“Planned” vs. “Unplanned” Economies

I think what sometimes attracts people to socialism is the belief that having a plan is superior to having no plan at all. A socialist government guided by expert planners can direct resources to meet the needs of all its citizens. Capitalist societies, on the other hand, are chaotic, unplanned, and only meet the needs of the elite. Ludwig von Mises argues that this is a false dichotomy. The choice between capitalism and socialism is not between an unplanned economy and a planned economy; it is between allowing millions of people the freedom to follow their own plans, versus forcing millions of people to follow the plans of politicians and bureaucrats. Mises writes that the tyranny of excessive planning by the government “deprive[s] all other people of the power to plan and act according to their own plans…” and aims for “the exclusive absolute pre-eminence of [its] own plan” (1951, p. 15).

The Soviet Union was once held as a shining example of the tremendous economic growth that can occur under a meticulously planned economy. Soviet economists Nikolai Shmelev and Vladimir Popov dispel this myth, making the case in 1989 that the Soviet Union was vastly inferior to Western nations in meeting people’s basic needs, and these poorer economic outcomes were the result of government planning. Soviet leaders and experts found it impossible to successfully coordinate where resources were to be allocated, what commodities should be produced, how they should be produced, and how they should be priced. Removing the profit incentive and ignoring price signals resulted in chronic shortages and surpluses of necessities. Shmelev and Popov observe that in market economies, shortages are rare because as a commodity becomes scarcer, its price rises, which leads customers to economize or seek substitutes. The high prices also incentivize profit-seeking producers to increase production. Shortages are usually the result of government price controls. Shmelev and Popov write that government plans had to be constantly revised, and the “rigidly planned” Soviet economy could not change prices and redirect resources fast enough to correct for changing complex conditions (p. 89). Although Shmelev and Popov still believed in the ideals of socialism, they concluded that what the Soviets needed to eliminate shortages and surpluses and increase productivity, were not better and more detailed plans, but more individuals pursuing their own plans: “Right now, as desperately as we need the air we breathe, we need enterprises—both large and small—in every sector of the economy, working without plan, simply by agreement and contract with other enterprises and organizations” (p. 215). 

— Colin Braman

References

Ludwig von Mises (2009). Planned Chaos: An excerpt from Socialism: An Economic & Sociological Analysis (1951). Mises Institute.

Nikolai Shmelev, & Vladimir Popov (1989). The Turning Point: Revitalizing the Soviet Economy. Doubleday.