In much the same way that tarot cards or astrology might occasionally give ‘accurate’ predictions, perhaps with somewhat less certainty in this case though. And there is an a priori presumption against the possibility of rational calculation in a socialist society. You did not fail considering that he never countered your point that his system is arbitrary (ergo bad), so tbh concede nothing. Prices are necessary for his system not to suck.
Nah. I was just being facetious.
Your socialist friend isn’t even addressing Mises.
Without a market for capital goods no economic calculation can happen. That means, even with a market for consumer goods, economic calculation can not happen if there is a monopolist producer.
Surveys!? Not even a genuine market in consumers goods can make up for a lack of pricing for capital goods.
I’m pretty sure that the problem in this scenario is not insurmountable for the central planner. If he discovers the ratio of A to B or B to A that the aggregate of consumers prefer (perhaps through a consumer goods market), then he can simply impute it back to producer goods according to the technological recipes used to create the consumer goods and lower order producer goods. But anyway…
Yeah, he could theoretically reserve engineer a production method which could yield necessary producer goods, and he could theoretically use a Walrasian general equilibrium model to allocate such goods amongst the economy.
There are severe and damning problems with this: first, Walrasian auctions assign prices before the fact, and then allocate both consumer and producer goods; but these prices are entirely arbitrary, they lack real-time information (which makes prices useful). It’s true that the economy has various producers setting prices and then bringing there goods onto the market, and it’s true that people act on these prices, but the subjective actions of individuals change the prices over time. The formation of real prices is a dynamic one of trial and error (Hayek’s disseminated information argument). The second problem, as Mises points out, is that it’s not the case that a centrally planned economy can’t produce a car just as well as a ‘capitalist’ economy (can figure out a production recipe), but it cannot figure out the most efficient production recipe. There are as many production recipe’s as there are goods in an economy, and the point of the economic system is, again by trial and error, to figure out the most efficient way to produce goods (various capital combination’s). Capitalist economies need entrepreneurial failures; the failures send out vital information signals to other actors. Centrally planned economies don’t have failures since they’re not bound to the profit (anti-loss) motive. Lenin and the Soviet Union knew how to produce steel, but they didn’t know how to produce it as efficiently as American steel producers, and they didn’t know how much steel to produce (which is why their GDP numbers were through the roof, while millions were starving in the streets). Essentially, real prices (with actual information) emerge from a dynamic process of trial and error amongst many different actors.
The point you missed from Kaju’s response is that they cannot find the most efficient way to produce consumer/producer goods (they can’t figure out how to combine their producer goods in the most efficient way as possible, since they cannot measure opportunity costs).
Maybe you should argue a little more Hayekian: Consider the Calculation Debate as a knowledge problem. You’re having millions or even billions of people, all of whom posess different knowledge of their specific environment. Most of that knowledge is tacit and/or subjective, which makes it impossible to enter it into a super computer. Furthermore, the transfer of knowledge to the planning agency would be time consuming. The knowledge of a central planner, even if it is the best and fastest computer ever built, must therefore be a lot less than the combined knowledge of all market participants.
In a free market economy, there is no central planning agency necessary, since every market participant can use his knowledge as he sees fit. Through subjective market prices, they can communicate which goods are scarce and which are abundant and economic calculation mirrors the real preferences of all market participants.
I think there were a number of implicit assumptions made in Kaju’s model that in fact do make it possible to allocate higher order goods efficiently.
I’m not familiar w/ Walrasian auctions or the details of Hayek’s information argument. I am familiar w/ Mises’ arguments.
Look, assuming an ERE and a fixed set of technological recipes, it is in fact possible to allocate capital goods efficiently, so long as one knows what ratio of consumer’s goods to produce to maximize consumer satisfaction.
Which producer goods to use seeing as they’re not priced? All one has done is established which consumers’ goods to produce.
Without their being priced? No.
Give me the ratio of exchange for the consumer good A in terms of B and the quantitative technological formulas for the production of all lower order goods in terms of the higher order goods and I’ll show you why you’re wrong.
Emphasis is mine, but here’s where your position falls apart. The production methods must be elastic, since the desires of consumers and individual actors are elastic. The structure of production must continuously shift (both horizontally and vertically) in order to prevent misallocations, and to provide consumers with the goods/services they demand. This is why there cannot be fixed production recipe’s, because production methods must continuously change. Trial and error, disseminated information, and freely floating market signals is how the structure of production changes, evolves, and ultimately prevents disequilibrium. I’m not even raising the whole technological progression argument, which stems from dynamic or x-efficiency (requires supernormal profit).
This misses the whole crux of the problem - that the information itself is the result of free actors bidding factors one against the other. In the absent of this process, NO meaningful information (in the form of prices) can result. It is not a matter of “transfer of knowledge being time consuming”. There is no knowledge! This is the “groping in the dark” analogy of Mises.
In the real world there is continuous change. There is no constancy. Value scales, technological knowledge, capital structure, every factor which effects the overall structure of production changes. In the real world we need profit and loss to economically calculate. We’re on the same page right?
Kaju’s example is not the real world. It is a highly simplified model. By making specifications he is implying certain assumptions. If you add a few more, such as an evenly rotating economy, it in fact does become possible to calculate the optimal production structure.
So does my thinking really ‘fall apart’, or are you mistaken in what I’m actually criticizing?
Yeah, exactly.
Yeah, I misunderstood your position. Central planning may be possible in a theoretical world of an evenly rotating static economy. I blame my lack of sleep for the confusion.
No, you won’t. What if a good is susceptible to being produced by multiple factors any of which can act as a substitute for another? Which of these unpriced goods of unknown valuations (because unpriced, because unowned or at any rate ‘collectively’ owned) do you use? The ones which ‘best fit the technological formulas’? Why should this have any bearing on economic efficiency per se?
Now you may just be picking on KK’s formulation of the calculation problem but even so, how does one place unpriced goods into any sort of economic calculation?
It’s really simple. You just construct a production possibilities frontier (PPF).
The amount of consumers goods, A and B, that the central planner can produce is a function of the amount of capital goods, X, Y, and Z, that the central planner allocates to the production of the two consumers goods. Also, first order factors of production, X, Y, and Z, are each a function of the second order factors of production, T, U, and V.
To construct the PPF, you state the amount that of one consumer good that can be produced in terms of the other consumer good. You state A as a function of B. At one end of the interval along the PPF, where only A is produced but not any B, we know from the law of returns that there is some optimal combination of X, Y, and Z which produces an optimum amount of A. Also there exists some optimal combination of of T, U, and V which produces a maximum amount of X , Y, or Z. By imputing backward it is possible to arithmetically solve for the optimal combination of T, U, and V to produce consumer good A. Starting from the end of the interval from which only A is produced you construct the PPF by incrementing by 1 the number of units of B produced until you reach the other end of the interval where only B is produced. Now because the complement of the optimal combination of T, U, and V for the production of A is not necessarily the optimal combination for the production of B, the process must be repeated again except in terms of the optimal combination of complementary factors of production for B. Then the maximum of both functions represents the final PPF.
Now, if you know the ratio of A:B which maximizes consumer satisfaction, than you can identify the point on your PPF which corresponds to consumer demand and you have the most optimal production structure to satisfy consumers.
Who knows? The shadow knows!
If only the shadow would come centrally manage our economy. [:(]
You could have a market in consumer’s goods to figure that out. Even marxists accept private ownership of consumer’s goods. The calculation argument is that you need a market in factors of production.
Some time ago I’ve read a paper by a socialist “economist” who argued that if there was a market for consumer goods and all the ressources available were known to the central planning agency, a central planner could perform rational factor allocation with some fancy mathematic operations as long as there is not too much change in the economy (which I deem the most unrealistic of his assumptions).
Do you think, given his presumptions, that he’s right?
look, if i am the central planner and i decide to adapt the structure of production so that i get 500 mansions and the poor get carrot stew to eat, with a particular technological configuration that would achieve that (at some unknowable cost)my decision is rational, only inth sense that i am rational and i made it, and also that i used some deduction and empricisim to arrive at my plan and my guess that it would work and be worth doing for me
but its not a ‘rational factor allocation’, there would be no economy, there would be no dynamic process whereby the varying ambitions and plans of agents are coordinated in such a way that there is a constant incentive to optimize their plans and satisfy their wants, and although disappointment would be a natural recurrent phenomenon in a free market, still the individuals are politically at liberty and have the rest of their peers working at rational allocation ; cooperating with them to increase their discounted marginal value product, their ‘real wage’ over time . Under central planning, there would be production, but there would not be an economy. there would be no grounds for asserting that the chosen regime of production was rational in the economizing sense, and given that we are talking about coercion and interfering politically with the free will of individuals to go about and rationally coordinate production, that is grounds for assuming that from an ex-ante view the coerced individuals would rather not have planned production, but rather the economy. furthermore history and thymology allow us to say damn confidently that a central planned economy would be (always is) a hell on earth.
Who cares what ‘optimal’ combination produces what ‘maximum’ amount of consumer goods? The consumer goods are owned, valued and priced, the capital goods are not. So they cannot even enter into calculations of economic efficiency. ‘Optimal’ in terms of economic efficiency (i.e. in terms of agents’ valuations) won’t be the same as ‘optimal’ in terms of producing the most output because the capital goods themselves need to be priced to establish whether a profit is being turned or not.