Empirical Criticism of Socialist Calculation

[Snowflake]

@fakename

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, for x < 1, x^n = 0 as n → infinity. So there is a 100% chance that over long periods of time a socialist system will differ from a free market system.

[fakename]

precisely -unless there is something wrong with my probability calc.

(Is there?)

[abskebabs]

I feel it is important to delineate the two, if anything I feel the position that the knowledge problem exposits a specific characteristic advantage of the prevalence of economic calculation in a market system would be more accurate than to say the latter is a category of the former.

Mises’ point about economic calculation purely as an intellectual tool peculiar to the market economy allowing for cardinal number calculations to facilitate production decisions, allowing for objective comparison of an entire plethora of different production processes in a complex economy. From my own work on the subject, I see the problem of economising in a complex industrial economy, without the widespread employment of this intellectual apparatus and the interplay of actors in a market economy; as being a very complicated multifactoral, several stage autistic optimisation problem that may or may not be mathematically impossible, yet is grossly understimated by authors such as Oscar Lange. I also think that when factors real world conditions regarding the changes in economic data, their determinants and the uncertainty prevalent with regard to these causal relations, any methods apart from economic calculation become a joke.

This is different to Hayek’s point about the knowledge conveyed by prices in the sense they convey information, or more accurately aggregated past entrepreneurial expectations, and hence “contain” knowledge otherwise needed to be specifically conveyed for e.g. the breakdown of a nickel mine in South Africa affecting its supply. This is certainly a worthy point, and I think if interest is truly taken in this problem again, it clould be the fruit of useful research, perhaps even the birth of a social information theory,

However, the knowledge problem is not really essential to the Misesian calculation problem, which is more about the use of an intellectual apparatus specific to the institutional arrangement of a market economy. This means that rational calculation and exchange amongst property holders may take place in order with which they may esteem the future exchange value of their property, which hence may use past price data among other determinants. However their main task is to forecast future conditions and the way in which they utillise understanding with which to find profit opportunitites and how economic calculation is for them an essential mode of organisation with which to meet and attain these ends. It may utilise past prices, but it does not need them as they are certainly not the only determinant of future prices, and it certainly does not stop with just a consideration of past prices.

I have a paper where I argue in more detail about the specific aspects of Mises’ calculation argument and its implications. PM me if you’d like a copy.

[ThreeTrees]

@Snowflake

@ThreeTrees

I would start with the self-evident fact that we’re dealing with subjective value judgements of consumers

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.

@ThreeTrees

malinvestment must result at some point and capital will go to waste

@ThreeTrees

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.

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.

@ThreeTrees

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.

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

Touche on the above points, although I think it’s throwing a pretty big bone to the socialists to say that they just might luck out

At any rate, the way I look at things is that entrepreneurs are reactive, some of them guess the future conditions of demand properly but the deck is stacked against them in this respect. This problem compounds with central decision making authority because if they’re wrong, they’re wrong in a much bigger way and because production under the division of labour is codependant the effects waterfall through the supply chain. So we can deduce a priori that they will waste more than the capitalist simply because the firms under capitalism are smaller and more versatile. In a world without prices I see this is a huge stumbling block because resources are treated as infinite and overconsumption ensues in order to fill demand and compensate for waste. Naturally the central planner would institute extraction quotas which we know a priori will cause a host of under/overproduction issues in different sectors. Waste on top of more waste, it’s eventually gotta fall apart as they run out of resources that cost less to extract than they’re worth as inputs. And I think this is the crux of things; it’s not that it can’t be done, it’s that it can’t be done sustainably. (Which is EXTREMELY ironic considering so many people think government is necessary to curb overconsumption that’s supposedly inherent to Capitalism.) I think this would explain how the Soviet Union managed to grind on for so long before it collapsed. Inefficiency is the killer materially and bureaucratically.

@Snowflake

@ThreeTrees

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.

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.

Sure, huge firms under capitalism are possible but they’re different for an important reason; under a free market they’re that way because they do what they do waaay better than everybody else. If they start to lose out it’s because demand is shifting and the market is moving its dollars somewhere else and so, in this sense, “knowing how you’re doing” becomes extremely important to the individual firm. Neither massive socialist operations nor decentrallized socialist firms have this “luxury” to prevent wastefulness.

@Snowflake

@ThreeTrees

To be honest, in writing this, I’ve come to think that the incentive argument is more-or-less inseparable from the price argument.

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?”

It seems to me that the calculation argument framed that way is a holdover from the days when technology wasn’t advanced enough to achieve with ease the volume and granulatrity of information necessary for central planning. We’ve come a long way since the argument was first advanced and it’s now much easier to gather information (I contend that anything short of complete knowledge of all or the vast majority of variables still makes central planning inferior, however). Nowadays I think it’s necessary to combine the incentive for a bureaucracy to centrallize and expand, the knowledge issue, and the calculation issue in order to illustrate just why markets and thus prices are necessary and why Socialism fails because of them. Ie: Bigger firms, more risk of error and the innability to allocate and manage resources.

**Edit: Yeah abskebabs, post that paper up.