The Absence of Competition and Profit-and-Loss Incentives in Supplying the Consumers Makes the Plain Citizens Economically Impotent under Socialism

What positively generates the system of aristocratic privilege under socialism is the fact that the only values that actually count in a socialist society are the values of its rulers. It should be recalled from the previous chapter that the absence of competition and profit-and-loss incentives in supplying the consumers makes the plain citizens economically impotent under socialism. Production thus takes place exclusively in accordance with the values of the rulers. What the rulers value is what contributes to their military strength, their prestige, and their amusement. The goods required by the masses for survival enter into the rulers' valuations only to the extent that the rulers need subjects and do not wish to lose too many of them.

The nature of the rulers' values determines the nature of the incentives and inequalities of a socialist society. It is not true that a socialist society exists entirely without incentives. That would be true only if it tried to practice consistently the absurd ideal “from each according to his ability, to each according to his need.” In actual fact, a socialist society does have some incentives. But the incentives are geared entirely to the achievement of the values of the rulers. There are no incentives to the achievement of the values of the plain citizens.

The kind of incentives and inequalities that prevail under socialism are similar to those which prevail in an army. In an army there are incentives for privates to make corporal and for everyone to advance to a higher grade. But all the incentives in an army are geared to achieving the objectives of the supreme commander. The objectives of the supreme commander are the ultimate ends, definitely not the improvement of the life of the privates. Indeed, neither in an army nor under socialism is the improvement of anyone's actual life the goal. The goal is always some impersonal achievement, whether victory in the battle with the neighboring country or victory in the battle of the new dam or truck factory, which is just how the socialists describe their construction projects. The closest socialism ever comes to making the improvement of life its goal is its alleged concern with the improvement of the life of unborn future generations. But no sooner does the generation of the grandchildren arrive, than socialism's concern switches to the grandchildren of the grandchildren.

--George Reisman, The Government Against the Economy: The Story of the U.S. Government's On-going Destruction of the American Economic System through Price Controls (Ottawa, IL: Jameson Books, 1979), 184-185.

Adam Smith's "Invisible Hand" of the Free Market Is Actually the Uniformity-of-Profit Principle

In just this way, initially higher rates of profit are brought down and initially lower rates of profit are raised up. The logical stopping point is a uniform rate of profit in all the various industries.

This principle of the tendency of the rate of profit toward uniformity is what explains the amazing order and harmony that exists in production in a free market. It was largely the operation of this principle that Adam Smith had in mind when he employed the unfortunate metaphor that a free economy works as though it were guided by an invisible hand. . . .

The uniformity-of-profit principle explains how the activities of all the separate business enterprises are harmoniously coordinated, so that capital is not invested excessively in the production of some items while leaving the production of other items unprovided for. The operation of the uniformity-of-profit principle is what keeps the production of all the different items directly or indirectly necessary to our survival in proper balance. It counteracts and prevents mistakes leading to the relative overproduction of some things and the relative underproduction of others.

--George Reisman, The Government Against the Economy: The Story of the U.S. Government's On-going Destruction of the American Economic System through Price Controls (Ottawa, IL: Jameson Books, 1979), 6.