Supply and Demand of Bureaucratic Decisions


Government-Planned agricul­tural programs aren’t working out in the Soviet Union, or in Red China, or in other countries under totalitarian rule. For some reason, the plans have gone awry and there isn’t enough food to go around.

The United States, at the same time, is plagued with more food­stuffs and other farm products than consumers seem to want.

Many Americans, who know perfectly well why Russian and Chinese peasants are facing a greater than ordinary threat of starvation, are thoughtlessly say­ing: "We’d rather have problems of surplus than of scarcity. And let’s not change the nature of our problems by aping the methods of totalitarian governments that sub­stitute the decisions of bureau­crats for the decisions of the mar­ket place."

The leak in that line of "logic" is that American surpluses do not stem from decisions of the mar­ket place. The market encourages conservation of any resource in short supply and discourages fur­ther production of goods or serv­ices for which there may be a dwindling demand. Rising prices freely bid by consumers for a scarce resource tell present owners to handle with care the supplies on hand while doing their best to produce or obtain more of the item.

Declining prices, on the other hand, as reflected by decisions of the market place, tell consumers and producers alike that the item is abundant, that possibly new or increased use ought to be made of it, and that there is no great ur­gency to supply more of it at the moment. In other words, the mar­ket place reflects at once the best judgment of those buyers and sellers most closely concerned and most able to do something about the supply of and the demand for any given item, whether it be rela­tively abundant or relatively scarce. If prices are free to fluctu­ate and reflect the true market situation, the conditions of so-called scarcity or surplus are avoided.

Shortages and Surpluses

Both scarcity and surplus, then, are problems arising out of bu­reaucracy and totalitarian govern­ment; they do not result from the free play of market forces. Scarcity or surpluses stem from efforts to fix the price of a good or service either lower or higher than might be agreed upon through competition between will­ing sellers and buyers in a free market. Shortages are to be ex­pected when prices are fixed too low to bring forth a supply equal to the demand. Miscalculations of totalitarian planners direct re­sources into improper uses, and starvation may be the price peo­ple then have to pay.

If prices are artificially pegged so high that production outruns use, then surpluses develop. This, too, is a miscalculation, or mis­direction of scarce and valuable resources; and the people pay, in one way or another.

Surpluses of farm products are well known to Americans of the mid-twentieth century—wheat, cotton, butter, peanuts, and whatnot—production being subsidized and use discouraged to provide a world-shocking example of wasted resources.

True, Americans are not starv­ing for food. It is abundant. But a man may hunger for many things for himself and his family. He lives not by bread alone. The stockpiles of wheat are plainly visible. Seldom seen or seriously contemplated are the frustrated ambitions and undeveloped alter­natives to which taxpayers might otherwise have devoted their en­ergy, ingenuity, and property. A person might have preferred an education for himself or his child, or medical attention, or a home of his own, or funds for research and development of an idea, or opportunity for rest and recupera­tion, or many other things more important to him than a surplus of wheat. Who knows how many dreams—indeed, how many lives—have been dashed by the tax-gatherer and buried under those mountains of surplus?

Furthermore, some of our most wasteful surpluses are not even recognized as such—because the government apparently has un­limited use for all the moon shots or new aircraft designs or urban renewal plans or "defense" high­ways or other projects that irre­sponsible government spending can develop. These are surpluses in the sense that no individual would willingly create or buy them in any such quantity at his own expense. And such projects surely divert resources from a thousand and one other uses owners might have had in mind.

As a national average, taxes take about a third of personal in­come to support bureaucratic de­cisions. But a much higher pro­portion of income is taken, through graduated federal, state, and local taxes, from the more creative and thrifty members of society. And these tax-inflicted shortages that appear to hit hard­est the wealthy few are, in reality, borne by the poor who can least afford trips to the moon. Our lives are thereby diminished, our po­tentialities unfulfilled. But these are shortages or lost opportuni­ties for progress that no bureau­crat could possibly recognize or measure; nor is it possible to hold a bureaucrat accountable or re­sponsible for the impact of his ac­tions on others.

Personal Responsibility

Now, it may be that, by your standard, or mine, some individ­uals wastefully use their own lives and their own resources. This, of course, is unfortunate. But, at least, the life a private citizen wastes is his own; it is his own fortune that he dissipates; he is held responsible and accountable for his own mistakes. He has no power to tax his more productive or thrifty fellow citizens to cover his personal failures and deficits. By and large, his power to down­grade society is limited to the damage he can do to himself and his own; there is no way for him to pyramid a personal disaster into a national calamity. And to the extent that he is held per­sonally responsible, he has the maximum incentive to take cor­rective action at the earliest pos­sible opportunity. This is why general shortages or surpluses do not and cannot develop under com­petitive private enterprise in a free market.

Both shortages and surpluses, whether Russian or Chinese or American, are a consequence of substituting the decisions of bu­reaucrats for the decisions of the market place. The same miscalcu­lation that results in a shortage or surplus of one thing adversely affects the supply-demand rela­tionship for other things, and there’s nothing constructive that bureaucrats can do about it ex­cept to stand aside and let the market function. American bu­reaucrats are no better than those of any other nationality when it comes to making socialism work. It can’t be done.


October 1962



Paul L. Poirot was a long-time member of the staff of the Foundation for Economic Education and editor of its journal, The Freeman, from 1956 to 1987.

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