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What Shall We Produce?

In the United States, most of our production is geared toward consumer goods and
services. About 4 percent goes toward defense. In the former Soviet Union, a much
higher proportion was devoted to armaments, with a proportionately smaller
percentage devoted to consumer goods and services. Japan has concentrated on
building up its plant and equipment but devotes just 1 percent of its production to
defense. Who makes these decisions? In the United States and Japan there is no
central planning authority, but rather a hodgepodge of corporate and government of
cials, as well as individual consumers and taxpayers. The Soviets did have a central
planning authority. Infact, every ve years the Soviet government used to come up
with a new plan that set goals for its economy in numbers of cars, TVs, factories, and
bushels of wheat and corn to be produced.
As a nation matures, its economy shifts from agricultural to manufacturing, and then
to services. This shift is re ected in employment (see Figure 1 ). Until about 150
years ago, most Americans worked on farms. But today, only 1 in 500 still farms full
time. Today, four out of every ve workers produce services.
How Shall These Goods and Services Be Produced?
In our country and in most others as well nearly everything is produced by private
businesses. Not only are all the goods and services that consumers purchase produced
by businesses, but so are most of what the government purchases. For example, when
our astronauts landed on the moon, a long list of contractors and subcontractors was
released. It read like a whos who in American corporations.
In socialist countries, of course, the government is the main producer of goods and
services. But even in a communist country, China, there is still a substantial role for
private enterprise.
For Whom Shall the Goods and Services Be Produced?
Economics may be divided into two parts: production, which we dealt with in the rst
two questions, and distribution. In the rst question, we asked what the economic pie
should be made of; in the second, we talked about how the pie would be made. Now
we are ready to divide up the pie.
Our distribution system is a modied version of one dollar, one vote. In general, the
more money you have, the more you can buy. But the government also has a claim to
part of the pie. Theoretically, the government takes from those who can afford to give
up part of their share (taxes), spends some of those tax dollars to produce various
government goods and services, and gives the rest to the old, the sick, and the poor.
(Nevertheless, the rich reap a major share of the subsidies to airlines, shipping
companies, defense contractors, and agriculture.)
In theory, the Soviets distributive system was diametrically opposed to ours. The
communist credo From each according to his ability, to each according to his needs
was something the Soviet leaders claimed to follow, and it does have a nice ring to it.
But in actuality, their income distribution system, with its jerry-built structure of wage
incentives, bonus payments, and special privileges, was probably no more equitable
than our own.

In a mixed economy, both the government and the market have roles in answering,(1)
What shall we produce? (2) How shall these goods and services be produced? (3) For
whom shall these goods and services be produced? In nearly all mixed economies the
government plays a relatively minor role in production, but may play a relatively
strong role in distribution.

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