Economic Calculation, What is at the center?

[abskebabs]

I apologise if this analogy has already been used in this thread, but I think it is useful when contemplating the problem of economic calculation for a (worldwide) socialist commonwealth. This would be the case if the dictator or the party wants to produce to only satisfy their own preferences.

If one wants to imagine what could be produced with such an “economy”, then one can analogusly imagine what could possibly be produced with a Robinson Crusoe economy. Obviously, the more technological recipes that are known, the more that could be produced by both.A rational economisation problem arises once one is engaging and trying to plan the feasibillity of several multistage production processes that utilise various complimentary means that are generally specific but not completely. Then essentially one would be left often comparing “apples with oranges”, in order to solve this coordination problem, with no clear criterion for optimisation and efficiency, hence a lack of rational economic planning.

Mises acknowledges that even a Robinson Crusoe economy can have a primitive structure of production, though this does not really require economic calculation since one is still largely comparing and neglecting rival wants in one’s planning. It does not come near the complexity of a large scale economy. I think it would be an interesting, non-trivial problem to establish what kind of “threshold” there is for economic calculation, but admittedly this problem is qualitative more than it is quantitative, and I think would be subject to the conditions of other variables.

[DD5]

@filc

DD5 disagrees, he says that money and market prices are not at hte center of economic calculation.

Anybody with half a brain understands that prices are at the center of my argument. Or rather, the absent of prices!

Would you rather me call you a liar? I don’t think you are. I just think you’re determine NOT to understand the socialist calculation problem.

@filc

my point is that the result with a fascistic model is the same as a moderate socialist. A big disruption in economic calculation. The degree at which there is intervention will be the degree of disrupted economic calculation and distortion of prices ect…

Disruption in economic calculation with money prices is NOT the socialist calculation problem. The socialist calculation problem is that there are no prices at all!

The above in bold certainly makes prices the focal point of the argument. The absent of prices! You are conflating the socialist commonwealth with a market economy hampered by coercive intervention. It is clear from the start that you are confusing the two.

[abskebabs]

@DD5

Disruption in economic calculation with money prices is NOT the socialist calculation problem. The socialist calculation problem is that there are no prices at all!

[Y].

No doubt however, this does not mean there are not problems related to the Economic calculation problem faced by a worldwide socialist commonwealth; that are faced by other systems. Arguably price information is distorted and knowledge problems, among others are produced by enforced local and nationalist socialisation of the means of production. Perhaps this defines the middleground which everyone in this debate largely agrees to.

The ABC is just one example of what happens when interventions distort prices.

[filc]

@DD5

Anybody with half a brain understands that prices are at the center of my argument.

Then you finally agree with me.

@DD5

Disruption in economic calculation with money prices is NOT the socialist calculation problem. The socialist calculation problem is that there are no prices at all!

@DD5

The above in bold certainly makes prices the focal point of the argument. The absent of prices!

I’m glad you finally concede and agree.

@DD5

It is clear from the start that you are confusing the two.

This would make more sense to you if you showed me enough respect to read the article I linked for you several times.

https://forum.freecapitalists.org/t/genuine-socialism-and-socialized-services-a-semantics-argument-long-post/10029

I won’t get into it here. There is no accidental conflation on my part, and it has nothing to do with me not understanding the differences.

[wilderness]

@filc

@DD5

The above in bold certainly makes prices the focal point of the argument. The absent of prices!

I’m glad you finally concede and agree.

In all due respect, but DD5 never needed to “concede” that point. He’s been saying that for a long time, even into the last thread.

[filc]

@wilderness

In all due respect, but DD5 never needed to “concede” that point. He’s been saying that for a long time, even into the last thread.

Yes well I got confused when he said(Among other things, I am tired of re-quoting him all over the place)

@DD5

the calculation problem is very different from this.

And when I tried to clarify he said

@DD5

I stand by every word in that dialog.

But if what you say is true then all that means is that the past 8 pages were foolish and unnecessary, for all involved parties.(The other thread included) All I can say in my defense is that the specific wording used left me confused to the point where I mis-understood the positions presented. I did make several attempts to get clarification.

@wilderness

even into the last thread.

Curious but can you reference this? Perhaps I missed something he said?

[wilderness]

@Esuric

@wilderness

I would also recognize that he did say that he might not understand your question. To me that means, he already answered your question, doesn’t want to keep repeating the answer, but since you seem to be not satisfied with his answer then he’s open to the possibility that he doesn’t understand your question.

1: Is my question not clear? Do you understand it?

2: Here’s his answer, a quote from Mises: "We may admit that in its initial period a socialist regime could to some extent rely upon of the preceding age of capitalism. But what is to be done later, as conditions change more and more? Of what use could the prices of 1900 be for the director in 1949? And what use can the director in 19890 derive from the knowledge of the prices of 1949?" (Mises, Human Action)

[From this we may also deduce, to go back to Flic’s point, that Swedish, or Japanese prices (or whatever) are not really that useful for Soviet or Chinese economic calculation].

Here Mises is talking about rational economic calculation (see bold text). But I already know that rational economic calculation, which requires prices, is impossible in a socialist common wealth. What I want to know is if there can be any planning at all. Can the planner create a warship? If not, why? Can he create something like a motorcycle? it’s less complicated, but still a somewhat intricate piece of machinery. What’s the cut off for planning in general?

This is what I’m trying to figure out. Maybe you can help me. If you understand what I’m saying, then maybe you can re-state my question in a more comprehensible way.

Also, if his position is that civilization would never be able to produce such goods (Warship, Motorcycle) if it had never developed a market based economy, then I agree. Mises, though, isn’t saying this.

sorry. I went to bed. Didn’t see this post Esuric.

I know what you are saying. It was my delineation between ‘market’ and ‘socialist’ when I had responded in my previous posts.

for me:

market=where the planning takes place

socialist=the whip

–

Where the confusion in what I said probably arises is the socialist is giving out orders. That might be construed as ‘planning’, though, it is command and control planning. Why I delineated the market from the socialist is due to the activity that will still go on. A warship can be built though at the detriment or lose to something else being built in the society that is truly needed by the consumers. The reason I was saying the socialist doesn’t ‘plan’ what I meant is the socialist isn’t planning for the market’s needs. Even if the socialist orders all these turkey’s to be handed out to the society/market, there will be all kinds of problems that will arise to get the job done that the market (outside of the socialist) would try to deal with in order to get the orders fulfilled. If the socialist orders a warship to be built, I don’t think it will happen unless the rest of the market does a lot of thinking outside of the box to get it done because the market is not developed to receive command orders to get any job done. The market was already pre-determined before the socialist came to power on how it’s operations will work. So more and more command orders will have to happen not just be the socialist in charge but by his/her minions to get any jobs done and each of those new command orders are an effort to re-shape the old, pre-existing capitalist economy. Since they are not the same and the movements from the capitalist economy were more spontaneous and from the bottom-up, the socialist has to use force to counter that movement to get the orders from the socialist working.

anyways… I don’t know if that helps.

[wilderness]

@filc

@wilderness

In all due respect, but DD5 never needed to “concede” that point. He’s been saying that for a long time, even into the last thread.

Yes well I got confused when he said(Among other things, I am tired of re-quoting him all over the place)

everybody was talking past everybody.

@filc

@DD5

the calculation problem is very different from this.

And when I tried to clarify he said

@DD5

I stand by every word in that dialog.

But if what you say is true then all that means is that the past 8 pages were foolish and unnecessary, for all involved parties.(The other thread included) All I can say in my defense is that the specific wording used left me confused to the point where I mis-understood the positions presented. I did make several attempts to get clarification.

everybody made several attempts to get clarification. DD5 from you, you from him, etc…

@filc

@wilderness

even into the last thread.

Curious but can you reference this? Perhaps I missed something he said?

Here It’s a few posts up from the link you provided in the OP of this thread. He mentions “no prices”.

[filc]

@wilderness

Here It’s a few posts up from the link you provided in the OP of this thread. He mentions “no prices”.

But he is still deducing his conclusion from a problem related to prices and money, in this case the absence there of. So it doesn’t follow from his other statements where he states that prices and money have nothing to do with economic calculation, and have everything to do with planning, when in fact the inability to plan is a derivative of the problem presented with lack of money, or drastically scewed money. So in other words prices and money have everything to do with the problem, a point he ultimately concedes.

We cannot claim a-priori with honesty that a socialist planner cannot build anything or that he cannot plan. Such a claim is entirely speculative. What we can do however is show that in the absence of a pricing mechanism, or the lack of money, that the planning process will go through extreme disruptions, even possibly to the point that the plan fails. We can show logically based on various Austrian methods. The argument of having no money, or distorted prices is a logical one and not an assertion. It can be deduced and shown on paper why. Where as the prior argument is simply an assertion.

The point is, it’s the pricing mechanism and money(or lack thereof) that is the center of the problem. Thats what puts a hinderence on planning, that is economic calculation. I can’t remember how many times I have repeated this now. I don’t feel that I have ever deviated from this point.

I don’t recall much of DD5 asking me to clarify my position, I have not changed my position in any way. I have maintained from the original dialogue that was in disagreement that economic calculation is a problem with money and pricing. The lack of money still means it’s about money. If you look back to the original dialog you will see that is what transpired.

If a planner cannot plan in a socialist commonwealth it’s because he is lacking a pricing mechanism. And to have an accurately functioning pricing mechanism the planer will need a market, which undermines his very purpose. This is why Mises’s said that Socialist Planners are in a paradoxical position. This is a key point because if we go to debate a socialist and just claim as an assertion that a planner cannot plan, we have no basis for our argument and they will simply re-assert that they can. If we go to them however and explain to them that they cannot economicly calculate due to lack of an accurate pricing mechanism, or lack of money, we can argue a-priori why the socialist planner is incapable of planning.

The point I was trying to make is you cannot make an assertion and expect it to hold weight. Money and pricing is at the very center all economic planning(All versions).

Not only did I repeat myself to stay consistent, I began quoting myself, and re-quoting DD5. I also opened this thread with a very long post further explaining my position.

Did any of what I just say come across as vague or confusing?

[ladyattis]

Prices allow for valuations to have external influence even if they have no external reference. Meaning a price does not imply any given value. shrugs

[wilderness]

filc,

We pmed so I didn’t find the need to answer this here. But I found a passage of Mises that helps clarify what I was saying:

@Mises

That a socialist community could by no means make this comparison of input and output, of costs and proceeds, because economic calculation is not possible under socialism, does not further come into question here. The impossibility of economic calculation makes a socialist economy based on the division of labor altogether unfeasible. A completely socialist economy can exist only in thought, not in reality. However, if one seeks, in spite of this, to describe the communist paradise in an imaginary construction, one must, in order not to become involved in self-contradictory nonsense, assign to the scarcity of capital the same role it plays in the economic life of capitalism.

This is exactly why I stated the free market is present all the time and it is the only market. Even in North Korea, the only time that the free market disappears is when an individual starves and/or can’t get economic goods within a qualitative range at the other end of mass starvations and/or can’t get economic goods. It’s why I stated the socialist doesn’t produce anything and only the acts of the workers (managers, etc…), the people in contact with the actual economic exchanges do.

I find that last sentence to be outstanding, too. Which is why it made sense for me to explain the going-on’s in socialism in terms of free market all the way up the scale to places like N.K. and the old Soviet Union, etc… Human action, those actually doing the production and consumption, in use of that terminology, ie. free market, human action, is the theory capable of making sense it would seem. As Mises states, requoting here highlighting my point:

@Mises

if one seeks… to describe the communist paradise… one must… assign to the scarcity of capital the same role it plays in the economic life of capitalism.

Thus my use of the terms free market and human action even within a society such as North Korea. It’s so the explanation doesn’t “become involved in self-contradictory nonsense” - requoting Mises again.

That’s how I interpret that quote.

edit: And when I say “use of the terms free market and human action”, of course, I mean because I identify those acts not exclusively externally or internally, but rather both, as what is happening in reality. The socialism is simply a distortion and plundering of those real acts to the point of starvations and non-existent economic goods which is a negation of the reality of human nature, ie. death.

[filc]

Yes I would agree to that. In that list of quotes this sentence is particularly interesting.

The impossibility of economic calculation makes a socialist economy based on the division of labor altogether unfeasible.

Here Mises explains that due to a lack of economic calculation(Lack of money) an economy based on the division of labor altogether is unfeasible. This is pretty much a summation of my premise.

[Esuric]

@wilderness

@Mises

That a socialist community could by no means make this comparison of input and output, of costs and proceeds, because economic calculation is not possible under socialism, does not further come into question here. The impossibility of economic calculation makes a socialist economy based on the division of labor altogether unfeasible. A completely socialist economy can exist only in thought, not in reality. However, if one seeks, in spite of this, to describe the communist paradise in an imaginary construction, one must, in order not to become involved in self-contradictory nonsense, assign to the scarcity of capital the same role it plays in the economic life of capitalism.

The first sentence of this quote is a reference to mathematical economics, the means by which the socialists attempt to by-pass the calculation argument. But again, don’t get confused Wilderness, a socialist community can never exist in the real world because it cannot engage in rational economic calculation. But Mises is not saying that once a nation takes over the means of production that it is suddenly erased from existence, and brought to some alternate reality where socialism is possible.

I still want to know why a socialist planner cannot create a warship.

[wilderness]

@Esuric

@wilderness

@Mises

That a socialist community could by no means make this comparison of input and output, of costs and proceeds, because economic calculation is not possible under socialism, does not further come into question here. The impossibility of economic calculation makes a socialist economy based on the division of labor altogether unfeasible. A completely socialist economy can exist only in thought, not in reality. However, if one seeks, in spite of this, to describe the communist paradise in an imaginary construction, one must, in order not to become involved in self-contradictory nonsense, assign to the scarcity of capital the same role it plays in the economic life of capitalism.

The first sentence of this quote is a reference to mathematical economics, the means by which the socialists attempt to by-pass the calculation argument. But again, don’t get confused Wilderness, a socialist community can never exist in the real world because it cannot engage in rational economic calculation. But Mises is not saying that once a nation takes over the means of production that it is suddenly erased from existence, and brought to some alternate reality where socialism is possible.

I know. I’m not confused. I am describing the society that its’ capital has been taken over. What has been taken over is “market” and “human action”. Those still exist with socialism as merely plundering and extorting them.

@Esuric

I still want to know why a socialist planner cannot create a warship.

A socialist society can, but I say it’s not exact terminology to say ‘the socialist society’ as that is a fantasy, not of reality. It’s why it’s never achieved but tried. It’s why socialist fantasies in their outward expression are purely destructive and not generative. Socialist, ie. socialism, is the anti-thesis to life itself, ie. reality. That’s why I interpret Mises saying that in order to describe a socialist, ie. communist, paradise scarcity still has to be employed in ones terminology, scarcity in the role of capitalism, because the reality of scarcity doesn’t vanish. Capitalism, ie. capital, doesn’t vanish. It is being destroyed by the degenerative, never come to actual reality, never actually exist - socialist dream. If you want to say that is socialism. Thus it is real and a reality. You could, but it gets challenging to point out what something is when all one is pointing at is an expression of total destruction.

But when I step back and think about all of this it’s not detrimental to call such a society being plundered by a socialist fantasy, to call such a society socialist. But it’s not to be forgotten that all that is really existing is the capital, ie. capitalism, with that unchanged reality of scarcity. And such capital is being malinvested and destroyed. The socialist will get the battleship built, but I wouldn’t make the mistake and dismiss, in other words, that what is actually in existence is the capital (the capitalism) that was being harnessed to get what the socialist wants. I wouldn’t dismiss that. Socialism is capitalism clothed in an ugly coat. It’s why I laugh at politicians when they think they are creating jobs because it’s really only the market that creates jobs in the face of gov’t policies. It’s why when gov’ts take a hands-off approach to the markets, that’s when the markets do well. The gov’t, ie. socialism, has nothing to do with the market other than to plot and enact it’s destruction.

The best analogy at this time I can think of is: The socialist is riding a bike downhill, meanwhile he is shooting the tires out, putting his feet down on the road which only slows it down, kicking the frame of the bike every once and awhile, and then says, “See, I got the bike down the hill. Socialism works.” Meanwhile it was gravity and the bike able to spin it’s wheels before the socialist had a chance to completely destroy the bike on the way down the hill - that - was what actually had the bike go down hill. The socialist steered the bike (capitalism, which includes the people working), but did nothing to sustain the bike/capitalism nor improve the bike/capitalism as he and the bike/capitalism went downhill. You could take that last part almost literally.

[abskebabs]

@Esuric

I still want to know why a socialist planner cannot create a warship.

To my mind that’s like asking if a set of Y equations with X variables have a certain solution when X1=a. It depends on what all the other variables are specified as, how much does the socialist know, how many “workers” does he have, how scarce are certain resources, how advanced does his warship need to be, how much technology does he have etc? Then even for this small project a large number of things will need to be counterbalanced, e.g. producing clothing and food to keep his serf population getting the right skills in different individuals the right capital goods produced etc. It may well turn out to be possible. I remember having this kind of debate with a Russian friend of mine who is now an assistant professor(I think!) in Moscow and an Austrian sympathiser.

Essentially he kept saying what if, the guy knew this, had available these resources etc, and I ended up saying if the planner lives in Heaven(land of Cockaine would have been better), then anything is possible, though this does not make a fair comparison to what a market economy can produce in a real world. One would have to compare the market economy’s performance in such “heavenly” conditions, IMO it would still come out on top[H].

Whether even building a warship would be feasible, and by extension an economy in a complex world, one needs to establish all other parameters for your relevant question. To my mind this does not withdraw Mises original claim that a socialist economy (in the sense we understand that term as something approaching the level of organisation and production achieved by the market in the real world) is a logical contradiction in terms.

[Esuric]

@abskebabs

To my mind that’s like asking if a set of Y equations with X variables have a certain solution when X1=a. It depends on what all the other variables are specified as, how much does the socialist know, how many “workers” does he have, how scarce are certain resources, how advanced does his warship need to be, how much technology does he have etc?

Don’t conflate economic calculation with planning, and scientific knowledge with tacit knowledge.

@abskebabs

To my mind this does not withdraw Mises original claim that a socialist economy (in the sense we understand that term as something approaching the level of organisation and production achieved by the market in the real world) is a logical contradiction in terms.

Saying that socialism cannot engage in rational economic calculation, and that it must therefore fail and eventually lead to the destruction of civilization, does not mean that its implementation is impossible. Socialism is possible (denying this is absurd).

[DD5]

What is meant by “socialist” when asking why he can’t build a warship?

If the term is used to just describe the beliefs of the individual and not the system, then sure he can build a warship. A socialist ruler can build many warships and damn good ones if he rules over a semi-capitalistic economy. What’s the point of this question?

Why don’t we elect a die hard neo-socialist as president of the semi-capitalistic US tomorrow. Have him build roads, schools, spaceships, and even warships, and then declare that socialists can build warships.

[abskebabs]

@Esuric

Don’t conflate economic calculation with planning, and scientific knowledge with tacit knowledge.

True, but there is a key difference between planning engaged in by entrepreneurs utilising economic calculation, and autiistic planning engaged in by a socialist planner or Robinson Crusoe: being able to objectively compute profit and loss according to a common denominator, and hence optimise production in order to best match expected future preferences. The bonus is that the market economy further adapts, promoting those who are best able to achieve in this role providing for others in the past.

As regards to tacit knowledge, I acknowledge this point but not sure how key it is to demonstrating the difficulties of a world socialist commonwealth as opposed to a “socialist” economy in a capitalist world. For the former, I still see the absence of economic calculation, and hence a means to cross compare the results of different production paths in an objective manner as being the key difficulty.

Also, if you see tacit knowledge(lack of) as the more “important problem”, could you please elaborate on why you think so?

@Esuric

Saying that socialism cannot engage in rational economic calculation, and that it must therefore fail and eventually lead to the destruction of civilization, does not mean that its implementation is impossible. Socialism is possible (denying this is absurd).

Again, it depends on how we define our terms, I sense most disagreement here is coming from the fact this is a qualitative question, so definitions do matter, and what you would consider a real “economy.” Sure some socialist could violently take over, start barking orders about building a warship, while things unravel into chaos, and for a certain amount of time it would be “possible,” though even this, as I identified would depend on a whole host of other conditions.

[Esuric]

@abskebabs

True, but there is a key difference between planning engaged in by entrepreneurs utilising economic calculation, and autiistic planning engaged in by a socialist planner or Robinson Crusoe: being able to objectively compute profit and loss according to a common denominator, and hence optimise production in order to best match expected future preferences.

Of course.

@abskebabs

Also, if you see tacit knowledge(lack of) as the more “important problem”, could you please elaborate on why you think so?

Meaningful economic calculation is the result of the accumulation of tacit knowledge via free market exchange (allows for the emergence of money and money prices) and competition. Mises and Hayek’s arguments are essentially identical.

[Caley_McKibbin]

The calculation problem is about satisfying wants, not being able to somehow cobble together items. The planner can only satisfy his own wants relatively well.