-so, imagine the year is 1953. You are a resource Commissar for a remote chinese communist province.
-There is no free trade, no market, and no pricing mechanism as all means of production are owned by the state.
-You have been assigned to create a plan to transport supplies long term between two cities. We will refer to these city A and city B. -The two cities have a functioning highway system directly linking to each other.
-You rule out aircraft as a medium of transport as city A has no functioning air strip and constructing a fleet of aircraft and sustaining such a fleet you deem would be wasteful.
-Any naval travel, you rule, would be impractical as the local rivers are not at all direct in their link between the two cities.
-You decide on automotive travel. Great now just to decide, what vehicle should be used.
-You narrow down your choice to a fleet Semi-trucks which has been tested, proven to function and have blueprints available on hand for future production. Your other option is to design a pickup truck using your available engineers.
-The semi truck is able to carry more freight than your ideal pickup truck. This means less semi trucks will be required to haul resources between your two cities as compared to the amount required for a fleet of pickup trucks.
-The semi truck you find would cost far more steel and consume far more diesel fuel than your possible pickup truck.
-you do some rudimentary estimates and find the Semi-truck fleet option requires far less humans to operate than a fleet of pickup trucks.
-You also find all in all, even with less trucks required, it will cost more steel and fuel to use the semi trucks.
-An advantage of the semi truck is that you already have designs for production and proof of proper function, meaning no testing or engineers will be required in the production of such vehicles.
-A further advantage to the semi truck fleet is that you will require less truck drivers as less vehicles are required as compared to the larger pickup truck fleet.
-The pickup truck option on the other hand will require engineers to create and test an entirely new vehicle. These engineers could be busy on other products such as housing, aeronautical design, irrigation, dam building, etc, etc.
-Now you have a simple decision to make, will you build a fleet of semi trucks or a fleet of pickup trucks?
-The best way to decide is to find which resources are needed the least as to not create a shortage of these supplies as they may be needed elsewhere. In simpler terms, find the demand for each resource, and the supply of each resource, and make your choice based on which is needed less.
-Now let me tell you, this is going to be very difficult. You need to know the demand and supply for steel in your province as steel is used in everything from buildings to your new trucks. Finding the supply is simple as it would be a matter of checking with your storehouses.
-But now to find the demand. You can ask the various producers how much steel they need, but this will commonly lead to over estimation of need as everyone will claim they require more steel than what is required in reality as to prevent themselves from running out of resources. This method will easily lead to corruption and inherently lead to unproductive behavior due to overestimation leading to inaccurate calculations of demand for products.
-Now you would repeat this process with each resource and find you have the same problem of not being able to make accurate economic calculations.
-You can try other methods such as polling every consumer but you would hit the same wall in one way or another.
-This entire process will require a mass of statisticians and bureaucrats to complete.-A bureaucracy, just as any other collection of people, will become unproductive with time if left with no competition threatening such an organization's very existence. Seeing there would be no competition, unproductivity and sluggishness will be the inevitable result.
-Even after collecting these mountains of data, your calculations will be inaccurate, and you, commissar, will never be able to know where scarce resources should be allocated. -This is an inherent flaw of a centrally planned economy and you see these negative effects in all centrally planned industries.
-Central planning leads to the destruction of the pricing mechanism, which is the foundation of all economic calculation.
-In a free market, a pricing mechanism develops, which then assigns value to various goods which fluctuates to accommodate for changing supply and demand of products.
-The pricing mechanism attempts to prevent a supply of an item from growing to rates of unproductivity and from lowering due to overconsumption of goods in demand.
-This is created through individuals attempting to act in their own self interest to the best of their abilities to improve themselves which create a more productive economy through competition for resources.
-This way the supply and demand of an item is not needed to be calculated by a massive bureaucracy but rather by the masses of consumers and producers automatically.No overhead required.
-Only with market pricing can we possibly hope to productively coordinate production of items with others and use our limited resources to answer as many human demands as possible, to create a happier, better, and more free society.
-If you want to read more I recommend Ludwig Von Mises's essay, "Economic Calculation in the Socialist Commonwealth" Found in this link to the Mises Institute
https://mises.org/library/economic-calculation-socialist-commonwealth