In an article posted on Mises, Rafael Acevedo, gives us a condensed history of Venezuela, a country that was once prosperous and full of promise, but has, over many decades, dissolved into an economic basket case.
Acevedo explains how Venezuela began emerging as a major player in the international oil race in 1914 and how the economy was bolstered by relatively free markets, unhampered by government regulation and interference.
Unfortunately, the economic freedom the people were afforded was offset by an absence of personal freedom; civil and political rights were severely curtailed.
In 1958, Venezuela became a democracy, and the situation with regard to civil and political right greatly improved, with numerous reforms being passed.
This time around, however, the price the people paid was the relinquishment of their economic freedom; the democratically-elected governments that came to power began instituting socialist policies that, slowly but surely, began to wreak economic havoc, eventually culminating in the disaster we are witnessing today.
Interestingly, the path that Venezuela has been on the last hundred years, eerily resembles what Hayek described in The Road to Serfdom.
Though Venezuela is yet another example of an ill-fated attempt to implement socialism successfully on a national scale, the hardcore proponents of this failed economic system still remain undeterred and steadfastly cling to the belief that it will succeed if “true socialism is tried and the right people are in power.”
What they don’t understand, however, is that socialism (and, of course, communism) will always produce the same results we have seen throughout history because it’s based on a faulty foundation.
Ludwig von Mises wrote in the 1920s that socialism could not possibly work due to the economic calculation problem.
Mises argued that central planners would not be able to replicate the efficient allocation of resources by the free market because of insufficient knowledge of supply and demand. Because everything would be under state control, private property would not exist, and, as a result, there would be no prices – and because prices transmit information to the market about supply and demand, there would be no effective way for central planners to rationally allocate the nation’s resources.
Adding to the problem of sub-optimal resource allocation, there would also be little, if any, incentive for people to engage in productive work and invest time and money in innovation. Why work hard when the state can nationalize your business for the “greater good?”
In addition, socialism can only be maintained by an all-powerful and dictatorial state. And as the state grows, so grows the corruption of the people within it. Power begets more power.
What about capitalism? Has “true” capitalism been tried?
We have, today, a very destructive form of crony capitalism that caters to a very elite, privileged class of people, while doing very little to help everyone else. Vice and destruction seems to be the norm under this system – but it does seem to function better than socialism.
What Venezuela proves it that without economic freedom, civil rights don’t seem that valuable. After all, what good does it do to have the right to vote if you’re too busy hunting for rats because there’s no food at grocery stores?