Could a Planned Economy Ever Succeed?

Could a planned economy, where the government determines who has how much wealth and what wages and prices ought to be, ever succeed?

To answer this question, we need to consider what wealth is and where it comes from. Simply put, wealth is anything that has value in economic exchange. But what determines value? It has been claimed that value is somehow inherent and therefore measurable by some impartial and independent standard, in the same way that we might measure a distance, a weight, or a temperature. One approach to “measuring” value is the “labor theory of value,” originally popularized by two of the fathers of economic theory, Adam Smith and David Ricardo. This theory supposes that the more labor is required to produce something, the more it will be worth. While this theory has fallen out of favor among most modern economists, it continues to be part of the foundation of Marxist economics because it implies that value can be tabulated by well-informed experts. If a would-be economic planner knows how much labor is expended in the production of a given item, he can then measure its value and plan for its production.

If this were true, it is at least imaginable that a sufficiently well-informed board of economic planners could calculate the values of all goods and services in production and decide how much of each should be produced and at what cost. Nor is this a completely hypothetical premise; for the past century, governments all over the world, including our own, have established wage and price controls, set production goals and quotas, and in general tried to manage their respective economies into higher productivity and efficiency.

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