The Bitcoin Standard: The Decentralized Alternative to Central Banking

by Saifedean Ammous

While most understand the importance of the price system to the division of labor, few get the crucial role it plays in capital accumulation and allocation, for which we need to turn to the work of Mises. In his 1922 book, Socialism, Mises explained the quintessential reason why socialist systems must fail, and it was not the commonly held idea that socialism simply had an incentive problem (Why would anyone work if everyone got the same rewards regardless of effort?). Given that lack of application to one's job was usually punished with government murder or imprisonment, socialism arguably overcame the incentive problem successfully, regardless of how bloody the process. After a century in which around 100 million people worldwide were murdered by socialist regimes,3 this punishment was clearly not theoretical, and the incentives to work were probably stronger than in a capitalist system. There must be more to socialist failure than just incentives, and Mises was the first to precisely explicate why socialism would fail even if it were to successfully overcome the incentive problem by creating “the new socialist man.” The fatal flaw of socialism that Mises exposed was that without a price mechanism emerging on a free market, socialism would fail at economic calculation, most crucially in the allocation of capital goods.