Modern socialist attempt to refute Mises' calculation argument

[Jon_Irenicus]

This is so anachronistic and stupid I see why these people never get ahead:

In 1920, the right-wing economist Ludwig von Mises declared socialism
to be impossible. A leading member of the “Austrian” school of
economics, he argued this on the grounds that without private
ownership of the means of production, there cannot be a competitive
market for production goods and without a market for production goods,
it is impossible to determine their values. Without knowing their
values, economic rationality is impossible and so a socialist economy
would simply be chaos – While applying his “calculation argument” to
Marxist ideas of a future socialist society, his argument, it is
claimed, is applicable to all schools of socialist thought, including
libertarian ones. It is on the basis of his arguments that many right-
wingers claim that libertarian (or any other kind of) socialism is
impossible in principle.

As David Schweickart observes “[i]t has long been recognised that von
Mises’s argument is logically defective. Even without a market in
production goods, their monetary values can be determined.” [Against
Capitalism, p. 88] In other words, economic calculation based on
prices is perfectly possible in a libertarian socialist system. After
all, to build a workplace requires so many tonnes of steel, of many
bricks, so many hours of work and so on. If we assume a mutualist
(i.e. market socialist/co-operative) libertarian socialist society,
then the prices of these goods can be easily found as the co-
operatives in question would be offer their services on the market.
These commodities would be the inputs for the construction of
production goods and so the latter’s monetary values can be found
(this does not address whether monetary values accurately reflect real
costs.

Ironically enough, von Mises did mention the idea of such a mutualist
system in his initial essay. He wrote of a system in which “the ‘coal
[miners’] syndicate’ provides the ‘iron [workers’] syndicate’” with
goods and argued that “no price can be formed, except when both
syndicates are the owners of the means of production employed in their
business” (which may come as a surprise to transnational companies
whose different workplaces sell each other their products!) Such a
system is dismissed: “This would not be socialisation but workers’
capitalism and syndicalism.” [Op. Cit., p. 112] However, his logic is
flawed. Firstly, as we noted, modern capitalism shows that workplaces
owned by the same body (in this case, a large company) can exchange
goods via the price form. That von Mises makes such a statement
indicates well the firm basis of his argument in reality. Secondly,
such a system may be, as von Mises states, “syndicalism” (at least a
form of syndicalism, as most syndicalists were and still are in favour
of libertarian communism, a simple fact apparently unknown to von
Mises) but it is not capitalist as there is no wage labour involved as
workers’ own and control their own means of production.

Indeed, von Mises ignorance of syndicalist thought is striking. In
Human Action he asserts that the “market is a consumers’ democracy.
The syndicalists want to transform it into a producers’
democracy.” [p. 809] Most syndicalists, however, aim to abolish the
market and all aim for workers’ control of production to complement
(not replace) consumer choice. Syndicalists, like other anarchists, do
not aim for workers’ control of consumption as von Mises asserts.
Given that von Mises asserts that the market, in which one person can
have a thousand votes and another one, is a “democracy” his ignorance
of syndicalist ideas is perhaps only one aspect of a general ignorance
of reality. Indeed, such an economy also strikes at the heart of von
Mises’ claims that socialism was “impossible.” Given that von Mises
accepted that there may be markets, and hence market prices, for
consumer goods in a socialist economy his claims of the impossibility
of socialism seems unfounded. For von Mises, the problem for socialism
is that “because no production-good will ever become the object of
exchange, it will be impossible to determine its monetary value.” [Op.
Cit., p. 92] The flaw in his argument is clear. Taking, for example,
coal, we find that it is both a means of production and of
consumption.

If a market in consumer goods is possible for a socialist system, then
competitive prices for production goods is also possible as syndicates
producing production-goods would also sell the product of their labour
to other syndicates or communes. Thus, when deciding upon a new
workplace, railway or house, the designers in question do have access
to competitive prices with which to make their decisions. Nor does his
argument work against communal ownership in such a system as the
commune would be buying products from syndicates in the same way as
one part of a multi-national company can buy products from another
part of the same company under capitalism. That goods produced by self-
managed syndicates have prices does not imply capitalism, regardless
of von Mises’ claims. Thus economic calculation based on competitive
market prices is possible under a socialist system. Indeed, we see
examples of this even under capitalism. For example, the Mondragon co-
operative complex in the Basque Country indicate that a libertarian
socialist economy can exist and flourish. There is no need for capital
markets in a system based on mutual banks and networks of co-
operatives (indeed, as we argue capital markets hinder economic
efficiency by generating a perverse set of incentives and misleading
information flows and so their abolition would actually aid production
and productive efficiency).

So many errors. It seems like they ignored the calculation debate completely. The first major problem is that just taking the consumer price for coal reveals nothing regarding its utility as a capital good. They gloss over and ignore Mises’ argument against these
socialist communes being able to even price capital goods in the first place, ignoring the heterogeneity/complementarity of capital. They do not realize that the “islands of socialism in a sea of capitalism” destroys the argument that because firms can price goods within themselves that this means an entire economy can be run independently of the market. It’s as though the calculation debate never took place. See this article by Rothbard, and you’ll notice the horrific ignorance of anything that has happened since Lange’s defeat. They even fail to realize that Mises’ definition of capitalism is free exchange of private property, and so they rule out a priori that syndicalism is “worker’s capitalism”.

-Jon.

[Jon_Irenicus]

More:

In response to von Mises initial challenge, a number of economists pointed out that Pareto’s disciple, Enrico Barone, had already, 13 years earlier, demonstrated the theoretical possibility of a “market-simulated socialism.” However, the principal attack on von Mises’s argument came from Fred Taylor and Oscar Lange (for a collection of their main papers, see On the Economic Theory of Socialism, Benjamin Lippincott (ed.), University of Minnesota, 1938). In light of their work, Frederick von Hayek shifted the question from theoretical impossibility to whether the theoretical solution could be approximated in practice. Thus even von Hayek, a major free-market capitalist guru, seemed to think that von Mises’s argument could not be defended.
Moreover, it should be noted that both sides of the argument accepted the idea of central planning of some kind or another. This means that many of von Mises’s and von Hayek’s arguments did not apply to libertarian socialism, which rejects central planning along with every other form of centralisation. This is a key point, as most members of the right seem to assume that “socialists” all agree with each other in supporting a centralised economic system. In other words, they ignore a large segment of socialist thought and history in order to concentrate on Social Democracy and Leninism. The idea of a network of “people’s banks” and co-operatives working together to meet their common interests is ignored, although it has been a common feature in socialist thought since the time of Robert Owen.

Nor was Taylor and Lange’s response particularly convincing in the first place. This was because it was based far more on neo-classical capitalist economic theory than on an appreciation of reality. In place of the Walsrian “Auctioneer” (the “god in the machine” of general equilibrium theory which ensures that all markets clear) Taylor and Lange presented the Planning Authority (the “Central Planning Board”), whose job it was to adjust prices so that all markets cleared. Neo-classical economists who are inclined to accept Walrasian theory as an adequate account of a working capitalist economy will be forced to accept the validity of Taylor and Lange’s version of “socialism.” Little wonder Taylor and Lange were considered, at the time, the victors in the “socialist calculation” debate by most of the economics profession (with the collapse of the Soviet Union, this decision has been revised somewhat – although we must point out that Taylor and Lange’s model was not the same as the Soviet system, a fact conveniently ignored by commentators).

Unfortunately, given that Walrasian theory has little bearing to reality, we must also come to the conclusion that the Taylor-Lange “solution” has about the same relevance (even ignoring its non-libertarian aspects, such as its basis in state-ownership, its centralisation, its lack of workers’ self-management and so on). Many people consider Taylor and Lange as fore-runners of “market socialism.” This is incorrect – rather than being market socialists, they are in fact “neo-classical” socialists, building a “socialist” system which mimics capitalist economic theory rather than its reality. Replacing Walrus’s mythical creation of the “Auctioneer” with a planning board does not really get to the heart of the problem! Nor does their vision of “socialism” have much appeal – a re-production of capitalism with a planning board and a more equal distribution of money income. Anarchists reject such “socialism” as little more than a nicer version of capitalism, if that.

With the collapse of the Soviet Union, it has been fashionable to argue that “von Mises was right” and that socialism is impossible (of course, during the cold war such claims were ignored as the Soviet threat had to boosted and used as a means of social control and to justify state aid to capitalist industry). Nothing could be further from the truth. As we have argued in the previous section and elsewhere, these countries were not socialist at all and did not even approximate the (libertarian) socialist idea (which is the -only- true form of socialism).
Obviously the Soviet Union and Eastern European countries had authoritarian “command economies” with central bureaucratic planning, and so their failure cannot be taken as proof that a decentralised, libertarian socialism cannot work. Nor can von Mises’ and von Hayek’s arguments against Taylor and Lange be used against a libertarian mutualist or collectivist system as such a system is decentralised and dynamic (unlike the “neo-classical” socialist model they proposed). Libertarian socialism of this kind did, in fact, work remarkably well during the Spanish Revolution in the face of amazing difficulties, with increased productivity and output in many workplaces as well as increased equality and liberty (see Sam Dolgoff, The Anarchist Collectives or Gaston Leval’s Collectives in the Spanish Revolution

Thus von Mises “calculation argument” does not prove that socialism is impossible. The theoretical work of such socialists as David Schweickart (see his Against Capitalism for an extensive discussion of a dynamic, decentralised market socialist system) and others on market socialism shows that von Mises was wrong in asserting that “a socialist system with a market and market prices is as self-contradictory as is the notion of a triangular square.” Indeed, by suppressing capital markets in favour of simple commodity production, a mutualist system will improve upon capitalism by removing an important source of perverse incentives which hinder long term investment and social responsibility (see section I.4.8) in addition to reducing inequalities, increasing freedom and improving general economic performance.

[Magnus]

Review: Ahh socialists, you gotta hate them; “Dynamic, decentralized market socialist system” - So much fancy rethoric and so little substance…

[Jon_Irenicus]

What’s more, I don’t see any understanding of the problems faced by socialism in their responses. Just evasion.

-Jon

[Magnus]

From where did you find this “response”?

[billott1]

How much slaughter, mayhem, destruction and death have to happen before we end socialism? We have the horrible socialist experiments of Communism and Facism all based upon these wonderful utopian ideas and ending in mass death on a scale greater than any in human history.

But we have our democratic socialists of Western Europe who are supposedly doing wonderful at least in theory. They are just like the slight less democratic socialism of the US in a slow movement to poverty funded by energy suppliers and billions of ex-communists.

We also have modern Cuba if you call it that. We see the second Castro on the precipice of making some serious market reforms to avoid the usual components of socialism mass starvation and chaos. And better yet we have Zimbabwae out there, another paradigm of efficiency and the once bread basket of Africa is now the basket case of Africa.

Give it up. We need more freedom not less. We need less regulation. We need efficient markets without the hand of the state. These are the only ways out for the entire race.

[ThorsMitersaw]

@Magnus

From where did you find this “response”?

my guess would be the recycling bin

[Jon_Irenicus]

It was transcribed by a socialist on another forum I’m on. I pointed out all the errors in it, only for him to quote more en masse.

-Jon

[BlackSheep]

@billott1

How much slaughter, mayhem, destruction and death have to happen before we end socialism? We have the horrible socialist experiments of Communism and Facism all based upon these wonderful utopian ideas and ending in mass death on a scale greater than any in human history.

Real Socialism has never been tried!!! OR We just need to get the RIGHT people in charge!!!11

[:P]

[Sphairon]

Just to see if I got this right:

The basic magician’s trick here is to replace a central planning board with many decentralized planning boards, both of which don’t have an incentive to calculate reasonably, but instead of a ‘bossy’ planning committee you now get a ‘democratic’ net of planning entities. That, of course, appeals more to the predominant Zeitgeist than traditional central planning approaches, but is actually the same skeleton in new clothes.

Did my fledgling Austrian spider-sense detect the fallacy?

[Jon_Irenicus]

Mises’ original argument applies strictly to global socialism - its extended forms were developed by Rothbard and Reisman. Either way though, the objections by the authors in my OP are wrongheaded, as I demonstrated. They propose to solve the problem by changing the form of the very cause, but only so much so as to leave it unchanged in the end. And in this utter incomprehension of Mises, they think they have refuted him.

-Jon

[Jon_Irenicus]

More of the nonsense:

So far, most models of market socialism have not been fully libertarian, but instead involve the idea of workers’ control within a framework of state ownership of capital (Engler in Apostles of Greed is an exception to this, supporting community ownership). However, libertarian forms of market socialism are indeed possible and would be similar to Proudhon’s mutualism. As anarchist Robert Graham points out, “Market socialism is but one of the ideas defended by Proudhon which is both timely and controversial. . . Proudhon’s market socialism is indissolubly linked with his notions of industrial democracy and workers’ self-management.” [“Introduction”, P-J Proudhon, General Idea of the Revolution, p. xxxii]
His system of agro-industrial federations can be seen as a non-statist way of protecting self-management, liberty and equality in the face of market forces (as he argued in The Principle of Federation, “[h]owever impeccable in its basic logic the federal principle may be. . . it will not survive if economic factors tend persistently to dissolve it. In other words, political right requires to be buttressed by economic right” and “in an economic context, confederation may be intended to provide reciprocal security in commerce and industry. . . The purpose of such specific federal arrangements is to protect the citizens. . . from capitalist and financial exploitation. . . in their aggregate they form . . . an agro-industrial federation” [The Principle of Federation, p. 67 and p. 70]).

Indeed, some Leninist Marxists recognise the links between Proudhon and market socialism. For example, the unorthodox Trotskyite Hillel Ticktin argues that Proudhon, “the anarchist and inveterate foe of Karl Marx. . . put forward a conception of society, which is probably the first detailed exposition of a ‘socialist market.’” [“The Problem is Market Socialism”, in Market Socialism: The Debate Among Socialists, edited by Bertell Ollman, p. 56] In addition, see Against the Market in which the author, Dave McNally, correctly argues that Proudhon was a precursor of the current market socialists. Needless to say, these Leninists reject the idea of market socialism as contradictory and, basically, not socialist (while, strangely enough, acknowledging that the transition to Marxist-communism under the workers’ state would use the market!).

Thus it is possible for a socialist economy to allocate resources using a competitive market. However, does von Mises’s argument mean that a socialism that abolishes the market (such as libertarian communism) is impossible? Given that the vast majority of anarchists seek a libertarian communist society, this is an important question. While the “calculation argument” is often used by right-libertarian’s as the “scientific” basis for the argument that communism (a moneyless society) is impossible, it is based on certain false ideas of what money does and how an anarchist society would function without it. This is hardly surprising, as Mises based his theory on the “subjective” theory of value and the Marxist social-democratic (and so Leninist) ideas of what a “socialist” economy would look like. As Libertarian Marxist Paul Mattick correctly argued:

“However divided the old [social-democratic] labour movement may be by disagreements on various topics, on the question of socialism it stands united. Hilferding’s abstract ‘General-Cartel’, Lenin’s admiration for the German war socialism and the German postal service. Kautsky’s eternalisation of the value-price-money economy (desiring to do consciously what in capitalism is performed by blind market forces). Trotsky’s war communism equipped with supply and demand features, and Stalin’s institutional economics – all these concepts have at their base the continuation of the existing conditions of production. As a matter of fact, they are mere reflections of what is actually going on in capitalist society. Indeed, such ‘socialism’ is discussed today by famous bourgeois economists like Pigou, Hayek, Robbins, Keynes, to mention only a few, and has created a considerable literature to which the socialists now turn for their material.” [Anti-Bolshevik Communism

Therefore, there has been little discussion of what a true (i.e. libertarian) communist society would be like, one that utterly transformed the existing conditions of production by workers’ self-management and the abolition of both the wages system and money. However, it is useful here to indicate exactly why a moneyless (i.e. truly communist) “economy” would work and why the “calculation argument” is flawed as an objection to it.
Mises argued that without money there was no way a socialist economy would make “rational” production decisions. Not even von Mises denied that a moneyless society could estimate what is likely to be needed over a given period of time (as expressed as physical quantities of definite types and sorts of objects). As he argued, “calculation in natura in an economy without exchange can embrace consumption-goods only.” [Collectivist Economic Planning, F.A. Von Hayek (ed.), p. 104] Mises’ argument is that the next step, working out which productive methods to employ, would not be possible, or at least would not be able to be done “rationally,” i.e. avoiding waste and inefficiency.

As he argues, the evaluation of producer goods “can only be done with some kind of economic calculation. The human mind cannot orient itself properly among the bewildering mass of intermediate products and potentialities without such aid. It would simply stand perplexed before the problems of management and location.” [Op. Cit., p. 103] Mises’ claimed that monetary calculation based on market prices is the only solution. However, Mises’ argument is based on a number of flawed assumptions. Firstly, he assumes a centralised, planned economy. While this was a common idea in Marxian social democracy (and the Leninism that came from it), it is rejected by anarchism. No small body of people can be expected to know what happens in society (“No single brain nor any bureau of brains can see to this organisation,” in the words of Issac Puente [Libertarian Communism, p. 29]). As Bakunin argued, it would lead in practice to "an extremely complex government.

This government will not content itself with administering and governing the masses politically . . . it will also administer the masses economically, concentrating in the hands of the State [all economic and social activity] . . . All that will demand an immense knowledge and many heads ‘overflowing with brains’ in this government. It will be the reign of scientific intelligence, the most aristocratic, despotic, arrogant, and elitist of all regimes. There will be a new class, a new hierarchy . . . Such a regime will not fail to arouse very considerable discontent in the masses of the people, and in order to keep them in check . . .[a] considerable armed force [would be required]." [Bakunin on Anarchism, p. 319] Hence anarchists can agree with Mises: central planning cannot work in practice. However, socialist ideas are not limited to Marxian Social Democracy, and so von Mises ignores far more socialistic ideas than he attacks.

His next assumption is equally flawed. This is that without the market, no information is passed between producers beyond the final outcome of production. In other words, he assumes that the final product is all that counts in evaluating its use. Needless to say, it is true that without more information than the name of a given product, it is impossible to determine whether using it would be an efficient utilisation of resources. But von Mises misunderstands the basic concept of use-value, namely the utility of a good to the consumer of it. As Adam Buick and John Crump point out, “at the level of the individual production unit or industry, the only calculations that would be necessary in socialism would be calculations in kind. On the one side would be recorded the resources (materials, energy, equipment, labour) used up in production and on the other the amount of good produced, together with any by-products. . . .
Socialist production is simply the production of use values from use values, and nothing more.” [State Capitalism: The Wages System Under New Management, p. 137]

The generation and communication of such information implies a decentralised, horizontal network between producers and consumers. This is because what counts as a use-value can only be determined by those directly using it. Thus the production of use-values from use-values cannot be achieved via central planning, as the central planners have no notion of the use-value of the goods being used or produced. Such knowledge lies in many hands, dispersed throughout society, and so socialist production implies decentralisation. Capitalist ideologues claim that the market allows the utilisation of such dispersed knowledge, but as John O’Neil notes, “the market may be one way in which dispersed knowledge can be put to good effect. It is not . . . the only way.” [Ecology, Policy and Politics, p. 118]

[Magnus]

@Jon Irenicus

It was transcribed by a socialist on another forum I’m on. I pointed out all the errors in it, only for him to quote more en masse.

-Jon

If you have the strength and knowledge to point out errors to these “libertarian socialists” (just writing that term makes me mad!), I salute you Jon, very admirable of you to have the patience to do that!

[Jon_Irenicus]

I tried, but it’s not worth it. He just repeats assertions and fails to argue the points. So I gave up on the fool. He just responded with this quote:

So, in order to determine if a specific good is useful to a person, that person needs to know its “cost.” Under capitalism, the notion of cost has been so associated with price that we have to put the word “cost” in quotation marks. However, the real cost of, say, writing a book, is not a sum of money but so much paper, so much energy, so much ink, so much human labour. In order to make a rational decision on whether a given good is better for meeting a given need than another, the would-be consumer requires this information. However, under capitalism this information is hidden by the price. Moreover, a purely market-based system leaves out information on which to base rational resource allocations (or, at the very least, hides it). The reason for this is that a market system measures, at best, preferences of individual buyers among the available options. This assumes that all the pertinent use-values that are to be outcomes of production are things that are to be consumed by the individual, rather than use-values that are collectively enjoyed (like clean air).

Prices in the market do not measure social costs or externalities, meaning that such costs are not reflected in the price and so you cannot have a rational price system. Similarly, if the market measures only preferences amongst things that can be monopolised and sold to individuals, as distinguished from values that are enjoy
In other words, prices hide the actual costs that production involved for the individual, society, and the environment, and instead boils everything down into one factor, namely price. There is a lack of dialogue and information between producer and consumer. As John O’Neil argues, “the market distributes a little information and . . . blocks the distribution of a great deal [more]. . . The educative dialogue exists not through the market, but alongside of it.” [Ecology, Policy and Politics, p. 143]

In the words of Joan Robinson:

“In what industry, in what line of business, are the true social costs of the activity registered in its accounts? Where is the pricing system that offers the consumer a fair choice between air to breath and motor cars to drive about in?” [Contribution to Modern Economics, p. 10]

ed collectively, then it follows that information necessary for rational decision-making in production is not provided by the market.

Indeed, prices often mis-value goods as companies can gain a competitive advantage by passing costs onto society (in the form of pollution, for example, or de-skilling workers, increasing job insecurity, and so on). This externalisation of costs is actually rewarded in the market as consumers seek the lowest prices, unaware of the reasons why it is lower (such information cannot be gathered from looking at the price). Even if we assume that such activity is penalised by fines later, the damage is still done and cannot be undone. Indeed, the company may be able to weather the fines due to the profits it originally made by externalising costs. And do prices actually reflect costs, even assuming that they accurately reflect social costs and externalities? The question of profit, the reward for owning capital and allowing others to use it, is hardly a cost in the same way as labour, resources and so on (attempts to explain profits as an equivalent sacrifice as labour have always been ridiculous and quickly dropped). When looking at prices to evaluate efficient use for goods, you cannot actually tell by the price if this is so. Two goods may have the same price, but profit levels (perhaps under the influence of market power) may be such that one has a higher cost price than another.

The price mechanism fails to indicate which uses least resources as it is influenced by market power. Indeed, as Takis Fotopoulos notes, “[i]f . . . both central planning and the market economy inevitably lead to concentrations of power, then neither the former nor the latter can produce the sort of information flows and incentives which are necessary for the best functioning of any economic system.” [Towards an Inclusive Democracy, p. 252] Moreover, a good produced under a authoritarian state which represses its workforce would have a lower price than one produced in a country which allowed unions to organise and had basic human rights. The repression would force down the cost of labour, so making the good in question appear as a more “efficient” use of resources. In other words, the market can mask inhumanity as “efficiency” and actually reward that behaviour by market share. Simply put, prices cannot be taken to reflect real costs any more that they can reflect the social expression of the valuation of goods. They are the result of a conflict waged over these goods and those that acted as their inputs (including, of course, labour). Market and social power, much more than need or resource usage, decides the issue. The inequality in the means of purchasers, in the market power of firms and in the bargaining position of labour and capital all play their part, so distorting any relationship a price may have to its costs in terms of resource use. Prices are misshapen. Little wonder Kropotkin asked whether “are we not yet bound to analyse that compound result we call price rather than to accept it as a supreme and blind ruler of our actions?” [Fields, Factories and Workshops Tomorrow, p. 71]

Von Mises argued that anyone “who wished to make calculations in regard to a complicated process of production will immediately notice whether he has worked more economically than others or not; if he finds, from reference to the exchange values obtaining in the market, that he will not be able to produce profitably, this shows that others understand how to make better use of the higher-order goods in question.” [Op. Cit., pp. 97-8] However, this only shows whether someone has worked more profitably that others, not whether it is more economical. Market power automatically muddles this issue, as does the possibility of reducing the monetary cost of production by recklessly exploiting natural resources and labour, polluting, or otherwise passing costs onto others. Similarly, the issue of wealth inequality is important, for if the production of luxury goods proves more profitable than basic essentials for the poor does this show that producing the former is a better use of resources? And, of course, the key issue of the relative strength of market power between workers and capitalists plays a key role in determining “profitably.”

Therefore, the claim that prices reflect real costs and so efficiency can be faulted on two levels. Moreover, without using another means of cost accounting instead of prices how can supporters of capitalism know there is a correlation between actual and price costs? One can determine whether such a correlation exists by measuring one against the other. If this cannot be done, then the claim that prices measure costs is a tautology (in that a price represents a cost and we know that it is a cost because it has a price). If it can be done, then we can calculate costs in some other sense than in market prices and so that argument that only market prices represent costs falls.
Similarly, von Mises assumes that capitalism can accurately estimate the costs of investing. Using the example of a new railroad, he asks “[s]hould it be built at all, and if so, which out of the number of conceivable roads should be built? In a competitive and monetary economy, this question would be answered by monetary calculation. The new road will render less expensive the transport of some goods, and it may be possible to calculate whether this reduction of expense transcends that involved in the building and upkeep of the new line.” [Op. Cit., pp. 108-9] However, this is not the case. An investment decision is made based on estimating possible future events. The new line may reduce transportation costs but the expected reduction may be relatively less that predicted, so causing the investment to fail. Moreover, an investment may fail while it meets a social need simply because people may need the product but cannot afford to pay for it. In other words, von Mises example hardly shows the superiority of monetary calculation as the decision to invest under capitalism is as much a leap in the dark as it would be an a socialist system (the future is uncertain, in other words).

-Jon

[gplauche]

@Jon Irenicus

I tried, but it’s not worth it. He just repeats assertions and fails to argue the points. So I gave up on the fool.

-Jon

Reminds me of some Hoppeans I know on another forum. (No offense, any Hoppeans on this forum.) ;o)

[Jon_Irenicus]

Forgot to include this bit:

Lastly, Mises assumes that the market is a rational system. As O’Neil points out, “Von Mises’ earlier arguments against socialist planning turned on an assumption about commensurability. His central argument was that rational economic decision-making required a single measure on the basis of which the worth of alternative states of affairs could be calculated and compared.” [Op. Cit., p. 115] This central assumption was unchallenged by Taylor and Lange in their defence of “socialism”, meaning that from the start the debate against von Mises was defensive and based on the argument that socialist planning could mimic the market and produce results which were efficient from a capitalist point of view. Thus, no one challenged Mises’ assumptions either about the centrally planned nature of socialism or about the market being a rational system. Little wonder that the debate put the state socialists on the defensive. As their system was little more than state capitalism, it is unlikely they would attack the fundamentals of capitalism (namely wage labour and centralisation).

So, is capitalism rational? Well, it does exist, but that does not prove that it is rational. The Catholic Church exists, but that shows nothing about the rationality of the institution. To answer the question, we must return to our earlier point that using prices means basing all decision making on one criterion and ignoring all others. This has seriously irrational effects, because the managers of capitalist enterprises are obliged to choose technical means of production which produce the cheapest results. All other considerations are subordinate, in particular the health and welfare of the producers and the effects on the environment. The harmful effects resulting from “rational” capitalist production methods have long been pointed out. For example, speed-ups, pain, stress, accidents, boredom, overwork, long hours and so on all harm the physical and mental health of those involved, while pollution, the destruction of the environment, and the exhaustion of non-renewable resources all have serious effects on both the planet and those who live on it. As E. F. Schumacher argued:

“But what does it mean when we say that something is uneconomic? . . . [S]omething is uneconomic when it fails to earn an adequate profit in terms of money. The method of economics does not, and cannot, produce any other meaning. . . The judgement of economics . . . is an extremely fragmentary judgement; out of the large number of aspects which in real life have to be seen and judged together before a decision can be taken, economics supplies only one – whether a money profit accrues to those who undertake it or not.” [Small is Beautiful, pp. 27-8]

Schumacher stressed that “about the fragmentary nature of the judgements of economics there can be no doubt whatever. Even with the narrow compass of the economic calculus, these judgements are necessarily and methodically narrow. For one thing, they give vastly more weight to the short then to the long term. . . [S]econd, they are based on a definition of cost which excludes all ‘free goods’ . . . [such as the] environment, except for those parts that have been privately appropriated. This means that an activity can be economic although it plays hell with the environment, and that a competing activity, if at some cost it protects and conserves the environment, will be uneconomic.” Moreover, “[d]o not overlook the words ‘to those who undertake it.’ It is a great error to assume, for instance, that the methodology of economics is normally applied to determine whether an activity carried out by a group within society yields a profit to society as a whole.” [Op. Cit., p. 29] To claim that prices include all these “externalities” is nonsense. If they did, we would not see capital moving to third-world countries with few or no anti-pollution or labour laws. At best, the “cost” of pollution would only be included in a price if the company was sued successfully in court for damages – in other words, once the damage is done. Ultimately, companies have a strong interest in buying inputs with the lowest prices, regardless of how they are produced.

As Noam Chomsky points out, “[i]n a true capitalist society, . . . socially responsible behaviour would be penalised quickly in that competitors, lacking such social responsibility, would supplant anyone so misguided as to be concerned with something other than private benefit.” [Language and Politics, p. 301] It is reductionist accounting and its accompanying “ethics of mathematics” that produces the “irrationality of rationality” which plagues capitalism’s exclusive reliance on prices (i.e. profits) to measure “efficiency.” Moreover, the critique we have just sketched ignores the periodic crises that hit capitalist industry and economies to produce massive unemployment and social disruption – crises that are due to subjective and objective pressures on the operation of the price mechanism (see section C.7 for details). Ironically enough, von Mises also pointed to the irrational nature of the price mechanism. He states (correctly) that there are “extra-economic” elements which “monetary calculation cannot embrace” because of “its very nature.” He acknowledges that these “considerations themselves can scarcely be termed irrational” and, as examples, lists “[i]n any place where men regard as significant the beauty of a neighbourhood or a building, the health, happiness and contentment of mankind, the honour of individuals or nations.” He states that “they are just as much motive forces of rational conduct as are economic factors” but they “do not enter into exchange relationships.” [von Mises, Op. Cit., p. 99]

Trust them to take Mises out of context.
-Jon