economic calculation in the socialist commonwealth SOLVED ?

Economics Economics Questions
1

economic calculation in the socialist commonwealth SOLVED ?

I fully agree with Mises that no human or any amount of humans working together can effectively calculate how much of what needs to be produced in order to properly satisfy the needs and wants of the public. However I recently began to question weather with modern technology this problem could be solved with the use of computers. Why can’t a number of servers be set up to take in information relating to the sales and production of products and then accurately calculate what the price should be to the consumer to properly coordinate consumption and production ?
The process could work like this, im a producer, i produce something then have that product scanned (like a scanner you see at the cashier at a store) the product after it is scanned is added to the computer database (so the computer knows this product exist). All products produced by everybody are scanned and added to the database, so the computer knows of everything that has been produced. The products are shipped to stores and put on the shelves for consumption. The computer affixes a price to the individual products based on some sort of program that can determine a starting price (the starting price could be based on any number of factors such as what similar products have sold for in the past, polls which give an idea of how many people are likely to buy the product ect). When somebody buys the product the sale and price paid will be scanned and entered into the computer database. If the price is to high and some product is left over the computer will calculate a lower price for the product, if the price is to low and the product flies off the shelves the computer will calculate a higher price.
This is the bases of the argument, why couldn’t the central planers use such a system to conquer the long standing problem of economic calculation in the socialist commonwealth.
Also i have a feeling I know what some of your responses will be let me address them now.

  1. A single computer calculating prices for the whole country won’t work because people living in Rhode Island may be unwilling to pay the same price for something as those living in Texas.
    This could be solved by having a computer in each state or perhaps in each city or town, this computer would calculate the prices for the individuals in those towns, So the prices will more accurately reflect what individuals in those locations are willing to pay.

  2. no computer could possibly handle all the information it would need to perform such a task.
    I completely disagree with this argument modern day web servers such as those used by companies like ebay, or google can handle thousands if not millions of request per second, i can’t possibly see how the argument can be made that no computer or group of computers could handle the info needed to calculate prices.

anyway what is your response to this, It seems like a very difficult argument to debunk.
have at it

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Where will that supercomputer be built?

In a…capitalist society? The whole ironic thing about this socialist commonwealth is that it seems to require a giant accumulation of capital to be possible.

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You still have a problem with information. Some computers can do many billions of calculations in the time it takes us to do one, but they need information with which to calculate. It’s not just a matter of quick calculations, it’s a matter of getting information.

You just found the rub. Some sort of program? I can fly to the nearest galaxy by using some sort of FTL Drive, but the devil is in the details.

This ignores the anticipation that entrepreneurs do. I also see a whole lot of equipment to make this infrastructure to do something that is already done when people are free. I also see a lot of dependence on people agreeing to participate in the system. The drug war would work just fine if everyone agreed to go along with it. I also see a lack of appreciation for innovation. How will the computers innovate and find better ways to produce, and better products to produce? How will the computer decide which projects to fund?

I did it with half my brain tied behind my back, but it is a nice warm up.

4

But how is this in anyway better than the market? other than being cool and space age that is.

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I should also add that the point of socialism, for the ruling class, is not to better mankind. Why make socialism to do what capitalism already does, even if somehow it could work? The point of socialism is to take over resources and exercise power.

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You do know that this is a ‘solution’ that has been around since 1929 with the publication of Fred Taylors ‘The Guidance of Production in a Socialist State’, and developed by Oscar Lange in On the Economic Theory of Socialism.

7

I like the cut of your jib.

8

Sounds like a brave new world.

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I completely disagree that it would need to be a supercomputer with the processing power of modern day computers a relatively cheap home built computer could accomplish this task, especially if the planning is to be broken down into cities and towns rather than nation wide.
Where would the computer be built, your average joe could easily afford the parts and anyone with a bit of computer knowledge can build one, there is even a free source of stable operating software (Linux) which could run the programs.
The would be central planners could either have a dedicated socialist who would construct the parts and build the computers not for profit, or they could sneak into a capitalist best buy, or amazon.com and buy the parts themselves. Once the computer is built they will no longer need to rely on buying the parts from a business because prices for the parts will be set by the computers and then produced by someone in there own economy.

where do the computers get the information at which to calculate ? well I already solved this problem, it would not depend on an individual planner deciding what numbers to punch into the computer, it would just depend on the individual producers scanning the products they produce, as they already do for their own inventory purposes.

some sort of program that can determine a starting price ?
applications that can perform calculations are numerous I don’t see why creating a program for the specific purpose of using the known supply (each product constructed is scanned into the database) and demand (each product sold is scanned into the database) of a product to calculate the price would be difficult.
Also how does the capitalist determine a starting price for his products, he probably puts a price tag on his products based on product research and the knowledge of how much similar products have sold for in the past. When Apple invented the Ipod I don’t see how they could have known exactly how much people would be willing to pay for it, they would have somehow calculated a reasonable starting price then affixed this price to the Ipod, if not enough people bought there Ipod they would have lowered the price, if they flew off the shelves they would have raised there price, when they stopped flying off the shelves for what ever reason, (competition, changing consumer taste) they would have lowered the price, and innovated a new design consumers would like better.
why cant a computer calculate in the same way, i.e. product X has not sold very many units so I (the computer) will lower the price, product X has sold many units so I (the computer) will increase the price, product X is no longer selling at all so it will be discontinued and something else produced.

also you say this will create the need for a whole lot of equipment that people do for free, well I don’t believe this argument, giving the computer power of modern computers and the low prices the price would not be high and the number of computers needed would not be many

People agreeing to participate in this system is a problem, but just for a second assume I or someone else could come up with some way of ensuring weather through force or some other measure that everyone would participate in this system (which I haven’t yet) but assuming I did, would this solve the problem of economic calculation in the socialist commonwealth ?
BEFORE YOU ANSWER ! I contend the use of force to make everyone participate may make the realization of this goal less desirable than a capitalist system of for profit production, weather or not socialism would be desirable over capitalism is not the basis of this question, Im only asking if the computers would solve the problem of economic calculation in a socialist country, not weather socialism would under these conditions still be less desirable than capitalism or better.

How would innovation go about ?
the computers would not do the innovating they would merely set the price for what is innovated, The central planners now given the much needed measuring stick of a price system could calculate how much of what needs to be produced and would no longer have to operate haphazardly on guess work, the central planners could set aside some sort of incentive, ( more money ect) to pay producers who innovate new technology that is wanted by the consumer.

“I did it with half my brain tied behind my back, but it is a nice warm up”

try using your whole brain, im not done yet

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You do know that this is a ‘solution’ that has been around since 1929 with the publication of Fred Taylors ‘The Guidance of Production in a Socialist State’, and developed by Oscar Lange in On the Economic Theory of Socialism.

Yep. My thoughts too. People who voice this “solution” are pretty much ignorant of how Mises’s argument differs from Hayek’s. Computers just process information. They cannot create it where it does not exist.

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how would this be better than the market ?

Before answering this question Im going to explain my understanding of the austrian perspective of how the price system works.

I produce a product, my goal is then to sell the product for as high a price I can sell it for (as to increase profitably) if the price I attempt to sell it for is too high it needs to be lowered. If I’am successful in being able to sell a product for a high rate of profitability then I and other producers will produce and sell more of these products because selling this product is profitable, this increase in the production of this product is exactly what society needs because the consumers have decided they want to by more of it. So the price of a product rising acts as an incentive for producers to produce more of that product and that is how prices coordinate production.

The reason why computers performing the calculations would be an improvement, is because the computers will still be able to accurately determine how much of what needs to be produced but it will not need profit to do so, normally when you take away profit you increase prices because without profits less of the product is produced, but since the computers know how much is being produced and consumed it can calculate how much of what needs to be produced without profit and without decreasing supply of the good, so in short the goods are sold to the public for lower prices.

“I should also add that the point of socialism, for the ruling class, is not to better mankind. Why make socialism to do what capitalism already does, even if somehow it could work? The point of socialism is to take over resources and exercise power.”

even if this is true the point of my writings is to determine if modern day computing could solve the long standing problem of calculation. If it is true that computers could solve this problem than one of the best technical arguments against socialism just went to the waste-side

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Speaking of which, I have a tattered copy of Oskar Lange’s work in its original Polish form. As it turns out, my gramps was a mathematician and he had some interests in economics, so he owned that book. I haven’t gotten around to reading it yet though, as learning all of that economic jibber-jabber in Polish just seems like a pain. But someday… someday I’ll read it.

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This doesn’t even begin to solve Mises’s version of the calculation problem. More than that, profits result from adjusting to unanticipated consumer demand (key word: unanticipated), and spreads between costs of material inputs and potential revenues by fulfilling this demand (i.e. it’s a process of arbitrage.) In the real world of changing/varying consumer preferences, how do you propose to iron out this lack of predictability, as past consumption patterns will not match future ones with any degree of exactitude? Moreover, with profits out of the picture, where will the incentive to innovate and the funds for business expansion/reinvestment come from?

So, how are your computers going to predict future variations in consumer preferences? You’ve added nothing to Lange’s version of his “solution” to the calculation problem. Before making such bold proclamations, it’s best to make sure you’ve at least familiarised yourself with the basics.

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I do appreciate the responses thus far I will be away from my computer for several hours as Im going out soon, but I will be back tonight around 9pm to participate in this debate further

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I’m so excited, the Zeitgeist movement has been debunked to shreds and they keep on coming.

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The supercomputer solution was one of my first attemps to solve the Calculation Problem, years ago, until I realized that I was simply avoiding the main issue, sure you can hope that in the future a super advanced robot solves the Calculation Problem the same way that you can hope that in the future someone invents “Replicators” and end scarcity altogether, like in Star Trek.

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I thought of another way to simulate economic calculation. The state could calculate prices by having virtual property owners in a computer simulation. Then those virtual owners do all the same things that real capitalists do to calculate prices and production, bidding resources according to supply and demand etc. Each of these virtual capitalists has the economic incentive to maximize his profit, just that it all happens in a computer and all resources are really owned by the state. Once the state calculated prices this way, it can coordinate a centrally planned economy. Customers would never know which virtual capitalist owned the resources they buy.

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So true.

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What are the inputs?

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Huh? Are you mistaking my comment that even a computer that can do billions of calculations a minute would be insufficient for an insistence that such a computer would be needed to do the job? Very different ideas; you have misread my sentence.

Then we already have a reason to prefer capitalism over this computerized socialism. Are we to extend the division of labor no further than the municipal line?

Well, you’ve convinced me that a computer can be built and programed with software.

Do you think this is the only relevant information in an economy? Who will determine what products to make and by what chain of processes to make them?

You’ll recall I was referring to your comment about the STARTING price. There is no demonstrated demand yet. It’s not even a big issue relative to others in your post, it was just one I was point out.

Not many computers needed? For all this information input? I suppose if we are talking about a small town that might work, but then what if there is to be trade between towns? If not, we can get rid of this system already since it cuts short the division of labor.

You have not, no matter how you get people to go along with it. Just because people are buying a certain quantity of goods does not mean that you now know demand. What if there is a similar good you aren’t making that they would prefer to buy? With trial and error you might be able to calculate the clearing price for apples, but from this you would never know that they actually prefer oranges. You could take polls now and then, but what people will say they want differs from the actual demand they express when it comes time to spend money. With a computer, you do not have the gut instinct of a good entrepreneur who can home in on a demanded good much more efficiently than a computer can simply guess what is to be made. And who will come up with new products? Again, you could take a poll of would-be inventors, but how will the computer decided how to allocate capital towards these new products? Do you know anything about JIT? If a single company has trouble with this sort of calculation, how is it going to work for the entire world (and I say the entire world because your isolated socialized towns are clearly inferior to the division of labor available when we all participate in the same system)?

The economy is an unbelievably complex thing. Every poster on here could give you new details relating to his line of work, coming up with unique problems for his industry. A single computer running things would never be able to do what humans can do through market coordination. The problems with socialism are not as simple as you paint them to be.