Which is prone towards overproduction, Free-Market economy, Mixed-Market economy, or Socialist economy? Does overproduction matter in any of these economies?
Socialist economy for sure. Too many left shoes, anyone?
It doesn't matter for a free market. Markets clear.
Peace
Socialist response to overproduction:
"overproduction is the natural tendency of capitalism to expand the production of commodities that does not acknowledge the limits of the market (demand). Since the production and circulation of goods is not planned and firms are in constant competition for larger profits and greater market share, capitalist's booms are always followed by busts as we see in the business cycle. In short, capitalist markets are NOT self regulatory."
Strange how they see lack of central planning as a source of overproduction, yet it is the central planning that causes overproduction in the first place.
I always thought that in a socialist market you would see underproduction. Please correct me if I'm wrong.
"It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds. " -- Samuel Adams.
kingmonkey: I always thought that in a socialist market you would see underproduction. Please correct me if I'm wrong.
Hmm, would that make our socialist friend correct, Socialism underproduces, and Capitalism overproduces?
Socialist underproduction is a fascinating point, and I never considered it. Perhaps overproduction or underproduction appears contingent on the specific industry in combination with the central planners.
ViennaSausage: kingmonkey: I always thought that in a socialist market you would see underproduction. Please correct me if I'm wrong. Hmm, would that make our socialist friend correct, Socialism underproduces, and Capitalism overproduces? Socialist underproduction is a fascinating point, and I never considered it. Perhaps overproduction or underproduction appears contingent on the specific industry in combination with the central planners.
Yeah, but over production isn't necessarily a bad thing. It makes goods cheaper for the consumer. If I manufacture socks and make too many I'm going to have lower my prices in order to move the excess socks. The consumer wins because they get cheaper socks. I, as the manufacturer, is hurt because I made to many socks but that will teach me a lesson. Don't produce more than the market can consume. In an unfettered free market the market will always adjust to changing conditions. You might have one company that comes out with a 3D television and for a while will be the only one producing it while most of the market wants it but this single company cannot meet the demand (underproduction) but as other firms introduce their own 3D TV's you'll see the production of 3D TV's meet demand. Of course there will be too many 2D TV's on the market and manufacturers and dealers are going to have to cut prices to clear out inventories. I might be wrong so tell me if I am.
kingmonkey: In an unfettered free market the market will always adjust to changing conditions.
Don't get me wrong, I agree with you on this. The market self-corrects.
Would that make underproduction a bad thing?
You see under production of right shoes, and over production of left shoes. Socialism can't calculate.
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
liberty student:You see under production of right shoes, and over production of left shoes.
In essence, not necessarily over or under production, but uneven production.
Juan:On the other hand, a brief look at the history of socialist experiments will show you that socialism always failed to deliver the goods to the point that millions of people died of starvation in places like the soviet union, China, and others.
Do you have specific examples of the failure to deliver? or even producing too much that they failed to deliver?
http://mises.org/econcalc.asp
Socialist Markets lead to massive surplus and scarcity and have no way of judging consumer needs/wants. I'd say all top-down arrangements do.
Free markets tend towards equilibrium, so there may or may not be surplus but it's irrelevant.
ViennaSausage: Socialist response to overproduction: "overproduction is the natural tendency of capitalism to expand the production of commodities that does not acknowledge the limits of the market (demand). Since the production and circulation of goods is not planned and firms are in constant competition for larger profits and greater market share, capitalist's booms are always followed by busts as we see in the business cycle. In short, capitalist markets are NOT self regulatory."
I thought that Marx saw that there'd be over-production because he thought the poor would get poorer, and the capitalists being fewer and fewer because of cut-throat competition. So, in the end, people would have less and less money to buy the commodities being produced. ;)
By the way, nobody pointed out the overproduction on the mixed economy. With government subsidies, closing their eyes to Portuguese unions doing a picket on the Spanish camionists to destroy their fish, interests rates below market level proping up investments that end up eventually be liquidated when they go up, etc, you can have more production than need be. Of course, in a free market, a store might not sell all the units -- e.g. supermarkets here give products that whose valid date is passing to charities -- but they sure do they best to clear the inventory. Those that are wasteful tend to go bankrupt, because the others can undercut their price.
Equality before the law and material equality are not only different but are in conflict with each other; and we can achieve either one or the other, but not both at the same time. -- F. A. Hayek in The Constitution of Liberty
banned: I'd say all top-down arrangements do.
Devil's Advocate: Isn't Socialism bottom up because Central Planners are voted in by the people?
Socialist economies are not bound to overproduction. The reason you had an abundance of some goods and a shortage of others was more due to price than to "over" or "under" production. Some goods were very expensive and the price didn't adjust to supply and demand since it was set by a central planning committee, so those goods would be in abundance. However, other goods, like toilet paper, were very cheap (not to mention very, very low quality) so there were shortages (and hence rationing).
In a free market, however, continuous deflation is bound to happen. You could link this deflation to "overproduction" or "underconsumption," if you will. Basically, as real wages rise and time preferences become lower, demand for consumer goods fall. This triggers a temporary price deflation in those products. At the same time, those companies are forced to lengthen the production process so they can become more cost efficient and make the same profit as before. This triggers a reallocation of labor to more capital intensive industries (i.e. machinery production), which in turn leads to rising real wages and lower time preferences. This is precisely why we had simultaneous growth and price deflation in the late 19th century.
The above is a short description but I hope it's good enough for you. If you would like me to explain more, I'd be more than happy to do so.
Political Atheists Blog
krazy kaju:The reason you had an abundance of some goods and a shortage of others was more due to price than to "over" or "under" production.
I think that abundance can be seen as overproduction, for as you said, prices were not able to freely fluctuate. At the time of production, it may have at quota, but at the time of purchase to the end consumer, it may have transitioned to an overproduced good.
ViennaSausage: Socialist response to overproduction: "overproduction is the natural tendency of capitalism to expand the production of commodities that does not acknowledge the limits of the market (demand). Since the production and circulation of goods is not planned and firms are in constant competition for larger profits and greater market share, capitalist's booms are always followed by busts as we see in the business cycle. In short, capitalist markets are NOT self regulatory." Strange how they see lack of central planning as a source of overproduction, yet it is the central planning that causes overproduction in the first place.
Ahhh, see what I wrote in my last post. As time preferences become lower, there appears to be "overproduction" in consumer goods. This spurs businesses specializing in consumer goods to cut costs by eliminating workers and replacing them with capital goods that do the work for free. This causes some frictional unemployment as workers are moved from the latest stages of production (the ones closest to consumption) to the beginning ones (the ones furthest away from consumption that specialize in capital goods) due to increased demand for capital goods.
ViennaSausage:Devil's Advocate: Isn't Socialism bottom up because Central Planners are voted in by the people?
No, for the simple reason that:
a) central planning is not voluntary, imposition means it's a requirement given by an entity (fitting the definition of top down)
b) democratic representation is oligarchical meaning relative choice is dictated by a non market oriented externality. If I don't like a certain planner, I have no way of not participating in his system aside from hiding in a cave or something.
EDIT: my wording seems off, oh well.
Over or under production of goods has no meaning in a truely free market economy. The producers that produce too much will have to sell their inventory at progressively lower prices. The producers that do not supply the market enough products will see their prices rising and attracting competitors. The critical component of this is the price that provides suppliers and consumers all the necessary information about specific items and the relations between items.
Over and under production only mean something to the political class who sell changes in demand and the world that cause prices to fluctuate. Of course the weapon of the political class that commits agression against consumers is the central bank. This orgainzation mucks up the pricing system and thus clouds the consumers ability to judge between products.
The socialist does not have problems with either of these as the socialists do not have to respond to consumer perferences and therefore are not constrained in what they do. The ultimate socialists, the Communists, over produced lots of things and had rampant shortages of others, Of course the socialists simply lie to keep their system going. Eventually it all falls apart, think 1989. The problem here was the nonexistent pricing system. Consumers had no ability to judge the relative scarcity of items and therefore the whole economy would slow.
Thanks for the responses. It looks like there is not a definitive answer for veracity of overproduction in the various types of economies, but insightful answers, none the less. Some suggest that in a Free Market, overproduction exists, but appears irrelevant because markets clear. Others suggests, that there is no such thing or has no meaning as overproduction in a Free Market, for a similar reasons.
On the Socialism end, most cite the calculation problem, that central planners can't calculate, which leads to under/over production.
As for the mixed economy, I would conjecture that the Socialist argument of the calculation problem would stand. Furthermore, altering interest rates rather than letting it float on the free market leads to the overproduction.
I would agree with that assessment.