Knowledge And Decisions

Over a period of twenty years, the British government poured more than £130,000 into Georgia, supplemented by church and private donations, including over £90,000 from one of the trustees. Such massive subsidies made it unnecessary for the settlers in Georgia to pay taxes, and therefore made it unnecessary to have any representative local government to raise taxes — thereby eliminating the need for institutions which could have provided political feedback modifying the distant trustees’ plans. The sum spent by the British government was more than it had ever spent on any other nonmilitary project. Meanwhile, the beneficiaries of all this largesse were leaving Georgia for other colonies, less well subsidized but also less controlled. Eventually, even massive subsidies were unable to keep the planning project going, and in 1751 the trustees returned the colony to the British government. Like later “planners” they blamed failure not on their own decisions or on the inherent limitations of planning, but on lack of enough additional financial support!¹³⁵

NON-ECONOMIC RATIONALES

There are moral and political, as well as economic, reasons for preferring governmental direction of the economy (“planning”) to decentralized price coordination (“capitalism”). Perhaps the most common reason for preferring “planning” in general and socialist “planning” in particular is a sense of the moral inadequacy of capitalism — either (1) outright “exploitation” of one group by another, domestically or internationally, or (2) a selfish, every-man-for-himself amorality, or (3) a “meritocracy” which ignores our common cultural inheritance and our common humanity. More narrowly economic reasons for preferring governmental direction to decentralized price coordination include the possibility of internalizing external costs, taking a longer-run view of the consequences of economic decision making and eliminating monopolistic practices which reduce the efficiency of a price-coordinated economy. Politically, one of the major objections to the price-coordination systems of Western society as they have emerged historically is their inequality in wealth and power among people and organizations, and the distortions which this inequality introduces into both political and economic processes.

Capitalist middlemen are often depicted as “mere interceptors and parasites”¹³⁶ and profit as simply “overcharge.”¹³⁷ While episodic interception of goods on their way from producer to consumer might seem plausible, the repeated and persistent choice of producers and consumers to route their sales and purchases through a middleman is difficult to explain unless they each find this less costly than dealing directly with one another. Consumers would not have to go to the factories, with all the inconveniences (and sometimes dangers) that might involve. Producers could own their own retail outlets, as some do. However, the rarity of this — even when producers have ample capital available to finance it — suggests that there are different skills necessary for different functions, so that firms which are successful in one stage of the economic process find it cheaper at some point to turn their output over to other firms which have lower costs of carrying out the next phase. If the next firm were not cheaper or better at conveying the products to the consumer, the producer would have no incentive to incur the bother and the cost of negotiating with middlemen, shipping his goods to them, and going through the financial problems of collecting payments from them. Perhaps even weightier evidence of the economy’s advantages from middleman functions is that even the “planned” Soviet economy — ideologically opposed to middlemen — has found itself driven to setting up similar organizations, not only for consumer goods but also for equipment and supplies used by producers.¹³⁸