Oct 27, 2015

Capitalism Versus Socialism in South America Perfectly Compared

By on Tuesday, October 27, 2015

Voices of Liberty explains the economics of why socialism fails:
Yuri Maltsev, the former Soviet economist who defected to the US in 1999, cautions that many young people in the West hold a naïve, romantic view of socialism.
True, socialism may sound wonderful: all is shared, universal equality is realized, and we all live happily ever after.

But in the real world, socialism fails. The cause is bad economics.
Socialism is a type of economic system. Economists refer to the socialist economy as a “command economy.” This means that a central planning body—the state—makes all of the economic decisions, commanding the actions of the people in the economy. In contrast to the free market, socialism necessarily hinges on the use of force by the central planners, not voluntary cooperation between people. In this respect, the essence of socialism is economically akin to tribal and slave economies, in which economic decisions, including the methods, values, and ends of production, are dictated by the chief of the tribe or the slave owner.
When the central planners of the socialist state own and dictate the producer goods and means of production, production is inherently inefficient because economic calculation is destroyed. This is problematic because modern economies with advanced divisions of labor are necessarily dependent on sound economic calculation. Economic calculation economizes—makes efficient—the division of labor. (One distinction before moving on: Socialism differs from fascism in that with fascism, the state exerts regulatory control over production—though the effects of both—and communism—are largely the same.)
Now, what does it mean to say that socialism is “inherently inefficient” because it destroys “economic calculation”?
Again, in socialist command economies there is essentially one dictator of production (the state) attempting to dictate (or regulate in the fascist economy) the values and ends of production for all of society. With one dictator of production, there is no trade. Without trade, it is impossible to calculate prices. Socialism is inherently inefficient because it destroys prices, which coordinate social action. Prices must be free, and socialism does not allow free prices because it does not allow right to profits, free contract, and private property. Because socialism destroys prices, it is impossible for the socialist state to “socially economize” the economy.
What does “socially economize” mean? Remember, the subject of economics is human action. Economics explains how society functions by explaining the cause and effect of our interactions, or our “economizing.” When we economize, we attempt to direct means to their highest-valued ends while incurring the lowest possible cost. In other words, we try to be as “efficient” as possible. So again, socialism destroys efficiency because the state is the sole dictator of production, which means there is no trade, which means prices are destroyed, which means economic calculation is destroyed, which means people’s economizing is destroyed. In short, it is impossible for socialist central planners to determine what, how, and how much to produce. It is impossible to gauge what is valued and beneficial to people in the economy.

It’s important to remember that in the socialist economy, social economizing is impossible, regardless of the stated intention of the public policy. The road to serfdom is indeed paved with seemingly good intentions. Furthermore, remember that in many large socialist countries, central planners face the impossible task of attempting to economize the lives of people they often know nothing about—people with vast divergences in values. The greater point is that the necessary consequences of socialism are gradual impoverishment and social discord—the opposite of peace and prosperity. 


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