I’ve noticed this has been the subject of some recent controversy. I am linking below videos of 2 relatively recent lectures of expositions on economic calculation, at the Mises Institute Brazil and Grove City College respectively. I would very much be interested in people’ thoughts on these 2 expositions, whether they help clarify things you were perhaps unsure on, and just a discussion in general on this issue following from these lines.
I’m starting to think if I put the word ethics, rothbard, or libertarian philosophy in the title I would have got more responses :P. I have noticed this in other intellectual fora too, but there is a noticeable aversion people display to discussions on more “analytical” issues. Either that, or I guess I should have laid my own thoughts on the calculation issue before asking for those of others…
I guess for example how on a science forum people tend to cluster round threads discussion “Religion vs Science” threads as opposed to one’s on features of physical probelms, or here how much response you’d get for a thread discussing underlying aspects of the Law of Returns or technical issues related to PSR - FSR analysis, in comparison to threads on libertarian ethics, etc.
I can’t seem to get the videos to load within the amount of time I have access to the PC for, so I’ll work with what I’ve read already.
In regards to the Economic Calculation Debate am I correct in saying that Hayek was more concerned with the use of the money/price system to give us knowledge about consumer preferences, and Mises more concerned whether individual firms/industries were efficiently using their resources? What is the difference between the two, if any significance difference does exists?
I wanted to respond, but never seem to have the time to watch the full hour of videos. however, i did find what appears to be a transcript of the mallick talk here:
from what i read i think it is an interesting exposition (i hope to spend more time with it after finals next month), but i am not sure how much it adds over other, simpler expositions of the calculation problem.
but when it comes to the calculation problem in general, i have to concur with peter leeson (see vice #4): it is an important topic, but it has been fully mined and probably doesn’t require additional investigation. i think the arguments offered by the austrians during the calculation deabte demonstrated why a centrally planned economy would not be able to effectively allocate resources across their varied uses. so we can now move onto other questions.
which makes me sad because I typically love analytical discussions. i just don’t think there is much to saw our jaws over.
The second video is easier to follow than the paper (I think), and is only 20 minutes. Many neoclassicals still seem to resort to a mistaken interpretation of diminishing returns to scale from production to explain the failure of the Soviet Union (my micro professor being one example). Ironically, I think the mistaken interoretation is baded on an incomplete view and application of the law of returns (Ironic, since neoclassicals in the past, e.g. George Stigler, came much closer to the Austrian formulation, but alas the modern neoclassical paradigm does not seem very good at retaining useful knowledge often).
As far as I see the overall debate, I don’t think it’s controversial to say there are 2 separate problems:
Mises challenge about the lack of pricing data for factors of production due to a lack of private ownership, and thereby exchange of factors of production, hence disallowing the means for rational, cardinal computation to judge and distinguish the feasibillity of alternative production possibilities. The Mallick video and paper attempt to elucidate features of the complex optimisation problem that results in the absence of such data, though I think the attempt is tentative and only scratches the surface at best so far, but admittedly there is little to “work from” in terms of existing literature in maths and computer science let alone economics, given the fact that even most discrete optimisation problems illustrate the issue at best with multiple variables attempting to optimise with respect to one output. The calculation problem “in kind”(without money) would require optimisation in order to match values accordingly from an entire range of different interlocking production processes that span not only in variabillity but time. Indeed, I think the following picture provides a fantastic illustration of the kind of problems involved in modern industrial organisation:
With regard to Leeson’s “sermons” on what Austrians should be doing, I must confess I share Salerno’s opinion that his views here are rather narrow minded to say the least. This is especially considering how long it took some Masonites to even be able to distinguish the Misesian and Hayekian positions on the calculation problem.
The 2nd is Hayek’s “problem”, which I think is fascinating, but am convinced Hayek never really got out of the “Walrasian box” ith regard to his views, which is why he emphasized the practical problem of gathering all the separate data vis a vis having all the prices store this information, while conceding the problem to be theoretically possible having attained the data, a possibillity Mises denied, since it does not begin to answer the question of how one arranges production once one attains all this dissimilar data and then attempts to add “apples to oranges.”
And having said the above, aside from the initial and ending paragraphs, I have personally found Hayek’s article on “The Use of Knowledge in Society” to be one of the best I have ever read in Economics (Indeed I am surprised information theorists have not taken sufficient note, Claude Shannon probably would have been fascinated by that article if he ever encountered it IMO). I believe his contribution is still of value, as long as it is properly nterpreted that the market process involves a dynamic problem requiring on correct future appraisement of consumer prices to direct the bidding process of entrepreneurs. Past prices of products are not “transmitted” to direct production but are one of the many data used as a starting point to estimate future prices and hence bid for factors n the variious stages of production.
Also, as I’m sure you may have noticed, both videos deal predominantly with Mises’ problem, though Fabio’s is far more broad, while the 2nd is an anlaysis specifically of the possibility of “calculation in kind.”
I keep on re-reading Hayek and Mises respective essays ( Economic Cacluation in the Socialist Commonwealth & Use of Knowledge), but I feel as if I’m not grasping them fully. I don’t suppose either elaborated on their ideas in a more accessible manner? Hazilitt did a good job in describing the issue in Time Will Turn Back, but I felt as if whatever I’m missing from Mises & Hayek are missing in it.
Michelangelo, I don’t know if it would be more accessible, but I feel Mises’ exposition of the problem in HA is an improvement on that in his first article. I also think Fabio does a superb job of explaining Mises’ problem in the above video, but alas, you mentioned difficulties viewing it.
And what I was trying to get at Isaac is that while Hazlitt is without a doubt much better in his prose writing, it feels as if he loses some of the technical issues in translating economic jargon into normal speech. Don’t get me wrong, he usually does this without any significant loss, but in this specific case I feel he missed one of the subtler points of it all.