The first rule of economics is scarcity. There are not enough resources to satisfy peoples desires. Economic systems don’t create this scarcity, it is the natural state of our world. The two questions that economic systems have to answer are, 1) How can limited means satisfy unlimited wants? 2) Which economic system does a better job of dealing with scarcity?
Private ownership of the means of production is the definition of free market capitalism. State ownership of the means of production is the definition of socialism. The economic system that exists in the U.S. today is not free market capitalism. It is a system hampered by Government rules, regulations and taxes. These Government interventions take decisions about the means of production out of the hands of private owners and places them in the hands of bureaucrats.
No economic system that exists today is purely free market or centrally planned. Since change is constant, the direction an economic system is moving is what is important. So economic systems are either moving toward collective ownership or toward private ownership of the means of production. Or as F. A. Hayek said, “moving toward serfdom and poverty or freedom and plenty.”
PRIVATE PROPERTY DEALS WITH SCARCE RESOURCES
In this article titled, Why We Need Private Property To Deal With Scarce Resources, Patrick Barron does a great job explaining how private property deals with scarcity better than collective ownership. Here are some excerpts from the article.
“The existence of scarcity is true of all resources (such as time, human energy, and natural resources). However, it is not necessarily intuitive that allowing scarce resources to be owned privately is the solution to this problem.
Consequently, socialism appears attractive to many and they turn to having all resources owned collectively for the “common good.” Unfortunately, a society which spurns private property…. often learns the terrible lessons of central planning and the tragedy of the commons (i.e., commonly held resources will be plundered to extinction)”
“Throughout history, most of mankind has been divided into a hierarchical system of masters and slaves with some gradations between the two extremes. The masters…. devised complex rules-based systems for resource distribution….. And ultimately, these plans depended upon pure terror for enforcement. But this so-called solution to the problem of scarcity — restricting the people’s liberty through the use of force — does not work.”
Problem 1: We Can’t Economize Without Effectively Ordering Our Preferences First
“.… Modern economics explained that without private ownership of resources, there was no mechanism for observing or acting on ordinal preferences in which persons prioritize desires from highest to lowest. Without a way to allocate goods according to ordinal preferences, there is no rational means to economize for the betterment of society.”
“In other words, without markets and prices, there is no way to know what people really want or need, so the masters never really knew what to order the slaves to produce, what technical means to use, what alternative materials to use, the quality desired, or how much to produce. Thus, the commissars of the Soviet Union ordered the production of inefficiently produced, shoddy goods. The Soviet empire collapsed, despite the fact that Russia is blessed with vast natural resources and an industrious population.”
Problem 2: Few Raw Materials Are Ready To Consume
“A second fatal problem with common/government ownership of resources is that few readily available, consumable resources actually exist. There are no resources on the planet that do not require at least a minimum of effort to transform into a consumable product……Of course, most natural resources require much more effort to convert to consumable products, passing through many stages of production.”
“…. Consider a hiker lost in the wild. It matters not at all to him that great stands of timber lie within easy reach or that valuable minerals lie under foot. These natural resources require great effort over very long time periods to be converted into something consumable….. A lost hiker does not have the knowledge, time, or previously produced means to convert these basic resources into consumable products to ensure his survival. All this is far beyond anyone’s autarkic abilities.”
“Now let us assume that someone did harvest trees by felling them, transporting them to a lumber mill, milling them, storing them in a ventilated and dry place for many months before kiln-drying them….. advertising their availability to contractors, keeping sales records, sending out bills, and collecting the bills, only to have a socialist call him a plunderer and confiscate his lumber for free distribution to whomever the masters deemed to be politically advantageous to their continued privileged position. No one other than the favored cronies of government would ever harvest another tree….. production of usable lumber would be monopolized…. prices would increase and quality would decline. Moreover, with no voluntary market at work…. there would be no means of knowing if these resources were being used in a way valued by those who valued them most.”
Problem 3: We Need Private Property To Build Capital
“Without the ability to profit from privately owned property, there would be no incentive to provide or withhold capital for any endeavor. Also, a system of private ownership is necessary to determine if that capital is being used in a way the consumers value. The consequences of ignoring this fact of economic science is most evident today in China’s ghost cities, where resources, both natural and human, have been expended for no observable benefit except to advance the careers of politicians….”
“The opposite case of resource waste comes from special interest groups…use the state and prohibit exploitation of resources by private individuals…. modern environmentalists have convinced the political class that most progress is unsustainable, dangerous to our health, etc… Society is prevented from benefiting from their conversion to consumable products. The poor suffer the most from these policies as the prices of raw materials — and thus finished consumer goods — are driven up.”
“Private ownership insures that valuable resources will never be plundered to extinction, because their value will have been capitalized. Instead, private owners will seek to make resources as widely available as possible without endangering the long-term prospects for future harvesting of resources. The process of determining a resource’s capitalized value is impossible absent free-market capitalism with strict defenses of property rights.”
“Despite both the theoretical and empirical evidence to the contrary, socialists tell us the opposite; i.e., that state ownership of all resources will prevent their plunder and ensure prosperity for all. As Ludwig von Mises explained, though, socialism is not an alternative economic system of production. It is a system of consumption only, and a system of economic ignorance and economic plunder.”
Related Article – Milton Friedman -Socialism Is Force!, at austrianaddict.com.
Related Article – Why Socialism Won’t Work? Human Nature, at austrianaddict.com.
Related Article – Wealth Can’t Be Redistributed If It Doesn’t Exist, at austrianaddict.com.
AUSTRIAN ECONOMICS ADDICT 