Economic Myths and Realities

There are a lot of “myths” when people talk about economics. One of these is what “command based”, “supply based”, and “demand based” economies actually are in reality.

A “command based” economy is what the Soviet Union had.  What every country involved in World War 2 had.  A command based economy is one where what is to be produced and what is not to be produced is decided by government.  This sort of economy is really only practical in wartime when all of a nation’s economic efforts must now be directed towards creating the means necessary to win the war.  In peacetime a command based economy will eventually fail because it is in the final conclusion based upon the use of force, not upon the desires of the consumers of the goods and services produced.  There is no “feed back” to determine what the consumer actually wants, nor for that matter is it possible to figure out to any accurate degree the cost of producing anything when there is no market pricing. About the best the Soviets could ever do was to attempt to copy the goods and services produced in the capitalist West, but the results were not very good since there was no incentive as such to produce “to market”, where the consumer would decide what they considered worth buying, not what some commissar felt the people should have…  The quality of many consumer goods was poor because there was no incentive to do better. Eventually the entire system crumbled to a halt, unable to “compete” with the “West”. What has replaced it today is a country dependent to a great deal upon exports of oil and natural gas.  Russia is effectively a “third world” nation with “first world” pretensions.

What confuses people is the belief that the means of production of goods and services must be controlled by a business either owned by someone or by a group of investors who make up the major stockholders of the corporation. However this concept is based upon error. The type of ownership has no bearing upon the success or failure of the business.  What decides the success or failure of the business is how well it pleases the consumer, along with having enough consumers available who can afford to purchase the goods and services the business offers.  A business could be owned by a government, but as long it operated in the free market, its profits and losses would determine its success just like any other business. The same thing would be true of a business owned by its own workers.  The operational principle is still the same as it would be for an individually owned business or a corporation owned by its stockholders. The type of ownership is unimportant.  What is important is whether or not the business operates in the free market where its customers will determine whether or not it is successful.  It is in fact customers with money or credit who determine the success or failure of any business, regardless of the sort of ownership as such.  Generally however government services tend to be in the form of monopoly of one kind or another, so the “customer” really doesn’t have a choice as they would if they were purchasing goods or services from businesses whose profit or loss was determined by how successful they were in pleasing the customer.  This is why the quality of service when you deal with a government agency often isn’t as good as it would be if a private business that had to satisfy the customer would be.  The government agency is much more like what life was like in Russia where the consumer had no choice or say in most matters. No doubt the government to which these agencies belong could make things better for the consumer, but that would require different personnel policies and a different “mindset” for the agency in question. It is however worth noting that the Post Office now has “competition” for the delivery of packages from private businesses, which in turn means that the Post Office has to behave more like a private business than a federal government agency.

I should add here that the taxation of business does nothing but increase the price of the goods and services offered to the customer.  Businesses “pass through” all costs related to the production of goods and services, so taxing these businesses just increases prices.  It also encourages businesses to relocate themselves outside of the location where they are subject to the taxes.  So taxing business encourages business to leave the country and go somewhere where they aren’t taxed, but can still sell their goods back here in the USA. This is where the idea of “supply based economics” comes from.  And it is true as such.

To restate the conclusion here, it is not the type of ownership that determines the success or the failure of a business, but whether or not it operates in such a manner that pleasing the consumer is a primary part of its role as determined by the free market.  We could for example have businesses owned and operated by “labor collectives” (Soviets) and if they were operating in an open free market, their success or failure would be no different than if they were owned by a wealthy capitalist. The success or failure of any business as long as it has to compete in the free market is determined by how well it pleases its customers.  On the other hand monopolies of any sort tend to be less responsive to their customers for the simple reason that the customer doesn’t have the choices that they normally enjoy today.

Jerome Bigge, writing as “muskegonlibertarian.wordpress.com”

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About muskegonlibertarian

77 year old retired owner of a security guard agency. Member of the Libertarian Party.
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