Planned economy

It is not surprising that at the same time that the disciples of Adam Smith were extolling the virtues of free enterprise there should also be men who were only too conscious of the harmful consequences of laissez-faire. Indeed there was considerable criticism of the system by socialists in Britain in the early nineteenth century, but the real attack on capitalism came somewhat later.

Karl Marx had come to know the conditions of English industry through his association with the Manchester factory manager Friedrich Engels. He was appalled by the cruelty of the industrial system and he saw that unbridled free competition would lead to monopoly and all its associated evils and that the resulting social injustices would lead to a revolution of the workers. His belief therefore was that the only alternative to free enterprise capitalism was State ownership of capital. His economics were the outcome of British classical economics, he simply changed the motive force. Whereas the classicals had aimed at the welfare of the capitalist, Marx set out to be the advocate of the wage earner. He saw that the rapid growth of the economy from the middle of the previous century was the result of the capitalist organisation of industry but he saw profit not as the reward for Enterprise but the true reward for Labour. He opposed the aggregation of property which led to further unequal distribution of wealth and to a deeper division between the poor and the rich. He contended that this gap would widen until finally social revolution would sweep it all away and establish a communist society. In such a society the answers to the economic problems would not be determined by market forces but by a central planning authority which would decide what goods and services would be produced and in what proportions - even which factory produced which commodities. Such a system is called a command economy because there is no choice, the planning authority decides how scarce resources will be allocated in order to achieve the Government's objectives which will reflect some order of social priorities.

Before accepting this system as an economic Utopia where all wants are satisfied it must be noted that it too has disadvantages. For one central authority to plan for the entire economy requires a vast amount of information so that individual plans and decisions can be timetabled so that they can slot together smoothly into one gigantic jig-saw. This then calls for many officials simply to collect, collate and interpret economic intelligence, work which would not have to be done under free enterprise. Along with the officials goes the whole machin­ery of bureaucracy with its almost inevitable delays and the possibility of corruption. Lastly it is argued that complete state ownership and direction of the factors of production by reducing incentives stifles initiative and results in a lower level of efficiency.

Nowhere in the world is there a thorough-going communist society. Even Cuba itself is not a command economy: apart from conscription into the armed forces there is no direction of labour, people spend their income as they please choosing goods from the range available and certainly as already indicated, the Cuban economy has transplanted some of the devices of the market on to a planned economy.