Central Planning Versus Markets
Differences between political decision-making and economic decision-making stand out in sharpest contrast when comparing whole systems of comprehensive economic planning by government officials with economic systems in which market competition among privately owned businesses determines what is produced by whom and at what prices. In both cases—socialism3 and capitalism—the rationales of the systems must be compared with the actual results, the rhetoric with the reality. The relevant question is not which system sounds more plausible but which produces what results.
What must also be understood is that both systems—in fact, all economic systems, including feudalism, fascism and voluntary collectives—operate within the inherent constraint that what everyone wants adds up to more than they can possibly get. This means that all economic systems must find ways of restricting and denying the use of both resources and finished products through one mechanism or another. In some systems this is done by imposing rationing or central allocation and in other systems people ration themselves according to how much money they have available to spend for various items.
All economic systems not only provide people with goods and services, but also restrict or prevent them from getting as much of these goods and services as they wish, since no economy can supply everything that everyone wants in the amounts that everyone wants. The systems differ in the manner in which they restrict
3While socialism may be conceived of in political terms as a system that aims at greater equality, a planned economy, job security, and other humane goals, in economic terms socialism is more likely to be described in terms of what it actually does, rather than in terms of what it hopes to achieve. In these latter terms, socialism is a system in which property rights in industry, commerce, and agriculture can be defined and assigned only by political authorities, rather than by private transactions among individuals and organizations in the marketplace. Whether such arrangements actually lead toward or away from the various proclaimed goals of socialism is left as an empirical question, rather than a foregone conclusion.
consumption and in the effectiveness with which they allocate resources in ways that produce lower or higher standards of living.
Central Planning
The term "planning" is often used to describe an economic system where the key decisions are made by political authorities, whether these are democratically elected officials or representatives of a communist or other totalitarian government. However, there is just as much planning engaged in by owners and managers of private enterprises under capitalism. The difference is in who is planning for whom. In a free market economy, millions of consumers, business owners and managers, investors, and others have their own plans—each for his or her own well-being, leaving the over-all coordination of these plans in the economy at large to changing prices and the economic incentives that these prices provide for mutual accommodation. What has generally been called "planning" has been central planning—planning by a small group of officials for the economy as a whole.
The same general principle of collective decision-making has also been applied by smaller settlements, such as the Israeli kib-butz4 or various other small enclaves of like-minded people who wish to produce and consume collectively, outside the framework of a capitalist market economy.
The most thorough-going control of entire national economies
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