Dr. Joseph Salerno, Calculation and Socialism
Is that why my English 101 professor told me to only use scholarly websites, that is, websites that end in .edu, .org, and .gov, and to never use Wikipedia? She particularly emphasized that we use government statistics and articles that were peer reviewed by other academics.
Agricultural techniques, mass production… economies of scale/division of labor bla bla bla
Not at all.
You mean that he has to have more knowledge than the market? Of course he doesn’t… but it is possible for him to be smarter and guide cavemen into industrialization faster than they would have discovered on their own.
No. Its something the planner knows too about the market. He can make an educated guess since he doesn’t have direct access to everyone’s individual knowledge. This just shows that while the market may have more knowledge than the planner, he is not completely in the dark.
Because while a counteraxmple does not prove a theory one way or another, the (non)issues it raises may help to shed light on our theoretical difficulties.
I did that too in the OP and elsewhere. It doesn’t seem to catch on.
How could a socialist bureau even define “need” in this context? Perhaps “need for the purpose of the most effective provision of houses”. But then how does it even define “the most effective provision of houses”? By the consumer demand for houses? But without house prices, how does it even begin to understand the consumer demand for houses? By population statistics? Even with such an extremely faulty measure, without prices how does it even begin to balance its skewed understanding of the demand for houses against its skewed understanding of the demand for other goods?
Through “the will of the people” mechanism (ie. what the state wants and perceives as “the will of the poeple”)
It’s funny how central planning is defensible to some, but there exists no central plans that are defensible.
Who are the entrepreneurs with regard to these corporations? Who bears profit and loss, and shifts the structure of production accordingly? The workers? Then it’s not really a firm, but a sub-market. The owner? Then, insofar as it is a firm, whatever independence and individual motivation abounds is permitted by the managers for the explicit purpose of increasing the department’s contribution to the firm’s profits. And the managers make this decision as mandatories of the owners of the firm, who in seeking profit act as mandatories for consumers.
This is not to say that firm owners are the only independent and individually motivated agents on the market in the entrepreneurial (profit/loss motivated) sense. Workers are entrepreneurs too, but fundamentally NOT in regard to their decisions concerning the profitability of their employer (except to the extent they themselves are shareholders); ONLY with regard to their decisions concerning their career. The two concerns are fundamentally different. They often overlap (which is why firms are functional), but not always.
But of course. The control of information is the control of consent.
A market is an anarchy of information. Anyone may exchange it, anyone may produce it. The internet in particular, has made it nearly impossible for the government to control spin any longer. I’m a little older than some of you, when I was a kid, there was one spin on everything and that was that. Very few people communicated alternative ideas. We accepted what we were told and what others also believed. We moved as a herd.
That is changing.
Yes, you’re right that the planner can only guess at what demand would actually be in the free market…
I think socialists will cop out to something like Maslow’s Hierarchy of Needs or some other PC Chomsky crap by which they can measure the progress of their civilization. I.e. they will use what little knowledge they have of their subjects as best they can.
Yes, and they failed at the physiological needs. Look at how bad they were in agriculture.
How utterly depressing! Statism is truly rule by the least knowledgable as opposed to what they want us to believe.
I thought it was property rights.
You are, but I’m not going to push the point. This argument has become bogged down and it’s no longer productive.
Then the calculation argument holds.
And once they know what he knows and operate the machinery of the society to the best of what he has to share, then what? Do we still need a planner? Do we find the next smartest man? Isn’t that what the market does with the profit and loss system?
I’m not looking for answers, the questions are rhetorical. You haven’t yet made an argument for empiricism, or attacked the calculation argument. And I’m not defending it like some ideologue. I would like to read some genuinely challenging ideas in contrast to it.
That is why I am very enthusiastic (tremendous understatement) about the internet, markets, liberty and the future. This is our moment.
That’s another route.
But if all you state is that planners dont have all the knoweldge a market does, it doesn’t strike a fatal blow to socialists the way it was intended to.
He can probably let go. That’s not the point. It was that everyone could benefit from central planning under certain extreme conditions.
Yes.
I’m questioning whether the calculation problem can be run a priori. From the OP:
The reason we feel comfortable condemning the planner for making nails nobody wants is because we have expectations about what you should be able to do with factories capable of mass production. But you can’t conclude anything about his production of nails a priori, other than you, like the planner, have no knowledge of whether this is a good or bad thing. Could be either, so the calculation argument is inconclusive.
But maybe this is the point austrians are making? That since the socialists have the burden of proof, and they can’t overcome the calculation/knowledge problem, then they can’t show their system is actually better. To me this simply stalemates the discourse. Thankfully the free market can move past this inconclusiveness and should win by default since its the only system that can be shown to work a priori.
Empirically however, if we can identify inefficiency in central plans by applying what we know about human beings (ex, that producing boxes and boxes of nails that no one will use is a bad idea), can the planner not correct his mistakes? This is a place where I think we get stuck. If we’re claiming that socialists will make mistakes, they can theoretically correct them.
I agree that planners can never have more knowledge than the market. But it is typically applied to mean that socialist states are impossible. Mises thought that maybe primitive, stagnant economies could be run via central planning, but I think that since you can’t say anything a priori about socialist economies through the calculation problem, it leaves the door open for socialist growth and prosperity.
With governments all over the world beginning to setup “free” and “public” networks, this positive change can be short lived.
My understanding is the econ calc argument is built a priori. Built from praxeology and it’s various axioms. Austrian’s don’t need empirical evidence to prove it doesn’t work.
In response to the OP, I feel the russian nail problem may actually be a better example of the Hayekian knowledge problem than strictly the Misesian calculation problem. There may be several properties of a desired end or near finished product that may be cognised by planners, yet others not so along the plethora of production processes being “managed.”
Yet without the interaction brought about by buying customers flagging demand for produced products and entrepreneurs eager to solve perceived errors in their manufacture, the impetus for the production of the knowledge about nail specificity is never produced, thereby requiring omniscience of production recipes that is not humanly reproducible.
This is not to say the Misesian calculation problem did not affect Soviet Russia, or other communistic societies, it’s just examples of the way in which it did require perhaps more careful consideration. For instance, the period of time during which money was banned in Russian society was certainly a hellishly chaotic period from which we may accurately reason difficulties brought about by the absence of rational price calculation among other things. I believe Peter Boettke and others did some notable applied work on this period. Also, the Russians and others could calculate to an extent, due to their use and necessary use of world market prices for factors of production, though it may be reasoned that due to lack of local price variation, their economy was pretty hampered in certain respects.
Again, it is like the problem of the seen and the unseen, it requires awareness of what could have happened and been produced along with what actually was, and for what expense.
Hmm, indeed it seems that Socialism could be saved if they’re accuracy improved but I wonder to what degree this would be possible, see below.
If I were to build a strictly a priori case for the impossibility of social planning I would start with the self-evident fact that we’re dealing with subjective value judgements of consumers (Keep in mind I’ve not been studying Praxeology for very long so I apologize if I don’t follow Austrian a priorism accurately, but I’ll try my best). I would then highlight a second self-evident fact that human beings are incapable of knowing every economic variable at any given time. We must also consider that by necessity malinvestments are revealed after capital has been committed. Now if we have subjective valuations of an aggregate of all individuals perpetually subject to change and future economic conditions that we are necessarily incapable of knowing with 100% accuracy we know, a priori, that malinvestment must result at some point and capital will go to waste. Even if it were possible to somehow accurately measure the relative wants of consumers and decide on a production schedule that adequately meets those demands, those demands will change at some point; previously sound investments of capital will become malinvestments, and the schedule will have to change. Which brings my to my next point, that of scale.
I think that the matter of degrees between small and large production outlays is one of the key issues to consider. It’s a self-evident fact in a capitalist economy that businesses fail for various reasons leaving room for more versatile, “better” firms to pick up the slack. Creative destruction, a la Schumpeter (or another similar concept), only really works if individual firms fail, but in Socialism we tend to deal with far fewer producing entities of much larger size. Take a look at the centrallized, extremely powerful banking cartel in the US, works great until something out in the world changes in such a way as to render previous investments malinvestments and suddenly there’s a very distinct possibility that there won’t be enough firms left over after the bankruptcies to “pick up the slack” in the industry. Reality just doesn’t doesn’t permit so much risk to be located on just a few balance sheets without proportionate consequences. Of course there wouldn’t be bankruptcy in a Socialist State but once again you’re left with “malinvestments” and a bunch of non-convertible capital you can’t put to full use or use at all.
Even if we reduce down to decentrallized Socialism on the scale of individual factories or whatnot to the point that they essentially become individual firms and make the very generous assumption that they can accurately measure subjective valuations of all their consumers in the absence of prices there will still be malinvestment and waste because demand will change, the scale has just been reduced. Essentially it’s capitalist-style creative destruction without money, prices and bankruptcies, just continuing waste as producers adjust and readjust. I would fully expect somebody to point out that Capitalism fares scarcely better in this respect, at this level, and they’d be right. However, remove the assumed ability to measure subjective valuations and the impossibility of such an arrangement under Socialism becomes painfully evident. In the absence of prices bureaucracy is the alternative and I will theorize that this is why Socialist production tends towards large centrallized entities which are easier to administer than thousands of small independant firms. Prices are just too important to determining production on the level of individual firms because there can only be and will always have to be some sort of scale of relative wants (which is essentially the function money fills organically, the end result being prices) in order to arrange a schedule of production. A census of wants will never be as accurate or as useful as the continual manifestation of freely-expressed, subjective valuations of individuals through the price system.
Furthermore, Socialism still has to contend with scarce resources and the distribution thereof. At this level it again runs into subjective valuation and more “what-ifs” than any bureaucracy could possibly anticipate. Even if we assume once more that they can accurately measure the relative desires of the consumers how then do they choose from the list of “most to least desired goods/services” what to produce? In the absence of prices what determines what is even feasible to produce from scarce resources? Continuing misallocation of resources is inescapable under circumstances like these, regardless of scale. Under capitalism production is decided by what’s wanted AND what’s feasible given the prices that arise for scarce resources. Socialism has no recourse for determining feasibility in the absence of prices, indeed in the USSR under Stalin resources were treated as free and unlimited. If I’m not mistaken this played a role in the collapse of the Soviet Union as easily accessible resources were depleted and extraction was forced to shift to less hospitable/easily accessible regions of the country, resulting in increased costs.
The difference is the ability of individual firms to fail without affecting output to the point where severe shortages result. Not possible with the monoliths that result under socialism.
To be honest, in writing this, I’ve come to think that the incentive argument is more-or-less inseparable from the price argument. If the alternative to production around a price system is bureaucracy which has the incentive to centrallize then large-scale production eventually follows in this direction which continually results in waste of a proportionate scale. The flipside of that is poverty that results from overconsumption in the absence of prices.
Could you explain further? I thought the calculation problem was simply an application of the knowledge problem.
Its only never produced if the planner is completely blind. I’m suggesting that there might be a way for him to guess at his own errors.
Hm. Well thanks for your reply. You obviously know what you’re talking about. I’ll mull it over.
I’m speculating that a socialist might be able to get around the knowledge problem by either making due with limited knowledge or simply guessing what steps to take in production. The subjective value of consumers is reflected in the market knowledge, and so this is indirectly what I’m saying the planner needs to guess at.
Of course. I’m suggesting that a planner might be able to come out ahead of a free market in spite of his waste. This seems a little bit bizzare, hence see the ridiculous time-traveling erudite / landing on an island of primitive hunter gatherers examples.
Yes. But one can still use that census, inaccurate as it is, as a basis for planning. A priori, having worse knowledge doesn’t automatically mean your plan fails. Although in real life, it certainly seems to happen a lot 
AND the technical capabilities of market participants.
So its just a matter of degree… but then, isn’t it possible for there to be a monolith business in the free market? I can see how this is a practical point to bring up, but it doesn’t seem to hold up a priori.
Can you explain further? Because the calculation argument usually says: “Okay, even if you get everyone to be your robots of the state, what do you tell them to do?”
Yes. I never thought about the state’s general lack of incentive to conserve resources. I always hear this argument pitched under the topic of environmentalism but you’re right that it applies to the economy as a whole. Can be run nicely with Hoppe’s argument against democracy vs monarchy 
So assuming that socialists can guess correctly at least once and that their guesses will be less accurate (since they are using a census system to know wants) than market knowledge we can know that the probability of a guess being better than the market once is somewhat likely, twice in a row not very likely, three times in a row even less likely. So socialism doesn’t habitually outperform capitalism -if one had a socialist society and the planners randomly did things then the longer and/or the more they plan the more they deviate from market success.