Mises Institute Fellow Jonathan Newman writes about Ludwig Von Mises’ devastating critique of socialism for its lack of pricing (bold emphasis added):
With private ownership of the means of production, entrepreneurs hire laborers and purchase capital and natural resources based on their contribution to the productive process as measured by consumers’ willingness to pay for the final output. Anticipated revenues from the sale of output guide production and investment decisions. Any deviation from the consumers’ wishes results in lower profits or even losses.
Under socialism, in which the private ownership of the means of production is abolished, there can be no meaningful prices of the inputs to production processes. Production decisions are merely “groping in the dark,” as Mises put it in Economic Calculation in the Socialist Commonwealth. Mises showed that there is no forward-looking way to compare anticipated revenues to the costs of production and there is no way to retrospectively measure the success of any production process. Economic calculation, essential to any growing and flourishing market economy, is impossible.
Socialism doesn’t work because it rejects this fundamental aspect of a functioning market economy.
If you can’t set prices, you can’t determine the actual value of products or goods, and therefore you can’t prioritize where or how to allocate resources. The exchange of goods and services cannot occur in any meaningful way.
Pricing is essential to the natural market regulation of supply and demand.
What most people think of as “socialism” is in reality an economic model whereby the government meddles in private sector industry via regulations, but does not actually manage the means of production the same way it does in truly communist countries. This allows prices to be set, though they can still be manipulated and warped as we saw with the dotcom bubble, the housing bubble, and now the student loan bubble.
Socialism is just a form of economic statist LARPing in which we are forced to pretend things are worth as much as our wise overlords say it is.
In his piece Newman starts off talking about the Federal Reserve, which engages in quantitative easing and artificial credit.
Both of these are a form of statist LARPing within the economy.
Unfortunately, people can pretend indefinitely but the market does not, which is why you get shortages whenever you implement price controls. And with the boom always comes the bust.
The market will always correct itself sooner or later.