Government 1B Week 6 Essay The Problem with Socialist Calculation and Government Involvement in Production

Question 1: What is the problem that Ludwig von Mises identified that a socialist economic planning board faces?

In a capitalistic society business owners are able to calculate profit and loss. They can compare their product to another business’s, contrast the differences in labor and production efficiency, and analyze why their product has become more/less popular than their competitors. Economic calculation allows business’s to make the most rational and efficient financial decisions, it allows for the least wasteful business deals. It also allows for resources to be dealt more fairly, the products most popular with the public are able  to collect more resources to produce their product faster. Theres also pricing, which gets decided upon very quickly in a capitalist society. It mainly gets decided upon by the customer, through bidding, offers and counter offers. Through this auction style buying process the customer decides how much they’re willing to pay, and from that a fair price is born. The problem with the socialist calculation is that, well there is no way to calculate. A panel of government officials plans out everything that is to be produced, and since theres no competitor to compare prices and production costs the financial decisions become far from efficient. There are no real prices, since the central planning board already owns everything. The government is simply distributing produce with no economic calculation whatsoever, and that leads to a lot of economic waste.

Question 2: Evaluate this statement: “Government must intervene in the economy to bring about improved working conditions.”

When faced with a workplace problem (such as underdeveloped safety protocol), the majority of us would look to the government to apply laws to fix it. While this can work to solve some problems, with others government involvement only makes the issues worse. Imagine air conditioner is a new product, fresh on the market and exciting to factory workers who work in less than ideal conditions. Many factories (primarily the wealthy ones) are able to afford this flashy and helpful new product. But many others lack the funds necessary to compensate. The government, hearing of the popularity of AC, steps in and makes it mandatory for all factories to implement this new technology. “We’re helping the underdog,” says the government “Now those penniless factories will receive the air conditioning they deserve!” But no factory receives things for free, and the penniless remain penniless. The only real change is the poor factory (who still fails to provide funds for AC) now is forced out of business. The workers of this factory didn’t much mind the lack of AC, but they certainly mind losing a job. The rich who could afford AC prior to the law change now have an excess of jobless at their door, and are able to pay them less than their last job because it was forced to close. In this scenario the rich get richer, the poor just get poorer.

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