Readers of the New York Times got a front-page example recently of what F.A. Hayek called “the fatal conceit” — the idea that some great mind or committee can do a better job than the private market in organizing and directing an economy.
Hayek argued that the market automatically coordinates the millions of individual activities in an economy by way of “natural, spontaneous and self-ordering processes of adaptation to a greater number of particular facts than any one mind can perceive or even conceive.”
The record of the past century shows that the system that delivers the goods, reduces scarcity and improves living standards is the “spontaneous human order created by a competitive market,” said Hayek, not the “deliberate arrangement of human interaction by central authority based on the collective command over available resources.”
What works, in short, is freedom and capitalism, not statism and socialism.
The Times article that supports Hayek’s line of reasoning — “Caps on Prices Only Deepen Zimbabweans’ Misery,” by Michael Wines — provides a perfect illustration of how the “fatal conceit” of government can turn a difficulty into a catastrophe.
“Robert G. Mugabe has ruled over this battered nation, his every wish endorsed by Parliament and enforced by the police and soldiers, for more than 27 years,” explained Wines. “It appears, however, that not even an unchallenged autocrat can repeal the laws of supply and demand.”
With prices doubling weekly, Mugabe’s attempt to revoke the laws of economics came via an anti-inflationary order, “Operation Slash Prices,” on June 25, ordering merchants to cut their prices by 50 percent.
“One month after Mr. Mugabe decreed just that, commanding merchants nationwide to counter 10,000-percent-a-year hyperinflation by slashing prices in half and more, Zimbabwe’s economy is at a halt,” reported Wines.
Most students with a passing grade in Economics 101 could have predicted that Mugabe’s decree would produce shortages. Cut the price of gasoline by law to a dollar per gallon, and there’ll be less supply and more demand — the formula for a shortage. Cut the price to 50 cents and we’ll be walking.
It’s the same with supply in the labor market. Cap the salaries of brain surgeons at $100,000 and there’ll be a shortage of brain surgeons.
Predictably, the results of Mugabe’s decree were catastrophic.
“Bread, sugar and cornmeal, staples of every Zimbabwean’s diet, have vanished, seized by mobs who denuded stores like locusts in wheat fields,” reported Wines. “Meat is virtually nonexistent, even for members of the middle class who have money to buy it on the black market. Gasoline is nearly unobtainable. Hospital patients are dying for lack of basic medical supplies. Power blackouts and water cutoffs are endemic.”
Similarly, the impact on manufacturing and jobs was ruinous: “Manufacturing has slowed to a crawl because few businesses can produce goods for less than the government-imposed sale prices. Raw materials are drying up because suppliers are being forced to sell to factories at a loss. Businesses are laying off workers or reducing their hours.”
With three-fourths of Zimbabwe’s labor force already jobless prior to Mugabe’s decree, the government’s prescription for bringing down inflation only worsened the nation’s poverty crisis. “Factory layoffs and slowdowns,” reported the Times, “are bringing new poverty to the 15 percent or 20 percent of adult Zimbabweans who still have jobs.”
To keep critics in line, a new law gives Zimbabwe’s security forces the right to observe as many e-mails and tap as many phones as they see fit.
For noncompliance with Mugabe’s edict, business owners are threatened with jail and the nationalization of their companies. “We are at war,” explained one of Mugabe’s vice presidents, Joseph Msika. “We will not allow shelves to be empty.”
In other words, if supplies won’t come forth voluntarily via the market, the government will force the production.
“As many as 4,000 businesspeople have been arrested, fined or jailed,” reported Wines, while “state-run newspapers publish lists of telephone numbers on their front pages daily, exhorting citizens to report merchants whose prices exceed the dictates.”
In the Soviet Union, to keep things moving according to plan, the government eventually killed 55 million of its own citizens. In China, 36 million.
To kill in those numbers required the obedience of many. Said British philosopher W.K. Clifford, “There is one thing more wicked in the world than the desire to command, and that is the will to obey.”