Socialism in Venezuela: The Price System.
When I see what happens in nations such as Venezuela, Cuba, the Soviet Union or Mao's China, I remember something very important that must be understood about the economy, and that the scholars of the socialist, communist and fascist left always forget or ignore, and is that the laws governing the market are not laws imposed or designed by people like Adam Smith, Ludwig von Mises, Friedrich Hayek, Milton Friedman or any other intellectual, just as Newton observed and described the natural laws that govern physics, these men that I mentioned above only observed and described the natural laws that govern the economy.
These laws that determine the whole framework of evolution and development of an economy are based exclusively on human biology and its association with available resources, which is a very important concept, because what will determine the success or failure of an economic model it is exclusively the ability to adapt the economy to these laws, otherwise, the result will be the same as when trying to defy the laws of physics, there are those who believe that they can deceive gravity when traveling on an airplane , but in reality the plane only flies because it adapts to the principles of aerodynamics.
The market does not represent more than the exchange of information and peaceful cooperation between the members of a society, then, the laws that govern the market are the same laws that govern human interaction, these laws or principles cannot be eluded successfully, any attempt to change the nature of the market will only hinder communication and cooperation, making the final result much less profitable than it would naturally be.
The economic failure of all interventionist, socialist, communist and fascist systems is mainly due to the fact that these models are fundamentally based on replacing peaceful cooperation and natural channels of information with coercion and arbitrariness.
Venezuela is not the exception, the failure of the Venezuelan socialist model was inevitable, but on this occasion what I will explain is not only a problem of Venezuelan socialism, but it is a problem shared by the totality of modern economies, and is one of the reasons why ten years ago the western economies suffered an economic crisis.
In several publications I have described the reasons for the Venezuelan failure, the fall in the price of oil, the increase in inflation, the shortage of cash, the fall in production, and many other things, but the main reason for the failure and the same reason why the rest of the economies fail or have recessions, is because they destroy or distort the price system.
The price system is the most complex natural economic mechanism that exists, since it is formed by the information held by all the participants that make up the market, information that many of these participants sometimes don't even know they own. The functioning of the price system is similar to a decentralized P2P network, in which each one of us participates actively with our decisions, buying or not a product, deciding between one service or another, choosing between producing one thing or the other, working for one company instead of another, each of those decisions transmits information that the price system is in charge of harmonizing with the rest of the information transmitted by all the members, in such a way that the needs of each of us can be met in the most efficient way possible, always taking into account the quantity and quality of the available resources.
Let's see, in Venezuela, socialism set out to destroy all the channels of information and the price system, as it did? Well, the first thing to understand is that peaceful cooperation is only possible in freedom, this means that the more freedom there is and the less coercion there is, the price system will work better, otherwise they will start to present problems. The main measures established by the government are the monopoly of the monetary issue, the monopoly of the purchase and sale of foreign currencies, the fixing of prices and wages, and later the monopoly of the importation.
Well, if coercion is used to eradicate or limit people's decision-making power, the ability of people to transmit information is automatically eradicated or limited, therefore, the price system ceases to exist or simply becomes defective.
If an economic sector is growing, it is likely that jobs in that sector will increase, and wages improve, these two data (the number of jobs and salary) provide information to the unemployed, to future professionals and the universities that trained these professionals, but by stipulating salaries centrally as the government does, the price system is prevented from adequately indicating to the unemployed which sectors of the economy are better and worse paid, establishing a false equality between economic sectors, increasing the labor force where it was probably not necessary, generating a bad allocation of human resources.
If a product has a very high profit margin for the producers, it is probably because the demand for that product exceeds the available supply, indicating to new entrepreneurs that there is a gap that they can take advantage of in the market, in order to produce enough to fill the gap left between supply and demand, however, if the government imposes the prices of products arbitrarily, that information will not be transmitted properly, leaving investors and entrepreneurs blind, who will probably invest their capital and resources producing with the widest margin of profit, however, it is difficult to know if the demand for a product increases when prices remain artificially static, because without the great advantage of being guided by the increase in prices, the investor not only will it be more difficult to know how much to produce, but also the quality of the product will always be subordinated to the price arbitrarily determined by the government, since the costs of production and profits must be kept below the sale price to the consumer.
Well, just like the previous cases in which the price system is distorted in an exaggerated way until it is almost nil, the government formed a monopoly on the buying and selling of dollars throughout the nation, and thus established centrally and planned the allocation of foreign currencies so that companies could make imports, of course, establishing highly arbitrary criteria without having the least consideration for economic principles. It is assumed that if there is a monopoly, the government can take advantage to sell the dollars to companies at a higher price, and in this way the companies that can pay more will be those who acquire the foreign currency to import and continue with their activity economic, would not be the best way, but neither would be the worst, since it is assumed that the company that can pay a greater amount is because the economic activity to which it is dedicated is relevant enough for the national economy as so that consumers demanded that their activity continue, however, this also does not happen, because the government decided to allocate resources in a totally arbitrary way, prioritizing economic sectors according to their "social" importance, that is, the total destruction of the price system, this way not only is there a monopoly, but this monopoly does not work under any economic reasoning.
The result of this policy, things like this:
The PDVAL case refers to the discovery of thousands of tons of food with an expiration date expired in Venezuela in mid-2010, imported by the government of Hugo Chávez under subsidies through the state company PDVAL (Venezuelan Food Producer and Distributor) . According to official sources they totaled 130,000 tons of food affected. The most widespread explanation for this loss of food is found in the organization of PDVAL, since allegedly food was imported more quickly than the company was able to distribute it. President Chávez described the episode as "grievous".
Venezuela is a nation that currently suffers from a shortage of essential products, but 8 years ago, billions of dollars and tons of products that are scarce today, were squandered because of destroying the price system.
Finally, I am going to describe the biggest problem that Venezuela suffers, and that in turn shares with the rest of the economies worldwide, and it is the problem that represents the central monopoly of monetary policy, that is, the Central Bank, a mechanism that totally distorts the price system and economic complexity. In a free market economy, there should not exist under any circumstance something like the fractional reserve, in such a way that the banks are unable to lend money that does not exist, and the credit that the banks can issue is backed by a wealth that was previously accumulated and to which the bank must be authorized to lend, so the money invested is directed to improve the facilities and create new industries based on the information provided by the price system, which would lead to stable, sustained and harmonious economic growth with the consumer needs and available resources. In the case of Venezuela, the Central Bank is used to expropriate the capital of the people and transfer it to the State through inflation.
In the rest of the world economies this problem is also present, of course, inflation and the expropriation of capital is much lower, however, in the case of the economies of the Western powers an even greater problem arises, since Central Banks use credit expansion to invest in the economy, creating what we know as a financial bubble. Injecting credit into the economy they manage to generate the illusion of development and economic growth, but what they really do is distort the price system. If people start acquiring the credit that banks introduce to the economy, they generate an increase in demand, causing prices to increase, and subsequently generating an increase in production as a result of the expansion of several companies and the emergence of new ones, however, when the music stops ringing, people are in debt and all the increase in demand that impulse the creation of new industries, new jobs and all that economic growth, is coming down, and the economy goes into recession, making it inevitable that all the companies that were created and expanded ended in bankruptcy, producing unemployment and poverty again. After the process is repeated again and again, the end of the recession is the beginning of a new bubble.
I liked your text, but try shorter sentences. :D
What you did here is something I also tend to do, but try my best to avoid.
It's this sort of long, drawn-out sentence that goes on for very long with multiple commas in-between that conveys a lot of information, which, albeit valuable, can get lost when the reader loses interest half-way through, and it usually causes the reader to just drop the whole text altogether, making the entire work you put in completely pointless.
See?
It gets heavy.
Especially since we're talking Steemit, and the attention span of the average Steemian is about two nanoseconds.
Resteemed because this is legitimate content.
As we are talking Steemit ( I like that expression) we might produce shorter posts but provide a link for deeper diving in that particular topic.
Thank you very much for the support and the advice, I will keep it in mind, I will try to make the shorter paragraphs next time.
Great post.
Good of you pointing that out. I guess people are so used to the mingling of governments in the markets that they automatically think that these guys want to do the same.....which is not the case.
I read the whole post ;)
Peace
Thanks, I'm very happy to know that some people read the content in its entirety.
Curated for #informationwar (by @openparadigm)
Relevance: Markets set thier own prices better than any bureaucrat ever could and lending money that doesn't exist is bad.
Our Purpose
Actually, Venezuela isn't a 'socialist' country. And Chavez was great for the economy.
If they gave me a coin for every time someone directed me to that video, then I would be a millionaire. The video has quite erroneous data that I have repeatedly discredited, and it is not for less, it is very difficult to analyze the Venezuelan situation for an outsider who knows neither culture, nor society, nor the peculiarities of the country. For it is evident that even if we apply the same system in a country of Africa that in one of Europe there would be differences of each region.
It is curious how personalities like Fidel Castro, Noam Chomsky or Heinz Dieterich Steffan, and countless left wing politicians all over the world, who proclaim themselves as socialists, supported the Chávez regime and even set him as an example many times (in the United Kingdom, Spain and France), however, after the economic crisis, they all turned their backs on him.
Of course my goal is not to appeal to the fallacy of the authority, and to discredit the guy of the video comparing it to Fidel Castro, who evidently disagreed, but I find it curious how many socialists are using the same sources, and that they only focus on only angle, to base their beliefs.
Here is the first post of this series, in which I explain why I consider Venezuela, for practical reasons, as a socialist state.
By the way, if Chavez were "great" for the economy, Venezuela would not be in the biggest crisis the Western Hemisphere has ever had in history, even bigger than the Great Depression.
But no, he based all his economy and the welfare state on the prices of oil, and therefore, when oil rose, its popularity and the national economy were booming, in the same way as when prices fell, the country was in crisis, and the popularity of its party, because Chávez had already died, cease to exist.