Lessons from the collapse of the Soviet Union


Last week was the one-year anniversary of the death of Dr. Yuri Maltsev, an economist in the Soviet Union under Gorbachev, who moved to the United States of America in 1989. This article is an adaptation of a lecture written by dr. Maltsev for the 2011 Austrian Scholars Conference in Auburn, Alabama, and is courtesy of Mises Wire published.

By dr. Yuri Maltsev

The opening lines of the national anthem of the Soviet Union read as follows: β€œAn Unbreakable union of free republics, Great Russia united forever. Long live the created by the will of the peoples, the united, the mighty Soviet Union.”

But it was indeed not unbreakable.

Twenty years ago it fell apart spectacularly. Why do empires like the Soviet Union seem so formidable and insurmountable – and even eternal – yet turn out to be so fragile? Indeed, how fragile all empires were and still are today. There are many lessons the world can learn from this. Here are some of the lessons that the wreckage of the Soviet Union makes us learn, rethink and appreciate.

  1. Real property rights matter

Please note the word “actually”. There are many ways to deceive people about property rights, but before we examine these tricks, let’s remember that true property rights mean that I can acquire, use, develop, profit from, and dispose of my property as I see fit.

But socialists have learned that they can stalk people. The tragedy of the Bolshevik Revolution of 1917 was not an isolated event in Russian history. The beginning of the twentieth century was marked by the encroachment on socialism through the increase of regulations as well as social and ethnic engineering. The large bureaucratic regulatory state created by the government of Nicholas II in Russia was the direct predecessor of socialism.

World War I led to further militarization and centralization of Russia. Socialist leaders, Lenin and Bukharin, watched with great sympathy as a German military economic machine replaced the market mechanism. They argued that the combination of this type of economic organization with the Socialist Party in power is socialism. “Here we have the last word in modern large-scale capitalist technology and planned organization,” Lenin wrote.

Ludwig von Mises analyzed two patterns for the realization of socialism: Russian, with great socialization and German/Nazi with property rights subjugated by the state and central planners. In summary, the fascist economic model relates to property rights in the following ways: incrementally regulated and limited, which is gradual confiscation; arbitrarily imposed to apply to one class or group and not another; total state control of private property and the creation of a new type of property rights holder, the bureaucrat.

It was and still is common in academia to identify the communist as the left and the Nazis as the extreme right, as if they were on opposite ends of the ideological spectrum. These definitions were first coined by Stalin himself at the Seventh Congress of the Communist International in 1935. To put these regimes in their true perspective, we must point out that they are different versions of the same socialist ideology.

The economic policies of Mussolini’s Italy and Hitler’s Germany resemble the state socialism that Lenin wanted to introduce in Soviet Russia, under which private enterprises would work for the government – an idea that Lenin was forced to abandon under pressure from the left communists .

Under both fascist and communist regimes, government bureaucracy completely controls production. It decides what will be produced, how much, for whom and how. The difference between the systems is that the German and Italian versions did allow or, more accurately, tolerated private property. However, it was property in a peculiar and very limited sense – not the virtually unfettered private ownership of Roman law in nineteenth-century Europe, but rather conditional ownership according to which the state (the owner of the last instance) reserved the right to to interfere and even seize assets which in his judgment have been used unsatisfactory.

In reality, the governments of fascist Italy and Nazi Germany directed production decisions, curbed entrepreneurship and the labor market, and set wages and interest rates through centralized authority similar to that in the communist states. Communist Russia was the first country to completely and effectively abolish property rights, which was declared a sanctification of capitalist oppression and exploitation. Lenin pursued the expropriation of private property with fanatical zeal and unequivocal brutality. When the massive expropriation was completed, it was officially reported that the state sector of the Soviet Union accounted for 99.3% of the country’s national income. The results of this action can be considered the worst tragedy experienced by mankind.

  1. Sound money and free banking

Ludwig von Mises explained that social cooperation requires a division of labor, since no one can do, make, refine, grow, cultivate, collect, promote, raise, process, improve and deliver everything they need and want in their lives . And there are several keys that are necessary for the division of labor and therefore social cooperation to work at an optimal level.

At the individual interaction level, it is the money, which is the blood, that moves through the body of humanity and makes the interaction work. Without money as the interactive means of exchange, the division of labor cannot function beyond a subsistence level. In fact, it is the reliability of money that allows the division of labor of people (who want different things in life at different times) to expand and give social cooperation a chance.

  1. Freedom of speech, mobility, and information dissemination and acquisition matters
  2. Rule of law

Rule of law must mean that no one is above the law. Socialist tyranny is incompatible with the rule of law.

  1. Non-centrally controlled education affairs

Central control of education leads people to learn what suits and serves those who want greater control over people. Decentralization of education is no guarantee of proper education, learning and discernment of truths that are useful and necessary in life, but at least it makes better education possible. The ideal goal of education is to teach valuable truths such as principles of life. For example, economic laws that are true regardless of time and place, history, understanding the important lessons that true history teaches us.

  1. Central control and suffering

There is a direct link between coercive central control and suffering and death. The greater the coercive central control, the greater the suffering and death. This system was based on destruction of markets. Rationing was imposed on everything from means of production to consumer goods and the creation of non-economic institutions of forced labor, mass murder, mass incarceration of millions, provision of cheap labor and a ban on peasants leaving collective farms, later supplemented by a similar ban on jobs and changes of residence for urban residents.

Most Western historians believe that Stalin’s terror took place mainly in the cities against intellectuals and political opponents, but the Great Purge was actually an attack on the countryside. More than half of all executions took place in rural areas. The liquidation of the Kulaks, who were the big landowners, resulted in ten million of them being deported to Siberia where most of them died. In Ukraine alone, Stalin starved more than 7 million peasants to death. Bloodthirsty communist leaders ended up deporting women, children and crippled people who were no threat to the government. Often authorities had another agenda such as wiping out people they might need to feed.

What else have we learned?

For those committed to enforcing central control, tactics will change, but all will involve violence. Incrementalization will be used. Propaganda starts early and must be pervasive, from education to media to entertainment. Choices in all areas of life must be limited. Central controllers can never have enough control over others. Fear is their best tool. War works. It is, as Randolph Bourne said, “the health of the state”.

Some would say that if history teaches us one thing, it’s that we never learn anything. But this is not entirely true. Some of us learn, just to make sure; not enough of us learn yet. And there are many who still believe that socialism is fixable – that it is like a guitar that only needs to be tuned correctly, that all the socialists up until now have simply been imbeciles and that we “new socialists” can fix it.

The biggest lesson is that socialism is not recoverable. Why?

In The Essential von Mises wrote Murray Rothbard: In an environment of accelerating statism and socialism, Ludwig von Mises turned his powerful attention to analyzing the economics of government intervention and planning. His journal article of 1920, “Economic Calculation and the Socialist Commonwealth” was a great success, demonstrating for the first time that socialism was an unviable system for an industrial economy.

Von Mises showed that a socialist economy that was totally deprived of the free market price system could not rationally calculate costs or efficiently allocate production factors to their most needed tasks. Social cooperation requires the division of labor, as Mises tells us. It in turn is built on the foundations of private property, sound money, rule of law and the other integrated principles of peace, prosperity and freedom.