In the Austrian Economics Step-by-Step course I learned that in a socialist economy there’s no exchange because there’s no private property. Because there’s no exchange then there’s no price mechanism to direct allocation of resources. The economy cannot be very sophisticated because that would exceed the capacity of central planners. My question is: outright confiscation is easily recognized but high taxation is not, so couldn’t this scheme go on for a long, long time? It seems taxing authorities discovered that they can sustain their regime if they milk taxpayers instead of putting them in chains. But this is de facto seizure of the fruits of production and the allocation of private property. It surely creates distortions just as central planning does.
I’ve not seen this addressed in the literature, but it must exist. Could someone direct me to where I could read more? Thank you.
Central planning supplants markets altogether. By supplanting markets altogether, central planning eliminates economic calculation and with it any vestige of production decisions being made that economize for society. The division of labor cannot develop under central planning.
Fiscal policy, which is based on confiscation (i.e., taxation), does not supplant markets. The state uses markets to get what it wants. Because economic calculation still exists, production decisions made by entrepreneurs economize for society as well as possible given the expropriations of the state. Although crippled, the division of labor can still develop.
Central planning has entirely different results from market economies. This is why economists categorize economies into three broad types: Command Economies; Unhampered Market Economies; and Hampered Market Economies.
Each of the three types of economies can go on for long periods of time. But their results are different.
Take a look at the relevant sections of Ludwig von Mises’s book, Human Action: