Saturday, August 31, 2013

‘Planning’ vs. the Price System

The British White Paper, “Economic Survey for 1947,” will repay the closest study by everyone interested in the survival of economic freedom. It typifies the attitude of the most sincere, well-meaning, and intelligent government planners everywhere. It makes no direct attack on the private-enterprise system. It contains, indeed, many statements with which every defender of that system will heartily agree, e.g.: “In the longer view, increased output per man-year is the only way to expand production and the standard of living.”

The White Paper decries “theoretical blueprints.” It tells us that the “essential difference between totalitarian and democratic planning” is that “the former subordinates all individual desires and preferences to the demands of the state,” but that a democratic government must “conduct its economic planning in a manner which preserves the maximum possible freedom of choice to the individual citizen.”

The authors of the White Paper seem to be quite unaware, however, of the extent to which their actual plans contradict these announced ideals. We soon find them declaring that “the government must lay down the economic tasks for the nation; it must say which things are the most important.” This means that neither producers nor consumers are permitted to do this for themselves. After repudiating “economic blueprints,” moreover, the authors of the White Paper set their own “targets.” They tell us by exactly what percentage exports must increase in 1947. “Export targets are being worked out for the individual industries to correspond with the global target.” They insist that the government must control imports “tightly,” and they present a “program for 1947” showing just how much food, raw  materials, machinery, oil, tobacco, and consumer goods can be permitted to enter. They have detailed quantitative programs for the production of coal, electric power, steel, railways, shipping, agriculture, building and capital equipment.

The one thing they seem to forget is that under a free price system these problems solve themselves. Production tends to increase most precisely where the greatest relative shortages exist, because under a free price system it is here that the greatest profit incentives are offered.

It is said that less than 10 percent of the British economy is or will be nationalized under present plans, and that “private enterprise” is responsible for the other 90 percent. But at every turn in Britain private enterprise is prevented from functioning. The White Paper itself points to “a large number of direct controls...rationing, raw-material controls, building licensing, production controls, import licensing, capital issues control, etc. Other controls again, such as price control, influence the course of production by limiting profiting margins.” The authors, however, give no sign of recognizing the extent to which these controls have reduced and unbalanced production. They talk, on the contrary, as if production could only be kept in balance by their own constant intervention at every point.

Yet such controls are as unnecessary and harmful in the field of foreign as of domestic trade. If American foodstuffs are more essential to British consumers than American movies, they can be trusted to make that discovery for themselves. If you forbid a British consumer to buy an American automobile, he will use the money to buy a British automobile or some other domestic product instead. That will mean one less British car or other home product available for export. Though the British consumer is deprived of what he wants, the trade balance is not improved. In peacetime “planned” imports are needless and foolish, and “planned” exports are still more so. The British must export what foreigners want, not what the government thinks foreigners ought to get.

Under free exchanges all such problems used to solve themselves. If a country bought more from abroad than it sold, it ran short of foreign balances. Equilibrium was usually soon restored by gold shipments or a corrective movement of prices and exchange rates. But price controls, exchange controls, and blocked currencies now prevent all such automatic signals and adjustments. Here is simply one more illustration of how one control brings on an ever-expanding network of controls.

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