Einstein Was Wrong About Socialism

Why were Albert Einstein’s assertions in defense of socialism wrong?

Albert Einstein’s 1949 essay titled ‘Why Socialism?’  , summarizing his view on why socialism is preferable to capitalism, is a must read for anybody seriously exploring these issues. Though it does not provide any new insights on the subject, it does give you a glimpse of how arguably one of the most intelligent human minds, approached this question. And thereby also shows that if this was the defense of socialism from one of the brightest human minds, then the case for socialism must be very weak indeed!

The essay starts with a discussion on how economic laws and physical laws are different; specifically arguing how economic law is just a statement of human behavior and different societal behaviors can lead to different economic laws. He then proceeds to state the objectives of socialism and emphasizes on how individuals are dependent on society for almost all they need in life. This is followed by a criticism of ‘supposed’ attempts to abolish dependence of individuals on society, and an affirmation that socialism is the solution.

Then comes a definition and critique of the ‘economic anarchy’ of capitalism, culminating with the assertion that these flaws of capitalism directly imply planned economic activity is to be preferred. Though he does conclude with listing a few ‘unsolved problems’ with socialism, yet doesn’t consider them serious enough to require a rethink on socialism itself.

Do Einstein’s assertions, on which he bases his opinions, hold when subjected to scrutiny? Let’s pick all the pillars on which his essay stands and dissect them.

The contrast between physical and economic law

 Quoting Einstein-

But historic tradition is, so to speak, of yesterday; nowhere have we really overcome what Thorstein Veblen called “the predatory phase” of human development. The observable economic facts belong to that phase and even such laws as we can derive from them are not applicable to other phases. Since the real purpose of socialism is precisely to overcome and advance beyond the predatory phase of human development, economic science in its present state can throw little light on the socialist society of the future.

Here Einstein has a valid point that economic outcomes, even in the aggregate, have a lot to do with individual actions which arguably don’t follow a rule. Individual actions are very much guided by the ethical propensity of the individual. And if the commonly accepted ethics in society changes, so do the aggregate economic outcomes. Hence economic outcomes are very much dependent on societal norms.

Then Einstein states that the results of socialism cannot be predicted by using the same economic laws which were derived observing past human behavior, since the purpose of socialism is to change that very behavior. But in saying this, he somehow just assumes without any justification that socialism will change societal behavior for the better!

And this raises the question as to what exactly is socialism according to Einstein, which claims to improve the very way humans behave? There is no denying the fact that socialism does change the way in which humans behave, but how do we figure out if it does change individual behavior in the way Einstein intends it to.  He asks us to ignore this question because according to him, it cannot be answered using observations on current individual behavior. It is a plea to analyze that world as it does not exist! In a sense, this stand is a tacit acceptance, that current economic understanding does imply socialism is unworkable. And that an argument for socialism does require you to forget all what humans have learnt about economic law!

Are people in socialist societies more generous towards their fellow beings? Is there more charity in socialist societies? Is there less greed in socialist societies? Our experience for the last half century since this essay, tells us that the question if socialism actually make individuals more ethical, is a question which cannot be left uninvestigated. And what investigative apparatus do we have other than applying experiments and theory?

In summary, the call to skip analyzing socialism’s workings is a very big risk not worth taking. All experiments till now have demonstrated exactly the opposite of what is asserted in the essay! It would be great to have a world where everybody cares about the others more them themselves. But in that case, capitalism itself will excel, you would not need socialism.

An individual’s place in society

Quoting Einstein-

It is evident, therefore, that the dependence of the individual upon society is a fact of nature which cannot be abolished—just as in the case of ants and bees.

There is a common misunderstanding that anti-collectivist ideas like capitalism are somehow trying to abolish the dependency of the individual on the society. This misconception needs to be put to rest once and for all. The thinking, which needs to be countered, goes something like this – If you are not for forced sharing, you are not for sharing . If you are not for forced exchange, you are not for exchange. If you are not for forced help, you are not for help.

Division of labor and exchange are the bedrocks on which the capitalist society is based. A cobbler is dependent on the butcher for this meat. The lawyer is dependent on the farmer for his rice. I wonder, how do people get the idea that capitalism is incompatible with individuals depending on society ?

The only thing which capitalism does, is to call for the dependency to be voluntary. It says that the cobbler does not have the right to force the butcher to give him meat against his will! It says that the lawyer cannot force the farmer and take his rice.

Capitalism attempts to civilize this dependence, to end the dog-eats-dog model of socialism and replace it with a rules based system of fair accounting of contribution to society. And individual autonomy does not mean no dependence on society, it just means voluntary dependence on society. Sure some individual could choose to sever relations with society, but they are hurting only themselves in the process and not society.

Einstein’s fears are totally unfounded. Leave aside capitalism, even advocates of anarcho-capitalism, never for a moment suggest that dependency of the individual upon the society be abolished. Einstein is hitting a straw man.

Private Ownership and the Marxist critique of Capitalism

A common pattern in Marxist and most leftist school of thought like Keynesianism is the complete inability to analyze and understand why a certain state of affairs came to be. It just limits its scope to actions which can be taken to change outcomes totally ignoring why the outcomes are the way they are. Not surprisingly, leftist ideas consistently fail to solve any problems, despite the best of intentions.

Marxist thought always looks at snapshots of outcomes, divorcing it from causes. This truncated frame of reference blinds you to any systemic solution to problems. What does a Marxist do when his boat is leaking? He just keeps throwing water out cup by cup while blaming people with working boats for his misfortune.

It does not occur to him to look around for the presence of holes in his boat because that would require him to think about what caused his boat to leak in the first place. And this is totally an un-Marxist approach! The Marxist approach is to try to capture somebody else’s boat. Why is there so much poverty around the world? Why do some people own the means of production and others don’t?

Quoting Einstein-

In this respect, it is important to realize that the means of production—that is to say, the entire productive capacity that is needed for producing consumer goods as well as additional capital goods—may legally be, and for the most part are, the private property of individuals. For the sake of simplicity, in the discussion that follows I shall call “workers” all those who do not share in the ownership of the means of production—although this does not quite correspond to the customary use of the term. The owner of the means of production is in a position to purchase the labor power of the worker.

Why does the society put some people in charge of the means of production? Is this a conspiracy? In pre-capitalistic periods when force was generally acceptable, invaders could seize your land against your will, making them owners of the means of production! If voluntary buying and selling also leads to some people attaining ownership of the means of production, is it similar to invaders seizing your land? The Marxist answer is Yes.

 So if I, as a potter, make such awesome pots that everybody wants to have my pots in exchange for what they can give me, and the carpenter and the engineer are voluntarily ready to build for me a bigger, better, more efficient wheel using which I can make even more awesome pots, is this state of affairs undesirable ? I do enjoy control over the means of production as a result of this voluntary exchange!

Maybe given the higher efficiency of the wheel setup, I could get someone to help me with the pot making and give him some pots in return (read employment) . Is this undesirable?   Should the butcher have equal jurisdiction over the potter’s wheel to make choices on how fast it is rotated and how many pots are made every day and how much do these pots exchange for?

Then, the Marxist shows up on the scene after the potter is already owning the means of production and declares it as unethical. He then calls for the banker, florist, doctor and the potter apprentice to also stake their claim on the operation of the wheel (read – pot factory). Mild Marxists limit their calls to just the junior potter(read employee) exercising increased control over the pot factory.

The analysis of capitalism starts by differentiating between ‘capitalists’ and ‘workers’ without any reference to how it came to be so!  He fails to differentiate between attaining ownership of the means of production by voluntary exchange and attaining ownership by means of force. He declares private ownership as undesirable without looking at why it came to be so.

The Labor theory of value

Clinging to the thoroughly discredited labor theory of value Einstein adds

The essential point about this process is the relation between what the worker produces and what he is paid, both measured in terms of real value. Insofar as the labor contract is “free,” what the worker receives is determined not by the real value of the goods he produces, but by his minimum needs and by the capitalists’ requirements for labor power in relation to the number of workers competing for jobs. It is important to understand that even in theory the payment of the worker is not determined by the value of his product.

What is the real value of the goods? What is the right price of labor?  Should the price of labor be the difference between the price of raw materials and the price of the final product? Einstein does not venture to try to answer these questions! He states that the price of labor in the capitalistic system is determined by the supply and demand of labor, but does not provide any reason why this is undesirable!

Economic analysis tell you that the deviation between the market price of labor and the ‘real’ value of goods produced, drives society to use labor for objectives more desirable than alternates. If price of labor were to match difference in price between raw material and final product, there would be no reason for anyone to reduce present consumption to produce the means of production.  But it has already declared that economic analysis on the basis of experience to be invalid! So let’s just play by the rules of the game forced on us in the essay and skip the scientific method.

Regulatory capture

Einstein said-

The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked even by a democratically organized political society. This is true since the members of legislative bodies are selected by political parties, largely financed or otherwise influenced by private capitalists who, for all practical purposes, separate the electorate from the legislature. The consequence is that the representatives of the people do not in fact sufficiently protect the interests of the underprivileged sections of the population.

Einstein commendably recognizes what came to be known as ‘Regulatory Capture’ when formalized by George Stigler. But amusingly he concludes this to be the result of capitalism rather than government! Capitalism by its very definition means reduced governmental interference in the market. He interestingly describes a case of increased government interference in the market and attributes it to capitalism.

A mindset which many people have is that capitalism means more power to the capitalist. The fact is it is generally the capitalists who dislike capitalism because it forces them to satisfy their customer before laying their hand on a single dime from them. They would rather prefer a state which forces individuals to give their money to them either through subsidies, or reducing competition through regulation.

If the state is being used by the capitalist to exploit the people, what different kind of state does Einstein propose to implement his socialism which would be free from these ‘imperfections’ ? How does socialism take care of regulatory capture?  Can we have socialism without an even more powerful government? Einstein leaves all such important questions unanswered, which are essential before any idea of socialism can be taken seriously!

Profits and Unemployment

Quoting Einstein-

Production is carried on for profit, not for use. There is no provision that all those able and willing to work will always be in a position to find employment; an “army of unemployed” almost always exists. The worker is constantly in fear of losing his job. Since unemployed and poorly paid workers do not provide a profitable market, the production of consumers’ goods is restricted, and great hardship is the consequence. Technological progress frequently results in more unemployment rather than in an easing of the burden of work for all.

The antagonism to ‘profit’ which some people have is astounding!  Can you make profits by producing commodities which people don’t want to use? What is unemployment? Unemployment is just a situation when the price demanded for work is more than the price offered. How is unemployment a result of capitalism? Why should there be provision that people should always get paid what they want to get paid? If there is such a provision, who will be making the payments? No answers or even a thought on these questions from Einstein!

The socialist economy

Einstein stated-

I am convinced there is only one way to eliminate these grave evils, namely through the establishment of a socialist economy, accompanied by an educational system which would be oriented toward social goals. In such an economy, the means of production are owned by society itself and are utilized in a planned fashion. A planned economy, which adjusts production to the needs of the community, would distribute the work to be done among all those able to work and would guarantee a livelihood to every man, woman, and child.

Experiments have thoroughly discredited these ideas expressed by Einstein. Still such ideas have gained widespread acceptance and it’s not very difficult to understand why.  They appeal to emotions and are simple to express. They need mathematical rigor to be shown to be logically incoherent.  And most people don’t venture that far. These ideas are like Euclidean Geometry in a non-Euclidean world.

It is never explained how the socialist economy eliminates any of the evils he has identified ! How will handing over the control of the means of production from the hands of the capitalist to the collective fix the problem? The capitalist had to earn it by showing tangible results to the public. The politician representing the collective gains control through appeals to emotion. How will production be adjusted to the needs of the community without the market? Einstein’s analysis looks like a rehash of Marxist thought without any further thought put into it!

The problems with the socialist economy

Einstein stated-

A planned economy as such may be accompanied by the complete enslavement of the individual. The achievement of socialism requires the solution of some extremely difficult socio-political problems: how is it possible, in view of the far-reaching centralization of political and economic power, to prevent bureaucracy from becoming all-powerful and overweening? How can the rights of the individual be protected and therewith a democratic counterweight to the power of bureaucracy be assured?

To Einstein’s credit, he does identify some unsolved problems with socialism though does not investigate them thoroughly enough to realize that these problems are logically unsolvable due to the very nature of socialism. The irony is that an ideology which assumes that people don’t respond to incentives, is trying to find the right incentives for bureaucrats to act in the interest of the public! Naturally socialism is bound to fail as it stands on logical incoherencies.

To be fair to Einstein, in the beginning of the essay itself, he acknowledges that he is no expert on economic issues. But the sad tragedy is that leftist all over the world parade this essay from Einstein as validation of their stand. Not contesting Einstein’s right to express himself in any way, I think Einstein did a great disservice to human society by commenting on such an important issue without deep examination of the propositions. He would be sad to find what misery socialism has brought to millions of poor people around the world.