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Critique of Burczak Socialism after Hayek

"Theodore A. Burczak's Socialism after Hayek is a thoroughly researched and thoughtful examination not only of the ideological debate that framed the twentieth century, but of Hayek's intellectual framework. Burczak hopes for an economic framework that is both humanistic in its approach and humanitarian in its concern while being grounded in good reasons. The book should be on the reading list of every comparative political economist and in particular anyone who wants to take Hayek seriously, including those who would like to push Hayek's classical liberal politics toward the left in the twenty-first century. Burczak has made an outstanding contribution to the fields of political and economic thought and to Hayek studies in particular." – Peter J. Boettke

Section I:  Critique of Burczak’s Labor-Managed Market Socialism

Until earlier this year, 2009, the socialists were torn between two mutually-inconsistent views of General Equilibrium (GE) Theory.  Steve Reglar (2005) writes:

As a tool of capitalist hegemony the doctrine of general equilibrium is very useful. It assumes that the normal condition of society is for the state to play as little a role in economic life as possible, because the market is part of human nature and the most efficient form of economic organization. The theory, therefore, has a role in legitimizing capitalist hegemony.

A tool of capitalist hegemony?  My, what harsh language!  In sharp contrast, James Yunker (2007) writes:

This article evaluates the performance of contemporary capitalism relative to that of a hypothetical alternative designated “profit-oriented market socialism.” In most respects, profit-oriented market socialism would closely mimic contemporary market capitalism. The major difference would be that most profits and interest generated by the operations of publicly-owned business enterprises would be distributed to the general public as a social dividend proportional to household wage and salary income rather than in proportion to household financial assets. The basis of the comparison is a small-scale but comprehensive computable general equilibrium model.

Here we read that GE Theory is not a tool of capitalist hegemony, but a tool of profit-oriented market socialism, and a tool in the literal sense of defining a software model.  Remarkably, my source for both the Reglar and the Yunker quotation was the same strident communist posting them both, in separate threads, on every economics forum on the internet.

In early 2009 he suddenly disappeared and then re-emerged under a new pseudonym, but with the same ridiculously over-affected English accent, claiming that he had never heard of either Reglar or Yunker and is, in fact, a big, BIG fan of Theodore Burczak.  Always has been!

Of course, this slippery fellow is just reading from the talking points that his communist masters give him and is not important in himself.  However, the sudden shift does indicate that the communist forces have changed tactics.  Thus, like the CDC who must vaccinate people against a new strain of influenza every year, it behooves me to stamp out labor-managed market socialism now, in 2009, just as I stamped out profit-oriented market socialism in my 2008 paper, Cutting the Gordian Knot of GE Theory.

What does profit-oriented market socialism hope to achieve?  Burczak (2009, p. 1) writes:

Classical socialism was a movement to replace the unplanned and exploitative institutions of capitalism with national planning, public ownership, and distribution according to human need rather than by the arbitrary capriciousness of the market.  Its goals were to distribute economic resources broadly among the people in order to create the conditions for widespread substantive freedom and to end alienating, exploitative labor processes.  Socialism promised all people the resources to live a flourishing life, not just the market freedom to exchange, which offered no guarantee of a decent standard of living.  This traditional socialist project was derived from Marx and Engel's dream of a future that would transcend the allocative and distributional anarchy of the market through the abolition of private property and the establishment of social ownership of the means of production and central planning.  Socialism, or perhaps its more advanced form of communism, would realize the human potential to harness productive forces to achieve a rational economic order, social justice, and real freedom for all.

Clearly, Burczak is a true and unwavering Marxist, despite his online supporter’s attempts to dodge the Marxist label.  Indeed, on almost every page, he goes out of his way to assure the communists that his ideas are 100% compatible with the classic writings of Marx.  For instance, before introducing David Ellerman, from whom he gets the kernel of his theory, Burczak hastily reassures his readers (2009, p. 102) that “Ellerman’s theory of just appropriation is consistent with a position that can be teased out of Marx’s writings but that is not usually considered by contemporary Marxist theorists.”

Of course, at this late date, there is little reason to dig up Marx’s moldering remains, stick another knife in his ribs and re-bury him.  Marxism fell along with the Berlin Wall in 1989.  But let us see what, if anything, Burczak has to offer that is new.  Burczak (2009, p. 1, et passim) writes:

Classical socialism had no larger enemy in the twentieth century than Friedrich Hayek.

Hayek argues that central planning is doomed to failure because it is impossible for government planners to access the knowledge necessary to direct resources to their most efficient use.  This knowledge exists in an essentially fragmented form, in the minds of diverse and dispersed individuals.  Hayek shows why government planners cannot obtain this subjective knowledge and why free market exchange is the only economic institution that can elicit the discovery and employment of subjective knowledge for the benefit of society.

For contemporary socialists, this raises fundamental questions.  Is there any meaningful notion of socialism that can answer Hayek's epistemological critique?

My aim in this book [Socialism after Hayek] is to answer these questions in the affirmative by developing a "libertarian Marxist" conception of socialism, a socialism committed to forms of procedural and distributive justice that are central to the Marxian tradition and a socialism keenly aware of the factual and ethical problems emphasized by Hayek.

So Burczak is a “libertarian Marxist.”  Very well, let us see how the communists intend to address Hayek’s critique of central planning.

The meat of Burczak’s proposal is all in Chapter Six, Socialist Appropriative Justice and the Labor-Managed Firm, so we will start there.  Much of the intervening material is about post-modernism, a word lifted from art criticism, which does not actually mean anything.  (What comes after modern times is the future, so post-modernism means, literally, futuristic.)  Burczak claims (2009, p. 1) that “Hayek’s economics and social theory are based on what might be called an ‘applied epistemological postmodernism.’”  But then he readily admits (2009, pp. 5-6) that, “Hayek was never an active participant in debates surrounding modernism and postmodernism…  In discerning the potential for a postmodern economics in Hayek’s work, I am not claiming that this was his announced intention.”

So, skipping over the discussion of post-modernism, let us consider the kernel of Burczak’s proposal.  Burczak (2009, p. 101, et passim) writes:

To make the case that a socialist future absent exploitation might be achieved by labor-managed enterprises operating in the context of private ownership and markets, a more thorough exploration of the nature of the injustice of capitalist exploitation is necessary.

Ellerman’s theory of justice leads to a rejection of the capitalist form of private property, rather than to a rejection of private property altogether.  By the capitalist form of private property, I mean the ability of the owner of the means of production to appropriate the entire output of an enterprise that employs wage labor.  To eliminate the capitalist form of private property does not require that productive property be publically or socially owned.  The elimination of the capitalist form of private property is consistent with a worker’s cooperative renting land, machinery, and buildings from private individual and corporate owners.

A just economy, for Ellerman, is one in which joint productive processes are carried out cooperatively by democratic, labor-managed firms in which all the staff members collectively appropriate the entire product of the firm.  These democratic, collectively appropriating firms may have to rent the means of production from private owners, but ownership of the means of production would give no right to appropriate the entire product of the firm, as is the case in capitalism.  In other words, the labor theory of property requires that labor, rather than capital, be the residual claimant.  It insists on the abolition of the wage system, a goal that Marx explicitly advocated (Marx, 1965, 79).

Ellerman’s use of the labor theory of property to advocate democratic, labor-managed workplaces in a market economy with widely distributed property ownership goes at least part way in satisfying the traditional Marxian aspiration that in postcapitalist society, producers will associate with each other cooperatively, while at the same time avoiding the knowledge problems Hayek identified to be endemic to central planning.

As an aside, observe how Burczak leans on Ellerman’s 1992 book.  So it is really only the communist’s tactics that are new, not their ideas.  Ellerman is a straight-out communist; it did not occur to him to put Hayek’s picture on the cover of his book or to act as though Hayek was anything but an enemy to him.  Hence, his book was unknown outside communist circles in 1992, the year of Hayek’s death, and is only now being resurrected for consumption by the general public.

Basically, traditional communists would seize a corporation, ruin the shareholders, hang the executives and then run the company themselves.  While just staying the course would work for a month or two, it would then quickly become apparent that the communists had no idea how to run a company.  What new products should be introduced?  What should they be sold for?  What demographic should the advertisements be directed at?  The suits who knew the answers to these questions were hanging from a scaffold in the parking lot and the new managers, former army officers with grenades dangling from their jungle fatigues, were clueless.

It was to help out these men that Oskar Lange, Abba Lerner, Abram Bergson, et al, in the 1930’s, and James Yunker as late as 2007, proposed profit-oriented market socialism, based on a small-scale but comprehensive computable general equilibrium model.  But, as Hayek has finally succeeded in drumming into their heads, central planning based on GE Theory does not work.

So what new twist on this scheme is Burczak proposing?  Instead of seizing a corporation, ruining the shareholders, hanging the executives and then giving the management over to former army officers with grenades dangling from their jungle fatigues, Burczak would seize a corporation, ruin the shareholders, hang the executives and then give the management over to democratically elected labor leaders.  Big difference!

Of course, as anyone who has dealt with a labor union knows, democratically elected labor leaders are sniveling little men whose entire life experience consists of whining about wanting a longer lunch break.  What new products should be introduced?  What should they be sold for?  What demographic should the advertisements be directed at?  The suits who knew the answers to these questions are hanging from a scaffold in the parking lot and the new managers, in spite of being democratically elected, are even more clueless than the guys with the grenades dangling from their jungle fatigues.

Clearly, Burczak has made a mistake.  His proposal does not “avoid the knowledge problems Hayek identified to be endemic to central planning.”  Just because labor leaders are democratically elected does not mean that they are any less befuddled by business management than army officers are.  In fact, they are probably even more befuddled because the officers at least have a background of rising through the ranks and of commanding people, neither of which the labor leaders have ever done.  If army officers had to turn to people like Yunker, brandishing their small-scale but comprehensive computable general equilibrium models, then democratically elected labor leaders will too, probably even more quickly.

Frankly, when I first read Chapter Six, Socialist Appropriative Justice and the Labor-Managed Firm, I thought it was the stupidest idea that I had ever come across in an economics book.  Then I got to Chapter Seven, Socialist Distributive Justice and the Stakeholder Society.  Burczak (2009, p. 122, et passim) writes:

To address the inequality of opportunity produced by disparate wealth holding, Bruce Ackerman and Anne Alstott (1999) propose the establishment of what they call a “stakeholder society.”  A stakeholder society is one in which all citizens have a claim to a social inheritance.  Ackerman and Alstott suggest that this social inheritance should take the form of a large cash grant to all citizens when they reach the age of majority, a grant large enough to promote substantive equality of opportunity… which they calculate to be roughly eighty thousand dollars.

Ackerman and Alstott’s stakeholding proposal, if modified slightly, offers an attractive institutional structure to achieve socialist distributive justice while also promoting worker self-management and socialist appropriative justice.  While Ackerman and Alstott use possession of the means to attend college as the standard proxy for equality of opportunity, labor-managed market socialism might use possession of the means to purchase the average capital stock per worker as the standard measure of equal opportunity.  This would raise the amount of the stake to around one hundred thousand dollars.

Another modification to Ackerman and Alstott’s proposal follows from the capability approach to justice.  Ackerman and Alstott would place no limit on how people could use their social inheritance…  But using the stake to buy a car or to travel around the world – options permitted by Ackerman and Alstott’s liberal stakeholding proposal – would be prohibited by a socialist stakeholder society.

No car?  Dang!  And I had already talked the Ferrari dealer down to $100,000 on the red Enzo!

I’m speechless.  Burczak’s labor-managed market socialism is stupid beyond words.  Practical men can stop reading now.  Seizing a corporation, ruining the shareholders, hanging the executives and then giving the management over to democratically elected labor leaders while distributing the loot to 18-year-olds is all there is to Burczak’s proposal.

Academics may wish to continue reading, however, as they may find Burczak’s rather bizarre philosophical foundations to be amusing.

Section II:  Critique of Burczak’s Rather Unique Definition of Property Rights

Burczak (2009, p. 122) writes:

Private ownership of capital is not prohibited, but capital ownership conveys no possibility – through right or contract – of control rights over workers.

Those rights would be reserved and shared exclusively – under the procedure of one person, one vote – for the worker-members of the firm, regardless of the amount of capital any particular worker owned.

For example, suppose the founder of an electronics firm requires years of tinkering and hundreds of thousands of dollars worth of equipment to design a new product.  Then, once he has perfected it, he hires a couple of kids to assemble the electronic devices that he has invented.  Burczak would then force a vote and, since the assemblers outnumber the designer two-to-one, they would simply seize ownership of the company.  Democracy in action!

How is this justified?  Burczak (2009, p. 105, et passim) writes:

In his classic presentation of the labor theory of property, John Locke confined the issue of appropriation to the first ownership of previously unowned (or commonly owned) natural goods.  But Ellerman points out that the question of appropriation can also refer to the assignment of property rights to newly manufactured commodities that are produced using inputs with clearly defined property titles.  In the process of production, new goods are created that were not previously owned by any one, and thus they cannot be acquired through exchange.  For example, an automobile that emerges at the end of an assembly line has no obvious, preexisting property right attached to it.  This automobile must, therefore, be appropriated by someone; someone must become the first owner of this automobile.

To speak of the appropriation of the entire product in Ellerman’s sense refers to being the first owner of outputs or assets created in the production process, as well as to be the last owner of the input liabilities, especially labor time, consumed in the production process.

For Ellerman, the error of Locke’s version of the labor theory of property is its implicit assumption that workers can alienate their labor, that they can temporarily withdraw their will and responsibility from their work activity and in fact transfer this responsibility to another person, either to the owner of a firm’s capital assets or to an entrepreneur, so that this other person becomes the owner of the worker’s time and efforts.

Ellerman accepts Locke’s claim that people have a natural right to their labor and its products.  However, for Ellerman, it is unjust for people to sell their labor time: not only do the people have a natural right to the product of their labor, they also have an inalienable right to their labor time, a right that should not be transferred even with consent.

Workers should not be permitted to cede to a capitalist both the legal responsibility for the firm’s output and the liability for their labor time.

In summary, Burczak’s economic theory hinges on re-defining property rights to mean, basically, that you have no right to your property.  This is obviously true of entrepreneurs, whose firms are seized and given to their hired hands, and it is true of successful businessmen whose wealth is redistributed to 18-year-old gangbangers, but Burczak would even extend this abrogation of property rights to common laborers.  Burczak (2009, p. 112) claims that “not only do the people have a natural right to the product of their labor, they also have an inalienable right to their labor time, a right that should not be transferred even with consent.”

Not even with consent???

What do property rights mean if the government prevents one from transferring them?  The ability to sell or rent one’s property is fundamental to the concept of ownership.  A person who can use property but cannot sell or rent it is a caretaker, not an owner. Just as a food-stamp recipient “owns” the stamps that he has been given, but cannot spend them on what he really wants (beer and cigarettes), Burczak would put limits on how one can spent all of one’s money, whatever its source (only on “choiceworthy” items), and on whom one can sell one’s labor to (only to labor-managed firms, not to capitalists).  This is not ownership.

Armen Alchian writes:

A private property right includes the right to delegate, rent, or sell any portion of the rights by exchange or gift at whatever price the owner determines (provided someone is willing to pay that price).  If I am not allowed to buy some rights from you and you therefore are not allowed to sell rights to me, private property rights are reduced.

Milton Friedman (1980, p. 66) writes:

An essential part of economic freedom is freedom to use the resources we possess in accordance with our own values – freedom to enter any occupation, engage in any business enterprise, buy from and sell to anyone else, so long as we do so on a strictly voluntary basis and do not resort to force in order to coerce others.

The classic example of property that people “own,” in the sense that their name is on the deed, but do not actually own, is rent-controlled apartment buildings.  The “owner” cannot rent it at a fair price but, under penalty of law, he must maintain it lest he be fined for safety violations.  Burczak would put common laborers in the same predicament.  They would “own” their labor ability but, under penalty of law, they cannot hire themselves out to capitalists.  Since they must maintain their labor ability (feed, clothe and house themselves), they are forced to work for one of Burczak’s labor-managed firms.  Basically, this is slavery.

And make no mistake; in spite of Burczak’s talk about the state “withering away,” it is the government that will enforce this abrogation of property rights.  (See Burczak’s proposed constitutional amendment.) When Burczak (2009, p. 112) writes, “workers should not be permitted to cede to a capitalist both the legal responsibility for the firm’s output and the liability for their labor time,” the meaning of “not permitted” should be clear.  If one attempts to hire oneself out to a capitalist, one will be shot. Note.

Clearly, Burczak does not understand the meaning of private property rights.  How does he justify this gross re-definition of the word property?  Not surprisingly, given the Marxist’s long history of financing their revolutions with bank robbery, it is to this activity that Burczak seeks foundations.  Burczak (2009, p. 113) writes:

The argument that people should be held legally responsible for the results of their intentional actions is readily accepted in the case of crime, no matter what kind of contract the criminals might have agreed on.  A modern court system would not honor a contract signed by two bank robbers that gave one of the partners the sole legal responsibility for the robbery in exchange for a larger portion of the loot.  If the two partners were factually responsible for the crime, a modern court would hold both partners legally liable for the robbery.  Through a parallel argument, we can also conceive how hired labor is always jointly responsible for the product of the firm.  Unless we believe that the wage-for-labor-time contract does actually transform human beings into nonwillful, inanimate things, then we must conclude that workers are always active and responsible agents in the production process.  If we accept the moral principle that people should be legally responsible for the results of their intentional actions, then “the employment contract should always be considered null, void, and invalid (Ellerman, 1992, p. 169).

For a Marxist, Burczak is surprisingly ignorant of how bank robbery works.  If the ringleader of a bank robbery gang needs more firepower for a particular job, perhaps because of beefed up security, then he will hire muscle.  These men are not capable of organizing something as complicated as a take-over bank robbery.  They are just big, dumb guys who are willing to tote and even to use a machine gun for a fee.

The muscle expects to be paid even if the robbery is aborted.  If the job is particularly successful, like when the robbers happens to catch the bankers in the process of shipping cash to the Federal Reserve, the hired muscle has no claim to this windfall.  Also, it goes without saying, that they will not go to prison to protect their boss.  If they are captured, they will testify against him in exchange for a lighter sentence.

That his hired muscle is willing to rat on him does not come as a complete surprise to the ringleader.  He knows that he is not paying them enough to go to prison for him.  Neither do the prosecuting attorneys find it remarkable that their evidence against the ringleader is based entirely on the testimony of his hired muscle.  That is just how bank robbery works.  Contra Burczak, a modern court system does honor a contract signed by two bank robbers that gives one of the partners the sole legal responsibility for the robbery in exchange for a larger portion of the loot.

Burczak has no understanding of the concept of risk.  Even a legitimate business runs the risk of quietly closing its doors, ruining the entrepreneur who staked his life savings on it.  The entrepreneur is rewarded handsomely when his plan succeeds but, when it fails, it is he alone who suffers the consequences.  His hired hands certainly do not want to share in this risk.  When I was a young man, still writing my economics treatise, I worked for many entrepreneurs, some of whom had viable business plans and some of whom probably did not.  But the fact that I was working for them did not mean that I had any interest in staking my own money and reputation on their plan.  It was just a job.  I had plans of my own.

Another concept that Burczak has no understanding of is diversifying one’s portfolio.  Today, all but the most menial laborers have an investment portfolio, a development that Marx never dreamed of.  And they are all smart enough to know that putting 100% of one’s savings in a single company is a bad idea.  They also know that the fact that they happen to work for a particular company is no reason to invest in it; they sent out hundreds of résumés and one company happened to have an opening.  But the decision to take that job, at least until something better comes along, is a very different thing than deciding to buy their stock.

And that is all there is to Burczak’s philosophical foundations.  Basically, Burczak is a wannabe Fidel Castro who does not know how to rob banks.  Pathetic.  I need a more worthy opponent.


Burczak, Theodore. 2009. Socialism after Hayek. Ann Arbor, MI: University of Michigan Press

Ellerman, David. 1992. Property and Contract in Economics. Oxford, UK: Basil Blackwell

Friedman, Milton. 1980. Free to Choose. New York, NY: Harcourt, Inc.

If the Institute for Humane Studies gets their way, this is what America will look like

If the Institute for Humane Studies gets their way, this is what America will look like.