Readers, please feel free to leave reading recommendations in the comments but I’ll save you the time and explain it myself and then you can go to the recommended books for more detail.

In a socialist economy, the means of production are owned by the government. In order to manufacture absolutely any product, the government must plan in advance how much of everything it will manufacture. The entire economy has just one owner, so there can’t be a business that fails. This is called “planned economy.”

To make this single-owner machinery work, you need an entire apparatus that will figure out how much of everything – shoes, armchairs, hammers, eggs, planks of wood, etc – needs to be made (or imported, if there’s money for that) every year. Just imagine the level of planning even for a tiny country. Try to figure out, for instance, how many pairs of shoelaces you need to manufacture in a year. And in what color. And what length. And thickness. And you need to make sure that you’ve planned enough (but not too much) of the raw materials and components of the shoe laces. And the packaging. And so on. You’ve got to fixate on the quantity and disregard the quality to make this even kind of possible. Since you have no competitors, quality doesn’t matter. The whole market is yours.

In a market economy, there are many different producers for every item. Quality becomes majorly important because you don’t own the entire market. At the same time, your calculations of what you need to produce in a year are easier to make because you don’t have to cover every single need of everybody. You just do what’s realistic because if you don’t manage to produce every shoelace the country will need, there will be enough companies to pick up the slack. You also have the freedom to hire, pick and fire workers, adjusting the labor force according to need. This isn’t possible in a socialist economy because the social need to have everybody employed trumps the economic need to adjust the number of employees.

The socialist economy always fails because it’s just simply not possible to plan out as enormous an enterprise as a country. You’ll always end up miscalculating on a significant percentage of your predictions. Workers are not motivated to produce, or to work at all, to be honest, because their performance doesn’t impact the remuneration. No advantage accrues to you if you stay up nights and invent a process to manufacture shoe laces faster and more efficiently. To the contrary, your initiative puts a wrench into the system where everything is already planned. You are messing with everybody’s process unnecessarily. Everything will be done to discourage you from this unnecessary initiative.

So what have we seen in this very basic explanation I’ve given?

Poor quality, lack of innovation and shortages are imminent in a socialist economy. They are baked into the system. Human creativity is suppressed because it threatens the system.

In a socialist economy, the struggle is to make sure that everybody has enough of the very basics. And even that is never really achieved. In a capitalist economy, there’s no under-production. There’s overabundance, overproduction, a glut of everything. This has its own problems but it’s clear which system is more natural to the enterprising, inventive, competitive human spirit.