Imagine you’re the Minister in Charge of Nail Production in a centrally planned (i.e. socialist–where the “means of production”, in this case nail making, are publicly controlled rather than privately owned and controlled). Should be an easy job, you would think. Nails, after all, are pretty simple.
You are now considering sixteen penny (16d) nails. (Side note: “penny” as a measure of nail size derives from how much 100 nails would have cost “back in the day” and the “d” is simply an archaic abbreviation for a penny, deriving from the ancient “denarius.”) You have central control so that means you have to decide how many of these 16d nails to have made. So, you look into it.
The 16d nail is a very common nail used in securing two-by-fours in wood-frame buildings. There are other sizes that are sometimes used, but the 16d is popular for that role. You want to be efficient (after all, one of the things supporters of socialism claim is that it’s more “efficient” than the anarchy of “the market”) so you call your buddy over in “Ministry of House Production” and ask how many houses are going to be built over the next year, oh, and by the way, how many nails are used in building an average house. Well, your buddy doesn’t know yet. He’s still working on figuring out how many houses to plan to build for the next year (we won’t here go into his particular problems in figuring that out), so give him some time and he’ll come up with a figure. As for how many nails are used in constructing a house, he superciliously informs you that he deals with houses, not trivia such as nails.
So, while waiting for at least a number of houses from the Ministry of House Production, you call the Ministry of Shed Production, the Ministry of Garage Production, the Ministry of Doghouse Production, and every ministry which might involve people nailing two-by-fours together. They all give you the same answer, they’re still working on their numbers.
Oh, and Ministry of Doghouse Production? They turn back to you and ask how many nails you can make available to them so they can figure how many doghouses to make. Doghouses, after all, are more flexible in their numbers. If nails and wood are available, folk can make doghouses. If not, well, the dog will just have to shelter under the porch. (And you make a note that you need to call the Ministry of Porch Production to get their numbers too.)
Oh, wait, you just remembered. Schoolkids use nails as cores to demonstrate electromagnetism. So you also need to call the Ministry of School Science Projects.
You have so many calls to make that you have a dozen assistants (provided by the Ministry of Administrative Personnel) making calls.
So, you’re sitting there and you don’t even know how many structures using the nails that are your responsibility are going to be built, let alone how many nails each one will need. It’s enough to make a man snatch off his hat, throw his hat on the ground and stomp on it. (Has Ministry of Hat Production accounted for that loss?)
In the meantime, the Ministry of Steel Production is calling you asking how much steel you’re going to need for nail-making so he can figure how much steel to produce. (And Ministry of Pig Iron is calling him to see how much iron to produce for his steel making. And the Ministry of Mining is calling them. And…) Ministry of Personnel is calling to see how many nail makers you need. Ministry of Machine Tools is calling to see how many Wire drawing machines, cutters, and head stampers (whatever they’re called) you need for nail making.
And you don’t know because you still don’t know how many nails to make.
But you’ve got to come up with a number because if you don’t, then nobody’s making nails. So you make your best guess and that, by God, is how many 16d nails is going to be made. If it doesn’t match up with what the other ministries want, well, that’s just too damn bad.
And that’s just one particular size and style of nail. You’ve still got to go through all the other varieties: Box nails, finishing nails, all sorts of designs in all sorts of sizes, each for a particular purpose and how many of each is the “right amount” depends on a whole host of other choices made by others in the economy. And not just nails. Every single product, every single good or service in any kind of centrally planned economy must also be decided the same way.
It is simply impossible one person, or one small group of people to have the information necessary to determine just how much of not even nails but one particular size and style of nail is “needed” in an economy of any size (after all, in a medieval village the “minister of nail production” would be the village blacksmith, and he would make the nails as needed if he didn’t have something more important–meaning something for which people were willing to pay more–to do).
In a market economy, somebody makes nails. If the nails are excess to “need” they’ll end up sitting on the shelf and the producers will see that their product is not selling, reduce the amount made and shift instead to maybe a different size that is selling better. The ones that aren’t selling get their price dropped (“clearance sale”) and somebody decides to build that doghouse they had been putting off (after all, the porch had already been built) or maybe more kids make more electormagnets. Or people start using 16d where before before they’d been using 12d. I mean, it’s a little large, but it will still work and at that price…
And if they haven’t made enough nails, then the shelves get empty, the retailers clamor for more (because sales not happening because of lack of product means revenue not coming in). Producers see that they can sell more nails and that means maybe running some overtime, or hiring more people so they can churn out more nails. But that’s okay because the extra demand means they can charge more for the nails and still sell more–maybe not as many as they would sell at the current price but more than they had been making at the current price.
Unlike the Minister of Nail Production, these producers don’t need information on all the various uses to which the nail is put. All they need is information on how well their nails are selling and what their raw materials cost (which speaks to the supply of same). Sure, it’s helpful to look at what’s happening with housing or how energy costs affect steel prices so as to be positioned to take advantage of changes in both supply and demand. The people who are good at doing that will be rewarded by higher profits–they’ve got nails on the shelves when everyone else is scrambling to catch up to the boom, or they’ve reduced production (and therefore their own costs) in advance of a downturn when others have unsold nails having to be unloaded at clearance prices (if only to make room on the shelves for something that is selling).
This is why market economies simply work better than command economies whatever one might call them (communist, socialist, fascist–all different flavors of centrally controlled command economy).
Freedom, including economic freedom, is not just preferable from a philosophic/moral point of view (since anything else is just some variation of slavery), it’s also superior from a practical point of view.
So, as for me, make mine freedom.
5 thoughts on “The Nail.”
To really make things fun, in the old Soviet Union, your nail factory may be short of steel wire, but for some reason, you were shipped 40 train cars of copper wire. Meanwhile, the transformer plant just received a lot of 4×4 oak railroad sleepers, and the rail maintenance depot got the steel wire.
What does a plant manager do? If you complain through proper channels, you’re not the plant manager anymore- especially if the man at the central planning depot is under the roof of someone really connected.
So, you call the fixer, and for a small fee.. well, reasonable if you want to make this month’s quota at any rate… and he gets what is needed where it needs to go.
And that’s the positive way thing happened. You may get a situation where the Party Chairman decides that your big factory isn’t essential for making nails, and that the peasants can just forge all the steel they need in their own backyards. Or that nails are a bourgeois affection not needed in our Socialist Year Zero, and your technical knowledge is too dangerous (as is your life).
And when the ministry of nails has finally settled on a number, it can finally inform the ministry of horseshoes, which can inform the ministry of horses …
…which can finally inform the ministry of wars.