How exactly do capitalists decide this and how does it differ from how socialists might decide it?
Capitalists simply decide which is cheaper, or, barring that, whether the return on the investment is worth a higher expenditure. Not only that, but everyone makes this decision, by producing an amount somewhat equivalent to what they produce and having discouragements to exceed that. You even decide if you want to purchase an object at store A or consider spending gas money to travel to store B which has a cheaper version. It's a simple matter of knowing prices and seeing if you come out ahead in relation to other decisions.
Socialists can guesstimate, and that's it. They can't account for the effects of demand, how much free resources are available for production in proportion to consumption or whether adjusting that is desirable, they can't clearly account for shipment as a cost when energy prices are based on the demand from people correctly preferring to use it and its supply, they can't really say whether its better for a scientist to become a teacher, and so much more. This does not mean that socialism will collapse because of this; it's the principle that utility is wasted in socialism and, so, it'll remain inefficient.
Factor the considerations of whether socialism would be a dictatorship or pure democracy. The dictator would have to prioritize and guess based on his inclinations, removing freedom of choice and likely leaving people with what they don't want, as well as in conditions of spiritual imprisonment in one's own nation. Now, if it's a democracy, how would those people choose what they want?
From an excessive point of consideration, they could vote on whatever the hell they want, and computers and statistics would implement triage based on need values (consistent power supply, toothpaste...) so that expensive things like houses would be put on hold until previous orders are filled. Of course, it would be impossible to tell who deserves more, implying that equality would have to be established here, and it would be hard to believe that people --even with a wealth increase-- would be deliberate proponents of saving, so we have problems of service, presumed aspects of quality (less 3D TVs, for example), and no way to encourage growth to increase wealth.
Finally, we can consider a democracy that is not so extreme: people are paid in something equivalent to dollars, representing their contribution, and a portion of that money would go to a planning committee for growth. People could even store some of it for the planners to get more earnings later. This would have democracy, an assessment for individual calculation and its impact on a macro scale (if everyone buys more than they produce, then there is little growth. This is just problems like that), and a form of increasing growth in relation to individual desire.
However, it lacks a method of defining the value of labor in different job types: Because there is no monetary benefit for a coordinator to see if the job market for janitors is weak while maintenance men is high, he would have to make a request of this employee just like one would in a management game like ___ Tycoon and I guess Sim City. He could just make the request based on the level of cleanliness in certain areas, but, instead of simply popping down a desired worker from nowhere, he would have to find someone from among the 100% employed and try some method of persuasion to get that worker to do something for him. This man cannot actually provide better money, not without going to the planning committee and pleading to be able to raise "wages" in his business, because that would be capitalism; he would be controlling the people's resources. Nonetheless, wages would remain the same and a janitor from another business could be transferred.
There's also the question of over-employment. A clean business is good, but how much would normally be financially undesirable?
There's likely more, and I wonder if I have exaggerated certain portions of the socialist system that I am thinking of--or whether I should have noted others.
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