This Monday marked the 20th anniversary of the fall of the Berlin Wall. A symbol of Soviet oppression, its destruction marked the end of the Cold War era and the collapse of socialism’s political viability in the eyes of the general public. But despite the failure of the socialist system, the U.S. continues to make the same grievous errors as the Soviets. Just as the collapse of Soviet-style socialism was inevitable, our current system of government intervention in the economy will also lead us to ruin. The only way to preserve and raise the standard of living of all people on earth is through free markets.
Imagine a spectrum of government intervention into the economy. On one end, you have complete ownership and direction of the factors of production — the machines, land and people. This would be complete socialism. On the other end, you have private ownership of the means of the production. Each worker would choose where to work, and every piece of land or machinery would be owned by individuals or associations of individuals, such as partnerships or corporations. This would be true capitalism. We have never, in the entire corpus of human history, had either true socialism or true capitalism. We have remained buoyed between the two.
There are essentially two problems with socialism. The first is relatively well understood and has been called the incentive problem. How can you get the doctors to work if they are being paid the same as clerks in some civil service — as they would be under true socialism? Who would want to be an oil driller in the Alaska North Slope region when one could work another job in Miami for the same wage?
But even if we ignore this problem and assume that every person was wholly and completely devoted to working for the collective, socialism still wouldn’t work. This is due to a less commonly understood problem: It is impossible under socialist interventionist policies to calculate and coordinate production because there is no way to determine prices. Without the private ownership of property, property can’t be exchanged between people. And without these exchanges, prices won’t exist, the relative scarcity and availability of goods would be unknown and the entire economic system collapses.
To demonstrate this point, let me raise a question: Why is it that business owners use porcelain and not gold to make toilets? In a free market with a free price system, the relative scarcity of goods can be compared. Since one ounce of porcelain is cheaper than one ounce of gold, intelligent businessmen will use porcelain to make toilets. Because gold has other uses and because there is a limited amount of it on earth, it must be rationed or allocated to where consumers want it the most. If I attempted, in a free market, to make and sell solid gold toilets, I would incur tremendous losses and quickly go out of business. Losses signify that the actions I am undertaking are not what the rest of society wants.
But under socialism, there are no prices and certainly no profit and loss test, meaning that there is no possible way to know whether making solid gold toilets is a good idea. Without a free pricing system, there is no directing force to tell businessmen what and where to produce a good. And the government can’t fulfill that role. Whenever it attempts to do so and intervenes in the market, it alters prices in some fashion from what they naturally would have been, which sends false signals to businessmen and consumers. Then, the government has to intervene to solve the new problem, which creates further market distortions. These market distortions lead to calls for further government intervention, as producers and consumers who have been hurt by the government’s actions now want policies put in place to benefit them. The eventual result is an economy that is completely and inefficiently planned by the government — in other words, socialism.
As the Soviet Union demonstrated, centrally planned economies can’t escape the problems of incentives and pricing. But with the U.S.’s current interventionist policies, it’s clear that this country has either forgotten the lesson the Soviet Union taught us or never learned it in the first place.
Vincent Patsy can be reached at firstname.lastname@example.org.