Rediscovering Fire: Basic Economic Lessons from the Soviet Experiment

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Algora Publishing, 2010 - Business & Economics - 322 pages
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The experiment with socialism in the Soviet Union was based on Marxist economic theory, which denied the universal nature of economic law. The economy became a blank slate, without markets, prices, even without money - for a time. Government had to rediscover fire - learning basics of economics over again. This historical laboratory of social science should be exploited for the lessons in basic economics that it offers. Many view Lenin as a dictator who exploited the peoples of the Soviet Union, betraying the hopes and dreams of socialism for his own benefit. Yet, Lenin wrote hundreds of books on Marxist theory, and the policies he enacted were those he promised. Despite the wealth of information available on the Soviet experiment, few have closely analyzed why it produced results different from those intended and what these lessons might mean for market economies. Based on Marxist economic theory, which denied the universality of economic laws, the Soviet Union wiped out the market and, with it, the basis for all economic knowledge. In this vacuum of economic information, planners had neither market theory nor prices to guide them. The socialist experiment was truly an experiment in eliminating the market. The Bolsheviks enacted policies based on Marxist hypotheses: nationalizing businesses and banks, setting wages according to the labor theory of value, eliminating interest and capital markets, and planning full employment. When each Marxist policy failed, the state reorganized to better implement it, tried modified versions, and only pulled back as a last resort. In this book, Guinevere Nell explores the theory and experience of the socialist experiment. In each chapter, she considers one theory put forth by socialists. She explores the ways in which the Soviet planners implemented this theory, recognized that their policies were not producing the desired results, and tried to implement reforms to combat the failures. In each chapter, she extracts certain lessons from the experience of the planners. The lessons capture the dynamic nature of the economy, something that is commonly overlooked by mainstream economists and policymakers although it has been a focus of the Austrian school of economics. Insights from the debate between socialists and Austrian economists are introduced during the discussion of the lessons at the end of each chapter. The lessons suggest that due the dynamic nature of the market, the Soviet Union could never surpass the West in economic growth. Each chapter concludes with policy examples and discussion of how the lesson can inform policies that market economies are considering. All policy examples are from current U.S. policy debate. The last lesson ties together the thrust of many disparate threads throughout the book. It makes the case that the socialist arguments were aimed at the wrong target, which is why the prescription of planning led to the opposite of what was intended. The conclusion of the book summarizes the recurring themes of reform. These lessons have relevance for all economies and for both economists and the policy-minded citizen. For example, the socialist elimination of competition provides insight into the neoclassical framework and sheds light on our common understanding of how 'competitive' certain industries are. The book is intended for the educated layperson, but should also be accessible and relevant to college students and professional economists. The book is written in plain language, with all economic terms defined.
 

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Contents

Introduction
1
Chapter 1 The Real Benefits of Competition
25
Chapter 2 The Dynamics of Unemployment and Efficiency
49
The Value of Profit and Loss for the Firm
83
The Value of Profit and Loss for the Economy
101
Chapter 5 Middlemen Trade and the Market System
131
Chapter 6 The High Price of Price Control
151
Money and the Danger of Centralized Monetary Policy
181
Chapter 8 Regulation and the Institutions of a Dynamic Economy
207
Chapter 9 Democracy and Freedom
235
Chapter 10 Corporate Capitalism or the Free Market
267
Lessons for Economic Modeling
295
Further Lessons for Economic Modeling
307
Bibliography
313
Index
317
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