I’m
glad that we started out with the readings on the socialist calculation
debate. I’ll tell you why. I love Marx. The Marx I fell in love with
was the Marx of the Manifesto that my girlfriend was mad that she was
being forced to read for a political science class. But the problem with
the Manifesto is the same problem as with all the old movies: once you
ride off into the sunset, happily ever after does not just happen.
Happily ever after must be theorized. Proletarier aller Länder, vereinigt euch!,
sure but then what? And then of course as Marx progresses in his career
what does he do if not show us the way by developing a much more
in-depth analysis of the capitalist mode of production and exchange in
the first volume of Capital and then working towards more volumes and
then dying without completing his valedictory work. Even more
contemporary activists struggle to explain the plan of the future as
criticism of the current system is much easier to show injustice than to
create. Mises, in his “Economic Calculation in the Socialist
Commonwealth identifies the problem as how “[Utopians] invariably
explain how, in the cloud-cuckoo lands of their fancy, roast pigeons
will in some way fly in the mouth of their comrades, but they omit to
show how this miracle will take place” (2).
Economic
argument did not sleep between the 1848 Manifesto and 1920, when Mises
published his broadside against socialism, the previously quoted paper
“Economic Calculation in the Socialist Commonwealth,” but it is here
that we begin our examination. The six papers we will examine all are in
response to Mises’s provocation — Lange and Lerner writing in an effort
to show where Mises was mistaken, and Hayek writing a repost in support
and expansion of Mises’s original point. In this brief paper, we will
examine several claims in the original paper and look at the responses.
The role of consumption goods in a socialist economy
The
first thing to we want to look at is the role of consumption goods in a
socialist society. Mises claims that in the socialist society, it is
“who is consuming and what is to be consumed by each which is the crux
of the problem of socialist distribution” (Calculation 4). For Mises,
the problem is that under socialism, “It is characteristic of socialism
that the distribution of consumption goods must be independent of the
question of production and if its economic conditions” (Calculation 4).
For Mises, we see there is a separation between the question of
production and consumption, and this difference exposes the inherent
problem with the socialist economy. For Oskar Lange, in his “Economic
Theory of Socialism: Part One,” this fundamental issue identified by
Mises does not exist. In fact, he does not see the common ownership of
the productive machinery of society being an impediment to free choice
in consumer goods: “The fact of public ownership of the means of
production does not in itself determine the system of distributing
consumers’ goods and of allocating people to various occupations, nor
the principles guiding the production of commodities,” continuing, “In
the socialist system as described we have a genuine market” (60). Both
Lange and Lerner go to pains to show that this apparent contradiction
identified by Mises is no such thing, showing how in their estimation a
socialist market might work.
The problem with value in a socialist economy
One
of these methods of looking at the potentiality for trade in the
socialist economic system is the question of how you value the outputs
of the economy. For Mises this is a problem. He sees an economy where
“distribution will be determined upon the principle that the state
treats all its members alike […] each comrade receives a bundle of
coupons, redeemable within a certain period against a definite quantity
of certain specified goods” (Calculation 5). In this economy he can see
exchange building up based on these individual preferences, but he makes
a point to say that this exchange will be limited and confined to
exchange, and that since “no production good will ever become the object
of exchange, it will be impossible to determine its monetary value”
(Calculation 5–6). What happens according to Mises is that once market
exchange develops and relative values are determined then that brings
into question the value of labor. He assumes that a socialist society
would be completely remunerated based on labor input “The comrade is
thus marked up for every hour’s work put in and this entitles him to
receive the product of one hour’s labor” (Calculation 6) and even though
looking at a case where “labor is not a uniform” so in the end for
Mises it becomes impossible to split the labor inputs and how to divide
the yield of the labor socially (Calculation 7).
Mises
goes deeper in the second section. It is in these pages that he makes
the central claim of the work — “Without economic calculation, there can
be no economy” (Calculation 14). This does not come from left field. He
builds his argument by dividing goods between production goods and
consumption goods, he makes the distinction between higher order and
lower order goods. It is these higher order goods that he focuses on.
Small individual exchange can happen, but higher-level coordination
needs valuation to give production goods meaning: “The human mind cannot
orientate itself properly among the bewildering mass of intermediate
products and potentialities of production without such aid. It would
simply stand perplexed before the problems of management and location”
(Calculation 13).
Of
course, these claims do not go without being addressed. Lerner takes
this head on by asserting that Mises is trying to import the whole
paradigm of the capitalist economy and lay it over a socialist economy.
In fact, he notes “the competitive price system has to be adapted to
socialist society. If it is applied in toto we have not a socialist but a
competitive society” (Economic Theory and the Socialist Economy 55).
And Lange notes that Mises is making a definition error, thinking that
what is needed to make decisions is a monetary price, but a higher level
relative valuation can work since what the planners utilize is the
economic problem as a “choice between alternative” (On the Economic
Theory of Socialism 54).
The separation of consumption and production in a socialist economy
From
above, the starting point for Mises was the problem is that under
socialism, “It is characteristic of socialism that the distribution of
consumption goods must be independent of the question of production and
if its economic conditions” (Calculation 4). This separation led to the
whole issue of needing to value goods and then the introduction of money
and then the problem with labor and higher order production goods. But
as we have seen, demand doesn’t just go into a black box. As Lange
notes, “The administrators of a socialist economy will have exactly the
same knowledge, or lack of knowledge, of the production functions as the
capitalist entrepreneurs have” (55). Hayek would argue that this would
not be enough. The entrepreneurs are in aggregate, but if there was only
one board they could have the same chance of making a mistake in
production as any one entrepreneur would have but the distributed
knowledge would make the system work: “the sort if knowledge with which I
have been concerned is knowledge of the kind which by its nature cannot
enter into statistics and therefore cannot be conveyed to any central
authority in statistical form” (524). Where the consumer and producer
are rent by socialism, the advocates of the competitive society see the
market bringing them back together.
The virtues or vices of a “competitive society”
Within
our reading, the strongest advocate for the competitive society was in
Hayek’s “The Use of Knowledge in society”. In it, he show how the
decentralized nature of the competitive society is the more useful way
to respond to the constant change the economy faces: “If we can agree
that the economic problem of society is mainly one of rapid adaptation
to changes in the particular circumstances of time and place, it would
seem to follow that the ultimate decisions must be left to the people
who are familiar with these circumstances” (524). He goes on to
emphasize that we must solve it be some form of decentralization. And is
this decentralized society that most have lived in and that Mises
points out that it “has obtained for some thousands of years” (14), but
his destruction of the possibility of socialism relies less on building
up the idea of the competitive economy, but instead taking it as the
ideal status quo which to prove the impossibility of the socialist
state.
The
socialist side of the debate is not wholly critical of the competitive
society. In fact, Oscar Lange thanks (though how much tongue in cheek, I
do not know) for Mises forcing “socialists to recognize the importance
of an adequate system of economic accounting to guide the allocation of
resources in a socialist economy” (53). Far from the impossibility of
taking the good parts from the capitalist system and overlay it on the
socialist system, Mises arose the socialist theorists and made them look
at their own system in the new light, so much that Lange offers up a
statue of Mises in the economic planning bureau — an image so memorable
that Hayek cites it in his own paper ten years later (529).
The virtues or vices of a socialist society
If
you’re Ludwig von Mises, the whole point of your effort in writing was
to prove not that socialism is bad, but that it is on the face
impossible. But interestingly, he concedes at the end that no matter
what he argues, the socialists will not listen, as he writes “Whoever is
prepared himself to enter upon socialism on ethical grounds on the
supposition that the provision of goods of a lower order for human
beings under a system of common ownership of the means of production is
diminished or whoever is guided by the ascetic ideals in his desire for
socialism will not allow himself to be influenced in his endeavors by
what we have said (33). Which is good, since Mises did not have the last
word, in fact, as we looked at above, this paper set off the debate so
much that he deserves a statue in Red Square.
One
thing that really struck me was that I had been expecting to read about
the waste of the capitalist system and the unequal distribution of
resources between the workers and the capital owners in the reading.
Though tangential, it had seemed as if the battle lines had already been
drawn. It was not until the second part of Lange’s paper where anyone
makes full throated appeal for socialism and against the capitalist mode
of production and distribution, where he makes claims such as “Only a
socialist economy can distribute incomes so as to attain the maximum
social welfare” and “Under capitalism the distribution of the ownership
of the ultimate productive resources is a very unequal one, a large part
of the population owning only their labor power” (On The Economic
Theory of Socialism: Part Two 123).
Conclusion:
One
thing I noticed specifically in the reading for this week was that I
have motivated reading. I took the wrong route and started reading the
socialists responses before I read Mises because I was more sympathetic
to them and the packet was smaller, honestly. That deprived me of the
context I had to get by rereading while I was working on typing this up
and able to see all the papers as a whole. It is a different way of
looking at things so that it is more a becoming of an
understanding — even though I know I’m only scratching the surface here.
The other piece was not about the order I read things in, but in how I
read them. I found that reading the socialists was more about reading
for understanding, while reading the Mises piece I was reading prepared
to criticize. Once I realized I was doing that I moved onto the Hayek
essay with a much more open mind than the first time I read Hayek eight
years ago.
Works Cited
Ludwig
von Mises, Economic Calculation in the Socialist Commonwealth (1920
[1990]): 1–46. The present translation was first published in F.A.
Hayek, ed., Collectivist Economic Planning (London: George Routledge
& Sons, 1935; reprint, Clifton, N.J.: Augustus M. Kelley, 1975).
Friedrich A. Hayek, “The Use of Knowledge in Society,” American Economic Review, Vol. 35, №4. (Sep., 1945): 519–530.
Abba. P. Lerner, “Economic Theory and Socialist Economy,” The Review of Economic Studies, Vol. 2, №1 (Oct., 1934): 51–61.
Abba. P. Lerner, “Theory and Practice in Socialist Economy,” The Review of Economic Studies , Vol. 6, №1 (Oct., 1938): 71–75.
Oskar Lange, “On the Economic Theory of Socialism: Part One,” The Review of Economic Studies, Vol. 4, №1 (Oct., 1936): 53–71
Oskar Lange, “On the Economic Theory of Socialism: Part Two,” The Review of Economic Studies, Vol. 4, №2 (Feb., 1937): 123–142
