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Unbreakable Union: Lessons Learned from the Demise of the Soviet Union

[This week marks the one-year anniversary of the death of Yuri Maltsev. Dr. Maltsev had been an economist in the Soviet Union under Gorbachev, and defected to the United States in 1989. This article is an adaptation of a lecture written by Dr. Maltsev for the 2011 Austrian Scholars Conference in Auburn, Alabama.] 

The opening lines of the state anthem of the USSR went as such: “An unbreakable union of free republics, Great Rus has united forever. Long live the created by the will of the peoples, the united, the mighty Soviet Union.” 

But, indeed, it was not unbreakable. Twenty years ago, it broke apart spectacularly. Why do empires like the Soviet Union look so formidable and insurmountable—and even eternal—yet turn out to be so fragile? Indeed, how fragile all empires have been and are yet today. There are many lessons the world can learn from this. Here are some of the lessons that the wreckage of the Soviet Union leaves us to learn, ponder, and appreciate.

Lesson number one: real property rights matter. Please note the word "real." There are many ways to trick people about property rights, but before we examine these tricks, let us remember that true property rights means that I can acquire, use, develop, profit from, and dispose of my property as I see fit. 

But Socialists have learned that they can creep up on 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 encroaching socialism through the increasing of regulations as well as social and ethnic engineering. The huge bureaucratic regulatory state created by the government of Nicholas II in Russia, was the direct predecessor of socialism. 

The First World War led to further militarization and centralization of Russia. Socialist leaders, Lenin and Bukharin with great sympathy were watching how German military economic machine was replacing 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” wrote Lenin. Ludwig von Mises analyzed two patterns for the realization of socialism: Russian, with wholesale socialization and German or Nazi with property rights subjugated by the state and central planners. In summary, the fascist economic model is related to property rights in the following ways: incrementally regulated and restricted, 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 right 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 stood at 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 should point out that they are varying versions of the same socialist ideology. The economic policies of Mussolini’s Italy and Hitler’s Germany resemble the state socialism, which Lenin wanted to institute the Soviet Russia upon coming to power, under which private enterprise would work for the government, an idea Lenin was forced to abandon under the pressure of the left communists. 

Under both fascist and communist regimes, government bureaucracy completely controls the production. It decides what shall be produced, how much, for whom and how. The difference between the systems is that the German and Italian patterns did indeed allow or—stated more accurately—tolerated private property. However, it was property in a peculiar and very restricted sense, not the virtually untrammeled private ownership of Roman law in nineteenth-century Europe, but rather, conditional possession under which the state, the owner of last resort, reserved to itself the right to interfere with and even confiscate assets which in its judgment were unsatisfactorily used. But, in fact, the governments of fascist Italy and Nazi Germany directed production decisions, curbed entrepreneurship and the labor market and determined wages and interest rates by centralized authority similar to that in the communist states. Communist Russia was the first country to completely and efficiently abolish property rights, which were declared a sanctification of capitalist oppression and exploitation. Lenin pursued the expropriation of private property with fanatical zeal and unhesitating brutality. When the massive expropriation was completed, the state sector of the USSR was officially reported to account for 99.3% of the country’s national income. The results of this action can be considered as the worst tragedy experienced in humanity.

Lesson number two: sound money and free banking matters. Ludwig von Mises has explained that social cooperation requires a division of labor since no one person can do, make, refine, grow, cultivate, gather, foster, raise, process, enhance and deliver everything that they need and want in their life. And there are several keys that are required for the division of labor and therefore social cooperation to work in an optimum level. At the individual interaction level, it is the money that is the blood that moves through the body of mankind and makes the interaction work and workable. Without money as the interactive medium of exchange, the division of labor cannot function beyond a subsistence level. In fact, it is the soundness of money that allows the division of labor of people that want different things in life at different times, and that is all of us, to expand and for social cooperation to have a chance.

Lesson number three: freedom of speech, mobility, and information dissemination and acquisition matters. 

Lesson number four: rule of law must mean that nobody is above the law. Socialist tyranny is incompatible with the rule of law. 

Lesson number five: noncentrally controlled education matters. Central control of education leads to people learning what suits and serves those who want greater control over people. Decentralization of education is no guarantee that proper education, learning and discerning truths that are useful and necessary in life, but it at least makes better education possible. The ideal goal of education is learning valuable truths such as, life principles. Example: economic laws that are true regardless of time and place, history, understanding the important lessons that true history teaches us. Methodologies: people must know how to learn and how to filter information.

Lesson number six: there is a direct relationship 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 introduced on everything from means of production to consumer goods and the creation of noneconomic institutions of compulsion to work, mass murder, mass incarceration of millions, providing cheap labor and a ban on peasants leaving collective farms, supplemented later by a similar ban on jobs and residency changes 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 Purges were really an assault on the countryside. Over half of all the executions took place in rural areas. The liquidation of the Kulaks, which were the large landholders, ended up in tens of millions of them deported to Siberia where most of them died. In Ukraine alone, Stalin starved to death over 7 million peasants. Bloodthirsty communist leaders ended up deporting women, children and crippled people who were no threat to the government. Often authorities had a different agenda like clearing out people they might have to feed.

What else have we learned? For those who are committed to coercive central control, number one, tactics will change but all will involve force. Number two: incrementalization will be used. Number three: propaganda starts early and must be pervasive, from education to media, to entertainment. Number four: choices in all areas of life must be limited. Number five: central controllers never can have enough control over others. Number six: fear is their best tool. Number seven: war works. It is, as Randolph Bourne has stated, “the health of the state.” 

Some will say that history teaches us one thing, that we never learn anything, but this is not totally true. Some of us learn, to be sure, not enough of us learn yet. And there are many that still believe that socialism is fixable, that it is like a guitar that only needs to be tuned correctly and that all the socialists so far were merely imbeciles and that we "new socialists" can fix that. 

The biggest lesson is that socialism is not fixable. Why? In The Essential von Mises, Murray Rothbard wrote, “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 blockbuster, demonstrating for the first time that socialism was an unviable system for an industrial economy. Von Mises showed that a socialist economy totally deprived of free market price system, could not rationally calculate costs or allocate factors of production efficiently to their most needed tasks. Social cooperation requires the division of labor, as Mises tells us. This in turn is built on the bedrock of private property, sound money, rule of law and the other integrated principles of peace, prosperity and freedom. The linkage between human effort and the resulting product and wellbeing, must be secure and stable for economic activity to flourish.

Economic and political systems of different nations differ in the amount of planning they do and in the extent to which they restrict private ownership of property. Wherever you see shifting, arbitrary or unstable property rights, you see poor decimated societies like in Belarus, Moldova and Turkmenistan. The absence of property rights being the mother of human rights, inevitably leads to negation of every other right, starting with the first right: a right to life. The utmost importance of property rights for human dignity and prosperity cannot be overestimated. Unfortunately, it is still far from being understood by the majority of people.

Thank you very much.

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