The Ultimate Aim of Socialism Was the “End of History” When Perfect Social Harmony Is Established

The ultimate aim of socialism, inspired by Marx, was the “end of history,” in which perfect social harmony would be permanently established. Social harmony was to be achieved by the abolition of exploitation, by the transcendence of alienation, and above all, by the transformation of society from the “kingdom of necessity” into the “kingdom of freedom.”

Collective ownership was not an end in itself. By rationalizing material production and thus advancing it beyond the bounds reachable under capitalism, collective ownership was to usher mankind into a post-scarcity world.

The writings of Marx and his followers thus include critiques of capitalism on the grounds that its production is “irrational,” that it tends towards increasing monopolization and the immiseration of a growing proportion of the populace, and that it produces a business cycle that makes it inherently unstable. Marx and other socialists thus sought to demonstrate the productive inferiority of the capitalist system relative to what socialism could achieve.

The socialist project to which Mises responded therefore proceeded in two interrelated stages. First, by rationalizing production, socialism would eliminate the waste inherent in capitalism owing to its “anarchy of production,” eliminate capitalism’s tendency towards greater monopolization, and do away with capitalism’s inevitable crises; all of this would bring about unprecedented increases in material wealth. Second, these productivity gains would usher in a post-scarcity era, which in turn would provide the material preconditions for lasting social harmony.

—Peter J. Boettke and Peter T. Leeson, “Still Impossible after all these Years: Reply to Caplan,” Critical Review: A Journal of Politics and Society 17, nos. 1-2 (2005): 156. 

Keynes’s Criticisms of “the Free Market” Were Actually Criticisms of Unfree Central Banking Regimes

Keynes’s analysis of the possibility of underconsumption in capitalist economies is not a general theory of market economies, but rather is relevant, at best, to economies with central banking systems. Selgin helps demonstrate that by contrast, competition in money production can link saving and investment, thus avoiding Keynes's critique. In addition, Selgin's argument provides a framework to understand central banking’s inability to achieve its intended results. Many of the macroeconomic problems in historical capitalism can thus be traced to interference with financial markets, rather than to market failures.

The economist Henry Simons once observed that Keynes’s criticisms of “the free market” were actually criticisms of unfree central banking regimes. George Selgin’s recent book contributes to that perspective by showing how a completely unregulated banking system could avoid the macroeconomic problems that have plagued economies with central banking systems the world over.

If Selgin is right, Keynes’s theory of underconsumption is not a “general theory” of capitalism’s failures, but a special theory about how economies may fail when hampered by specific financial institutions. Aside from misspecifying the problem, the Keynesian theory also provides unsatisfying solutions. Hence, Selgin offers a modernized version of pre-Keynesian theory and a way of eliminating both the problems with which Keynes was concerned and those that the implementation of his theories eventually caused.

—Steven Horwitz, review of The Theory of Free Banking: Money Supply under Competitive Note Issue, by George Selgin, Critical Review: A Journal of Politics and Society 3, nos. 3-4 (Summer-Fall 1989): 411-412.