I found a link to an article on Economic Calculation from the revleft forum there was a thread on here. The link to the article is as follows:
I’ve started reading through the article, but haven’t finished it yet, frankly I find it compelling in parts, can spot mistakes in other parts and some that are downright irritating in others. T obe fair to the author however, from what I have read so far he does raise some fair points concerning “effective demand”, and I was wondering how an Austrian would respond to this kind of criticism ofcalculation via the marktet process:
“But what is actually happening in this “transformation process” whereby the “incommensurable subjective valuations” of individuals purportedly come to be expressed as objective exchange ratios or prices? Do the latter in fact actually capture the former? There is a kernel of truth in the claim that they do in that obviously if someone is willing to pay a price for a good he or she must ipso facto subjectively value that good. Otherwise the “willingness to pay” for it would not have arisen. But, of course, in a market economy mere “willingness to pay” is not enough; the means of payment – purchasing power- is what is crucially required and it is only willingness to pay that is backed up by purchasing power that actually affects prices. This is what economists call “effective demand” (presumably to be distinguished from “ineffective demand”). The subjective valuation that a pauper places on a square meal may be considerable but in the absence of the wherewithal to pay for such a meal, this counts for nothing. In short, the subjective valuations individuals place on goods cannot reasonably be said to be captured or embodied by the objective prices such goods attract in the market. Indeed, one might add that to suggest that they do, flatly contradicts a key myth of bourgeois economics – namely, that our wants are essentially “infinite” and the resources to meet them, limited.”
I would also very much like to discuss other parts of the article on this forum, if people are willing.
What’s so shocking about the fact that purchasing power affects prices? How else would the author calculate the prices of goods and services?
And how does this in any way imply that
Indeed, one might add that to suggest that they do, flatly contradicts a key myth of bourgeois economics – namely, that our wants are essentially “infinite” and the resources to meet them, limited."
I don’t really see what this is supposed to prove.
I guess his point is that money prices do not really reflect individual preferences in society because some people are too poor to “express” them. So I think he’s trying to make some sort of point about the have-nots having no influence on the course that production takes in the market economy. Can we refute this?
to be radically poor in a free society that you can not afford to keep yourself in basic food is to say that you have dramatically low productivity (and no friends that esteem you enough to help you out in a pinch). saying that lots of people would be so unproductive as to not be able to sustain themselves in a freemarket really puts out a low opinion of ones fellow man. IMHO. I think that talking of have-nots in a free society is disingenuous. have something, by producing something.
right, money prices reflect the relationship that obtains between individuals that bid in line with their preferences assuming the present resource allocations and constraints. its silly to miss out the resource ‘reality-side’ of what prices are for.
This is overall purchase power in a large system, individual purchase power will have a marginal effect on price…
This is a common mistake of Communist theory, that the market will cater to the rich man’s dollar over the poor…
The market caters to the people with the most money, categorically it is proven in the free market system to be the lowly poor that have the most money to purchase items with, as there are invariably more poor than rich in any economic situation. After the wants of the poor are met, the market will develop specialization for the rich, who have increased individual purchase power. Communists transfix the poor with the illusion that they will have the limosine like their employer, but they do not mention that everyone else has to be afforded the same first, which is an impossible burden on the economy…
Classic ad hominem where the author does not both to elucidate what he means by “pseudorationalism.” In addition he does not say why the “commensurability of different values” (I assume he is speaking of market catallactics here) is a wrong, but merely asserts that it is so, and then makes an argumentum ad misericordiam to guilt the reader into accepting his position by contrasting a the “purely techical procedure” of a free market with a socialist economy’s ability to take into consideration ethics, and politics. However, the free market’s catallactics can take into accout such issues because such issues will influence the values of individuals within the market, and hence their behavior (I might not buy from company A because I believe that company A has unethical business practices) while in socialism it is only the judgements of value of the ruling party that will be put into action. Nevertheless, economics is wertfrei so such ethical assertions should not be incorporated into a theory, the economic calulation debate is very technical, and should be fought on technical grounds, not mocking Mises for being technical.
Again, only the judgements of value of the ruling socialist party will be incorporated into calculation, while in a market economy, the judgements of value of every single individual will be involved in catallactics.
Quantative economics cannot construct a reliable model of the economy, yet the socialists think that they can do the same thing? The fate of LTCM, which was a hedge fund who tried to predict the market though mathematical models, comes to mind here for there will always be unpredictable events a la Taleb’s The Black Swan that will display that mathematical models are not human entrepreneurs who can react to change. Sine dubio, this assertion is groundless.
Whatever “information” he speaks of is obviously not the tacit knowledge needed for the functioning of an economy displaying a fundamental error with this article: it only speaks of Mises’ version of the calculation problem while completely (and conveniently in “B) Self-Regulating Stock Control”) overlooking Hayek’s. If socialists desire to prove that socialism can calculate, they must tackle the problem of tacit knowledge.
This would work in a static economy, yet the contemporary industrialized economy we live in today is extremely dynamic. Plus, the author only utilizes a single good in this example, imagine doing this in an economy with thousands of goods with a structure of production where not all goods have their own line of production, but where many goods follow the same line of production right up until becoming consumer goods. The sheer complexity of an economy is overlooked here.
And how will the central planning board of the socialist economy know all of the information necessary to put this plan into action? He conveniently looks over Hayek’s version of the calculation problem that focuses on the use of knowledge in the economic process. Plus, he assumes a static economy here with a static structure of production, but with a dynamic structure of production where costs, and the scarcity of goods are always in flux it will be impossible to gather, and centralize all of that knowledge before all of their data is obsolete.
The reason why some entrepreneurs have heightened purchasing power is that they are the ones who were able to provide the goods, and services most in demand. Thus, they were the ones who sucessfully predicted the ebb, and flow of the market, and it is these individuals, on the basis of precedent, who should be trusted with higher purchasing power to be able to bring goods, and service to a greater, and greater quantity of consumers. The more sucessful an entrepreneur is at satiating consumer demand, the more purchasing power he has. Plus while the entrepreneur actually has to earn his purchasing power by servicing the needs of consumers, the socialists dictator does not need to, instead he has the ability to dictate to consumers what their needs are.
There is no “co-ordinated and commonly agreed approach in setting society’s priorities” in socialism, instead there is the board of central planning deciding on what everybody else gets; while, as I’ve said above, in a free market with cattalactics, the entrepreneurs who are sucessful in predicting consumer preferences are the ones who are entrusted with a higher purchasing power. Capitalism is based upon serving the demand of society, while socialism is one group in society deciding that they know what is best for society.
Overall, I would conclude that the article does not grasp the fact that an economy is a process of trial, and error that is always in flux trying to better satiate the needs of the consumers; from this ignorance, most of the above errors find their genesis.
Lower productivity than it is really possible for anyone to be.
Think of fairly stupid people who still managed to be employed freely at a low, but subsistence wage. Think of the vastly lower prices, and greater levels of capital that would exist in a free market. Think of the lack of voluntary employment, the lack of restrictions to trade (etc. etc.)
I think we all know that “the Poor” is a fallacy in a free market, as those with less media of exchange will have a better life without the added burden of government than their counterparts within a state…
Well said, considering much of Hayek’s ideas on information have become a sort of parallel in economics to the work of information theorists regarding networks (computer and human). So, I’m at a lost as to how magically information can be compressed into purely deterministic patterns that can be computed within a reasonable time frame for any economy (whether it’s the world economy or the economy of a given intranet). As tacit knowledge is also very much sensitive to time as the older the tacit knowledge, the more likely it will not be useful (example: knowing how many apples a farmer grew twenty years ago may not be useful in knowing how many he is growing today and for what price per what unit for sale.). Plus, tacit knowledge by its nature is also context sensitive as it doesn’t explicitly, nor necessarily implicitly, store its applicable context(s). How is any committee suppose to capture the context from a given piece of tacit knowledge if they’re not active in the process of the acquisition of the given tacit knowledge?
Clearly, the author of this revleft article hasn’t taken a single course in information theory or even network theory (sociological or computer based).
the most conservative estimate I can make is that under free markets we would have double the real wealth we have now and half as many unproductive people. there simply is no problem of unproductive people in a free society. when you subsidize something you get more of it. we’ve been subsidizing unproductive people and destroying wealth for a long time.
communists don’t like the market because it reflects actual human desires instead of the desires communists think we “ought” to have. that’s literally all there is to it.
they already are under a sane definition of the term rich. I personally live below the “poverty line” as a student and I live like a king. I have personal transportation anywhere I want, free health care, I can afford to eat out several times a month, I have a nice apartment, a nice gaming class computer, designer clothes etc.
The actual value of the american dollar is ridiculously high, it’s just that people are so used to this that they think nothing of squandering purchasing power. Everyone is in for a real shock very soon.
Well, if we go by that reasoning then Higgs Bosons must not be real at all due to the fact that no one has yet observed them directly (yet the Standard Model and the sub-theories related have all these other proofs and observations that back up their implicit existence…). Or how about axiomatic claims like the law of identity. I guess since I cannot empirically prove it, then it must not be true! Oh boy, this kid clearly is an ass. So my demotivational picture fits quite well to the author’s potential mental (or lack thereof) state(s).
Edit: Also, let us not forget that these Socialists are the same screw balls that claimed that Genetics was a pseudo-science. Oh wait…
So how does this not fall prone to all the objections Mises leveled against Lange? They still cannot deal with the lack of prices in capital goods, meaning these goods will not be allocated efficiently and cannot enter into economic calculation. Geez, it’s like debating with parrots.
