First off my name is Samuel, I’m sixteen and I love this place! I orginally got into mises through a friend of mine and have loved this website ever since.
Gabriel I think the issue is that market socialists focus too much on the consumer goods industry, and a market for consumer goods. This is of course silly. Production has to go through many stages, especially in a complex society, and at every point it is crucial that scarce goods be converted into something with greater demand. One simply has to look at pencils. already their creation is very complicated and relies on entrepreneurs and the price system. Its production goes through many stage and at every stage there’s a margin for error in allocation. When you get to things like computer chips the amrginf ro error is greater. We don’t build commodore 64’s anymore because of the price system. The signals told us that the labour and silicon is better allocated towards other uses. The inefficiencies of the consumer good industries under such a system aside, how do the “commandingheights” get coordinated.
Also because the commanding heights under such a system will be subsidized and owned by the government, this creates further complications. Imagine if every indsutry eneded up like the ethanol one! We’re better off with the corn.
Furthermore the commanding heights require various inputs, and there’s only an icnentive for government to subsidize these inouts(such as food) which (though unrelated) causes further issues.
To give you an idea as to just how inefficient market socialism is, The USSR would make about 4 times as much pig iron as they made steel. Steel is made from pig iron and other elements, and so is wrought iron. However they simply pumped out tojns of pigiron. Set prices caused further misallcoation fot these things. Rather than converting it into steel, they simply made a lot of weights.
Market Socialism, the way I see it, is an intentionally ambiguous term, just as socialism is.
Eh sorry I’m no good at this.
Not to mention that in this system the commanding heights can be sufferng losses and people will be non the wiser!
(by losses i mean losses of demand due to incoherent demand signals)
Mises definitley believed that socialism was impossbile as a viable way to operate an economy. He didnt believe “efficient calcualation” was impossible he believed calculation in general was impossible in a socialist economy. Without prices there is no way to know what to do with the resources you have. And without prices there is no way to get from subjective values to objective money values. And since money values are the only way to objectively measure a persons preference, without money and markets only choas will insue. It seems as though you are squimish about using the word impossible, after all that was one of the most frequently stated objections to Mises propostion during the heyday of the calculation debate. People have pointed to the fact that the Soviet union existed as an unasaiable argument against Mises’s that socialism is impossible. But the Soviet Union had world markets to look to for the prices of certian goods wether consumer or producers goods. Therefore the Soviet Union never was a pure socialist state, it couldn’t have been it is impossible.
BTW, for those versed in the matter, here is an article I found on the Mises blog from a while ago claiming to have “resolved” the calculation problem:
I think we are missing the point in arguing wether or not socialism is impossible. Lets just say that it is possible, and that it could be mangaged with little disfunction. It would be immoral and that is grounds enough for me to reject from the start. Any system that deprives a man from owning property necessarily deprives him of one of his basic human rights. Any system that deprives a man from acting in his nature should be rejected wether or not the system is the status quo. Regardless of the so called “utility” socialism will spawn to the majority of people, it is immoral, and to me, morality should come before majority rule.
Moral arguments won’t convince anyone of the issues with coordination, and of course socialsits regularly pull moral arguments out of their ahem.
The issue with most utilitarians is that what they propose does NOT maximize happiness, morality, growth, or just downright utility! I don’t see what’s wrong with arguments from utility though.
A common argument in favor of socialism is that it facilitates central economic planning. But notice how these solutions to the economic calculation problem require the socialist system to be governed by an event driven mechanism.
Tis true. That is why I minimal government or non at all to maximize utility. Its the closest thing to individuals chosing what’s right for them. Choose the extent to which you integrate yourself into society! Most utilitarians unfortunately, are socialists/welfare statists. The way I see it, the only proper conclusion of utilitarianism is Negative liberty.
True, moral arguments tend to have just as many flaws as arguments from a utilitarian perspective. But if you are going to propose an economic policy you are smuggling norms into your argument by simply making a proposition of what “should” be done. A system of ethics must be established if you are going to use a science such as economics to perscribe a certain policy over another, if not, it will cease to be a value free science. A natural rights ethic that holds private property as its central tenent is by far, in my mind, superior to an argument from a utilitarian perspective, and has been laid out in depth by Rothbard. By moral, I mean what is ethically required to respect and uphold individual sovereignty. Some may not believe in individual sovereignty(socialists consiting of the majority of this group) but I believe it is far more compelling than an argument from a utilitarian perspective. Either you believe in individual sovereignty or you dont, and those that don’t surely cant hold popular opinion for long once an argument for individual sovereignty has been laid bare.
I do believe that a natural rights argument and truly utilitarian argument go hand and hand, because as I said, what maximizes overall utility more than individuals being able to pursue their own interests without being stopped from doing so by a coercive monopoly? Still I think arguments from th perspective of efficiency are very important.
Like for example: In a distorted governmental system where industry is subsidized, what happens when the government wants to build houses? What signals will it use, and also important, how does it know that moving labour, bricks steel and concrete from related industries won’t wreak havok?
Of course the majority of the socialists out there think that economic calculation will be transcended, and that production for human need without an accounting system won’t wreak havok. Apparently scarcity is a myth.
If you are to use the word utility to describe the positive attributes that spring forth from from a society built on natural rights I suppose it makes sense, but that all depends on who’s eyes are perceiving the results. A monopolist will not see this as improving their utility in the least bit. There is no way to measure utility, it is subjective, so basing a system on utility as well as efficiency is always based on the eyes of the beholder. I defenetly agree that it is important to lay out the positive attributes of a free market, and indeed these atributes leave indivduals the most free to pursue their natures. And these attributes, in my mind are far superior to the choas that will insue in a socailist society. It is indeed important to describe and illustrate why socialism will not pan out, and most assuredly it will not, but striving for a free market system based only on its greater utility is not enough to hold it in place. It must be based on something that is much more ingrained in each individuals psyche. Based on something that is self evident. I am not arguing against economic arguments against socialism, but I believe it is important to anchor in place these arguments by something that is more concrete then utility or efficiency.
I agree compeltely. The issue is that when I talk about icentives and morality with socialists, they just say that socialism will create “a new man”. Ironically he men it created weremore selfish AND lacked initiative. \
Oh and by the way, its so great to have a forum on this website. My country is becoming progressively more socialist, so this serves as a wonderful “refuge” of sorts.
Tell that to my neoclassical economics professors. [:P] Seriously, some of them nearly wet themselves when confronted with mathematical economics.
Anyway, I think insofar as economics is concerned, only economic arguments against socialism are relevant - and even sufficient to bury it, unless one prefers death over life. Ethical arguments belong to the domain of moral philosophy (not that I see it as inferior, at all - just separate.)
Which brings us full circle back to the calculation debate. If economic calculation is impossible under socialism then you don’t need a moral or utilitarian argument. It’s worth remembering the effectiveness of Marx’s argument, which said in effect that it doesn’t matter if socialism is moral or immoral because it’s inevitable.
I’m from soviet Kanuckistan I:E Canada. Most of my generation supports our socialistic parties. Its very sad really. We used to be(in the 1960s and before) the 2nd richest and more prosperous country in the world. Now we’re the 20th or so. We’ve become ever more politically incorrect, anti market, and the defining aspect of our culture these days is anti americanism(or at last that’s the way its become in many places). I’d like to, at the very least, become premier of newfoundland, and fix the tragedy of the commons that affects our fishing banks.
Its funny how these days, people think the solution to every problem is to throw pay packets at them, regulate them etc…
I agree, economics and ethics are separate. But you you need a bifurcated approach. Economics arguments alone demolish the viability of socialism, but if you are going to prescribe any economic policy, there must be an ethics that supports why these polices should be set in place.
I point out that the interpretation of “risking one’s own wealth” to force “responsible” actions misses two important points in Mises’s argument.
First, Mises broadens the stake by mentioning the entrepreneurs’s “destiny” (i.e. a human life, in those days…today at least a reputation).
Second, and this is key - Mises’s argument points out that speculators and investors are ultimately exposed and thus “responsible to the consumers”. Note how this closes a circular relationship, and firmly bases economic calculation on utility to the consumers (i.e. everybody including speculators and investors), allowing an iterative, reality-checked calculation over each time cycle of doing business.
It’s this missing reality check (as Salerno points out in his post-script which Gabriel quotes) which causes arbitrary results in economic calculation.
So we are not dealing with a question of not acting “responsibly” but with a case of unknowingly “not acting in line with reality” due to a garbage-in garbage-out situation.
On a side-line: Let us not forget that even a market economy suffers from a problem of arbitrary prices, at times. For example, stock prices are put to a reality check only very seldom, at most times they rely on expectations which again rely on expectations (and ultimately those of the Greater Fool). The formation of stock price bubbles can cause severe misallocation of capital, even in our “modern” economies.
But what would prevent the director from “exposing” the socialist entrepreneurs by, let’s say, subjecting them to his wrath (and a trip to a concentration camp) if they didn’t operate profitably? If the director did this, the socialist entrepreneurs would then be “responsible to the director.” Their bids for resources would no longer be arbitrary, but would proceed with the aim of satisfying the director. This is what I meant previously when I spoke about the director establishing an incentive structure.
The answer to my original question, which cookmg helped me to realize, is that in order for the socialist entrepreneurs to establish exchange ratios for producer goods that represent real opportunity costs, the director would have to give them complete control over their capital. But this, by definition, would establish private property. Thus, “socialist entrepreneurs” is an oxymoron; and, as Mises said, market socialism is completely self-contradictory.
There is no problem with stock market prices being based on expectations. Indeed, it would be illogical for them to be based on anything but expectations. Owners of a company profit from future income/asset values. It would not make sense for the value of a company to be based on its past income or the past values of its assets. The value of a company’s stock, therefore, must be based on the expectations of its future income and asset values.