All Commentary
Friday, September 1, 1989

Perspective: Pilon Article Honored by National Press Foundation

Dr. Roger Pilon, Freeman author and a senior fellow at the Cato Institute, was one of four winners of the 1988 Benjamin Franklin awards for excellence in writing on the U.S. Constitution. The awards are sponsored by the National Press Foundation in partnership with the Commission on the Bicentennial of the United States Constitution.

Dr. Pilon’s winning article “On the Foundations of Economic Liberty” appeared in the September 1988 issue of The Freeman. It discusses the natural connection between economic and political liberties and the role of the judiciary in restoring and maintaining these rights.

Dr. Pilon received his award in April at a luncheon co-hosted by former Chief Justice of the United States Warren E. Burger. The National Press Foundation is a nonprofit educational foundation dedicated to excellence in American journalism.

Message from Moscow

What’s the matter with our present pricing system? For one thing, prices are set centrally, from above, and that’s faulty in principle. Wholesale prices are based on costs plus a minimum planned profit. The producer adds up all his costs of production, adds on his planned profit, and presents this figure to the State Committee on Prices for confirmation. Costs are pushed up since the producer wants to get a higher price, and the guidelines for profitability are strained to the limit since the producer needs to make a profit. The higher the costs and the margin of profit, the higher the prices and the better off the producer. But the consumer suffers—retail prices rise. The producer is in the driver’s seat.

Chaos is averted only by administrative fiat: the planning bodies and the State Committee on Prices try to moderate the greed of the producers. But how? Arbitrarily, by the seat of their pants. How else can one explain the fact that the profit margin established for the Minister of Instrument Making, Automation Equipment, and Control Systems is one-third greater than that established for his colleagues in the machine-building conglomerate? Is this sensible? In addition to these problems, prices and profits depend less on the efficiency of production or on supply and demand than on the skill of the producer in inflating his costs and justifying his expenses and on the manager’s energy and his contacts. The system encourages the enterprise to produce less, to raise prices, and to hoard supplies . . . .

The market will successfully replace the “irreplaceable” apparatus of central administration-all the committees, departments, and ministries. That’s why the administrators don’t like the market. When they manage less, things go better—that’s what insults our officials. Let them be insulted; we will change to a market system no matter what they say.

But how are prices set in a market system? By supply and demand. I won’t buy meat in cooperative stores for five rubles a kilo or in state stores for two rubles when I can buy it from the Arkhangelsk peasant for one ruble. And you’ll probably do the same. What will happen? Prices will immediately drop in the cooperative and state stores. And wholesale prices will fall as well. If producers find this unprofitable, they will have to make adjustments and improve their efficiency—learning from the Arkhangelsk peasant—or else shift to producing something else.

Unlike the State Committee on Prices, the market will not support excess expenses and poor work. Those who know how to work will earn real money, and those who can’t will either learn or they won’t have any way to support themselves. Society has no obligation to pay for poor work, but it will willingly pay for efficient labor satisfying public demand, and thereby encourage and stimulate the conscientious and competent workman. This gives you some idea of how the market works to control socially necessary expenditures, to stimulate efficiency, and to set costs and prices.

—Alexei Myasnikov,

writing in Glasnost, a dissident publication founded in Moscow in 1987. Translation provided by the Center for Democracy in the U.S.S.R., 358 W. 30th Street, Suite l-A, New York, NY 10001.

The Triumph of Capitalism

Less than 75 years after it officially began, the contest between capitalism and socialism is over: capitalism has won. The Soviet Union, China, and Eastern Europe have given us the clearest possible proof that capitalism organizes the material affairs of humankind more satisfactorily than socialism . . . . Indeed, it is difficult to observe the changes taking place in the world today and not conclude that the nose of the capitalist camel has been pushed so far under the socialist tent that the great question now seems how rapid will be the transformation of socialism into capitalism, and not the other way around, as things looked only a half century ago.

—Robert Heilbroner,

a leading socialist economist,

writing in the January 23, 1989,

issue of The New Yorker