The only modern alternative to the market and its attendent cruelties, at least on a conceptual level, was the 19th Century idea, implemented to various degrees with universally disastrous outcomes in the 20th Century, communism. Communism is thoroughly discredited, and the purpose of this post is not to beat a dead horse, but to use the shortcomings of communism to shine light on our present economic system.
At its purest level, communism attempts to deal with the unfairness and inhumanity of the market in the one simple manner: it does not allow substantial wealth imbalances. Nobody can be massively richer than their peers, and conversely, nobody starves or lives in squalor. Everyone in a pure communist system gets “paid” the same amount, regardless of their job or their personal ability. Much has (correctly) been made of the way that this system rewards slacking on the job, but, in the spirit of our examination of the economic system as a means of solving the superhumanly difficult problem of allocating goods and services, let’s examine a more fundamental problem or two.
Even if we stipulate that everyone in a communist society is motivated to work to the best of their ability, this society has a fundamental problem with how to figure out what work for everyone to do. Remember the intelligence-aggregating effect of the market: when one of the innumerable goods or services needed to keep modern technological society going is undersupplied, the price for that good or service gradually rises. This brings more people and resources into the business of producing the needed good, and perhaps eventually rewards innovaters who find alternatives for that good, etc. It does this constantly, for literally millions of distinct goods.
That entire mechanism doesn’t work in communism. Even if there is some internal concept of prices which rise, nobody can be rewarded for shifting production into a short good, because the entire point of communism is that you don’t reward people in a material manner. Wealth imbalances can not be allowed.
With the short-circuiting of the market mechanism for intelligence aggregation, the problem of distribution of resources gets taken over by, basically, committee. The problem is far too large for one person, so some kind of effectively-governmental control organization attempts to make the decisions about how much of what to produce. The problems should be immediately obvious to anyone who has actually been on a committee, which, unlike a market, is not an inherently intelligence-aggregating framework for human cooperation. Not to make light of the situation: even, again, allowing for the best will in the world, this is an extremely difficult problem. There are an infinite range of judgment calls to be made by any organization attempting to steer a fully planned economy. Imagine a situation in which you know that, say, copper is in short supply. Okay, obviously you have to divert more resources to copper production, that much is easy. But, first, how many resources? From where will you take the manpower and material resources that you intend to shift? Are you sure you won’t leave that good in shortage? What precisely is the shortfall in the supply chain necessary to make you more copper? Will you end up with more copper sitting in warehouses because you didn’t handle the additional transportation demand that your increased copper supply required? If you did handle the transportation supply, from where did you take those workers and materials? Since this is too important and too big a task to entrust to one person, once you’ve arrived at your plan, did you convince enough of your colleagues of your inherently subjective judgments to put your plan into action? And finally, how much did conditions change during this process?
With the best will in the world, with no corruption, this is an impossible task. Fully planned economies are doomed. But they can cause a lot of misery in the process of proving it.
Something to note is that these kind of planning divisions wield a shocking amount of power. They decide what gets produced and when. They decide — at least at some level of granularity — what jobs people have. And they’ll need to enforce their decisions. In a market economy, if a person is firmly committed to doing a job that nobody cares about and is unwilling to pay for, they end up impoverished. In a purely communist economy, if someone doesn’t want to do one of the needed jobs, they need to be proactively punished (well, or given rewards for playing along, but the rewards can’t be material ones, which limits their effectiveness). Communist societies, with a dearth of rewards, end up being all stick, no carrot. In trying to circumvent the real cruelty of the market, they substitute a far worse cruelty. The correlation of communist societies and police states is not coincidental: the immense concentration of power, and dearth of ability to reward rather than punish, leads inevitably to an oppressive, omnipresent regime.
That’s a lesson that we collectively learned to enormous human cost in the 20th Century, and communism is now functionally dead. And, interestingly, nobody seems to have another alternative to a fundamentally market-based economy. What we now have in the 21st Century (barring a few tiny impoverished hold-outs like North Korea) is a spectrum of market economies with more or less government intervention to try not to replace them entirely, as with communism, but to mitigate their human cost while retaining their superintelligent properties. And we’ll discuss that particular tightrope in the next post.