Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

Additional Considerations on the Theory of the Business Cycle 473from above and does not coincide with the desires of citizensand it is theoretically impossible for the system to correct itsmaladjustments and discoordination. 76 Therefore to contendthat an economy of real socialism offers the advantage of eliminatingeconomic crises is tantamount to affirming that theadvantage of being dead is immunity to disease. 77 Indeedafter the fall of the socialist regimes of Eastern Europe, whenconsumers were again given the opportunity to freely establishthe productive structure most in line with their desires, itimmediately became clear that the scale and magnitude ofpast investment errors would make the readjustment processmuch deeper and much more prolonged and painful than iscommon in the stages of recession which affect marketeconomies. It has become evident that most of the capitalgoods structure which existed in socialist economies was completelyuseless with respect to the needs and objectives characteristicof a modern economy. In short socialism provokes awidespread, intense, and chronic malinvestment of society’sfactors of production and capital goods, a malinvestmentmuch more severe than that caused by credit expansion.Hence we may conclude that “real socialism” is immersed ina deep “chronic depression,” i.e., in a situation of constant76 We have completely devoted the book, Socialismo, cálculo económico yfunción empresarial, to demonstrating why it is impossible for a system ofreal socialism to exert a coordinating effect through its policies evenunder the most favorable conditions.77 A dictator does not bother about whether or not the massesapprove of his decision concerning how much to devote forcurrent consumption and how much for additional investment.If the dictator invests more and thus curtails the meansavailable for current consumption, the people must eat lessand hold their tongues. No crisis emerges because the subjectshave no opportunity to utter their dissatisfaction. Wherethere is no business at all, business can be neither good norbad. There may be starvation or famine, but no depression inthe sense in which this term is used in dealing with the problemsof a market economy. Where the individuals are not freeto choose, they cannot protest against the methods applied bythose directing the course of production. (Mises, HumanAction, pp. 565–66)