Can’t remember who I was listening to, but they were talking about communist nail production in Russia. Basically they were ordered to produce nails by the pound, so factories churned out a bunch of big heavy nails. This left smaller nails, for housing etc, very very rare. So this is supposed to be evidence of failed socialist calculation
(note, obviously a price system would have solved this in about 10 seconds)
But I can see socialists coming back and saying: Well what if they had just produced the correct nails? When you go back and criticize a socialist for planning poorly, you must point out weaknesses in his plan, but that implies that some other plan might not have these weaknesses… i.e. socialist planning can be saved if the planner is “smart” enough. Any idiot can see that they needed more small nails…
And shouldn’t socialist planning, since it does not have a price system, be impossible to assess either positively or negatively? What if given natural resources and skills XY and Z, mass starvation is the best you can achieve? Obviously we know EMPIRICALLY that they can do better, but it can’t be said a priori…
but for the longest time they didn’t. so russia was just full of idiots that didn’t deserve socialism because they were so mentally retarded? is this what modern socialists are saying?
You actually hear variations on this theme all the time. “Communism would have worked if only _____ was in power rather than ______.” They blame the moral or intellectual shortcomings of man for the failure of their system, and fail to realize that the system itself is flawed.
There’s a bunch of particular matters which a planner could make mistakes on and this means that potentially the planner could make quite a few mistakes. This itself is an argument against socialist planning -you never know when or how your next mistake will happen.
At least under capitalism there is a fixed method for knowing when and what kind of mistake has been made as opposed to the corporatist planner would be free to choose any number of methods to find mistakes.
More particularly, the calculation problem is supposedly the root of socialist inefficiency, but in actual examples, like the size of nails, they’re just idiots and the problem could be easily solved by some motivated, benevolent, intelligent planner (good luck getting one of course)
Hope so… better that they’ve at least heard of the calculation problem.
I re-iterate
So maybe the example of nail production, as tasty an example of socialist idiocy as it is, can not be used to discredit them at all. Since it can’t be shown a priori that they are doing a bad (or good) job, and any empirical demonstration simply allows the socialist to correct his inefficiency.
This isn’t a really big deal to me as I usually don’t run the calculation problem in arguments. Incentive problem is the way to go (in particular, incentives of the planner).
My understanding of the calculation argument isn’t that Socialism is incapable of producing what’s needed simply because it can’t price things but because of the waste the must innevitably result due to a central administrations inability to accurately predict and adapt to all changes in demand.
On a small scale a so-called socialist administration might be able to muddle through and be reactive but we’re talking about planning a national economy which means production on a massive scale. The fact that capital is heterogeneous means that a bureaucratic miscalculation revealed after resources have been committed and factories tooled results in enormous waste not only in the one sector but in any others that are wholely or partially dependant on it. Such miscalculations are inevitable and as government control expands further (and thus must government itself expand as well) the frequency of these errors rises.
How do you know communist russia printed too many big nails and not enough small nails? It doesnt matter how smart of person you have directing things. what metric did they have to tell them that they were printing too many nails? Thats economic calculation. You answered it when you said prices would have solved it in 10 seconds!
Good point. As noted by Brian Doherty, “a strict Misesian would have to note that the a priorist mises would bristle at the suggestion that events in the world ‘proved him right.’ To Mises, economic theory is proved by logical deduction from true premises, not empirically. If Mises was right, it was the logic and rigor of his argument that proved him so, not history.” I’d question whether the empirical case against a CPB is even particularly strong, though. While I’m not a fan of the command economy, increased Soviet growth rates and Chinese and Cuban health standards were somewhat defiant of the predictions of “impossibility.”
Unfortunately for Austrians, the theoretical basis of the economic calculation argument was never particularly strong either. They began from a point of simply ignoring arguments that they found inconvenient. Mises’s original paper failed to address Enrico Barone’s development of a Pareto optimal socialist economic model in his 1908 paper The Ministry of Production in the Collectivist State, for example, instead smugly commenting, “[socialists] have criticized freely enough the economic structure of 'free society, but have consistently neglected to apply to the economics of the disputed socialist state the same caustic acumen.”
Similarly, while Hayek commented on the market socialist models that were proposed during his lifetime in his and Lionel Robbins’s debates with Oskar Lange, Henry Dickinson, and Abba Lerner, he dismissed decentrally planned socialism without argument, stating that “[t]he earlier systems of more decentralized socialism like guild-socialism or syndicalism need not concern us here since it seems now to be fairly generally admitted that they provide no mechanism whatever for a rational direction of economic activity.” There was no elaboration on who “generally admitted” this, though the existence of widespread central planning and nonexistence of widespread decentral planning at the time was probably the chief basis for the Austrians’ primary focus on the former. But the lack of focus on decentrally planned socialism meant that there was ignorance of the fact that there was already an existing libertarian critique of central planning, such as that offered by the anarcho-communist Peter Kropotkin in his 1919 Words of a Rebel, published the year before Economic Calculation in the Socialist Commonwealth.
This is part of a lack of an Austrian literature that criticizes anarchism or decentralized planning in general; when the primary source for anti-anarchists is Rothbard’s The Death Wish of the Anarcho-Communists, which is long on assertions and short on arguments or evidence, and some rather misinformed comments about syndicalism in Mises’s Socialism, it’s clear that there are problems.
But beyond that, market socialists have progressed beyond the mere punch in the gut that the development of the bureaucratic Lange model presented to Mises and have utilized Hayek’s insights into dispersed knowledge problems to form a sound basis for advocacy of a decentralized market economy reliant on workers’ ownership and management and in some cases a stakeholder economy, with Theodore Burczak in particular being integral in the development of “post-Hayekian” socialism, which even major Austrian scholars (most prominently Peter Boettke, Steven Horwitz, and David Prychitko) have admitted is serious.
With the absence of any major Austrian argument against decentrally planned socialism (with Mises incorrectly dismissing much of it as “workers’ syndicalism,” which he regarded as a form of capitalism), and the more recent development of decentralized market socialism and adaptation of Hayek’s insights by market socialists, plus the incorporation of modern technology into theoretical planning models (such as that expounded upon in Towards A New Socialism), the Austrians have effectively lost the socialist calculation debate.
Three tree’s offered a great point but the root of the calculation problem is being capable of creating meaningful prices. Meaningful prices are created bottom up, from the consumer and higher. Prices thusly are a reflection of consumer desire, not a reflection of production costs as we are taught in highschool.
This is the central problem to socialist organizations. Anyone can make a price, but that doesn’t mean it’s a meaningful price. Prices are created naturally on a market. A socialist organization creates it’s prices arbitrarily as it has no point of reference from how to formulate it’s prices. As such prices are typically created arbitrarily by the socialist organization. But in this environment prices do not tell us what consumers want, what they are demanding.
Small nails are in shortage so their price rises. This attracts entreapeaneurs and capitalists to invest their money into making more small nails. A socialist organization does not realize that it needs to print small nails, as there is no price telling them to do so. It doesnt matter how smart the person is you have in office, you need a meaningful price mechanism. Now you can almost bet there was a nice black market for small nails going on in Russia at that time.
Despite a socialist organizations effort you cannot stop a market, even outlawing markets does nothing but distort the process of production and delivery. It does not eliminate the market
I just posted about this today here. thelion hit the nail on the head in response to me.
You’re looking at it only in the context of a critique of socialism, instead of the much larger statement it makes about information and epistemology.
But this in itself is a fallacy, because there is no motivated, benevolent, intelligent, but most importantly ALL KNOWING planner. The calculation problem is an extension of the limitations of knowledge. Sure, God could theoretically run a socialist country perfectly. In the absence of God, who else has the capacity to know everything, at all times, and is also prescient?
Hmm? The only way to refute the calculation debate is to prove that a single entity can have knowledge of the subjective desires of every man/women/child on earth. When did this happen?
How is a benevolent and intelligent planner supposed to deal with market demand without prices? That’s my problem with socialism, it is not emergent, it is not driven by profits, costs and losses, there is no rational way to allocate resources in such as situation. I see the problem of currency being the biggest issue in a socialist society because that effects all prices.
But that’s the dream. Of course even if the calculation argument didn’t exist, and life under a ruler with these kinds of qualities turned out to be desirable, it still wouldn’t be worth the risk to create a state.
Right, but in the example of nail sizes you KNOW that if everyone is clamoring for small nails and you’re only building large ones, then there’s probably an issue. God could run the socialist economy perfectly. A planner might make many thousands of mistakes, but still come out ahead of a market economy (in theory)
For example, what if one of us were armed with a weaponsuit sent back in time before civilization… we could force the cavemen to start farming, work in assembly lines, etc etc and rebuild the 21st century within a couple of generations. It’s a little reductio ad absurdum/sci-fi, but the point is that while we might make a lot of mistakes while ordering the cavemen around, the end result would be (subjectively) better for everyone.
So you might be able to have a terribly flawed socialist economy that comes out ahead of a free market one in these kinds of wacky improbable circumstances.
Only if the planner could answer a lot of questions, the number of which is probably recursive and ever-trending towards the infinite. In the market everyone focuses on answering his question, in centralization only one person is supposed to answer them.
I don’t know where you got that idea. The Austrian assertion is that socialism is impossible/impractical, socialism being the collective ownership and management of the means of production.That they failed to consider the aforementioned role of technological advances in assisting planning efforts is not their fault, and that can be called a “bypass” of their criticism rather than a rebuttal, but that they failed to adequately consider decentralized planned and market socialism despite its history in the socialist tradition is their own failing.
I’ll have something to say to your long thread later.
Since capitalism is itself dependent on central planning, I stated in another thread that "what’s ironic is that as Burczak in particular illustrates, the Austrian critique of central planning has been turned on its head in the case of the labor cooperative. The orthodox capitalist firm is rigidly hierarchical, meaning that there will be impediments to the acquisition and transmission of distributed knowledge and tacit knowledge. The far more horizontal structure of the labor cooperative largely minimizes this problem, and eliminates principal-agent problems caused by asymmetric information by unifying ownership and management. Since workers are both owners and managers, there is no longer a divergence of interests between the two."That’s part of the basis for advocacy of (non-socialist) workers’ ownership and management by Austrian economist David Prychitko, is it not?
This is true both of decentralized market socialism and decentrally planned socialism. For example, of Albert and Hahnel’s system of participatory economics, Burczak is critical of its feasibility both in his book and in personal correspondence with me, but notes this nonetheless:
It was fallacious to assume that public ownership and management of the means of production could only be achieved with a state and central planning board, especially considering that anarchism predates Marxism.
You can’t really be ‘a head’ of the market. Overproduction of goods that consumers are not yet ready to have is a mis-allocation of wealth. It’s a big fundamental point of the business cycle theory.
Yes but you’d have to prove that cavemen actually wanted the new device. If you have to force cavemen to develop this new technology you undermind your own argument. What you have proven is that consumers don’t presently want that good. They don’t want to pay for it and they don’t want to build it. You’d just be wasting resources. For whatever reason, perhaps they arn’t ready, but a good economy revolves around addressing the needs of consumers unhampered by force. It’s addressing the needs that they want, not the needs that you think they want.
Now if you introduce this new technology, give it to the cavemen and see if he willing, he may voluntarily build or produce it. If it’s a technology he finds advantageous he may voluntarily expand on it by his own merit. No force needed!
