The Government is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.

—Adam Smith. An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.

It is not the role of government to plan economic activity. Both logic and centuries of experience speak against any role for government in economic planning. Government’s role is to provide a legal framework within which individuals can pursue their own economic goals.

Economic planning breaches the natural law

Since the law organizes justice, the socialists ask why the law should not also organize labor, education, and religion. Why should not law be used for these purposes? Because it could not organize labor, education, and religion without destroying justice. We must remember that law is force, and that, consequently, the proper functions of the law cannot lawfully extend beyond the proper functions of force. When law and force keep a person within the bounds of justice, they impose nothing but a mere negation. They oblige him only to abstain from harming others. They violate neither his personality, his liberty, nor his property. They safeguard all of these.

—Frédéric Bastiat. The Law, 1850.

A private corporation can plan and scheme and move people about like pieces on a chessboard. It can conceive of grand projects and execute them over many years, commanding the services of tens of thousands, all without offending the natural law. This is because everyone it deals with agrees to its plan.

It is quite different when the government plans. Government plans can only work by direct coercion or by spending other people’s money. The confiscation of that money and the use of coercion are immoral because they breach the rights of the coerced and the taxed—thus government planning is immoral.

Economic planning breaches the rule of law

The distinction we have drawn before between the creation of a permanent framework of laws within which the productive activity is guided by individual decisions and the direction of economic activity by a central authority is thus really … the more general distinction between the rule of law and arbitrary government.

—Friedrich Hayek. The Road to Serfdom, 1944.

Free enterprise is business facilitated by agreement, whereas government planning, like the mafia, is backed by coercion. Consider this example: a window cleaner visits the shopkeeper and offers to clean his windows for a small fee. The shopkeeper is delighted and pays for the service. Next comes the mafia, which wants a far larger fee but offers nothing in return. Instead, they threaten to harm the shopkeeper if he does not pay. Then comes the socialist government, which tells him: he is charging too much for his goods so he must reduce his prices; he must not agree with the adjoining shopkeeper what goods each will stock; he must hire an immigrant; he must give his employees two years paid maternity leave, vacation and sick leave, a pension, and a healthcare program. If he refuses any of these demands, he will be labeled a criminal and sent to jail. The government offers nothing in return for these impositions. Thus, there is no real moral difference between government planning and mafia rackets. In fact the mafia racket is the lesser of the two evils because a racketeer will lessen his exactions to a level that does not put the shopkeeper out of business, whereas a bureaucrat is utterly unconcerned with the ruin of the businesses he assails.

Economic planning fails to deliver

Offered the chance, the human spirit will find a better path than the state could ever devise. You cannot build a successful country without believing that the majority of people will use their talents wisely. One of the gulfs between the socialists and ourselves is this essential faith in the individual.

—Margaret Thatcher. Speech to the Conservative Central Council, Torquay, March 12, 1987.

Rudimentary success can be achieved through economic planning backed up by coercion. This was proven by the Soviet Union’s rapid expansion of weapons production during World War II. However, the vigor and effectiveness of the Soviet system evaporated after the war. This is because, although people will patiently suffer infringements to their dignity during an emergency, once it is over their natural desire for dignity will reassert itself. When faced with captivity and insults, human beings lapse into despondency and lethargy.

Milton Friedman noted the stark contrast in outcome between freedom and government planning:

East and West Germany almost provide a controlled scientific experiment. Here are people of the same blood, the same civilization, the same level of technical skill and knowledge, torn asunder by the accidents of warfare, yet adopting radically different methods of social organization—central direction and the market. The results are crystal clear. East Germany, not West Germany, had to build a wall to keep its citizens from leaving. On its side of the wall, tyranny and misery; on the other side, freedom and affluence. (Introduction to the fiftieth anniversary edition of The Road to Serfdom, 1944.)

This article is an extract from the book ‘Principles of Good Government’ by Matthew Bransgrove