A short critique of the free market

A ‘planned economy’ has had controversial status, but what’s the real issue – free market or planned economy?

“Each unit [in a free market] is produced at the minimum cost possible, which means that no waste or inefficiency [the italics are ours] is involved.” This is one of the primary arguments from a book that will be well quoted throughout this pamphlet, entitled ‘Economics for Dummies’. Is this quote entirely true, though? Is there really no inefficiency or wastage involved in a free market economy? For starters, it’s well known for businesses to throw away platefuls of food

or, in some cases, for the clothing businesses to burn clothes as opposed to giving them away (i.e., to the needy) so as to not reduce the value of the unit of clothing. If it’s burnt, no real value is reduced; however, if it’s given away, value is automatically reduced, even if the product is a surplus of original production, i.e., it’s not necessary because what’s needed as been sold. This is where the capitalistic crises stem from – depressions, downturns, recessions, etc., etc. Surplus goods that have been produced and haven’t been sold have resulted in a huge loss for companies and the workers, and, moreover, mass wastage of goods and products. Things are invested in (by companies) for their value post-profit, so should the economy take a massive blow, mass surplus happens, depressions and recessions hit, productivity decreases, and companies take a hit. In a free market economy, it’s commonplace for businesses to produce things as cheaply as possible so as to maximize the profits resultant from selling goods/services. This involves placing workers on the smallest wage possible, using the cheapest commodities possible, and cutting costs in whatever way possible. To quote ‘Economics for Dummies’:

“…you can see that producing this first unit of output is socially beneficial [the italics are ours] because the value is worth more to buyers (£8) than it costs sellers to produce (£2). Put slightly differently, although the resources to make this unit of output costs society £2, those resources bring £8 in benefits [the italics are ours] when converted into this particular good or service.”

In this particular quote, the term “beneficial” is used a lot – but beneficial to whom? How can someone buying something for £8 be socially beneficial? Companies sell the item for a lot more than said item cost to produce, therefore, it isn’t beneficial to society, but, in bulk, beneficial to the bourgeois employer, as he’s extracting fourfold what it cost him.

Put simply, say a worker works in a factory producing cotton t-shirts. Say the t-shirt costs only £2 manufacture (i.e., the raw materials, fuel, etc., etc.), and the worker who produces said t-shirt can produce only one unit per hour. The worker is paid £7 hourly, and the distribution costs under the same company name only costs, say, £1 per unit*.

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So, in total, one unit costs the employer £10 (which includes raw material use, machine use, workers’ wage, and distribution fees. But in a store, the unit sells for £20. From where does the other £10 come? The price is bumped up to produce a profit for the employer, which is also known as surplus value, i.e., what’s generated by the employee but not kept. So, where does the extra £10 per unit go? Put simply, a percentage will go toward expanding factories, workforce, and capital; and the other percentage will go straight into the pocket of the employer, putting his income up. *The distribution cost is so little (in this example, £1 per unit) because units are distributed in the hundreds across stores, so it will, in total, cost the employer hundreds for distribution costs. However, the amount hundreds of units will bring in for the employer (in income terms) will greatly outnumber the initial costs, i.e., raw material usage, fuel, workers’ pay, distribution costs, etc., etc. But remember: this is only a very simple example; it only covers one unit per hour. No matter how one changes the figures, the outcome will always be the same: the profit will greatly outnumber the initial costs, therefore bumping up even further the capitalist’s income. The inefficiency of this type of free market capitalism is that waste happens (e.g., surplus clothing burned) and

From this quote alone, the simplistic-style propaganda can be extracted, given that the analysis is very simplistic. What “other zillion things” require trees and railcars? Granted there will be a few things, but not millions and millions of things. And why will everything need to be “balanced”? The math in a centrally planned economy will be done precisely, not estimated, as the quote has made out. Things won’t require balancing at all – the correct amount needed will be allocated to whatever’s necessary, and, given that there would be full employment and stable subsidy in such a socialist semi-state (i.e., the transition between capitalism and communism), why would there be a shortage of railcars, labour power, etc., etc.?

Many of these claims against a planned economy are hitting at third-world countries as well, i.e., countries that have suffered imperialism and are still struggling to develop. Of course they’re going to have shortages, and perhaps allocation won’t be precise; they don’t have the technology we do, which is regrettable. Nor do they have enough GDP and, therefore, tax as a result of such suffering, which is very much regrettable.

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workers are underpaid compared to what they generate (as seen in the previous example). What’s even more ironic is how free market capitalists are so willing to hit at a planned economy for its “inefficiencies” and “wastage”. Again, to quote ‘Economics for Dummies’’ §“Communism, long lines and toilet paper” ¶4: “What caused this mess [short supply]? Centralisation. In Moscow, government officials called central planners attempted to determine the correct amounts to produce twenty-four million different items! It was an impossible task. Take, for example, toilet paper. First, you estimate how many millions of rolls of toilet paper are needed. Then you have to figure out how many trees to cut down to make that much paper and how many railcars you need to carry those trees to paper mills and how many workers it takes to run those mills. At the same time, you have to try to balance production of toilet paper against the other zillion things that also require trees, railcars and workers.”