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Monday, November 1, 1993

Book Review: Prosperity Versus Planning: How Government Stifles Economic Growth by David Osterfeld

Government planning and economic growth don't mix.


David Osterfeld in his Prosperity Versus Planning, a scholarly and most worthwhile book supported by the Cato Institute, argues on both theoretical and empirical grounds that government planning and economic growth don’t mix, that the interventionist paradigm spells planned chaos, that it is deadly to development at home and abroad, that, again, it is wiser to work with than flout the law of opportunity cost.

Professor Osterfeld accordingly sees foreign aid as mainly counterproductive to Third World development, underwriting as it does entrenched governments which soon detect a way to maintain power and accumulate private wealth in Switzerland and other havens for “hot money.” He cites the work of Lord Peter Bauer and African economist George Ayittey on how foreign aid has grievously set back African and other development. And he sees that attacks in the United Nations and elsewhere on foreign investment and multinational corporations are blind to the benefits of private foreign investment, technology transfers, and job creation in viable Third World industries competing in world markets.

He especially excoriates both the U.N.’s Brandt Commission Report, North-South: A Program for Survival, and the United Nations Code of Conduct on the Transfer of Technology adopted in the early 1980s. These documents condemn “market failure” and recommend government-to-government assistance along with Third World interventionism in such forms as government regulation, price controls, and state-owned enterprises so to control what the United Nations regards as inappropriate technology. Said the Brandt Report, for example: “The poorer and weaker countries have not been able to raise much money on commercial terms. For them, Official Development Assistance or aid is the principal source of funds . . . . An increase in total aid must remain a high priority. . . . The overall flow of wealth must increase. . . . The overwhelming proportion of aid money has been usefully spent [and has] done much to diminish hardships in low-income countries.”

Professor Osterfeld rejects these tenets as untrue and holds the free market and not government intervention is a much more effective and far less costly method of regulation. Here he stresses the role of economic calculation in explaining why state-owned enterprises and central planning in general are doomed to failure. Economic calculation, based on free markets, perceived opportunity costs, and private property rights, permits the price system including interest rates to best “regulate,” i.e. allocate, goods and other scarce resources to their most urgently desired applications. Economic calculation is at the center of economic development, the very secret of the North’s long-time economic success and perhaps of Western Civilization itself.

The plight of the interventionists and socialists, notwithstanding elaborate planning boards and Five-Year Plans, is that without the benefit of economic calculation they are flying blind, that they are the bland leading the bland. And hence they are wide open to corruptible temptation and perverse political pressures. Osterfeld quotes Mises: “No single man can ever master all the possibilities of production, innumerable as they are, as to be in a position to make straightaway evident judgments of value without the aid of some system of computation.”

Amen. []

Dr. Peterson is an adjunct scholar at the Heritage Foundation and a contributing editor of The Freeman.

As we prepared final proofs for this issue, we learned of the sudden death of Dr. David Osterfeld on September 26, 1993, at age 43. Dr. Osterfeld was a professor of political science at St. Joseph’s College, Rensselaer, Indiana, and an adjunct scholar at the Heritage Foundation.

David Osterfeld’s first Freeman article was published in 1972 while he was a graduate student at the University of Cincinnati. Over the years he contributed more than a dozen articles—all carefully researched, meticulously documented, cogently written. His September 1993 Freeman essay, “Overpopulation: The Perennial Myth,” was reprinted in Man and Nature, FEE’s recently published anthology on environmental issues.

  • William H. Peterson (1921-2012) was an economist, businessman and author who wrote extensively on Austrian Economics. He completed his PhD at New York University in 1952 under the supervision of Ludwig von Mises. 

  • Dr. Osterfeld was assistant professor of political science at Saint Joseph's College, Rensselaer, Indiana.