A Thought Experiment, the Nation That Planned Breakfast From One Office

This is a thought experiment, and it is satire. Everything in the first half of this post, the Office of Breakfast, its director, its forms, its quotas and its crisis, is invented, and none of it is a report of anything that happened or is proposed anywhere. It is a comedy built to make a point. The second half of the post leaves the satire behind and sets out the real history and the real economics that the comedy is meant to illustrate. Where I move from invention to fact, I will tell you.

Now, let us visit a country that has decided breakfast is too important to be left to breakfast eaters.

Part one: the Office of Breakfast (invented)

Picture a nation, invented for the occasion and not any nation you know, in which a well-meaning legislature looks at the morning meal and sees chaos. Families eat at different times. Some skip it. Some have cereal when they should have eggs. A committee reports, with charts, that the national breakfast is "uncoordinated." The legislature does what legislatures do when they discover something uncoordinated. It creates an office.

The Federal Office of Breakfast opens on a Monday in a building with excellent parking for officials and none for anyone else. Its director, a thoughtful person with a degree in logistics, announces the mission: to ensure that every household has the right breakfast at the right time at the right price. Nobody can object to this. It sounds like a greeting card.

The first task is a survey. Every household must report, on Form B-1, how many people live there, what each person ate on a typical morning, and what each would like to eat. Forty million forms are mailed. Thirty-one million come back. Of those, eight million are filled out by people who wrote "toast" in every box because the form was long.

The Office then does something heroic. It builds a model. The model takes the forms, and from them the Office calculates how many eggs, how much bread, how many oranges and how much oatmeal the nation needs for the coming year. The calculation takes eleven months. By the time it is finished, the oranges it counted have spoiled, a cold snap has hit the groves, and three million households have moved, married or gotten a dog that eats toast.

None of this discourages the Director. A plan, he says, is never wrong. The world is simply behaving incorrectly.

The first quotas (invented)

Under the plan, each household receives a Breakfast Allotment, delivered on a schedule, in a standard menu. Tuesday is eggs. Wednesday is oatmeal. Thursday is a bagel of national design. A deputy director, whose title is Assistant Undersecretary for Morning Continuity, announces that the menu "reflects the considered judgment of experts."

The eggs arrive. They arrive at the wrong stores, because the Office has assigned each farm to a district based on a map that is nine years old, and the district for the northern eggs is the southern city, nine hundred miles away. The eggs spend a week on a train. A man named in no record, because he does not exist, is told by a clerk that the eggs are "in the system."

Prices are set in the same spirit. The Office announces that an egg shall cost exactly one coin. This is a generous price, set by officials who want the working family to eat. At one coin an egg, the farmers discover that they are paying more to feed the hens than the Office pays for the eggs. Some farmers do the sensible thing and stop keeping hens. Others sell their grain to a neighboring country at an unfixed price, which the Office describes as sabotage.

By the end of the first winter, a family that once chose its breakfast now waits for it. The queue at the Distribution Point on Thursday morning stretches around the block, and the Office responds by announcing that the queue is "an expression of national solidarity."

The black market and the second economy (invented)

Here is where the comedy takes a turn, as it always does. Because the official egg costs one coin and is unavailable, and because a family wants an egg, a second market appears. A woman on the third floor of an apartment block, who has a cousin on a farm, begins selling eggs from a basket for three coins. She is committing an offense against the Breakfast Code. She is also the only reason her neighbors have eggs.

The Office, which knows nothing of this, reports that egg consumption is on target. The Office's own numbers, after all, count only the official eggs, and the official eggs are being delivered. It is just that nobody is eating them, since most were spoiled in transit, and the Office counts delivery, not eating.

A new Bureau of Breakfast Integrity is formed to stop the basket woman. It is given a budget larger than the budget of the egg farmers. An inspector, doing his job, finds the basket woman. He is a decent man. He looks at the eggs. He has a family too. He buys a dozen, files a report that says "no violations found," and goes home with breakfast. This is the real ending of every planned economy, and the Director, who has not eaten in a queue in years, never learns it.

The Office announces success. Breakfast is now fully planned. Consumption of unofficial eggs is, the Office says, "a cultural matter."

That is the end of the invention. Please put down the satire now. I want to turn to the record, which is not funny.

Part two: the real history (fact, not satire)

The comedy above is invented. The economics it parodies is real, and the real record is documented. There are two arguments to understand: the calculation problem and the knowledge problem.

The calculation problem, 1920

In 1920 the Austrian economist Ludwig von Mises published an essay with the title, in English, "Economic Calculation in the Socialist Commonwealth." His claim was precise. In an economy where the means of production are owned by the state, there are no market prices for capital goods, since nobody is buying and selling them. Without prices, the planner has no way to know whether a given use of steel, labor or land creates more value than it destroys. He cannot calculate. He can only guess.

Mises did not say that a planned economy would produce nothing. He said it could not tell whether what it produced was worth the cost. Prices in a market compress the wants and costs of millions of people into one number that anyone can read. Abolish the prices and you have abolished the instrument panel. See Mises Showed in 1920 That Socialism Cannot Calculate a Single Price.

The knowledge problem, 1945

In 1945 Friedrich Hayek, in an essay titled "The Use of Knowledge in Society," sharpened the point. The knowledge needed to run an economy is not collected anywhere. It is scattered among millions of people, and much of it is local, particular and impossible to write down: this shop has a surplus, this farmer has a bad crop, this family has a new baby and wants more milk. No survey form captures it, and no committee can gather it quickly enough. Prices, Hayek argued, are how such knowledge travels. A rise in the price of a good tells people to economize on it and tells others to produce more, without anyone needing to know why.

That is the sense in which Form B-1 fails, in my satire. The form asks what each person ate and what each would like. It cannot ask what the man at the farm down the road knows about his hens. It cannot update by the hour. See Nobody Designed the English Language, and Hayek Called That Spontaneous Order for the same idea in another field.

The Soviet record

The Soviet Union ran a planned economy for most of seven decades. Its planning agency, Gosplan, was created in 1921, and the first Five-Year Plan began in 1928. The central planners set output targets and prices for an enormous range of goods. The results are well documented. Consumer shortages and long lines were a regular feature of Soviet life, and a second economy of informal trading grew up alongside the official one. The pattern is not an accident of one country's bad luck. It follows from the structure of the system, and Why Soviet shoppers stood in line, and the calculation problem behind it walks through it.

Price controls in America and in Venezuela

You do not need to go to Moscow. Price controls have been tried in the United States. On August 15, 1971, President Nixon announced a freeze on wages and prices. It was the first federal wage and price control since the Korean War. In the 1970s, federal controls on gasoline prices were in force when the long lines at the pump formed that many Americans remember or have heard about from their parents, and many economists blame the controls for part of the shortage. The lesson, which economists of every school mostly accept for goods like these, is that a price set below what the market would bear produces a shortage, since more people want the good than there is supply to meet them at that price.

Venezuela is a more recent case, and a sobering one. The country was once among the richest in Latin America, and from 2003 a series of price controls on food and other basic goods was followed by shortages of those goods. Venezuela was once Latin America's success story, and then came socialism has the story.

None of this proves that every regulation fails. It shows a specific mechanism: when you fix a price and the planner does not know the true cost and demand, the plan produces surpluses of what nobody wants and shortages of what everyone does.

The steelman: surely some planning works

A fair critic has objections, and they deserve answering.

Objection one: governments do plan things successfully. True. Governments built the interstate highway system, ran armies, and organized the mobilization for World War II. The difference is that those are tasks with a single, clear goal and a measurable result. A highway either connects the two cities or it does not. Feeding two hundred million people at breakfast, each with different tastes, budgets and schedules, is a different kind of problem. The knowledge needed is so scattered and changes so fast that no office can hold it.

Objection two: computers solve the knowledge problem. This is the modern version of the plan. The reply is that the data a computer needs is not sitting in a database waiting to be read. Much of it is produced only in the act of buying and selling, which is the thing the plan removes. A model fed on last year's choices cannot predict this year's discoveries, because the discoveries are what the market is for. A planner with a supercomputer is a faster Director of Breakfast, working from a form.

Objection three: markets leave some people hungry. Conservatives take this one seriously. A family that cannot afford food is a real family, and the response of a decent society is to help, through churches, through charity, through family, and through public assistance that is carefully designed. But notice that this is an argument for helping people who need food, not for planning breakfast. The first can be done by giving help. The second makes things worse for everybody, including the people it was meant to help.

Why the Founders would have seen it coming

The men who wrote the Constitution were not economists in the modern sense, but they understood the problem of concentrated power, and an Office of Breakfast would have struck them as a very large power in a very small hand. James Madison wrote in Federalist 47 that "the accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, self-appointed, or elective, may justly be pronounced the very definition of tyranny." A body that writes the rule, enforces the rule and punishes the violator of the rule, and the satire's Office does all three, is the model he was warning about.

There is also the plain matter of enumerated powers. Article I, Section 8 lists what Congress may do, and it does not include "ensure the right breakfast." The Tenth Amendment says that the powers not delegated to the United States by the Constitution are reserved to the states respectively, or to the people. Whatever else you say about the fictional legislature, it would have had to find the Office somewhere in that list.

And on the deeper point, Adam Smith saw it too. In The Theory of Moral Sentiments he warned of "the man of system" who imagines he can arrange the members of a great society as easily as the hand arranges pieces on a chessboard, forgetting that every piece has a principle of motion of its own. The image fits an Office of Breakfast exactly. Real people are not chess pieces. They have their own plans.

What the satire is for

I wrote the first half of this post to be silly because the idea it mocks is, in a milder form, a serious temptation. It does not usually arrive as an Office of Breakfast. It arrives as a price cap on something people find too expensive, a quota on something people find too scarce, or an order that a product be produced to a standard and sold at a fixed price. Each proposal has a kind and decent motive, and each, tracked to its logical end, has the same ending: the official number looks good, the shelf is empty and a woman on the third floor is selling eggs from a basket.

The conservative reply is not "never act." It is "ask what price signal you are about to switch off, and what that signal was telling you." It is to prefer measures that help people buy what they need over measures that attempt to decide what they will need. And it is to remember that the arrogance of the plan is the assumption that the planner knows more than the millions he is planning for. See Why the Worst Get on Top, Hayek's Most Uncomfortable Chapter for Hayek's darker warning.

The case in brief

1. The Office of Breakfast was invented satire, and the history that stands behind it is real: prices carry knowledge that no planner can gather.
2. In 1920 Mises argued that without market prices for capital goods, a socialist economy cannot calculate whether it is creating or destroying value.
3. In 1945 Hayek argued that the knowledge an economy needs is scattered among millions of people and travels through prices.
4. Controlled prices produce shortages, queues and informal markets, as in the Soviet record, in American price controls of the 1970s and in Venezuela.
5. The right answer to hunger is help for those who need it, not a plan for what everyone should eat, and the Founders' answer to concentrated power is a limited government of enumerated powers.

What you can do: read Article I, Section 8 and the Tenth Amendment, then ask your representative to name the clause that authorizes the next price control or mandate being proposed.