What is socialism? To determine just what might be wrong with it, we first must determine what it is. In contemporary parlance, the word can mean anything from safety nets like Social Security, to wealth redistribution projects like progressive taxation, to full government control of the means of production. Some of these "socialisms" benefit society, while others are terribly destructive. But all of the nations we call socialist have one thing in common: a government that is strongly involved in one, or all, areas of the economy. So, since I'll be drawing mainly from F.A. Hayek's famous book "The Road to Serfdom," let me use something similar to his preferred definition: socialism is that system whereby the economy of a nation is planned and controlled by the government.
As we've said, a government can engage in this planned economy to varying degrees. They may merely give tax subsidies to preferred industries. Or, they could exercise great control over a single sector of the economy, like a government-run healthcare system. Or, they could go all the way and control and distribute all important commodities. But the more fully this system of socialism is approached to by a government, the greater the reduction in individual liberty.
Why is this so? It has been said that whenever we have a commodity in limited supply, whether it be a natural commodity like coal or a human commodity like healthcare, there are only two ways to distribute it to the population. You can do it via a free market - i.e., the commodity has a price, and whoever pays that price gets it. Or, you can do it by force - the government can decide who gets it.
If you go down this latter path, there will always be large segments of the population that disagree with how the government is distributing the commodity. After all, a government in this situation must develop some scale of values to determine how the commodity should be distributed. For example, the government may find that there is a coal shortage. In a free market, the price would rise, and those who could and desired to pay for the coal would get it. But in a planned economy, the government must decide, let's say, whether it is more important to send the coal to factories in Michigan or Nevada, or whether to send it to power plants or steel mills.
But this value scale will never be universal, and the bigger the nation in question, the more diverse viewpoints will be. It's quite likely that many of those who own or are employed by the factories in Nevada that are denied coal will feel that the decision was unjust; they should get the coal, not the people in Michigan. But they have no choice in the matter.
"This may be true," you might be thinking, "but I don't really have free choice in a free market either. All options may be open to me if I can afford them, but I can't." Well, strictly speaking you are correct of course, but let's consider the matter further. Certainly in a free market we may see our fortunes rise or fall, we may be rich or poor. But through it all, we decide what is most important in our lives; we have our own scale of values. We can decide that our health is most important, or good food, or our model train hobby. If our salaries fall, then we can cut back on what we think is less important, and maintain what we think is more important.
But in a socialist system, it is not our scale of values that matters, but the government's. If the government has decided that the limited amount of health care that is available must currently be reserved for others, then we cannot have it at any price. If it has ordered the toy manufacturers to focus on teddy bears, there will be no model trains for us to buy. The government, by controlling the economy, thereby controls almost our entire lives.
In contrast to all this stands the free market system. The economic freedom of the free market system matches perfectly with freedom in the rest of our lives. We have almost total freedom of choice; if model trains are the center of our life, surely we can purchase one at some price, even if we must sacrifice to afford it. Because there is no collective system of values the populace must agree to, everyone is free to make their own choice, and to publish them in a newspaper, or attend a church that preaches them, without causing any threat to the government that it may feel impelled to respond to. We can live in a liberty that a socialist state cannot allow.