i think i have solved the socialist-calculation problem. the main parameters the new pricing system which i aim to propose should ideally take care of is, it must express consumer preference for which we need prices of capital resources, and it will have consumer goods market where consumers set genuine market prices. see this is how the system i propose works:
we have to take into account the prices of the various consumer goods towards which the non-specific factors(which can be used in production of any of the various consumer goods). that’s the main thing. then we can allocate the capital resources to the production of various consumer goods. the price at which we allocate the capital resources to these various consumer sectors based on the amount of profits they can turn out. now you may think how did this guy come up with profits calculation without setting price bidding for capital goods. But there is a solution.
here it is, with an example: suppose there is the cake and pasta making sectors that are in competition to get an available amount of flour in the govt. godown. also say pastas sell at 200 roubles per unit, and cake at 100 roubles per unit in the consumer market. now it is easy to make pricing of flour. assuming for simplicity’s sake that there is no other production costs in making either cakes or pastas than just the cost to acquire flour, we can make set the bid limit from the pasta sector to any quote below or equal to 100 roubles(because above 100 roubles cost for flour would make producing cakes a loss making venture). and then at quote of 101 roubles the flour can be given to the production of cakes. so 101 roubles is the price of flour.
the significance of my method is that it expresses consumer preference. But i agree there are many disadvantages like since there is no competitive bidding from many genuine producers seeking profits and losses, there can’t be any surety that what the planner is using is the most economical method. but i think I have refuted people who say it is impossible to set rational prices for capital goods under central economy.
Well, first because you tried to prove you can economically calculate in a scenario that has one factor of production. You obviously can see how your scenario is different than managing a real economy.
But mostly, you can’t make all pasta or all cakes. You need to make a mixture of cakes and pasta, and you must price them accordingly, so that both markets clear.
Suppose there are 100 tonnes of flour in stock in the godown, and lets assume that the stock is more than what pasta-making requires(that is in profitable terms). The market has to clear,so cake producers too would enter the bid and price of flourwill drop below 100 roubles(which is the price cakes command in the consumer market). I don’t find a problem here. Do you?
Just a clarification: I do not mean that there must be multiple bids from each factory manager. The Planner could just get information on the prices of the various consumer goods, and then allocate capital resources to various factories(manufaturing consumer goods) based on whether they’d be making profits or losses at that selling price(of capital good).
Juan, Oscar Lange actually allowed for a genuine consumer market in his idea of the socialist economy. To which, Mises reportedly said that the problem is not with the pricing of consumer goods but rather with the pricing of capital goods(which aren’t owned by private agents).
But what I think now is that if the price of consumer goods is known via a genuine market where buyers bid genuinely like in a capitalist economy, pricing capital goods is not a problem.
Stranger, that’s a point I have given in to, in my very first post. That is when I said that the disadvantage with such a centrally planned system is that it has just one good method which the planner believes in at its disposal, very much unlike the capitalist system where there are millions of ideas of millions of entrepreneurs.
My only point is, even though competitive pricing with entrepreneurs competing with each other is not possible under a centrally planned economy, there is no problem for the central planner to allocate prices to capital goods based on the level of economic methods/techniques known to him.
no one is denying that a planner can arbitrarily allocate workers to produce this or that factor in whatever proportion.
yes, a planner with obedfient workers will be able to choose how many people to have toiling a field, how many to build a factory , and what the design of the factory should be, and how much wood they should get for the job, wood that some people need to cut down from a forest …etc etc.
it would be ridiculous to deny the obvios, that the planner can make such arbitrary arbitrary choices. it is beyond ludicrous to believe that what he has is an economy, or involves a rational structure of production , or rational division of labour.
Hey guys, Prasanth just solved the calculation debate. We can all go home now.
Obviously, the key bit of the plan that Prasanth mentioned that everybody else was leaving out for years, is that the central planners need to be smart and try to set the prices so that everything that everybody wants get made![;)]