The economist Ludwig von Mises showed in 1920 [1,2] that since a socialist economy destroys price information via government intrusion, the myriad of participants in the economy are unable to make a fully rational calculation about true profit and loss. Any economic activity that operates at a loss cannot be “sustainable”, a concept the left loves to scold us about, yet cannot really grasp.
Taking another approach, the Nobel economist F.A. Hayek showed that a national economy had such an immense myriad of dynamic economic relationships that no single committee or bureaurcracy, no matter how smart or how well staffed, could possibly know enough to direct prices or production levels. His Nobel Lecture [3] was entitled The Pretence of Knowledge. Hayek had previously used this idea as the basis for a very thorough article [4] on the subject, “The Use of Knowledge in Society.”
When these two different withering critiques of socialism are combined, it is easy to see that not only is it dangrously foolish to think that economic decisions can successfully be made by government, but that competing bureaucracies will invariably react to the consequences of intrusions in the marketplace by each other. It would be like trying to control the height of waves on a lake by measuring them from the back of a boat circling in its own wake.
Socialism is also morally bankrupt, for it demands we accept the premise that we can each live at the expense of others, despite how this violates the Commandments that forbid coveting and theft.
[1] Economic Calculation in the Socialist Commonwealth by Ludwig von Mises
http://mises.org/pdf/econcalc.pdf
[2] Why a Socialist Economy is “Impossible” by Joseph T. Salerno
http://mises.org/econcalc/POST.asp
[3] The Pretense of Knowledge
http://mises.org/daily/3229
[4] “The Use of Knowledge in Society,” American Economic Review, XXXV, No. 4; September, 1945, pp. 519–30.
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