Watching socialism fail
In recent days, the inherent failure of socialism and it’s need for tyranny have been exhibited for the world to see. Hugo Chavez first devalued the bolivar, Venezuela’s currency. This was done because he needs more money domestically, and since oil is sold in dollars this gives him 17% more cash on hand. Of course, this assumes that prices don’t change and that the people he is paying with bolivars don’t mind getting 17% less. Worse, he is trying to manage the economy by setting two different exchange rates for different kinds of imports. This is a socialist dream that cannot work because price differences have to do with real value, not executive fiat.
Since the devaluation, Chavez has sent in the ARMY to close stores that dared to raise prices. Of course, their prices for imported goods (Venezuela doesn’t produce much domestically other than oil) have risen 17%, but in Chavez’s socialist dream world the input costs should have no bearing on prices. He thinks that the shopkeepers, particularly those who are foreign-owned, have profits equal to revenue. He doesn’t understand that the real profit margin might only be 2% on revenue and that massive changes in exchange rates will sink these firms if they cannot raise prices.
As Mises wrote in 1922, socialism cannot succeed because it cannot do an economic calculation – it doesn’t have a mechanism to set prices that bear any resemblence to real value.
For anyone who believes in socialism, the recent events unfolding in Venezuela are the beginnings of the death-throes of socialism in that country. The people, and the army, will eventually realize they are broke and long speeches from Hugo can’t fix it.