The original, perpetual, definitive, economic problem is the need to allocate scarce resources so as to satisfy the most urgent and important human wants – as judged by the person taking the action (even if that want is to help others). To do so is to economise.

To allocate scarce resources so that less important wants are satisfied, while more important wants are neglected, is to waste scarce resources. Economising = more human wants can be satisfied for a given use of resources.

The original economic problem is how to economise resources and avoid waste. This underlies all debates about economic efficiency and sustainability. Both concepts have in common the idea of achieving the same end or output with less inputs; or more output with the same inputs.

Rational economising and rational economic calculation, mean being able to know or to calculate, in units of a lowest common denominator, that *ratio*; to know whether scarce resources are being used to satisfy the most urgent and important wants of the intended payers and consumers as judged by them, *considering what values had to be sacrificed for that end*.

Under a system of private ownership of the means of production, there is a direct connection between what the consumers want, and what the producers produce. If you buy a hammer from Bunnings for $5, then it is axiomatic that you value the hammer more than you value the $5 and vice versa for Bunnings.

Profit means entrepreneurs have combined the factors of production in such a way that the masses value the end result more than they valued the uncombined factors. They are telling the entrepreneur “You economised resources, we value the satisfaction we gained even higher than your profits.”

Loss means the capitalist has combined the factors of production in such a way that the masses value the end result less than they valued the uncombined factors. They are telling the entrepreneur “You wasted scarce resources that could have gone to satisfy our more urgent and important wants.”

The socialists have got the matter precisely backassward in equating profit with waste.

It is through profit and loss that the masses exercise direction over the whole process and structure of production, and cause even remote capital goods to answer to the end of satisfying the masses most urgent and important wants, as judged by them.

The same cannot be said of either full or partial socialism, which severs at the root any necessary economic connection between the satisfactions that the payers and consumers are trying to achieve, and what the producers are producing.

You cannot just assume that socialist enterprises will “work” equally as capitalist ones, because the definition of a successful outcome is not work, it’s want-satisfaction.

Capitalist enterprises can
a) know, and
b) calculate
what to produce and how to produce it by means of price signals and profit and loss.

But the whole purpose of any socialist enterprise, is to displace the operations of profit and loss so far as concerns the good being supplied, otherwise there’d be no reason for government to provide it.

For example, if the government is providing research and development, how does it know whether it’s providing
a) too much
b) too little, or
c) just the right amount,
relative to all the other human wants that could be satisfied with the same resources? That’s what you keep having trouble proving.

Your mission – should you choose to accept it – is to explain how government functionaries can do that, even assuming they are selfless angels seeking only the communal good.

All you’ve offered so far is arbitrary postulates. For example, how do you *rationally*
a) know, or
b) calculate,
the correct rate at which “incentive” should be destroyed, for “opportunity” to be encouraged - even assuming they are somehow dichotomous - to satisfy the wants in the subjective value scales of the masses who pay for and consume the government services in question?

If (since) you can’t do that, your actions will be self-defeating, even in your own terms.

Or, you could try re-thinking your assumptions, consider whether they might have been wrong, and try falsifying them instead? You’ll find it easier.

JKJ, I think I see the problem. Would I be correct in deducing that because of the self optimising nature of markets, you think that they always achieve the perfect result?

Reality is far more complicated. Markets are good, but the conditions they optimise for are not the conditions that provide the greatest benefit to society. Problems include:
• Markets are inherently biased to favour the interests of the rich over those of the poor.
• Often there are externalities, such as environmental effects, which are not included in the market price.
• Many individuals are in an uncertain position, so decisions are made according to perceived maximum risk rather than average risk.
• There is an inherent short term bias in human decision making, and this can easily lead to false economies. Higher interest rates add to the short term bias, and risk adds to interest rates.
• Production of goods often involves a large fixed cost and a small variable cost, but there is very little scope for the pricing structure to take that into account. Efforts to recoup the fixed cost can discourage sales/use of the product. This is mitigated by lower interest rates which enable the fixed cost to be recouped over a longer period.

All these problems can be addressed by government action.

Setting interest rates lower is a way of increasing opportunity. But lowering interest rates increases the amount of money going into the economy, so generally a cut in interest rates will have to be balanced by a rise in taxes (taking the money out of the economy again) if it's not to result in more inflation.
In reality it's more complicated because there's many other factors at play. But lower taxes only benefit those who are making money, while lowering interest rates actually makes making money easier. Opportunity beats incentive! But there are so many other variables that I can't give you a formula for determining when lower taxes are better than lower interest rates and vise versa. Sorry, reality just isn't that simple.

Aidan
You haven’t proved what’s in issue, so that’s a fail, I’m afraid.

You’re just back to arbitrary postulating again. There’s no need for me to deal with your further arguments because we have just disproved in summary what you’re assuming in detail. None of your points stand.

We know that government can “address” anything, in the sense of take action. What you haven’t been able to prove is that it can ever achieve what is in issue.

(What is “perfect” doesn’t come into it, because we’re talking about human beings.)

You *say* that you believe in partial socialism. But as we have just seen, partial socialists share all the same beliefs motivating full socialists. They believe that productive activity is intrinsically immoral and anti-social, that government action presumptively makes everything fairer and more productive without any rational justification for that assumption, and the solution to any social problem is for government to increase its violent interventions, i.e. keep moving in the direction of full socialism.

They never urge for the dismantling of the coercive that they or earlier generations of socialists have put up, and they never inquire whether the problems they’re trying to solve are caused by prior interventions.

Thus although they *say* they approve of a mixed economy, they have opposed it at every step, and constantly urge for new and further interventions, even when they have been a complete failure or disastrous and unjust, such as their monopoly control of banking and credit.

Then when faced with the proof of the anti-social irrationality of their belief system, they just repeat all their premises!

All socialists would repeat the genocides of the 20th century all over again, and for all the same reasons. For example, if all their wishes for global warming policy were granted, they would cause the deaths of hundreds of millions of people.

And then we get them popping up again pretending to speak on behalf of “society”.

You’re not society, you don’t speak for society, and you don’t know what’s better for people, than people. You speak for violent exploitation, that's all.

Dear Jardine,

<<the definition of a successful outcome is not work, it’s want-satisfaction.>>

In that case, creating new wants is a crime and those who do it should be hanged...

This includes advertising and manufacturing products with deliberate defects or even traps which limit their life-span. It probably also includes any obscuring of the fact that sugar has been added to foods. Competitive industry uses many subtle ways to create both fears and desires which were not there in the first place - and that's wrong.

Also, the desire to destroy one's competitors or at least to have an edge over them (instead of simply wanting to produce a more-satisfying product), produces a sick type of satisfaction as well as lots of waste. So many products for example are developed, which engineers invest their hearts and minds into, but never see the shelves despite the great effort, for abrupt competitive/market reasons that have nothing to do with the product's quality (or even the cost of its production).

I agree that profits are not waste, but the losses due to friction which are created in the process of competition (which is normally required for significant profits), are a waste.

On the other hand, an even better outcome than want-satisfaction is the reduction or elimination of wants, in other words the reduction or elimination of our fears and addictions.

I still reject socialism (full or partial) because its implementation requires violence (which also create frictions of a different kind), but if only a similar simplification of life could be achieved voluntarily, then wouldn't it be heaven?

Dear Aidan,

<<Yuyutsu, most of the problems arise not from competition itself by from people being in a situation where they can't afford to lose.>>

On the rare occasion of discovering a new continent (including the continent of silicon), there could be a short period when people can afford to lose, but when competition is applied long enough, society races back to the point of scarcity and then people again can no longer afford to lose.

Yuyutsu, your rely to Jardine makes no sense.First you say you want people to be hanged, then you say you're against violence.

And where did you get the stupid idea that socialism requires violence?

And why the Maltusian response to my comment? Why should work be scarce?