« on: May 16, 2005, 04:57:53 PM »
I truly wish everyone could be happy, but we live in a world of scarcity so we must allocate. We could allocate by letting people make decisions based on their own self interest (capitalism) or by letting a central planner make decision based on the, I will say supposed, greater good.
The latter seems appealing. It is nice to think that the government, a set of elected officials could decide what is produced, what we earn and what we buy because they are looking out for our best interest.
But what is capitalism. We are all free to choose what to produce based on our abilities, our resources, our competition and our customers. Basically, capitalism allocates recourses based on how much of A we can produce compared to B and how much of each is demanded. So if we define best interest in terms of productive capabilities and revealed preference, capitalism succeeds in allocating good in our best interest.
The problem comes up for two primary reasons: we don't all have equal abilities and we don't all have equal resources. Even if we distributed resources evenly, we would have to continually do so to make up for inequality of ability (ability encompassing earning potential). So we are left with a choice.
Could we correctly allocate these resources evenly according to the new demand of equal resources through a central planner? Maybe. It would seem much more difficult to produce the given output.
In a capitalist system, if I am making soap inefficiently, you can open a soap factory and make it cheaper and sell it cheaper. I go out of business. Because of DMR, there will be a set number of factories making soap efficiently (only using the amount of resources needed) and the rest of the scarce resources are used elsewhere.
In a socialist system, the government decides how soap is made. Sure they may choose the most efficient way at first, but there is no incentive for anyone to improve soap making techniques. It is inevitable that goods will be produced at a higher cost (in terms of resources used) in this system.
There are two questions that logically follow:
1. Is this loss justified if it gives the bare essentials to everyone, even if it takes all luxuries away? (or some variation)
2. Does this loss make everyone worse off, totally countering any possible benefits?
I would argue that the answer to 1 is not important because the answer to 2 is yes.
Take USSR for example; in the 1980s they were actually experiencing a decreasing return on production. That is to say that the raw materials put into Russian goods were worth more that the finished goods. That is a command economy at work.
If you have any questions about this or anything else, I will answer them from as close to a laissez-faire perspective as I can. I will leave my conservative moral mumbo jumbo out.