free radical
31st October 2011, 21:19
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The economic calculation problem is a criticism of central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek. The problem referred to is that of how to distribute resources rationally in an economy. The free market solution is the price mechanism, wherein people individually have the ability to decide how a good or service should be distributed based on their willingness to give money for it. The price conveys embedded information about the abundance of resources as well as their desirability which in turn allows, on the basis of individual consensual decisions, corrections that prevent shortages and surpluses; Mises and Hayek argued that this is the only possible solution, and without the information provided by market prices socialism lacks a method to rationally allocate resources. Those who agree with this criticism argue it is a refutation of non-market socialism and that it shows that a socialist planned economy could never work. The debate raged in the 1920s and 1930s, and that specific period of the debate has come to be known by economic historians as The Socialist Calculation Debate. (...)
--> en.wikipedia.org/wiki/Economic_calculation_problem
The anarcho-capitalist economist Hans-Hermann Hoppe argues that, in the absence of prices for the means of production, there is no cost-accounting which would direct labor and resources to the most valuable uses.[9] Hungarian economist Janos Kornai has written that "the attempt to realize market socialism ... produces an incoherent system, in which there are elements that repel each other: the dominance of public ownership and the operation of the market are not compatible."[10]
Proponents of capitalism argue that although private monopolies don't have any actual competition, there are many potential competitors watching them, and if they were delivering inadequate service, or charging an excessive amount for a good or service, investors would start a competing enterprise.[11][12]
In her book How We Survived Communism & Even Laughed, Slavenka Drakulić claims that a major contributor to the fall of socialist planned economies in the former Soviet bloc was the failure to produce the basic consumer goods that its people desired. She argues that, because of the makeup of the leadership of these regimes, the concerns of women got particularly short shrift. She illustrates this, in particular, by the system's failure to produce washing machines. If a state-owned industry is able to keep operating with losses, it may continue operating indefinitely producing things that are not in high consumer demand. If consumer demand is too low to sustain the industry with voluntary payments by consumers then it is tax-subsidized. This prevents resources (capital and labor) from being applied to satisfying more urgent consumer demands. According to economist Milton Friedman "The loss part is just as important as the profit part. What distinguishes the private system from a government socialist system is the loss part. If an entrepreneur's project doesn't work, he closes it down. If it had been a government project, it would have been expanded, because there is not the discipline of the profit and loss element."[14]
Proponents of chaos theory argue that it is impossible to make accurate long-term predictions for highly complex systems such as an economy.[15]
Pierre-Joseph Proudhon raises similar calculational issues in his General Idea of the Revolution in the 19th Century but also proposes certain voluntary arrangements, which would also require economic calculation.[16]
Leon Trotsky, a proponent of decentralized planning, argued that centralized economic planning would be "insoluble without the daily experience of millions, without their critical review of their own collective experience, without their expression of their needs and demands and could not be carried out within the confines of the official sanctums", and "Even if the Politburo consisted of seven universal geniuses, of seven Marxes, or seven Lenins, it will still be unable, all on its own, with all its creative imagination, to assert command over the economy of 170 million people."[17]
--> en.wikipedia.org/wiki/Criticisms_of_socialism
The economic calculation problem is a criticism of central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek. The problem referred to is that of how to distribute resources rationally in an economy. The free market solution is the price mechanism, wherein people individually have the ability to decide how a good or service should be distributed based on their willingness to give money for it. The price conveys embedded information about the abundance of resources as well as their desirability which in turn allows, on the basis of individual consensual decisions, corrections that prevent shortages and surpluses; Mises and Hayek argued that this is the only possible solution, and without the information provided by market prices socialism lacks a method to rationally allocate resources. Those who agree with this criticism argue it is a refutation of non-market socialism and that it shows that a socialist planned economy could never work. The debate raged in the 1920s and 1930s, and that specific period of the debate has come to be known by economic historians as The Socialist Calculation Debate. (...)
--> en.wikipedia.org/wiki/Economic_calculation_problem
The anarcho-capitalist economist Hans-Hermann Hoppe argues that, in the absence of prices for the means of production, there is no cost-accounting which would direct labor and resources to the most valuable uses.[9] Hungarian economist Janos Kornai has written that "the attempt to realize market socialism ... produces an incoherent system, in which there are elements that repel each other: the dominance of public ownership and the operation of the market are not compatible."[10]
Proponents of capitalism argue that although private monopolies don't have any actual competition, there are many potential competitors watching them, and if they were delivering inadequate service, or charging an excessive amount for a good or service, investors would start a competing enterprise.[11][12]
In her book How We Survived Communism & Even Laughed, Slavenka Drakulić claims that a major contributor to the fall of socialist planned economies in the former Soviet bloc was the failure to produce the basic consumer goods that its people desired. She argues that, because of the makeup of the leadership of these regimes, the concerns of women got particularly short shrift. She illustrates this, in particular, by the system's failure to produce washing machines. If a state-owned industry is able to keep operating with losses, it may continue operating indefinitely producing things that are not in high consumer demand. If consumer demand is too low to sustain the industry with voluntary payments by consumers then it is tax-subsidized. This prevents resources (capital and labor) from being applied to satisfying more urgent consumer demands. According to economist Milton Friedman "The loss part is just as important as the profit part. What distinguishes the private system from a government socialist system is the loss part. If an entrepreneur's project doesn't work, he closes it down. If it had been a government project, it would have been expanded, because there is not the discipline of the profit and loss element."[14]
Proponents of chaos theory argue that it is impossible to make accurate long-term predictions for highly complex systems such as an economy.[15]
Pierre-Joseph Proudhon raises similar calculational issues in his General Idea of the Revolution in the 19th Century but also proposes certain voluntary arrangements, which would also require economic calculation.[16]
Leon Trotsky, a proponent of decentralized planning, argued that centralized economic planning would be "insoluble without the daily experience of millions, without their critical review of their own collective experience, without their expression of their needs and demands and could not be carried out within the confines of the official sanctums", and "Even if the Politburo consisted of seven universal geniuses, of seven Marxes, or seven Lenins, it will still be unable, all on its own, with all its creative imagination, to assert command over the economy of 170 million people."[17]
--> en.wikipedia.org/wiki/Criticisms_of_socialism