Time Will Run Back

by Henry Hazlitt

“You mean that you add so many pounds of abstract or homogeneous locomotive to so many pounds of abstract freight car to so many pounds of homogeneous drilling machines to so many pounds of abstract sand to so many pounds of homogeneous watches?”

  “But in my paper I already differentiate between different kinds of capital, and I don’t multiply any of these by price until—”

  “You mean you weigh each ‘kind’ of capital separately?”

  “Yes, Your Highness.”

  “Then your equations assume homogeneity within each ‘kind’ of capital?”

  “Yes, Your—”

  “So an old or defective lathe is considered to be worth as much as a new or perfect lathe—provided it weighs as much?” “I suppose we would really have to count them as two different ‘kinds’ of capital, Your Highness.”

  “But then every lathe would be a different ‘kind’ of capital, depending on its individual age, state of wear and repair, efficiency, et cetera?”

  “I suppose so, Your Highness.”

  “That would require a lot of equations for the Central Planning Board to set up and solve, wouldn’t it?” Baronio was silent. “It was very good of you to come, Comrade,” said Peter at length, “and I appreciate the ingenuity and zeal with which you have worked on this vitally important problem. You at least realize that there is a problem—and you understand pretty clearly what the problem is—and No. 3 and myself have certainly got no further than that ourselves. Suppose you leave copies of your paper with us to study.”

  Peter studied Baronio’s paper carefully that evening.

  “I don’t know whether I am impressed more, Adams,” he said the next day, “by Baronio’s cleverness or by his blindness. I’m afraid he doesn’t realize that his equations tacitly take for granted precisely the things he is trying to find out. What his equations are really saying is that if we knew the value of x and y we could find out the value of z. And then he tacitly assumes that he does know the value of x and y—or, as he puts it, that he does have the same number of ‘independent equations’ as he has of ‘unknowns.’ “

  “I read the other copy of his paper that he left with us,” said Adams. “I freely confess that the mathematics of it was over my head. But I noticed that his paper referred to a No. ME-13-742—otherwise known as Comrade Patelli—another clever Italian in the Central Planning Board whose work inspired Baronio. So I have taken the liberty of bringing Patelli with me. He’s waiting in the anteroom, if you should care to see him.”

  “By all means,” said Peter.

  Patelli was ushered in. Peter had never seen a more intelligent face. He told Patelli about Baronio’s paper and his own difficulties with it.

  “I’m afraid your misgivings are right, Your Highness. I’ve been fascinated by the consumers’ goods market, and trying to see whether we could solve by mathematics the problem of finding out the correct prices for producers’ goods. I think a system of simultaneous equations could be used to explain what determines prices on a market. But I have concluded that we couldn’t actually arrive by that method at a numerical calculation of what the correct prices ought to be.... Let us make the most favorable assumption for such a calculation. Let’s assume that we have triumphed over all the difficulties of finding the data of the problem and that we already know the relative preferences of every individual person as between different amounts of all the different commodities, and all the conditions of production of all the commodities, and so on.”

  “That is already an absurd hypothesis.”

  “Precisely, Your Highness; that is just the point I was about to make. Yet even if we went on this hypothesis, it would not be enough to make the solution of our problem possible. I have calculated that in the case of 100 persons and 700 commodities there will be 70,699 conditions.”

  Adams laughed.

  “Actually,” continued Patelli, “if we took into consideration a great number of circumstances that I ignored, that figure would have to be increased still further. But on these simplified assumptions, we would have to solve a system of 70,699 equations.”

  “And could we?” asked Adams.

  “No, Your Highness. That practically exceeds the power of algebraic analysis.”

  “Assuming that we have only .700 different commodities,” said Peter, “the actual world population for which we have to plan is not 100 persons but about 1,000,000,000. So how many equations, under your simplified assumptions, would you have to solve to get the correct prices of commodities for this world?”

  Patelli threw up his hands. “Oh, well—when you get into the neighborhood of seven hundred billions... and even Your Highness’ assumption is terribly oversimplified. There are so many different grades of each commodity, and different places—”

  “And wouldn’t you have to change your equations at least every day,” pursued Peter, “because supply and demand and everybody’s preferences would be constantly changing?”

  “Yes, Your Highness.”

  “So even if one could really know all these equations, it would be beyond human powers to solve them?”

  Patelli nodded.

  “I suspect that you can’t put millions of different items and the preferences of millions of different persons into any meaningful mathematical equation,” said Peter. “And I’ll go further. Putting aside the bewildering multiplicity of these equations, I suspect that all of them would be purely hypothetical; we could never say with confidence that any one of them really described a fact. For we can never in fact know what the constantly fluctuating preferences of any one person will be, even if that person is ourself. So I suspect that, tempting as the idea might be, we can’t predict human choice and human action by mathematics. This appearance of precise results is delusory. I believe it was our great Russian mathematical logician, Bertravitch Russelevsky, who once defined pure mathematics as the subject ‘in which we never know what we are talking about, nor whether what we are saying is true.’ And so all these impressive-looking equations that you and Baronio have put together merely seem to me to say, in effect, that if we knew so-and-so to be true, then such-and-such would necessarily follow. But—”

  He paused eloquently.

  Patelli shrugged his shoulders in resignation.

  “Anyway,” Peter said, “we are grateful for the light you have thrown on the problem.”

  Chapter 29

  HE walked along the line of haggard creatures, in their filthy rags, and stared intently at each vacant face in turn. He had now seen hundreds, thousands of these faces of what had once been men and women. But neither Edith nor Maxwell was among them.

  He had not really expected to find them. He did not know whether he feared rather than hoped to find them here. But anything was better than sitting at his desk and getting negative second-hand reports that he did not trust. At least he was doing something himself. He had slipped secretly away from Moscow for a week, left his responsibilities there in charge of Adams, and visited every slave camp in the region that the time allowed. It had all been in vain. This was the last camp, the last line-up.

  “I don’t understand you, chief,” said Adams when their afternoon conferences were resumed. He had been talking of Peter’s “negative attitude” toward the proposals of Baronio. “You have this passion for reform, and yet you reject one proposed reform after another without even trying it.”

  “Would I have to jump out of this window,” Peter retorted, “to find out whether or not I would get hurt?”

  “No doubt there are some things, chief, that one does know about in advance without trying them—usually because something very much like them has been tried before. But you can’t know everything that would happen under a particular proposed reform until you try it.”

  “That used to be the very thing you objected to, Adams. My efforts to introduce personal liberty and real democracy were both wretched failures. And especially while Bolshekov is around, I can’t afford any more failures.”

  “But your freed
om of exchange for consumers’ goods was a great success!”

  “Well, what experiment would you want me to try now?”

  “You criticized me severely, chief, for proposing a system that provided harsh penalties for managers but no incentives. Well, why don’t you suggest or try some incentives for managers?”

  “Such as what?”

  “Suppose a manager of a particular factory turned out an output with a greater value than his input. Why not allow him to keep the difference?”

  “All of it?”

  “Well, half of it... or, say, some fixed percentage of it.”

  “Suppose the situation were the other way round, Adams, and the manager’s input—his cost of production—were greater than the value of his output? Would he have to suffer the loss?”

  “Exactly.”

  “Suppose he didn’t have that much for us to take away from him?”

  “Then, chief, you would be back to my penalties. Fire him. Or, if the loss was big enough, let him starve. Or shoot him.”

  “I’m afraid, Adams, that your proposal wouldn’t quite work out. Suppose a manager really had a surplus of output over input. How would we know that that wasn’t merely the result of his having taken a reckless but lucky gamble? Or how would we know that it wasn’t really the workers in that factory, and not the managers, who were responsible for the gain shown? Or—most important of all—wouldn’t it probably be true, for the most part, that the gains and losses shown by the different factories had little or nothing to do with their individual management but were caused primarily by the arbitrary prices that the Central Planning Board put on the raw materials or labor that a factory bought, or on the finished products that it sold? In short, wouldn’t the gains or losses shown by individual factories depend primarily on prices? And aren’t we, then, right back to the price problem?”

  “But if you have a price system for consumption goods, chief, why can’t you have a price system for the tools of production?”

  “For the simple reason, Adams, that consumption goods are owned by individuals who exchange them only at ratios that they consider to their personal advantage, while all the tools of production are owned by the State. The State can’t sell to and buy from itself.”

  “But why not, chief? Why can’t one industry sell to another, or buy from a third, even if all of them are State-owned?”

  “Because the prices set would be arbitrary, fictional and meaningless. The Central Planning Board, Adams, just can’t play ‘market’; it can’t play ‘price system,’ like children playing house. Markets and prices, in order to perform the function they do perform—that of showing us the relative values that users and consumers put on things—must be real. Our present system of arbitrary allocations of raw materials and labor, arbitrary decisions concerning how big each industry should be and exactly how much of each product should be turned out—this is at least a controllable plan. It may not give people what they want, but at least it is far better than fixing prices at random and then watching the bizarre and unpredictable things that would happen under them.”

  But Peter was troubled by Adams’ criticism that he condemned proposals without trying them. A few weeks later he came up with an idea that had been maturing in his mind for some time.

  “One of our great troubles, Adams, is that we are trying to plan more than any human mind can hold. We are trying to plan every industry—and all their interrelations—and all the rest. Why not let the workers of each industry control and police their own industry? That would decentralize control and break up the planning problem into manageable units.”

  “The idea has possibilities, chief... but it might lead to results we couldn’t foresee.”

  “Precisely,” said Peter; “and that is why we ought to try it out.”

  “But the results might be bad. They might give Bolshekov just the excuse—”

  “Why not try it out, then, only on a small scale? Why not apply the idea, Adams, in only one province—far away from Moscow? Why not throw a censorship around that district, so that no news could get in or out until we were certain that the experiment was a success?”

  “Have you decided, chief, who our guinea pigs would be?” “How about the Soviet Republic of Peru? That’s certainly remote enough!”

  So Peter arranged to go to Peru personally to supervise his experiment. He kept his trip a public secret, redoubled the guard around his father, had Bolshekov more closely watched, and left Adams again in charge of Wonworld at Moscow.

  At the very start he found himself confronted in Peru by a problem of unexpected difficulty. He wanted each industry to be self-governing and independent. But what was an industry? Where did each industry begin and end? Did the copper industry consist purely of the copper mines? Or did it include the smelters? Did it include the makers of copper wire? Or were the wire makers—whether they made wire of copper, aluminum or steel—a separate industry? Should the sugar growers be grouped with the sugar refineries or with the farmers? Were the shoe manufacturers part of the leather industry, or part of the apparel industry, or an industry of their own? Was carpentry part of the building industry, or part of the furniture industry—or a separate industry?

  These problems of classification were endless. No general principle seemed to apply. Practically every decision finally made, Peter at length realized, was at least partly arbitrary, and most of the decisions were completely arbitrary.

  At the end, when the Peruvian commissars he had appointed had finished their work, they had named fifty-seven different industries. Peter had asked that these be reclassified into an even fifty, but he now recognized that they could be classified into only a dozen “industries” or into several hundred.

  A temporary head was named for each industry. Someone jokingly nicknamed these heads the industry “czars.” Each industry was told to organize itself in any way it thought fit, provided each worker was allowed an equal vote. The industry could fix its own production, its own prices or terms of exchange, its own hours and conditions of work, its own entrance requirements.

  Some Peruvians called the new system “syndicalism”; others called it “guild socialism”; and still others liked the name “corporativism.”

  Peter returned to Moscow, promising to be back in Peru in six months to see how the new system was working. He left a secret cable code with the three top commissars to keep him informed.

  Before two months had passed he received urgent cables begging for his return.

  He came back to find a chaotic situation bordering on civil war.

  The first thing the workers in each industry had done had been to exclude anybody else from entering the industry. Each industry had quickly discovered that it could exact the best terms of exchange for its particular product by rendering it relatively scarce. There had then developed a competitive race for scarcity instead of for production. The workers in each industry voted themselves shorter and shorter hours. Each industry was either withholding goods or threatening to suspend production altogether until it got the prices it demanded for the particular kind of goods it had to supply.

  Peter was indignant. He called in the various syndicates of workers representing each industry and denounced them in blistering terms for the selfish and shortsighted way in which they had “abused” the privileges he had conferred upon them.

  But as he studied the matter further he cooled off, and took a more objective view. He was forced to acknowledge to himself that the fault was his own. It was inherent in the system he had set up. He had allowed each industry to become an unrestrained monopoly. The more essential or irreplaceable the product that it made, therefore, the more it could and would squeeze everybody else. Inherent in his system had been the assumption that production existed primarily for the benefit of the producers—whereas, he now saw, its only real justification was what it provided for consumers.

  He dismantled the new system entirely, and ordered the restoration of the old centralized socialism un
der the Central Planning Board at Moscow.

  Bolshekov, he later learned, had got wind of the experiment and its failure, but fortunately had had no way of making his knowledge public. Peter thanked his lucky stars—and Adams’ foresighted advice—that he still had control over the radio and the newspapers.

  But as an economic reformer he felt more frustrated than ever before.

  Then suddenly, one night at the piano, when he was playing a Bach fugue, an idea hit him like a bolt of lightning. He stopped midway in an intricate passage. His mind had been returning to a question that Adams had asked: “Why can’t you have a price system for the tools of production?” And he thought of his own answer: “Because consumption goods are owned by individuals... while the tools of production are owned by the State.” Of course, that was the right answer... but wasn’t there an answer to the answer?...

  Yes, there was! Why hadn’t Adams made it then? Why hadn’t he himself thought of it then? He knew the answer! The tools of production didn’t have to be owned by the State!

  It was late at night. But he rushed, hatless and coatless, out of his own apartment, took the automatic elevator to the street level, waved aside the sentries at the main entrance, and ran alone along four blocks of solitary streets to Adams’ rooms, using a pass key that Adams had given to him. He routed him out of bed, shook him awake, threw his arms around his shoulders, slapped him on the back, hugged him.

  “I’ve found the answer, Adams!” he shouted. “I’ve found the answer to all our problems! I’ve found the key that unlocks everything: Private ownership of the means of production!”

  Chapter 30

  EVEN Adams became cautiously enthusiastic when Peter explained all the consequences he expected from his proposed reform.

  “I’ll put it into effect immediately,” said Peter.

  “No, chief; it’s too revolutionary. You must consult the Politburo first.”

  “But Bolshekov is certain to oppose it, Adams! And he would probably swing the whole Politburo with him, with the exception of ourselves. He has every advantage. He would probably argue that my plan was new, untried, untested, revolutionary.... He might even say that it was anti-Marxist!”