18.
Market vs. Command Economy
There are two polar
opposite approaches to an economy's operation. The command economy is the top-down, centrally-planned
economy of socialism. The market
economy is the decentralized economy of the free market. The most fundamental distinction
between the two is the existence of private property in the free market and the
absence of private property in the command economy.
The alleged virtue of
the command economy is that it is planned in contrast to the unplanned market
economy. The error in this view is
that the market economy is actually very rationally planned by means of
consumer demand through the price system.
Additionally, for four reasons the command economy will be deficient.
First, an attempt to
plan an entire economy by a central committee is bound to be inefficient just
because the task is so large.
There is no way that a committee of say, 300 planners can know the
needs, conditions of resource availability, and localized knowledge spread throughout
an economy.
Second, the command
economy ultimately rests on coercion as its means of motivation. Socialists will typically claim that
the resort to coercion (the Berlin Wall, Russian gulags, etc.) is not part of
their system, but only an unfortunate bad choice in political leaders and that
socialism only attempts to control the economy, not people's individual
liberties. But, of course the main
element in an economic system is in fact people; therefore controlling an
economy is first and foremost control of people--the Berlin Wall was no peculiar
misfortune. Suffice it to say
further that human motivation is diminished when coerced.
Third, the command
economy is a collectivized system.
All work for the benefit of their quotal share of total production. Individual incentives are absent. As an example, with 100 workers in an
economy each will receive 1/100 of total production. If one worker shirks, his loss is only 1/100 of the
production he otherwise would have generated. (Imagine the incentives when this system is broadened to a
nation of 200 million!) Each ends
up attempting to live at the expense of others and total production plummets.
And fourth, the
incentive of production is to please the political authorities who have life
and death control over the workers.
In contrast to the market, where production is predicated on consumer
demand, the consumer is the forgotten being in a command economy.
-
Barron, John
Mig Pilot,
(New York: McGraw-Hill, 1980)
-
Friedman, Milton & Rose
Free to Choose,
(New York: Harcourt, Brace, Jovanovich, 1979)
pp. 9 - 37, 54 - 69.
-
Hayek, F. A.
The Fatal Conceit,
(Chicago: The University of Chicago Press, 1988)
-
Rand, Ayn
Atlas Shrugged,
(New York: Random House, 1957)
pp. 660 - 670.
-
Roberts, Paul Craig and Karen LaFollette
Meltdown: Inside the Soviet Economy,
(Washington, D.C.: The Cato Institute, 1990)
-
Steele, David Ramsay
From Marx to Mises,
(LaSalle, Illinois: Open Court Publishing Company, 1992)
pp. 255 - 294.
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