[Marxism] Debunking Austrian Economics Socialist Calculation Probl em
farmelantj at juno.com
Wed May 3 06:07:10 MDT 2017
I think I have posted this here before:
A few years back, I co-authored an article on Friedrich Hayek. This article includes an appendix on the socialist calculation debates, including both the well known between Hayek and Oskar Lange, as well as the less well known between Hayek and Otto Neurath. BTW the socialist calculation debates were triggered in the first place when Hayek's mentor, Ludwig von Mises, wrote his 1920 essay, "Economic calculation in the socialist commonwealth" in response to Neurath's writings in defense of socialist economic planning.
Here is a a link to the article by Mark Lindley and myself:
And here is a link to Mises's 1920 essay:
And a link to Hayek's 1945 article, The Use of Knowledge in Society, where he summarized his views on socialist calculation.
I also have a review of David Laibman's book, Deep history: a study in social evolution and human potential. Although that book was mostly about Laibman's ideas concerning the materialist conception of history, Laibman also discussed socialist calculation issues as well. So I addressed that as well.
"I think it is appropriate to point out that there is no reason to be smug about economic calculation under capitalism. "
An issue which Lange addressed in his writings (and which was reiterated by Maurice Dobb too). Lange, citing A. C. Pigou's analysis of externalities argued that market failure were, in fact, rather ubiquitous under capitalism, so that we cannot expect capitalist markets to produce rational allocations of resources. Hence, the need for socialist economic planning to provide a corrective.
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---------- Original Message ----------
From: David McMullen via Marxism <marxism at lists.csbs.utah.edu>
Subject: [Marxism] Debunking Austrian Economics Socialist Calculation Problem
Date: Wed, 3 May 2017 17:24:29 +1000
Transcript to YouTube video
Debunking Austrian Economic's Socialist Calculation Problem
The so-called Austrian school of economics makes much of what they call
the socialist calculation problem. They argue that a society based on
social ownership could not have an effective price system and therefore
could not have the decentralized decision-making we see in a market economy.
The claim was first made by Ludwig Von Mises in the 1920s. Really all he
is saying is that transfers between enterprises using a decentralized
price system must be market exchanges. Without explaining why, he rules
out the possibility of such transfers occurring between socially owned
enterprises where there is no exchange of ownership but simply a
transfer of socially owned property from one custodian to another. I am
thinking here of a transfer between a supplier and user of some
component in production. Without predicting what will actually happen in
the communist future we could easily imagine production units using
decentralized pricing to determine least costs methods of production and
assigning output to the highest bidder. We could also easily imagine
such a system being ultimately driven by consumer demand.
Then we had the intervention of Frederick Hayek in the 1930s and 40s. He
demolished the rather lame decentralized socialist model devised by the
economist Oskar Lange. That model confines decentralized price
adjustments to consumer goods while price adjustments for intermediate
goods are carried out by a central agency that is keeping an eye on
inventory levels. Hayek correctly points out the inadequacy of such an
arrangement and how it does not represent a fully functioning price
system. Discrediting the Lange model is all very well, but Hayek did not
then go on to show that an economy based on social ownership would in
fact be limited to the Lange model. In other words he did show that
there is something about social ownership that would prevent the use of
decentralized price adjustment in the allocation of intermediate goods.
So I think I can justly say that all that Hayek has done is refute a
OK now we come to the final version of the argument and this was
developed in the 1980s by Don Lavoie of George Mason University. He
conceded that a socially owned economy could have a price system but
that it would not be a very good one. In his book Rivalry and Economic
Planning, he contends that any price system under social ownership would
be inferior to a market based one because it would be unable to reflect
the discovery process that emerges from competition between market
participants. According to Lavoie, it is important, in the presence of
uncertainty, to have numerous participants trying out different
approaches to problems, based on their own opinions, guesses and
hunches. Those who come up with the best and most highly valued products
using the cheapest methods win out in this competitive contest. I fully
agree with what he is saying. However, if, as I contend, decentralized
custodianship is an important part of social ownership, diversity of
approach should not be a problem.
Under social ownership, it would still be very common for an individual
enterprise or facility to be just one of many producing the same good or
close substitutes and each of them would be free to try out different
production methods and product designs. Some would be new entrants who
were either existing enterprises moving into a new field with synergies
or starts ups established by enthusiasts with ideas that the incumbents
were not open to or capable of developing. This diversity would be
greatly assisted by having numerous independent agencies being
responsible for disbursing funds in each industry and making their own
assessment of what were good investments. At the same time, enterprises
would be free to choose their suppliers based on cost and quality, and
would have to outbid other users of a resource or intermediate good.
Discovering and adopting the best methods and products would of course
mean that it would be common to see activities abandoned and enterprises
closed or reorganized. So, the only real obstacle to a decentralized
price system would be the absence of daring and conscientious custodians
and this gets us back to the question of whether we can do without the
profit motive. Can we do our best just because we enjoy the work and
want to contribute? As I argue elsewhere this does not strike me as
being all that fanciful if we are sharing high and increasing affluence
and all the unpleasant work is performed by robots and computers.
So the calculation argument is not a separate argument from the standard
one about whether we need the profit motive.
I think it is appropriate to point out that there is no reason to be
smug about economic calculation under capitalism. Communist workers
could hardly do a worse job of allocating investment funds than do
highly fluctuating interest rates and exchange rates produced by
capitalist finance. And there are good reasons for thinking that
economic decision-making would be far superior to that under capitalism.
To begin with, the absence of ownership barriers would increase the
scope for coordination, and lessen the scope for secrecy and deception.
So to sum up. My basic point is that when it comes to economic
calculation, communism will be able to do anything capitalism can and do
a better job of it.
I have links below to a number of articles that go into more detail on
this topic. You might like to look at them. And I also have a playlist
of of videos on libertarian issues.
Don't forget to subscribe. See you next time.
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