property and the capitalist class, were following this same broad avenue. All systems declared socialists by ruling communist parties can be characterized by the prevalence of these common features without exception. That is a crucial starting point for further analysis of the socialism which existed. Asking now one of the most important follow-up questions, namely, whether socialism is not just possible but also feasible in the sense of solving at least some of the inherent contradictions of the capitalist system in such a way that socialism becomes demonstrably more effective and efficient than capitalism, we need to overview what can be perhaps called the imaginary economics of the socialist system.10 If we start with the economics of our chosen variant of socialism, then there is no more influential person who dedicated considerable amount of time and energy to analyzing the then emerging socialist economic and societal system than Ludwig von Mises.11 9 Fehér–Heller–Márkus

(1983). because it is far from assured that the components of socialism appearing in a theoretical construct will correspond to those truly prevalent or present at all in practice. The analysis of existing socialism, which is very different from the analysis of an ideologically presupposed imaginary socialism has always suffered from this fundamental defect—it has never been clear to what extent a treatise on socialism is dealing with a Marxian or any other theoretical model and to what extent it is relevant to the existing variations of “existing” socialism. 11 Ludwig von Mises could well have been included in the towering figures I selected for this book; his personal and professional data are quite reminiscent of many of them, most importantly Schumpeter and Hayek. Mises was also a subject of the Austro-Hungarian Monarchy, like Schumpeter, Polanyi, Hayek and Popper. He was born in Lemberg (now Lviv in the Ukraine) only two years 10 Imaginary,

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Exactly one hundred years ago, in 1920, Mises published a groundbreaking article entitled “Economic Calculation in the Socialist Commonwealth”.12 It was based on a lecture given by him as a direct response to the book of Otto Neurath, an Austrian-born philosopher,13 who advocated for a smooth transition from what was the war economy to what he conveniently called a natural economy (Durch die Kriegswirtschaft zur Naturalwirtschaft). Neurath, a convinced socialist thinker, found (mandatory) central planning perfectly feasible and worked for its practical implementation. (Given the prevailing conditions of war, he was right.) Mises challenged Neurath’s position and declared socialism “unworkable”. He did not deny the possibility of socialism but emphasized the inefficiency of the specific socialism that Marx and all of his faithful disciples and followers regarded superior to capitalism.14 That is an extremely important point. Socialism just started to be realized exactly at the time of Mises’ writing. Bolshevik power was already three years old. The civil war in Russia gradually came to an end with the final victory of the Red Army.15 Although the Hungarian and the Bavarian experiments with Bolshevik inspired socialism proved rather short-lived in 1919,16 there was no guarantee that earlier than Schumpeter, in 1881, so they can be regarded almost like perfect contemporaries. He also attended the University of Vienna before WWI and, after a few years spent in Switzerland, emigrated to the USA in 1940. He lived an exceptionally long life (pretty much like Hayek). He died at the age of 92, in 1973, in New York. Some say that the Nobel Prize awarded to Hayek in 1974 (jointly with Myrdal, the left-wing Swedish economist) should have been given to Ludwig von Mises instead; after all, he was the grandfather of economic liberalism in the famous Austrian School. Hayek duly acknowledged the legacy of Mises and his own intellectual debt to him in many of his theoretical writings. 12 Of course, the original essay was written in German with the title “Die Wirtschaftsrechnung im sozialistischen Gemeinwesen” and appeared in the Archiv für Sozialwissenschaften (volume 47). But it gained prominence only after it was republished in English, in 1935, edited by Hayek, in “Collectivist Economic Planning: Critical Studies on the Possibilities of Socialism.” (George Rouledge & Sons, London). 13 Neurath was born in Vienna into a Jewish family in 1882, one year after Mises and one year before Schumpeter. He could also be considered a close contemporary. He suffered a similar fate as many others famous intellectuals. He had to leave the German-speaking realm and escape from Nazism to England. He died there in 1945, right after the end of WWII. Neurath was socialist not only in his youth but remained a staunch defender of socialism throughout his life. 14 Unworkable is not the same as impossible (unmöglich). Unfortunately, Joseph Salerno, associate professor of economics from Pace University, who wrote a postscript to Mises’ article in 1990, claims that what Mises really meant was that socialism “not just inefficient or less innovative or conducted without benefit of decentralized knowledge, but really and truly and literally impossible.” Mises (1990), p. 51. But that is a very serious distortion. Mises many times explicitly acknowledged that socialism was not only possible, but regarded it as a momentous challenge and an existential threat to Western civilization in general, and to the market economy in particular. Something which is impossible cannot constitute a menace. It is unfortunate that even representatives of the Mises Institute do not seem to understand the true meaning of the views of their idol. 15 Pipes (1994) and Brovkin (1994). 16 The Hungarian Soviet Republic was formed on March 21 and abolished on August 1, 1919; the Bavarian (or Munich) Soviet Republic was more short lived: It was proclaimed on April 7 and disestablished on May 3, 1919.

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new efforts and attempts for a Communist takeover would not prop up elsewhere.17 1919 was also the year when radical left-wing Social Democrats established new parties and called them increasingly Communist.18 More important, socialist policies started to take shape and being implemented in their non-bolshevik variation in both Germany and Austria, countries of crucial importance with strong Marxian tradition, and now governing Social Democratic parties.19 They were also the primary areas of activity for Mises personally. Despite sharp differences in both politics and policy, including economic policy, there was an extremely significant common element in the Communist and Social Democratic attempts to building socialism: expropriation/nationalization of private property and the establishment of extensive public ownership in the means of production. That was enough of a ground for Mises to attack most, if not all, forms of the evolving socialist experiment. The main line of reasoning of Mises can be summarized as follows. The starting point is that “under socialism all the means of production are the property of the community”.20 “It is the community alone which can dispose of them and which determines their use in production.”21 Irrespective of the principle which drives distribution of consumer goods among workers, be it completely equalitarian or strictly based on the amount of labor dispensed, there is a need to exchange a lot of consumer goods among final consumers. Hence, exchange is inevitable. Consumers “will all welcome exchanges. But the material of these exchanges will always be consumer goods. Production goods in a socialist commonwealth are exclusively

17 In fact there was another major, but finally aborted attempt of Communist takeover in October, 1923, in Germany. Instigated by the Comintern and led by Karl Radek (originally a radical socialist from Austria-Hungary of Polish and Jewish origin, who became a German revolutionary after the 1905 uprising in Warsaw, and finally the secretary of the Comintern in Moscow), the German Communist Party (KPD) started an insurrection in Hamburg in October, 1923. The temporary radicalization of the German workers was brought about by the occupation of the Ruhrgebiet by French troops and the termination of the boycott against this occupation by Gustav Stresemann, the chancellor. After the botched insurrection in Hamburg, Stresemann used his emergency powers to dissolve the coalition governments of the SPD and the KPD in Saxony and Thuringia. Since there was no appetite of German workers to support another insurrection, the Comintern had no choice but to call off the planned uprising in Saxony and Thuringia. There were no further attempts to Bolshevik type military action against the “bourgeois democracy” in Germany any longer. 18 The proliferation of the name “communist” in radical leftist party identification was triggered by the change of the name of the Russian Social Democratic (Bolshevik) party to Communist (Bolshevik) Party. It was proposed by Lenin in his statement to the Seventh Party Congress on March 8, 1918. He explained the proposal by declaring the term Social Democratic Party “scientifically inaccurate” because it was reminiscent of the “bourgeois” variant of democracy which was just left behind by the installation of soviet power. “We cannot stand for democracy in its old form… the name – Communist Party – is the only scientifically correct name” Lenin (1934a) Vol. XXVII, p. 140. 19 One of the best descriptions of the advancement of Austrian socialism can be found in Macartney (1926). 20 It is perfectly consistent with my assessment on pages 27–28. 21 Mises (1990), p. 3.

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communal; they are an inalienable property of the community, and thus res extra commercium.”22 We need to stop here, again, in order to identify two key arguments of Mises. One is that there can be, and should be, exchange of goods in the socialist economy. Another is that only the exchange of consumer goods could be labeled commercial.23 There could be and will be market relationships when it comes to the distribution of consumer goods. On the contrary, exchange of production goods will be strictly communal, i.e. predetermined, preordained, planned; by no means subject to demand and supply manifesting itself in more or less free markets (res extra commercium). No markets will exist for production goods. In other words, we need to make a clear distinction between two types of distribution: commercial and non-commercial, i.e. natural. According to Mises, commercial distribution would be restricted to consumer goods in socialism. Distribution of production goods cannot be commercial. It is excluded by their communal ownership. The problem is that when these two types of distribution coexist, they create a huge tension leading to inefficiency. Mises considered the lack of commercial exchange of production goods in the socialist economy a fundamental distortion because a socialist state would never be able to determine the value of production goods in the absence of commerce. If the value of production goods remained unknown, and even more importantly, unknowable, then “rational production becomes completely impossible. Every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.”24 Mises successfully refuted all arguments to the contrary.25 Had he managed to convince most socialists with his brilliant argumentation, humanity could have spared itself from much waste and misery.

22 Ibid.,

p. 6. is going to be an absolutely key component of what can be called market reforms within socialism. Socialism, as we will see later, was desperately experimenting with market orientation in order to inject some dynamism and efficiency into the rusting mechanism of the command economy. Within the framework of these market reforms, socialism allowed more and more freedom in most product and labor markets. But there was always a threshold never to be overstepped in socialist societies: they never allowed or permitted the reappearance of capital markets. Bokros (2013), p. 44. While markets of production goods and capital markets are not the same, their close correlation is undeniable. See Sect. 4.3. 24 Mises, Ibid. 20. We can say “rational” if we accept that economic rationality can be only market rationality. That is not necessarily true, as we will see later. The command economy has its own rationality which is different from market rationality. Of course, political rationality may be in conflict with economic rationality. 25 Schumpeter was not convinced. Having acknowledged Mises as the only authority standing for denial worth mentioning, he maintained that Enrico Barone had satisfactorily resolved the problem of rational calculation in his groundbreaking work written in 1908. See Barone (1908). Praising Barone’s work as something that settled the question with rigorous demonstration, Schumpeter kept ignoring the fundamental issue of consumer choice. 23 This

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But the logic of facts is always stronger than the logic of arguments.26 Bolsheviks could not be expected to give up power voluntarily after the complete hopelessness of their endeavor with the command economy was shown in some obscure, and for them absolutely irrelevant theory.27 Social Democrats, in turn, never made any serious attempt to abolish the market economy completely. No matter how much nationalization they carried out, they always preserved sufficient amount of market orientation. As a consequence, under their watch, market-based economic calculation always remained possible along Mises’ lines. This result is key because Mises did not necessarily oppose the expropriation of some specific enterprises.28 He did not criticize syndicalist socialism, i.e., the direct ownership of economic units by their workforce, for the lack of the possibility of economic calculation either. He acknowledged that individual enterprises, be they municipal or even state owned, while kept obliged working in a competitive market environment might retain—and would be able to retain—a certain degree of economic efficiency. What he maintained was that the extinction of private property in its entirety and the replacement of the market economy by a natural (command) economy would make rational economic calculation impossible. And in this conclusion, he was right from the beginning.29 But what if socialism does not maintain commercial distribution of consumer goods either? What if the inescapable tension created between the two types of redistribution is solved by abolishing commercial distribution completely? Does that mean that economic efficiency can be restored by eliminating commerce? Conversely, is it true that only the market-oriented economy can be efficient? Does it follow that an efficient market economy always requires the prevalence of private property? “Without economic calculation there can be no economy.”30 That is another powerful declaration of Mises which have led to profound misunderstandings. Of course, what Mises had in mind was not that any economic activity would become 26 See

Kautsky (1931) Die Gesellschaft, VIII, No. 3.

27 As it is well known, Marx solemnly forbade all his disciples to theorize or speculate on the nature

and workings of the future socialist economy to the point of ridicule. One cannot suppress the suspicion that he did it because he may have realized the impossibility of its efficient operation along non-market lines. But then it was too late. He could not possibly collect himself to renounce all his life work by accepting that, in terms of efficiency, there was no feasible alternative to the market mechanism. 28 Originally, it was attempted on a relatively large scale but finally carried out on a much smaller scale by the Social Democratic governments in both Germany and Austria in the early 1920s. That was one of the first practical steps to abandon Marxian socialism by the Social Democrats. By the establishment of what in West Germany was called Die Soziale Marktwirtschaft (social market economy) after WWII an alternative system of mixed economy pointing towards socialism came into being. The Scandinavian (Swedish) model of socialism with significant fiscal redistribution of personal (family) income by high taxes and social transfers as well as public provision of services (e.g., health care and education) was another significant realization of non-Marxian socialism after WWI and ever since. We come back to this point in Sect. 4.8. 29 Economic history has proved him right as well—that is the corollary of the history of existing socialism in the short twentieth century. 30 Mises (1990), p. 21.

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impossible outside the market. What he meant was that by embedding the economy in society in such a way that its relative autonomy, its own rules, its own leitmotiv, its most important raison d’etre, its most significant differentia specifica is denied or extinguished, the efficiency of the economy is destroyed. “Where there is no free market, there is no pricing mechanism; without pricing mechanism there is no economic calculation.”31 Had Mises used the word “embedded” for a non-market, command economy, Karl Polanyi would have been both happy and sad. The great Hungarian socialist thinker was thoroughly pessimistic about the “free market”. He liked to call it the “self-regulating market” and felt that it was to destroy the social fabric of society. He was very much in favor of “embedding” the economy in politics and society. He wanted to place the economy under conscious political control. He invented this eloquent adjective precisely in order to describe the desirable place of the economy in human society. Polanyi always considered socialism as superior to capitalism not least for the fact that its economy would, according to him, be embedded in a free society. He even accused Mises for allegedly equating the principle of barter and exchange.32 His critical remark was, however, unjustified. As it was shown, Mises knew perfectly well what the difference between barter and commercial exchange was. He explicitly acknowledged the prevalence of division of labor in a socialist economy which at the same time denied the existence of market exchange (trade) at least for the means of production. That was by all means fully consistent with the concept of communal ownership of the means of production, emphasized by the founding fathers of Marxism, too. The article of Mises on the impossibility of economic calculation in socialism triggered a long intellectual debate among a huge number of socialist, liberal and conservative thinkers.33 I have no intention to follow that debate because most of it was ultimately centered around the definition of socialism, proving only Schumpeter’s famous dictum that “true socialism” is always what we like. Definitional problems of socialism have become irrelevant over the twentieth century. It is more rewarding to examine whether the alleged impossibility of economic calculation, as it was understood by Mises, would finally prove the inferiority of any variation of socialism within the confines of its four stated characteristics. We should start the scrutiny by asking the question to what extent socialist production and distribution was to be based on market coordination at all. Mises allowed for consumer autonomy to a certain degree because he never extended the command economy completely to consumption. But there was a difference 31 Ibid.,

p. 27. (2001), p. 46. 33 Barone (1908), Lange (1938), and Lerner (1944) made probably the most important contributions to the famous debate on the economic calculation problem and the possible market character of the socialist economy in the first half of the twentieth century. But it was a purely theoretical debate. The existing socialist economy—in conformity with original Marxian blueprint—was a command economy and not a market economy. Mandatory central planning was upheld precisely for the reason of being superior to market anarchy. The Stalinist command economy did not left much room for markets even in the realm of consumption either. 32 Polanyi

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between the Bolshevik and the Social Democrat approach exactly in this respect. The Communists followed the original Marxian idea and wanted to eliminate both the market and private property altogether. As a consequence, they had no choice but to deny consumer sovereignty. The Social Democrats decided to save the market. They allowed a plurality of ownership forms, public and private alike. As a result, they preserved consumer sovereignty to a very large extent. Mises did not discuss consumer autonomy in his article. He took it for granted that no true socialist could harbor the intention of seriously restricting, let alone eliminating it. Allowing for the concept of consumer autonomy to prevail was important because it injected the element of market efficiency into his analysis, and it is precisely on this basis that he could discover the inefficiency of socialism. But what if the communist government does not recognize consumer choice? What if there be no consumer autonomy? What if it is declared illegitimate and something to be suppressed? What if the communist party is convinced that it knows better than the consumers themselves what is good for them? What if the party, in name of forging the “soviet man”, a new species of human being, monopolizes the right to decide what is acceptable and desirable consumption? If the workers are considered incapable to recognize their own historic interests and realize their own destiny by themselves and they need the communist party as a vanguard to lead them in the class struggle to the revolution and classless society, is it not, by extension, also true that the working class is not aware of its true interest in organizing production and deciding on consumption in socialism? A hugely important but heretofore completely ignored question. Denying consumer sovereignty proved to be a logical, indispensable corollary of the Bolshevik ideology as it was first expounded by Lenin in his famous book entitled “What is to be done?” in 1902.34 And it was precisely the practice of not only the first phase of socialism in Russia (labeled war communism) but more importantly, the 34 It is remarkable that even Brovkin seems to underestimate the importance of ideology when he writes that “Marxist ideology did not preclude Kamenev’s acceptance of a multiparty system of soviets or the Mensheviks’ defense of the Constituent Assembly. It was not a case of Marxist ideology corrupting Russia; rather, it was the age-old story of power transforming the power holders.” Brovkin (1987), p. 296. This sentence reveals some nostalgia for Marxism and ignores what Lenin, by far the most significant player in the Bolshevik power structure, was holding about the true nature of the dictatorship of the proletariat. Moreover, Kamenev’s views of 1917 prove very little about the predominant Bolshevik approach because his views never prevailed. “The controversy between Lenin and Kamenev exposed a deep fissure within Bolshevik ranks which was to continue right up to the seizure of power and even beyond. To Bolsheviks of Kamenev’s persuasion, Russia was simply not ripe for a socialist revolution. Like the Mensheviks and like Lenin up to the 1905 revolution, these Bolsheviks made a sharp demarcation between the successive stages of bourgeois-democratic and socialist revolution… To Lenin this perspective was now anathema. “Our doctrine” he quoted Marx, “is not dogma, but a guide to action.” “Theory, my friend,” Lenin goaded Kamenev, “is grey, but green is the eternal tree of life.” The orthodox theory of the Old Bolsheviks that the “rule of the proletariat and the peasantry, their dictatorship, can and must follow the rule of the bourgeoisie” had to be discarded as no longer corresponding with “living reality”.” Hough and Fainsod (1979), pp. 45–46. Having discarded the “bourgeois phase” of development, Lenin eventually discarded the limited democracy of the socialist parties, too.

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basic underlying concept of the classical Stalinist economy.35 Consumer sovereignty, as a principle, never followed from communist ideology. Allowing more consumer choice, relying more on market relations in distribution and consumption was always a concession36 to adverse or hostile realities. “True socialism” was never based on free consumer choice but on central command extended from production to consumption. And it was a logical extension, fully consistent with Marx. The production sphere could not be organized efficiently if the consumer sphere was not subordinated to the command economy.

2.2 Two Books—Two Ruptures “Without revolutionary theory there can be no revolutionary movement” Lenin (1988), p. 91.

But the biggest malaise of existing socialism was not its economic inefficiency. The problem of relative economic inefficiency, which followed from the nature of the command economy, had an even deeper defining cause. The fundamental defect stemmed from the dictatorial nature of the socialist state, the dictatorship of the proletariat.37 The socialist state was there to control production as well as consumption. Once it was considered that the party knew better than the people or the proletariat what was good for them, the logical consequence was the emergence of the dictatorial state. Unfortunately, the ideological fathers of the German workers’s movement left little or no guidance for the emerging social democracy to take an absolutely clear, unambiguous and indisputable view on democracy versus dictatorship. But before the rule of any socialist party, the question was formulated differently. The issue was whether the working class can attain political power within the framework of bourgeois democracy by peaceful means or, since every bourgeois democracy was 35 Bokros

(2013). held widely different views about the role of market and money in the future planned economy. Karl Kautsky always thought that money was to remain a key element of the socialist economy. Others, like Neurath, maintained that money was not needed even for the aggregation. He felt that it was the economy which proved the concept of commensurability false. That was an important starting point for Mises who argued to the contrary. This wide spectrum shows very eloquently how thick the fog was in people’s mind about the true nature of the socialist economy— even the implications of the basic dichotomy of market and command was not understood. 37 The important element here is the dictatorship, not the proletarian or any other nature of the dictatorship. Once the dictatorial, i.e., anti-democratic character of the state became clear, it was the second step to consider the “class content” of the dictatorship, if it did have any, indeed. For the communists, it was axiomatic that their dictatorship automatically represented the working class. But the workers, once the communists gained power and established their dictatorship, were never asked about it by the definition of the very dictatorship. 36 Socialists

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considered to be only a facade of capitalist dictatorship, it was necessary to use violence for the overthrow of the capitalist system. Popper wrote about this “original sin” very eloquently. He suggested that the “radical wing insists that, according to Marx, all class rule is necessarily a dictatorship, i.e. a tyranny. A real democracy can therefore be attained only by the establishment of a classless society, by overthrowing, if necessary violently, the capitalist dictatorship. The moderate wing does not agree with this view, but insists that democracy can to some extent be realized even under capitalism, and that it is therefore possible to conduct the social revolution by peaceful and gradual reforms. But even this moderate wing insists that such a peaceful development is uncertain; it points out that it is the bourgeoisie which is likely to resort to force, if faced with the prospect of being defeated by the workers on the democratic battlefield; and it contends that in this case the workers would be justified in retaliating, and in establishing their rule by violent means. Both wings claim to represent the true Marxism of Marx, and in a way, both are right. Marx’s views in this matter were somewhat ambiguous, because of his historicist approach; …he seems to have changed his views during the course of his life, starting as a radical and later adopting a more moderate position.”38 The ambiguity in Marx’s position was a reflection of a fast changing reality over time and the consequence of a wide variety of economic and political situations in different countries. It was no surprise that self-appointed Marxists took diverging positions which reflected the circumstances of their own countries. Moreover, the different positions and dramatically disparate life experiences of the socialist intellectuals in different countries in their hugely dissimilar stages of development contributed to sharp differences in socialist tradition which fed back on the political strategy of the revolutionaries. Nothing expresses these variations more vividly than the divergent approach of leading German and Russian Social Democrats belonging to two of the most significant branches of the European socialist movement at the turn of the twentieth century. At the beginning, everything seems to have been clear and simple. In the last decade of the nineteenth century, industrialization and urbanization progressed fast and hand in hand not only in Germany but this time also in the Russian Empire.39 The global advancement and triumph of capitalism seemed largely inevitable. Capitalism created the working class of large-scale industry and the working class stepped up soon as a political force to reckon with. Although Otto von Bismarck, the chancellor of the German Reich, exploited the two assassination attempts committed against Kaiser Wilhelm I in quick succession to suppress the Social Democratic Workers Party (Sozialistengesetz), the progress of history could not be held up. When Kaiser 38 Popper

(2011), pp. 361–362. Witte, a nobleman of Baltic German descent, minister of finance in 1892–1903, was the father of the state-led industrialization which transformed spectacularly the Russian economic landscape by the turn of the century. His achievements convinced Lenin that capitalism was not to be avoided in Russia. On the contrary, it was already in full blossom resulting in a fast increase of the working class, the presumptive engine of socialism. That was something to be greeted with much praise and helped the Social Democrats to distance themselves from the social revolutionaries, who kept emphasizing the leading role of the peasantry in social revolution. 39 Sergei

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Wilhelm II acceded to the throne in 1888, in the year of the three Kaisers,40 he initiated and in 1890 finally achieved the repeal of the oppressive Sozialistengesetz against the fierce opposition of Bismarck.41 When the German Socialist party came to the light of legality, it took its name which is valid until today: Sozialdemokratische Partei Deutschlands (SPD). The formulation of the name reflects very well the then dominant conception that the workers’ movement was inherently international and, therefore, the German party was just a section of the European whole.42 The SPD had a wonderful quarter century of progress between 1890 and 1914. It was gaining strength and advanced gradually from one victory to the next. In 1890, it received close to 20% of the votes in the Reichstag elections and in 1912, at the last prewar elections in Germany, some 35%. Its almost unbroken and stellar record of acquiring ever more votes helped the SPD to become the largest, perhaps the most important and, undoubtedly, the leading party of the workers in Europe. The SPD was a beacon for all other Social Democratic parties to follow. The crucial factor of its ascendancy was not only quantity but quality as well. The SPD owned the worldview of success. It was stemming directly from its strong Marxian inspiration which held the ultimate victory of socialism an inevitable historic necessity.43 Were there any fools or ignorant persons who did not want to march among the rank and file of the sure victors of the future? But the forward march was not going to be smooth because the road was full of potholes and pitfalls. One of the leaders of the SPD, Eduard Bernstein, started a forceful attack against the then prevailing Marxist ideology in 1899, just four years 40 Kaiser Wilhelm I died at the age of 91, and his son became Kaiser and King Friedrich III. “But the new monarch was to be granted only ninety-nine agonising days on the throne before the crown again passed from father to son. Almost all those who saw the weak, speechless Kaiser came to the conclusion that he ought to abdicate; only Kaiserin Victoria’s antipathy towards her son, it was rumoured, could explain why the conduct of affairs had not long since been transferred to their son, Wilhelm, who was now of course crown prince. Terrible conflicts arose between him and the empress, Victoria.” Röhl (2014), pp. 35–36. 41 It is important to note that elected deputies of the Social Democrats were sitting in the Reichstag all along—pretty much the same way as Bolshevik deputies were enjoying Duma membership and privileges after 1907 when their party was declared illegal. It was going to appear in stark and sharp contrast to seemingly similar situations of the twentieth century, aptly called the Age of extremes by Eric Hobsbawm. In the totalitarian regimes, members of the illegal opposition were sitting not in parliament but in jail or in concentration camps if they were lucky enough to be alive at all. Which of these regimes allowed more democracy? 42 The same formulae were used for the Social Democratic Party of Austria (Sozialdemokratische Partei Österreichs), established in 1889, and for the Social Democratic Party of Hungary (Magyarországi Szociáldemokrata Párt), established next year. Although the names kept changing during the next century, it is important to note the internationalist inspiration of the first parties of the workers movement. 43 In this respect, Popper’s critic is devastating. He held Marx responsible for misleading “scores of intelligent people into believing that historical prophecy is the scientific way of approaching social problems. Marx is responsible for the devastating influence of the historicist method of thought within the ranks of those who wish to advance the cause of the open society.” Popper (2011), p. 294. Is it not a tragedy of an idea?

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after the death of Engels. He published a book with the unassuming title: The Preconditions of Socialism and the Tasks of Social Democracy.44 (Die Voraussetzungen des Sozialismus und die Aufgaben der Sozialdemokratie—hereinafter: Voraussetzungen.) The book gained both fame and notoriety, and over time, it became the parting shot in what was later called revisionism. Voraussetzungen constituted a serious challenge to many of the basic tenets of Marxism. Bernstein repudiated the labor value theory and the surplus value theory, two fundamental pillars of Marx’s analysis of capitalism underpinning his theory of exploitation leading to the ultimate, inevitable collapse of capitalism. His comprehensive analysis of contemporary data proved that the theory of capital concentration and centralization did not hold, either.45 He maintained that the concept of ever increasing misery (Verelendung) was untenable, too. Although he preserved the by then widely held notion of the class struggle, he questioned that it had to lead to a revolution, i.e. a violent overthrow of the capitalist system. Instead, in order to improve the working and living conditions of the working class, he advocated for reforms, which would be not only necessary but also quite possible within the framework of the evolving bourgeois democracy.46 As a consquence, Bernstein’s theory and program represented a major deviation from classical Marxian thoughts, indeed. The first reaction of other leading German Social Democrats to Bernstein’s thoughts was largely, and often vehemently, negative. His theory and practice was strongly repudiated by Karl Kautsky, August Bebel, Karl Liebknecht and Rosa Luxemburg, that is to say, all most important leaders of the SPD at that time.47 They were just horrified by the audacious declaration of Bernstein that “the final goal, whatever it is, means nothing for me; the movement is everything”. No wonder, this 44 Actually, the book was the summary and enlargement of two previous articles published in 1897 and 1899 in “Die Neue Zeit”, the weekly magazine edited by Karl Kautsky, another giant of German Social Democracy. His attacks on Marxism had started even earlier, although Bernstein was a friend of Engels and talked to him regularly during his twenty-year-long exile, part of which he spent in London. 45 Popper had a more cautious view of this phenomenon: “in regard to the tendency towards the centralization of capital in fewer and fewer hands, matters are not so simple. Undoubtedly, there is a tendency in that direction, and we may grant that under an unrestrained capitalist system there are few counteracting forces. Not much can be said against this part of Marx’s analysis as a description of an unrestrained capitalism. But considered as a prophesy, it is less tenable.” Popper (2011), p. 376. 46 The Second German Reich had universal male suffrage for the Reichstag from the year of its establishment in 1871. As the Reichstag gained power over the legislation of the constituent parts of the empire, the meaning and significance of the elections grew over time, leading to a better understanding and appreciation of the democratic process. But it is important to remember that the founding fathers of the workers’ movement had an ambivalent, at best, and a negative, at worst, view on what they called “formal” bourgeois democracy. Following Marx and Engels, most leaders of Social Democracy accepted that bourgeois democracy was just a fig leaf to conceal the exploitation of the workers which can be abolished only by abolishing capitalism. 47 Georgi Plekhanov, the father of Russian marxism, criticised Bernstein and defended revolutionary Marxism. He was also fighting against Piotr Struve, an exact contemporary of Lenin and a former fellow Marxist, who later became a liberal and even joined the white forces at the time of the civil war in 1918–1921. See Pipes (1970, 1980).

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bold revisionist stream and the rupture it caused was considered a tragedy by many Social Democrats, not only in Germany but elsewhere, too.48 Three years later, in March 1902, another book was printed in Stuttgart, capital of Baden-Württenberg. Its author was a largely unknown Russian young man, who wrote his book in Russian but could not publish it at home for the censorship of the Russian Empire. Its title was: What is to be done? (Shto delat’?), and its subtitle: Painful (burning = naibolevshie) Questions of Our Movement. It was a short political pamphlet put together in a hurry because another urgent task robbed the precious time and attention of its author: There was a need to unify the various Russian circles of Social Democracy, active at home and in abroad. The intended “unification”, however, failed next year. At the second congress of the Russian Social Democratic Workers Party (RSDWP) held in Brussels and London,49 a final rupture took place between two Russian Social Democratic groups with very tragic consequences for the history of the whole twentieth century. One person played a key role in this second significant split of the European socialist movement: the author of the mentioned book, Vladimir Ilyich Lenin.50 His book, published in the previous year, was a deliberate attempt to achieve ideological purity and organizational control of the new Social Democratic party. It is absolutely obvious from the very first page and even before that. For the motto

48 Bernstein’s ideas expressed in his book were heavily influenced by what he saw in his twenty years of exile. He stayed in Zurich, London and Amsterdam and had a unique opportunity to observe and analyse the development of capitalism and political democracy in the most advanced countries in contemporary Europe. His revisionism, therefore, is nothing else but an eloquent proof of the elasticity and adaptability of capitalism and democracy. From this perspective, Bernstein did nothing else but acknowledged for the first time the inflexibility of the Marxian doctrine and its incapacity to explain new and controversial phenomena in societal development. Sadly, it took another century for Marxian socialism to become finally obsolete and be acknowledged as such. 49 Others considered this the first, the founding congress because the very first gathering, held in Minsk in 1898, was attended only by nine delegates from three different organizations, and it was held in secrecy. Although it managed to elect a central committee and listen to a draft program, put together by no lesser figure than Piotr Struve, most of the delegates were taken into custody by the Okhrana, the tsarist secret police, within a month. 50 Ulyanov seems to have started to use his pen name, N. Lenin, in Zurich, Switzerland, where he first went after his short exile in Siberia. In the first year of the new century, he started to write articles about the urgent tasks of a soon to be established (reconvened?) Social Democratic party. Time was of essence for the Social Democrats because a competing party of the Socialist Revolutionaries (SR) came to existence in January, 1902, joined the Second International and declared itself the heir of Marxism. Lenin desperately wanted for himself an exclusive control for Marx’s legacy and, even more importantly, a dominant position for his version of communist purity. This insider story speaks volumes about the jealousy of intellectuals, who considered themselves anointed leaders of the masses, while at the same time, they were extremely intolerant even with their own comrades. While internal quarrels were not the excusive privilege of the socialist movements, it is particularly tragic that Social Democrats, who wanted to liberate the working class, and who were few and far between at this time, were unable to liberate even themselves from fierce and ultimately devastating political infighting and intrigue.

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Lenin selected for reflecting the spirit of the book was no coincidence.51 It is a quotation from a letter from Lassale to Marx written as early as June 24, 1852. It shows very clearly the huge impression Lassale made on Lenin pretty much the same way as the book shows the enormous impact narodnik ideology and practice exerted on the soon-going-to-be leading Russian revolutionary. (It is tempting to advance the conclusion here that Lenin was a Lassallean-narodnik deviation from orthodox Marxism. In many ways, he was, indeed.) “What is to be done? was written in emigration. Lenin at the time was living in the Schwabing district of Munich. Leaving Russia in July, 1900, he had initially made for Switzerland. His ambition was to establish a newspaper for the Russian Social Democratic Workers Party. He contacted émigré Social Democrats and support came from Georgi Plekhanov, Pavel Akselrod and Vera Zasulich. Lenin had the highest regard for them as the founding figures of Marxism in Russia. But he strongly doubted their abilities. Together with young men like Yuli Martov and Aleksandr Potresov, he already started collecting funds for the newspaper. He chose a name for it too: Iskra (or’Spark’).”52 The famous six—Plekhanov, Akselrod, Zasulich, Martov, Potresov and Lenin— formed the editorial board of Iskra.53 It was a quite quarrelsome bunch from the very beginning. “Rumbustious” is perhaps an even better word.54 Their sharp differences foreshadowed the rupture at the second congress of the party and contributed to the ideological cleavages which solidified by then. But what were the issues? In addition to quarrels among members of the Iskra board, Lenin fought two groups outside Iskra but in Russian Social Democracy: the so-called economists and the “legal Marxists”.55 The “economist” debate was triggered by two close contemporaries of Lenin, S. N. Prokopovich and his wife, E. D. Kuskova, who declared that assisting trade 51 “…Party struggles lend the party strength and vitality; the greatest proof of a party’s weakness is its diffuseness and the blurring of clear demarcations; a party becomes stronger by purging itself…” Lenin (1988), p. 69. 52 Service (1988), p. 3. Robert Service, the renowned British historian, has written an excellent introduction to Lenin’s book, What is to be done? 53 The base of operation was Munich for two reasons. On the one hand, Bavaria was closer to Russia and German social democrats had excellent printing facilities there. On the other, Lenin wanted to stay away from Plekhanov, who was residing mainly in Switzerland. Nevertheless, the most important contributors to Iskra were Plekhanov and Lenin. Service (1988), p. 3. 54 “That Iskra should begin by fighting battles inside its own party depressed several socialdemocrats. The émigrés, for all their intellectual eminence, never stopped quarrelling. The joke went rounds that the thinness of Alpine air affected their common sense. Clustered together in small communities, far removed from their native land and distant from the opportunity of wielding governmental power, they engaged in their disputes with a wilfulness that repelled socialists in the rest of Europe. Not only Russian Marxists had this reputation. The entire political emigration from Russia, from before the time when Marxism had followers there, had been notorious for its disputatiousness over several decades.” Service (1988), p. 4. 55 Actually, the terms “economists” and “legal-Marxists” were invented and used for abuse among other Russian Social Democrats. Denouncing stigmatizations were utilized deliberately and with clear purpose in all segments of the Social Democratic movements and clearly reflected the lifeand-death nature of these existential struggles. A repellent feature of culture, but nothing new.

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union activity, aiming at higher wages and better working conditions for the laboring masses, should be by far the most important part of the program of the Social Democrats. “For the workers, filling stomachs should come first.”56 Lenin read Kuskova’s book, entitled “Credo”, in his exile in Shushenskoie, in Siberia, in 1899, and he was appaled that a “Marxist (or a social-democrat, as it then was conventionally for any adherent of organized Marxism to be described) could remove political struggle from the party agenda. Both he and Plekhanov were repelled by what they dubbed ‘Economism’. They declared that Prokopovich was paying excessive attention to the aspirations of the workers. Socialist intellectuals should not follow: they should lead. Prokopovich, in asking Marxists to make the satisfaction of material grievances the focus of their efforts, was preaching ‘tailism’; he was telling the antimonarchical movement to position itself not in the political front-line but in the rear.”57 This is a fantastic quotation. It reveals at least two shocking aspects of future Bolshevism. First, it was thought inadmissible to pay “excessive” attention to the aspiration of the workers. Second, it reflected the view that communists would “know better” than the workers themselves what their true interests were. Legal Marxists formed a less influential group. Their most influential theorist was Piotr Struve, who wrote the “Manifesto” for the first congress of the Social Democrats in Minsk, in 1898.58 The legal Marxists thought that the development of the capitalist system was both inevitable and beneficial in the Russian empire. They also supported Bernstein’s revisionism, and hence, they invoked the wrath of the revolutionists. The rupture between the two streams became final in 1905 when the legals abandoned Marxism and started to drift toward liberalism. Today few people would remember the content of “What is to be done?”59 For the sake of brevity, I highlight its two major innovations only. The second and third chapters contain the most important ideological tenets of what was being born on these pages as Leninism. Its essence was that although the working class was the driving force of the inevitable historical struggle against capitalism and the socialist revolution, the workers were only capable of spontaneous activities. Lenin maintained that revolutionary consciousness should be injected into the working class from without. Workers left to themselves would be satisfied with trade union activities in order to improve their living and working conditions. (This was exactly what the “economists” desired.) But the working class was destined to become the ruling 56 Service

(1988), p. 17. p. 17. 58 Other famous figures of the group were Nikolai Berdyaev, Sergei Bulgakov, Mikhail TuganBaranovsky and Semion Frank. They were called “legal” Marxists because they promoted their ideas in legal publications in Russia. 59 Although it was compulsory reading for students of social sciences in all countries under communist rule, we learned next to nothing about the particular circumstances of its writing and the precise views of those who were ferociously criticized by Lenin in his book. In the light of subsequent historical events and in the deafening silence about the lively debates surrounding its publication, we—young students at Karl Marx University of Economics in Budapest—were led to believe that Lenin proved to be absolutely right in all his visionary prophecies. 57 Ibid.,

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class in a new system superseding capitalism. For that to happen, there was a need for a revolutionary vanguard, for a party of professional revolutionaries. In this party intellectuals, alienated from their own class, ought to play a leading role because they were the ones who had the necessary education and free time to formulate both the ideology and practical political activities which would bring about the ascendancy of the working class. Was it not true that Marx and Engels were the best representatives of bourgeois intellectuals, who, having been alienated from their own class, contributed significantly to the development of socialist ideology and the formation of Social Democratic parties which became indispensable for leading the class struggle? All demagoguery exert an influence because there is a grain of truth in it. There can be no denial of the role and importance of disillusioned intellectuals in any modern social movement and political organization. Does it mean, however, that intellectuals have to push workers to such an “elevated” level of consciousness which would be unattainable for them by themselves? Who will decide whether the class consciousness defined by intellectuals is superior and reflects the interests of the workers more adequately than the spontaneity they express? And what is the most important: what if the working class does not wish to get to that level of consciousness that is professed by the intellectuals? Should the working class be allowed to be satisfied with the objective of reformist socialism? Are the workers free to mean by socialism something different from the concept of the intelligentsia? Is it permissible to compel workers to perform class struggle and revolutionary activity by force against their will? The concept of injecting revolutionary fervor and consciousness into the working class from without was not Lenin’s invention. In his book, he could refer to Kautsky whom he held at high esteem at that time. Kautsky, while analyzing the new program of the Austrian Social Democratic party, wrote the following: “socialism as a doctrine has its roots in modern economic relationships just as the class struggle of the proletariat has, and, like the latter, emerges from the struggle against the capitalist-created poverty and misery of the masses. But socialism and the class struggle arise side by side and not one out of the other; each arises under different conditions. Modern socialist consciousness can arise only on the basis of profound scientific knowledge. Indeed, modern economic science is as much a condition for socialist production as modern technology, and the proletariat can create neither the one nor the other, no matter how much it may desire to do so; both arise out of the modern social process. The vehicle of science is not the proletariat but the bourgeois intelligentsia (K.K.’s italics): it was in the minds of individual members of this stratum that modern socialism originated, and it was they who communicated it to the more intellectually developed proletarians, who, in their turn, introduce it to the proletarian class struggle where conditions allow that to be done. Thus, socialist consciousness is something introduced into the proletarian class struggle

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from without (von Aussen Hineingetragenes) and not something that arose within it spontaneously (urwüchsig).”60 But there was a widening gap between the views of Kautsky and Lenin about the implications of filling the workers with revolutionary class consciousness. Kautsky appreciated the function of the party in leading the workers in their class struggle, but he never felt that it should be considered a “vanguard” by all means. Lenin, in contrast, expressed his opinion that the “spontaneous development of the working class movement leads to its subordination to bourgeois ideology, to its development along the lines of the Credo programme; for the spontaneous working class movement is trade unionism, is Nur-Gewerkschaftlerei, and trade unionism means the ideological enslavement of the workers to the bourgeoisie. Hence, our task, the task of Social-democracy, is to combat spontaneity, to divert the working class movement from this spontaneous, trade-unionist striving to come under the wing of the bourgeoisie, and to bring it under the wing of revolutionary social-democracy.”61 Combat spontaneity is not the same as acknowledging and, to a certain extent, building on it. Lenin thoroughly depreciated the consciousness of the working class and underrated its capacity to organize itself. He might even have realized that the workers were not necessarily the best raw materials for revolution.62 “Having concluded that industrial labor was not inherently revolutionary, indeed ‘bourgeois’…, Lenin had two choices open to him. One was to give up the idea of revolution. This, however, he could not do. Revolution to him was not the means to an end but the end itself. The other choice was to carry out a revolution from above, by conspiracy, and coup d’etat, without regard for the wishes of the masses. Lenin chose the latter course.”63 What needs to be done? reflected precisely this dilemma and Lenin’s choice. That is exactly why he put so much emphasis on the issue of party organization and control.64 In this respect, the narodnik legacy was suitable for his purpose. By driving the concept of the leading role of the party into extremes, he had no choice but to buy wholesale the idea of a centralized clandestine organization of professional 60 Quoted

by Lenin (1988), p. 106. Kautsky: Die Neue Zeit, 1901–2, XX.I, No. 3, p. 79. (1988), p. 107. 62 “The longer he observed the behavior of the workers in and out of Russia, the more compelling was the conclusion, entirely contrary to the fundamental premise of Marxism, that labor (the “proletariat”) was not a revolutionary class at all: left to itself, it would rather settle for a larger share of the capitalists’ profit than overthrow capitalism. It was the same premise that moved Zubatov (director of the Special Section of the Russian Interior Ministry’s Department of Police in 1902– 1903 – LB) at this very time to conceive the idea of police trade unionism. In a seminal article published at the end of 1900, Lenin uttered the unthinkable: “the labor movement, separated from Social-Democracy…inevitably turns bourgeois.” The implication of this startling statement was that unless the workers were led by a socialist party external to it and independent of it, they would betray their class interests. Only non-workers – the intelligentsia – knew what these interest were.” Pipes (1990), p. 358. 63 Pipes (1990) Ibid. 64 It was not very well understood by contemporary critics because they did not realize the underlying dilemma. 61 Lenin

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revolutionaries. Thus, the prototype of a secretive combat alliance, controlled by a rather closed group of reliable conspirators in a non-democratic way, gradually took shape. That was Lenin’s great invention, the first ideological achievement of raw Leninism.65 Thus, the Bolshevik faction was born next year. The new concept was met with strong repudiation by all those who mattered. It was criticized by Martynov, leader of the “economists”, who was savagely attacked by Lenin’s venomous pen and Akimov, leader of the Bund, the Jewish Labor Alliance.66 Plekhanov joined the critics soon, as well as Akselrod, whom Lenin managed to expel from the editorial board of Iskra at the second congress of the RSDWP.67 Trotsky wrote a sarcastic pamphlet against Lenin’s views.68 Rosa Luxemburg also felt that Lenin went too far and criticized Bolshevik theory and practice. But it is highly remarkable that Kautsky said nothing; he found it unpalatable to intervene into the internal affairs of a smallish, brotherly party. Or, did he consider Lenin and his party completely irrelevant at that time? After 15 years, it was too late.

2.3 The Duel in Five Books “Democracy extends the sphere of individual freedom, socialism restricts it. Democracy attaches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.” Alexis de Tocqueville69

An expressive Marxian formula came handy to reveal the evolving Leninist answer to the most important political question of 1917: what form would soviet power

65 Democratic centralism was obviously a misnomer to conceal the true nature of the Bolshevik party. 66 At the time of the second RSDWP congress, the Bund had more members than the Social Democratic party. 67 Actually, the reconfiguration of the editorial board of Iskra was one of the most important reasons for the Bolshevik-Menshevik rupture at the second congress of the RSDWP. 68 The young Trotsky was a friend of Lenin before the rupture. He remained Menshevik up until the 6th congress of the Bolshevik party which took place two month before the Bolshevik coup d’etat. Then, for a while, he became more Bolshevik than the Bolsheviks. He had plenty of time to regret it after he went into exile in 1928. 69 “Discours prononcé á l’assemblée constituante le 12 Septembre 1848 sur la question du droit au travail.” (OEuvres completes d’Alexis de Tocqueville, vol. IX, 1866, p. 546). Quoted by Hayek (1944), p. 18.

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assume? It was the dictatorship of the proletariat.70 After the February revolution in Russia, few people might have remembered that its divergent interpretations had significantly contributed to the rupture 15 years earlier. Orthodox marxists considered Marxian writings holy scripture. Unfortunately, Marx had never explained in detail what he exactly meant by the dictatorship of the proletariat, so it did allow widely different interpretations. Nevertheless, it was easy to make a reference to the fact that Marx and Engels considered the dictatorship of the proletariat absolutely necessary for the final victory of working class over the bourgeoisie and socialism over capitalism. The original and most frequently quoted sentence could be found in Marx’s critical remarks written in a letter to the Gotha program of the soon-to-be unified Socialist Workers Party of Germany71 of this subject is as follows: “Between the capitalist and the communist society there lies the period of revolutionary transformation of the one into the other. Corresponding to this is also a political transition period in which the state can be nothing but the revolutionary dictatorship of the proletariat.”72 A sentence used and abused without end by various streams of socialists. In Lenin’s early book, What is to be done?, it did not appear in explicit form at all. But it remained an implicit assumption never to be repudiated by the future Bolshevik leader. It was a convenient way to express the so-called class content of the Bolshevik regime while concealing its strongly anti-democratic nature. The ambiguity provided ideological fodder for supporters and defenders alike. One hundred years ago, five books were published in quick succession to take up the issue at the earnest. They could have shaken the world, but they did not. Although arguments teach, but even more facts and experience. Unfortunately, it was necessary and unavoidable to gain firsthand experience of what it meant to live under Bolshevik dictatorship in the twentieth century by several generations. Karl Kautsky was the first to realize the enormity of the Bolshevik challenge. He was terrified at what from his perspective was a monster and initiated an extremely powerful ideological attack against the evolving soviet communism. And what is especially important: His attack was based on Marxist principles. This is exactly what makes his struggle against Bolshevism especially authentic.

70 This term was first used by a Prussian Marxist officer, Joseph Arnold Weydemeyer in an article he published in Turn-Zeitung on January 1, 1852. Marx praised him in a letter sent to him on March 5, 1852. For a long time, the concept was not elaborated, but Marx found necessary to use it in his “Critique to the Gotha Programme” in 1875. We will come back to this concept in the next section. 71 Sozialistische Arbeiterpartei Deutschlands came into being after the merger of two workers’ parties in 1875. 72 “Zwischen der kapitalistischen und der kommunistischen Gesellschaft liegt die Periode der revolutionaren Umwandlung der einen in die andere. Der entspricht auch eine politische Übergangsperiode, deren Staat nicht anderes sein kann als die revolutionare Diktatur des Proletariats.” Marx (1875). The letter of Marx was published by Engels only in 1891, when the issue of the dictatorship of the proletariat came back to the agenda in the new program of the SPD prepared for the Erfurt congress. Kautsky (1965).

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Contrary to Bernstein, who openly professed revisionist thoughts, Kautsky can be considered an orthodox Marxist. His life is a proof of this in every respect. He was also regarded as such by most of his socialist contemporaries, at least until he was attacked and repudiated by Lenin. Karl Kautsky was born in 1854 in Prague, the capital of the Czech part of the Habsburg monarchy. In that year, Marx was only 36, and Engels 34 years old. When Marx died (1883), Kautsky was 29, when Engels passed away (1895), he was 41. It is also remarkable that Kautsky lived a very long life. He died in 1938, at the age of 84, in Amsterdam, the Netherlands, in self-imposed exile after Hitler came to power in Germany. He outlived Lenin by 14 years and died not much earlier than Trotsky (1940). Thus, Kautsky was an important, perhaps even a unique, connecting link between the venerable founding fathers of Marxism and the young communist generation of the turn of the twentieth century. Kautsky possessed an exceptionally thorough philosophical and ideological erudition. He was not a party leader but a journalist and a theorist. From 1883 until 1917, he worked as editor in chief of Die Neue Zeit, the journal of the SPD. After the death of Engels, he was regarded as the most distinguished Marxist theorist not only in Germany but in Russia as well. According to the testament of Marx, he became the anointed guardian of the literary bequest of the founding fathers of Marxism. Last but not least, he was another truly remarkable citizen of the withering Austro-Hungarian empire and, ultimately, a very tragic figure. The duel started with Kautsky’s famous book, entitled “The Dictatorship of the Proletariat”, published in August, 1918, in Vienna.73 The date and the place of publication are highly significant. When Kautsky finished his book, World War I was still in progress, but almost a year had passed since the October revolution. As early as late 1917, the Bolsheviks largely destroyed the regional and local organs of public administration which were mostly controlled by the Mensheviks and SRs at that time.74 On January 5, 1918, after a single afternoon and night of tense deliberations, the Bolsheviks disbanded the Vserossiiskoie Uchred’itelnoie Sobranie, the newly elected All-Russian Constituent Assembly.75 Although there was a short period of so-called 73 The book was written in German and entitled: “Die Diktatur des Proletariats” (Volksbuchhandlung J. Brand). It was translated in English next year and published by the National Labour Press Ltd. in the UK. The urgency and speed of the English edition reflected a clear recognition of the importance of the issue. British Labour was not to follow the Bolshevik example. (Not even the Independent Labour Party, a more leftist formation.) 74 “During the first months after October, the Bolsheviks made a concerted effort to wrest control over provincial administration from the zemstvos and dumas, most of which had been elected on the basis of universal suffrage earlier in 1917. In almost all cities of European Russia, Mensheviks and SRs headed the city dumas. These bodies were now disbanded, even though the Bolsheviks, by their own admission, had no qualified personnel with which to organize a functioning administration.” Brovkin (1987), p. 51. 75 “This action marked a turning point in their relations with the Petrograd workers. Red Guards shot at a peaceful procession in defense of the assembly and burned the demonstrators’ banners in street fires. Compared to the Red Terror that was to follow, it was a minor incident; twenty-one people were killed. Before that day, however, the Bolsheviks had been known as the party that had assailed Kerensky for daring to consider restoring the death penalty for desertion at the front,

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peredyshka, breathing spell, between the signing of the Brest-Litovsk peace treaty with Germany in March, 1918 and the eruption of the full-fledged civil war in June, Bolshevik harrassment of the democratic parties, press and gatherings continued unabated. Then came the “New Course”, a tightening of the screws in the economy and in politics, too. “In the early summer of 1918, the Bolsheviks abandoned their attempt at moderation in economic policy and reverted to a class-war approach. The battles in the courts between government and opposition were now replaced by summary executions without trial. Electoral politics in the soviets gave way to imposition of martial law in many cities, and the independent workers’ organizations were suppressed.”76 By the second half of 1918, the dictatorial and terrorist nature of the Bolshevik regime was aready clearly visible for all eyes who wanted to see it. It shows the sagacity of Kautsky that he immediately recognized the nature of the beast and decided to respond to the lethal threat Bolshevik power represented to mainstream Social Democracy in Europe. The place of the publication of Kautsky’s book was no accident either. There was a long anticipated rupture among Social Democrats in Germany in 1917. The most important reason for it was the diverging views about the ongoing war. The Independent SPD (Unabhängige Sozialdemokratische Partei Deustchlands—USPD) was established in April, 1917,77 by those centrists and left-wingers who opposed the war almost from the beginning.78 Interestingly, the USPD was also a wide body: its members included Eduard Bernstein (revisionist), Karl Kautsky79 (centrist), Karl Liebknecht and Rosa Luxemburg (leaders of the Spartakusbund). The president of the new party, Hugo Haase, advised Kautsky not to start an attack against the Bolsheviks. But Kautsky was extremely worried that the Bolshevik the party that had accused the Kadets, the Mensheviks and the SRs of postponing and sabotaging the convocation of the Constituent Assembly. On November 11, on the eve of the elections to the Constituent Assembly, the Bolshevik newspapers had printed large headlines proclaiming that only the Bolsheviks’ accession to power had made possible the convocation of the Constituent Assembly. The Bolsheviks’ image had been that of a radical, uncompromising, revolutionary and democratic party. This image was badly tarnished by the events of January 5.” Brovkin (1987), p. 59. 76 Brovkin (1987), p. 77. 77 It was no coincidence that the USPD was born in April, 1917, hardly more than one month after the February revolution had taken place in Russia. The left-wing Social Democrats, who opposed the war all along, felt that something can and must be done now. As Russia was drifting toward an armistice, if not peace, with the Central Powers, it looked possible to stop the senseless massacre and achieve peace without territorial expansion and indemnities. (That was the slogan of the “pacifists” all along.) 78 They refused to vote for the next round of war credits in December, 1915 and were expelled from the SPD in March, 1916. Some of them were pushed out of the SPD-faction in the Reichstag, others joined them in solidarity. Then, they formed a separate faction with the rather unassuming name Social Democratic Working Group (Sozialdemokratische Arbeitsgemeinschaft). It may perhaps indicate that they might not have considered their expulsion from the SPD as final. 79 It must not have been an easy decision for Kautsky, but he was a man of principle with strong convictions. He paid a huge price for it: After 35 (!) years of dedicated service, “he was in effect ousted from the editorship of Die Neue Zeit and replaced by a partisan of the majority, Heinrich Cunow.” Shachtman (1961), p. vii.

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disease would contaminate and weaken further the increasingly fragile German Social Democratic movement.80 Therefore, he decided to go ahead with the publication of his book. But out of deference to Haase, he published it in Vienna, the far-away capital of the still intact Habsburg Monarchy. Lenin was equally astute and far-sighted. He decided to pick up the challenge immediately despite the urgent tasks of governing and battling in the unfolding civil war. It is never to forget that at that time all important leaders of the Bolshevik party were still firmly convinced that the only chance for Russian socialism to survive was the spreading of the revolution to the West.81 Lenin was absolutely keen on gaining political support from the Western Social Democratic movements and also hoped for some material help from the soon-be-victorious socialist governments of advanced Western countries. He was fully aware of the weight of Kautsky and the huge impact his views might exert on the leaders of Western Social Democracy. Thus, he decided to reciprocate the attack. “The choice of the main target for the Bolshevik barrage was not accidental. The leaders of the Russian socialist opposition to the Bolsheviks–the Mensheviks and the Social Revolutionist-were very little known to the mass of the socialist movement outside Russia; their writings were even less known. The position of Kautsky was altogether different.”82

80 And so it happened. It is no exaggeration to say that Kautsky was exceptionally far-sighted even among the highly educated and astute German Social Democrats. 81 That was consistent with what Marx might have thought about the feasibility of a socialist transformation in Russia. Marx was not denying the possibility of a socialist revolution in Russia but categorically excluded the survival of a socialist regime unless supported by other socialist governments from advanced Western countries. 82 “Karl Kautsky had known both Karl Marx and Friedrich Engels in his youth. After their death, he became the principal literary executor of the two founders of modern socialism. His writings on a wide variety of subjects were regarded everywhere as classical statements of the socialist view. He virtually founded and for thirty-five years edited the theoretical organ of the German Social Democracy, Die Neue Zeit, and it is no exaggeration to say that no other periodical had so profound an influence upon the whole generation of Marxists before World War I, not in Germany alone but throughout the world. In his own party and in the Socialist (the Second) International for most of a quarter of century before the war brought about its collapse, he was unique in the prestige and authority in the sphere of Marxian theory that he enjoyed among socialists of all schools. His renown was scarcely diminished, at least up to the outbreak of the war, by occasional questioning of his Marxian orthodoxy by the small but more radical wing of socialism or by the fact that the actual political leadership of his party shifted steadily from him. It is worth noting, too, that except for the Poles and of course the Russians, no one in the international socialist movement showed greater interest, knowledge and understanding of the Russian problems under tsarism and of the Russian socialist movement than Kautsky. The Russian Marxists of all tendencies held Kautsky in almost awesome esteem. Up to August 1914, the writings of Lenin in particular are studded with the most respectful and even laudatory references to Kautsky, with whose views he sought to associate himself as much as possible and whose approval he, Lenin, adduced whenever he could as a most authoritative contribution to Russian socialist controversies.” John H. Kautsky, his grandson, quoted this long laudatory statement from Shachtman (1961) in his Introduction to the new edition of his grandfather’s book. Kautsky (1964), pp. xi–xiii.

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Lenin understood the existential threat stemming from the writing of Kautsky. He decided to respond in kind. With his typical abrasiveness, Lenin more than reciprocated the favor. The title of his book leaves no doubt about its content and vitriolic style: “The Proletarian Revolution and Renegade Kautsky”.83 One would think that Kautsky had then stopped the quarrel because he could have harbored no illusion about the impact of a single German book on the course of action of a dictatorial government in Russia. But it was not to be that way. Kautsky, on the basis of latest, even more frightening information on the tragic events unfolding in Russia, wrote a new book with the unambiguous title: “Terrorism and Communism”. It was published in Berlin, in June, 1919.84 The answer to Kautsky’s new book then came from Leon Trotsky, the head of the newly organized and soon victorious Red Army, in 1920. The title was identical.85 Finally, Kautsky wrote another answer, the fifth book in this debate with the very expressive title: “From Democracy to State Slavery” (Von der Demokratie zur Staatssklaverei). It was published in Berlin, in 1921.86 “From the very beginning of the revolution, the Bolsheviks sought the active support of the socialists outside of Russia, not only as sympathizers of the revolution they had carried out but for the world revolution which was to be led by the Communist (the Third) International which they proposed to establish as quickly as possible. The opposition of a socialist of Kautsky’s standing was therefore a matter of exceptional concern. Hence the vehemence, the intensity, and extensiveness, of Lenin’s and Trotsky’s polemics…”87 Needless to say that Kautsky’s desperate protestations had no impact on the events in Russia and on the course of action of the increasingly and proudly dictatorial Bolshevik government. Kautsky harbored no illusions about it either. He wrote about it in 1931, when the brutal Stalinist attempt in social engineering was already well under way: “I did so (wrote my book) to salve my conscience, not because I expected any practical success. How could a single German pamphlet, in the midst of war, published in Vienna, be effective in Petrograd and Moscow? Most Bolsheviks did not even hear of its existence. But even if they had read my pamphlet, it was bound to remain ineffective. They could no longer turn back without abandoning themselves. The logic of facts has always been stronger than the logic of ideas.”88 83 Originally written in Russian: “Proletarskaia Revoliutsia i Renegat Kautskii” (Knigoizdat’elstvo “Kommunist”) Moskva, 1918. First English edition: International Publishers, New York (1934a). 84 “Terrorismus und Kommunismus” was published in English by National Labour Press, London, 1920. 85 “Terrorizm i Kommunizm” was translated in German immediately and published by the Western European secretariat of the Communist International. (Terrorismus und Kommunismus: AntiKautsky. Hamburg, 1920.) Published in English first by the American Communist (Workers Party) in 1922 in New York with the wrong title “Dictatorship vs. Democracy”, annoying Trotsky by the mistake. (University of Michigan Press, Ann Arbor, 1961.) 86 To the best of my knowledge “Von der Demokratie zur Staatssklaverei” was never translated and published in English in its entirety. Obviously, it did not appear in the Russian language, either. 87 Shachtman (1961), p. vii. 88 Kautsky (1931) Quoted by John Kautsky (1964), p. xi.

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But what were the issues? There were many. Instead of analyzing all of them one by one, I will highlight only those which were important not only for the future of the idea of socialism, but also to the development of socialist countries. And here by far the most important is the issue of dictatorship versus democracy. This is the center of the controversy all along these five books.

2.4 Das Problem “Dictatorship does not ask for the refutation of contrary views, but the forcible suppression of their utterance. Thus, the two methods of democracy and dictatorship are already irreconcilably opposed before the discussion has started. The one demands, the other forbids it.” Kautsky (1964), p. 3.

This is the title of the first chapter of Kautsky’s first book. In order for everyone to understand absolutely clearly, Kautsky shed light on the very essence of the debate when he made a parallel between the Paris Commune and the Bolshevik regime in the following manner: “The present Russian Revolution has, for the first time in history of the world, made a Socialist Party the rulers of a great Empire. A far more powerful event than the seizing of control of the town of Paris by the proletariat in 1871. Yet, in one important aspect, the Paris Commune was superior to the Soviet Republic. The former was the work of the entire proletariat. All shades of the Socialist movement took part in it, none drew back from it, none was excluded. On the other hand, the Socialist Party which governs Russia to-day gained power in fighting against other Socialist Parties, and exercises its authority while excluding other Socialist Parties from the executive. The antagonism of the two Socialist movements is not based on small personal jealousies: it is the clashing of two fundamentally distinct methods, that of democracy and that of dictatorship. Both movements have the same end in view: to free the proletariat, and with it humanity, through Socialism. But the view taken by the one is held by the other to be erroneous and likely to lead to destruction.”89 In this opening statement, Kautsky was still permissive: He graciously allowed that the Bolshevik party had “the same end in view”, the liberation of the proletariat and humanity. He remained respectful and courteous—not only because this was his style and reflected his personality but also because at this stage he probably felt that it was worth avoiding the destruction of bridges to the Bolshevik movement which was about to become a formidable competitor to Social Democracy not only 89 Kautsky

(1964), pp. 1–2.

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in Russia but elsewhere, too. Therefore, polite wording was meticulously preserved throughout the first book. At the same time, Kautsky was absolutely clear about the substance of the debate: dictatorship versus democracy. It is important to remember that, despite Marx’s exhortations about the dictatorship of the proletariat, democracy at that time was still considered a mainstream tenet not only within Social Democracy but among Marxists as well. Thus, the debate was, at least in part, about the legacy of Marx and the critical characteristic features of Marxism, too.90 Since the Bolsheviks repudiated democracy, they became anti-Marxists in the eyes of Kautsky. According to him, the Bolshevik deviation in this respect was so significant that it would lead to the destruction of the whole Socialist movement. Kautsky made it clear that, from his perspective, democracy is a sine qua non of socialism. “For us therefore, Socialism without democracy is unthinkable. We understand by Modern Socialism not merely social organization of production, but democratic organization of society as well. Accordingly, Socialism is for us inseparably connected with democracy. No Socialism without democracy.”91 Was Kautsky right? Obviously, that depends on our high definition of socialism. He was not right if, by socialism, we understand what actually existed in the twentieth century. But he must have had a point from the perspective of the original Marxian ideal, according to which socialism denotes a society with maximum welfare and liberty. It might have been a wholly utopian formulation but there can be no denial of the fact that it was at least a humanistic idea.92 Kautsky may also have been right in defending the letter of what was regarded a basic pillar of Marxist ideology at the time that socialism can be achieved only in the most advanced capitalist countries. What he observed happening in Russia in name of socialism by no means corresponded to the Marxist conditions of socialism.93 90 Kautsky and Lenin both considered themselves as representing true Marxism. It was important also because Marxism at that time was still an absolutely forceful and widely accepted reference point to Social Democrats of all shades. Before the establishment of the “Communist” parties and the Communist International, nobody could even claim that it was he, and only he, who represented the unadulterated legacy of the founding fathers. 91 Kautsky (1964), pp. 6–7. Kautsky quoted one of his earlier works here, written in 1893. 92 “Marx would have hated to be described as a moralist, since he saw himself as a Communist who was elaborating a theory of scientific socialism. Yet many of his formulations were nothing like as ‘scientific’ as he made out. One of his most rigorous critics on that account, Karl Popper, pays tribute to the moral basis of much of Marx’s indictment of nineteenth-century capitalism…’ Marx’s burning protest against these crimes will secure him forever a place among the liberators of mankind.’ Those who took power in the twentieth century, both using and misusing Marx’s ideas, turned out, however, to be anything but liberators.” Brown (2009), pp. 9–10. 93 “…I watched the Bolsheviks’ first steps with benevolent expectation. I considered it impossible that they could immediately attain socialism as they thought. Still, they were intelligent and knowledgeable people and they acquired great power. Perhaps they would succeed in discovering new ways to raise the working masses from which the nations of the West, too, could learn. However, my expectant benevolence did not last long. To my chagrin, I saw ever more clearly that the Bolsheviks totally misunderstood their situation, that they thoughtlessly tackled problems for the solution of which all conditions were lacking. In their attempts to accomplish the impossible by brute force, they chose paths by which the working masses were not raised economically,

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Kautsky found it imperative to enumerate the conditions for socialism as he saw it. He summarized his most important findings in Chapter III of his book under the title “Democracy and the Ripening of the Proletariat”.94 He mentioned four absolutely necessary conditions: (i) the will of the proletariat for socialism, (ii) great industry, (iii) the majority of the working class in the population, (iv) the capacity of the proletariat to retain political power and build socialism. Measured against these criteria, he certainly drew the right conclusion that Russia was not ripe for building socialism at all. At least not for the socialism that Kautsky considered as stemming from the Marxian philosophy and economics. Interestingly enough, that was the ideological position of the Mensheviks, too. After the so-called Kornilov crisis in August, 1917, the Menshevik party was no longer against the formation of a purely soviet government, consisting of the three main Socialist parties, the Left SRs, the Mensheviks and the Bolsheviks.95 There was a “Democratic Conference” starting on September 14, 1917, trying to resolve the power question. But the Democratic Conference failed miserably.96 Its abject failure opened the way to the Bolshevik takeover just four weeks later. Russia may not have been ripe for the building of socialism along Marxian lines, but it proved to be an easy prey to a coup d’etat of a radical and unscrupulous, power hungry formation which did not appreciate democracy. Kautsky tried to defend the unfortunate expression of his idol—dictatorship of the proletariat—by all means. His argumentation was intelligent, but vulnerable. He acknowledged that “taken literally, the word signifies the suspension of democracy. But taken literally it also means the sovereignty of a single person, who is bound by no laws.”97 Nevertheless, Kautsky argued that the expression implied that “dictatorship

intellectually, or morally, but on the contrary, were depressed even deeper than they had been by tsarism and the World War.” Kautsky (1931) quoted by Kautsky (1964), p. ix. 94 Kautsky (1964), pp. 12–24. 95 “The three main Soviet parties were all moving towards the idea of a socialist government, or at least a decisive break with the bourgeoisie, in the weeks following the Kornilov crisis. Martov’s left-wing Menshevik faction, which favoured an all-socialist government, was steadily gaining supporters among the rank and file of the party. Under their pressure, the Menshevik Central Committee pledged itself to the formation of a ‘homogeneous democratic government’ on 1 September. The Left SRs were also gaining ground, effectively emerging as a separate party after the crisis. Their three major policies – a socialist government based on the Soviet, the immediate confiscation of the gentry’s estates and an end to the war – could not have been better tailored to suit the demands of the rank and file, the mass of the peasants and soldiers, though such was the disillusionment with Kerensky and Chernov that many of them abandoned the SRs altogether and moved directly to the Bolsheviks.” Figes (1996), pp. 464–465. 96 “After four days of debate the conference had ended without an opinion on the vital issue for which it had been called. This was neither the first, nor the last time in the brief and interrupted history of the Russian democratic movement that the basic skills of parliamentary decision-making proved beyond its leaders; but it was perhaps the most critical in terms of its consequences.” Figes (1996), p. 466. 97 Kautsky (1964), p. 43.

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of not a single person, but of a class.”98 He felt that this excluded the inference that Marx thought of dictatorship in the literal sense. But in practical terms, it mattered little what Marx may have meant by this pernicious term. It was much more important how Lenin interpreted the words of the apostle. It was even more important whether the term could have been explained in such a way that it would preserve a plausible semblance of what Marx may have meant by it and at the same time conceal the genuine aspiration of the Bolshevik Party to perpetuating its exclusive political power. The term was sufficiently elastic to render plausibility to Lenin’s view. He was intelligent to smash the arguments of Kautsky with his sharp focus of mind in his reply.99 That was sufficient for him to terminate the theoretical part of the boxing in a draw. Kautsky’s reference to the Paris Commune was also somewhat unconvincing. He cited, this time, Engels, who declared in his introduction to the third edition of Marx’s book100 that the Paris Commune was a dictatorship of the proletariat. Kautsky argued that the Commune did not suspend democracy because it was “founded on its most thoroughgoing use, on the basis of universal suffrage. The power of the government was subjected to universal suffrage”.101 Apart from the fact that universal suffrage can be quite consistent with modern dictatorship,102 the argument remained rather weak even at that time because the problem of Bolshevism was much wider than the limited franchise applied in electing the Soviets as a new type of legislative power in revolutionary Russia.103 Kautsky was on firmer ground when he alluded not only to the lack of universal suffrage in Russia but emphasized the absence of civil liberties, like freedom of press and assembly.104 But in light of the values of liberal democracy that seems to have been underlying his burning desire to combat Leninism, the best part of his line of reasoning came when he combined two of his fundamental theses. One was that “a class can only rule, not govern”105 therefore, “when we speak of dictatorship as a 98 Ibid.,

p. 43. (1934a) Preface. 100 Marx (2014), p. 27 and Engels (1891). 101 Kautsky (1964), p. 44. 102 John H. Kautsky acknowledged this problem in his introduction to the book of his grandfather. He emphasized that “Kautsky’s image of dictatorship was quite different from ours. To him, dictatorship was distinguished from democracy chiefly because it lacked universal suffrage and popular participation in politics, while we have come to know universal suffrage and mass participation as characteristics of modern totalitarianism. Similarly, Kautsky thought that dictatorship with its reliance on military suppression would lead to civil war unless there was total political apathy. He did not-and could not yet-understand that totalitarian methods can avoid both apathy and civil war.” Kautsky (1964), p. xvii. 103 One of the biggest problems was state terrorism. Like the concept of the “dictatorship of the proletariat”, the legitimate application of violence as an integral part of government policy was completely unacceptable not only for Kautsky but the overwhelming majority of the Social Democrats who considered themselves Marxists. 104 “Dictatorship as a form of government means disarming the opposition, by taking from them the franchise, and liberty of the Press and combination.” Kautsky (1964), p. 45. 105 Ibid., p. 45. 99 Lenin

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form of government, we cannot mean the dictatorship of a class.”106 The other was to highlight that the proletariat can be divided and fairly represented by more than just one party. That was exactly the case in Russia. Kautsky concluded with irrefutable logic that in such a situation the “dictatorship of one of these parties is then no longer in any sense the dictatorship of the proletariat, but a dictatorship of one part of the proletariat over the other.”107 It was a smart line of reasoning not only to refute the Bolshevik interpretation of the dictatorship of the proletariat as the incontestable governmental power of a single party and, hence, to repudiate the essence of Leninism. It was also a cunning way to compel Lenin to declaring the Menshevik and the SR parties “petty bourgeois” and not socialist formations and insisting that the Bolshevik party was the only group representing the true interest of the proletariat.108 This concept—the exclusive leading role and monopoly of power of the Communist Party—was later ossifying into an absolutely fundamental and unquestionable pillar of the legitimacy of what was to be called “existing socialism”. No proof was needed and forwarded any longer. It was a slogan, or better said, an indisputable ideological tenet of communism almost with the force of religion. Having arrived to the only logical conclusion, Kautsky still wanted to be slightly permissive with the Bolsheviks. Therefore, he allowed for exceptions, but only in terms of coming to power and not in maintaining it in order to build socialism. “The subversion of democracy by dictatorship can therefore only be a matter for consideration in exceptional cases, when an extraordinary combination of favorable circumstances enables a proletarian party to take… political power, while the majority of the people are either not on its side, or are even against it. Amongst a people who have been trained in politics for decades, and have run into party molds, such a chance victory is hardly possible. It is only likely in very backward conditions. If in such a case universal suffrage goes against the Socialist Government, is the latter now to do what we have demanded of every government, to bow to the will of the people, and to resume its struggle for the power of the State with confidence, on the basis of democracy, or is it to subvert democracy to hold on to power?”109 In the very backward conditions of Russia, this was exactly what happened. Here, Lenin had an easy way out of the swamp: he could stick to the old concept that bougeois democracy was not genuine democracy; it was just a facade of the capitalist exploitation and the class rule of the bourgeoisie. Social Democracy inherited ambiguous, if not outright negative evaluation from Marx and Engels in this regard.110 Lenin wrote the following: “The bourgeois democracy, which, in comparison with 106 Ibid.,

p. 45. p. 46. 108 Lenin (1934a). 109 Kautsky (1964), pp. 47–48. 110 For our purpose, it is sufficient to quote the famous dictum of Engels which appeared in his postscript to the third edition of Marx work “Civil War in France” at the occasion of the 20th anniversary of the Paris Commune. “In reality, however, the state is nothing but a machine for 107 Ibid.,

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the Middle Ages is an enormous advance, remains – and in Capitalism that cannot be otherwise – narrow, limited, false and hypocritical, a paradise for the rich, a trap and a fraud for the exploited and the poor.”111 (italics mine). Lenin seems to have been in a comfortable “Marxist” position in rejecting Kautsky’s stand for democracy by labeling it “petty bourgeois”, something which ignored the class content of democracy. Of course, Lenin’s answer is not convincing. Even if bourgeois democracy is considered a farce, it does not justify making a farce of democracy in socialism. Repudiating formal democracy in a socialist system in name of the dictatorship of the proletariat cannot be easily explained. But the Bolsheviks felt that their exclusive position in government no longer required democratic rationalization. They abolished capitalist exploitation, hence, the substance of the societal system changed. The proletariat became the ruling class, and their interest was best represented by the Communist party. Democracy gained new content, it was no longer a veil for exploitation and oppression, but a framework for genuine people’s rule. Parties representing the interests of the bourgeoisie, the capitalist exploiters were not missed at all in this earthly paradise. Looking at the debate from the distance of a century, the inference is clear: Lenin’s arguments were not meant to defend Kautsky’s version of socialism. They described the most important features of the new, “existing socialism”.112 Can we label Kautsky’s views utopian? Is it utopian only because the specific Marxian version of socialism did not materialize in Soviet Russia? Or is it because the Marxian version of socialism could not have been realized at all? Kautsky himself, as it has already been emphasized, was an orthodox Marxist. Despite the disparaging and intentionally insulting label of “renegade” applied to him by Lenin, Kautsky by no means was a revisionist to orthodox Marxism. Revisionism questioned the validity of the class struggle and rejected revolution. According to Bernstein, socialism was to be achieved by peaceful evolution. Kautsky did not share this view. He thought that antagonistic class conflicts were to endure in bourgeois democracy because exploitation remained unchanged. According to him, democracy did not make class struggle superfluous, but it made its conditions more favorable. Socialism—as Marx himself acknowledged—could be realized by peaceful means but that did not make revolution unnecessary. The essence of revolution was not the armed insurrection but a fundamental change in the conditions of production and domination; first and foremost the “expropriation of the expropriators”. Democracy was the substance of socialism. The extension of democracy to the working masses and its deepening by the participation of the workers in production were considered the oppression of one class by another, and indeed in the democratic republic no less than in the monarchy.” Engels (1891). 111 Lenin (1934a), p. 25. 112 We can call the elasticity of Marxian theory “creative ambiguity”. On the basis of Marx’s writings, which were opaque and many times contradictory, Leninism was easily portrayed as a natural development. That was more than enough for the legitimacy of the Bolshevik dictatorship up until the stagnation of the Brezhnev era. This elasticity was highlighted by Oscar Jaszi, the famous Hungarian leftist radical as early as in 1920. See Jaszi (1920).

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essential elements. There could be no elimination or suppression of democracy. The aim is not only to create more favorable conditions for the class struggle in time of capitalism. More important, only democracy could guarantee freedom in socialism, too. Finally, Kautsky felt that economic exploitation cannot be considered abolished without political freedom in democracy. Lenin’s answer to Kautsky’s book was far from exhaustive in scale and scope. It left many issues untouched, even more unanswered. Hence, it offered a new opportunity to Kautsky to write his second book; this time around with a much more forceful attack against Bolshevism which, in the meantime, got completely engulfed by a devastating civil war and ugly, state sponsored terror. No wonder that Kautsky was concentrating the main drive of his critics against terror.113 Kautsky finished his second book early summer, 1919, after the collapse of the Berlin and Munich Communist insurrections in Germany and at the time of the agony of what was the Hungarian Soviet Republic (Magyar Tanácsköztársaság). The first wave of what could be called as Bolshevik-type (Communist) uprisings slowly but surely came to an end. But Kautsky was in high alert and rightfully so. Nobody could foretell the future, especially, after the formation of the Third International (Comintern) which, although still in an embryonic stage in 1919, was quite successful in attracting not only newly established Communist parties, but a number of old fashioned, established Social Democratic parties as well.114 This time Kautsky wrote a lengthy treatise which suited nicely his personality as a theorist and journalist. Most of the book is about a historical evaluation of the 1871 Paris Commune.115 In hindsight, it looks like the historical significance of the Paris Commune was disproportionately overblown in the minds of the socialists. But from the viewpoint of intensive contemporary debates about the perspectives of socialism, it deserved close attention for two reasons. First, it was the single practical attempt of realization of what could have been considered as proto-socialism. Second, it happened during the lifetime of Marx and Engels and the founding fathers wrote

113 As

it has already been mentioned, the title of Kautsky’s new book was “Terrorism and Communism”. It was published in 1919. Then, Trotsky reciprocated the favor in kind with his book of the same title, published in 1920. 114 Max Shachtman gave a comprehensive account of the early life of the Communist International. He wrote that in 1919 “the new International was still more a prospect than a reality, for its first congress represented little more than the Bolshevik party. The decision on where to cast their lot was still to be made by most of the European socialist parties. In some of them, the position of the right wing was fairly solid: the German Social Democratic Party, the British Labour Party, the Belgian, Dutch and Danish parties. But in virtually all the others in Europe, the leadership and membership were divided in different proportions between middle-of-the-road radicals and elements much closer to the Bolsheviks if not already identified with them.” Shachtman (1961), p. viii. 115 He called it the “Second Paris Commune” in comparison with the first Commune de Paris, 1789–1795.

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rather extensively about it.116 That was a truly invaluable source of reference to anyone claiming Marxist inclination. There are two issues worth highlighting. First, the indispensable preconditions (Voraussetzungen, Vorbedingungen) of socialism. It was partly a continuation, partly an enhancement of the scheme forwarded by Kautsky in his first book. Second, the problem of terrorism, violence (Gewalt). This was new and probably the more important by then. It became significant for the whole twentieth century. The problem of socialism was also set in the frame of the Paris Commune.117 Thus, the starting question was whether the Paris Commune, despite its short 70 days of existence, was the embodiment of socialism or not.118 Kautsky’s firm answer was that it was not.119 It could not have been. Not only for its short lifespan, for the ovewhelming military superiority of the reactionary forces of Versailles, but, even more importantly, because the material conditions for building a socialist economy and society were not there. The Paris Commune was just an attempt, a kind of a rehearsal, an important and wonderful one at that. But it could not survive because the conditions for socialism did not exist.120

116 By

far the most important writing of Marx about the Paris Commune is undoubtedly the “Civil War in France”, first written as a report to the General Council of the International Workers’ Association (First International). It was published in a brochure in English in June and in German in June–July, 1871. Then, it was republished by Engels exactly at the 20th anniversary of the Paris Commune, in 1891, with his own postscript, which became another basic document and a major source of reference for future disputes on the desirable characteristics of socialism. 117 The title of the subchapter shows it clearly: The Socialism of the Commune (Der Sozialismus der Kommune). 118 The implication being that it cannot be used as a reference point to justify anything for Bolshevism, although the second Paris Commune, as it would be clear, was a surprisingly mild affair, rejecting violence and terrorism. 119 Marx himself did not offer a clear-cut answer to this question in his Third Address to the First International. But it was to be understood in the negative in the context of other writings. Engels remained respectful to the legacy of Marx in this regard and emphasized only that the mistakes committed during the short 70 days of the Commune were basically due to the fact that the majority of the Communards were blanquists and the minority proudhonists. He was happy to point out that the ideas of Blanqui and Proudhon seemed to have disappeared from the working class movement in the last 20 years. The implication was, of course, that Marxism, at last, won. That was the source of immense pride to old Engels. 120 Marx wrote the following eloquent paragraph, praising the workers of the Commune, but without ascribing them much political consciousness: “The working class did not expect miracles from the Commune. They have no ready-made utopias to introduce par décret du peuple. They know that in order to work out their own emancipation, and along with it that higher form to which present society is irresistibly tending, by its own economic agencies, they will have to pass through long struggles, through a series of historic processes, transforming circumstances and men. They have no ideals to realize, but to set free the elements of the new society with which old collapsing bourgeois society itself is pregnant. In the full consciousness of their historic mission, and with the heroic resolve to act up to it, the working class can afford to smile at the coarse invective of the gentleman’s gentleman with pen and inkhorn, and at the didactic patronage of well-wishing bourgeois-doctrinaires, pouring forth their ignorant platitudes and sectarian crotchets in the oracular tone of scientific infallibility.” Marx (2014), p. 90.

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That was all Marx felt important to mention as an obituary for the Commune. Kautsky went bravely further. He unearthed an obscure writing of Marx which was written in 1850 when many Communists felt that “pure will” (blosse Wille) was the most important driving wheel (Triebrad) for the revolution.121 Marx rejected this idealistic approach and spent a decade on elaborating the economic conditions of capitalism on the basis of which socialism could be contemplated. Historical materialism led to economic determinism. Kautsky accepted that and used it as an argument against the socialist character of the Bolshevik revolution. In contrast with the Paris Commune, Kautsky considered Germany ripe for the socialization (nationalization) of the means of production.122 He thought that half a century of intensive capitalist development between 1871 and 1919 did create the necessary conditions at least for some significant steps toward socialism. He pointed out two undisputable facts in this regard. First, those who were tied to the agrarian world represented less than one quarter of the population in 1919, while they were still in the majority in 1872.123 Second, the proletariat was already in relative, if not absolute majority in 1919.124 Compared to the situation in Germany, the Paris of 1871 and the Russia of 1919 were completely different. According to the census of 1916, the population of the Russian empire was 181 million, and the number of industrial workers was hardly more than 3 million.125 And even this number was fast shrinking now, after the Bolshevik revolution. As a result of food shortages in the cities, workers returned to the countryside.126 To make matters worse, the Bolshevik government prohibited city dwellers to travel to the countryside to buy 121 Kautsky

(1990a), p. 246. needs to be kept always in mind that collective (state) ownership of the means of production was widely, if not unanimously considered the most important pillar of the socialist system by all socialists at that time. Marx writings were fairly unambiguous in this respect. There was no significant difference between Social Democrats and Communists in this regard, either. Differences were emerging in terms of scale, scope and speed of what was called the expropriation of expropriators. For socialist parties coming to power after WWI, it became a major problem. Social Democrats (in Germany and Austria) remained moderate and advocated for gradual and limited nationalization. Communists, first and foremost in Russia, were much more radical and went to the extreme in socializing even small-scale private enterprises. No wonder: war communism required wholesale nationalization. 123 It is important to note that Kautsky did not consider the peasants a revolutionary mass at all. “Following Marx, Kautsky had envisaged a gradual expropriation of the German peasants by Capital. He was also a firm believer, as was Marx, in the technical superiority of large-scale agricultural enterprise. Therefore both on technical grounds, and because proletarianization of the peasants was a step in the direction of the ultimate socialist takeover, Kautsky opposed the adoption of a programme of support for the interests of the small peasants. If they were doomed by history, and if this was a progressive step in terms of historical evolution of society, what business had the social democrats to delay this inevitable and progressive evolution? (Not very surprisingly, the social democrats never won much support in rural areas in Germany.)” Nove (1969), pp. 35–36. 124 Kautsky (1990a), p. 251. 125 Malia (1994) p. 84. 126 Many factories closed down as a consequence of shortages in raw materials and fuel, first and foremost coal. Unemployed workers, while still entitled to receive food rations, felt it in their interest to desert the cities, too. 122 It

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food and started an ineffective and violent policy of requisitioning, (prodrazverstka), the forced expropriation of peasant surplus without compensation. Were it not so tragic, one could allow some sad irony by saying that the superstructure in Russia wanted to be socialist by all means, while the economic and societal basis, on which it was to be built, was clearly not.127 But as the title of Kautsky’s book shows it, his main concern was terrorism, the extreme violence the Bolsheviks elevated to the level of official government policy. The apparently complete disregard to human life and individual freedom was, without doubt, one of the ugliest and most repulsive characteristic features of the Bolshevik regime. It managed to unite a good number of Social Democrats even with traditional conservative forces. And it was one of the most important factors that made political rupture between Social Democrats and Communists largely inevitable and final for the whole twentieth century.128 Kautsky, the fine mannered humanist intellectual, was genuinely horrified with the state terrorism observable in ever greater proportions as a consequence of the civil war in Russia. He convinced himself that the Jacobin violence in the French revolution in 1792 was a “contingent liability” made unavoidable by the collective intervention of the reactionary forces of Europe. He acknowledged that the Jacobin “Committee of Public Prosperity/Safety” created a reign of terror. But he defended the Paris Commune of 1871 because it largely rejected terror, with the notable exception of taking hostages.129 Despite uncivilized behavior of the Versailles forces, the Commune showed itself generous and fair, maybe even excessively.130 Kautsky felt that less violence and more civility was the Zeitgeist anyway. He wrote a chapter about what he called the “mildening of manners” (Die Milderung der Sitten) and, within that, a subchapter on improving manners of the revolutionaries in the nineteenth century.131 He simply could not believe that a tendency of humanization would be reversed although he noted with pain that the impact of WWI on the manners and morals was just devastating.132 The evolution of the Bolshevik regime toward state terrorism was not only the consequence of the civil war. It grew organically out of Bolshevism with full justification by the new revolutionary ideology. Even the civil war itself, to a very large extent, was the logical and, especially after the brutal suppression of the Menshevik 127 Bokros

(2019b) were many attempts to provide either political or ideological rationalization and moral cover (ethical justification) to violence. One of the first was Georges Sorel, the French revolutionary syndicalist, who did so in his book: Réflexions sur la violence (1908). According to Friedrich and Brzezinski, Sorel was the only Marxist writer who leaned toward glorifying violence. See Friedrich-Brzezinski (1965), p. 360. 129 Kautsky (1990a), p. 261. 130 “In Wirklichkeit zeigte sich die Kommune wohl edelmütig und gerecht, sie verfuhr aber nicht nach dem Grundsatze: Auge um Auge, Zahn um Zahn!” Kautsky (1990a), p. 262. 131 Kautsky (1990a), Chapter 7, pp. 266–293 and Subchapter, pp. 280–287. 132 Kautsky (1990a). Sadly, he was wrong: the whole short twentieth century proved to be the “Age of Extremes”, as Eric Hobsbawm was keen on labeling the whole period between 1914 and 1991. See Hobsbawm (1995). 128 There

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and SR parties, an almost unavoidable consequence of Bolshevism.133 Exclusiveness and exceptionalism of the Bolshevik party led, quite logically, to the wholesale application of terrorism. Kautsky was right in identifying terrorism as an essential characteristic of Bolshevism, something which then separated the Communists from the Social Democrats forever. As we have already seen, all this stemmed from the fundamental principles of Bolshevism, which, in turn, reflected the devastating backwardness of Russia.134 “Plekhanov, reverting to basic Marxist arguments – the weakness of the industrial proletariat, the backwardness of Russian capitalism, the huge majority of the peasant population – warned Lenin that if he seized power he would be forced, whether he liked it or not, to impose dictatorship and terrorist methods of government.”135 Trotsky, as it was mentioned, had already predicted in 1903 that Lenin’s organizational measures, especially democratic centralism, would end in the dictatorship of one man. He conveniently forgot his criticism and was swept away by revolutionary enthusiasm at the eve of the Bolshevik takeover, in 1917. He started understanding and regretting it again only in exile. But before that happened, he became more Bolshevik than Lenin. He was entrusted to answer Kautsky’s annihilating criticism of terrorism. He did that, enthusiastically, while at the same time commanding the newly formed Red Army in the civil war. Trotsky’s book contains no new argument. One could even say that it contains no argument at all. Thus, we might feel free to neglect it, almost completely. It reads like a rather primitive propaganda pamphlet, not something valuable one would expect from an admittedly brilliant theorist and successful practicioner.136 But it is a milestone: it was the first time that a prominent Bolshevik leader, other than Lenin, deliberately distorted what had been written by a similarly prominent representative of international Social Democracy. That tells us two things. One is that Trotsky was confident that he could get away with the distortions because his book was basically for domestic consumption targeting an audience unable to familiarize itself with the views of the opponent in question. In addition, it was a novelty in public affairs that not only ideology but also factual information could be used unscrupulously in a cavalier manner because the ends justified the means. That became another ugly feature of Bolshevik government policy. 133 Contrary to later Soviet propaganda, Lenin was not against war because of its senseless violence.

He opposed WWI not on the basis pacifism but criticised it for its imperialist character. He wanted to transform the imperialist war into a revolutionary civil war whereby the masses of each country would turn their weapons against their own national bourgeoisie. What he wished and predicted was exactly what happened in Russia. He greeted the civil war as a great opportunity to eliminate all enemies of Bolshevism once for all. 134 The extremely strong influence of narodnik ideology on Bolshevik thinking was analyzed in Sect. 2.2. 135 Braudel (1995), p. 534. 136 Trotsky’s introduction was written in late May, 1920, when the Red Army seemed to have won the civil war. “The confidence of the Bolsheviks which exudes from every page of Trotsky rose to its highest peak.” Shachtman (1961), p. xi. Pride and unbounded self-confidence must have carried Trotsky away.

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The low level of Trotsky’s arguments was visible when he put the fellow Socialist parties of Russia quite unceremoniously and without hesitation to the “counterrevolutionary” camp. That was necessary for him to justify repressive measures against them. As a result, the shallow and distorted nature of Trotsky’s reasoning was made plainly visible. Let us highlight one of the least convincing argumentations, where Trotsky felt obliged to falsify even established facts. “He (Kautsky – LB) complains that we suppress the newspapers of the S.R.s and the Mensheviks, and even…arrest their leaders. Are we not dealing here with “shades of opinion” in the proletarian or the Socialist movement? The scholastic pedant does not see the facts beyond his accustomed words. The Mensheviks and the S.R.s for him are simply tendencies in Socialism, whereas, in the course of the revolution, they have been transformed into an organization which works in active cooperation with the counter-revolution and carries on against us an open war. The army of Kolchak was organized by the Socialist Revolutionaries (how that name savors to-day of the charlatan!) and was supported by the Mensheviks.”137 “Kautsky considers that one can be in a state of open and civil war with the Mensheviks and S.R.s, who, with the help of the troops they themselves have organized for Yudenich, Kolchak and Denikin, are fighting for their “shade of opinions” in Socialism, and at the same time to allow those innocent “shades of opinion” freedom of the Press in our rear. If the dispute with the S.R.s and the Mensheviks could be settled by means of persuasion and voting – that is, if there were not behind their backs the Russian and foreign imperialists – there would be no civil war.”138 Two short passages, dozen lies. The Menshevik and SRs did not organize the army of Kolchak; that was established by tsarist officers.139 The Mensheviks and SRs did not help Yudenich and Denikin.140 Just the opposite: they abstained from military action for fear of helping the White armies. Most of them considered the Whites even worse than the Bolsheviks. The harrassment of the Menshevik and SR 137 Trotsky

(1961), p. 61. (1961), p. 62. 139 Pipes (1994), Chapter 1. “The Civil War: The First Battles”, pp. 3–50. 140 “During the first year of the Bolshevik dictatorship, the Mensheviks and the SRs living in Soviet Russia bided their time, convinced that the Bolsheviks would not be able to rule for long without their help. This conviction helped them patiently bear Bolshevik harassment. Their slogan was ‘Neither Lenin, nor Denikin (or Kolchak)’. The Mensheviks were the more sanguine of the two. Although disenfranchised, throughout 1918 they refused to join any anti-Bolshevik organizations: their members were strictly forbidden to take part in activities directed against the Soviet regime. They felt confident that the people’s democratic instincts would eventually triumph and force the Bolsheviks to share power: they saw their role as that of a loyal and legal opposition. The SRs were divided. The left SRs, after their abortive July 1918 coup, gradually melted away. The SR Party proper split into two factions, a more radical one under Chernov, which wanted to follow the Menshevik strategy, and a right one, which preferred to challenge the regime in the name of the Constituent Assembly. It was the latter that organized Komuch and in September joined the Directory.” Pipes (1994), pp. 42–43. This so-called Directory, which existed only for two short months, was the only feeble attempt on the part of a few right SRs to cooperate with the monarchists. The Directory was abolished by Kolchak after the military coup on November 17–18, 1918, in Omsk. 138 Trotsky

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press had started well before the civil war.141 The Mensheviks and SRs were trying their best to settle all disputes with persuasion and voting even after the Bolsheviks disbanded the Constitutional Assemby.142 They kept participating in the soviets even though the Bolsheviks constantly manipulated them for their own benefit. True, they organized a parallel and alternative body of power, the “Workers’ Assembly of Upolnomochennye”, but that was a strictly political and by no means a military organization.143 Had the Bolsheviks not abolished the Constituent Assembly, they could have well used persuasion and voting there. Had the Bolsheviks not degenerated the soviets into farce, there would have been no need to organize the upolnomochennye. Had they wished to stick to democracy, they could have used persuasion and voting in all political organs—soviets, Constituent Assembly, Upolnomochennye. But they did not. They strove to exclude their Socialist opponents from power, who did have a different shade of opinion on many issues, indeed. Even then, the socialist parties never decided to fight against the Bolshevik government militarily. Instead, both historical socialist parties dissolved themselves and their leaders emigrated rather than forming any alliance with white forces of tsarist restauration. Their tragedy— like that of Kautsky—was that although they realized the true nature of Bolshevism, they remained captives of their orthodox Marxian illusions. Kautsky was permissive with the Bolsheviks in his second book. That is why he wrote a relatively mild passage which was then picked up by Trotsky with venom. “The justification of this system (i.e. repression in connection with the Press) is reduced to the naive idea that an absolute truth (!) exists, and that only the Communists posses it (!). Similarly, continues Kautsky, it reduces itself to another point of view, that all writers are liars (!) and that only Communists are fanatics for truth (!). In reality, liars and fanatics for what they consider truth are to be found in all camps.”144 Characteristically, all exclamation marks were put in place by Trotsky himself which conveniently helped him replace any attempt of logical argumentation. That was a typical way of writing a pamphlet in haste.145 The only additional issue which deserves our attention is contained in the very last chapter of Trotsky’s book bearing the unassuming title “Problems of the Organization of Labor”. Some of the subchapter titles are more revealing. One is about the “militarization of labor”, another deals with so-called labor armies. These subchapters lead to the main theme, which is the “single economic plan”. While Trotsky tried to soften the hard edges of his own formulation by claiming that militarization “is 141 Brovkin

(1987), Chapter 4. “The Beleaguered Press”, pp. 105–125. was only after the demise of electoral politics-after numerous soviets had been disbanded, strikers had routinely been arrested, and martial law had been imposed-that the Right Mensheviks, the SRs, the peasants and the workers in many cities turned to armed struggle against the Bolshevik dictatorship.” Brovkin (1987), p. 297. 143 Brovkin (1987) Chapter 6. “Shifting Political Allegiances”, pp. 161–196. 144 Trotsky (1961), p. 60. 145 Trotsky tried desperately to ridicule this valuable sentence. This was probably the lowest point of his criticism. He realized the deep truth of what Kautsky had written when the monster destroyed him a short decade later. 142 “It

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only an analogy”, he immediately acknowledged that it was “an analogy very rich in content.”146 He was right but not exactly in the sense he thought. He quoted his own report to the Third All-Russian Congress of the Trade Unions and supplemented it by some extracts from his new report to the 9th Congress of the Communist Party which took place in March, 1920. Trotsky at this time could hardly conceal his overflowing pride and unbounded vanity. Customary Bolshevik cautiousness deserted him completely. He frankly admitted that he wanted nothing less than the general application of what he termed “compulsory labor service”. “Trotsky thereupon generalized for the whole of the national economy from two specific experiences: the “labor armies” into which some militarily inactive detachments of the Red Army had been converted, and the notable success of improving railroad service achieved by a special transportation committee which Trotsky directed by essentially military, dictatorial measures. The generalization amounted to the militarization of the national working force…”147 Trotsky acknowledged bounds for his imagination no longer. He went further. Max Shachtman, the sympathetic Trotskist, had to write the following: “Labor would be commanded like soldiers in an army at war and the trade unions would play no autonomous role. Since the state is the the workers’ state, there is no need or room for the worker to be in conflict with it, as he pointed out in his debate with the Mensheviks, which is included in this volume. This standpoint, and the practice that followed from it, encountered rising resistance not only outside the Bolshevik party but within its ranks. The dispute was a fierce one. It came to a head at the Bolshevik caucus meeting for the Soviet Congress at the end of 1920. Trotsky’s view was repudiated and, what was decisive, repudiated by Lenin.”148 Three important remarks may be added to this precise description of events. First, Trotsky, in an unguarded moment of political expediency, betrayed the true colors of what would later logically develop into Bolshevik totalitarianism. From the viewpoint of political economy, Trotsky was right: in the non-market system of mandatory central planning based on indivisible state ownership in the means of production, there can be no such thing as free labor and consumer autonomy. The “single economic plan”, if it was to be executed properly, required the regimentation of labor with no freedom of movement and wage bargaining. That was to be brought about eight years later by Stalinism when the NEP exhausted its potential and the remaining supporters of marketization were roundly defeated. Second, although the tendency toward totalitarianism was visible, and it was well encapsulated in Bolshevik ideology from the beginning, even the Bolshevik party was still not ripe for its logical and consistent application. Lenin was aware that the soviet state could not be completely identified with the interest of the workers but he felt that it was primarily due to the bureaucratization of the state. He could not 146 Trotsky

(1961), p. 141. (1961), p. xiv. 148 Shachtman (1961), p. xiv. 147 Shachtman

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admit that bureaucratization was just another logical corollary of the extinction of checks and balances on power and the complete eradication of democracy outside the Bolshevik party. But he was sharp enough to realize that bureaucratism, as he called it, inhibited both economic and political efficiency. Last but not least he was smart enough to sense the mood of the Bolshevik party. Third, the hasty publication of Trotsky’s book proved to be an huge mistake. On the one hand, it revealed the totalitarian tendencies of the Bolshevik party. On the other, it allowed Kautsky to write an annihilating reply to Trotsky’s book. Kautksy’s final salvo on Bolshevism was contained in his third book. Its title was: “From Democracy to State Slavery”. Kautsky had had enough. There was no room for further politeness.149 It is remarkable that Kautsky’s third book was never translated into English (understandably, it did not make it into Russian). There was no longer interest in it. It was published in German in 1921. When it came to light, Soviet Russia was past the brutally suppressed anti-Bolshevik revolt in Kronstadt which—among other factors—triggered a reversal in economic policy toward market conditions. The NEP—according to Kautsky—was a return to state capitalism after the peak of Bolshevism which was war communism. Kautsky clearly expected the collapse of Bolshevism, although he refused to offer a firm timeline for it.150 Kautsky was wrong. Bolshevik communism proved viable for a historically long period of time. It was incorrect to assume that the so-called superstructure of political domination is determined by the economic and societal base under all circumstances. The Soviet world was a living proof precisely to the opposite. Politics had a clear precedence and priority over economics and the economy.151 Even in capitalism, “the interplay between politics and economics is more subtle, stochastic, nuanced and balanced.”152 It has been a common fallacy of orthodox Marxists that they held the economic sphere the most important determinant of political superstructure. Since this crucial tenet of Marxism does not hold, Lenin was in a comfortable position to declare the primacy of politics at least for the Soviet system, in the framework of which building socialism in a backward, agrarian society on the smoldering ruins of an unprecedentedly devastating war was an audacious undertaking and an unMarxian enterprise in any case. 149 Kautsky did not need to be polite. Trotsky’s vision of building socialism on militarized labor was

sharply attacked by leading Mensheviks, especially, Fyodor Dan. “To many Russians it seemed that the “militarization of labor” had lost its justification at the very moment when the government was seeking to extend it. Menshevik leaders compared the new regimentation to Egyptian slavery, when the Pharaohs used forced labor to build the pyramids. Compulsion, they insisted, would achieve no more success in industry than in agriculture.” Avrich (1991), p. 27. 150 “We must count on the downfall of the Communist dictatorship in the foreseeable future. Firm deadline for it cannot be given. It may come overnight or it can still last longer than expected. But one thing is sure: Bolshevism has already passed its peak and finds itself in decline which will naturally be ever quicker.” (translation—LB) Kautsky (1990b), pp. 238–239. 151 Although the market was clearly embedded in, and subordinated to, politics in Soviet Russia, it was not exactly what Polanyi wished for. To his credit, Polanyi kept longing for democratic socialism. To his debit, he felt it was possible on the basis of Marxian premises. 152 Bokros (2013), p. 58.

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Kautsky’s defeat was a practical failure of classical Marxian ideology, and the very existence of the Bolshevik dictatorship was a refutation of what was called “scientific socialism”. The “truly existing socialism” never corresponded to the prophecies of scientific socialism and faithful propagandists always had a very hard time to explain away the sharp discrepancies between ideology and reality. The working class of the Soviet Union remained either hostile or indifferent to Bolshevik socialism. At the same time, the working class of the Western countries remained sympathetic or indifferent to democratic capitalism, where small steps for improving welfare proved to be viable and sufficient without major changes in ownership. Lenin was right in this respect too: the working class, left to itself, would lose its revolutionary fervor and sink into the level of reformist socialism. That is exactly what happened in the West—especially after WWII.153 But there is consolation prize. Although Kautsky lost the ideological debate, he partially won the political one. His writings contributed considerably to the fact that the Social Democrats blocked the road of Bolshevik communism to political triumph in the West. Social Democrats, gaining governmental power after WWI, hindered successfully virtually all Bolshevik style attempts of takeover.154 It is significant not only because the Western working class thus escaped the worst consequences of an inefficient and at the same time inhumane societal regime. Equally significant that the fear of the Bolsheviks became reality: their revolution and power remained isolated. (Some may feel it was to their advantage because they could rule their newly created international political movement—the Third International—without any serious rivals. But constant infighting within satellite parties and within the Stalinist clique made it a rather rough sailing.) Kautsky clung to Western civilization against Bolshevik totalitarianism. (By the time of his death, in 1938, he seemed to have clung only to the ruins thereof.) Partially as a reaction to communism, fascism and Nazism took possession of many countries in Europe for a while in the interwar period and even beyond. But liberal democracy was again in the ascendancy after WWII.155 Is liberal democracy a relative peak of civilization? It might be, depending on our values. Is it the omega point in development and history? Certainly not. There 153 “It

did not follow from this that the fundamental nineteenth-century socialist tenets were discarded. The overwhelming majority of mid-twentieth-century European Social Democrats, even if they kept their distance from Marx and his avowed heirs, maintained as an article of faith that capitalism was inherently dysfunctional and that socialism was both morally and economically superior. Where they differed from Communists was in their unwillingness to commit to the inevitability of capitalism’s imminent demise or to the wisdom of hastening that demise with their political actions. Their task, as they had come to understand it in the course of decades of depression, division and dictatorship, was to use the resources of the state to eliminate the social pathologies attendant on capitalist forms of production and the unrestricted workings of the market economy: to build not economic utopias but good societies.” Judt (2005), p. 363. 154 Quickly forming Communist parties tried repeatedly to organize an insurrection or a coup d’etat in Germany (1919, 1921, 1923), in Austria, in Estonia, etc. Only the Hungarian Soviet Republic lasted more than 4 months. 155 Snyder (2018).

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is no such thing as the “end of history”156 and, so long as there is human life on Earth, there never will. Newer and newer seemingly attractive but in reality fallow ideas may well get a firm grip on the hearts and minds of unsuspecting people in the future, too. One of them is blossoming here in front of our eyes right now: illiberal and nationalist populism, spreading hate, preaching exclusion, praising xenophobia and raw power.157 We are to gain strength from the fact that there have always been outstanding people, socialists, liberals and conservatives, who have stepped up against barbarism even when it was in vain in the short run and seemed hopeless in the long run. Having arrived at an intermediate conclusion, it is worth asking the question again: what is socialism? One way to answer it would be how Judt formulated it when confronted with the usefulness of the term in the twentieth century. He said: “We could acknowledge the extent the word and the idea have been polluted by associations with twentieth-century dictatorship and exclude it from discussion. This has merit of simplicity, but it invites the charge of hypocrisy. If an idea or a policy talks like socialism and walks like socialism, should we not acknowledge that this is what it is? Can we not hope to retrieve the word from the dustbin of history? I do not think so. ‘Socialism is a 19th idea with a 20th history. That is not an insuperable impediment: the same might be said of liberalism. But the baggage of history is real – the Soviet Union and most of its dependencies described themselves as ‘socialist’ and no amount of special pleading (“it wasn’t real socialism”) can get around that. For the same reasons, Marxism is irretrievably sullied by its heritage, whatever the benefits we can still reap from reading Marx. To preface every radical proposal with the adjective ‘socialist’ is simply to invite a sterile debate.”158 If only it was so simple. Like it or not, the term socialism is alive and well even in America. Bernie Sanders, one of the leading democratic candidates in the 2016 and 2020 US presidential election campaigns, used “democratic socialism” frequently and even made attempts to define some of its main components.159 When politicians with high name recognition bring this allegedly obsolete term back to public discourse, we are simply not in a position to discard it. It keeps coming back, and it will come back time and again. It can acquire a new life. We had better understood it rather than ignore it.

156 It

is remarkable how can someone become world famous with such an absurd and untenable idea. 157 Ungváry (2014). 158 Judt (2010), pp. 228–229. 159 He kept emphasizing particularly single payer universal health care and higher education free of tuition, which, at least in Europe, are considered more as ingredients of the welfare state rather than that of socialism per se. American socialism, regarded by some as an oxymoron, has gained new impetus after the Great Recession of 2008–2010. The word is back in vogue. One of the most eloquent descriptions of the past and present of American socialism was published in the Financial Times with a wholly misleading title: “The future of socialism in America” (March 14/15, 2020).

Chapter 3

Is Socialism Inevitable?

3.1 Harmony of the Conservative and the Socialist Views “Can capitalism survive? No, I do not think so.” Schumpeter1

Schumpeter, the conservative economist was uncharacteristically pessimistic about the survivability of capitalism at the time of WWII. He did not like socialism but resigned to the idea that its advancement was almost inevitable. He did not elaborate extensively on what he meant by socialism other than state ownership and central planning. In this respect, he did not deviate from Marxian postulates. But his main task, set for himself, was the analysis of capitalism’s contradictions. He left the work of theorizing on what comes next to the socialists themselves. As it is well known, his principal contribution to economics was to highlight the dynamic nature of capitalism in bringing about incessant structural change.2 He identified “creative destruction” as the most important feature of capitalism.3 According to his concept, no incumbent producer could be secure in preserving its privileged position even if it operates in a market of imperfect competition. Monopolistic or oligopolistic markets were no protection against new products, new inventions, new technologies, new organizational methods and markets. He claimed that quality competition can be more important than price competition. Schumpeter also

1 Schumpeter

(1975), p. 61. then, is by nature a form or method of economic change and not only never is but never can be stationary…. The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.” ibid., pp. 82–83. 3 Schumpeter (1975), Chapter VII. “The Process of Creative Destruction”, pp. 81–86. 2 “Capitalism,

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recognized—and that is a hugely significant discovery—that the threat of competition can be as forceful in shaping entrepreneurial behavior as its actualization.4 Hence, according to Schumpeter, dynamic vitality over and above the remnants of stagnation was everything what capitalism was all about. While acknowledging the invaluable contribution classical economists5 made to the advancement of economic science, he felt that private property was more important than perfect competition. Private property together with the profit motive did not exclude but allowed the approximation of some social good too. He asserted that there was no inherent reason to claim that the pursuit of profit was incompatible with societal welfare. Capitalism was at least plausible; that is to say, beneficial to the great majority of members of society. But Schumpeter convinced himself that capitalism was doomed anyway, if not for its contradictions but for its success. He maintained that the capitalist class, over time, would lose its entrepreneurial spirit and its best representatives would transform themselves into soulless bureaucrats or administrators. In the deeply pessimistic chapter of his most famous book, Capitalism, Socialism and Democracy, he wrote about the “obsolescence of the entrepreneurial function” as a consequence of vanishing investment opportunities. Although he envisioned a stationary state of the economy as a phenomenon projected into the distant future, he clearly felt that the signs of decay were already visible. Moreover, he regarded economic stagnation as a self-fulfilling prophecy. “Progress itself may be mechanized as well as the management of a stationary economy, and this mechanization of progress may affect entrepreneurship and capitalist society nearly as much as the cessation of economic progress would.”6 It is still a mistery what led Schumpeter, an impeccably trained and prepared economist, to misunderstand the nature of his favorite social order so drastically. There is no convincing reason which can be distilled from his own personal social conditions. While WWII was a defining moment of life even for old intellectuals who never had to be afraid of going to the frontline, their restless mind was groping for reasons to explain the incomprehensible absurdity of world affairs.7 The victory of the Red Army and the emergence of the Soviet Union as a world power definitely

4 “It is hardly necessary to point out that competition of the kind we now have in mind acts not only

when in being but also when it is merely an ever-present threat. It disciplines before it attacks.” ibid., p. 85. 5 Schumpeter restricted the term “classical economists” to five distinguished British figures: Adam Smith, David Ricardo, Thomas Robert Malthus, James Mill and John Stuart Mill. ibid., p. 75, footnote. 6 ibid., p. 131. 7 Curiously, Schumpeter rejected the Marxist theory of imperialism being the last stage of capitalist evolution. On the contrary, he maintained that “the more completely capitalist the structure and attitude of a nation, the more pacifist – and the more prone to count the costs of war – we observe it to be.” ibid., pp. 128–129.

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made a lasting impact on their mind and foreshadowed the not unreasonable feeling of the “crumbling walls” of Western civilization.8 This is precisely the point where Schumpeter and Karl Polanyi become strange, but comfortable bedfellows. Schumpeter felt that capitalism was so successful that it destroyed most, if not all protecting strata which made the world livable for the great majority of people. His most important—and the most pessimistic—words in this regard deserve to be quoted in full. “the capitalist process, both by its economic mechanics and by its psychosociological effects, did away with this protecting master or… never gave him, or a substitute for him to develop. The implications of this are strengthened by another consequence of the same process. Capitalist evolution eliminates not only the king Dei Gratia but also the political entrenchments that, had they proved tenable, would have been formed by the village and the craft guild. Of course, neither organization was tenable in the precise shape in which capitalism found it. But capitalist policies wrought destruction much beyond what was unavoidable. They attacked the artisan in reservations in which he could have survived for an indefinite time. They forced upon the peasant all the blessings of early liberalism – the free and unsheltered holding and all the individualist rope he needed in order to hang himself.9 In breaking down the pre-capitalist framework of society, capitalism thus broke not only barriers that impeded its progress but also flying buttresses that prevented its collapse. That process, impressive in its relentless necessity, was not merely a matter of removing institutional deadwood, but removing partners of the capitalist stratum, symbiosis with whom was an essential element of the capitalist schema. Having discovered this fact which so many slogans obscure, we might well wonder whether it is quite correct to look upon capitalism as a social form sui generis or, in fact, as anything else but the last stage of the decomposition of what we have called feudalism. On the whole, I am inclined to believe that its peculiarities suffice to make a type and to accept that symbiosis of classes which owe their existence to different epochs and processes as the rule rather than as an exception – at least it has been the rule these 6000 years, ever since primitive tillers of the soil became the subjects of mounted nomads. But there is no great objection that I can see against the opposite view alluded to.”10 Two fantastic paragraphs which could well have been written by the socialist Karl Polanyi. The above statement—and the subsequent subchapter—claims no less that capitalism destroys the institutional framework of society itself. This was exactly what Polanyi also made the centerpiece of his criticism of capitalism. 8A

series of books recited and rejuvenated the age-old idea of Western decline at the footsteps of Oswald Spengler, who wrote about “The Decline of the West” as early as in 1918. See Spengler (1928) and Toynbee (1948). Herman (1997) offers an excellent summary of the most important ideas and books which contain them. 9 This is an almost perfectly Leninist remark. Lenin was the one who cheerfully forecasted the day when the capitalists would sell the communist the rope with which the latter would execute the former. That was a gleeful allusion to the allegedly insatiable greed of the bourgeoisie the world over. 10 Schumpeter (1975), pp. 138–139.

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“For a century the dynamics of modern society was governed by a double movement: the market expanded continuously but this movement was met by a countermovement checking the expansion in definite directions. Vital though such a countermovement was for the protection of society, in the last analysis it was incompatible with the self-regulation of the market, and thus with the market system itself. That system developed in leaps and bounds; it engulfed space and time, and by creating bank money it produced a dynamic hitherto unknown. By the time it reached its maximum extent, around 1914, every part of the globe, all its inhabitants and yet unborn generations, physical persons as well as huge fictitious bodies called corporations, were comprised in it. A new way of life spread over the planet with a claim to universality since the age when Christianity started out on its career, only this time the movement was on a purely material level. Yet simultaneously a countermovement was on foot. This was more than the usual defensive behavior of a society faced with change; it was a reaction against a dislocation which attacked the fabric of society, and which would have destroyed the very organization of production that the market had called into being.”11 There are many points in the two lengthy quotations which indicate serious and common concern. Both scholars sketched out a sweeping historical tableau about the destruction of feudalism and society by the advancement a capitalism. Both scientists believed that capitalism had been exceptionally successful but extended well beyond what was tolerable for society. Both felt that the ultimate demise of capitalism was almost guaranteed by its own internal contradictions. Both viewed monopolization and state intervention in competitive capitalism not only necessary but unavoidable although they had different views about its reasons and social merits. Neither of them wept over the death of laissez-faire. Both regarded socialism as inevitable even though they must have harbored opposing, or at least diverging, views about its true nature and desirability. In the pessimistic zeitgeist of WWII and its aftermath, this was very much in harmony with the perceived historical development. The shocking revelation, however, is that Schumpeter, as well as Polanyi, largely ignored the sobering lessons offered by the then only existing variant of socialism, Stalinism.12 11 Polanyi

(2001), p. 136. be fair, Schumpeter devoted exactly the last nine pages of his book to the reevaluation of the Soviet state in global affairs. But his analysis contained neither the achievements of Soviet power in building socialism, nor the capacity of the Stalinist model in offering anything superior to capitalism. It was purely about foreign policy—and a marvellous foresight at that. He reminded us to the importance of political sociology by pointing out that “in Stalinist Russia, foreign policy is foreign policy as it was under the tsars. In the USA, foreign policy is domestic politics.” Schumpeter (1975), p. 401. It is a concise and expressive representation of the fact that in a dictatorial regime the dictator has little or no constraints in conducting foreign affairs while in a democratic polity the elected leader has no choice but to take into consideration domestic constraints even in the foreign domain. Schumpeter was also uniquely clear sighted regarding the imperialist nature of the Soviet Union, although he felt that this was not the consequence of socialism but more explainable by the legacy of Russian imperialism. The eloquent but largely misleading sentence of Scumpeter in this regard is the following: “The trouble with Russia is not that she is socialist but that she is Russia.” Schumpeter 12 To

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The corollary of all this is that Schumpeter and Polanyi considered some kind of socialism inevitable no so much because of some well defined “sui generis” characteristics of a theoretically conceivable and precisely elaborated blueprint of socialism but because they felt that the contradictions of capitalism would make it unbearable not only for the toiling masses but for the ruling classes, too. It does not really matter much that Schumpeter recognized these problems as stemming from entrepreneurial success and the bureaucratization of production while Polanyi emphasized the ultimate failure of the market system in general. Both pessimistic conclusions proved to be untenable not only in practice but also in theory. There was, and there is, no end of global market capitalism in sight. There was, but there is no longer, a dawn of non-market socialism in sight, either. Schumpeter was absolutely right in maintaining that the capitalist class, the bourgeoisie, cannot survive without its ranks being constantly and repeatedly replenished by successful entrepreneurs. But this is exactly what happens today. If the economic power structure is not excessively monopolistic and the political power structure is not excessively oligarchic, then new entrepreneurs can and will successfully emerge into the bourgeoisie. This proves not only the vitality of market capitalism but its superiority. In other words, open economies and open societies are the sine qua non of the survivability of capitalism and democracy. But we need to return to Schumpeter and do him justice by acknowledging that he was comparing only blueprints, i.e., theoretical models, not practically existing economic and societal formations.13 And he followed the Marxian one. Ironically, he was almost like an orthodox Marxist in this regard. He started advancing his argumentation by declaring that “superiority need be proved only with respect to big-business or ‘monopolistic’ capitalism because superiority over’competitive’ capitalism then follows a fortiori. This is evident from our analysis in Chapter VIII.”14 True, if it is taken for granted that monopolistic capitalism is superior than laissezfaire. Many scholars thought it otherwise.15 Nevertheless, if we accept Schumpeter’s claim that monopolization and state intervention is a remarkable advancement of capitalism (argued plausibly in Chapter VIII of his book, indeed) then it is fine to compare administrative capitalism to administrative socialism. (1975), p. 404. Nevertheless, it is an important utterance because it reflects his lack of understanding the close connection between socialism and imperialism. 13 It is absolutely clear from the fact that Chapter XVIII. carries the title: “Comparison of Blueprints”. The title of third subchapter is also expressive. “The Case for the Superiority of the Socialist Blueprint”. Schumpeter (1975). 14 ibid., pp. 188–189. 15 One of the most important scholars and apostles of German Social Democracy, who would have disputed Schumpeter’s claim was Rudolf Hilferding. He wrote a groundbreaking book about the new phase of capitalism entitled “Das Finanzkapital” (first published in 1910 in Vienna). Hilferding viewed state-sponsored monopolistic capitalism a period of decline, leading to crises and probably collapse. According to Hilferding, monopolistic capitalism was no longer a progressive phase of the capitalist economy. Contrary to this approach, Schumpeter regarded monopolization and state intervention as progress and advancement, showing the vitality of capitalism.

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In the most important subchapter of his book, Schumpeter made it absolutely clear that he considered the socialist blueprint superior to the capitalist one. “In a socialist economy everything… is uniquely determined. But even when there exists a theoretically determined state it is much more difficult and expensive to reach in the capitalist economy than it would be in the socialist economy.”16 The key argument supporting this shocking statement was that in socialism there would be less excess capacity which, in turn, would soften or eliminate the trade cycles which were so devastating in capitalism. According to Schumpeter, “the planning of progress, in particular the systematic coordination and orderly distribution in time of new ventures in all lines, would be incomparably more effective in preventing bursts at some times and depressive reactions at others than any automatic or manipulative variations of the rate of interest or the supply of credit can be. In fact, it would eliminate the cause of the cyclical ups and downs whereas in the capitalist order it is only possible to mitigate them.”17 This is a key point. At the turn of the century, before 1950, Western capitalism was not yet fully applying Keynesian demand management in preventing or at least smoothing out the business cycle and mitigating its devastating effects on the social fabric by government intervention. Schumpeter could not yet envisage the wholesale application of preventive measures which would tame capitalism to the point of tolerable swings in fortune. But his critical approach was suffering from a serious logical defect because, contrary to his claim, he compared “existing capitalism” to the socialist blueprint rather than existing capitalism to existing socialism. Either blueprints or existing realities have to be compared. Schumpeter lost the argument by misunderstanding the reality of capitalism and ignoring the reality of Soviet Stalinist communism.18 Unfortunately, Schumpeter could not decide whether his socialist blueprint was still fundamentally a market oriented economy or a command economy. (Even though one defines the socialist economy as a mixture of the two, it is wise to identify the fundamental defining characteristic feature: market or command) Although he 16 Schumpeter

(1975), p. 194. p. 195. 18 There are ample references to Soviet practice in the next chapter, which is about “The Human Element”. See Schumpeter (1975), pp. 200–218. In this chapter, Schumpeter deviated from the “blueprint to blueprint” approach. As a consequence, it contains even more shocking statements as the author acknowledged the rationality and usefulness of practical Bolshevik measures. He seems to have accepted the authoritarian methods of the Soviet government in order to strengthen discipline. He found it advantageous, maybe even a sign of superiority, that “the threat of dismissal by the socialist management may mean the threat of witholding sustenance that cannot be secured by an alternative employment.” ibid., p. 215. He even endorsed the castration of trade unions in Russia on the basis of Trotsky’s argument: “it is only logical that with class warfare the obstructionist practices should pass away and the character of collective agreements should change.” ibid., p. 217. He seems to have been in accord with the specific practical development in Russia which led to the complete incorporation of pluralist institutions into the monolithic edifice of Stalinism. Is it a deviation of someone who wished to be a socialist or a quite natural inclination of an archconservative who started praising Soviet Russia precisely for those features which were so repulsive to Social Democrats? 17 ibid.,

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never acknowledged the suppression of consumer sovereignty, which pointed to the incorporation of market forces into his societal scheme, he was perfectly at peace with envisaging the central assignment of manpower according to the needs of the economy as stipulated by central planning. He even accepted the concept of employment based on military rules. In light of Trotsky’s early insistence on the militarization of labor, his was quite a Bolshevik approach leading to the consistent realization of the command economy.19 Schumpeter formulated his own conclusions in the following remarkable way: “Most of the argument of Part II may be summed up in the Marxian proposition that the economic process tends to socialize itself —and also the human soul. By this we mean that the technological, organizational, commercial, administrative and psychological prerequisites of socialism tend to be fulfilled more and more. Let us visualize the state of things which looms in the future if that trend be projected. Business, excepting the agrarian sector, is controlled by a small number of bureaucratized corporations. Progress has slackened and become mechanized and planned. The rate of interest converges toward zero, not temporarily only or under the pressure of governmental policy, but permanently owing to the dwindling of investment opportunities. Industrial property and management have become depersonalized— ownership having degenerated to stock and bond holding, the executives having acquired habits of mind similar to those of civil servants. Capitalist motivation and standards have all but wilted away. The inference as to the transition to a socialist regime in such fullness of time is obvious.”20 Marx could not have put it more succinctly and more convincingly. Conservatives and socialist have much in common. They are both suspicious of what they regard as excessive individualism and tend to stick to, or rediscover, the comforting protection of collectivism. One form of organized collectivism they particularly like is the state. They would want to see a large and strong state. They may also prefer more equality even if at the expense of liberty. Last but not least, both types consider societal affairs more important than economic ones.21

19 In this respect, Schumpeter mixed his blueprint with Soviet reality and referred to practical Soviet examples as they were in conformity with his blueprint. As a consequence, he maintained that Stalinism was true socialism. He felt that the cruelty and ruthlessness with which otherwise genuine methods of socialism were implemented were due exclusively to the “unripeness of the situation, to the circumstances of the country and to the quality of its ruling personnel. In other circumstances, in other stages of development and with other ruling personnel they will not be necessary.” ibid., p. 218. It reflects Schumpeter’s firm conviction that socialism would be inevitably an authoritarian regime obliged to use stern disciplinary measures no matter whether they are applied in a civilized or uncivilized manner. That speaks volume about Schumpeter concept of socialism which was no longer just a blueprint but a practical outcome of the disintegration of capitalism. This conclusion is further corroborated by the next chapter which deals with transition to socialism and makes a clear distinction between socialization in a state of maturity versus immaturity. See ibid., Chapter XIX, pp. 219–231. 20 ibid., p. 219. 21 These are tendencies and value lines not clear cut doctrines. There is no room or necessity to analyze specific doctrines here. But for the striking similarities discernible from the writings

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Having enthusiastically celebrated the exemplary individuality of the capitalist entrepreneur, Schumpeter, the conservative, resigned himself to accepting the ascendancy of what he called administrative socialism. Polanyi, the socialist, always cherished society as the ultimate goal of human action. He regarded free markets as a lethal threat to the stability of society. Although he accepted the progressive force of markets in creating wealth and material abundance, he strongly rejected the market as a fundamental integrating institution of society. Schumpeter seems to have fallen into the trap of historicism22 —and it is no coincidence for those who feel that the collapse of capitalism and the advent of socialism is inevitable. Polanyi followed Schumpeter into the pit. Having realized that the market mechanism was never the main integrating force of economies and societies before capitalism, he extrapolated that it could not keep playing that role in the future either. Capitalism based on the self -regulating market—and market society as he liked to put it—was an exception rather than the rule.23 And if a new type of non-market system was going to replace capitalism, because the market society could not survive, it would be nothing else than socialism. After all, the word socialism means socialization. It was to be the emancipation of society from its subordination to the economy dominated by the market. Nevertheless, several comments might color this line of reasoning. First, it is important to return to the problem of embeddedness of the economy in society. Polanyi held it as a rule that for society to survive, the economy should always remain firmly under the control of society. Castigating market capitalism, which he identified with markets ruling over society, he maintained that it was a lethal threat to the stability of society. And the most important manifestation of this threat— according to Polanyi—was that in the early nineteenth-century markets had been separated from regulation; they were made self -regulatory. “A self-regulating market demands nothing less than the institutional separation of society into an economic and a political sphere. Such a dichotomy is, in effect, merely the restatement, from the point of view of society as a whole, of the existence of a self-regulating market. It might be argued that the separateness of the two spheres obtain in every type of society at all times. Such an inference, however, would be based on a fallacy. True, no society can exist without the system of some kind which ensures order in the production and distribution of goods. But that does not imply the existence of separate economic institutions; normally, the economic order is merely a function of the social order. Nineteenth-century society, in which economic of Schumpeter and Polanyi, it is important to highlight the common roots of conservatism and socialism. 22 Popper rejected historicism—and with that the inevitability of socialism as well. See next chapter. 23 “never before our own time were markets more than accessories of economic life. As a rule, the economic system was absorbed in the social system, and whatever principle of behavior predominated in the economy, the presence of the market pattern was found to be compatible with it. The self-regulating market was unknown; indeed the emergence of the idea of self-regulation was a complete reversal of the trend of development. It is in the light of these facts that the extraordinary assumptions underlying the market economy can alone be fully comprehended.” Polanyi (2001), p. 72.

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activity was isolated and imputed to a distinctive economic motive, was a singular departure.”24 This is a somewhat obscure reasoning. One thing is for the economic sphere to separate itself, and quite another for it to be detached in such a way as to subordinate politics and all other societal spheres of existence to the economy. Enlightenment and modernization were precisely the intellectual and spiritual processes by which all spheres emancipated themselves from political power. But their emancipation did not necessarily mean that they have come to rule some or all of the others. This is absolutely true for the economy as well. In capitalism, markets do not rule over other spheres but gain relative autonomy.25 Markets do not subordinate politics; by integrating the capitalist economy they just became coordinated with the political sphere and with the now autonomous or semi-autonomous other spheres of societal existence.26 It is a mistake to conclude that their relationship can only be hierarchical where one or the other necessarily dominates some or all others.27 According to Polanyi, the “original sin” stemming from capitalism was that the self-regulating market turned labor, land and money into fictitious commodities. “The crucial point is this: labor, land, and money are essential elements of industry; they also must be organized in markets; in fact, these markets form an absolutely vital part of the economic system. But labor, land, and money are obviously not commodities; the postulate that anything that is bought and sold must have been produced for sale is emphatically untrue in regard to them. In other words, according to the empirical definition of a commodity they are not commodities. Labor is only another name for a human activity which goes with life itself, which in its turn is not produced for sale but for entirely different reasons, nor can that activity be detached from the rest of life, be stored or mobilized; land is only another name for nature, which is not produced by man; actual money, finally, is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance. None of them is produced for sale. The commodity description of labor, land, and money is entirely fictitious.”28 This section eloquently reflects Polanyi’s deeply felt and genuine indignation over the soulless cruelty of market capitalism. But as a scientific description of facts and a fair assessment of their consequences, it leaves much to be desired. 24 ibid.,

p. 74.

25 No one proved this more eloquently than Polanyi himself in Chapter One of his book describing the

strong interdependence and interplay between political and economic factors during the “Hundred Years Peace”. 26 “While in communism the political sphere was more important than the economic one, it is not to say that in capitalism it is the other way round. The interplay between politics and economics in capitalism is more subtle, stochastic, nuanced and balanced.” Bokros (2013), p. 58. This sentence was already quoted on page 64. 27 That would be the characteristics of totalitarian societies where politics dominates and incorporates all other spheres of societal existence. That is why we will call both communism and fascism anti-modern ideologies and a serious regress in societal development. 28 Polanyi (2001), pp. 75–76.

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First, it is far from obvious that labor, land and money are by no means can be considered commodities, because, using Polanyi’s own definition, they are not produced for sale. The definition does not seem to be particularly operable. Many things, which are originally not intended to be sold, can be, and are, sold regularly. They may become the objects of market transactions later. Products, especially durable ones, acquire the features of commodities any time in their life cycle, irrespective of the original intention. Intention makes no difference. For example, cultural products and performances may not have been produced for sale and profit, but they are regularly bought and sold to eager audiences. Actually, they have to be, regardless of original intention or lead motivation.29 Being a product and a commodity at the same time is not mutually exclusive. Second, labor, land and money are to a considerable extent produced for sale. Education, what we regularly call investment into human capital, is one way of making labor more valuable and more marketable. There is absolutely nothing wrong with that, nothing outrageous or deplorable. True, land is part of nature, but at the same time, it can become a commodity precisely as a result of human intervention. Improving its fertility or its infrastructure by productive investment enhances the value of the land which can be realized either by using it as a factor of production or selling it to others. A piece of land is not just part of nature; it always has social characteristics. The very fact that is has monetary value speaks volumes about its social characteristics. Money is even more cumbersome: While it definitely constitutes purchasing power, it is always much more than just that. It is a genuine object of purchase and sale, not only in its historical commodity money form but even in its modern credit money form, not something fictitious. It is widely bought and sold in credit, foreign exchange and derivative markets the world over. Furthermore, commodity money and its derivatives (claims on commodity money) were bought and sold both in precapitalist societies and in socialist command economies, at least in black, shadow, or unofficial markets. To separate money from markets and consider it somehow “fictitious” makes little sense, and it is not supported by historical facts. But the biggest problem arises with the arguably most remarkable concept of Polanyi, with the process of disembedding, allegedly the defining characteristic feature of nineteenth-century capitalism which put society in jeopardy. Polanyi admits that politics served as midwife at the birth of liberal capitalism; the self-regulating market could not have been born without state intervention. In addition, a large amount of regulations was put in place which led to “an enormous increase in the administrative functions of the state.”30 Hence, Polanyi explicitly 29 It reminds me to a fruitless debate which was feverishly conducted in many socialist countries in the 1970s. The question was exactly whether “culture” can be “depreciated” and “profanized” by calling it a commodity. The same argument was used by staunch opponents of market oriented reforms in health care after transition. 30 “There was nothing natural about laissez-faire; free markets could never have come into being merely by allowing things to take their course. Just as cotton manufacturers – the leading free trade industry – were created by the help of protective tariffs, export bounties, and indirect wage subsidies, laissez-faire itself was enforced by the state. The thirties and forties (of the nineteenth century – LB) saw not only an outburst of legislation repealing restrictive regulations but also an

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acknowledged that state and market, politics and economics lived in a close symbiosis all along rather than the former was subordinated to the latter. If this process is interpreted as disembedding the economy from politics, i.e., from the former overwhelming control of the state, then at least we should conclude that according to Polanyi, laissez-faire capitalism did exist in reality.31 But this would be a wholly problematic conclusion because in other parts of his book Polanyi claims repeatedly that disembedding was just an ambition of economic liberals and not a reality. It was never implemented because society always invented and introduced sufficient protective mechanisms in order to prevent itself from annihilation. But if protective mechanisms were successfully implemented, then there could have been no self-regulating markets, let alone fictitious commodities. If all of this was just the unfulfilled aspiration of liberal economists and politicians then how on earth was it possible for self-regulating markets to collapse in reality? Conversely, if laissez-faire capitalism collapsed finally in 1929, how could it be claimed as though it existed only as an aspiration? Having identified this serious contradiction in Polanyi’s otherwise eloquent elaboration, I quote the core paragraph in his book which makes it possible to discern his most important message. In the very first page we read the following: “Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness. Inevitably, society took measures to protect itself, but whatever measures it took impaired the self-regulation of the market, disorganized industrial life, and thus endangered society in yet another way. It was this dilemma which forced the development of the market system into a definite groove and finally disrupted the social organization based upon it.”32 This is the point where socialism comes back to the picture. On the basis of Polanyi’s theory, that is a natural and logical solution to the problems stemming from disembeddedness. The economy has to be embedded in society again.

enormous increase in the administrative functions of the state, which was now being endowed with a central bureaucracy able to fulfill the tasks set by the adherents of liberalism.” (italics mine) Polanyi (2001), p. 145. 31 Fred Block, who penned an informed introduction to "The Great Transformation” and claims that the concept of embeddedness was “perhaps the most famous contribution of Polanyi to social thought,” acknowledged that “it has been a source of enormous confusion.” While accepting that some passages of Polanyi lend themselves to misreading, and claiming that even the great French economic historian, Fernand Braudel has also fallen victim of this error, Block states that “Polanyi is often mistakenly understood to be saying that with the rise of capitalism in the nineteenth century, the economy was successfully disembedded from society and came to dominate it.” Block (2001), p. xxiv. Unfortunately, the proper interpretation of Polanyi’s thoughts is far from simple. The source of confusion is Polanyi himself and his inconsistent argumentation makes many of his inferences untenable. 32 Polanyi (2001), pp. 3–4.

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But there might be various ways of bringing about this revolutionary change. One possibility was fascism, adopted by a number of European countries in the 1920s and 1930s.33 The other was socialism, confined to Russia at that time. “Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society. From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons which in Western Europe was always associated with Christian traditions. From the viewpoint of the economic system, it is, on the contrary, a radical departure from the immediate past, insofar as it breaks with the attempt to make private money gains the general incentive to productive activities, and does not acknowledge the right of private individuals to dispose of the main instruments of production.”34 As it must be clear from the above, Polanyi was dreaming about something like a Marxian socialism: no private property, no profit or monetary gains, no self-regulating market dominating society and political activities any more. The economy should and would surely return to where it naturally belongs—embedded once again in society, but working under the democratic control of a new type of society. Democracy, yes, and something which he vaguely termed “distinctively human relationships of persons.” He felt that it was more akin to small-scale voluntary cooperative societies based on Christian traditions. Freedom and dignity. No coincidence that Polanyi was always referring to his idol: Robert Owen, declared utopian by Marx.35 Last but not least, it is important that Polanyi did not refuse to consider the Soviet experiment a valid manifestation of his own utopia, thus corroborating his conviction about the inevitability of socialism. He was fully convinced that after the demise of fascism in WWII the future was open to the victorious socialism. Although he accepted that the Bolshevik variation of communism might not have been an example to be followed by the Western peoples, he did emphasize that Soviet

33 Polanyi’s analysis of fascism is extremely important and raises a good number of fundamental issues. One is whether the victory of fascism can be primarily explained by the outbreak of the 1929–1931 Great Depression without which it was to remain a passing whiff in the history of Europe right after WWI. Polanyi seems to have convinced himself that it was the case. That is the main message of his famous essay written as early as in 1935: “The Essence of Fascism” although it contains a more nuanced approach. See Polanyi (1935). There are many scholars, however, who feel otherwise and tend to attribute the emergence of fascism to many other key factors. I tend the agree with those who explain fascism on the basis of more complex phenomena. See e.g. Kolnai (1938), Nolte (1997) and Ungváry (2014). But I will drop this issue as it does not belong to the subject of this book. 34 Polanyi (2001), p. 242. 35 In the very last chapter of his book, Polanyi made several references to Robert Owen and his visions. We will return to this when analyzing the desirability of socialism in the third part of this book.

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Russia was a huge inspiration to the West.36 Against all odds and moral reservations, the Stalinist system seems to have fulfilled Polanyi’s criteria for a socialist economy and polity. If that is true it posed an insurmountable problem. If there was going to be no more humane variations of socialism in the offing, it ultimately constituted a serious impediment for the socialist Polanyi to consider it desirable. That was a personal tragedy for the humanist Hungarian. Polanyi was a socialist as well as a democrat. Considering the Stalinist system a true embodiment of socialism offering hope and inspiration to Western socialist (social democratic) movements, was way of the mark. If anything, Soviet communism represented a reprehensible deviation from the ideals of socialism held dear by most orthodox Marxists at that time.37 But it was socialism, indeed.

3.2 The Liberal Answer “The intellectual history of the last sixty or eighty years is indeed a perfect illustration of the truth that in social evolution nothing is inevitable but thinking makes it so.”38

Hayek and Popper were friends and liberals. It is only natural that their answer to the question of the inevitability of socialism was a resounding no. Their most famous books were published almost exactly at the same time; The Road to Serfdom in 1944 and The Open Society and Its Enemies in the next year. They knew about each other’s publications and admired them respectively. They followed each other’s intellectual and professional trajectories and—as it was already mentioned—Hayek assisted Popper to return from New Zealand to Great Britain and receive a position at the London School of Economics (LSE).39

36 “Since the Great War two changes have taken place which affect the position of socialism. First, the market system proved unreliable to the point of total collapse, a deficiency that had not been expected even by its critics; second, a socialist economy was established in Russia, representing an altogether new departure. Though the conditions under which this venture took place made it inapplicable to Western countries, the very existence of Soviet Russia proved an incisive influence. True, she had turned to socialism in the absence of developed industries, general literacy, and democratic institutions – all three of which according to Western ideas, were preconditions of socialism. This made here special methods and solutions inapplicable elsewhere, but did not prevent socialism from becoming an inspiration.” Polanyi, ibid., p. 243. 37 “Between 1917 and 1950, the Soviet system represented an ideological threat to the West, while the West presented a military threat to the Soviet Union… Henceforth, the West will be an ideological threat to the Soviet Union and the USSR a military threat to the West.” Todd (1979), p. 111. 38 Hayek (1944), p. 35. 39 Popper was grateful to Hayek for his assistance. No wonder that he dedicated one of his subsequent important books to him. See Popper (1989)—originally published in 1963. (Hayek was assisted by Robbins to get there.).

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Following in the wake of Mises, Hayek started from the premise that socialism was about state ownership and central planning. To put it in negative terms, socialism was based on the destruction of private property, of the profit motive and on the suppression (replacement) of markets.40 According to the socialists themselves, socialism was a new economic and social system and its inevitability was explained first and foremost by arguments about economic development. That made it possible for Hayek to concentrate his critical remarks on planning. Hayek never denied that socialism built on central planning was possible and he thought that Soviet communism constituted a true embodiment of socialism. By the time of his writing,41 the Stalinist variant of communism was already in full blossom; it had more than a decade of peacetime experience and a few years of wartime history by 1944. Economic management in the Soviet Union was functioning with administrative command and control, which could not have been explained exclusively by the needs and exigencies of an existential war. Great Britain, where Hayek lived, also introduced a whole host of administrative measures in order to concentrate scarce resources to win the war. But it was not the same as in the Soviet Union. In the UK, market forces were provisionally suspended but not extinguished. Admittedly, there was much planning in the UK, even mandatory execution of production and distribution targets or instructions. There was another huge difference compared to Soviet practice: Democracy was not suspended, let alone suppressed in the UK. Tyranny was nowhere to be seen. But a palpable danger was perceived that wartime methods could be extended to serve the UK in peacetime. “There exists now in this country certainly the same determination that the organization of the nation we have achieved for the purposes of defence shall be retained for the purposes of creation. There is the same contempt for nineteenth-century liberalism, the same “spurious” realism and even cynicism, the same fatalistic acceptance of “inevitable trends”.”42 Hayek decided to write his book with the stated purpose of fighting this tendency which

40 Hayek

felt it important to distinguish between the aims and the methods of socialism. This type of argument, although questionable if leading to separation, allowed him to sharpen the focus of his criticism on the methods rather than the aims. (He felt he could not afford attacking socialists who were in a dominant intellectual position at that time.) Nevertheless, what is important here is that he identified socialism with methods which defined socialism even more than its declared goals. Socialism, according to Hayek, “may mean, and is often used to describe, merely the ideals of social justice, greater equality and security which are the ultimate aims of socialism. But it means also the particular method by which most socialists hope to attain these ends and which many competent people regard as the only methods by which they can be fully and quickly attained. In this sense socialism means the abolition of private enterprise, of private ownership of the means of production, and the creation of a system of “planned economy” in which the entrepreneur working for profit is replaced by a central planning body.” Hayek (1944), p. 24. 41 Hayek admitted in the Preface written to the 1976 Reprint Edition that the book was written in his spare time, from 1940 to 1943. He was lucky because he was not asked to offer himself to military service. 42 Hayek (1944), Introduction, p. 2.

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from his perspective he found an extremely dangerous and self-fulfilling intellectual and political stream.43 From the viewpoint of political economy, that is an absolutely key argument. Hayek realized that many people found central planning not only desirable but also inevitable. He started the relevant chapter with the following section: “It is a revealing fact that few planners are content to say that central planning is desirable. Most of them affirm that we can no longer choose but are compelled by circumstances beyond our control to substitute planning for competition. The myth is deliberately cultivated that we are embarking on the new course not out of free will but because competition is spontaneously eliminated by technological changes which we neither can reverse nor should wish to prevent. This argument is rarely developed at any length – it is one of the assertions taken over by one writer from another till, by mere iteration, it has come to be accepted as an established fact. It is, nevertheless, devoid of foundation. The tendency toward monopoly and planning is not the result of any “objective facts” beyond our control, but the product of opinions fostered and propagated for half a century till they have come to dominate all our policy.”44 In the half-century period preceding WWII, roughly from 1890 to 1940, there had been three major trends which all had contributed to the monopolization of many, albeit not all, industries in the Western world. The first was technology, the second the economies of scale, and the third government policy. Hayek did not deny the importance of the first and second but felt that their contribution was ambiguous.45 But his main argument was that monopolization was first and foremost the result of deliberate government policy. As a consequence and by extension, there was nothing inevitable in replacing markets by mandatory central planning either.46 That must be a conscious political decision after a successful socialist takeover, irrespective of the form of its realization. Of course, one can argue that once socialism is established, there might be no choice but to introduce mandatory central planning. In that respect mandatory central 43 In order to shock his audience, he chose a rather strong title for the book. The inspiration came from Alexis de Tocqueville, the famous nineteenth century French aristocrat scholar, who finished his groundbreaking book, “Democracy in America” with an especially prescient warning about democracy degenerating into despotism. See Tocqueville (2000), Volume II. Book 4. Chapter VI. “What Sort of Despotism Nations have to Fear”. 44 Hayek (1944), p. 32. 45 The Marxist concept about the concentration and and centralization of capital did not prove all encompassing and far from inevitable. Hilferding (1955), Lenin (2011b) and Luxemburg (1975) highlighted important tendencies but their proof about inevitability was inconclusive. They also accepted that monopolization in many countries—especially in Germany, the USA and Russia— was deliberately fostered by government intervention. That was a typical characteristic feature of latecomer industrialization driven as much by economic as strategic and military considerations. See also Gerschenkron (1962). 46 Hayek could not disagree more with Karl Polanyi in this regard. It is quite interesting that there is reference in his book only to Michael Polanyi, the brother of Karl and the book written by Polanyi (1940).

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planning could be considered as inevitable, indeed. But socialism itself was not inevitable. Hayek took it for granted; his book does not contain much elaboration on this issue. The point for him was that mandatory central planning, if applied, destroyed freedom, and this inference remained shockingly obscure for many adherents to socialist planning.47 The verification of this valuable insight can certainly be found in Hayek’s book. It is, of course, necessary to tackle with it but now it can wait. This part of my book is about the inevitability of socialism. And Hayek’s answer to this question leaves no doubt about his clear scientific as well as political judgement. To conclude, there is a need for one additional remark: Hayek not only held the advent of socialism perfectly avoidable (giving an optimistic twist to his reasoning despite many liberals felt that it was overly pessimistic) but declared that systemic socialism48 was already in decline. During WWII, he restricted his fight against Soviet communism because from 1941 Stalin was an important ally of the UK. Later he could express himself more clearly and without any restraint. Over time he also understood that “hot socialism… that organized movement toward a deliberate organization of economic life by the state as the chief owner of the means of production – is nearly dead in the Western world. The century of socialism in this sense probably came to an end around 1948. (italics mine) Many of its illusions have been discarded even by its leaders, and elsewhere as well as in the United States the very name has lost much of its attraction. Attempts will no doubt be made to rescue the name for movements which are less dogmatic, less doctrinaire, and less systematic. But an argument applicable solely against those clear-cut conceptions of social reform which characterized the socialist movement of the past might today well appear as tilting against windmills.”49 Visionary remarks, penned more than sixty years ago, but relevant even today. Popper was equally adamant in considering socialism—all kinds of socialism, including the then existing Soviet socialist variation—far from being inevitable. He did not even consider it important to address this issue in any specific form. He put 47 Although he did not use the term mandatory central planning, he always understood that central planning in a socialist economy could not be anything else but mandatory, compulsory. That was not only logical for him but also consistent with Stalinist practice, the only available experience of existing socialism. It is important to realize that Hayek was never analyzing purely theoretical concepts; he felt it his mission to relate them to practice based on available information. That is why he made allusion to important contemporary descriptions of the Stalinist economy. Among them the best were written by Chamberlin (1934) and (1937) and Max Eastman (1940). Both gentlemen were initially sympathetic to the Bolshevik experiment but later turned against it. They spent a long time living in the Soviet Union, they knew it extremely well, and, hence, they were regarded by Hayek as authentic and credible witnesses of the development of the only existing socialism at that time. 48 Hayek used many names to denote the already existing Stalinist variant of socialism and separate it from the wide variety of socialisms which existed only as ideological blueprints at that time. He called them, quite variably, “hot socialism,” “systematic socialism,” “outright socialism,” etc. All of these and other variations are contained in the Preface he wrote to the paperback edition of his book in 1956. See Hayek (1994)—the 50th anniversary edition of Hayek (1944). 49 Hayek (1994), p. xxxiii.

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the issue of societal development into a much more general framework. He fought against historicism, i.e., prophecies about unilinear historical evolution. This was the corollary of his criticism against Marxism as well. It is worth quoting his precise interpretation of Marx’s thought as a starting point in this regard: “Economic historicism is the method applied by Marx to an analysis of the impending changes in our society. According to Marx, every particular social system must destroy itself, simply because it must create the forces which produce the next historical period. A sufficiently penetrating analysis of the feudal system, undertaken shortly before the industrial revolution, might have led to the detection of forces which were about to destroy feudalism, and to the prediction of the most important characteristics of the coming period, capitalism. Similarly, an analysis of the development of capitalism might enable us to detect forces which work for its destruction, and to predict the most important characteristics of the new historical period which lies ahead of us. For here is surely no reason to believe that capitalism, of all social systems, will last forever. On the contrary, the material conditions of production, and with them, the ways of human life, have never changed so quickly as they have done under capitalism. By changing its foundations in this way, capitalism is bound to transform itself, and produce a new period in the history of mankind.”50 Analyzing Marx’s prophecy, Popper chose an elegant way of argumentation. We can call it reverse proofing, verification in reverse order. Popper identified three logically separate steps in Marx’s line of reasoning. According to Marx, the first objective process in the development of capitalism was the accumulation of the means of production which led to the accumulation of more and more wealth in fewer and fewer hands. Increase of wealth on the one hand and increase of misery, pauperization (Verelendung) on the other.51 The second step followed from the first, if the results of the first were taken for granted. Popper felt that two conclusions were of primary importance here. He wrote that “first, that all classes except a small ruling bourgeoisie and a large exploited working class are bound to disappear, or to become insignificant; secondly, that the increasing tension between these two classes must lead to a social revolution”.52 The third step followed from the second, if the results of the second were accepted. If socialism won, the bourgeoisie would disappear. When only one class remained, it would lead to a classless society, a society without exploitation. That would be the omega point of social evolution, indeed.53 Popper decided to refute all these conclusions in a reverse order. Chapter 18 of his book rejected the prophecy of the inevitability of socialism, Chapter 19 that of

50 Popper

(2011), p. 345.

51 This evolution is alleged to have been parallel with the concentration and centralization of capital. 52 Popper

(2011), p. 347. impeccable Hegelian result with inverse dialectics as acknowledged by Popper. See Popper (2011), p. 313. 53 An

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the inevitability of the social revolution and Chapter 20 that of the peculiar characteristics of the development of capitalism leading inevitably to social revolution.54 An extremely powerful and convincing refutation, indeed. It is worth recapitulating the essence of his argument and, for the sake of brevity, in historical order.55 According to Marx, the starting point was the “economic law” driving the development of capitalism which produced unsurmountable contradictions. This law proved to be non-existent. The accumulation of capital did not lead to more pauperism and misery, at least not in the last third of the nineteenth century. Verelendung did not happen, albeit there can be no denial of the fact that improvements in the economic position of the working class were, to no small extent, due to the class struggle of the workers themselves. It proved eloquently that, contrary to Marxian thoughts, politics was far from being impotent.56 More important, that despite the accumulation of capital and concentration of wealth, which were valid and observable tendencies in the second half of the nineteenth century, there was no proof for “an increasing exploitation of the employed workers; not only in numbers but also in intensity”.57 The marked broadening and deepening of exploitation was ultimately prevented from happening by two factors. One was the spectacular increase in material welfare as a consequence of the rate of productivity (which, again, contrary to Marx’s expectations, did not lead to more exploitation as a result of the fall of the rate of profit).58 The other was “interventionism” which involved not only state regulation in order to either prevent or promote monopolization, but also the successful organization of the workers and assert their claims and interests. Despite considering politics largely impotent, the most important and most successful political message of Marx was to workers that they should unite.59

54 Popper,

ibid., Chapters 18, 19, 20, pp. 345–396. to enumerate here only the most important steps of the arguments because the Popperian edifice is so strong and compact that there has been no valid refutation produced ever since. Schumpeter and Polanyi seem to have refrained from undertaking any serious attempt to criticise Popper. Conversely, Marxist writers decided simply to ignore Popper’s eloquent thoughts. See e.g. Kolakowski-Hampshire (1974). 56 Analyzing the Marx’s theory of the state in Chapter 17 of his book, Popper pointed out one of the most important deficiencies of Marxian thought as follows: “What are the consequences of this theory of the state? The most important consequence is that all politics, all legal and political institutions as well as political struggles, can never be of primary importance. Politics are Impotent.” Popper (2011), p. 328. 57 Popper, ibid., p. 375. 58 Popper, ibid., p. 390. 59 “For collective bargaining can oppose capital by establishing a kind of monopoly of labor; it can prevent the capitalist from using the industrial reserve army for the purpose of keeping wages down; and in this way it can force the capitalists to content themselves with lower profits. We see here why the cry ‘Workers, unite!’ was, from a Marxian point of view, indeed the only possible reply to an unrestrained capitalism.” Popper, ibid., p. 384. 55 Suffice

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“Unrestrained capitalism60 is gone. Since the day of Marx, democratic interventionism has made immense advances, and the improved productivity of labor – a consequence of the accumulation of capital – has made it possible virtually to stamp our misery. This shows that much has been achieved, in spite of undoubtedly grave mistakes, and it should encourage us to believe that more can be done. For much remains to be done and to be undone. Democratic interventionism can only make it possible. It rests with us to do it.”61 To sum up, interventionism could work and it did work already before WWI.62 Social Democratic parties recognized it—among others as a direct consequence of their own involvement and intervention. Politics proved to be hugely potent, indeed. This leads us to the second step. If there was no Verelendung, one of the most important prerequisite for social revolution was missing. The class structure of capitalism did not develop according to Marx’s prophecies. The peasants, largely a reactionary group from the viewpoint of orthodox Social Democrats,63 might have become fewer in numbers but more important in politics. In any case, they did not disappear. Middle classes, the administrators of the ever more complex capitalist machinery—both enterprises and the state—flourished. Their numbers were quickly multiplied by the representatives of the expanding free professions: physicians, lawyers, engineers, professors, journalists, etc. Many of them tended to indentify themselves with the proletariat, others with the bourgeoisie, but many of them remained independent in thinking, style, morals and manners.64 There was no such a thing as the unification, let alone disappearance, of the middle classes. What about the working class? In many countries, it was on the way of acquiring at least a relative majority, but not necessarily an absolute one. More important, that the working class showed also increasing stratification within its ranks; certain strata of the workers emerged quite affluent, others remained at a much lower level of material and intellectual endowment. “Thus, as opposed to Marx’s prophecy, which insists that there must develop a neat division between two classes, we find that on his own assumption, the following class structure may possibly develop: (1) bourgeoisie, (2) big landed proprietors, (3) 60 It is important to remember that Popper, having found the expression ’laissez-faire’ misleading, decided to denote the first phase of capitalism as unrestrained. 61 Popper, ibid., pp. 391–392. 62 It was a grave mistake by Polanyi to ignore this development and consider the 50 year period of 1871–1929 as an undisturbed continuation of laissez-faire. While he was right in detecting some of the important reasons of the Great Depression which started in 1929, he was wrong in claiming that it was the general lack of intervention. 63 It is important to remember that even Kautsky looked down upon the peasants as a reactionary group! 64 The active membership of the Social Democratic parties were coming ovewhelmingly from the middle classes. Many of them were, first and foremost, intellectuals. See Pipes (1974), (1990), Wilson (2012) and Johnson (1988). But the best general observation was made by Braudel: “As elsewhere, reforming and revolutionary thought in France was the work of intellectuals, the vast majority of whom were socially privileged. And, again, as elsewhere, these ideas acquired life and strength only when they were taken up by working people.” Braudel (1995), p. 394.

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other landowners, (4) rural workers, (5) new middle class, (6) industrial workers, (7) rabble proletariat. (…) And we find, furthermore, that such a development may possibly undermine the unity of (6).”65 Popper was very cautious and rightly so. He wrote that he did not intend to replace Marx’s prophecy by another one. “I do not assert that the prophecy cannot come true or that the alternative developments I have described will come to pass. I only assert that they may come to pass.”66 But it was enough to prove that there was no tendency of social stratification favoring inevitably social revolution.67 We have arrived at the third step. Let us suppose that the working class did make a social revolution and the workers came out victorious. Does it follow necessarily that the new society will be a socialist one, i.e., a classless society? Popper’s answer is unequivocal: no. “Classes are not like individuals, even if we admit that they behave nearly like individuals so long as there are two classes who are joined in battle. The unity or solidarity of a class, according to Marx’s own analysis, is part of their class consciousness, which in turn is very largely a product of the class struggle. There is no earthly reason why the individuals who form the proletariat should retain their class unity once the pressure of the struggle against the common class enemy has ceased. Any latent conflict of interest is now likely to divide the formerly united proletariat into new classes, and to develop into a new class struggle.”68 In a way, this conclusion is unimportant because one can define socialism as a class-based society.69 Popper’s refutation referred only to the Marxian blueprint rather than to the reality of socialism which existed at this time and until 1991.70 After 65 Popper,

ibid., p. 357.

66 “indeed, this possibility can hardly be denied by members of the radical Marxist wings who use the

accusation of treachery, bribery, and insufficient class solidarity as favourite devices for explaining away developments which do not conform to the prophetic schedule.” Popper, ibid., p. 357. 67 Something like that might have been accepted by Marx himself in his old age. “Marx lived long enough to see reforms carried out which, according to his theory, should have been impossible. But it never occurred to him that these improvements in the workers’ lot were at the same time refutations of his theory.” Popper, ibid., p. 363. 68 Popper, ibid., p. 348. 69 Actually, there were several futile attempts by Communist theoreticians and ideological watchdogs of ruling Communist parties to reconcile the original Marxian texts with the reality of existing socialism in this regard. Emphasis was put on the distinction between socialism and communism as subsequent phases of the new society. It was admitted that in the first phase, in socialism, there were still classes, but—unlike in capitalism—there was no longer antagonistic conflict between them. This was a quite logical corollary of the Leninist innovation: in the socialist society workers constituted the ruling class in alliance with the peasantry. See Gorbachev (1987) and Yakovlev (2002). 70 The refutation of the Marxian blueprint was devastating. Popper was absolutely right when in one of his most important footnotes he came to the crushing conclusion. “For all his accute reasoning and for all his attempts to use scientific method, Marx permitted irrational and aesthetic sentiments to usurp, in places, complete control of his thoughts. Nowadays one calls this wishful thinking. It was romantic, irrational, and even mystical wishful thinking that led Marx to assume that the collective class unity and class solidarity of the workers would last after a change in the class situation. It is

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all, having maintained state ownership and mandatory central planning the two most important constitutive characteristic features of existing socialism, we are free to define the rest of the characteristics of “true socialism” as we like. (Schumpeter was right.) There was no decisive argument against socialism as a society with classes, no final proof for excluding class stratification completely from the development of a new society. The hitherto passed and subsequently evolving history of existing socialism amply corroborated this inference. This is exactly why Popper’s reasoning is so important. On the basis of solely theoretical arguments, he was able to project an absolutely realistic picture of what had actually happened in the Soviet Union and what was going to happen in the socialist world until its final collapse. Popper’s description of what might happen was prophetic (in the positive sense of the word) and right on target: “The most likely development is, of course, that those actually in power at the moment of victory – those of the revolutionary leaders who have survived the struggle for power and the various purges, together with their staff – will form a New Class: the new ruling class of the new society, a kind of new aristocracy or bureaucracy; and it is most likely that they will attempt to hide this fact. This they can do, most conveniently, by retaining as much as possible of the revolutionary ideology, taking advantage of these sentiments instead of wasting their time in effors to destroy them (…). And it seems likely enough that they will be able to make fullest use of the revolutionary ideology if at the same time they exploit the fear of counterrevolutionary developments. In this way, the revolutionary ideology will serve them for apologetic purposes: it will serve them both as a vindication of the use they make of their power, and as a means of stabilizing it; in short, as a new’opium for the people’.”71 Visionary words, no doubt. So it happened in Soviet Russia and later in Central and Eastern Europe, China, Vietnam; still happening in North Korea and Cuba. The history of existing socialism has been the history of permanent struggle between a ruling oligarchy and the oppressed masses. There was no honeymoon. The alleged unity of the working class never showed any signs of being prevalent. The very existence of several socialist parties, at least at the beginning, claiming to represent and protect the interests of the workers, and the bitter struggle among them proved unequivocally that there has never been, there could never have been, unity of thought and action among them even if we allow that these parties represented the interests, and expressed the aspirations, of the workers. It is important to remember that when the workers were united, they were not only among themselves but they were strongly in alliance with students and even members of the intelligentsia. But these were “fleeting moments” of unity against the common enemy: the ruling communist party and the nomenclature. This was happening in the Hungarian uprising (1956), the Prague Spring (1968), and during the days of Solidarity in Poland (1980–81). Under such circumstances, the ruling thus wishful thinking, a mystical collectivism, and an irrational reaction to the strain of civilization which leads Marx to prophesy the necessary advent of socialism.” Popper (2011), p. 697. 71 Popper, ibid., p. 348.

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parties always tried desperately to divide the workers and separate them from the intelligentsia. The struggle for power led to a new stratification of society rather than the disappearance of classes under existing socialism.

Chapter 4

Is Socialism Desirable?

4.1 Individualism and Collectivism “What we need and what we want is to moralize politics, and not to politicize morals.” (Popper)1

If socialism was inevitable, discussing its desirability would be meaningless. Having demonstrated that socialism was far from being inevitable, one could justifiably analyze whether it was at least desirable.2 The question of “desirability” is, without doubt, the most difficult to tackle. The reason is that it involves, to a considerable extent, value judgments. Values penetrate inevitably to the examination whenever we try to form a firm opinion about the desirability of a complex economic and societal system. Therefore, any discussion of these issue would show the signs of a clash of values.3 Hayek’s famous book, The Road to Serfdom, does contain a rather short, but all the more important chapter with the title “individualism and collectivism.” When it comes to values, this is the chapter most fundamental for his judgment on the

1 Popper

(2011), p. 107. course, those who believed in the inevitability of socialism coming paid less attention to its desirability. As a consequence, this part of the book cannot review the feelings and opinions of Schumpeter and Polanyi. Logically, they have left very little trace of their thinking in this regard. As a result, this part of the book concentrates on the writings of Hayek and Popper, with a necessary extension to the theme of totalitarianism, which will finally invoke the thinking of Hannah Arendt as well. 3 It is a clash of values rather than a clash of civilizations. All civilizations include conflicting values and it is not easy to sort them out by institutions, religions, customs or cultures which, without doubt, do represent values as well. Clash of civilizations would be misleading like it was case of the famous book written by Samuel Huntington, who put post cold war international relations into the context of the existential struggle among widely different civilizations. See Huntington (1996). 2 Of

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 L. Bokros, Socialism—The Tragedy of an Idea, https://doi.org/10.1007/978-3-030-57843-5_4

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eventual desirability or rejection of socialism, which he clearly considered a new form of collectivism, indeed.4 Socialism is collectivism—socialist would never deny that. At the same time, the collectivist nature of socialism is precisely the most important reason why liberals would find it undesirable. Individualism versus collectivism; that is the underlying dichotomy of values which needs to be resolved first if understanding the implications of socialism is to be attempted. But what is individualism? Various adherents of collectivism would call it pure selfishness, which is an anti-communitarian, anti-solidaristic behavior, typical to capitalists and their supporters. According to many socialists, individualism is the opposite to humanism, societal solidarity, good cooperation, mutual respect and high esteem.5 This approach may be still very popular, it may keep coming back and become widespread in a recurrent manner, but it is completely devoid of historical facts. Individualism means that the individuum6 was born, personality has appeared and freed itself, acquired autonomy, developed out of the all-encompassing grip of the community hitherto determining all major human action and character. Hayek wrote in the first chapter of his book that “the essential features of that individualism which, from elements provided by Christianity and the philosophy of classical antiquity, was first fully developed during the Renaissance and has since grown and spread into what we know as Western European civilisation – the respect for the individual man qua man, that is the recognition of his own views and tastes as supreme in his own sphere, however narrowly that may be circumscribed, and the belief that it is desirable that men should develop their own individual gifts and bents.”7 In other words, individualism is the recognition of the dignity of the individual human being, the acceptance, tolerance and even respect of the diversity in personality, and the desirability of the development of diverse capacities, gifts, aptitudes, physical, intellectual and mental powers. Individualism, thus defined, is not an obstacle to human cooperation expressing solidarity. On the contrary, it is a prerequisite for it.8 4 “It

may, perhaps seem unfair to use the term socialism to describe its methods rather than its aims, to use for a particular method a term which for many people stands for an ultimate ideal. It is probably preferable to describe the methods which can be used for a great variety of ends as collectivism and to regard socialism as a species of that genus. Yet, although to most socialists, only one species of collectivism will represent true socialism, it must always to be remembered that socialism is a species of collectivism and that therefore everything which is true of collectivism as such must apply to socialism.” Hayek (1944), p. 25. 5 “Individualism has a bad name today and the term has come to be connected with egotism and selfishness. But the individualism of which we speak in contrast to socialism and all other forms of collectivism has no necessary connection with these.” Hayek (1944), pp. 10–11. 6 Individuum, a latin word, denotes the smallest particle which can not be further divided. “The word ‘individual’ originally means’what cannot be divided without ceasing to be itself.’” Norman (2013), p. 241. 7 Hayek (1944), p. 11. 8 One of the most comprehensive summaries about individualism can be traced in Smith and Moore (eds) (2015). The development of the specific English individualism can be followed in Macfarlane (1978).

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Autocracies, tyrannies have always attacked the freedom of the individual in the name of the community. They emphasize that individual freedom must not be allowed to become an obstacle to the development of the community. But individualism has never asserted that individuals should have unlimited liberty. “The liberty of the individual must be thus far limited; he must not make himself a nuisance to other people. But if he refrains from molesting others in what concerns them, and merely acts according to his inclination and judgment in things which concern himself, the same reason which shows that opinion should be free proves also that he should be allowed, without molestation, to carry his opinion into practice at his own cost.”9 And the inference is that the limited, albeit always existing and always broadening individual freedom is by no means a hindrance to the harmonic development of the community but its prerequisite. Collectivism has largely forgotten to create a set of coherent general principles for itself. But one of the common characteristics of the hodge-podge of collectivism is that it makes the contrast between itself and individualism absolute. It always starts from the premise that the interests of the community are always supreme. Be it a class, a nation, a tribe or anything else, the collective’s interest should enjoy a priority over that of the individuals at all times.10 The adherents of socialism today will be distinguished from the communists of yesteryear as they desperately try to fill the rough cracks of collectivism with the leftovers of individualism. They happily give up the coherence of collectivism at the altar of an imaginary humanism. They reject my reasoning about the suppression of the individual with indignation and point out that in communism, the primacy of the community will be in harmony with the free development of the individual. Is it not exactly Marx and Engels who said that the objective of communism is the perfection of the capacities of the individual and the unimpeded realization of the aspirations of personality? Is it not precisely Marxism which declared that in communism, while everybody works according to his or her abilities, all will receive material benefits according to their needs? Is it not convincingly clear that genuine freedom is the liberation of man from the dictatorship of scarcity?11 Of course, there can be no denial of the fact that Marx and Engels incorporated some new concept of freedom in their historical prophecy. But it did not make freedom a shining gravitation point of their philosophy for a variety of reasons. The most important is that the classless society, as it was prophesized by Marx and Engels, 9 John

Stuart Mill (2015), p. 55. certainly comes handy and at the most opportune time that the imaginary collective is always embodied in some specific institution which can exercise real compulsion on real individuals: first and foremost the state. Thus, in case of collectivism, we can almost always talk about state collectivism (I discuss the role of the state in socialist collectivism in Sect. 4.4.). 11 Hayek acknowledged the double meaning of freedom when he discussed the Marxist utopia. He described the new wave in unambiguous terms. “The coming of socialism was to be the leap from the realm of necessity to the realm of freedom. It was to bring ‘economic freedom,’ without which the political freedom already gained was ‘not worth having.’ Only socialism was capable of effecting the consummation of the agelong struggle for freedom in which the attainment of political freedom was but a first step.” Hayek (1944), p. 19. 10 It

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proved to be just another “great utopia” because there can be no such thing as complete freedom from necessity. The scarcity of material goods can never be overcome in the sense that everybody can satisfy all their wants and needs in an unlimited way. There is no escape from the economic problem, i.e., from the complex problem of deciding on the optimal allocation of resources in order to satisfy the needs of society according to a structure of values, set either by the market or conscious—and mandatory—central planning. But there is no point in comparing collectivist ideology to an utopian blueprint. No matter how much emphasis Marx placed on what he considered real human freedom, it has remained wishful thinking at best and a completely misleading, confusion-creating ideology at worst. Our focus of attention is existing socialism which was unable to leave behind the economic problem. Existing socialism was based on a more realistic collectivist ideology which paid only lip service to the Marxian concept of communism anyway. In this respect, it is even irrelevant what the ideologically conceived and trumpeted long-term goals of the Marxian version of communism might have been. The key aspect from our perspective is whether a collectivist economy and society based on the state ownership in the means of production and mandatory central allocation of all important physical and human resources leaves any room for individual freedom of choice. It is important to notice that an increasing number of socialists accept that “real freedom,” i.e., the liberation of the poor from material necessity can be build only on the foundations of “formal freedom, i.e., political freedom and equality before the law.12 That is a significant retreat from Marx who maintained that formal freedom, i.e., democracy, was “not worth having” in capitalism which was a naked dictatorship of the bourgeoisie. The approach of modern Social Democracy would cherish the institutions of formal democracy, indeed. But then the inference is democratic capitalism and not democratic socialism. There is no such a thing as formal democracy and pluralist society on the basis of state ownership in the means of production and mandatory central planning. Why is it so? The struggle between individualism and collectivism may produce a stalemate in ideology but cannot produce a hybrid political system in reality. Monolithic state ownership with centralized command is very far from plurality. It simply cannot allow any idea which would threaten it with abolition to prevail. But there is a more palpable reason for collectivism to separate itself from any individualist notion of freedom. Collectivism is always illiberal in the sense that it conceives freedom as a privilege for a community—class, nation, tribe, etc.—over and above the freedom of the individual. Collectivism may tolerate the freedom of the individual to certain degree in practice, but never acknowledge it as being on equal footing with the freedom of the collective. It will always imagine and proclaim a hierarchy of freedoms where the liberty of the individual is subordinated to that of the collective at all times and under all circumstances. 12 “To the great apostles of political freedom, the word had meant freedom from coercion, freedom from the arbitraty power of other men, release from the ties which left the individual no choice but obedience to the orders of a superior to whom he was attached.” Hayek (1944), p. 19.

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It must have been the corollary of a true reflection on the history of mankind. The meaning of freedom went through a lot of substantive and transformative changes even in Western Europe, which proved to be the cradle of individualism. In the Middle Ages, freedom indicated the liberation from feudal obligations; autonomy for the town, the guild or the monastic order. In the new commercial outposts, in contrast, it meant liberation from the constraints of the guild and the town, freedom for private investments.13 Many scholars have been struggling with the seemingly fundamental question whether political freedom opened the way to economic freedom or the other way around.14 But the answer may be that the two freedoms have evolved together in symbiosis as a consequence of the unique and highly peculiar nature of Western European feudalism.15 Even the question might be unjustifiable because it reflects the results of later development. The two spheres, economy and politics, did not have separate meaning and existence before modernization. As Polanyi rightly put it, economics at that time had been embedded in politics, and the economy in society. In any case, the unique circumstances of Western feudalism seem to offer a valuable starting point, indeed. “Vassalage contained the characteristics of both subordination and contract. In the ceremony of accepting vassalage, there was always a more powerful and a subordinate who entered into this relationship; thus, the relationship was always established between unequal partners. At the same time, the seigneur also had his customary obligations, even the fidelitas of the vassal was conditional on the seigneur complying with his contractual obligations. In case of non-compliance, felonia came into existence in the same way as when the vassal broke his word. Although vassalage was a relationship of unequals, it was under the auspices of mutual obligations santioned by contract. This endogene feature of Western feudalism might have been a fiction, but a fertile fiction which had the effect of a value norm – over time with a downward impact as well.”16 It might be equally important that “the motive of human dignity was preserved in the relationship of subordination. Outside Europe, but even in the Russian principalities, the serviens bowed to the ground, kissed the hand of the seigneur, or threw himself to the ground and kissed the hemming of his clothes. In the ceremony of the homagium in the West, the vassal descended on one knee only, with his head held up, put his clasped hands into the palm of his lord and finally they kissed each other. An epoch, which expressed everything in stressed symbols and spectacular gestures, could not have demonstrated the essence of a relationship more accurately.”17 13 Mumford

(1961). of the notable contemporary historians putting a high emphasis on the evolving political freedom leading to more economic freedom and, eventually, with the confluence of dominant political and economic interests, to empire and globalization is Niall Ferguson. See his books (2004) and (2005). 15 See Morris (1987). 16 Sz˝ ucs (1983), p. 29. 17 Ibid., p. 30. 14 One

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“The ‘honor’ of the individual occupied a central place in the value system of antiquity, the fidelity of the subordinate has a central significance in all society characterized by dependencies. (…) The honor of the knight and the fidelitas of the vassal got fused in an organic manner only in Western feudalism. The fact that human dignity is a constitutive element of political relationships was not inherited from antiquity but from feudalism…”18 I deliberately quoted from the essay of Jen˝o Sz˝ucs, the undeservedly neglected but eminent Hungarian historian at length.19 His is an exceptionally eloquent description of what might have happed in Western Europe in the Middle Ages. This progression seems to have contributed significantly to the preservation of the concept of human dignity which, without doubt, is one of the most important stepping stones for the unfolding of the individual—both as an idea and an ideal. Individualism, a Western concept, was stemming from the particular evolution of Western Europe, which miraculously saved what had already been there to be saved from the disintegration of antiquity.20 Tocqueville suggested that the word “individualism” was born around 1820, the high time of the industrial revolution in England. He claimed that “our ancestors had no word for individualism, a word we have coined for our own use because, in their time, there was no individual who did not belong to a group or who could consider himself to be entirely alone.”21 The conservative aristocrat was no fan of individualism but he recognized its progress leading to democracy. The same holds true about Edmund Burke, another father of conservatism. Popper dealt with the problem of individualism and collectivism in Chapter 6 of his book, entitled “Totalitarian Justice.”22 He advanced his analysis by putting (i) individualism, (ii) egoism, (iii) collectivism and (iv) altruism into a quadrangle. He challenged Plato who paired individualism with egoism and collectivism with altruism, as if these pairs were natural and mutually exclusive. “Now a glance at our little table will show that this is not so. Collectivism is not opposed to egoism, nor is it identical with altruism or unselfishness. Collective or group egoism, for instance class egoism, is a very common thing (…) and this shows clearly enough that collectivism as such is not opposed to selfishness.23 On the other hand, an anti-collectivist, i.e., an individualist, can, at the same time, be an altruist and can be ready to make sacrifices in order to help other individuals. One of the best examples of this attitude is perhaps Dickens. It would be difficult to say 18 Ibid.,

p. 31. most important short essay (1983) was never translated to English—the translations above are mine. 20 These findings are largely corroborated by famous writings contained in Smith and Moore (2015). 21 Tocqueville (2008), p. 102. 22 Popper (2011), pp. 95–108. His discussion of the problem of individualism and collectivism is planted into the framework of his criticism of Plato’s holism, one of the most disputed and challenged part of his great work. 23 Nationalism would have been an even stronger and more convincing example of collective selfishness. 19 His

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which is the stronger, his passionate hatred of selfishness or his passionate interest in individuals; and this attitude combined with a dislike, not only of what we now call (…) collectives, but even of a genuinely devoted altruism, if directed toward anonymous groups rather than concrete individuals.”24 Popper’s final judgment on this issue is as follows. “This individualism, united with altruism, has become the basis of our western civilization. It is the central doctrine of Christianity (‘love your neighbor’ say the Scriptures, not ‘love your tribe’); and it is the core of all ethical doctrines which have grown from our civilization and stimulated it. It is also, for instance, Kant’s central practical doctrine (‘always recognize that human individuals are ends, and do not use them as mere means to your ends’). There is no other thought which has been so powerful in the moral development of man.”25

4.2 Superiority of Socialism? “Ultimately, therefore, the Marxian demonstration is this: Socialism must come, because the socialist way of production is more rational than the capitalist. But in all this, the alleged superiority of socialist production is simply taken for granted.” (Mises)26

Clash of values never produces decisive victory either on paper or in reality. The same is true for the age-old war between individualism and collectivism. Since there is no final word in the debate between values, the struggle transfers to other fields. In science, it may wander to the area of economics and sociology. In practice, it migrates to power politics. Socialists have argued for long about the economic superiority of socialism. This is also the Marxian heritage. Capitalism, based on private property and market coordination, is wasteful because every producer would know whether his supply would meet demand only “ex post.”27 No wonder that capitalism is characterized by squandering resources, including the most important: humans. Unemployment, poverty, crisis, sharp swings in output, depression, recession, bankruptcy and liquidation of a 24 Popper

(2011), p. 96. p. 98. 26 Mises (2012), p. 346. 27 “We have seen that the capitalistic mode of production thrusts its way into a society of commodityproducers, of individual producers whose social bond was the exchange of their products. But every society based upon the production of commodities has this peculiarity: that the producers have lost control over their own social inter-relations. Each man produces for himself with such means of productions as he may happen to have, and for such exchange as he may require to satisfy his remaining wants. No one knows how much of his particular article is coming on the market, nor how much of it will be wanted. No one knows whether his individual product will meet an actual demand, whether he will be able to make good his costs of production or even to sell his commodity at all. Anarchy reigns in socialized production.” (italics mine) Engels (1970), pp. 59. 25 Ibid.,

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large number of enterprises—all these things are inherent in capitalism. In contradistinction, socialism would be characterized by nationwide conscious planning eliminating waste, unemployment, proverty and all crises. Thus, the economic superiority of socialism cannot be in doubt. When analyzing the efficiency of socialism supporting its alleged superiority, blueprints do not help in finding proofs. What needs to be looked at is existing socialism or, better said, the socialism which did exist in reality. Therefore, the starting point should be what I have called classical Stalinism, for two reasons.28 First, Stalinist socialism was the one claiming to have approached closest and most consistently the blueprint provided by Marx and Engels; hence the name “classical.” Second, the Stalinist model, having functioned for more than thirty years between 1928 and 1958, turned out to be the starting point to be followed by all subsequent variants of socialism which has hitherto existed. The Stalinist version of socialism was based on an all-embracing, totalitarian command economy, which, in turn, “can be referred to as state collectivism. State is key, indeed, although it is hardly separable from society as a whole. All members of society are important insofar as they perform duties defined by the collective as represented by the state and perform them well to the benefit of the collective as defined by the state. It is not only the economy which has no autonomous standing and separate meaning in societal life but within the economy, there is little or no distinctive functioning of production, distribution and consumption. Likewise, the legal and judiciary system, church and religion, education and science, arts and culture or any other sphere of societal life have no autonomous existence either. In this respect, totalitarian regimes constitute a fallback to premodern societies no matter how much they claim to represent modernity, or even more, ultra-modernity.”29 Several important points need highlighting here. First, Stalinist socialism was undoubtedly a raw and rough manifestation of collectivism. Hayek was right.30 Second, it was not an anarchistic, anti-state collectivism, as envisaged by Lenin at a momentary weak state of his disturbed political mind, when he was contemplating the state starting to withering away after the victory of the proletarian revolution.31 Just the opposite: it was a super-state collectivism, suppressing all forms subsovereign autonomy almost completely: that of local and regional governments, trade unions, civil society associations, journalistic, scientific and art collectives, etc. In the Soviet Union, no organized body of any group of human beings could exist and function without the stamp of approval and permanent, close supervision of the state. Third, the party-state assumed an all-encompassing control over the economy. As Polanyi felt it was inevitable, so it happened: the economy was subordinated to, embedded 28 Bokros

(2013), Sect. 1.3, pp. 31–36. p. 10. 30 See footnote 4. 31 Lenin (2011a) One of the best examples of empty theorizing about the state which, instead of withering away, or showing any sign thereof, became a true Leviathan (Hobbes 1651), Goliath (Borghese 1937) or Behemoth (Neumann 1942) by the time Stalin brought it under his iron-fisted control. We come back to this issue later in Sect. 4.4. 29 Ibid.,

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in, politics, almost completely. The absolute primacy of politics was maintained and upheld at any cost, irrespective of its consequences in terms of material well-being. It was held imperative to intervene in the minutiae of the economy by comprehensive and mandatory central direction. Nothing escaped the attention of the state; hence, it can be reasonably declared totalitarian.32 In such a situation, individuals did not count any longer. Personality was suppressed, its dignity largely ignored. All this in name of modernity, societal progress and getting closer to paradise. It could not have been otherwise. After the temporary retreat of the NEP, the Soviet state pulled onto itself one of the most complicated tasks ever undertaken in history: the detailed and daily management of an ever more complex and fast changing industrial economy. Adhering faithfully to orthodox Marxist ideological prescriptions, the Soviet state centralized not only macroeconomic, but to a very large extent also microeconomic management and administration on the basis of almost exclusive state ownership in the means of production.33 Why is that a problem? The totalitarian economic management system may find many fans and followers if it can deliver what it promises: more production, better provision of material goods, higher standard of living, full employment. That would be the best way of proving its superiority, anyway. “Command is a suggestive word to grasp the very essence of such society. The market economy is based on contract, which (…) implies horizontal relationships, freedom of choice, autonomy in decision making. The command economy is an opposite. Command instead of contract. Vertical, instead of horizontal bonds. No freedom of choice and autonomy in decision making at any level but subordinated existence to fulfill predetermined economic, societal functions.”34 Can such a system lead not only to economic growth and efficiency but higher growth and higher efficiency than the capitalist market economy? Mises and Hayek are the two giants who dedicated a good part of their analysis to this question.35 Mises concentrated his analysis about the alleged superiority of the socialist economy on the question of productivity, which—according to the adherents of Marxism—would be higher in socialism than it was ever possible in capitalism. He wrote that “in their readiness to accept Marxian dogmas, people overlook the fact 32 Arendt

(1951), Friedrich (1964), Friedrich and Brzezinski (1965). does not matter that the state was completely unprepared for that. All states would have been incapable for such an enormous task. Lenin was completely under illusion what it was meant by “administration” as opposed to governing. He was oblivious of the fact that administration is a profession in a modern industrial economy, not something which can be undertaken by workers. He wrote: “With such economic prerequisites it is perfectly possible, immediately, within twenty-four hours after the overthrow of the capitalists and the bureaucrats, to replace them, in the control of production and distribution, in the business of control of labor and products, by the armed workers, by the whole people in arms.” Lenin (2011a), p. 83. 34 Bokros (2013), p. 11. 35 Schumpeter and Polanyi felt that socialism, born from the womb of the most developed version of capitalism, would be superior, no question about it. But it is now irrelevant as they were clearly talking about blueprints. 33 It

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that its promise of a classless (…) society rests entirely on the assertion, presented as irrefutable, that the productivity of socialistically organized labor would be higher – indeed, limitless.”36 But that cannot happen. In the absence of markets and market prices, the authorities would not be able to allocate capital (better said: investment resources) more efficiently than the market. Socialism, according the Mises, may be possible but it was unworkable precisely because it lacked the indispensable elements of rational economic calculation.37 Hayek produced a more nuanced refutation.38 He started his analysis by making it absolutely clear that planning and command economy were two completely different things. Therefore, he could concentrate his critical remarks on the command economy. His argumentation is so important and eloquent that I find it opportune to quote it at length. “Planning” owes its popularity largely to the fact that everybody desires, of course, that we should handle our common problems as rationally as possible, and that in so doing we should use as much foresight as we can command. In this sense everybody who is not a complete fatalist is a planner, every political act is (…) an act of planning, and there can be differences only between good and bad, between wise and foresighted and foolish and short-sighted planning. (…) But it is not in this sense that our enthusiasts for a planned society now employ this term, nor merely in this sense that we must plan if we want the distribution of income or wealth to conform to some particular standard. According to modern planners, and for their purposes, it is not sufficient to design the most rational permanent framework within which the various activities would be conducted by different persons according to their individual plans. This liberal plan, according to them, is no plan – and it is indeed not a plan designed to satisfy particular views about who should have what. What our planners demand is a central direction of all economic activity according to a single plan, laying down how the resources of society would be “consciously directed” to serve particular ends in a definite way.”39 What Hayek wrote is wholly appropriate for the Stalinist socialist system. The inference is clear: instead of planning, our object is mandatory central planning. “It is worth emphasizing that the truly relevant comparison is not between market and planning, not even market and central planning. Planning at the micro level (i.e., within enterprises, institutions, government agencies, etc.) is almost indispensable and largely beneficial to ensure the smooth, effective and efficient functioning of the 36 Mises

(2012), p. 345. arguments were already discussed in Sect. 2.1 of this book. By demonstrating what he termed “unworkability,” he showed unambiguously the undesirability of socialism. 38 No wonder. Mises published his masterwork in 1922, Hayek in 1944. 22 long years helped accumulate an immense experience about existing socialism. The early twenties knew next to nothing about classical Stalinism, while in the early forties, it was already in full blossom. Even more important that by the late thirties, planning in capitalism gained tremendous traction. The Great Depression made Keynesian demand management acceptable to governments in the Anglo-Saxon world and beyond. 39 Hayek (1944), p. 26. 37 Mises

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organization in question. Planning at the macro level also became part of everyday life in several market economies throughout the twentieth century. Planning in itself, even central planning, does not necessarily bring about a command economy. That happens only if the plan is transformed into a set of compulsory targets to be achieved by way of political command.”40 Now it is possible to start analyzing “true” socialism: the command economy. Strictly speaking, its alleged economic superiority depends on whether it can solve the underlying economic problem of coordinating production and needs more effectively and efficiently than the capitalist market economy, or, for that matter, any economy using markets. Here, Hayek identified the central issue: how different systems discover and use information about the complex structure of production and needs, how this immense amount of information is collected, processed, harmonized and transformed into societal action in order to ensure maximum output and welfare.41 “The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources – if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.”42 The last quotation is not from The Road to Serfdom but from a short essay Hayek published one year later, in 1945. Its title tells us everything: The Use of Knowledge in Society.43 This article, first appearing in the American Economic Review, can be considered as the intellectual peak of his socio-economic writings from the viewpoint of defending market freedom against anti-market socialism. Hayek’s argument went 40 Bokros

(2013), p. 13. masterwork in this regard is an article, with the title “The Use of Knowledge in Society” published first in the American Economic Review, XXXV, No. 4. (September, 1945) and reprinted later in a new book, a collection of essays, entitled “Individualism and Economic Order” (1948). I consider it Hayek’s most important contribution to the famous discussion on economic calculation and a decisive one at that. 42 Hayek (1948), pp. 77–78. 43 It is important to note that this particular article, written in 1945, found its way into a collection of essays republished in a single tome entitled “Individualism and Economic Order”. See Hayek (1948). The most important arguments of Hayek describing in detail why mandatory central planning—while technically not impossible—cannot be more effective and efficient than the market mechanism is contained in his trilogy with the common name: “socialist calculation.” The first two of the articles appeared first in a book edited by him and entitled “Collectivist Economic Planning” (1935), the third in Economica (May, 1940). I will refer to all of these articles as part of Hayek (1948). 41 His

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significantly beyond that of Mises. He recognized the importance of information in solving the “economic problem” facing society. He emphasized that in order to achieve a satisfactory solution, society needs not only knowledge of demand and supply in general, but more importantly, information about the relative importance of products and needs in particular. But relative importance can only be known to, and evaluated by, individuals. For circumstances of time and space can be discovered only by individuals, this information is never in a single mind. In order to use it properly, the information has to be centralized and made available to planners in a socialist society.44 Hayek did not deny that, over time, all bits of knowledge about wants and needs, as well as production, might be collected and centralized at the level of a central planning body. But he emphasized that the processing of this information could lead to an optimal use of resources only if information remains unchanged for a relatively long period of time. He accepted that in a static and stagnating economy, where there were no major changes either in production or in needs, the economic problem of society might be to a large extent solved by a central planning organization.45 But the problem was that the contemporary economy changed constantly, at all times, by the minute. New needs arose, technology developed, products improved. Mines got depleted, new uses for the same commodity were introduced. And with that, individual preferences about their relative importance—values, as one may say—changed, too. Socialism was never conceived as a stagnating economy and static society. On the contrary; the very idea of its alleged superiority to capitalism implied that it allowed and promoted changes and grew faster than the capitalist economy. Socialism, in a sense, was perceived as complete freedom of change, including change in the structure of both production and consumption. It was envisaged as abolishing all remaining hindrances, obstacles, impediments standing before the realization of full 44 “It will at once be evident that on this point, the position will be different with respect to different kind of knowledge. The answer to our question will therefore largely turn on the relative importance of the different kind of knowledge: those more likely to be at the disposal of particular individuals and those which we should with greater confidence expect to find in the possession of an authority made up of suitably chosen experts. If it is today so widely assumed that the latter will be in a better position, this is because one kind of knowledge, namely scientific knowledge, occupies now so prominent a place in public imagination that we tend to forget that it is not the only kind that is relevant.” Hayek (1948), pp. 79–80. 45 As Polanyi rightly claimed, natural redistribution was an important historical antecedent to the market. But economies where it prevailed were characterized by very slow growth or complete stagnation. The structure of needs and production in these economies remained almost unchanged for historically very long periods of time. “In subsistence and hydraulic societies, where the spectrum of goods and services consumed was rather narrow and relatively stable, these wants and needs were sufficiently well known, fixed and sanctioned by tradition, religion, societal status, gender, age, etc. In these societies, the coordination of material needs with disposable productive resources was sufficiently simple, usually happened almost automatically, without much intervention from above. That is absolutely key. Under such circumstances, we have a system of classic natural redistribution. That is effective (simple in process and procedure) and efficient (ensures the reproduction of society) and legitimate (members of society largely accept both the mechanism and the outcome).” Bokros (2013), p. 15.

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humanity—be it private property, profit, narrow class interests, etc. Socialism was imagined as the most dynamic economy and most vigorous society ever existed in the history of mankind. Consequently, it implied the free and completely unconstrained development and blossoming of all wants and needs. These characteristics of socialism were never denied by socialists. How can socialist economic management with mandatory central planning cope with the increase and constant modification of individual wants and needs? There is only one logical answer which leaves the command economy to remain consistent: central identification, fixing and sanctioning of the needs and wants, combined with the repression of all the rest. In other words, it has to introduce a wholesale application of rationing in consumption and adjust production accordingly. Command in production—at least within the range of state (public) ownership—implies command in consumption. For the command economy to stay workable and coherent, freedom of choice for individual and communal consumption has to be largely eliminated. What we need here is dictatorship over needs, indeed.46 This is the basic, insoluble contradiction of all socialisms which proudly deny the validity of market coordination. Stalinist socialism fell into this category, too. No surprise that it had to eliminate freedom of choice to a very large extent. But with the annihilation of consumer sovereignty, it took out one of the most important driving forces of economic growth based on improving efficiency.47 Similarly, it took away any consideration of efficiency from the allocation of resources in the production process. (Political efficiency is another story.) “If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to people who are familiar with these circumstances, who know directly of the relevant changes and the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by decentralization. (…) We need decentralization because only thus can we insure that the knowledge of particular circumstances of time and place will be promptly used. But the “man on the spot” cannot decide solely on the basis of his limited but intimate knowledge of the facts of his immediate surroundings. There still remains the problem of communicating to him such further information as he needs to fit his decisions into the whole pattern of changes of the larger economic system.” (italics mine).48 The socialist command economy has two fundamental defects. Allowing sufficient flexibility, information on circumstances of time and place would keep changing even during the period of collecting all that relevant information. Commands issued on 46 Fehér-Heller-Márkus

(1983). growth remained, sometimes even accelerated beyond the endurance of the people in society. But it was no longer based on considerations of efficiency. Stalinist socialism was characterized by what was termed by many reformist writers “forced or imbalanced,” i.e., politically driven growth. See Kornai (1992). 48 Hayek (1948), pp. 83–84. 47 Economic

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the basis of past information would turn out to be obsolete. Moreover, the hierarchy of planning may be interested in distorting information while it is collected, transmitted and processed. No institution remains neutral while collecting and processing information and issuing commands on the basis of the information gathered. As a result, delays and distortions inevitably occur that makes the command system inferior to the market system which is based on immediate, impersonal transmission of information: the price mechanism.49 “We must look at the price system as such a mechanism for communicating information if we want to understand its real function which, of course, it fulfills less perfectly as prices grow more rigid. (…) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a methaphor to describe the price system as a kind of machinery registering change, or a system of telecommunications which enables individual producers to watch merely the movements of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.”50 While it is true that in a free, that is to say, fairly competitive market economy individual producers and consumers may not need to know why prices change, in a socialist command economy individual producers and consumers knew next to nothing about the relative importance of products and services. Although in the classical Stalinist command economy prices and money existed, these “indicators” did not convey information on such values at all. Why would they? There was no need for such values to be known by producers and consumers.51 All producers and the great majority of individual consumers living in the cities received mandatory physical targets which were arbitrarily fixed by the central planning authorities. It was effectively communicated to the producers by way of compulsory instructions and to the consumers by issuing rationing books. Values, rates of equivalence, were indispensable only for the central planning authorities. They were the ones who were entrusted to make hard choices about the optimal allocation of scarce resources. Solving the economic problem was not through an autonomous economic, but through a politically overcharged bureaucratic process. They did it but without the help of any mechanism which could have conveyed to them information about the preferences of producers and consumers. They did it but they were not interested in getting to know the preferences of society. They constructed imaginary preferences and 49 The

price system is precisely the mechanism expressing best the relative importance of goods in the economy. Prices serve as “rates of equivalence,” “values,” or “marginal rates of substitution.” They attach “to each kind of scarce resource a numerical index which cannot be derived from any property possessed by that thing” Ibid., 85. 50 Hayek, Ibid., pp. 86–87. 51 We will see later in Sect. 4.5 that money and prices were not exactly the same and did not play the same integrative function in the Stalinist command economy as in capitalism, whatever its form.

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enforced them regardless. There was no freedom of choice; it was exluded proudly and deliberately. The Communist party claimed that it knew better and its wishes or preferences were ruthlessly imposed on society by mandatory central planning.

4.3 Reform = Retreat “Socialism never trusted completely its own alleged superiority. Whenever difficulties arose, it escaped back to its poor cousine, the markets…”52

1968 was a pivotal year in world history. Western Europe was engulfed in a sudden wave of demonstrations initiated by students who were seemingly fed up with the hypocrisy of their forefathers. The USA was preparing itself to a presidential election, and in the meantime, Dr. Martin Luther King, the famous fighter for civil liberties, and Robert Kennedy, a leading presidential candidate, were killed. The Vietnam war was raging with full force.53 The Black Panthers raised their fists on the winners stand at the Olympic Games in Mexico City. China was at the midst of the ferocious Great Proletarian Cultural Revolution. The Soviet bloc was not spared of turmoil in this year, either. In Poland, the Communist leadership initiated a hate campaign against intellectuals in general and Jews in particular. Polish students were protesting the same way as Mexican students somewhat later. Gomulka, the head of the Polish Communist party, once the hero of 1956, was gradually losing control. He hoped to regain the initiative by driving a wedge between the the workers and the intellectuals. But the most serious threat to existing socialism came from Czechoslovakia.54 The Prague Spring as it came to be know was suppressed by the joint military intervention of five states, members of the Warsaw Pact in August of that year. A new version of the Stalinist regime was imposed on Czechoslovakia which lasted until the so-called Velvet Revolution of 1989. Romania, the only member of the Warsaw Pact which did not participate in the military intervention, was sinking into a ferociously nationalistic version of neo-Stalinism. It seemed that all hope for any significant change in any socialist country was extinguished by Brezhnev, the general secretary of the Soviet Communist Party for a long time.

52 My own way of explaining to students of the Central European University ideology and praxis in

socialism. 53 The TeT-offensive in 1968 started on January 31 and constituted a significant turning point in the Vietnam war. “After Tet, there was no more conjecture that the war could be won swiftly or easily.” Bowden (2017), p. 519. 54 Although in some places superficial and wide of the mark, a sweeping description of historic events can be found in Kurlansky (2005). A precise explanation of the events in France in May, see Hobsbawm (2007), Chapter 26.

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But something remarkable survived the catastrophe almost unnoticed.55 It was the market oriented reform, the so-called New Economic Mechanism (NEM) in Hungary. This was the first and the only serious reform ever introduced and halfway survived until the very end in a Warsaw Pact and CMEA member state.56 “Actually, the official committee working on the preparation of the NEM was constituted in 1964 and the Hungarian Socialist Workers Party (MSZMP) approved a detailed program of the NEM already in 1966.”57 This timetable shows clearly that the Hungarian reform program had been in preparation long ago and it was sanctioned by the highest echelons of the ruling Communist party. As a consequence, it preceeded the Czechoslovak events. Its true origins could be traced back to the October, 1956, uprising and its immediate aftermath. But “the Prague Spring, starting in February, 1968, provided an unprecedented but ultimately very favorable international political context not so much for the introduction of the Hungarian NEM but much more for its survival.”58 I described the most important changes brought about by the NEM in my previous book.59 For the sake of better understanding, I summarize them here. 1. Mandatory central commands with physical targets of production and distribution for state-owned enterprises (SOEs) were abolished. 2. Central planning was refocused on selected macroeconomic variables. SOEs received specific targets only for productive investments. 3. Instead of physical targets, SOEs were subject to disaggregated regulation in financial form (mostly taxes and individualized, targeted subsidies). 4. An incipient and tightly regulated labor market was reestablished by free movement of working people and individual bargaining (within limits). 5. Consumer autonomy was largely restored within the confines of the small country. Forein trade remained a strictly enforced government monopoly. 6. Private sector was recognized in the constitution as a permanent feature of the socialist economy. While limitations remained, harrasment ceased to exist in small-scale agriculture, repair shops and personal services. 7. The internal convertibility of the Hungarian currency (HUF) increased. These reforms and many other steps were very significant and resulted in an hitherto unprecedented abundance of consumer goods appearing in the retail shops of Hungary. The living standard of the people in Hungary improved tremendously and became the object of envy for the citizens of other socialist countries. It is not for 55 It tells a lot that there is no one single word about the New Economic Mechanism (NEM) introduced in 1968 in Hungary in Kurlansky’s book (2005). 56 The significance and characteristics of the NEM can be best understood from the book of János Kornai (1992). A more comprehensive analysis of the NEM can be read in Antal (1985). (Available only in Hungarian). 57 Bokros (2013), p. 41, footnote 79. 58 Ibid., p. 41. 59 Ibid., pp. 42–43. By far the best and most comprehensive description and analysis can be found in Berend (2010).

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nothing that for twenty years (1968–1989) Hungary was called the most enjoyable barrack of the socialist camp. For ordinary citizens in everyday life, it succeeded to transform party communism into what was then called in the West “goulash communism.” Today, the NEM would raise the interest of a few historians only. But in reality, its significance is much wider. It shows something important about the alleged, but unproven superiority of socialism: reaching higher living standards required reforms and return to more market orientation. It is a remarkable historical experience undermining all claims for the superiority of the command economy. One of the most interesting features of the NEM was that it started to question many basic tenets of the Leninist-Stalinist ideology on the economy. No wonder that Hungarian party leaders and intellectuals, as well as socialist economist, tried desperately to show that market coordination was an indigenous and key characteristic of Marxist-Leninist socialism. They were in a comfortable position by being able to refer to an important Soviet historical antecedent: the NEP.60 The Hungarian NEM in 1968 was a reaction to events in 1956 at least in two ways. First, it was a vivid expression of the badly concealed fear of Hungarian communist leaders: were there no marked improvement in living standards, the hotheaded and rebellous Hungarians might repeat the uprising occured in 1956. Second, 1956 was the year of the twentieth congress of the Soviet party where Khrushchev, then party leader, denounced Stalinism in no ambiguous terms.61 Once Stalinism was discredited, the legitimacy of its rigid and inflexible economic management system, which exacerbated the harsh difficulties of everyday life, was significantly weakened, too. It appeared now permissible to question the sanctity of mandatory central planning while keeping state ownership intact. It was now possible to build an alternative ideological basis for socialism. László Szamuely, nephew of Tibor Szamuely, who was one of the commissars of the short-lived Hungarian Soviet Republic in 1919, wrote an extremely interesting book about the NEP.62 The Hungarian economist unmasked those who claimed that the Soviet NEP had already been in preparation as early as in 1918 (of course, it was Lenin who initiated it) and its introduction was postponed exclusively because of the civil war.63 Szamuely explained that “this attractive scheme must seem suspicious 60 NEP

stands for New Economic Policy (in Russian: novaia ekonomicheskaia politika, also NEP) initiated by Lenin and introduced by the Bolshevik party after the Tambov uprising, the strikes of the Petrograd workers and the mutiny of the sailors of the Baltic fleet in February, 1921 in Kronstadt. For the best description, see Avrich (1991). 61 The two historical events are, of course, intimately interrelated, both directly and indirectly. Without the twentieth congress of the Soviet Communist party, there could have been nothing what was termed a “thaw” in Soviet intellectual life. Without the thaw, there could have been no revolt of the Polish workers in Poznan. Without the Polish events, there might not have been a Hungarian uprising. In a dictatorial empire, there is always a chain reaction once people get the feeling that the power center is losing absolute control. 62 Szamuely (1979). 63 There is absolutely no proof for this claim other than Stalin’s speeches much later. He insisted on the legitimacy of the NEP while abandoning it completely. This was part of the power struggle within the party.

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even to those who are not familiar with Soviet economic literature but have some clue about historical events of that time.”64 He pointed out that the NEP was introduced not when the civil war seemed to have been ending—springtime of 1920—but one year later, when peace had already been achieved with victory against the White interventionist forces and Petrograd workers as well as Kronstadt sailors demanded the abolition of requisitioning.65 The NEP was accepted at the tenth congress of the Bolshevik party in early March, 1921, and Lenin called it a “retreat”66 a “concession to the peasantry.” Obviously, Lenin was obliged to use these terms also because many, if not most, of the members of the Bolshevik party were firmly convinced that socialism should be a moneyless, natural economy based on mandatory central planning. Moreover, using words like “retreat and concessions” for depicting market oriented reforms implied that the original and pure version of socialism would surely be restored in better days. We must not overemphasize what Lenin said about the nature of the NEP for two reasons. One is that his statements on this issue were far from being consistent.67 Whatever Lenin and other Bolshevik leaders might have said, do not, in itself, constitute a decisive argument. History of the NEP itself provides that argument. The NEP contained insoluble contradictions between policy and politics. When the clashes between policy and politics came to the fore, it was politics and ideology which came out victorious. I bring out two key elements of the NEP which could not be finally reconciled with Bolshevik politics and ideology. One was the role of the more affluent peasants (called quite disparagingly “kulaks”) in the progress toward socialism. Here, the main ideological supporter of the tolerant NEP policy was Bukharin.68 The other 64 Szamuely 65 Szamuely

(1979), p. 8. could not refer to Kronstadt, which was still a taboo at that time—it is my own

supplement. 66 As early as in 1918, “Lenin admitted that the failure to follow large-scale nationalization was a “retreat” from current party expectations (later, in 1921, he reacted similarly).” Lewin (1975), p. 74. Despite Lenin himself had used the epithet “state capitalism” to describe the transitional phase of socialism, he later considered reform leading back to state capitalism as retreat. 67 “Lenin had left behind, in his articles and speeches, a number of interpretations which were by no means consistent. (…) Lenin had been thinking of 1794, of the need to avoid Robespierre’s fate by timely retreat. He used the word ‘retreat’ repeatedly. In referring to war communism he used the parallel of Port Arthur, which had been unsuccessfully attacked by the Japanese at the beginning of the siege. They then withdrew, re-grouped their forces and resumed their assault more methodically, succeeding in the end. (…) On either of these two interpretations, NEP represented a highly undesirable retreat and logically the next step should be to re-group and to resume the advance in due course. Yet at other times Lenin hotly denied that NEP was undesirable.” Nove (1969), pp. 119–120. 68 “Bukharin was one of those who enthusiastically welcomed the policies of war communism not merely as emergency measures dictated by the needs of the civil war, but as milestones on the road from capitalism to socialism. This view was reflected in his major theoretical work of these years,The Economics of the Transition Period; and this, together with his popular textbooks The Program of the Communists and the ABC of Communism (the latter written jointly with Preobrazhensky) gave him a lasting reputation as the leading party theorist.” Carr (1970), p. 182. “Bukharin was not the only Bolshevik whose political views were in a state of disarray in the difficult period which

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was concerning the sources of what was termed by Preobrazhensky as the initial (primitive, original) accumulation of capital for industrialization. What we can call the kulak-contradiction was summarized eloquently by Nove. “Agricultural production recovered fairly rapidly but there was a persistent shortage of marketed produce, and towns could only be fed at the cost of drastic reduction in exports of grain. Yet urbanization called for a substantial increase in off-farm consumption of food and also for a large export surplus to pay for essential imports of capital goods. Could this problem be resolved within the traditional peasant methods of production? Was this not a bottleneck which would hold back the entire economic development of Russia? NEP was based on the so-called smychka with the peasants, the word implying a link, cooperation, harmony. Yet Lenin knew and said that a market-orientated private peasantry generated capitalism.”69 It became an extremely important political question. Should the Soviet government favor the most affluent, and arguably the more productive, stratum of private property holders at the expense of the urban workers, allegedly the ruling class in the new regime? In light of the attacks of the left-opposition to the NEP, this must have been a quite untenable position.70 Bukharin insisted that the smychka should be maintained by all means and there could be no use of force against the peasant. Requisitioning failed and, had it not been for the NEP, a peasant jacquerie, spreading like wildfire, would have destroyed Bolshevik power in 1921. The experience was not to be repeated. NEP was there to stay, at least for a generation, Bukharin insisted. Preobrazhensky not only underlined the kulak-contradiction, but came up with another important argument. Looking for potential sources of the initial capital accumulation, he “pointed out that there were no colonies to exploit and the peasants could not be expropriated, and yet the necessary socialist accumulation had to come somewhere. It would be necessary not only in order to finance industrialization, but also to expand the socialist sector of the economy at the expense of the private sector. Clearly, the necessary resources could not arise wholly or even mainly within the socialist sector of the economy. Apart from the fact that it was too small to bear the burden by itself, it was wrong and politically dangerous that the sacrifices should be borne by the working class employed by nationalized industries. Resources would therefore have to be obtained from the private sector. The bulk of the private sector were the peasants. Preobrazhensky saw that the necessary capital would not be provided followed the end of the civil war. Bukharin, like the majority of the party, hailed the introduction of NEP as an escape from the impasse, both in policy and in political thinking, into which war communism appeared to have led. But he was now divided from most of his former associates of the Left, notably Pyatakov and Preobrazhensky, who regarded NEP exclusively as a retreat and made no attempt to conceal their dislike of it.” Ibid., p. 183. 69 Nove (1969), p. 122. 70 Bukharin launched in April 1925 the slogan “get rich.” That was too much. “While at the period Stalin was in political alliance with Bukharin, and favoured tax concession to the more properous peasants, which were in fact accorded in 1925 (…), he declared that ‘The slogan “get rich” is not our slogan’. Bukharin was forced to withdraw the offending words and to admit that kulaks were an evil to be limited and squeezed.” Nove (1969), p. 123.

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by voluntary savings. The better-off peasants were very unlikely to lend sufficient money to the government, and the Nepmen in the cities naturally used whatever capital they possessed to make hay while the sun shone, realistically fearing that it might not shine for long. Resources would doubtless have to be obtained by taxation, but most of all through unequal exchange, by ‘exploitation’ of the private sector. The state should use its position as the supplier of the bulk of industrial goods, and as the foreign trade monopolist, to pump resources out of the private sector and so finance the state’s investments into the expanding socialist industrial sector.”71 Irrefutable logic. The NEP could not last too long. Thus, market reforms proved to be temporary retreats at the beginning of socialism, indeed. It was a frank admission of reality. But as time went by, and some small countries—first and foremost, Hungary—were experimenting with markets, it became imperative to find more plausible ideological foundations for these changes. The weakening and discreditation of Stalinism after the twentieth congress of the Soviet communist party offered a convenient opening to new thinking.72 Alternative concepts did already exist in Western socialist economic literature. As a result of accumulating practical evidence from Soviet experience about the shocking inefficiency, if not irrationality of the command economy, the idea of market socialism was gaining traction in the 1930s.73 The central element of these efforts was to restore consumer sovereignty and the labor market without giving up the primacy of state ownership in the means of production. (Private property, another concession, was considered permissible on the margin of the economy with strict limitations in employment and capital accumulation in order to exclude the reappearance of “capitalist exploitation.”)74 Hayek ridiculed the praise bestowed on the writings of Oscar Lange by his editor, who claimed that Lange provided “irrefutable arguments for the evident feasibility

71 Nove

(1969), pp. 125–126. first—according to his own description, “naive”—reformer who managed to paint a realistic picture on the workings of the socialist economic management system was János Kornai, the Hungarian economist, who later became famous for his comprehensive analysis of the socialist economic system. His groundbreaking book was written before the Hungarian revolution of 1956 but he managed to publish it in 1957. See Kornai (1959). 73 Hayek analyzed the concepts of Oscar Lange and Fred Taylor (1938) and H. D. Dickinson (1939) on “market socialism” in his third article about socialist calculation calling them “The Competitive Solution” (Hayek 1948), pp.181–208. This article was published originally in Economica in 1940. 74 The idea of market socialism was revived in the 1960s when two prominent economists from Central and Eastern Europe managed to publish remarkable writings on the issue again. Wlodzimierz Brus, a Pole, and Ota Sik, a Czech, tried to create a more solid foundation for an eventual harmonization of the plan and the market. Ironically, they were rather fortunate for having been deprived of the opportunity to test their models in practice. As a consequence, a final refutation of market socialism proved impossible. (Ota Sik produced an Action Program for the Central Commiteee of the Czechoslovak Communist Party, published in April, 1968. It was a much watered down version of what he originally envisaged. It mirrored very closely the characteristics of the Hungarian NEM. After the Warsaw Pact intervention in August, 1968, it was never implemented in Czechoslovakia.). 72 The

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and superiority” of the socialist system based on competition.75 That was clearly not the case and it could not have been. Why? Socialist writers, adherents and proponents of market socialism grudgingly and gradually accepted the most fundamental argument of Ludwig von Mises.76 By the mid1930s, it was already proven that without price signals in money terms formed in a competitive environment, socialism was going to be unworkable.77 In additon, it became increasingly evident to contemporary observers of existing socialism that the command economy was inefficient—creating huge shortages and much waste78 — intolerable in peacetime. This point is of crucial importance and has several implications. A command economy functioning on the basis of natural redistribution could be not only effective but even unavoidable in war. It is not for nothing that the first period of Soviet communism received the epithet “war communism.”79 This label reflected that the Bolshevik dictatorship inherited the management system of the war economy. In a sense, it was just a continuation of the harsh measures introduced during WWI. At the same time, it benefited from the original concept of socialism. War communism was a convenient reminder to the inconvenient fact that existing socialism was always and everywhere born out of war.80 This stubborn fact may plausibly explain why

75 Hayek

(1948), p. 184. Footnote 7. the leaders of socialist thought not only is the nature of the central problem more and more recognized but the force of the objections raised against the types of socialism, which in the past used to be considered as the most practicable, is also increasingly admitted.” Hayek (1948), p. 148. 77 Again, it must be remembered that Mises did not consider socialism impossible. Hayek emphasized that too. “much of the objections made at first were really more a quibbling about words caused by the fact that Mises had occasionally used the somewhat loose statement that socialism was “impossible,” while what he meant was that socialism made rational calculation impossible.” Hayek (1948), pp. 145–146. 78 The intrinsic interrelationship between shortage and waste was most eloquently described by Kornai (1980). 79 “Oscar Lange, the most prominent proponent of market socialism, labeled the Stalinist system war economy. He felt that war communism, while coherent, was sustainable only under extreme circumstances of either external threat or brutal internal repression. That was not considered a desirable alternative by him at all.” Bokros (2013), p. 29. Footnote 45. 80 There is no one single exception from this “rule.” The Soviet Union and socialist Mongolia originated from WWI followed by a cruel civil war. All Central and Eastern European “people’s democracies” emerged from the ashes of WWII, most of them occupied by the Red Army. Others, like Yugoslavia, Albania had their own communist-led liberation armies. The establishment of the People’s Republic of China in 1949 occured at the end of a bloody civil war, probably more devastating than the Russian between 1918 and 1920. Korea suffered from a proxy war between the Chinese and an American led international coalition from 1950 until 1953. (After the death of Stalin in March, 1953, the new Soviet leadership managed to persuade the Chinese communists that it was time to accept a draw in the carnage.) North Vietnam emerged as a communist state after French colonialism was defeated at Dien Bien Phu. Castro’s takeover in Cuba was the result of several years of guerilla insurgency. 76 “among

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a war-like command economy seemed so appropriate, even convenient, for both ideological and practical reasons.81 The history of market reforms reflects a curious, but markedly opposite trend: practical problems emerging at the time of heroic efforts in building socialism demanded the relaxation of some of the rigidities of the command system first. Then the Communist party felt the need to create some ideological legitimacy for them. Lange, Brus and Sik were wholly unknown in Hungary before the NEM; the names of Mises, Hayek and Popper even afterwards up until the next thaw starting with Gorbachev in the second half of the 1980s. In summary, we see two different trends: the idea of the command economy did possess powerful ideological underpinnings well before it was ever realized. Market reforms, in turn, were born out of the problems created by the orthodox application of the original blueprint of the command economy and gained some fragile ideological legitimacy only later. It had two major implications. One is that ex ante rationalization managed to get closer to the blueprint, spread easier and died hard. The other is that ex post rationalization always remained uncertain because market oriented reforms created new tensions, larger problems than the previous ones triggering changes in the first place. Moreover, they created and mobilized new forces which led to the implementation of the reforms not only in the economic sphere but also in politics, culture and society in general.82 The most important problem was that market reforms injected incoherence into the socialist system based on the command economy.83 As a consequence, they were rightly perceived as outright dangerous.84 This is an irrefutable lesson of Communist history and may explain why genuine reforms never took place in the Soviet Union proper before 1985. When Gorbachev started experimenting with market reforms,

81 “We must allow for the interaction of Bolshevik ideas with the desperate situation in which they found themselves. To take one example among many: rationing and the banning of private trade in foodstuffs were essential features of the period and came to be regarded as good in themselves. Yet both these measures were common enough among belligerent nations, and in fact, the Provisional Government had endeavoured somewhat inefficiently to do just these things… To put it another way: actions taken in abnormal circumstances for practical reasons are often clothed in ideological garb and are justified by reference to high principles.” Nove (1969), p. 47. 82 Even timid and partial liberalization leads to pluralizing pressures. See Brown (2009), Part Four, pp. 421–480. 83 See Kornai (1992). Concluding Remarks. “The inconsistency of reform efforts.” 84 “Going from bad to worse does not always mean a slide into revolution. More often than not, it occurs when a nation which has endured without complaint – almost without feeling them – the most burdensome laws, rejects them with violence the moment the weight of them lightens. The regime destroyed by a revolution is almost always better than the one that immediately preceded it and experience teaches us that the most hazardous moment for a bad government is normally when it is beginning to reform. Only a great genius can save a ruler who is setting out to relieve his subjects’ suffering after a long period of oppression. The evils, patiently endured as inevitable, seem unbearable as soon as the idea of escaping them is conceived. Then the removal of an abuse seems to cast a sharper light on those still left and makes people more painfully aware of them; the burden has become lighter, it is true, but the sensitivity more accute.” Tocqueville (2008), p. 175.

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the system quickly lost its equilibrium and disintegrated.85 The memory of the brutal suppression of the 1956 uprising, Soviet occupation and Brezhnev’s watchful eyes were enough for communism to stay put in Hungary.86 At the same time, Hungary’s geostrategic significance was negligible. But there was nothing to forestall even political disintegration once the command economy lost all its remaining efficiency and legitimacy in the very center of the Soviet empire.87 Therefore, in hindsight, one can only understand the conservative leaders in the Communist party of the Soviet Union who fiercely opposed any significant step of liberalization and market reforms. Andropov was right and the KGB clearly knew better. The classical Stalinist command economy could not prove its superiority over capitalism in practice, although it had time and several opportunities for that. Instead, it fell into a fatal trap. It promised higher growth, higher productivity, less waste, more efficiency and, finally, greater material abundance than any forms of capitalism. It could not deliver it because it was wholly undeliverable. And it was unable to escape from the trap because reform meant retreat and it would have destroyed its heart and mind. Reforms did take the heart out of it. After the collapse of Soviet communism, the last refuge for those who still believed in the superiority of communism was a complete, unreserved embrace of the market. Strange, it is true, but some scholars have sincerely attempted it. One of them is Julio Godio, an Argentinian economist, who initiated a rear-guard action to save the salvable. He subjected Marxism to a fundamental revision by claiming that it was a mistake to reject the market and conceive communism as a non-market economic and societal system. He praised Lenin & Co. for having introduced the NEP as the true and best embodiment of socialism.88 Likewise, he considered the Chinese reforms 85 “A totalitarian system, once its monolitic structure gets decomposed, can no longer stay static because it has little flexibility to absorb external shocks and no internal equilibrium point.” Bokros (2013), p. 53. 86 Even in such a situation, it was not easy for János Kádár, the leader of the Hungarian Communist party who was installed by Soviet bayonets right after the 1956 uprising, to appease Brezhnev and convince him to tolerate the NEM. He partially lost the battle in 1973 and there was a marked reversal of economic decentralization unleashed by the reforms of 1968. When the Hungarian economic situation deteriorated further and the Soviets were unable and unwilling to provide “brotherly assistance” in terms of financial subsidies, they had no choice but to allow Hungary’s accession to the IMF and the World Bank in 1982. See Berend (2010) and Mong (2012). 87 Archie Brown asked the “impertinent” question: “Why did Communism Last so Long?” See Brown (2009), Chapter 20, pp. 398–418. One of the most important reasons is that the Soviet Union itself never abandoned the command system either in the economy or in the political sphere and—so long it had the power—impeded any significant change in the most important European satellites, Poland, East Germany and Czechoslovakia, too. 88 This claim is clearly refuted by historical facts. War communism was considered by most Bolsheviks as the true embodiment of socialist economic and societal management rather than just a temporary exigency made necessary and unavoidable by the civil war. After the end of the civil war, at the eight congress of the Soviets in Moscow in December 1920, there were plans forwarded by Valerian Osinsky, leader of the left in the Bolshevik party, not only to retain food requisitioning, the inefficient measure of war communism and the most hated one by the peasants, but to supplement it with collectivization, a “compulsory mass organization of production.” Had it not been for Kronstand, the Bolshevik party might have pushed further in implementing the Marxian blueprint!

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of Deng Xiao-ping, initiated in 1979, as the next “metamorphosis” to return to a “genuine” form of socialism which, in order to preserve and enhance the particular Chinese civilization, would amalgamate confucianism and socialism.89 I have no intention analyzing this book or any other following similar reasoning because I am convinced that to call Russia and China today as the embodiment of market socialism is wide of the mark. An oligarchic system of state capitalism with a dictatorial or authoritarian superstructure cannot be a new and promising stage of evolution toward socialism. No matter how much one might sympathize with Putin and Xi Jin-ping and their “historical mission” of saving Russian and Chinese civilization in the age of “neoliberal globalization,” it would lead us back to the initial confusion about socialism—“true socialism is what we like best.” But market socialism has an important point even if it raises much controversy. The question of alleged superiority cannot be answered solely on the basis of economic efficiency. We need to look beyond productivity and consider the liveability and likeability of socialism. Will it offer more freedom and less alienation? Will it enhance democracy and create better opportunities? Will it require a strong state or a weak one? Will the state in socialism necessarily grow totalitarian or can we still hope that, at least one day, it is likely to wither away?

4.4 State and Socialism “What I demand from the state is protection; not only for myself, but for others, too. I demand protection for my own freedom and for other people’s. I do not wish to live at the mercy of anybody who has the larger fists or the bigger guns. In other words, I wish to be protected against the aggression from other men. I want the difference between aggression and defence to be recognized, and defence to be supported by the organized power of the state.” (Popper)90

“A party of opposition was bound above all things to attack the hated authoritarian state; only in this way could it win over the discontented. From this need of political arose the marxian doctrine of withering away of the state. The liberals had demanded the limitation of the authority of the state and the transfer of government to the representatives of the people; they demanded the free state. Marx and Engels tried to outbid them by unscrupulously adopting the anarchistic doctrine of the abolition of

89 See

Julio Godio (2011). His book is a curious mixture of avantgarde socialist thinking and a conservative stream which considers “civilizations” as the primary movers of history. No wonder that Godio refers many times to the book of Samuel Huntington, accepts the latter’s thesis about the clash of civilizations and conveniently projects it back to the twentieth century of communism. But Huntington and Hobsbawm, another important source of theory for Godio, make very strange bedfellows, indeed. The theoretical confusion cannot be made thicker. 90 Popper (2011), pp. 104–105.

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all state authority regardless of the fact that Socialism would not mean the abolition, but rather the unrestricted expansion of the power of the state.”91 The withering away of the state in communism as a convenient endpoint of history was probably the least logical and realistic conception of the founding fathers of Marxism.92 It clashes not only with the facts and the general direction of historical development but, more importantly, with their own prophecy. The concept of the dictatorship of the proletariat in Marx’s and Engels’ writings suggests broadening and deepening of the state after the victory of revolution. It was no help to interject that it was relevant only in the first phase of socialism when the name of the game was to suppress the bourgeoisie, the class enemy. Taking over of the economic function, sweeping nationalization of the means of production and its central management by the planning authorities meant a far reaching etatization of economic life. Interestingly, this was in conformity and in contradiction with Marxism at the same time. How can a state start marching into oblivion when it gains an enormously important new task, unprecedented in history, with immense consequences to its own size, scope and structure?93 Could anyone miss the point? Not only the magnitude but the direction of its evolution is the opposite. In addition, no place was left, or created, in Marxism for new, dynamic societal forces in socialism which would reverse this trend and lead to the final disappearance of the state.94 The most expressive and perhaps the most frequently quoted original text about the withering away of the state can be found in the famous polemic of Engels with the title “Anti-Dühring.” The relevant passage is the following: “As soon as there is no longer any class of society to be held in subjection; as soon as, along with class domination and the struggle for individual existence based on the former anarchy of production, the collisions and excesses arising from these have also been abolished, there is nothing more to be repressed and a special repressive force, a state, is no longer necessary. The first act in which the state really comes forward as the representative of society as a whole – the seizure of the means of production in the name of society – is at the same time its last independent act as 91 Mises

(2012), p. 241. theory of the withering away of the state is highly unrealistic, and I think that it may have been adopted by Marx and Engels mainly in order to take the wind out of their rivals’ sails. The rivals I have in mind are Bakunin and the anarchists; Marx did not like to see anyone else’s radicalism outdoing his own. Like Marx, they aimed at the overthrow of the existing social order, directing their attack, however, against the politico-legal, instead of the economic system. To them, the state was the fiend who had to be destroyed. Marx, from his own premises, might have easily granted the possibility that the institution of the state, under socialism, might have to fulfill new and indispensable functions; namely those functions of safeguarding justice and freedom allotted to it by the great theorists of democracy.” Popper (2011), pp. 691–692. Ch.18. Footnote 8. 93 “Only in the Russian sixth of the earth do we find an economic system where, in accordance with Marx”s prophecy, the means of production are owned by the state, whose political might however, shows, in opposition of Marx’s prophecy, no inclination to wither away.” Popper (2011), p. 350. 94 Furthermore, if there was to be no state, there would be no rule of law; no safeguards for justice and freedom as it was highlighted by Popper. 92 “The

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a state. The interference of a state power in social relations becomes superfluous in one sphere after another and then becomes dormant of itself. Government over persons is replaced by the administration of things and the direction of the processes of production. The state is not “abolished,” it withers away.”95 This formulation was offered as a direct challenge to anarchism which demanded the abolition of the state overnight.96 But that is beside the point. The texts written by Marx and Engels betrayed a reductionist concept of the state and in this respect they did not differ from the anarchist doctrine in substance. It was maintained by the founding fathers all along that the state was always the embodiment of class antagonism, pure and simple. It may have been, indeed. The problem is that they considered it, first and foremost, the instrument of class oppression and not much else. They never acknowledged that the bourgeois state—or any state for that matter— would discharge any function which would be in the interest of the society as a whole. That reflected a quite simplistic understanding of the nature and scope of the modern state and seemingly a great deal of ignorance about the true workings of public administration.97 More importantly, is it true that “giving direction to the processes of production” is just simple administration of things rather than part of government policy? Even if it was, which would be just a distortion of words, is it not true that both government and administration involve managing not only things but at the same time also people? Can any clear-cut distinction be made between things and people from the viewpoint of government and administration? In light of further events of hasty and desperate state building, Lenin might have come to regret that he wrote his book, State and Revolution,98 before he went into hiding after the botched Bolshevik takeover attempt in July, 1917.99 The timing of this allegedly theoretical work was especially bad: three months later the Bolsheviks gained governmental power. If anarchistic propaganda and irresponsible politics paid

95 Engels

(1878), p. 315.

96 Mises was mistaken: Marx and Engels were trying to outbid, first and foremost, the anarchists, not

the liberals. The explanation suggested by Popper seems to be much more plausible. See footnote 92. 97 This tragic ignorance was vividly reflected by Engels’ unsubstantiated claim that “government was over persons while administration was about things”. Government and administration are strongly interrelated and overlap. They by no means can be separated according to their objects, being allegedly completely different. 98 Lewin and Ryan absurdly claimed that Lenin’s “withering away of the state” concept was “libertarian.” But even Lewin considered it a “fallacy” and a “sedative that anesthetized the revolutionary Bolsheviks and made them build a Leviathan…” Lewin (1975), p. 82. The explanation is not very logical but the message is crystal clear. 99 “As Lenin travelled into the northern wilderness, it must have seemed to him that the Bolshevik cause was finished. Before leaving the capital, he had handed to Kamenev the manuscript of what was later to become The State and Revolution, with instruction for it to be published if he should be killed. Lenin was always prone to overestimate the physical danger to himself: in this respect he was something of a coward.” Figes (1996), p. 434.

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off in the battle against the Provisional Government, after their coup d’etat the Bolsheviks needed exactly the opposite: workable policies and effective administration if governance was to be successful.100 This change of heart and policy was further exacerbated by the misleading ideological conviction, coming from the Marxian imperative, that the bourgeois state had to be destroyed and dismantled first and then, only then, should the revolutionary government start building the proletarian state. And it did happen pretty much the way it was prescribed by Engels.101 The Bolshevik government abolished all regional and city dumas irrespective of their loyalty or hostility and cleansed all ministries and other state organs thoroughfully.102 Nevertheless, the leaders of the party soon realized that governing was more than enjoying power; in order to strengthen their supremacy, they needed a functioning civil service.103 Furthermore, when they nationalized not only large banks and manufacturing establishments but also artisan workshops, it became evident that the new government had to build up a much larger public administration than what had ever existed under the tsarist regime.104 The almost anarchistic fervor and zeal of the Bolsheviks demonstrated at the beginning in demolishing the tsarist state and building up new, even larger organs show clearly the strength of ideological determination in governance. But Lenin was above all a politician, not an ideologist. He was very pragmatic even in ideology. His ultimate goal was retaining Bolshevik power undivided. He made an u-turn and started building up a large, expansive state already in 1918. Exclusive Bolshevik power was, and remained, the strongest ideological tenet. Whatever contradicted it, had to go. 100 Under socialism, State and Revolution was never mentioned as one of the most significant works of Lenin, because it could have thrown a sharp light upon the striking contradiction between the Marxist-Leninist theory of the state and actual Bolshevik and Stalinist practice. 101 “From the outset, the Commune had to recognize that the working class, once attaining supremacy in the state, could not work with the old machinery of government; that this working class, if it was not to lose supremacy it had just won, must, on the one hand, abolish all the old oppressive machinery previously used against itself and, on the other hand, must safeguard itself against its own representatives and officials by declaring them all, without exception, to be removable at all times.” Engels (1891), pp. 23–24. 102 See Sect. 4.2, p. 96. 103 And they very much needed a non-civil service, a police force, a secret service, and an army, pretty soon. 104 “The expansion of the governmental bureaucracy is explainable first and foremost by the fact of the government taking over the management of institutions that before October had been in private hands. By eliminating private enterprise in banking and industry, by abolishing zemstvos and city councils, by dissolving all private associations, the government assumed liability for their functions, which, in turn, demanded a proportionate expansion of officialdom. (…) White-collar jobs multiplied in the various bureaus directing the Soviet economy at the very time that production was declining. While the number of workers employed in Russian industry dropped from 856,000 in 1913 to 807,000 in 1918, the number of white-collar employees rose from 58,000 to 78,000. (…) Overall, between 1917 and the middle of 1921, the number of government employees increased nearly fivefold, from 576,000 to 2.4 million. By then, the country had over twice as many bureaucrats as workers.” Pipes (1995), pp. 445–446.

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Apart from its history, the nature of the socialist state is hugely important. In this respect, the economy comes first. Again, we must depart from the two most important features of existing socialism: (i) collective ownership in the means of production and (ii) mandatory central planning. In classical Stalinist socialism, and even before that, under war communism between 1918 and 1921, collective ownership meant unequivocally state ownership.105 A state, entrusted with the management of the overwhelming majority of the means of production and with the central direction of all economic activities irrespective of property relations, is by its nature and by definition, very different from any other state previously known in the course of human history. How different? Very large and very bureacratic. Ultimately, yes, totalitarian.106 It could not have been otherwise. When it comes to the Soviet party-state, historical characteristics show strong ideological and practical determination. Managing a huge amount of physical property and directing the course of the whole economy was truly an unprecedented task—it had never been undertaken before in history. It created a Leviathan monster with a commensurate increase in economic and political responsibility for the state. It was a new state, indeed. Considering first the economy, it was interventionism in the extreme. It is important to make a fine distinction between interventionisms in societies based on sharply different property and societal structure. What matters is not so much the size of the state but its nature. Although quantity can be important, quality is more significant in defining the character and efficiency of the state. The role of the state in the capitalist economy was gradually, but markedly expanding in the last third of the nineteenth century as it was noticed by the socialists themselves.107 They greeted the advancement of monopolization and state intervention as clear signs of the sharpening of the contradictions of capitalism which would inevitably lead to socialism. Lenin labeled imperialism as the highest and final stage of capitalism.108 Polanyi largely agreed with them. He wrote the following important passage about socialism in his famous book: “Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to the industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society. From the point of view of the community 105 State

ownership is only one of the possible variations of collective ownership. Mises dealt with guild socialism, syndicalism, etc. See Mises (2012). The particular Yugoslav workers selfmanagement system was another form. Here, we will ignore these versions of socialism because they have very little ideological or historical relevance. 106 Arendt (1951), Friedrich (1964) and Friedrich and Brzezinski (1965). 107 Hilferding, Luxemburg, Lenin were already mentioned as observers and analysts of this important process. Émile Vandervelde, a Belgian socialist, also contributed with his book: L’Evolution industrielle et le collectivisme (1896). English translation: Collectivism and industrial evolution (1901). 108 Lenin (2011b).

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as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons… From the point of view of the economic system, it is, on the contrary, a radical departure from the immediate past, insofar as it breaks with the attempt to make private money gains the general incentive to productive activities, and does not acknowledge the right of private individuals to dispose of the main instruments of production.”109 Polanyi understood that the socialist state would be very different from the capitalist one because of the marked distinction in their ownership structure. At the same time, he seems to have shared the customary Social Democratic illusion that whatever mechanism would replace the market in coordinating economic activity, it could be done in a democratic setting in a free society. It never occured to him that in order to replace the market, central planning should be mandatory because hugely complex issues of production, distribution and consumption cannot be decided in a people’s agora by democratic voting. (Subordination of markets does not help, in case of collision between plan and market one of them must prevail.) When central planning becomes comprehensive and mandatory, it can no longer be democratic. Economic interventionism in the extreme kills freedom of choice in all areas of economic life. And that has huge implications to the scope of nature of political democracy, too.110 Mises had an equally significant message: interventionism was a dangerous instrument; a double-edged sword. Pushed into the extreme, like in socialism, it would empty out private property as well. “Socialism or communism is that organization of society in which property – the power of deploying all the means of production is vested in society, i.e., in the state, as the social apparatus of compulsion and coercion. For a society to be judged as socialist, it is of no consequence whether the social dividend is distributed equally or according to some other principle. Neither is it of decisive significance whether socialism is brought about by a formal transfer of the ownership of all the means of production to the state, the social apparatus of compulsion and coercion, or whether the private owners retain their property in name and the socialization consists in the fact that that all these “owners” are entitled to employ the means of production left in their hands only according to the instructions issued by the state. If the government decides what is to be produced and how, and to whom it is to be sold, and at what ‘price,’ then private property still exists in name only; in reality, all property is already socialized, for the mainspring of economic activity is no longer profit-seeking on the part of the entrepreneurs and capitalists, but the necessity of fulfilling an imposed duty and of obeying commands.”111 What matters is not the formal ownership rights but the use and disposal of assets in possession. “Ownership is power of disposal” declared Mises.112

109 Polanyi

(2001), p. 242. will be analyzed in Sect. 4.6. 111 Mises (1985), p. 39. 112 Mises (2012), p. 56. 110 That

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The question in capitalism is not whether state intervention is to be tolerated at all, but how much freedom in the power of disposal is to be preserved for private property, the basis of the capitalist market economy, to remain relevant. What is the inflection point in interventionism? Where is the borderline between necessary, perhaps even beneficial and unnecessary, even harmful intervention? What amount and what type of intervention is to be tolerated or promoted? How can we make a distinction between the two?113 The inflection point can be detected in the concept and reality of competition. No matter how much and what kind of intervention is to be applied in the capitalist market economy, so long as competition prevails, so long as there is consumer choice, so long as producers can compete with each other for the benefit and satisfaction of the consumer, the market economy is preserved. Why is that important from the viewpoint of analyzing the scope and nature of the state? Because for competition to prevail, we need state intervention. “The liberal argument is in favor of making the best possible use of competition as a means of coordinating human efforts, not an argument for leaving things just as they are. It is based on the conviction that where effective competition can be created, it is a better way of guiding individual efforts than any other. It does not deny, but even emphasizes, that, in order that competition should work beneficially, a carefully thought-out legal framework is required… Nor does it deny that where it is impossible to create the conditions necessary to make competition effective, we must resort to other methods of guiding economic activity. Economic liberalism is opposed, however, to competition being supplanted by inferior methods of coordinating individual efforts. And it regards competition as superior not only because it is in most circumstances the most efficient method known, but even more because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority.”114 There are at least three discernible implications here. First, the state is not the enemy, not even the antithesis of the market, as many socialists would claim even today, but it is an absolutely indispensable condition for a market economy. It is absolutely false to believe that the sum of market freedom and intervention would be constant and one would increase always at the expense of the other. What matters, again, is not just the quantity, but more importantly, the quality of the state. Second, competition is no panacea. There are many areas of economic, social and cultural life, where competition is not practicable and, therefore, not applicable. Third, wherever competition is practicable, that is to say, it can be made work properly, it should be

113 These

are absolutely relevant questions even today and not only because populist nationalism or socialism keep threatening the capitalist market economy time and again. It is in the interest of capitalism itself to redefine this shifting borderline and derive from it practicable public policy proposals. As there is no end to the fight for freedom and democracy, there can be no end to the struggle for the improvement of the market economy. 114 Hayek (1944), p. 27.

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allowed to function because it is the most effective and efficient method of coordination of individual economic activities without the coercion or arbitrary intervention of political power. For economic competition to function properly, it requires the rule of law. In order to provide an adequate framework for the competitive market economy, the state should be based on the rule of the law. It should be a Rechtsstaat.115 Why is it important? Because socialism never claimed to build a Rechtsstaat. Instead, it proudly declared that its state was the dictatorship of the proletariat. The socialist state always upheld the unmitigated primacy of politics over all other spheres of societal existence, including law and justice. Politics in a party-state was always arbitrary politics, driven not only by long-term strategic, but, more often than not, by short-term tactical considerations. Arbitrary politics may have lived together with and may have found expression in, laws and regulations, but these laws and regulations were there to serve the interests of arbitrary politics. In socialism, law and justice was a maid serving politics; ancilla politicae. Arbitrary politics in socialism was unconstrained politics. Even if a seemingly benevolent dictator tried to limit political intervention into economic, social or cultural life, the very fact that the state was omnipotent made it omnipresent. There was no guarantee for the safety and security, for the inviolability of the private sphere of existence. In principle, the state could intervene whenever and wherever it decided. In principle, the state was unlimited. The threat of arbitrary intervention was, by and large, sufficient to compel submissive behavior. The absence of the rule of law in socialism excluded not only political competition but economic competition even after certain market oriented reforms had been introduced. Consumers might have competed with each other for scarce consumer goods; employees might have competed for the best jobs. But there was no competition among state-owned enterprises (SOEs) for the benefit and satisfaction of the consumers. There was no supply-side adjustment. The quality and scope of intervention has a major implication on freedom. Intervention can either enhance and guarantee or restrict and kill freedom.116 The state is an indispensable at the same time dangerous instrument for society to protect freedom because freedom must be defended against the state, too. It is where the quality, i.e., the size, scope and structure of the state becomes clear.

115 The German formulae is perhaps a more eloquent expression of the substance, because it contains

the word “state.” It shows one of the most important elements of the idea: the state should also be restricted by the law. 116 “Liberalism and state-interference are not opposed to each other. On the contrary, any kind of freedom is clearly impossible unless it is guaranteed by the state. A certain amount of state control in education, for example, is necessary… But too much state control in education is a fatal danger to freedom, since it must lead to indoctrination. As already indicated, the important and difficult question of the limitation of freedom cannot be solved by a cut and dried formula. And the fact that there will always be borderline cases must be welcomed, for without the stimulus of political problems and political struggles of this kind, the citizens’ readiness to fight for their freedom would soon disappear, and with it, their freedom.” Popper (2011), p. 106.

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No better description of the fine line between the protection of freedom and its restriction can be found than that of Popper who used the example of state intervention into education, one of the key areas of public services at all times. “As far as basic principles are concerned, we have here an instance of deeply rooted prejudice that the only alternative to laissez-faire is full state responsibility. I certainly believe that it is the reponsibility of the state to see that its citizens are given an education enabling them to participate in the life of the community, and to make use of the opportunity to develop their special interests and gifts; and the state should certainly also see that the lack of individual’s capacity to pay should not debar him from higher studies. This, I believe, belongs to the state’s protective functions. To say, however, that ‘the future of the state depends on the younger generation, and that it is therefore madness to allow the minds of children to be molded by individual taste,’ appears to me to open wide the door to totalitarianism. State interests must not be lightly invoked to defend measures which may endanger the most precious of all forms of freedom, namely, intellectual freedom. And although I do not advocate ‘laissez-faire with regards to teachers and schoolmasters,’ I believe that this policy is infinitely superior to an authoritative policy that gives officers of the state full power to mold minds, and to control the teaching of science, thereby backing the dubious authority of the expert by that of the state, ruining science by the customary practice of teaching it as an authoritative doctrine, and destroying the scientific spirit of inquiry – the spirit of the search for truth, as opposed to the belief in its possession.”117 The consequences of extreme socialist interventionism of the state ought to have been clear to everybody who wanted to see it well before WWII. One of the most sharp-eyed intellectuals of the Hungarian émigré community, the former minister of nationalities in the government of Michael Károlyi at the end of 1918, Oscar Jászi, wrote the following extremely eloquent passage in an article published in the Hungarian periodical “Századunk” (Our Century) as early as in 1937: “The hypertrophy of bureaucracy is an unavoidable consequence of all extensive planning economies, of all socialist-communist arrangements. All serious thinkers who were dealing with the final problems of collectivism, identified bureaucracy as the biggest and most fatal menace of all possible versions of state socialism. It is clear that the law of demand and supply, free price formation, individual competition and initiative, the economic order based on the personal plan of millions cannot be eliminated in any way other than the ever broader activity and ever larger power of state bureaucracy. In other words, in a communist world order, the state not only cannot “die out” but it will necessarily develop with even stronger virulence and not only in the area of economic but also in intellectual life. The beautiful dream of Kautsky: “Full state control in the economic space, complete anarchy in the intellectual space”

117 Popper

(2011), p. 124. A perfect description of the situation of Hungary in 2020. In a decade of unrestricted power, the Orban government centralized all public schooling, destroyed academic freedom, chased away an American private university (CEU) and severely curtailed the autonomy of the Hungarian Academy of Sciences.

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– is obviously an empty utopia because in communism the natural motives of individual interest need to be replaced by the ideology of a new religion against which the communist state cannot tolerate any criticism or contrary opinion.”118

4.5 Money and Market “Nineteenth century civilization rested on four institutions. The first was the balance of power system… The second was the international gold standard… The third was the self-regulating market… The fourth was the liberal state… Of these institutions the gold standard was crucial; its fall was the proximate cause of the catastrophe.” (Polanyi)119

Whenever I try to explain the essence of money to my students or to a wider audience in a public lecture, I frequently start my explanation by the following. Money is not a noun; it is an adjective. The proper noun would be “moneyness.” The reason for it is that money is an attribute to different objects which they possess in different degrees. Many things can serve as money to a certain extent under certain circumstances. The question is whether a certain group of people would accept the object in question for settlement of present or past obligations that would depend on the degree of its acceptability in a predetermined circle of society, which, in turn, would depend on the stability of its value, which goes back to its acceptability. In a sense, it is a circle: people accept something as money so long as other people accept it. This is what lends value to the object.120 Apart from brief periods of almost complete natural redistribution, socialist economies always had some kind of official money issued by the government. The Bolsheviks had the clear intention to abolish money during war communism very much in accordance with Marxist ideology.121 They achieved partial success. Gold and jewelery quickly acquired functions of substitute money in territories controlled by the Red Army while old tsarist money and newly issued “white” monies were in 118 Jászi (1937). This article, entitled “The Revolution Betrayed” was a sharp-eyed rebuke to Trotsky

who published his famous book with the same title in the same year. Jászi proved that Trotsky’s analysis of Stalinism was very shallow and did not grasp the real causes of what was termed a “deviation” from Marxism-Leninism. Jászi showed very clearly that the root of the problem could be found precisely in inherent contradictions of orthodox Marxism. 119 Polanyi (2001), p. 3. 120 The theoretical literature on money is immense. Since this is not a treatise on money, I will make references only to those works which fall into the scope of my interest: money in socialism. Mises, Scumpeter, Polanyi and Hayek made important statements on the role of money in socialist commonwealth. Popper paid little attention. 121 “Centralization, abolition of the monetary system, and planning were largely accepted by all Bolsheviks as sine qua nonprinciples of socialist economic organization.” Lewin (1973), p. 80.

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circulation in vast territories under the control of foreign and Russian interventionist forces. Using a modern word: hard currency was available almost always and everywhere, although its use and possession was often declared illegal by the communist authorities.122 That shows at least two things. On the one hand, the Bolsheviks hated competition and persecuted everything which they could not overtake and control. On the other hand, they did not really understand money and its role in the modern, increasingly industrial economy. They did not recognize that, unless they extinguished markets completely, that is to say, producer autonomy as well as consumer sovereignty in all aspects, there was a clear need for a medium of exchange and a medium of payments. The disorganization of the economy before and during the civil war, widespread social disturbances, peasant revolts, workers’ strikes and the sailors’ mutiny in Kronstadt after its successful ending, necessitated the first wholesale withdrawal from ideologically motivated communist policies and a clear retreat into what in 1918 had already been termed state capitalism.123 “The New Economic Policy was a surprising negation and complete reversal of the ‘war communism’ policies. At the moment of its introduction, it was certainly not intended to be a comprehensive turnabout. The first steps, the cessation of food requisition from peasants and its replacement by a regular tax in kind, were intended to avoid a fatal break with the peasants and to prevent an incipient jacquerie. But this first move triggered the rest and led to a remarkable volte-face, which astonished the world as well as the Bolsheviks.”124 When the NEP was introduced in March, 1921, private property was partially restored and gradually allowed to spread into large parts of the Soviet economy. By the same token trade was also freed. The most important market which required solid money was the exchange between industry and agriculture, between city and village. Since the peasants were permitted to sell their surplus, i.e., output net of taxes and own consumption, in open markets, there was a need for a more reliable medium of exchange. No wonder that, once the NEP was rolled out, the authorities were obliged to undertake monetary stabilization with currency reform. Given the 122 Gerschenkron

(1962), Nove (1969).

123 “A catastrophic decline in industrial production,

due in part to the destruction of plant, in part to the disorganization of labor, in part to the cumbrous system of centralized administration represented by the glavki, had been followed by a virtual breakdown of state or state-controlled distribution of commodities at fixed prices and a wild currency inflation; and this in turn had prompted the refusal of the peasant, in face of a goods famine and a worthless currency, to deliver necessary supplies to the towns, so that the population was progressively drained away from the industrial centres and industrial production was brought still nearer to a standstill. The antidote, familiarly known to history as NEP, was also a series of measures not conceived at a single stroke, but growing gradually out of one another. (…) The essential feature of NEP was the negation or reversal of the policies of war communism. Everyone, once the first shock of surprise was over, accepted NEP as a necessity. But it was accepted by some willingly, by others with uneasy conscience; and the justification of NEP was a theme of prolonged argument reaching back to the beginnings of the régime and pointing forward to the economic controversies of the future.” Carr (1966), Volume Two, Chapter 18, pp. 271–272. 124 Lewin (1975), p. 84.

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complete disarray of the economy exacerbated by widespread famine, loss of output, huge shortages resulting in hyperinflation, monetary stability was advancing only in steps and achieved only in 1924.125 The existence of official money in the socialist economy at almost all times gave rise to several misunderstandings. Some considered the presence of money and prices a clear proof of the socialist economy being fundamentally a market economy albeit distorted and imbalanced. Others, even less realistically, felt that market and money played as important role as central planning; hence, they called the socialist system, as well as the increasingly planned Western market economy a mixed economy. This latter name gave rise to the illusion of convergence, first in the 1960s but later also in the 1970s especially after the Helsinki accord (1975) resulting in some political and more military détente.126 Although at the time of the NEP state planning was still at an incipient stage, the Bolshevik party made sure that the primacy of politics was duly preserved. It is important to remember that exactly when the NEP was gradually rolled out, the leadership of the Communist party tightened its grip not only on society at large but, even more importantly, on the party itself. At the proposal of Lenin, the tenth party congress forbade the formation of “factions” within the party.127 Following the liquidation of the Menshevik and SR parties after the suppression of the sailors’ revolt in Kronstadt, the democratic part of centralism was finally jettisoned in the ruling party. It had a major repercussion on the development of the state and, obviously, 125 “The logic of the NEP required… a stable currency. Meanwhile the rouble continued to depreciate

with startling rapidity. The virtual abandonment of price control, under conditions of the most accute scarcity, gave a new twist to the inflationary spiral. During the war communism period… many a Bolshevik leader accepted the proposition that it was possible, or soon would be, to do without money. Now the word ‘money’ could be used again, instead of such evasive abbreviations as sovznak (‘Soviet token’). It was one thing to desire currency stabilization, however, and another to achieve it.” Nove (1969), p. 90. 126 “Decentralization in the Soviet-type economies involves not a return to the market but a shift of some planning functions from the state to the firm. This reflects, in turn, the need of the technostructure of the Soviet firm to have more of the instruments for successful operation under its own authority. It thus contributes to its autonomy. There is no tendency for the Soviet and the Western systems to converge by the return of the former to the market. Both have outgrown that. There is measurable convergence to the same form of planning.” Galbraith (1968), p. 119. 127 The significance of this move cannot be overestimated. The immediate cause of the prohibition of factions was the threat constituted by the so-called Workers’ Opposition which was unceremoniously labeled by Lenin as “syndicalist and anarchist deviation” in the Communist party. “…the Workers’ Opposition, for the first and, as it turned out, the last time confronted the Party with a fundamental choice. The Party, whose base of support among the population at large had dwindled to a wafer-thin layer, now faced a rebellion in its own ranks from the workers, its putative masters. It could either acknowledge this fact and retire, or else ignore it and stay in power. In the latter event, it would have no choice but to introduce into the party the same dictatorial methods it employed in running the country. Lenin chose the second alternative, and he did so with the hearty support of his associates, including Trotsky and Bukharin, who later, when the methods were turned against them, would pose as tribunes of the people and champions of democracy. In taking this fateful step, he ensured the hegemony of the central apparatus over the rank and file; and since Stalin was about to become the unchallenged master of the central apparatus, he ensured Stalin’s ascendancy.” Pipes (1995), pp. 454–455.

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on its way of directing the economy. Although the retreat of state owneship and the abandonment of prodrazverstka allowed more market freedom and liberty for the peasants, small artisans and the consumers, the tightening of the screws in politics foreshadowed the gradual evolution of an omnipotent and omnipresent, that is to say, unlimited state which could at any time take back any concession which was considered as a provisional retreat.128 In such a situation, the kind of market which was generously “permitted” in the randomly opened and closed pores of a pervasive state, irrespective of its actual scope of activity tolerated at a particular moment, was a very much weakened and distorted market. This market was unable to integrate the economy. It could not give it stability and any direction. But this economy, fully dependent on, and totally subordinated to, politics was perfectly suitable to the Communist party.129 The partial restoration of official money was also a painful, stop–go exercise. As it was customary in Bolshevik practice, ignorance was cloaked with arrogance. Nothing can demonstrate the situation better than a quotation from E. H. Carr: “The New Economic Policy was launched without any thought of its financial implications. The original project of barter in local markets seemed to offer nothing incompatible with the movement toward a moneyless economy or with the long continued process of monetary inflation. Only Preobrazhensky, who had so often hymned the virtues of inflation, had some inkling of what would happen. His speech at the tenth party congress which adopted the NEP was a mixture of penetrating common sense and far-fetched fantasy. He warned the congress that it was’impossible to trade with a ruble rate which fluctuates on the market not only in the course of days, but in the course of hours’; but the only concrete solution which he offered was a new currency based on silver. (…) The lesson would be learned not from theory but from experience; and the moment was not yet ripe. It occured to nobody to foresee a return to orthodox banking to finance industry, or to orthodox fiscal policy of balanced budget to be achieved through the drastic curtailment of government spending. These conclusions were all reached in a piecemeal and roundabout way from the initial premise that the peasant was to be at liberty to trade his surpluses of agricultural produce for the goods which he might require. The course of financial policy under NEP provides

128 To

complicate matters further, the official line of the party as emulated by Lenin was highly controversial and totally confusing. “Lenin had difficulties in explaining to the party and to himself the overall strategy, and for this, he was deeply embarrassed. Once he admitted retreat, he was asked, “For how long?” His answers were contradictory. In October 1921, he expected that “the retreat (would) soon end” with the resumption of “the offensive,” and in March 1922 he, in fact, announced that “the retreat ended.” (…) Then, in the same speech, he argued that that there was no other way to socialism but the NEP. But in November 1922, he confessed: “we are retreating once more for a new regrouping,” but candidly acknowledged: “we do not know yet how to regroup.” Lewin (1975), p. 86. Remember: this is a sympathetic description of what transpired! 129 “Despite official claims, the formally parallel but in reality superimposed state-party structure was not there to eliminate distortions created by human fallibility. Quite the contrary: it had a function to create distortions in order to justify its apparent role in correcting them.” Bokros (2013), p. 17.

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an excellent illustration of the necessary interrelation of parts in a single economic structure.”130 “All these questions forced themselves piecemeal in the summer of 1921 on leaders who were still unwilling to draw financial conclusions from the NEP, and isolated steps were taken in response to particular emergencies and without any coherent plan. The approach to the budgetary issues came from both sides. Under war communism, the very notion of a budget had been allowed to lapse. Budget figures had been drawn up for the second half of 1919 and for 1920, but had never received formal approval. The incorporation of the balance sheet of industry in the state budget put an end to the conception of specifically government revenue and expenditure; and the draft decree of February 3, 1921 abolishing all monetary taxation would, if it had come into effect, have been a logical part of the advance toward a natural economy. Now under the NEP, all this was reversed. The unloading of industry from the state budget started in July and August 1921, when leasing of enterprises began and enterprises retained by the state were instructed to pass over to khozraschet.131 A tax on industry, comprising a licensing fee, varying with the number of workers employed, as well as a tax on turnover, was introduced in July 1921. A few weeks later a decree of Sovnarkom laid down the sweeping principle that all goods and services supplied by the state or state organs must be paid for in cash. Then, August 21, 1921, Sovnarkom restored the principle of the state budget.”132 From this extremely rich description of Carr, one can understand what the most important features of a natural (moneyless) economy were and what it really meant to retreat from it toward a partial restoration of money and markets. Several crucial inferences can be deducted from the two long quotations above. First, in the natural economy under war communism, there were no individual enterprises but the whole national economy was operating as if it was a single enterprise. In such a situation, it can be seriously misleading to call state-owned factories and workshops enterprises; they were just separate units of production (workshops) subject to unconstrained intervention by the government. Second, even after the introduction of the NEP, most “enterprises” remained not only state-owned but an integral part of the state. They did not have their own assets; these belonged directly to the state. But if units of production had no assets, then they could not own liabilities either. As a result, their balance sheet did not represent limited liability. State-owned enterprises—as it became clear later under the classical

130 Carr

(1966), Volume Two, Chapter 19, p. 343.

131 According to Carr, khozraschet means “precise economic accounting” (Khoziaistvennyi raschet

in Russian). See Carr (1966), p. 303. In reality, it meant the adoption of the enterprise form which is separated from the state budget and the obligation to prepare a stand-alone profit and loss account in order to show viability, if not profitability. Khozraschet implied some autonomy and responsibility but by no means independence. For a state-owned enterprise (SOE) that would have been an oxymoron. The best original description of the system of khozraschet as it worked in practice in the Soviet Union can be found in Dementsev and Vinokur (1971). 132 Carr 1966), p. 345.

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Stalinist system—were always operating under the principle of unlimited liability of the state.133 Third, the state had no separate budget in the natural economy. There were no monetary revenues and outlays but confiscation and redistribution in kind. Obviously, there were no taxes, even taxes in kind. There was no need for fiscality and no reason to have one because everything belonged to the state anyway. Obvioulsy, in these circumstances, there was no need for money either, because all product exchange was mandated by the state. No surprise, that the Bolsheviks could make a push toward the moneyless economy during war communism.134 Fourth, after tremendous amount of hesitation and gradual evolution, the NEP achieved the formal separation of enterprises from the fiscal sector. On the surface, the introduction of taxes can be considered as something indicating the real degree of separation. But even that should be taken with a pinch of salt. Taxes were introduced but they were individualized by the random definition of the tax base and an arbitrary application of a myriad different tax rates. In addition, taxes were softened and coupled with subsidies. More often than not, subsidies were tailored for the needs of individual enterprises and resulted in negative taxation. Taxes in agriculture remained in kind. Taxes on small-scale private enterprises in industry and personal services were kept prohibitively high—deliberately preventing any expansion by the accumulation of capital.135 Fifth, fiscal prudence and responsibility remained an anathema even during the NEP. There was no independent economic consideration of deficit and debt. Deficits kept being monetized by printing money. There was no autonomous, let alone independent, central bank; although the new State Bank (Gosbank) was established on November 16, 1921. It was not a classical central bank above a network of commercial banks but a monopoly in an one-tier banking system. It functioned as a de facto department of Narkomfin, the People’s Commissariat of Finances. No surprise that inflation remained high and unpredictable and the value of the ruble unstable. The subordination of monetary affairs to fiscal considerations was conveniently retained and even strengthened by mandatory central planning later in the Stalinist economy.136 Sixth, although money was partially restored for five years (basically between 1924 and 1929) it remained inconvertible even in the internal Soviet economy.137 State-owned units of production had preferential access to scarce resources outside the partially reopened channels of the market pretty much the same way as privileged citizens gained preferential access to scarce consumer goods. The stratification of society according to the degree of access to quality goods and services, which was 133 Bokros

(2013), pp. 31–32. (1975), pp. 77–78. 135 Bokros (2013), p. 33. 136 Carr (1966). 137 Of course, external convertibility was practically nonexistent because the government maintained an exclusive monopoly in foreign trade and citizens were allowed to travel abroad very rarely and only by special permission. 134 Lewin

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determined on the basis of political importance, solidified over time and remained a permanent feature of Soviet society until the very end of its existence.138 Hence, the official currency possessed peculiar characteristics of moneyness at a very low grade, indeed. Why this story is relevant? The history of Soviet money helps us tremendously to understand the essence of modern market-conditioned money even today. The huge differences between money under command and market economy conditions reveal clearly that socialist money always remained severely curtailed in its functions, reflecting faithfully the administrative-bureaucratic nature of the command economy environment. Thus, it can be regarded a form not without any substance, but a form with much less substance than modern market money. It was something which could be called lame money, paralyzed and crippled, maimed and mutilated, seriously restricted in performing moneyness and demonstrating the characteristics thereof. Official Soviet and socialist money showed the customary features of moneyness always in a truncated, limited degree compared to full-fledged monies typical in free market economies.139 It served, first and foremost, as a facade to conceal the fundamental hostility of socialism to markets and a convenient instrument to provide a palliating illusion of freedom of some choice within officially defined narrow constrains. Finally, moneyness can be best understood by the most important concise characteristic of money: convertibility, both in its internal and external forms.140 National currencies of the Soviet block were generally considered soft currencies compared to the hard currencies of Western countries. But not all of the Eastern block currencies were equally soft; some of them were harder than the others. For example, the Yugoslav dinar was always harder than the Hungarian forint, while the latter proved usually harder than the Romanian leu. In addition, the degree of softness or hardness of the same currency could change over time basically reflecting variations in the quality and scope of consumer goods which were available in exchange of them. Except for the Yugoslav dinar, all other socialist currencies were strictly rationed for private individuals even if they were permitted to travel abroad at all. State monopoly

138 Bokros

(2013), p. 34.

139 Even market economies are not the same; they contain moneyness in different degree depending

on the degree of freedom prevalent in the specific economy in question. convertibility means how much and what kind of merchandise can be bought in the domestic market by diffierent types of economic agents. If everybody can buy everything in unlimited quantities, then the official currency is internally convertible. External convertibility means how much and what kind of foreign exchange is made available to different groups of economic agents not only in the domestic economy but also in abroad. If everybody—entrepreneurs and physical persons alike—can purchase unlimited quantity of foreign currency, take it out of the country without any restriction, can use it for buying all types of foreign goods and services, or hold it in domestic bank deposits without the obligation to surrender it to the authorities, and at the same time, foreigners can buy any amount of domestic money and assets, then the official currency is externally convertible. IMF terminology would make a difference between current account and capital account convertibility that reflects the distinction between current and capital transactions referred to above.

140 Internal

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on foreign trade, again with the exception of Yugoslavia, always remained a strictly enforced institution. The hostility of existing socialism to markets was also reflected in the almost always prevalent intention, ambition, if not reality, of economic autarchy. This was another expression of the fundamental aspiration of controlling everything. Communists always understood better than many Westerners that market was equal to freedom, money was equal to freedom of choice. Their visceral hostility toward freedom in the economy manifested itself in the command system at home and the isolation they imposed on the country in name of autarchy. When the Soviet empire expanded hugely after WWII, this ambition remained unchanged. It just received a larger territorial basis. It is important to remember that “the classical Stalinist model was geared toward creating an alternative, non-market type world economy. It did not compete with the Western world market economy by integrating into it, as the Chinese one since 1979, but was anxious to isolate itself from it. Economic and cultural ties with the West were kept at a bare minimum, scientific and technological contacts reduced to the import requirements of Soviet industrialization. Information exchange of any kind was very closely controlled, personal contacts were mostly forbidden.141 Peoples of the Soviet world were deliberately kept in the dark regarding the true realities of the outside, first and foremost, Western world. External demonstrational impact was largely eliminated.”142 The ambition to isolation and creating an alternative world economy, instead of integrating into the world market economy, was key in keeping real socialism intact and alive. Once the decision was made to open up the economy, it was impossible to isolate other spheres completely. Once the aspiration of competing with the West on its own turf was accepted, the command economy proved to be inadequate. In fact, socialism was no longer viable.143 Polanyi recognized the importance of solid, stable and strong money not only in the national (domestic) economy but in the world market economy, as well. He 141 Access to information from, and travel to, abroad—including to brotherly communist countries—

was offered as a privilege or reward for exceptional achievements. Despite guarantees written into the constitution, there was nothing which could be had on the basis of acquired civic or human rights. 142 “In the Soviet Union, which was an enormous geographical unit, even the internal movement of people was typically restricted by the system of internal passports, frequent road checks by both the military and traffic police. Luggage was routinely searched, people interrogated. Tickets for trains and flights were largely made available only for those who could produce a “legitimate reason” for traveling. The control on the movement of the people was effectively used as a way of unlimited intrusion into private life. Stalinism tried to take over and nationalize hitherto private spheres of existence as well.” Bokros (2013), p. 35, footnote 63. 143 That is yet another reason why China today can no longer be regarded as a socialist country even though it has preserved, and lately even strengthened, some of the command features of state capitalism. The very fact that the private sector now plays an immensely important role in production, export, consumption, employment and overall well-being of the people, excludes China from any workable definition of socialism despite claims to the contrary by the Chinese Communist Party. The People’s Republic of China has successfully metamorphosed into a fundamentally market-driven economy framed by an almost classical nationalist-populist authoritarian regime with imperialist aspirations. See Chua (2009) and Kroeber (2016).

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knew that without such a medium of exchange and payment, capitalism as an open economy was doomed to fail. He grasped the enormity of the challenge represented by the Great Depression in 1929–33. But he did not believe in the capability of capitalism to reinvent itself and held illusions about the capacity of socialism in overcoming the existential crisis of capitalism. His thinking was led by ideology; his analysis substituted wisful thinking for reality. Despite the economy being fully embedded in society in existing socialism, Polanyi must have remained unhappy. In the command system, the economy was subordinated to politics, but not to society. Existing socialism proved to be a dictatorial regime, rather than a true democracy, everywhere and at all times. This circumstance suggests that there must have been something fundamentally wrong in the original idea of socialism.

4.6 Socialism and Democracy “It is now often said that democracy will not tolerate “capitalism”. If “capitalism” means here the competitive system based on free disposal over private property, it is far more important to realize that only within this system is democracy possible. When it becomes dominated by a collectivist creed, democracy will inevitably destroy itself.” (Hayek)144

“Democracy is a political method, that is to say, a certain type of institutional arrangement for arriving at political – legislative and administrative – decisions and hence incapable of being an end in itself, irrespective of what decisions it will produce under given historical conditions. And this must be the starting point of any attempts at defining it.”145 This is a narrow and instrumentalist conception of democracy which may be justifiable for analysis but rather strange for those who survived communism and were longing for political freedom, civil and human rights throughout their lives. Were we all mistaken? Is democracy just a political method and not an end? “Between socialism as we defined it and democracy as we defined it there is no necessary relation: the one can exist without the other. At the same time, there is no incompatibility: in appropriate states of the social environment, the socialist engine can be run on democratic principles.”146

144 Hayek

(1944), p. 52. (1975), p. 242. 146 Ibid., p. 284. 145 Schumpeter

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The inference here is that the narrow, instrumentalist definition of democracy can be compatible with the narrow, instrumentalist conception of socialism.147 We should not forget that Schumpeter felt it was possible for a central organ of the state to prepare a national plan and get it approved by a democratically elected parliament. Even if that looks extremely outlandish for those who experienced real socialism, we should remember that for Schumpeter socialism was, by and large, a sophisticated societal system developing inevitably out of the most developed capitalism after it has exhausted all its entrepreneurial spirit and all important sections of society accepted it without a violent revolution.148 Actually, Schumpeter’s final views on socialism and democracy were conveyed most eloquently by the following paragraph which he wrote seven years later.149 “The possibility of settling the question whether to socialize or not by means of the apparatus of parliamentary democracy has been established and so has been the particular method congenial to this political system, viz., the method of piecemeal socialization. The beginnings made may not amount to more than this and may be indicative of nothing but a long-time trend. Nevertheless, they seem to show clearly what we are to understand not only by democratic socialization but also by democratic socialism. They show that socialism and democracy may be compatible. (…) The principle of political democracy (…) does, to some extent, guarantee freedom of speech and freedom of the Press, but for the rest, democracy has nothing to do with “freedoms.” In particular, as regards the “freedoms” with which the economist is concerned, the freedom of investment, the freedom of consumer’s choice, and the freedom of occupational choice, we have now interesting experimental material before us that goes to show that these “freedoms” may be restricted quite as much as, and in some respects more than, socialist governments are likely to require under normal conditions.”150 Schumpeter was looking at the wave of nationalizations in England after WWII. That was the “experimental material” he regarded as irrefutable and conclusive. Even though he warned his audience, and probably also himself, that this was a long-time trend, he ignored the possibility of its reversal. He forgot that political democracy was always trial and error allowing shifts in societal preferences. In addition, piecemeal 147 “By

socialist society, we shall designate an institutional pattern in which the control over the means of production itself is vested with a central authority – or, as we may say, in which, as a matter of principle the economic affairs of society belong to the public and not to the private sphere.” Ibid., p. 167. Schumpeter claimed that his “definition excluded guild socialism and other types.” Ibid., p. 168. At the same time he deliberately “avoided the terms state ownership of, or property in, natural resources, plant and equipment.” Ibid., p. 169. This is a somewhat obscure argumentation, given the fact that if control over the means of production is vested with a central authority, then it is ipso facto state ownership. There is no other central authority than the state. 148 Schumpeter was an orthodox Marxist in this regard. The only correction he considered necessary in envisaging the advent of socialism was to substitute the self-exhaustion of capitalism for the class struggle. 149 Preface to the Third English Edition, 1949. Final, sadly, because Schumpeter died less than a year later. 150 Schumpeter (1975), p. 411.

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socialization did not inevitably lead to complete socialization, i.e., to the victory of Schumpeterian or Marxian socialism where all economic decisions were made by a central organ controlling all means of production. He did not recognize that the major obstacle on the way of this trend being inevitable was democracy itself. Finally, with his narrow, instrumentalist conception of democracy he does not seem to have considered that freedom of consumer choice, investment and occupational choice were part and parcel of democracy. Consequently, he could not understand that without competition in the economy—for consumption, investments, jobs, etc.—political competition and, hence, democracy, was unlikely to survive. Although he never accepted Soviet communism as an “adequate” realization of the socialist blueprint, he never gave up his conviction that there was going to be such a realization.151 Hayek had a much richer definition of democracy even though his concept also suffered from a somewhat narrower, instrumentalist approach. He wrote that “democracy is essentially a means, a utilitarian device for safeguarding internal peace and individual freedom. As such, it is by no means infallible or certain. Nor must we forget that there has often been much more cultural and spiritual freedom under autocratic rule than under some democracies – and it is at least conceivable that under the government of a very homogeneous and doctrinaire majority democratic government might be as oppressive as the worst dictatorship. Our point, however, is not that dictatorship must inevitably extirpate freedom, but rather that planning leads to dictatorship because dictatorship is the most effective instrument of coercion and the enforcement of ideals, and as such essential if central planning in a large scale is possible. The clash between planning and democracy arises simply from the fact that the latter is an obstacle to the suppression of freedom which the direction of economic activity requires. But in so far as democracy ceases to be a guarantee of individual freedom, it may well persist in some form under a totalitarian regime. A true “dictatorship of the proletariat,” even if democratic in form, if it undertook centrally to direct the economic system, would probably destroy personal freedom as completely as any autocracy has ever done.”152 Although democracy does not guarantee individual freedom at all times, it is still the best utilitarian device for safeguarding it. Hayek’s statement indicates that he appreciated the intrinsic connections between democracy and freedom. The more important message of Hayek was that once central planning became mandatory, it inevitably led to dictatorship; it could not coexist with democracy, no matter how much the latter would suppress or preserve individual freedom. This was a strong statement and, if true, was a sufficient argument for rejecting mandatory central planning, at least for those, who cherished democracy as a best or at least more optimal method of government and human coexistence.153 151 His

last word in this issue was a lecture he delivered at the meeting of the American Economic Association in New York on December 30, 1949, with the expressive title “The March into Socialism.” Sadly, he died eight days later. 152 Hayek (1944), p. 52. 153 In light of contemporary historical and political events it is questionable whether there is such a thing as an “illiberal democracy,” that is to say a democracy denying freedom. There is a growing

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Despite clear historical evidence to the contrary, some might still suppose that Communist parties can be perfectly democratic, gain and leave governmental power according to results of free and fair elections. Some might even imagine that after the complete discreditation of market capitalism in the foreseeable future, everybody would agree that the only salvation is a moneyless, natural economy with mandatory central planning. Frankly, it does not matter much. Even under such completely unrealistic assumptions, command economy would either destroy personal freedom or, if it is to be preserved, then mandatory central planning has to be given up.154 And what matters ultimately is not just formal or narrow democracy, but individual freedom, i.e., liberal democracy. The economics side of the so-called existing socialism was discussed in Sect. 4.2. (Superiority of Socialism?) The analysis led to the insoluble contradiction of any kind of socialism based on state ownership and mandatory central planning. It turned out that this system, best approximated in reality by what was called classical Stalinism, was to remain coherent only if it identified, fixed and sanctioned most, if not all, wants and needs by a central administration of the state in a dictatorial manner, extinguishing almost all possibilities of consumer sovereignty.155 No sooner some little choice by the consumer was allowed, restoring a minimum degree of individual freedom in the area of consumption, the consistency, logic and efficiency of the classical socialism was immediately put in jeopardy because it allowed the “economic problem” to sneak back into the calculation through the back door. If part of the information about consumer preferences could not be discovered, fixed or just ignored ex ante, the edifice of mandatory central planning started to tremble and revealed its terribly slow and biased adaptive capabilities. Ex post coordination of production and needs crept in stealthily, fatally undermining the most important argument for the alleged superiority of socialism. The gap between capitalism and socialism was widening rather than narrowing, at least in consumption, a component in living standards. The need for a rudimentary mechanism imitating the price system and money finally conquered the castle. Now, we go deeper and see the issue in the perspective of political economy. If individual freedom of choice in consumption was eliminated, then the need for any decentralization in production decisions was made unnecessary, too. Everything came to be subordinated to the bureaucratic decisions of the central planning authorities. Hence, number of authoritarian leaders, who prefers to use this very convenient oxymoron, made popular by some scholars like Fareed Zakaria, the CNN anchor, perhaps inadvertently. Theoretically, it may be possible to make a distinction between freedom and democracy but in reality, it is very difficult to imagine a democracy which would exclude individual freedom. Western heritage would link democracy to the rule of law as the best guarantee of individual freedom. 154 It is important to note that for Hayek, individual freedom was more important than representative democracy. While democracy is probably more compatible with the preservation of individual freedom than dictatorship, Hayek did not exclude the possibility of a “benevolent” dictatorship which would respect or at least tolerate individual freedom. Liberal autocracy versus illiberal democracy—that is an immensely controversial topic. 155 The best description of the classical Stalinist system comes from Kornai (1980) and Fehér-HellerMárkus (1983).

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a sytem of classical natural redistribution emerged. It was, by nature, dictatorial. Dictatorship over needs implied central direction of every important economic decision. It might have used prices and money, but these were merely instruments to facilitate calculations in planning rather than integrating the economy. Mandatory central planning was the twin bother of state ownership in the means of production. They were two different aspects of the same totalitarian economic edifice. Private property, if tolerated on the margin of the economy, was to degenerate into an empty shell.156 Mandatory central planning excluded competition, which, in turn, raised state ownership to the level of exclusivity. This type of state ownership extinguished pluralism. Looking back into history, one can realize that there have been many societal systems based on private property in the means of production and at the same time having had a strictly authoritarian, if not openly dictatorial, superstructure. There is no denial of the fact that capitalism does not engender democracy by itself. Capitalism can coexist with autocracy, dictatorship, sometimes better than with democracy.157 But it does not necessarily close the door before democracy. In any case, I do not follow the relationship of capitalism and democracy here. My point is that while capitalism, involving competition and some pluralism, may allow the development of a democratic superstructure, classical socialism was excluding democracy by its very nature. One of the most important reasons for it could be found in its supression of pluralism and competition in the economy. State ownership and mandatory central planning inevitably excluded competition and pluralism. It proved quite eloquently that without private property and freedom of choice there could be no pluralist market economy and competition. Without a market economy, there could be no any kind of political pluralism. Economy without competition and society with unlimited competition? There has never been such a thing as democratic socialism as a societal system.158 Socialist-inspired reform measures, introduced in a piecemeal fashion, correcting some of the unbearable vicissitudes of capitalism and improving the functioning of the economy or democracy are not only possible but may be even welcome. At the same time, the danger of the opposite should be kept in mind. Socialism can be labeled as interventionism in the extreme, destroying private property, distorting

156 See

the quote from Mises in this chapter, p. 117, footnote 111.

157 Capitalists do not necessarily prefer competition. They might prefer monopoly, not only striving

to acquire natural, but also artificial monopoly, i.e., exclusive economic position created and protected by state intervention. Dictatorship can provide a more convenient framework for that. See Rajan and Zingales (2003). 158 Schumpeter was mistaken. Central direction of all economic decisions was incompatible with democracy if democracy was defined more widely, including competition and pluralism in the direction of the economy. There was no room for democracy in socialism based on state ownership and mandatory central planning. More important, that was not only a lesson coming from practical experience, but an inference of theoretical analysis.

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market and money. Socialism demolished the capitalist state but built an even larger, unconstrained and uncontrollable state in its place.159 Popper made a thoroughful analysis of the original demands of socialism as it was described by Marx and Engels in ten very specific points.160 The list contained demands which were considered applicable in the most advanced countries. From his observations, Popper drew some extremely interesting conclusions. “If we omit the rather insignificant points of this program (…), then we can say that in the democracies most of these points have been put into practice, either completely, or to a considerable degree; and with them, many more important steps, which Marx had never thought of, have been made in the direction of social security. I mention only the following points in his program: (2) A heavy progressive or graduated income tax. (Carried out.) (3) Abolition of all rights of inheritance. (Largely realized by heavy death duties. Whether more would be desirable is at least doubtful.) (6) Central control by the state of the means of communication and transport. (For military reasons this was carried out in Central Europe before the war of 1914, without very beneficial results. It has also been achieved by most of the Smaller Democracies.) (7) Increase in the number and size of factories and instruments of production owned by the state… (Realized in the Smaller Democracies; whether this is always very beneficial is at least doubtful.) (10) Free education for all children in public (i.e., state) schools. Abolition of children’s factory labor in its present form… (The first demand is fulfilled in the Smaller Democracies, and to some extent practically everywhere; the second has been exceeded.)”.161 Original socialist, pure Marxian objectives—and many of them had already been carried out by the turn of the twentieth century or soon afterwards at least in the Western countries. The Bolsheviks had no choice but to strive for more.162 These measures were declared insufficient. They had to be also because they were introduced in most places as a result of democratic debate and decision.163 They were introduced and implemented by piecemeal legislation without being made irreversible. And all this, without leading necessarily to the dominance of state ownership and the application of mandatory central planning, without the wholesale abolition 159 “It is undoubtedly the greatest danger of interventionism – especially of direct intervention – that

it leads to an increase in state power and bureaucracy. Most interventionists do not mind this, or they close their eyes to it, which increases the danger.” Popper (2011), p. 398. 160 Marx and Engels (2008), p. 23. 161 Popper (2011), p. 350. 162 There was nothing more dangerous for revolutionaries than seeing conservative governments having stolen their programs and improving the lot of the working class by radical state intervention like social insurance, etc. It was always a huge dilemma for radicals whether to accept progress in compromises or aim at the maximum impossible just to show to their followers the inadequacy of what had been achieved, keep them excited and in fighting mood for the future. The need to harmonize political strategy and tactics always tend to lead extremist parties even more to the extreme. 163 Germany and Austria are probably the best examples of these socialist-inspired measures introduced by the Social Democrats when they gained governmental power after WWI. See Macartney (1926) and references of Schumpeter to the experience of socialist parties in government between the two World Wars. Schumpeter (1975), Chapter XXVII, pp. 352–375.

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of private property. This tells us a lot not only about the lack of inevitability of socialism, but about the undesirability of that kind of socialism which was based on exclusive state ownership and mandatory central planning. This leads us back to Popper’s criticism of Marx’s historicism which culminated in his magnificent thesis that from Marx’s theory of the state it followed that “politics is impotent.”164 Popper admitted that “considering that few movements have done as much as Marxism to stimulate interest in political action, the theory of the fundamental impotence of politics appears somewhat paradoxical.”165 And so it happened. Contrary to Marx’s prophecy, Social Democratic politics by no means proved impotent. It helped improve the situation of the oppressed in general and that of the working class in particular. Democracy proved extremely useful and the state demonstrated that it was somewhat more than the instrument of class oppression. Reality superimposed itself on Marxian doctrine. No wonder that Social Democratic parties started to appreciate democracy and wanted to conquer the state without necessarily destroying its most useful element, which worked in their favor: democracy. That was clearly not the preferable alternative for the radical wing of Social Democracy which later developed into the Communist stream of the movement. Without any realistic hope to aquire “bolshinstvo” (majority) either for the working class in society or for the party in a fair and free parliamentary election, they had to cling to the theory of the inevitability and desirability of the socialist revolution, which was to destroy the bourgeois state. Unfortunately, original Marxian thoughts served them much better than the orthodox Social Democrats. The historicism of Marx and Engels with its crude reductionist concept of the state, its fundamental and obvious depreciation of democracy and determined by its inference about the inevitability of socialist revolution and the necessity of the dictatorship of the proletariat offered an extraordinarily convenient and seemingly irrefutable reference point to radical politics in the twentieth century. They were in a comfortable position to legitimize their action by Marxian theory. That is perhaps the most tragic aspect of the idea of socialism.166

164 See

Sect. 3.2. p. 84, footnote 56. With reference to Popper (2011), p. 328. might, of course, meet this remark with either of two arguments. The one is that in the theory expounded, political action has its function; for even though the workers’ party cannot, by its actions, improve the lot of the exploited masses, its fight awakens class consciuosness and thereby prepares for the revolution. This would be the argument of the radical wing. The other argument, used by the moderate wing, asserts that there may exist historical periods in which political action can be directly helpful; the periods, namely in which the forces of the two opposing classes are approximately in equilibrium. In such periods, political effort and energy may be decisive in achieving very significant improvements for the workers.” Popper (2011), p. 329. 166 Of course, we should never forget that democracy was at an incipient stage at best, or nonexistent at worst, in most countries in Central and Eastern Europe, the future birthplace of Bolshevism and Communism. For radical revolutionaries, it was next to impossible to wait patiently for the slow evolution of capitalism and democracy in their homelands. They wanted to offer a much more attractive program and a mobilizing perspective, realizable in the lifetime of not only their followers, but also themselves. They desperately needed enthusiasm for their fight and a credible purpose for their own lives. 165 “Marxists

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4.7 Socialism and Fascism “Not Stalin’s and Hitler’s skill in the art of lying but the fact that they were able to organize the masses into a collective unit to back up their lies with impressive magnificence, exerted the fascination.” (Arendt)167

“Observer after observer, in spite of contrary expectation with which he approached his subject, has been impressed with the extraordinary similarity in many respects of the conditions under “fascism” and “communism.” While “progressives” in this country and elsewhere were still deluding themselves that communism and fascism represented opposite poles, more and more people began to ask themselves whether these new tyrannies were not the outcome of the same tendencies. Even communists must have been somewhat shaken by such testimonies as that of Max Eastman, Lenin’s old friend, who found himself compelled to admit that “instead of being better, Stalinism is worse than fascism, more ruthless, barbarous, unjust, immoral, anti-democratic, unredeemed by any hope of scruple,” that it is better described as “superfascist”; and when we find the same author recognizing that “Stalinism is socialism, in the sense of being an inevitable although unforeseen political accompaniment of the nationalization and collectivisation which he had relied upon as part of his plan for erecting a classless society,” his conclusion clearly achieves wider significance.”168 Not trying to weigh which one was worse, the striking similarities between the two, i.e., fascism, based on the glorification of the imaginary nation (national socialism, the name incorrectly indicated, was based on race) and communism, trumpeting the historical destiny of the imaginary working class, cannot be ignored. One of the most important characteristic features is their common roots. And it can be found in their extreme anti-individualism, extreme collectivism.169 Hayek demonstarted that the idea of socialism had a controversial relationship to freedom and liberty, to say the least. Socialism had been born as anti-liberal. “It is rarely remembered now that socialism in its beginnings was frankly authoritarian. The French writers who laid down the foundations of modern socialism had no doubt 167 Arendt

(1951), p. 333. (1944), p. 20. He also quoted other distinguihed authors who came to the conclusion that socialism and fascism were the same in all essentials. Chamberlin (1937), Voigt (1939) and Lippmann (1936). We should add to his list the name of Aurel Kolnai (1938). 169 Hayek quoted an article of professor Eduard Heimann, one of the leaders of German religious socialism, to highlight the origin of Nazism in the following way: “Hitlerism proclaims itself as both true democracy and true socialism, and the terrible truth is that there is a grain of truth for such claims – an infinitesimal grain, to be sure, but at any rate enough to serve as a basis for such fantastic distortions. Hitlerism even goes so far as to claim the role of protector of Christianity, and the terrible truth is that even this gross misinterpretation is able to make some impression. But one fact stands out with perfect clarity in all the fog: Hitler has never claimed to represent true liberalism. Liberalism then has the distinction of being the doctrine most hated by Hitler.” Social Research (New York), vol. VIII, no. 4, November 1941. 168 Hayek

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that their ideas could be put in practice only by a strong dictatorial government. To them, socialism meant an attempt to ‘terminate the revolution’ by a deliberate reorganization of society on hierarchical lines170 … Where freedom was concerned, the founders of socialism made no bones about their intentions. Freedom of thought they regarded as the root-evil of nineteenth-century society, and the first of modern planners, Saint-Simon, even predicted that those who did not obey his proposed planning boards would be ‘treated as cattle’.”171 Marx and Engels labeled the socialism of Babeuf, Owen, Saint-Simon, Fourier and others as utopian. They felt standing on more secure ground by placing their socialism on the allegedly inevitable development of economic forces in history. They also combined it with the advance of freedom.172 It was not simply a tactical device. They were sincerely striving for the liberation of the oppressed. But as it was already pointed out, they depreciated democracy and looked down on “formal” freedom; they were longing for “real” freedom, i.e., freedom from necessity.173 The impossibility of their substantive freedom rendered their prophecy utopian, and their ignorance about the merits and substance of formal freedom let their “individualizing” collectivism slide back into despotism. Tragedy of the idea. Socialism led to Social Democracy, but it led to Bolshevism and Stalinism, too. Ideas bifurcate, trifurcate, ramify and multiply. Fascism was another furcation. Unforeseen result with unintended consequences. Nevertheless, the menace must have been absolutely clear for all to see. Hayek agreed with Tocqueville and maintained that “democracy as an essentially individualist institution stood in an irreconcilable conflict with socialism.”174 Subsequent history has unequivocally proved the validity of this sharp foresight. Socialism, during its long history, has always been at loggerheads with freedom. It has never admitted that when freedom and equality came into conflict, it was always to opt for 170 See

Wilson (2012), Part II, Chapters 1, 2, 3. (1944), p. 18. 172 Hayek was right when he wrote: “Only under the influence of the strong democratic currents preceding the revolution of 1848 did socialism begin to ally itself with the forces of freedom.” Ibid., p. 18. 173 Of course, there can be no denial of the fact that Marx and Engels incorporated some new concept of freedom in their historical prophecy. But it did not make freedom a shining gravitation point of their philosophy for a variety of reasons. The most important is that the classless society, as it was prophesized by Marx and Engels, proved to be just another “great utopia” because there can be no such thing as complete freedom from necessity. The scarcity of material goods can never be overcome in the sense that everybody can satisfy all their wants and needs in an unlimited way. There is no escape from the economic problem, i.e., from the complex problem of deciding on the optimal allocation of resources in order to satisfy the needs of society according to a structure of values, set either by the market or conscious—and mandatory—central planning (Sect. 4.1, p. 92). 174 “Democracy extends the sphere of individual freedom {he said in 1848}, socialism restricts it. Democracy attaches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.” Discours prononcé á l’assemblée constituante le Septembre 12, 1848, sur la question du droit au travail. Tocqueville quoted by Hayek (1944), p. 18. 171 Hayek

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equality, and push back on freedom, and not only in ideology. (Actually, there was not much equality in existing socialism in practice, either, except for equality in the absence of freedom and human rights.) Parallel with the development of formal freedom and equality before the law, all those characteristics of the capitalist economy and society were revealed which resulted in putting very different people into very unequal life situations. Thus, the societal and spiritual preconditions of a revolt against liberalism and individualism were created. One option was class socialism, which discovered the propertyless working class as the standard bearer of future development. Another was nation socialism, which identified it in race, ethnicity or nation. Common origin was reflected in the fact that activists starting their political development in the class socialist camp could transit to the nation socialist camp frequently and with ease. No better example exists for this weird transformation than Mussolini. He was a leader of the socialist party before discovering that the “fascio” (bundle) could be filled up with almost anything to make it attractive.175 WWI was a godsend to those radicals who supercharged the fasci formations with the idea of the nation. Mussolini managed to unify the two most important groups, and by the end of WWI, he established the so-called League of fighters (Fasci italiani di combattimento). From this grew up the Fascist National Party (Partito Nazionale Fascista) in 1921, a veritable extreme right party. But the most remarkable proof of the common origin is the common destiny: the development of totalitarian domination. It is more than just a totalitarian movement or a state or an ideology. It is a totalitarian movement (more than just a party) gaining and using state coercive power based on a distinct ideology aiming at total (world) domination.176 Friedrich and Brzezinski saw that “totalitarian regimes are historically novel; that is to say, that no government like totalitarian dictatorship has ever before existed, even though it bears a resemblance to autocracies of the past.”177 Although totalitarian dictatorship may be considered an adaptation of autocracy to twentieth-century industrial society, historically, it is an innovation and a sui generis form of domination.178 They concluded from all facts available to them “that fascist and communist totalitarian dictatorships are basically alike, or at any rate more nearly like each other than like any other system of government, including earlier forms of autocracy.”179

175 The

original political meaning of the Italian word “fascio” suggested that the individual was fragile while the bundle was strong. The word started to mark an association, society, league, union, etc. in Italy. Revolutionaries used it already in the 70s of the nineteenth century. The most famous of the socialist and democratic unions was the Fasci Siciliani dei Lavoratori which worked between 1889 and 1894. 176 The are countless analyses on totalitarianism of the twentieth century which make different points of emphasis. But most of them agree that (i) movement, (ii) party-state dichotomy and (iii) collectivist ideology were fundamental ingredients always present in a totalitarian societal system. 177 Friedrich and Brzezinski (1965), p. 23. 178 Ibid., p. 15. 179 Ibid., p. 15.

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Friedrich and Brzezinski enumerated the six most important characteristics of totalitarian dictatorship as follows: (i) an elaborate ideology covering all vital aspects of man’s existence, (ii) a single mass party led by a single person held in absolute esteem, (iii) a system of terror primarily effected by the secret police, (iv) nearcomplete monopoly of control of communication and information, (v) near-complete monopoly of weapons and organized violence, (vi) central control and direction of the entire economy by bureaucratic coordination.180 From the perspective of political economy, the last point is the most important. The experience of Nazi Germany showed clearly that totalitarian bureaucratic control over the economy killed the essence of private property pretty much the way it had been predicted by Mises. As it was already discussed,181 when owners were “entitled to employ the means of production left in their hands only according to the instructions issued by the state”182 private property existed but in name. Totalitarian rule constituted state intervention in the extreme both in Nazi Germany and Stalinist Soviet Union. Nazi Germany, by and large, preserved private property on paper while the Stalinist command economy nationalized all means of production, including, finally, agricultural land. Collectivization was an ideologically determined and driven exercise to eliminate resurrecting capitalist tendencies in the countryside. Nazi practice demonstrated that formal property title was unimportant; the really decisive element was total bureaucratic control. Total bureaucratic control excluded competition, which, as we have already seen, was exactly the inflexion point in state intervention killing market freedom. Totalitarian domination in its two historic realizations proved almost identical in this respect, because totalitarianism was collectivism in the extreme. It fought a total war against liberalism and individual freedom in every sphere of existence. It could not allow freedom as represented by markets. What Hayek declared the main political significance of market superiority over planning, that it was the “only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority,”183 was regarded precisely as the most dangerous feature of the markets by Nazi and Soviet administrators alike. Killing all freedoms, including market freedom, was without doubt the essence of collectivist totalitarianism. Arendt described the totalitarian state with surgical precision. She pointed out a seemingly incomprehensible but important characteristic of this state: the proliferation of offices with strongly overlapping functions. Looking at it from the traditional viewpoint of administrative efficiency, it could have been regarded as a symptom of inefficiency.184 But it was not. Neither Nazi Germany, nor the Stalinist Soviet Union 180 Ibid.,

p. 22. Curiously, although they criticised the ideological or anthropological concept of totalitarianism; they put ideology to the first place as an inherent feature of totalitarianism. 181 Section 4.4. 182 Mises (1985), p. 39. 183 Hayek (1944), p. 27. 184 “The multiplication of offices destroys all sense of responsibility and competence; it is not merely a tremendously burdensome and unproductive increase of administration, but actually hinders productivity because conflicting orders constantly delay real work until the order of the Leader

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was to have been measured by purely utilitarian principles. In both cases, ideologydriven totalitarian politics completely absorbed all other societal spheres, including the economy. The primacy of politics was absolute.185 The other side of the coin was self-serving and arbitrary terror. In the Soviet Union, its ideological justification was to get closer to a classless society. But it was not to be a slow, evolutionary process. Approaching a classless society, even if it was attempted first under Stalin’s slogan of “socialism in one country,” meant the liquidation of classes not only in sociological, but in physical sense. “All these new classes and nationalities were in Stalin’s way when he began to prepare the country for totalitarian government. In order to fabricate an atomized and structureless mass, he had first to liquidate the remnants of power in the Soviets… The Bolshevik government then proceeded to the liquidation of classes and started, for ideological and propaganda reasons, with the property-owning classes, the new middle class in the cities, and the peasants in the country. Because of the combination of numbers and property, the peasants up to then had been potentially the most powerful class in the Union; their liquidation, consequently, was more thorough and more cruel than that of any other group and was carried through by artificial famine and deportation under the pretext of expropriation of the kulaks and collectivization. (…) The next class to be liquidated as a group were the workers. As a class, they were much weaker and offered much less resistance than the peasants because their spontaneous expropriation of factory owners during the revolution, unlike the peasants’ expropriation of landowners, had been frustrated at once by the government which confiscated the factories as state property under the pretext that the state belonged to the proletariat in any event.”186 The “Great Purge” (1936–38) in the Soviet Union was a wholly new phase in the advancement of terror. This was the first time that terror was applied not against obvious class enemies who were hostile to Bolshevik power but against the supporters has decided the matter. The fanaticism of the elite cadres, absolutely essential for the functioning of the government abolishes systematically all genuine interest in specific jobs and produces a mentality which sees every conceivable action as an instrument for something entirely different. And this mentality is not confined to the elite but gradually pervades the entire population, the most intimate details of whose life and death depend upon political decisions – that is, upon causes and ulterior motives which have nothing to do with performance. Constant removal, demotion, and promotion make reliable teamwork impossible and prevent the development of experience. Economically speaking, slave labor is a luxury which Russia should not be able to afford; in a time of accute shortage of technical skill, the camps were filled with “highly qualified engineers who compete for the right to do plumbing jobs, repair clocks, electric lighting and telephone.” But then, from a purely utilitarian point of view, Russia should not have been able to afford the purges in the thirties that interrupted a long-awaited recovery, or the physical destruction of the Red Army general staff, which led almost to a defeat in the Russian-Finnish war.” Arendt (1951), p. 409. 185 The proliferation of offices corroborates my earlier observation about the role of the party-state bureaucracy in footnote 129. It is clear from this analysis that totalitarian systems use a purely political definition of efficiency and never a narrowly or purely economic measuring rod. 186 Arendt (1951), pp. 319–321. The last point is especially important. As early as 1920, Trotsky vehemently opposed the right of the workers to strike arguing that since the state belonged to the workers, it was absurd for the workers to strike against themselves. See Trotsky (1961).

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and new elite of the system who by no means were opposing the regime let alone committed any crime against it.187 Terror was scaled up exactly at the time when there was no longer any internal resistance to Soviet power.188 Arendt described these events very precisely. “On the top of these measures came the liquidation of that bureaucracy which had helped to carry out the previous liquidation measures. It took Stalin about two years, from 1936 to 1938, to rid himself of the whole administrative and military aristocracy of the Soviet society; nearly all offices, factories, economic and cultural bodies, government, party, and military bureaus came into new hands… Again, the introduction of an interior passport, on which all departures from one city to another have to be registered and authorized, completed the destruction of the party bureaucracy as a class… And since this general purge ended with the liquidation of the highest police officials – the same who had organized the general purge in the first place – not even the cadres of the GPU which carried out the terror could any longer delude themselves that as a group they represented anything at all, let alone power.”189 It had to be clear to all rational observers that “none of these immense sacrifices in life was motivated by a “raison d’état in the old sense of the term.”190 At the same time, “it was positively disastrous for the Soviet economy. The consequences of the artificial famine in 1933 were felt for years throughout the country; the introduction of the Stakhanov system in 1935, with its arbitrary speed-up of individual output and its complete disregard of the necessities of teamwork in industrial production, resulted in a “chaotic imbalance” of the young industry. The liquidation of the bureaucracy, that is, of the class of factory managers and engineers, finally deprived industrial enterprises of what little experience and know-how the new Russian technical intelligentsia had been able to acquire.”191 Can a societal system be superior to any other when it causes harm to itself so obviously and deliberately? Or is it just a proof that Stalinist totalitarianism was an extreme variation of a system where politics, especially power politics, was immensely more important than the smooth functioning of the economy? Totalitarianism was just a logical, if not inevitable, consequence of embedding the economy into politics. Admittedly, it was embedded into a special type of politics which lost all its noble and humanistic aims at the altar of an utopian ideology which 187 Interestingly,

the Great Purge coincided with the Spanish civil war (1936–1938), which may be regarded as a proxy war between communism and fascism preceeding WWII and also with the official Comintern policy of anti-fascism (1935–1939) promoting the formation of popular front governments in the West. As it is well known, the Spanish civil war ended with the defeat of the republican forces not least because of the intervention of Soviet agents against the by Moscow incontrollable anarchist party, the POUM. Popular front anti-fascism run into the ground by the signature of the Molotov-Ribbentrop pact between Germany and the Soviet Union, August, 1939. 188 According to various estimates, at least 750,000 people were executed and more than a million was sent to the GULAG, the forced labor camps. See Solzhenitsyn (2007), Applebaum (2004) and Figes (2015), Chapter 13. 189 Arendt (1951), p. 321. 190 Ibid., p. 321. 191 Ibid., p. 322.

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was to be realized by violence, at all costs. Economy embedded into inhumane, narrow power politics instead of society. Polanyi was crying. Of course, it is not to say that the transformation of Bolshevik communism into Stalinist totalitarianism was inevitable or it was a historical necessity.192 The point is that Bolshevik communism was open to such degeneration because it included and cherished not only the idea of unlimited dictatorship and monopoly power of a single party but a strong inclination to arbitrary terror and violence. Some sympathetic scholars claim that there was a marked difference between Lenin and Stalin and tend to ignore their common characteristics overestimating the role of personalities in history. (The role of personalities is more important in dictatorial regimes, but certainly not overwhelming. Had it not been Stalin, it could have been someone else in his place.) For example, Figes stated that “Lenin had no hesitation killing opponents of the revolution but he never had his Party comrades imprisoned or killed for their political opinions.”193 I do not think that it makes a real difference restricting imprisonment or killings to opponents only and spare the life or freedom of supporters especially if one retains the absolute right of classifying friends and foes at random and at will. Mensheviks, SRs, workers, peasants, sailors of Kronstadt, etc. were killed without mercy and as a consequence of absolutely arbitrary classification as enemies of the revolution before, during and after the civil war in Lenin’s lifetime and at his explicit orders. The difference lies elsewhere. Stalinist terror was put into high gear exactly at the time when the Bolshevik regime seemed to have consolidated its internal an external position. Arendt wrote that “none of the liquidated social strata was hostile to the regime or likely to become hostile in the foreseeable future. Active opposition had ceased to exist by 1930 when Stalin, in his speech to the Sixteenth Party Congress, outlawed the rightist and leftist deviations inside the Party, and even these feeble oppositions had hardly been able to base themselves on any of the existing classes. Dictatorial terror – distinguished from totalitarian terror insofar as it threatens only authentic opponents but not harmless citizens without political opinions – had been grim enough to suffocate all political life, open or clandestine, even before Lenin’s death. Intervention from abroad, which might ally itself with one of the dissatisfied sections of the population, was no longer a danger when, by 1930, the Soviet regime had been recognized by a majority of governments and concluded commercial and other international agreements with many countries.”194 Stalin’s terror created a new situation by threatening exactly harmless citizens with no political opinion or activity and deliberately condemning these people to severe punishment without them having committed any crime before. A new category was invented by totalitarian regimes: that of the “objective” enemy. 192 As

it has already been emphasized repeatedly, there is no historical determinism in human development. Historicism—as it was eloquently proved by Popper—does not hold in any shape or form. 193 Figes (2015), p. 134. An observer with even more apologetic inclination toward Lenin is Ryan (2012). 194 Arendt (1951), pp. 321–322.

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“The chief difference between the despotic and the totalitarian secret police lies in the difference between the ‘suspect’ and the ‘objective enemy.’ The latter is defined by the policy of the government and not by his own desire to overthrow it. He is never an individual whose dangerous thoughts must be provoked or whose past justifies suspicion, but a ‘carrier of tendencies’ like the carrier of disease. Practically speaking, the totalitarian ruler proceeds like a man who persistently insults another man until everybody knows that the latter is the enemy, so that he can, with some plausibility, go and kill him in self-defense.”195 “From a legal point of view, even more interesting than the change from the suspect to the objective enemy is the totalitarian replacement of the suspected offence by the possible crime. The possible crime is no more subjective than the objective enemy. While the suspect is arrested because he is thought to be capable of committing a crime that more or less fits his personality (or his suspected personality), the totalitarian version of the possible crime is based on the logical anticipation of objective developments. The Moscow Trials of the old Bolshevik guard and the chiefs of the Red Army were classic examples of punisment for possible crimes. Behind the fantastic, fabricated charges one can easily detect the following logical calculation: developments in the Soviet Union might lead to a crisis, a crisis might lead to the overthrow of Stalin’s dictatorship, this might weaken the country’s military force and bring about a situation in which the new government would have to sign a truce or conclude an alliance with Hitler. Whereupon Stalin proceeded to declare that a plot for the overthrow of the government and a conspiracy with Hitler existed. (…) Totalitarianism’s central assumption that everything is possible thus leads through consistent elimination of all factual restraints to the absurd and terrible consequence that every crime the rulers can conceive of must be punished, regardless of whether or not it has been committed. The possible crime, like the objective enemy, is of course beyond the competence of the police, who can neither discover, invent, nor provoke it. Here again, the secret services depend entirely upon the political authorities. Their independence as a state within the state is gone.”196 This is an extremely rich and rewarding line of reasoning from Arendt, that is why it is worth quoting it in such a length. It reveals very clearly and convincingly that the difference between traditional and totalitarian dictatorship is by no means lies in their different, but still conventional, classification of friend and foe. Totalitarian rule goes well beyond traditional legal and jurisdictional terms. Crime and punishment are completely politicized. The terms “objective enemy” and “possible crime” do not fit into legal and jurisdictional terms at all. They are purely political and reflect the absolute dominance of power politics over legal or any other considerations. Totalitarianism represents precisely the complete absorption and subordination of all other spheres of existence—economy, law, science, culture, ethics, etc. —to power politics and its supporting ideology. An historic endpoint of collectivism. A tragic cul-de-sac, indeed. 195 Ibid., 196 Ibid.,

pp. 423–424. pp. 426–427.

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Finally, it is important to mention that although totalitarianism can be labeled as an aberration and degeneration, it was a logical outgrowth of the tendencies which had already been embedded in the Bolshevik and Fascist movements.197 The acceptance and even glorification of violence and terror was not simply the consequence of the conditions of autocracy which had been prevalent in Russia. (Had it been, then the Kadet and Menshevik parties should have had identical views in this regard.) Extremism in aims and methods was encoded into the cells of Bolshevik ideology and practice from its inception.198 True, the tsarist regime was autocratic, but not totalitarian; it did not exclude the emergence of parties hostile to it. Russia did have a secret police but it was far from totalitarian and effective. Compared to its Communist successors, it was small and constrained by certain elements of the rule of law. The Bolshevik secret police never had any significant legal constraints in its action because Bolshevik ideology proudly proclaimed that law cannot impede policy. Arbitrary violence was acceptable and cherished from the very beginning. The elements of totalitarianism were always there in the ideology and practice of Communist rule.

4.8 Ramifications of Socialism “The October Revolution’s amazingly easy victory occurred in a country where a despotic and centralized bureaucracy governed a structureless mass population which neither the remnants of the rural feudal orders nor the weak, nascent urban capitalist class had organized. When Lenin said that nowhere in the world would it have been so easy to win power and so difficult to keep it, he was aware not only of the weakness of the Russian working class, but of anarchic social conditions in general which favored sudden changes.” (Arendt)199 197 “The

early history of the Fascist and Nazi movements is replete with the technique of mass propaganda and manipulation of coercive violence. The notorious whippings, burning and castoroil orgies of the Italian Fascists are paralleled by the Saalschlacht (lecture-hall battles) of the Nazi storm troopers, which led to large-scale intimidation of both followers and outsiders long before the actual seizure of power. The tactics of Lenin also were violently coercive and made of the Bolsheviks a conspiratorial military brotherhood rather than a group competing in the marketplace through discussion and argument. We are not implying here that the conditions of tsarist Russia were favorable to such “bourgeois” or liberal conduct; the facts are, however, that propaganda and terror cradled the Bolshevik party, as well as the Fascist parties.” Friedrich and Brzezinski (1965), p. 42. 198 “The first to formulate and to set in motion the operational principles of a totalitarian party was Lenin. In his fanatic insistence on strict party discipline, total obedience to the will of the leadership, and unquestioning acceptance of the ideological program (as formulated by the leader) Lenin charted the path so successfully later followed by Stalin.” Ibid., p. 46. See also Sect. 2.2 of this book. 199 Arendt (1951), p. 318.

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Today, it is a commonplace belief that the Bolshevik coup d’etat in October, 1917, in Russia was by no means an inevitable historic necessity but a—fortunate or unfortunate—accident in the power vacuum created by the collapse of the autocracy in February of the same year, the incompetence and powerlessness of the provisional government, the disintegration of the army, the exigencies of the still unfolding WWI and many other no less important elements. It is a confluence of several factors which resulted in an exceptionally favorable situation where a small, but concentrated force could overcome the inertia and exhaustion of an extremely shallow government. On the other hand, the Bolshevik takeover was very well prepared because there existed a relatively well organized, disciplined party with an insurrectionist military arm and a sufficiently simple ideology which provided enough impetus not only to the vanguard leadership but also to a large number of followers and supporters.200 In any case, Leninist socialism was born, this time not only as an ideology but also as a practical reality. Since the Bolshevik party was using orthodox Marxism as its most important reference point and fountainhead, it immediately lent tremendous significance to an ideology which was already in terminal decline where it had been born: in the Western civilization. Russian reality resuscitated its resilience. Hence, it has taken on a new lease of life in the West, too. Bolshevik Marxism was faithful to Marxian ideology in many respects but at the same time it also constituted a deviation (some might say, a degeneration). But what was the essence of the “original” idea of socialism? Difficult to say, except for a few basic tenets which were upheld by almost all self-appointed socialists. Two main elements seem to have been almost always prevalent: the abolition of exploitation which was linked to the suppression of private property in the means of production and conscious distribution of productive resources according to some plan which required the suppression of market and money. For most socialists, including Marx and Engels, the new societal system was to be born out of the seemingly insoluble contradictions of capitalism which multiplied productive forces tremendously but at the same time maintained an extremely unjust and inequitable distribution of efforts, rewards and rights. The two fundamental elements of political economy were supplemented by two sociological ingredients: the progressive role of the industrial working class in bringing about political emancipation leading to a political revolution, the takeover of political power, and then to a social revolution, the establishment and building of a classless society. It was a logical and closed ideology, indeed. But ideology is always a simplification of reality and has a hard time to follow complex historical developments. On the basis of historicism, i.e., the concept of the unilinear deterministic evolution of history, socialism would come only after capitalism exhausted all its progressive energies and production relations become an obstacle and hindrance to the further evolution of productive forces. According to Marx and Engels, the insoluble contradictions between productive forces and production relations drive societies toward revolutionary change. The next phase of history would come first in the most developed capitalist world. 200 Pipes

(1990), Malia (1994), Figes (1996).

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There were at least two weak points in this logical and attractive ideology. One was “Verelendung,” the ever increasing misery of the working class not only in relative but also in absolute terms, neither of which materialized in the most developed Western economies and societies in the late nineteenth century. The other was the alleged “impotence of politics” as Popper rightly called it, i.e., the impossibility of improving the conditions of the working class in the capitalist system by democratic means. The most important reason for this outcome was that the founding fathers grossly misunderstood and depreciated democracy. They considered it nothing else but a facade for exploitation which could never result in the improvement of the working and living conditions of the exploited masses. Thus, they regarded social revolution leading to socialism inevitable. The revisionist bifurcation of socialist ideology was a direct consequence of this misunderstanding. Evolving pluralist democracy in practice proved to be a powerful instrument for piecemeal reforms. Equally important, it did lead to a marked improvement of the working and living conditions of the masses not only in England, France and the USA but also in Germany, Italy, and, to a lesser extent, even in the Habsburg Monarchy. Tangible progress was made in extending both material well-being and political rights. The electoral franchise was widening and socialist parties entered legislative chambers. Revolution, i.e., the violent takeover of power, no longer seemed inevitable, even attractive. Violence constituted a risky proposition in legitimizing reactionary violence, too. The Bolshevik renaissance of orthodox Marxism was another bifurcation at an important crossroads of historical development. Here, the role of the “Russian factor” cannot be ignored.201 Democracy did not evolve in the Russian empire in such a way that it could have been convincingly regarded as a convenient means of chanelling peaceful social and political evolution. Incipient parliamentarism, the establishment of the State Duma, could have been dismissed as just a facade for exploitation, indeed. Curiously, Orthodox Marxism seems to have been more adequately describing the conditions of capitalism in the European periphery. Although certain elements of the rule of law appeared, autocracy did not make truly significant political concessions to the fast evolving Russian civil society. This hybrid arrangement was inadequate and insufficient in absorbing and managing the extreme stress wrought upon the economy and society by the exigencies of WWI. No wonder, the back of the camel broke. WWI, a high point of an existential crisis in the second decade of the twentieth century, led to coalition governments with the participation of Social Democratic parties in countries which happened to be at the losing end of the war. Most of these governments, especially the German and the Austrian ones, had intended a sweeping nationalization of private property in important sections of industry. But these initiatives led to much more limited results than originally envisaged because of the fragility of these coalition governments and the sober reluctance of Social Democrats in taking over direct political responsibility for a big chunk of industrial 201 Professor Berend of UCLA emphasized the special nature of Soviet socialism. History “betrayed”

ideology.

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production. In addition, direct state management of a large number of enterprises in market conditions promised no increase in efficiency, either. Western Social Democracy deliberately stopped short of abolishing the market which ought to have been the logical consequence of wholesale nationalization. This is the point where another bifurcation happened: the Scandinavian model of Social Democracy emerged as a viable alternative to the Bolshevik command economy and party dictatorship. In Sweden, Norway and Denmark, the traditions of pluralist democracy were particularly strong; no political party could have contemplated its violent abolition. Thus, the idea of revolution was relegated to the dustbin of history and political democracy was declared a valuable device to promote the interests of the working class in society. Similarly, the concept of state ownership in the means of production fell sideways; it was replaced by the evolutionary method of progressive income taxation, significant social income transfers and widely available public services, such as education and health care. This is a vivid proof of the pragmatic trade unionism which was much disparaged and repudiated by Lenin. True, the workers did not wish to overthrow capitalism and abolish private property if they could improve their working and living conditions within its framework.202 The alleged Marxian historical mission of the working class was openly betrayed by Scandinavian Social Democracy. Scandinavian socialism was, and has always remained, in open conflict with Leninism, which represented a combination of original Marxian thought and at the same time a significant deviation. Lenin and his followers upheld the idea of the violent overthrow of capitalism and the inevitability of political and social revolution led by the self-appointed militant vanguard of the working class. They insisted on building socialism along Marxian lines of political economy by expropriating most, if not all, means of production and substituting mandatory central planning for the market. Scandinavian Social Democrats rejected the wholesale etatization of the economy and the idea of dominant state ownership. They largely preserved the ownership structure of market capitalism, gave up the desirability of revolution and strengthened democracy by incorporating social equity considerations into wellcrafted piecemeal, democratic reforms. Nordic Social Democrats not only protected multiparty democracy but enhanced it by smart measures intended to strengthening the widest possible middle class. As a consequence, they discarded not only the concept of the dictatorship of the proletariat but also the cherished final goal, the attainment of communism as a classless society. Bernstein was happy. The Bolsheviks faithfully maintained the political economy exigencies of orthodox Marxism and embraced dictatorship with enthusiasm. In order to preserve democracy, Social Democrats abandoned completely its political economy elements. Would Marx have been frustrated? For those who repudiate historicism, i.e., the unilinear deterministic evolution of history, it was exactly what was to be expected. Needless to say that no societal 202 The working class betrayed orthodox Marxism and resisted Leninism precisely in those countries

which belonged to the most developed parts of the capitalist world. The base fall out under the superstructure.

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system would in reality perfectly follow or reflect any former theoretical blueprint, no matter how “scientific” the prophecy might have claimed to be. Deviations are explained not only by the impossibility to forecast the future perfectly but first and foremost by the fact that the same ideas lead to different inferences. Ideologies evolve, bifurcate and trifurcate. The question is not why there might be burgeoning diversification of originally coherent ideas on the basis of diverging realities but to what extent different lines of practical realization of the same ideology are rooted in the original. Looking at orthodox Marxism from this perspective, it is impossible to deny that Russian Bolshevism was more firmly rooted in the original Marxian blueprint than the revisionist deviation of Social Democracy which finally became the dominant line in Western European socialism for the whole twentieth century. Although this deviation could not save the socialist idea either, it was at least a genuine and progressive attempt to keep anchoring it in its humanist tradition. Can Scandinavian reality labeled as genuine socialism? If we follow the famous dictum of Schumpeter, according to which “true socialism is what we like best,” it is socialism, without doubt. But the definitional problem is beside the point. Even though the Scandinavian model can be considered socialism, it is certainly not a Marxian one. Even though it cherished equality like every other branch of socialism, it did not make it absolute, especially not at the expense of liberty. It repudiated all basic ideological tenets of Marxism. It preserved private property, markets and money, rejected wholesale nationalization and etatization, gave up the alleged historical mission of the working class to create a classless society. Most important, it rejected revolutionary violence and preserved democracy. Hence, Scandinavian socialism is farther from Marxism than Russian Bolshevism. Its ideological roots can be found more in Bernstein’s revisionism than Marxism. That was the price to be paid to make it more viable at least in a group of small countries which could be regarded as the most advanced part of the capitalist world. That was the price to be paid in order to save some valuable pieces from the ruins of the socialist idea. The final collapse of Bolshevik socialism and the sublime fading of the more humanistic revisionist alternative highlight the inherent contradictions of the Marxian concept of socialism. It is the supreme tragedy of the original idea.

Chapter 5

Concluding Remarks: Historicism Leads to Dictatorship

“A question that, in my opinion, far transcends in importance the precise point at which the line may be drawn between public and private enterprise in economic life, is whether the people are to own the state or whether the state is to own the people, as it very definitely does in the modern-style dictatorship. It is no exaggeration to say that the whole future of Western civilization, with its many humanists and individualist roots, is very intimately bound up with the answer which history will supply to this question.” (Chamberlin)1

Chamberlin wrote these famous lines in the introduction of his book, entitled “Collectivism. A False Utopia.” It was published in 1937, one year before the Anschluss of Austria and the Munich Agreement on Czechoslovakia; two years before the Molotov–Ribbentrop Pact and the start of WWII in September, 1939. History gave a temporary answer: the fascist regimes disappeared and Western civilization survived. The Soviet Union extended its realm well beyond everybody had imagined before. But it was to be temporary, too. The empire collapsed in 1991 and Soviet communism disappeared by the end of the twentieth century.2 Can we sit back and relax? Not at all. Collectivist ideology keeps coming back. “That democracy has a comfortable, even an overwhelming, margin of advantage over dictatorship by every standard of material well-being, cultural breadth, and educational progress that can be applied, is no final assurance that it will come out the victor in the fierce struggle of rival systems which is such a distinctive characteristic of the present century. History is strewn with the wrecks of higher forms of civilization which, when they had become soft and decadent, were smashed by lower forms, endowed with a stronger measure of fanaticism and brute force— qualities which are not lacking in present-day dictatorships. How does it stand with democracy’s chances of survival?”3 1 Chamberlin

(1937), p. v. most important reasons for the collapse of Soviet communism are given by Berend (2009), Brown (2009) and Bokros (2013). 3 Chamberlin (1937), p. 115. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 149 L. Bokros, Socialism—The Tragedy of an Idea, https://doi.org/10.1007/978-3-030-57843-5_5 2 The

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Chamberlin knew that democracy had a serious disadvantage to dictatorship. If forces of dictatorship attained governmental power in a free and fair election, there would be no chance for the adherents of democracy to regain power again, because there would be no more free and fair elections.4 In a sense, it is also the consequence of historicism. If human history was to evolve in a unilinear and deterministic fashion, as the historicists had claimed, revolution was to be final. It was irreversible. No matter how the socialist forces came to power, whether it was a coup d’etat like the Bolshevik takeover or an election victory, like the Nazi’s accession to domination, it was meant to be final because it represented the next, more advanced stage of social development. Thus, historicism, in both its Marxist and fascist variation, can be interpreted as a convenient instrument offering legitimacy to non-democratic, even totalitarian solutions.5 While historicism in ideology can lead to any desirable, well-chosen endpoint, collectivist historicism can only lead to dictatorship. What matters here is not only the acquisition of power but its retention. Collectivist historicism offers an endpoint which cannot always be on the winning side of free and fair elections. Democratic competitions would reopen, time and again, the possibility of reversal of the historical development which is claimed as inevitable. In order to prove that historical determinism remained valid, opportunities for reversal should be excluded. Collectivist historicism, therefore, has no choice but to enforce the realization of its own prescription for development by all means. And if nothing else helps, dictatorship would. Although there is no room for historicism in real development, there is a powerful and irrefutable reason why collectivist historicism, as a policy, leads inevitably to dictatorship in practice. As it is known, Popper was extremely sympathetic to Marx as a human being. His respect for the man reinforced his argument that Marxian historicism suffered from a fatal, and I would add, tragic, deficiency. He wrote that “Marx disparaging attitude towards political power not only means that he neglects to develop a theory 4 “One

disconcerting reflection that must have occurred to many observers who, while convinced of the superiority of democracy as a theoretically desirable form of government, are doubtful as to its chances of survival in the present age is that there may be a Gresham’s Law in politics, as in economics. Gresham’s Law in economics teaches that bad money will always drive good money out of circulation, if the two are given equal currency. In the same way it is conceivable that arbitrary dictatorship may, in the long run, inevitably displace democratic self-government. For the competition between these two systems is, in one respect, very uneven. Democracy may outvote communism and fascism at the polls twenty times, and champions of these alternative systems will rise again to contest the twenty-first election. But let democracy lose one election, held under circumstances of abnormal strain and crisis, to the forces of dictatorship, and it will have no chance to present its case for free consideration at the next one, because every prerequisite of a free election automatically disappears as soon as a communist or fascist regime comes into power.” ibid., pp. 116–117. 5 Of course, liberal democracy can also be considered as an endpoint of historical development. That was the impression one could gain from the book of Fukuyama (2006) written during the time of unbounded optimism following the collapse of Soviet communism. Interestingly, Fukuyama openly acknowledged his historicist views. In a new Afterword to his book, he claimed that it was “only weakly deterministic, unlike the strong determinism of Marxism-Leninism”. This is an apologetic argument. I do not think that historicism is valid in any shape or form.

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of the most important potential means of bettering the lot of the economically weak, but also that he neglected the greatest potential danger to human freedom. His naive view that, in a classless society, state power would lose its function and ’wither away’ shows very clearly that he never grasped the paradox of freedom, and that he never understood the function which state power could and should perform, in the service of freedom and humanity.”6 As it was discussed in this book, the problem was not only stemming from the original Marxian and the naive Leninist view of the state that it was nothing else but an instrument of class oppression, pure and simple, and as a consequence, the disappearance of classes would inevitably lead to the abolition of the state. In reality, the new, emerging problem was exactly the opposite. The state in socialism proved to be too large and too heavy; unlimited and clearly oppressive. Popper noticed that this “degeneration of the state” had its origins in the biased ideology. He wrote that Marxists “never realized the danger inherent in a policy of increasing the power of the state. Although they abandoned more or less consciously the doctrine of the impotence of politics, they retained the view that state power presents no important problems, and that it is bad only if it is in the wrong hand of the bourgeoisie. They did not realize that all power, and political power as much as economic power, is dangerous. Thus they retained their formula of the dictatorship of the proletariat. They did not understand the principle that all large-scale politics must be institutional, not personal; and when clamouring for the extension of state powers they never considered that the wrong persons might one day get hold of these extended powers.”7 “Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men even when they exercise influence and not authority, still more when you superadd the tendency or the certainty of corruption by authority”.8 The Soviet state became a perfect embodiment of this prophecy. Sadly, the possibility of this evolution was embedded in Marxian ideology. The most definitive part of Popper’s argument about the tragic ambiguities of Marxian ideology opening the way to dictatorship almost inevitably can be found in his detailed assessment of the concept of social revolution. The historical prophecy of Marx about social revolution did not exclude violence. Popper, the liberal democrat, criticized Marx who had a more than ambiguous attitude toward liberalism and democracy. Ultimately, of course, it was a clash of values. Nevertheless, Popper’s arguments are still illuminating. “I am not in all cases and under all circumstances against a violent revolution. (…) But I also believe that any such revolution should have as its only aim the establishment of a democracy; and by democracy I do not mean something as vague as ‘the rule of the people’ or ‘the rule of the majority’, but a set of institutions (among them especially general elections, i.e. the right of the people to dismiss their government) which permit public control of the rulers and their dismissal by the ruled, and which 6 Popper

(2011), p. 335. p. 338. 8 Quote from the letter of Lord Acton to Bishop Mandell Creighton in 1987. 7 Ibid.,

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make it possible for the ruled to obtain reforms without using violence, even against the will of the rulers. In other words, the use of violence is justified only under a tyranny which makes reforms without violence impossible, and it should have only one aim, that is, to bring about a state of affairs which makes reforms without violence possible.”9 Measuring the revolutions of 1917 in Russia by Popper’s gold standard, one can say that the February uprising was entirely justifiable while the October “coup d’etat” as it was fabricated exclusively by the Bolshevik party was not.10 But even after October, not everything was lost. Lenin’s government was meant to be provisional pretty much the same way as that of Prince Lvov and Kerensky. Sovnarkom duly organized the elections for the Constituent Assembly, and it was by far the most free and fair parliamentary election ever held in Russian history. Had Lenin ceded governmental power to a coalition led by the winning party once the new parliament had been up and running, social revolution would have resulted in a democratic political revolution, too. But it was not to be that way. The All-Russian Constituent Assembly, convened at 4 pm on January 18, 1918, lived only 13 hours. With it died any hope of democracy for another century. Instead, years of dictatorship and terror followed. The fundamental ideological legitimizing force for Bolshevik practice was the ambiguous Marxian concept of the dictatorship of the proletariat, wide enough to include single party rule. Popper called the prophecy of violent revolution the “most harmful element in Marxism.”11 From my perspective, I can add that an equally fatal and tragic part was the proudly upheld concept of the “dictatorship of the proletariat.”12 The two issues are inseparable but the latter is broader. It is not only about the obtainment of power but also about its retention. Popper saw it that way, too. “There are two closely connected ambiguities in the Marxist doctrine… The one is an ambiguous attitude towards violence, founded upon the historicist approach. The other is the ambiguous way in which Marxists speak about’the conquest of political power by the proletariat’, as the Manifesto puts it. What does this mean? It may mean (…) that the workers’ party has the harmless and obvious aim of every democratic party, that of obtaining a majority, and forming a government. But it may mean, and 9 Popper

(2011), p. 360. considered the Bolshevik coup d’etat of October, 1917, a counterrevolution. See Yakovlev (2002). 11 Popper (2011), p. 359. 12 Some Marxists, including Kautsky, tried desperately to harmonize the dictatorship of the proletariat with the conditions of democracy. As we have already seen in Sect. 2.4, he was on shaky ground. Some say Marx might have realized his fatal mistake at the end of his life but had no intellectual strength to modify an already well established concept. It is more important to highlight that old Engels—at the age of 71—reinforced the idea in its original form and meaning when he prepared an introduction to “The Civil War in France” republished at the 20th anniversary of the Paris Commune. He proudly upheld the original expression against what he called the “philistine paroxism” of German Social Democracy. See Marx (2014), pp. 26–27. There was no longer denial of the fact that the fatal concept led to much prevarication and seriously paralyzed practical politics by its ambiguity. 10 Yakovlev

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it is often hinted by Marxists that it does mean, that the party, once in power, intends to entrench itself in his position; that is to say, that it will use its majority vote in such a way as to make it very difficult for others to regain power by ordinary democratic means. The difference between these two interpretations is most important. If a party which is at a certain time in the minority plans to suppress the other party, whether by violence or by means of a majority vote, then it recognizes by implication the right of the present majority party to do the same. It loses any moral right to complain about oppression; and, indeed, it plays into the hands of these groups within the present ruling party who wish to suppress the opposition by force”.13 This extremely elegant exposition has four immensely important implications. First, the threat of using violence and the destruction of democracy became a self fulfilling prophecy. Second, since Communist parties considered themselves executors of an objective historical necessity, they felt justified to ignore such philistine minutiae as democracy. They were flying over and above specific forms of governance realizing the natural law of development. Third, for Communists, the aim justified the means. There could be no moral impediment blocking the inevitable evolution of history. Fourth, to Social Democrats, having been accustomed to democratic electioneering and having seen the tangible results of democratic participation, Communism became a lethal threat. After WWI they realized not only that Bolsevism was unsuitable to their conditions but that it was openly hostile to it and diminished its chances for smooth advancement. Hence, they had no choice but to turn against Communism and the Communists. While the split in the labor movement was not without tragic consequences (it did contribute to the successful march of fascism), it had some important historic achievements: Communist parties never gained exclusive governmental power in free and fair elections. Communist parties may have been popular at certain points of history in certain Western countries, but they were unable to get rid of the stench of Bolshevism. They could no longer fulfill their “historic mission” as envisaged by Marxism because of the ambiguities encapsulated in Marxism. By repudiating democracy as a formalistic institution of bourgeois class domination, and made incapable to block its own evolution into dictatorial communism, Marxism enhanced the tragedy of the very idea it wanted to promote. There is another fundamental aspect of Marxist socialism that has direct relevance to communism. It is closely connected to Marx’s historical materialism which upheld the primacy of the economy in social and political development. In conformity with historicism, that was another “natural law” valid for all societies at all times. The prophecy for socialism forecasted the abolition of the market economy, money, and it envisaged the elimination of private ownership in the means of production as an obsolete form of property impeding the evolution of productive forces in the future. The next—and final—phase of human history would be based on public ownership and conscious central planning. While the economy as such was a constant and solid foundation of all societal and political development in human history, the market economy and especially the capitalist market were regarded as short and passing phases in economic development. 13 Popper

(2011), p. 365.

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Polanyi agreed with this worldview as he was a Marxist through and through. But he substituted the Marxian socialist utopia for what he regarded the real utopia: the self-regulating market. As discussed in Sect. 3.1, he recognized the substance of modernization by the institutional separation of the economy and society. He was also right in considering this milestone in human development as a historical novelty. But he hated the market and called it a “satanic mill.” His ultimate objective was socialism because it rejected the market economy. Polanyi painted an apocalyptic vision about the consequences of the market transforming labor, land and money to what he called “fictitious commodities”. He claimed that “to allow the market mechanism to be the sole director of the fate of human beings and their natural environment indeed, even of the amount and use of purchasing power, would result in the demolition of society. For the alleged commodity “labor power” cannot be shoved out, used indiscriminately, or even left unused, without affecting also the human individual who happens to be bearer of this peculiar commodity. In disposing of a man’s labor power the system would, incidentally, dispose of the physical, psychological and, moral entity of “man” attached to that tag. Robbed of the protecting covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as the victims of acute social dislocation through vice, perversion, crime, and starvation. Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed. Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts in primitive society. Undoubtedly, labor, land and money markets are essential to a market economy. But no society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance as well as its business organization was protected against the ravages of this satanic mill”.14 But the point is that human and natural substance, as well as business—or rather economic—organization were always protected by political and cultural institutions; there was never such a time that these institutions were annihilated completely. The market was a dominant but not an exclusive institution even in the darkest days of laissez-faire early capitalism. What Polanyi painted was more of an extreme imaginary rather than a truly realistic picture of economic affairs. Even his concept of “fictitious” commodities is unrealistic; they never existed in such an exclusive market dominated form. Selling humans is not the same as selling one’s labor force. True, the state did not protect nature and humans from excessive decay. But the market could never exist for any length of time without proper state intervention. Markets require rather than exclude intervention.15 It may be utterly cheeky on my part as a fellow Hungarian, but I cannot resist the temptation to reckon that the distinguished socialist Polanyi misunderstood the 14 Polanyi

(2001), pp.76–77.

15 Polanyi himself acknowledged that “economic liberalism cannot be identified with laissez-faire”,

ibid., p. 155.

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substance of the market. He made a mistake in his analysis when considering the elements of nature and human life as either commodities in toto or ex toto, not having the characteristics of commodities at all. This sharp dichotomy does not hold. Everything can be a commodity and a non-commodity at the same time by different degrees; depending on specific economic and social conditions. All things, including ostensibly sacrosanct ones, like medical and cultural products and services can be commodities to varying extent if they are bought and sold. And yes, unfortunately, subjects, human beings, can serve as commodities in the institution of slavery. It is important to notice that commodity is like money; it is an adjective rather than a noun.16 “Commoditiness and moneyness” would be better terms to describe the essence of the market which is allowed to function at varying degrees in different periods. Markets expand and contract not only in space and over time but, first of all, in depth. When markets and money become so extensive and so intensive that they integrate the whole national or world economy, then the result is called the capitalist market economy. But, it is never a completely unconstrained, unbounded, unlimited, unregulated device; just a fundamental institution expressing fundamental freedom in economic life. Can it be replaced by conscious central planning? Yes, it can. War communism and classical Stalinism not only attempted to do that but it was largely achieved—with disastrous results. As a consequence, existing socialism, striving to attain the ideologically prescribed objective, was compelled to experiment with market reforms. But these reforms always suffered from two inherent weaknesses. First, they could not be explained away by labeling them an advancement of socialism, they had to be acknowledged as a retreat. Second, they always incorporated more freedom of action for subnational entities, like enterprises, cooperatives, local authorities, productive associations, private individuals, etc. They gave rise to what was to be excluded from socialism from the beginning: competition. But freedom of choice and competition in economic activity are outright dangerous to the monolithic political system; they may wake up the desire for more political rights and liberty. The insoluble contradiction of the socialist system manifested itself in the fact that it was rigid and had no economic or social equilibrium point. Under extreme stress, it broke because it was unable to bend. Hayek demonstrated the incompatibility of democracy with central planning with utmost clarity. He devoted a whole separate chapter in his famous book to planning and democracy.17 His own summary of his findings is as follows: “It is the price of democracy that the possibilities of conscious control are restricted to the fields where true agreement exists, and that in some fields things must be left to chance. But in a society which for its functioning depends on central planning, this control cannot be made dependent on a majority being able to agree; it will often be necessary that the will of a small minority be imposed upon the people, because this minority will be the largest group able to agree among themselves on the question 16 See

Sect. 4.5. (1944), Chapter V, pp. 42–53.

17 Hayek

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at issue. Democratic government has worked successfully where, and so long as, the functions of the government were, by a widely accepted creed, restricted to fields where agreement among a majority could be achieved by free discussion, and it is the great merit of the liberal creed that it reduced the range of subjects on which agreement was necessary to one on which it was likely to exist in a society of free men.”18 The inferences of this book are in harmony with the message of this compact quote from Hayek. It shows that it was not only Polanyi who did not fully grasp the essence of the market as an economic institution but the whole body of Marxian ideology was extremely weak on this issue. Unfortunately, there was a need for a wholesale suppression of market freedom for a good part of humanity for a relatively long time for realizing that the market is fundamentally about freedom. There could be no “higher level” freedom in defining all the material needs of all members of society by a collective, i.e., democratic, political process. Freedom of choice must be preserved at the level of the individual and the impersonal mechanism of the market offers the only effective way to coordinate economic action which is at the same time compatible with democracy. It proved impossible to determine individual consumer, investments, savings preferences collectively. The eternal and apparently insurmountable “economic problem,” i.e., the allocation of scarce resources among competing uses, cannot be solved by democratic political consensus. Therefore, the market as a societal institution is indispensable for guaranteeing not only the most effective and efficient satisfaction of wants and needs but also for achieving it with a sufficiently high degree of personal freedom which allows enough room for individuality. But the economic significance of the market as a fundamental institution of the economy is only one side of the problem. Equally important, if not more important, is that the market, itself a clear manifestation of economic freedom, at least leaves the door open for freedom in other spheres of human existence. Obviously, the market is no guarantee for political, cultural, moral freedom.19 But it is not an insuperable obstacle, either. However, the opposite is not true. A regime which denies market freedom is unable to allow room for freedom in the political sphere.20 There is no such a thing as a centrally planned economy based on dominant, if not exclusive, state ownership of the means of production with a democratic political superstructure. The negation of the market directly leads to the negation of democracy, too. Hence, democratic socialism is impossible on classical Marxian premises.21 Abolishing the 18 Ibid.,

pp. 51–52. have seen many political regimes in history dictatorial in politics but quite liberal in the economy. 20 “The clash between planning and democracy arises simply from the fact that the latter is an obstacle to the suppression of freedom which the direction of economic activity requires”. Hayek (1944), p. 52. 21 If private property and market freedom are preserved and democracy leads to piecemeal socialistic reforms, like high and progressive taxation, large-scale income redistribution and extensive public services offered for free or at a price well below costs, then we are faced with a completely different type of socialism not a Marxian one. This type of socialism can be called “Scandinavian” or “Nordic” 19 We

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market and private property will inevitably destroy democracy. Marxist socialism does not and cannot lead to freedom. That is the utmost tragedy of this seemingly humanistic idea. As we have seen, Hayek had a somewhat instrumentalist view of democracy. He agreed with Lord Acton that the highest political end was liberty.22 For him, as it was pointed out, democracy was basically a means, “a utilitarian device for safeguarding internal peace and individual freedom.”23 That is a narrow view. History has proved that democracy is not only a means but an end in itself , too. Having experienced “socialist” or “popular” democracy for half of my own life, I am not inclined to be satisfied with an adjective to democracy other than liberal. When talking of democracy, freedom-loving people has no choice but reject the adjective: illiberal.24 Elections without free and fair competition among parties representing different views make a mockery of democracy. Election of political leaders nominated by the only party permitted and excluding the possibility of changing the government was no democracy. Democratic competition needs freedom of press, speech and assembly, guaranteed by the rule of the law, too. “The fashionable concentration on democracy as the main value threatened is not without danger. It is largely responsible for the misleading and unfounded belief that so long as the ultimate source of power is the will of the majority, the power cannot be arbitrary. The false assurance which many people derive from this belief is an important cause of the general unawareness of the dangers which we face. There is no justification for the belief that so long as power is conferred by democratic procedure, it cannot be arbitrary; (…) it is not the source but the limitation of power which prevents power from being arbitrary.”25 We can understand, even agree with Hayek’s reservation regarding democracy— that is why it is important to insist on the concept of liberal democracy. True, the will of the majority of the people may lead to arbitrary power and emptying out of democratic freedom. As the rise of Hitler to power attests, it can even lead to the complete destruction of democracy. There is no denial of the fact that democracy is a very fragile institution, but its inherent vulnerability does not reduce it simply to a mere “utilitarian device.” Every human institution is fragile. All valuable institutions need constant and thoughtful nurturing. The best way to nurture and rejuvenate democracy is to keep enriching its liberal content by the vigorous defense and permanent reconstruction of the rule of law. As we have seen, the rule of law was completely missing not only from the practice of existing socialism but even from its concept and ideology. Democracy was frequently mentioned, of course, with the adjective “socialist” or “popular,” but the (to include Finland), but it is a clear negation of Marxian, Marxist and Leninist-Stalinist socialism. To avoid confusion in terminology, it might be better not to call it socialism at all. 22 Hayek (1944), p. 52. 23 Ibid., p. 52. 24 See footnote 153 in Chapter 4. 25 Hayek (1944), pp. 52–53.

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rule of law never.26 And that is no surprise because socialism, like fascism, is a very strongly collectivist ideology. It can rightly be considered as a “revolt against liberty” and certainly as a revolt against liberalism and individualism. Collectivism does not appreciate legality, usually it regards law as an instrument serving nothing else but political domination. The law cannot provide protection to any individual or group of individuals because it would limit the omnipotence of political power exercised in the name of an imaginary collective. Marx might not have realized the full potential of his eloquent phrase, but the “dictatorship of the proletariat” expresses brilliantly the substance of socialism in many ways. Since it was up to the communist party to define the ruling class, the proletariat, dictatorship could automatically become unlimited, unconstrained, omnipotent. Law and judiciary could only be subordinated instruments of naked power. New prophets in the guise of Marxism keep telling us not only that market capitalism and liberal democracy are sentenced to death but some of them even try desperately to rehabilitate Marxism and Leninism.27 These writers happily ignore all signs of the stunning adaptability and flexibility of market capitalism. They have been waiting for the final collapse of liberal capitalism and democracy for several decades by now. Obviously, nobody can and should take the survival of capitalism and liberalism for granted and we need to redouble our efforts not only to defend it but, more importantly, to strengthen and rejuvenate it. But this piecemeal renaissance could never progress on the basis of a collectivist utopia; that would give up exactly those values which constitute the essence of Western civilization. Without compelling anyone to implement liberal democracy against the will of his own people, we need to uphold the values of individualism because that is the only conceivable starting point to achieve true societal solidarity on a conscious and voluntary basis.28 This is the message conveyed to us by the five giant scholars remembered and invoked in this book with their unending intellectual struggle for human dignity. Either by calm and sublime resignation (Schumpeter), or faint, withering hope (Polanyi), or rampant, but measured rationality (Hayek) or sympathetic but considerate refusal (Popper) or painful personal experience (Arendt), they all grasped in their own way the enormity of the challenge constituted by the idea of socialism at a time when twentieth-century history reached its lowest ebb and the fight against inhumane socialism seemed a completely hopeless endeavor. Individualist humanity finally prevailed over collectivist totalitarianism. But it might not have been able to win the battle without the enormous intellectual efforts of these five towering figures and many others who contributed to our understanding of the ultimate tragedy of the socialist idea.

26 It is the same phenomenon which was mentioned in case of Hitler. See footnote 169 in Chapter 4. 27 One

of them is the erratic and eccentric Slovenian Marxist philosopher Slavoj Zizek. He not only denounced the Great Recession a decade ago as a sign of the final collapse of capitalism but considered it a proof of the end of liberal utopianism. He wrote extensively in the defense of not only Marxism, but Leninist Communism, too. See e.g. Zizek (2008) and (2010). 28 Bokros (2004) and (2019a, b).

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