I had already read Mises’ original work where he determined that Socialism couldn’t work because it has no price mechanism. By sheer luck, I came across that journal I posted written years later where his and Hayek’s critique of Socialism was tested, using a Socialist mode. The model featured market activity and prices, no entrepreneurs/private property, and a central planner.
The results upheld their conclusions about the viability of Socialism, but refuted the reasons originally stated for its downfall. Lack of private property/entrepreneurs turned out the be the main reason.
Are there any more of major reversals or 180s from any of the greats I should be warned about? Did Hayek change his mind about deflation? Early work not caring about it, but later admitting that is was dangerous and wished to avoid it? Don’t just want to feel foolish quoting one of the giants only to find out he completely changed his mind on that issue and years later.
The consensus among Austrians is still that Mises’ calculation argument is completely sound. Your post seems to presume otherwise based on a single article, which, for all we know, may be complete nonsense.
I didn’t read it as thoroughly as I would have liked, but it even asserted that Mises accepted the results of the test. At least it suggested he did. Hmm. Suggested the same from Hayek as well. Thought it was a cool experiment. In fact, I didn’t know experiments like this were possible, and I’m surprised Austrians participate. I’d love to find more experiments like this testing theory.
Pretty much. I only managed to slug through page 5 before I gave up. Logic holes of bus-like proportions, and too many to list.
OK, couldn’t resist this quote for flavor:
earlier, the problem changed after the Anglo-Saxon response and so the proper
“…the question should be: what is the difference between monetary calculation produced by the private property regime and monetary calculation produced by one compulsory owner of all the resources?” (?!)
by the private property regime and monetary calculation produced by one
compulsory owne
by the private property regime and monetary calculation produced by one
compulsory owner of all the resources?
How is this a straw man? I couldn’t find the original Mises pdf when I was trying to confirm the definition of his calculation problem (didn’t know it was called that until just now), but I did find two sources that gave me confidence my definition was accurate enough. I don’t think I straw manned Mises. Mind telling me how I did?
Also, I think the summary page with the conclusions about Mises and Hayek start on p. 272. It’s an academic journal Austrian Economics, so it seems pretty important. It’s also long, complex, and I’m really tired after working 20 hours straight, so I skimmed until I found the conclusion page. However, it clearly refutes Hayek’s knowledge problem and Mises’ calculation problem. Instead, it blames the problem of imputation (Mises and or Rothbard?), which has something to do with private property and entraprenuers, plus issues regarding the central planner. I’ll need to read a lot more to get a grip on what the imputation problem really means. Maybe over the weekend. Time to crash.
Here’s where I got my definition of Mises’ calculation problem. One is a Wiki entry and the other is a paragraph from a Lew Rockwell blog.
The economic calculation problem is a criticism of socialist economics, or more precisely central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek.[1][2] The problem referred to is that of how to distribute resources rationally in an economy. The free market solution is the price mechanism, wherein people individually have the ability to decide how a good should be distributed based on their willingness to give money for it. The price conveys embedded information about the abundance of resources as well as their desirability which in turn allows, on the basis of individual consensual decisions, corrections that prevent shortages and surpluses; Mises and Hayek argued that this is the only possible solution, and without the information provided by market prices socialism lacks a method to rationally allocate resources.
But the uniqueness and the crucial importance of Mises’s challenge to socialism is that it was totally unrelated to the well-known incentive problem. Mises in effect said: All right, suppose that the socialists have been able to create a mighty army of citizens all eager to do the bidding of their masters, the socialist planners. What exactly would those planners tell this army to do? How would they know what products to order their eager slaves to produce, at what stage of production, how much of the product at each stage, what techniques or raw materials to use in that production and how much of each, and where specifically to locate all this production? How would they know their costs, or what process of production is or is not efficient?
Does my definition of Mises’ calculation problem differ far from these two sources. The first is a Wiki entry and the other is from a Lew Rockwell article on Mises.org
But the uniqueness and the crucial importance of Mises’s challenge to socialism is that it was totally unrelated to the well-known incentive problem. Mises in effect said: All right, suppose that the socialists have been able to create a mighty army of citizens all eager to do the bidding of their masters, the socialist planners. What exactly would those planners tell this army to do? How would they know what products to order their eager slaves to produce, at what stage of production, how much of the product at each stage, what techniques or raw materials to use in that production and how much of each, and where specifically to locate all this production? How would they know their costs, or what process of production is or is not efficient?
Last, that journal entry I posted is long and thick and a serious read. I only skimmed till I found what I was looking for. I think it’s p. 272. It says the reason why Socialism doesn’t work is the problem of imputation (Mises and Rothbard?). It deals with not having private property or entraprenuers as well as some problems inherent in central planning. I’ll try to come back to it when I get a good block of time and feel up to tackling it. It is a serious academic journal, though. I think it’s Austrian School Economic Quarterly or something like that.
I did two sources. I couldn’t find the original Mises book and used the first two I could. I actually found that article while trying to go back and find the original Mises article. And I just wanted to make sure my definition jived with what I remember reading. Wiki did as did Lew Rockwell’s piece. I found another but two is enough, I think. I wonder if anyone is going to comment on the article I posted. Are the writers heavy hitters around here? Sounds like they’re doing some interesting research, imo.
I always thought Mises’ argument is that, in a socialist society, there are no money prices with which to calculate because there is no private property. Only skimming the article, the author presents his argument writing:
Yes… but isn’t there a calculation problem precisely because there are no private property owners and entrepreneurs forming prices in the market? Isn’t there a lack of knowledge because knowledge is conveyed through prices formed in the market? The central planner can distribute notes as money and declare the prices of goods, but these aren’t prices as Mises or Hayek meant when using the term. Prices are formed through the free trading of private property; the number of monetary units assigned to a good by a central planner is something else.
He quickly acknowledges that Mises and Hayek, “to a certain extent recognized this fact”. Perhaps my understanding has been colored by modern restatements of Mises’ argument, in which the importance of private property is more pronounced than Mises intended. This is an interesting question, and I’m curious if there has been any professional response (doesn’t seem to be any rejoinder in the QJAE). Given that he consulted both Salerno and Hulsmann in writing the paper, I imagine he can’t be too far off base.
I think the article says that originally Mises was not smart enough to realize that the Socialist top dog could make up dollar prices at will. So Mises mistakenly thought the problem was things would have no price at all.
Then, realizing what a great blunder he had made, Mises changed horses in midstream and said that the real problem is lack of private property/entrepeneurs. Luckily, he got it right this time.
I don’t know enough about it, sadly, but I think the article is wrong on both counts. Mises original argument, which remained the same all through, is that under Socialism you can’t have meaningful prices. Meaning prices that reflect how much you lose by using raw material X to make a bridge. If you don’t know your expenses, you don’t know if you are turning a profit [=satisfying needs correctly].
As for the problem being lack of private property/entrepeneurs, I think the article misunderstood, It keeps going on about how the essential feature of being an entrepeneur whose decisions are an accurate indicator of prices is being in control. But the real heart of being an entrepeneur whose decisions are meaningful is that it’s YOUR MONEY AT STAKE, for better or worse.
OK, any experrts willing and able to supply quotes for one side or the other?
Greene I too have had trouble with understanding what Mises meant when he said prices would not exists. I always assumed that he was referring to perfect socialism where there is no economy, not just a society where all the property is owned by government.
Yes… but isn’t there a calculation problem precisely because there are no private property owners and entrepreneurs forming prices in the market?
Yep. This seems like a pretty clueless (pathetic) tackle on Mises’s argument to be fairly honest. Just because he’s consulted recent papers doesn’t mean he’s understood them.
As for Mises’s argument it refers to price formation in capital markets requiring private ownership. There can be “prices” in consumer markets but that’s not what the issue is.