Mises Wire

Goods Can Never Be Distributed “Equally” — Especially Not In a Socialist Regime

A common criticism levied at the capitalist system is that resources are prioritized on the ability to pay. The wealthy are able to better compete for resources when compared to the poor, creating an inequitable distribution of resources in favor of the rich. A common solution presented to this perceived problem is to convert to a socialist society, where the State is responsible for provisioning and distributing goods. As the argument goes, if the government is responsible for this provisioning, the issue of inequitable distribution will be solved and everyone will have access. For example, this was the justification behind the formation of Canada’s Universal Care System and other such systems around the globe. By eliminating the profit motive, so goes the argument, medical services will no longer be sold to the highest bidder but to those with the greatest need, as is the common mantra of Communism.

However, reality is a harsh mistress. Because of the concept of scarce resources, even idealized communism will have to discriminate on who gets first use of available resources. Before discussing this, it is important to understand how an economic system distributes goods.

Time and Opportunity Cost

Regardless of the economic system, all systems engage in a system of exchange. What is exchanged may be material in nature, as is common in barter systems, monetary, such as modern capitalist-leaning systems or, under socialist and communist structures, the most base asset, time.

Time is itself the base component in all resource production. At any moment in the day, time is expended on activity and cannot be refunded. An hour used is forever gone. This is the key driver behind the concept of opportunity costs. Whatever you elect to do with that hour of time, you give up a multitude of other options you can realistically perform with that same hour. An hour spent at the office is an hour no longer available to paint your house or hike in the woods (though not an hour lost traveling to Mars since that is currently not possible, so lost options are not infinite).

When evaluating the different economic systems, this opportunity cost must always be forefront in the mind. All systems mix land, labor, and capital within this opportunity cost framework. Even a hypothetical pure communist society will have to use up time accumulating capital as it is not possible to produce extensive resources without first constructing support structures, such as a factory, to do so.

Under modern capitalism, this time contribution is able to be stored and saved in the form of money. Money — with exceptions such as cronyist systems and salaries to involuntary bureaucrats (think a senator’s salary) — usually represents an individual’s contribution to society. Money allows individuals to produce a good or service and then bank that exchange for some future, unspecified good or service in return. The more units of this money an individual possesses, the greater contribution to society that individual provided.

How capitalism discriminates depends on the quality of the time of the individual bidding on assets in the market. If two individuals are willing to give up an hour of their time in exchange for a particular good, the individual who is able to earn $30 in a given hour has a distinct advantage over the individual who earns $7. In different terms, the $7 earner needs a full hour to purchase a $7 item while the $30 earner only needs 14 minutes. What this means is that the opportunity cost of spending a unit of currency is lower for the $30/hour earner than it is for the $7/hour earner. What this means is that the $30 earner is willing and able to engage in higher bids than the $7 earner.

To improve the ability to bid for goods in a capitalist economy, an individual has to increase the quality of an hour of labor. If the $7 earner wants to compete on equal footing with the $30 earner, he has to increase his own productivity value up to $30 per hour. This is done through various channels — training, education, and entrepreneurship being major avenues. Under this system, competing for new resources creates a self-reinforcing benefit for other actors on the market. When the $7 earner increases his productive value to $30, all the other actors in the market benefit from this as well. This is because a more productive worker produces more goods more cheaply, thus reducing everyone’s cost of living and increasing the quality of life. Now the net pool of resources between the two actors has increased from $37 in an hour to $60 in an hour. If the original $30 actor wants to maintain his position, he must further increase his productivity in the market, further driving up the net resources available. This is why competitive capitalist economies continue to become wealthier as time goes on.

Under a socialist economy, all units of time become equal. The hour of one individual who provides a great deal to society is equal to someone who provides nothing. What a system where items are given away “free” does is now favors those with the most hours available to trade. In other words, the less valuable time is to the individual actor, the greater this actor’s competitive advantage becomes in attaining goods and services. If, for example, food is provisioned by the State, bread lines naturally form. To ensure access to resources under a socialist system, those who are able to pay more in hours, i.e., those who can stand the longest in line, will be the ones who have the greatest guarantee to receive the scarce resources. As time goes on, the available goods approach infinity, making what can be attained with an hour ever greater, benefiting all actors, even those whom have less productivity.

Under this system, the motivations and self-reinforcing element are the opposite of the capitalist structure. To increase resource competitiveness, an individual must reduce all other obligations. The hour spent at the bakery making the bread is an hour that is lost to someone else getting in line before them to get the bread. So the baker has to choose between either contributing materially to society or giving up this productivity to avoid losing out on resource distribution. The more individuals that drop out of productive activity increases the amount of time required to obtain even scarcer goods, further convincing more individuals to drop out of the factory and stand in distribution lines. This cycle eventually leads to total economic collapse, as is seen in just about every nation that attempts to move toward pure communism. As time goes on, the available resources approach zero, requiring ever greater amounts of time standing in lines to attain.

The Socialized-Medicine Example

Even in hybrid systems like the United Kingdom still see these issues and from a different angle. In the NHS, time is the key currency to obtaining services. Individuals who are able to get in line early, tying up hospital beds well in advance of obtaining services, are better positioned to obtain those services. What this has done is favored low-urgency services over higher urgency ones. Seekers of low urgency operations are willing to wait lengthy amounts of time standing in line to obtain services while someone with a higher urgency medical need does not have the time available to wait in line. Low urgency and young are, therefore, “time wealthy” compared to the sick and elderly, who are time impoverished.

For example, the NHS has abysmal survival rates for cancer, which requires quick identification and treatment to survive, while tying up GPs, surgeons, and hospital beds for surgical virginity restoration who were able to get their slot in line early. One normally does not plan on getting cancer 18 weeks in advance while one can do so with a hymen repair procedure. A capitalist system would have the individual seeking cancer treatment able to outbid the individual seeking virginity restoration since the urgency of cancer treatment would price it well above virginity restoration.

No economic system is able to escape the realities of scarce resources and resource allocation must be made on some discriminatory level. Because of this, the choice of economic system must take into consideration motivations of resource attainment. If a system rewards productivity and value, as a hypothetical pure free market would, then the motivation is to produce greater value. If the system rewards the ability to stand in a long line for hours or weeks at a time, then the system will motivate people waiting in line and being unproductive, thus producing less value.

In any system, whatever good you consume must be paid for. Even under the hypothetical communist utopia, nothing is free.

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