How is it that socialism still exists in places like Cuba, North Korea, and Venezuela? That is because market prices, generated elsewhere, were available to the economic dictators. During the period of USSR socialism, there was the Chicago board of trade and Consumers’ Reports. They made market prices available to the Soviet planners; they were a not-totally-unreasonable approximation to Russian realities. Nowadays, at least quasi-market prices are available in many areas of the world (they are only quasi since every government, bar none, engages in taxes and subsidies, price ceilings and floors, etc., which would not exist in the pure free market, and thus still misallocate resources on their basis).
Without prices that reflect consumer desires and relative scarcities, it is impossible to determine whether platinum or steel should be used, for example, for rails for locomotives. The former is more efficient, but is needed elsewhere in the economy. But to what degree? Or, should a tunnel be dug through a mountain; or should the new road go all around it? The former is much more expensive, now, but will save gigantic transportation costs for years to come. Without accurate prices and interest rates, it is impossible to make a rational calculation of the relevant benefits and costs. Should rowboats be constructed of wood, metal or plastic? A rational decision, again depends upon free market prices, which are to the economy what maps are to geography.
[Socialism in the Marxist sense defines itself as a successor to capitalism, but it cannot exist without capitalism for the reasons Block describes. It requires pricing mechanisms for rational choices, and that requires market action for a sound pricing basis. Socialism is a carbuncle on capitalism, not its successor, which is why socialist economies eventually collapse — but not before turning into dictatorships of escalating brutality. F.A. Hayek discusses that process best in The Road to Serfdom. — Ed]
Join the conversation as a VIP Member