domingo, outubro 23, 2011

Soviet Planning Fails

Soviet Planning Fails… Even in America:
In 1920, Austrian economist Ludwig von Mises predicted that the Soviet socialist system would fail. “Imagine the plight of a [Soviet] director when faced with a project,” he wrote later in Human Action. “What he needs to know is whether or not the execution of the project will increase well-being, that is, add something to the wealth available without impairing the satisfaction of wants which he considers more urgent. But none of the reports he receives give him any clue to the solution of this problem… Eliminate economic calculation and you have no means of making a rational choice between the various alternatives.”

After he retired, former U.S. Department of Commerce’s Economic Development Administration Director Orson Swindle admitted that Mises was right. “The minute politics enters the equation,” he said, “rational financial management and economic decision making goes out the window.” While a project may seem perfectly good to a Soviet director or EDA bureaucrat, they have no means to judge between multiple projects that seem equally good. In the market, prices, profits, and losses guide producers only to projects that create wealth and away from ones that destroy wealth. This is the most important market process. It assures that resources are not wasted and used most productively.

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