What Is Socialism?
Channel: misesmedia
Date: 2021-03-24

Economics is the study of human action. Using economics, we can understand how social orders can create different results based on how they allocate resources. 

In a market economy, production is guided by enterprises seeking profit and innovation. In a crony economy, the government influences market outcomes by interference and intervention. A third economic system rejects markets entirely in favor of central planning. 

This is socialism.

In this system, central planners set the stage and drive the economy while individuals serve less innovative roles in society in exchange for goods, services, and security. While a market economy rewards those who best serve customers, the promise of a socialist economy is that everyone's needs are taken care of equally. 

This is a command economy, where central planners decide what is produced, in what quantity, and who should produce it. Instead of people being allowed to choose what goods and services they prefer to spend their money on, they are provided only with what goods and services the central planners have chosen for them. 

Since some individuals prefer thinking for themselves and wish to pursue their own course of action and reject central planning, socialist countries tend to be politically authoritarian.

The economic consequences of central planning are just as bad.

For example, profits serve to reward and encourage innovation and efficiency. If you are the first to create a new product or find a cheaper way to provide a service, the individual that risks capital is financially rewarded. Under socialism, there is no incentive to innovate because the rewards go back to the planners.

Additionally, central planners only operate on their own knowledge and agenda, which is always less than the collective knowledge of society. Think of the difference between a published encyclopedia, which is static and unchanging, and a decentralized alternative—like Wikipedia, which is constantly evolving and growing.

 One vital piece of knowledge is that markets coordinate prices. 

Since many resources—such as steel—have a variety of different end uses, prices signal whether the use of a specific resource satisfies the top priority of the community. Should a factory produce car parts, or manufacture nails? In a market economy, prices indicate if there is a greater need for one product over another, that is for car parts or nails. In a command economy, it is the government that makes the decision.

The socialist goal of redistribution of wealth makes the basic mistake of not understanding how wealth is created. An economic system that does not reward innovation, savings, and production will see the quality of life for everyone decline.

For example, remember when everyone had a telephone in their home, but then the cell phone changed how we communicate. Without a profit incentive, why bother, and thus our lives are poorer. How many other such things might not have been developed without the incentive of profit? 

Often, politicians today will not go so far as to call for the socialization of every part of the economy—only for certain sectors, like healthcare, transportation, and education, to name a few. While a mixed economy that includes a mixture of markets and socialist services can function better than a purely socialist economy, there are still problems that exist.

For example, a truly socialist healthcare system forces decisions about the use of scarce resources—like hospital beds, medical machines, and medicines—to be decided not by individuals, families, or doctors, but by government appointed central planners. While patients of socialist healthcare may not have to pay to visit the doctor, or for a hospital stay, or for a medical procedure, or prescriptions, they may face other critical obstacles like long wait times just to see a physician or to get an approved surgery, shortages of medicines, fewer doctors, centrally planned research, all resulting in a lack of medical freedom.

The case for socialism is not grounded in economics—but a sociological appeal to “equality.” Equality goes against basic human nature to better ourselves and is an artificial and forced condition that has to be centrally directed to function. In order to have choices and freedom over our lives socialism must be vigorously opposed in all ways.

Questions

In a command economy, the government controls labor—which means dictating what jobs individuals can have. If you were forced to work a job you didn't like, how would you respond?

Could a socialist government use punishment to overcome the knowledge and calculation problems featured in the video?

Additional Resources

"Why Socialism Fails" by Antony Mueller (https://mises.org/wire/4-reasons-why-socialism-fails)

"Socialism Always Fails" by William Anderson (https://mises.org/wire/socialism-always-fails)

"Things You Should Know About Socialism" by Thomas DiLorenzo (https://mises.org/wire/socialism-always-fails)