As we know from the Labor Theory of Value, socialists of the Marxian bent hold prices to be at some level objective. Somewhere out there, in the economic ether, is a universally true and just price for any given prescription drug, rent-controlled apartment, semester’s tuition, or credit-card fee. In part, this is an outgrowth of socialism’s pretense that it is a scientific system for understanding and organizing a society. If economic values are in constant, unpredictable flux, then central planning is impossible. To counteract that criticism, socialism posits that economic values are fixed and knowable. For the socialist, a product has a certain value, and it is a moral imperative that the worker be compensated at a level equal to the value of the thing produced.
Under the socialist understanding, prices are endogenous, an aspect of the thing itself, reflecting the material, resources, time, expertise, and — above all — the labor involved in its creation. But for Mises, and for practically all modern economists, prices are exogenous, reflecting only how people value a particular product. This may seem like an oversimplification — a product is worth only what you can sell it for — but, in practice, the radical subjectivism of Mises provides an infinitely richer and more nuanced model of pricing — and thus of human action — than does the static Marxist model. That’s because the Mises model asks not only, “What is it worth?” but, “What is it worth? To whom? At what time? In what context? In relation to what other goods?”
Where there are no real market transactions, there are no real prices. Where there are no real prices, there is not much real knowledge about actual economic conditions. In the United States, we have an education system that already is socialized to a greater extent than Lenin managed for Soviet agriculture. We have a health-care system that is well more than half socialized. We have a mortgage market that is largely socialized. Not surprisingly, our schools, our health-care system, and our mortgage market are the three most prominent failures of major institutions in recent memory. That is not the fault of Barack Obama and his hidden socialism. That is the fault of longstanding American economic policy and its unhidden socialism. If you are worried about socialism, start at the schoolhouse, not the White House.
— Kevin Williamson is a deputy managing editor of National Review and the author of the newly published The Politically Incorrect Guide to Socialism, from which this essay is adapted. This article originally appeared in the January 24, 2010, issue of National Review.