Man, Economy, and Che

by Joseph R. Stromberg

Ernesto "Che" Guevara’s writings show a certain understanding of the advantages of decentralized structures and localized decision-making in guerrilla warfare, yet the same historical actor failed completely to acknowledge the advantages of like phenomena in other fields of human action. Instead, Guevara believed that whole economies could be rationally planned by clever fellows with a social conscience, just as soon as they hit on the right mixture of methods. But it was, in practice, one thing to develop a strategy leading to revolutionary victory; it was quite another thing to run the country afterwards. The Cuban revolutionaries’ rather unreflective decision to adopt socialist economics soon set insoluble dilemmas before Guevara. As Castro’s Economics Minister, he quickly found himself dealing with problems for which he – and socialists in general – had no answers. It is fascinating to see how his writings and speeches reflected this confrontation with hard realities.

In a speech given in April, 1961, Guevara expressed his faith that state economic management was a straight-forward endeavor:

"Another function of the ministry is planning. We speak of an economic plan for the country, a socialist plan. The fundamental condition for this is control of the means of production. We already control the means of production, but is this enough? No! We must know all the statistics, all the economic factors. As we know, the capitalist system left no statistics, so the government is working on them now."

This touching preoccupation with statistics reflected the pseudoscientific assumption that an all-knowing state could in principle "plan" an entire economy, provided it had enough proper information. But Minister Guevara soon admitted there had been some problems. These he attributed to lack of revolutionary participation:

"We made our production plans on the assumption that we would have all the raw material needed and all the spare parts we would require. We started to work enthusiastically on our plan, which had not been announced because it was a preparatory plan. The real development plan will begin in 1962."

Further:

"We made an error similar to the one made by our comrades in the sugar industry. We did not go to the masses. We made a laboratory plan. We estimated the production, and this was our working plan. Today we can see clearly that the masses did not participate in the plan, and a plan that lacks the participation of the masses is a plan that is always threatened with defeat."

Unfortunately, attempts to make the planned economy work through sheer revolutionary fervor and mass exhortation – so-called "moral incentives" – did not address the real problem. By February 1963, Guevara was blaming bureaucracy – but not the ideal of central planning. He wrote in "Against Bureaucratism":

"After a year of painful experience, we came to the conclusion that it was most essential to change our whole style of operating and to reorganize the state apparatus in the most rational way, following the planning methods known in our sister socialist countries [!]…. Obviously, ‘bureaucratism’ does not stem from the inception of socialist society, nor is it its expected component. The state bureaucracy had existed since the time of the bourgeois regimes with their atmosphere of patronage and servility, for behind the budget a large number of opportunists used to hang around making up the ‘court’ of the politician of the moment."

Well, who would deny that the "bourgeois" regime of the American-supported caudillo Fulgencio Batista had a few bureaucracies in place and that those were notoriously corrupt? Having shifted some of the blame to the old regime, Guevara now proceeded to fault the practice, but not the principle, of socialist planning:

"For the sake of honest self-criticism, we ought never to forget that the economic direction of the Revolution is responsible for most of the bureaucratic evils: State structures were not set up according to a master plan of which the inner workings had been thoroughly studied…. The… General Planning Board… lacked sufficient authority over the other bodies."

So far, so good. It is not surprising, after all, to find a socialist planner asserting that more "authority over… other bodies" is needed, so that the otherwise rational economic plan can succeed. That same month, Guevara spoke of "socialist competition" as a means of increasing sugar production. He was not referring to competition in an open market, however, but of emulation and competition for glory among cadres of sugar workers within the framework of a state economic plan.

By June 1963, the poor, bedeviled Economics Minister was coming face to face with the fundamental problem of socialist economics: the nature of economic calculation – costs, prices, and "value." He seemed blissfully unaware that in 1920-1921 Austrian economist Ludwig von Mises, the great German sociologist Max Weber, and the Russian Populist economist Boris Brutzkus had – independently of one another – made the case that without markets and real-market price formation, rational economic calculation is impossible. Hence, attempts to abolish markets and to plan whole national economies were doomed to frustration, while leading to massive misallocation of resources. Socialists responded to this argument, as they understood it. Meanwhile, F. A. Hayek, Lionel Robbins and others contributed to the discussion without actually improving on Mises’ insights – and, indeed, perhaps weakening them. Having "replied" to the softer, "knowledge" formulation of the issue, the socialists assumed that they had won the debate, and went off blithely ignoring the actual case made by Mises

The problems confronting central planner Guevara illustrated Mises’ full claim that socialism simply could not calculate rationally and was, therefore, not an economy but organized chaos. In his essay "On Production Costs" (June 1963), Guevara sought, once again, to square the circle:

"One of the many problems a planned economy has to face is how to measure the economic performance of an enterprise under the new conditions created by the development of the socialist revolution…. In the case of Cuba, the shortage of certain goods could have produced a rise in prices in the market until supply and demand reached a new level of coincidence. Instead, we established a strict price-freeze and maintained a system of rations in which the real value of the goods [whatever that might be!] could not express itself in the market. Although rationing is a transitory stage, with the passage of time a planned economy in a given country begins to develop its own internal laws, distinct and apart from the laws of the outside world. A given price level is established through the interplay of raw material and other costs in the process of production and distribution."

This was very promising because:

"When all products function in accordance with prices that have certain internal relationships among one another – relationships that differ from the relationships of these products in the capitalist market – a new price relationship is created that cannot be compared to the worldwide one[!]. How can prices be made to coincide with value? How can a knowledge of the Law of Value be consciously wielded so as to achieve a balance between the underlying mercantile evaluation, on the one hand, and the faithful reflection of the true value [!] on the other? This is one of the most serious problems confronting the socialist economy."

Indeed. Having admitted the difficulty of doing without the "law of value" – Marxist jargon for price formation in real markets – the Minister now argued that "socialist accounting" based on imaginary prices which "have a purely mathematical function" was the answer. Artificial pseudo-prices serving as "measuring rods," a constant indexing of these "variables," occasional glances at world market prices for specific commodities, and a better and more dedicated planning bureaucracy seemed enough to Guevara His notions about fictitious "prices" with "a purely mathematical function" were in line with the general misunderstanding of Enrico Barone’s and Vilfredo Pareto’s turn-of-the-century strictures on socialist planning and did nothing to answer the Misesian challenge. A recourse to phantom prices serving as the "parametric" boundaries of supposed macroeconomic "equations" was the best the socialists had been able to do in the widely misunderstood calculation controversy of the 1930s. That real economics has to do with human action and not with algebraic functions between, or among, reified theoretical aggregates never quite came into Guevara’s mind – not that he was the least bit alone in this. Maurice Dobb, the English economic historian, was such a Marxist fundamentalist that he brushed aside the whole problem with a few technocratic asides. Perhaps he thought calculation "in kind" was feasible. That calls to mind Lenin’s remark in State and Revolution that socialist managers would only need to know the four basic mathematical operations – addition, subtraction, multiplication, and division – the late capitalist class having simplified the problem so by combining the means of production into trusts and monopolies. But at least Dobb saw through the pseudo-marketry of "liberal" or "market" socialists like Oskar Lange.

It is clear from Che Guevara’s economic writings that, hard as he wrestled with the nature of prices, markets, and economic calculation, he never rightly grasped the essentials of the matter. Even the sidelong glances at world-market prices were but a palliative to the nearly complete economic chaos built into so-called "planning"; such a palliative could do little to offset the massive costs stemming from abolition or repression of real prices and markets. To put it another way, destitution and calculational chaos were the unsought but unavoidable outcomes of an abolition of individual freedom to engage in human action. It was probably a relief for Guevara to be packed off to Bolivia to spread the revolution. Too bad he didn’t have Human Action in his knapsack, although having sealed his own doom by losing track of his own insights on guerrilla warfare, he probably did not have enough time left to finish such a lengthy book.

March 13, 2000

Joseph R. Stromberg is a frequent contribution to LewRockwell.com, a weekly columnist for Antiwar.com, and an adjunct scholar with the Ludwig von Mises Institute and the Center for Libertarian Studies.