Yes, we really do want markets in everything (Part II)

We might want to compensate for some of the effects of free markets, we might insist upon providing care to those who cannot cope with them, but we really would like markets to be the basis of resource allocation. Even in education and medicine.

Sergei Karpukhin / Reuters / File
A woman holds a red flag with a portrait of Vladimir Lenin on Red Square, in this 1998 file photo. Professor Brad DeLong shows side-by-side comparisons of east-block and west-block nations to show that communism led to per-capita GDPs about 10 percent that of capitalist nations.

Stolen Borrowed from Brad DeLong:

[The image can be seen here or here.]

As the professor points out, the countries are matched as to rough starting point before the communist armies marched, matched roughly as to culture and so on, and yet after that series of communist experiments we see the same result everywhere. The reason?

Karl Marx, you see, completely missed the utility of markets as devices for providing decision makers with proper incentives and for achieving allocative efficiency. (Why he missed this is, I think, a result of his crazy metaphysics of value, but I won't go there today.) He saw markets only as surplus extraction devices--ways to quickly and fully separate the powerless from the value that they had created and that ought to have been theirs.

So when the Communists took over, they followed Marx and said: "we don't want no stinking markets in our economies." This naturally raised the question of how they were then to coordinate economic activity. And they hit on the clever plan of attempting to reproduce the Rathenau-Ludendorff Imperial German war economy of World War I. And they did so.

We really do want markets in everything. We might want to compensate, after the fact, for some of their effects, we might insist upon care being provided to those who cannot cope with them but we really would like markets to be the basis of resource allocation. Yes, even in education and medicine.

Please note, this is absolutely nothing at all to do with capitalism, with what should be the level of redistribution in the society, what top tax rates should be nor even patriarchy, the oppression of women or the Rape of Gaia.

Use markets first foremost and always, then clean up the bits of the results we don't like afterwards: absolutely not the other way around, not using markets because we fear we won't like some of the results.

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