Empirical Criticism of Socialist Calculation

Miscellaneous History
21

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.

22

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.

23

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.

24

[Y]

But the magnitude of waste/accuracy comes into question. Entrepreneurs also are wrong and therefore wasteful… they’re just superior because they spend their own money and don’t have any absolute claim to social control. But this just means that if socialists could find a way to be more accurate and therefore lest wasteful than their entrepreneurial counterparts, then socialism would be saved.

It needs to be shown a priori that this is not the case in order for the calculation argument to fly. Looking back on it, the size of nails is really more an example of the incentive problem… an example of the calculation problem should show the central planners calculating as hard as they can and then failing at it. Could it be that there isn’t an actual example of the calculation problem because the incentive problem is omnipresent? [6]

Small and large are separated by degrees. It might be harder to plan a larger economy but that doesn’t make it impossible a priori. Evidence of failed planned states means nothing if it is still theoretically possible to centrally plan them. After all, if we had never successfully flown a plane larger than a schoolbus, would that mean that bernoulli’s principle was incorrect?

Right so when the commies order more nails, they say “by the pound!” but that creates the problem of the size of nails, which they have to step in again and regulate. Then they probably would have to regulate the distro of nails etc etc… their work is never done. But never is an entrepreneur’s. I don’t see any fundamental difference other than the omnipotence of the state and lack of prices.

I also think the pricing argument is inconclusive, since it only reveals that you don’t know whether or not you’re making money and can’t assess the efficiency of what you’re doing… but this doesn’t necessarily mean that you’re losing money… especially since socialists would probably want to use some blunt aggregate metric like: “How many more people have we housed? How many people have access to clean water? Clothes? Education?” etc etc. Incentive problem ftw.

25

Leviathan the problem with socialism isn’t knowledge but as mises said, it is property. The allocation of property in socialism causes incentive problems and it stifles prices which, contra hayek, don’t communicate information (not primarily) but rather communicates scarcity of physical things.

Even if the planner had all knowledge, he would still fail in the calculating the ratios of goods proper to the people.

26

What if they thanked me later?

In the example, the cavemen maybe want food and clothes, but their methods of production are crude and inefficient. But if I can use force to get them to just do X instead of trying to explain it all to them and hope they trust me and do it voluntarily, why wouldn’t we all agree we had come out ahead?

In summary: I enslave them, get them to do stuff they don’t agree with, then they look back on it and are like “thanks man”. Its like forcing your kid to eat green beans.

/devilsadvocate

these counterarguments to the calculation problem are making my tummy hurt :frowning:

27

oh and look at that… you solved incentive problems too !

28

Because it is the single only way to refute economic calculation.

No, the Austrian assertion is that the most effecient way at distrbutin future and existing goods/services by having a meaningful price system which reflects the subjective desires of individuals. The argument Austrian’s make is socialists lack this capability. It doesn’t matter how many computers or mathmatician’s you toss at the problem. In order to refute economic calculation you need to prove that a single device/person/persons can anticipate the desires of every man/women/child on earth. You are essentially advocating that there is technology out there that will make man omniscient. Such a technology does not presently exist.

This is just a clear misunderstanding of what capitalism is. The directors of business do not steer the direction of business, consumers do. And you have equivocated a centrally managed business which operates on a voluntary basis to a coercive institute. It’s akin to saying I am a central manager over my own body, well ofcoarse.

You seem to think Austrian’s state that socialism fails simply because it is centrally managed. That is not the Austrian argument, the point of economic calculation is meaningful prices.

If a socialist institute offers it’s services voluntarily it’s not a socialist institute but a business with it’s own business model and is completely capable of operating in a market. If it uses coercion however over any extent of people it will suffer from being unable of creating meaningful prices.

It seems you and the critique’s your quoting had little knowledge of the Austrian arguments.

29

Snowflake, if you go back in time, Enslave the human race to make them more efficient, AND you can get out of it without being murderd by angery cavemen than I’ll grant you victory over this discussion!

[Y]

30

I’m already really well aware of the incentive problem. Its a cornerstone of my anti-statism. I’m just trying to look at the calculation problem and see if it can be formulated as an independent argument from the incentive issue.

31

You’re mixing value with economics. They aren’t the same things. Economics can inform our values, but it is itself, value free.

It actually has no basis in reality. Until it does, I’m not sure we can apply logic to fantasy consistently.

I think you are missing the point (again) about the calculation argument. It’s not that things should turn out a certain way, and socialists might end up with more bread or nicer TVs. It’s that without perfect knowledge, it is impossible for an individual to have more aggregate knowledge than the market itself. When you’re talking about the socialist economy doing better, you’re speaking in terms of some arbitrary collective utility, not in any way reflecting value to each and every individual.

Yes, it goes without saying, not all socialism is equal, and not all socialist regimes fare the same way economically. Such an argument on its face would be ridiculous, and I don’t believe Mises claimed that.

Yes, the socialists could be very well organized, but without prices, and the information they relay about individual preferences, those preferences which are products of local knowledge and subjective value, central planning cannot be as efficient as a market system.

Imagine a restaurant. Everyone takes their tables, and orders from the menu. The kitchen produces the dishes which are ordered. That’s the market. Individual information and feedback is obtained by the producer, allowing him to plan his production run.

Now imagine a restaurant where everyone takes their tables, and the waitresses and waiters try to guess what they want to eat. Maybe they ask them vague questions like “Do you eat meat” or “Do you enjoy salad” or “How much can you afford to pay?”. There is less chance that the kitchen will provide the meal that the individual customers explicitly wanted, but in some cases, it may be close, or even correct. This is a mixed economy.

Now imagine our socialist restaurant, where they offer to prepare a full menu, so there are diverse options for dinner, however there is no feedback from the customers or the wait staff. The kitchen, looking through the porthole in the kitchen door, looks at their customers and attempts to guess what they would like to have. The chances they will send to each customer what they want, in the quantity they want, at a price they can afford, is strictly a matter of random chance.

Now the Soviets would copy prices from market economies so they could do economic calculation. This is not too far from what market socialists propose. Simulating a market, for the purpose of deriving some sort of economic allocation. The problem remains that as long as the market doesn’t have the correct market incentives, capital mis-allocations can occur, which over time can not only skew an economy but lead to compound errors because there may not be a mechanism to adjust mal-investment.

This latter portion was off the top of my head and may not be the perfect argument. It is in my own words and doesn’t reflect the scholarship of any other person or the Austrian school in particular.

32

well try this, even if you incentive people to work hard and try to please you. and you do that by …beating and killing people that you think are shirking and not doing all they can to help in your plan of having a socialised economy outperform its free-market neighbours.despite this, what hope do you have of a rational economizing if there is no market for capital goods?

i assumed (perhaps wrongly) that by incentive problem you referred to the narrow problem of getting people to do ‘technically productive’ acts. if you were really appealing to ‘economically productive acts’ then you admit that incentive problem is inseparable from economic calculation

33

Is it? How so?

You’ll have to define socialism for me, because it seems you’re using capitalism in the state-capitalism sense, not as an economist would use it.

Right, but it is equally fallacious to assume that large firms and corporations with their agent-principle issues define capitalism. Much capitalist behaviour occurs on a much smaller level, perhaps even smaller (more horizontal) than the commune model.

Even if we get past central planning, socialists would have to accept that different socialists, presumably down to the individual level, could organize differently. And really, that is all I, and many others here want. To organize at the individual level, without being forced by parecon council democracy, corporate coercion, imperial dictate or scientific central planning.

Are you trying to make the point that not all Austrians have homogeneous views? Because if you are, I agree. I am a methodological individualist.

34

What if i had said educated white men landing on an island with 1 hunter-gatherer tribe?

You’re right. I ought to have made more use of this fact in my previous posts.

This is where i digress. I agree that the socialist planner cannot possibly have one iota of the knowledge that exists within the market… s/he can however have better technical capabilities than the populace.

So I’m speculating that:
Planner’s Technical Capabilities + very small amount of knowledge > Population’s Technical Capabilities + all knowledge
can be true. Obviously it takes a lot on the magnitude of difference between the technical capabilities to be true.

Not completely random. They won’t guess that the customers want to eat rocks. To apply the above inequality, maybe the planners can see that the people are hungry, but can’t order any food for lack of technical capability. So they guess and make sandwiches for everyone and it comes out ahead of what if you had been unable to take the customer’s order and they starved.

^You picked a really reasonable example, which is why my adaptation of it is so ridiculous. But the point is that that inequality can still hold under the right conditions.

35

The Hayekian critique of socialism is most certainly based on knowledge problems. The Misesian focus on price problems is not the exclusive nature of the economic calculation problem. Regardless, market socialism is somewhat immune due to the fact that it does not eliminate consumer markets, even if production markets (Mises’s focus) are radically altered to support an egalitarian distribution of property. Decentrally planned socialism follows a somewhat different pattern. For example, consider this review of the aforementioned “participatory economics” (parecon) model created by Michael Albert and Robin Hahnel, which I’d describe as a form of “libertarian collectivism.” It’s theoretically compatible with either minarchism or anarchism, and is collectivist in nature, as it’s reliant on the abolition of markets but preservation of remuneration primarily based on individual measurements of labor inputs rather than needs, as communism would be.

My own preferred “system” is somewhat to the left of that as it’s both explicitly anarchist and communist in nature, but the fundamental elements of decentralized socialist economic planning are present in both. I’d recommend consulting Sections I.1.1 and I.1.2 of An Anarchist FAQ, as they concern the abilities of decentralized market socialism and decentrally planned socialism, respectively, to bypass the economic calculation problem.

I’m afraid not, for reasons that I already elaborated upon. You only responded to an excerpt of the last sentence of a rather extensive comment.

Our conversation is effectively developing by you claiming that central planning is deficient and will cause the failure of socialism, me agreeing and pointing out that this was pointed out by anarchists before Mises and Hayek mentioned it, and you claiming that I am wrong because central planning is deficient and will cause the failure of socialism. You’re attacking a strawman.

I know what capitalism is; capitalism is a socioeconomic system that is characterized by private ownership of the means of production, market exchange as the primary means of resource allocation, and the existence of wage labor. The Austrian definition of capitalism seems to be one that involves “free markets” with disparagement of actually existing capitalism as “corporatism,” but that’s a semantics discussion that’s been had many times before. Capitalist markets are also not characterized purely by consumer direction, since the inefficiencies of negative externalities, market concentration, and asymmetric information corrupt that process, as I’ve mentioned previously. As for whether employment in the capitalist labor market is “voluntary,” that’s an interesting debate and one that could be had in another thread, but the point as it’s related to the economic calculation problem is that the orthodox capitalist firm, characterized by internal hierarchy as it is, is subject to distributed and tacit knowledge problems. The debate is then turned on its head, as capitalism is itself reliant on central planning.

That is an aspect of the Austrian argument. I never claimed that it was the sole or exclusive one, as I mentioned above.

A “socialist institute”? Socialism is the collective ownership and management of the means of production. That it is by its very nature dependent on democratic participation means that it’s compatible only with voluntary action.

I’m afraid I won’t be blindly trusting your word. Not when David Prychitko says that Burczak’s work is "an advance well beyond the great ‘socialist calculation debate.’ Socialism After Hayek is both Novel and challenging to contemporary Hayekian scholars, and when Peter Boettke notes that “Burczak has made an outstanding contribution to the fields of political and economic thought and to Hayek studies in particular.”

36

That would have been a different scenario.

What is a technical capability in the context of planning? Clicking the mouse button faster? Knowing windows shortcuts? Knowing how to use a spreadsheet, or an abacus? When your job is to plan, your greatest capability is your capacity for and access to knowledge. Without knowledge, planning is just random chance.

Rocks are not on the menu. Please pay attention.

I stopped caring when you went on another tangent.

You’re still asserting.

37

Aside from the fact that the orthodox capitalist firm is an authoritarian and hierarchical institution that is both de jure and de facto undemocratic and therefore characterizes the capitalist labor market as “centrally planned” in a sense, in the context of the capitalist economy, the state’s role in sustaining regulatory structure is integral. I most often mention Yu’s A new perspective on the role of the government in economic development: Coordination under uncertainty to illustrate this. As noted by the abstract:

This paper argues that the government possesses certain unique features that allow it to restrict competition, and provide stable and reliable conditions under which firms organise, compete, cooperate and exchange. The coordinating perspective is employed to re-examine the arguments for industrial policies regarding private investment decisions, market competition, diffusion of technologies and tariff protection on infant industries. This paper concludes that dynamic private enterprises assisted by government coordination policies explains the rapid economic growths in post-war Japan and the Asian newly industrialising economies.

Also consider this portion:

[The government] possesses some unique features that distinguish it from the firm. Such features allows the government to regulate competition, reduce uncertainty and provide a relatively stable exchange environment. Specifically, in the area of industrial policy, the government can help private enterprises tackle uncertainty in the following ways: first, locating the focal point by initiating projects; providing assurance and guarantees to the large investment project; and facilitating the exchange of information; second, reducing excessive competition by granting exclusive rights; and third, facilitating learning and diffusion of technologies, and assisting infant industry firms to build up competence. [u]The history of developmental success indicates that the market and the state are not opposed forms of social organisation, but interactively linked (Rodrik, 1997, p. 437).[/u] In the prospering and dynamic nations, public-private coordination tends to prevail. Dynamic private enterprises assisted by government coordination explain the successful economic performances in the post-war Japan and the Asian newly industrialising economies. It is their governments’ consistent and coordinated attentiveness to the economic problems that differentiates the entrepreneurial states (Yu, 1997) from the predatory states (Boaz and Polak, 1997).

The aforementioned point about infant industries is my favorite and perhaps the most illustrative aspect of the role of state protectionism in facilitating maximum development because of the simplicity of the infant industries argument, and the nature of the historical record in exhibiting economic benefits stemming from such strategic trade policy. Rather than merely permitting the benefits of immediate unrestricted trade accrue to the benefit of one more powerful nation due to underdevelopment, a government protection of infant industries is established until such time as they “grow up” and can thus be expected to be legitimately competitive industries, thus maximizing dynamic comparative advantage in the long run. As noted by Ha-Joon Chang in Kicking Away the Ladder, trends of state protection of capitalism as an aspect of strategic trade policy have been existent since the nineteenth century, and an early advocacy of the infant industries argument is actually made by Alexander Hamilton.

And again, you need to deal with the fact that more critical analysis also turns the socialist calculation debate on its head, since socialism is able to utilize decentralized coordination and/or market competition, whereas capitalism is the economic theory that has actually been reliant on governmental central planning, as noted in Munkirs’s The Transformation of American Capitalism: From Competitive Market Structures to Centralized Private Sector Planning, for example. Here’s an interesting review excerpt:

I’m certainly in favor of drastically minimizing and ultimately eliminating the role of the government in public affairs. But that objective is not consistent with the continuation of capitalism.

Socialism is the collective ownership and management of the means of production, or as more elaborately put by the American Heritage Dictionary, “a social system in which the means of producing and distributing goods are owned collectively and political power is exercised by the whole community.”

As mentioned, I define capitalism as a socioeconomic system characterized by private ownership of the means of production, market exchange as the primary means of resource allocation, and the existence of wage labor. I do not refer to actually existing capitalism as “corporatism,” or otherwise attempt to hide its failures with euphemisms only to turn around and accuse socialists of doing the same thing.

Yes, but the problem is that such “behavior” isn’t exclusive to capitalism. Capitalism isn’t characterized by mere trade or by more complex market exchange. So the centralized corporate economy is what we see.

Voluntary organization is not consistent with the factory fascism and office oligarchy of capitalism, with its brutally hierarchical and authoritarian labor markets enslaving workers and making a mockery of “libertarianism” or “anarchism.” But that’s off-topic, really.

The point that the consistent Hayekian ought to support workers’ ownership and management, actually, even if not the introduction of it through the forcible expropriation of the means of production from capitalists.

38

The Marxists/Neo-Ricardians don’t need prices because “social relations” dictate “true value,” markets or not. While the Neoclassicals can use calculus, and cardinal utility, to figure out market demand for consumer goods before the fact. From this, they can simply plug in inputs into a production function and determine the best way to produce. This sounds absurd to us, but try debating these people and see what I’m talking about. I’ve been debating this Marxist for about a week now where he admits that he can’t explain inflation, why capital intensive goods sell for more on the market, and says that labor is determined by “social relations” which, in turn, determines prices (social relations being ontological). And half the people following the debate are still on the fence!

39

So we agree that the price problem is not the only part of the economic calculation problem but then you state that market socialism is immune.

I ask, to what aspect of the calculation problem is market socialism immune?

But to reiterate, property is what produces prices, so if property is “radically altered” it will produce different prices and different constellations of demand/supply. And, just to reemphasize, I did know that hayek was arguing about knowledge problems which is why I stated “contra hayek” and argued that knowledge wasn’t the big problem of socialism.

So again, I answer that socialism with the most knowledgable planner is still impossible unless one can solve the property problem.

Incentives connect these councils together in huge lattices so I don’t see how this is any different from capitalism -it is merely a revolution within the form.

40

infant industries !

so funny.