I apologise if I have placed this in the wrong part of the forum.
I am just seeking someone to present the Calculation argument to me as succinctly and as comprehensively as possible in layman’s terms so as to aid its explanation. The examples and elucidation in Mises’ essay to not lend themselves to casual conversation you see. If you feel you can outline and break it down in this fashion please do so.
The gist: without the free trade of a market to set prices and assist in gauging demand, there’s no way to determine how much of something to make, what to make it from*, or even if it should be made at all without sheer guesswork.
*in the sense of if multiple methods are available, there’s no way to determine the most cost-efficient one.
Well, yes that’s easy to grasp. But that is merely restating the case i.e you are explaning how but not WHY.
Without separate owners (or even owners at all), how are prices set? “Society” would “own” everything. So where’s the supply/demand exchange to give rise to a pricing system? It’s just guesswork.
Socialists take Joan Robinson’s approach, namely that you can hold industry specific auctions for different types of goods; industries with surpluses would be given less, and vice versa.
How this is more effective than markets and prices I don’t know. Also it would limit technological progression and innovation, you would be producing the same goods over and over again, until you got it right. Nevertheless, this is how they respond.
But since each industry is owned by “society”, that just pushes the mystery back a step.
Let me put it this way (going to be an over-simplification for obvious reasons): The central planners have 1000 units of inputs (x1), which in turn yields 1000 units of output (x2) for the entire economy. The economy consists of 10 markets, each of which would be given 100x1, and therefore produces 100x2. “Society” would then use their labor tickets and purchase 1000x2. They would measure the results of “round one” and then decide how to better allocate their resources for round 2, it might look something like this.
Market 1: 80x2/100x2
Markets 2-9: 100x2/100x2
Market 10: 120x2/100x2
They would then give market one 20 fewer units while giving market 10 20 additional units. It sort of resembles general equilibrium theory, without actual prices and competition.
Ok. Were you thinking I didn’t know all of that? Because I did know it. The problem is that it’s purely artificial and attempts to side-step the main issue of ownership.
For every capital good there exists an optimal use, yet only one man out of all men knows what this optimal use is. Without a market, there is no way for this man to acquire this capital good and thus achieve the optimum productivity of the capital.
The Use of Knowledge in Society by F.A. Hayek
Joan Robinson is proposing market socialism. It still does not allow for the pricing of capital/land goods to take place to divert them to their most efficient uses and see which inputs should be used in fabricating desired outputs. They seem to think it’s as simple as seeing as which goods are desired then using capital goods to make them - yet there’s millions of capital goods out there which can be put to a multiplicity of uses; how are they going to rationally allocate them?
I am pretty unknowledgeable about this but is their room for theoretically possible calculation in an Anarcho-Syndicalist system?
Yeah, Mises excludes syndicalism from his arguments directed towards socialism, and terms it a form of worker’s capitalism. It has other problems, but to be honest from a libertarian perspective it’s just another way of the market organising itself.
The calculation argument basically has to do with valuation of producers’ goods, or goods that producers use to produce other producers’ goods or consumers’ goods.
So let’s say that an economy has natural resources a, b, c, and d. In addition, it has capital resources x and y. It’s consumer good outputs are q and z. Now, as a central planner, do you know how much a, b, c, and d you should allocate towards producing x, y, q, or z? Do you know how much x and/or y to allocate towards producing q and/or z? Unfortunately, you do not.
To use a more numerical explanation, assume that the production of x and y require a total of 100 natural resources and the production of q and z require a total of 50 capital resources and 50 natural resources. You have 100 of all resources to start out. So you have:
100 A
100 B
100 C
100 D
100 X (Requires 100 of a and/or b and/or c and/or d to produce 50 more)
100 Y (“)
Q (Requires 50 x and/or y and 50 a and/or b and/or c and/or d to produce 50 more)
Z (”)
Although as a central planner you know you could, say, use 100 A to produce more X, 100 B to produce more Y, and the rest of your resources to produce Q and Z, you don’t know if your combination is more or less efficient than, say, using 50 B and 50 A to produce more X, 50 A and 50 Y to produce more Q, etc. A market price system, however, is able to allocate resources by using the profit incentive and communicating information from many dissemated sources.
Remember, this example is extremely simplified and doesn’t even begin to tackle other problems that central planners have to tackle (e.g. time, use of different resources, etc.).
Anarcho-syndicalists who argue against the existence of money fall into the same problem of economic calculation, since without money, there is no way to determine what is a more efficient method of producing goods and services. As for those anarcho-syndicalists who do not have a problem with the existence with money, they cannot be defeated with the economic calculation argument. However, their proposed system of economic organization eliminates the use of entrepreneurs, which leads to a very stagnant and anti-innovation economy.
The only people more obsessed with “money” than rabid capitalist carpet-baggers are anarcho-syndicalists/anarcho-communists.
I suggest that this video makes a nice summery.
The Socialist Calculation Debate
Here is the audio if you prefer.
Here is an audio by Joseph T. Salerno.
I would suggest reading Individualism and the Economic Order. It contains The Use of Knowledge in Society with his tin example. It also has a three part Socialist Calculation elucidation, where he confronts Lange’s system. Here is the PDF.
A nice short story would be I Pencil.
If you like Kirzner there is The Economic Calculation Debate: Lessons for Austrians.
You may want to listen to Lawrence White, and Joseph T Salerno, than tackle the reading.
The calculation problem exists in both cases. Money only works if there are market prices.
Since you have read Economic Calculation in the Socialist Commonwealth. I would suggest the follow up Mises states in Human Action chapter 26 The Impossibility of Economic Calculation Under Socialism.
Has anyone here read Economic Calculation in the Socialist Society by Trygve J.B. Hoff? If so, do you think his work adds to the body of this debate?
@Krazy Kaju
The example you listed above is actually readily solvable through central planning. Basically production possibility curves are drawn up and then the efficient point is found by solving the relevant simultaneous equations. Furthermore market socialism DOES concede the use of money to determine prices for goods so the ratio to which one consumer good is preferred to another is known. For precisely these reasons it was at first considered that Lange won the calculation debate. If the market really is just one big equation solving device, then it would be quite easy for a super computer to do exactly that.
It was actually the work of Kirzner and his insights into the market process as described by Hayek and Mises that put a temporary end to the debate. He declared that even if the socialist economy can allocate capital goods along these lines, it can’t facilitate the discovery process of entrepreneurship.
However, as this article (and do read that article) points out even the market process can be emulated by a central list of non-consumer prices published every second in order to bring markets toward equilibrium by reducing surplus and shortages. This of course allows market socialism to use a single unit of account in a very similar manner to how a capitalist market does.
Now there are two ways of viewing that a) you can see it as “groping in the dark” but then you’d have to concede that entrepreneurs do the same or b) you can see that while the socialist economy can lets say produce a certain set of previously produced goods efficiently it can’t decide where a new factory should be opened or what kind of new product should be made or how many resources should go into making it in the same way a market does.
I think unless the socialism debate is to hit a brick wall, it needs to delve deeper into this “decision” aspect. Simply claiming that the socialist planner cannot add up apples and oranges because he cannot use a single unit of account is not true, it is also not true that he can’t account for trade-offs. He very much so and very easily can.
Where the debate can be won on the side of capitalism is in looking at decisions and recognizing that part of the information contained within a price is unrestricted decision. The capitalist entrepreneur bids up prices because of his personal anticipation of the future, he decides how these resources are to be employed with no restrictions. This is impossible if he is just an overseer of a given production process.
In the capitalist economy the price reflects the opportunity cost of the last entrepreneur’s anticipation of the future, and his appraisal of the good in question. In market socialism the price embodies the opportunity cost of the forgone yield of another already existing production process.
It is this key difference, that might be able to finally win the calculation debate in my mind. However I am not sure how.
The socialist could say that in socialism there might be a group devoted to market research which acts like the entrepreneur in coming up with a new product and then the socialist planners could divert resources in order to produce this new good. Where how and why can be calculated the same way as in a market by comparing expected costs in money price to expected revenues in money terms.
I personally do not yet know how to respond to this. To me the socialist debate is far from over. It is obvious that practically it is almost nigh impossible for socialism to ever work. However I can see how a socialist system can solve some of the problems attributed to it. Maybe I am not yet proficient enough in my readings of Hayek or Mises. I would appreciate any thoughts on some of the issues I have raised