A Journal for Western Man-- Issue VIII
Dr. George Reisman
Even in those cases in which an isolated competition results in an individual having to spend the remainder of his life at a lower station than he enjoyed before, for example, the owner of a buggy-whip factory having to live for the rest of his life as an ordinary wage earner after being put out of business by the automobile—even he cannot reasonably claim that competition has harmed him. The most he can reasonably claim is merely that from this point on, the immense gains he derives from competition are less than the still more immense gains he derived from it previously. For competition is what underlies the production and supply of everything he continues to be able to buy and is what is responsible for the purchasing power of every dollar of his and everyone else's income. And, of course, it proceeds to raise his real income from the level to which it was set back. Indeed, under capitalism, competition proceeds to raise the standard of living of the average wage earner above that of even the very wealthiest people in the world a few generations earlier. (Today, for example, the average wage earner in a capitalist country has a standard of living higher than that even of Queen Victoria, in probably every respect except the ability to employ servants.)
10) And now, once more with credit to Mises, so far from being the planless chaos and "anarchy of production" that is alleged by Marxists, capitalism is in actuality as thoroughly and rationally planned an economic system as it is possible to have. The planning that goes on under capitalism, without hardly ever being recognized as such, is the planning of each individual participant in the economic system. Every individual who thinks about a course of economic activity that would be of benefit to him and how to carry it out is engaged in economic planning. Individuals plan to buy homes, automobiles, appliances, and, indeed, even groceries. They plan what jobs to train for and where to offer and apply the abilities they possess. Business firms plan to introduce new products or discontinue existing products; they plan to change their methods of production or continue to use the methods they presently use; they plan to open branches or close branches; they plan to hire new workers or layoff workers they presently employ; they plan to add to their inventories or reduce their inventories.
Still more examples of routine, everyday economic planning by private individuals and businesses could be found. Private economic planning is everywhere around us and everyone engages in it. But, to everyone except students of Mises, it is invisible. To those who are ignorant of Mises, economic planning is the province of government.
Immense, all-pervasive private economic planning not only exists, but it is also all coordinated, integrated, harmonized to produce a cohesively planned economic system. The means by which this is accomplished is the price system. All of the economic planning of private individuals and business firms takes place on the basis of a consideration of prices—prices constituting costs and prices constituting revenue or income. Individuals planning to buy goods or services of any kind always consider the prices of those goods and services and are prepared to change their plans in the face of price changes. Individuals planning to sell goods or services always consider the prices they can expect for their goods or services and are also prepared to change their plans in the face of price changes. Business firms, of course, base their plans on a consideration both of sales revenues and of costs and thus of the respective prices constituting both, and are prepared to change their plans in response to changes in profitability.
Thus, for example, when my wife and I first moved to California, our housing plan was to purchase a house high on a hill overlooking the Pacific Ocean. But after learning the price of such houses, we quickly decided that we needed to revise our housing plan and look for a house several miles inland instead. In this way, we were led to change our housing plan in a way that made it harmonize with the plans of other people, who also planned to buy the kind of house we were originally planning to buy but, in addition, were willing and able to commit to their plan more money than we were willing and able to commit. The higher bids of others and our consideration of those bids brought about a harmonization of our housing plan with theirs.
Similarly, a naive college freshman might have a career plan that calls for him to major in Medieval French literature or Renaissance poetry. But sometime before the start of his junior year, he comes to realize that if he persists in such a career plan, he can expect to live his life starving in a garret. On the other hand, if he changes his career plan and majors in a field such as accounting or engineering, he can expect to live very comfortably. And so he changes his career plan and major. In changing his career plan on the basis of a consideration of prospective income, the student is making a change that better accords with the plans of others in the economic system. For execution of the plans of others requires the services of far more accountants and engineers than it does the services of literary experts.
A last example: consumers change their dietary plan, and thus plan, say, to eat more fish and chicken and less red meat. This results in a corresponding change in their pattern of buying and abstention from buying. Now, in order to maintain their profitability, supermarkets and restaurants must plan to change their offerings, namely, to increase the respective quantities of fish and chicken and fish and chicken entrees or sandwiches they supply, and decrease the quantities of red meat and red-meat entrees or sandwiches they supply. These plan changes, and corresponding purchase changes, on the part of supermarkets and restaurants result in further plan changes and purchase changes, on the part of their suppliers and on the part of their suppliers' suppliers, and so on, until the entire economic system has been sufficiently replanned to accord with the change in the plans and purchases of the consumers.
The price system and the consideration of cost and revenue that it entails on the part of all individuals leads to the economic
system continually being replanned in response to changes in demand or supply in a way that maximizes gains and minimizes losses and ensures that each individual process of production is carried on in a way that is maximally conducive to production in the rest of the economic system.
For example, as the result of a decrease in the supply of crude oil, there will be a rise in the price of crude oil and of oil products. All individual buyers will consider the higher prices in relation to their own specific circumstances—in the case of consumers, their own needs and desires; in the case of business firms, their ability to pass along the increase to customers. And all of them will consider the alternatives to the use of oil or oil products available to them specifically. Thus, on the basis of his individual thinking and planning, each of the participants will reduce his demand for the items in a way that least impairs his well-being. And in this way, the thinking and planning of all participants in the economic system who use oil or oil products will enter into the determination of where and by how much the quantity of oil and oil products demanded decreases in response to a rise in their price. This is clearly an instance of responding to a loss of supply in a way that minimizes the loss. The reduction in supply will be accompanied by an equivalent reduction in its use in the least important of the employments for the which the previously larger supply had been sufficient.
Similarly, the price system and the individual thinking and planning of all participants leads to the maximization of the gains from an increase in the supply of any scarce factor of production. The additional supply is absorbed in those uses in which it is most highly valued, that is, in which it can be absorbed with the least fall in price.
Ironically, while capitalism is an economic system that is thoroughly and rationally planned, and continuously replanned in response to changes in economic conditions, socialism, as Mises has shown, is incapable of rational economic planning. In destroying the price system and its foundations, namely, private ownership of the means of production, the profit motive, and competition, socialism destroys the intellectual division of labor that is essential to rational economic planning. It makes the impossible demand that the planning of the economic system be carried out as an indivisible whole in a single mind that only an omniscient deity could possess
What socialism represents is so far from rational economic planning that it is actually the prohibition of rational economic planning. In the first instance, by its very nature, it is a prohibition of economic planning by everyone except the dictator and the other members of the central planning board. They are to enjoy a monopoly privilege on planning, in the absurd, virtually insane belief that their brains can achieve the all-seeing, all-knowing capabilities of omniscient deities. They cannot. Thus, what socialism actually represents is the attempt to substitute the thinking and planning of one man, or at most of a mere handful of men, for the thinking and planning of tens and hundreds of millions, indeed, of billions of men. By its nature, this attempt to make the brains of so few meet the needs of so many has no more prospect of success than would an attempt to make the legs of so few the vehicle for carrying the weight of so many... To have rational economic planning, the independent thinking and planning of all are required, operating in an environment of private ownership of the means of production and the price system, i.e., capitalism.