Distribution of Resources

[abbielives!]

How do we allocate resources?

this is from a debate w/ a capitalist:
"without a capital market, there is no way of allocating resources in the ways consumers want. Consider the example of a collective farm that can grow corn or soybeans. If there is only one good being produced, this isn't a problem, as more is always preferable to less. However, since the farm is producing two products, there are hundreds of thousands of different production possibilities: 800 bushels of corn, 200 of soybeans; 650 corn, 350 soybeans; etc, etc. How do we know what to produce? How do we know how much of these commodities should be immediately consumed, and how do we know how much should be used as capital in the production of derivative products? Well, in a free market, consumers will bid up prices of the commodities (or their derivatives) that they want and refrain from buying those they don't; thus, competitive forces will bring the market into equilibrium. Yet how does a central planner know what to produce without these market signals? Answer: they can't. There is no possible way to determine the subjective wants of consumers (that can't be cardinally measured in the first place) without a market. Any decision will be purely arbitrary, thus the huge shortages, surpluses, and waste Knight mentioned. And the example I mentioned only has two products. In a modern, complex economy, production possibilities are virtually infinite.

Think of market prices as the traffic lights of the economy - they send the signals to producers about what to produce. Without them, you get chaos. The only reason centrally planned economies have hung on (with a standard of living a tiny fraction of freer-market economies) is that they have been able to rely on external markets to get pricing information."


any good responses?

[ComradeRed]

without a capital market, there is no way of allocating resources in the ways consumers want. That doesn't even happen with a capital market!

Unless there is perfect competition, which you can empirically verify for yourself that there isn't such a thing in any industry.


If there is only one good being produced, this isn't a problem, as more is always preferable to less. However, since the farm is producing two products, there are hundreds of thousands of different production possibilities: 800 bushels of corn, 200 of soybeans; 650 corn, 350 soybeans; etc, etc. How do we know what to produce? How do we know how much of these commodities should be immediately consumed, and how do we know how much should be used as capital in the production of derivative products? Different communes grow different things, and exchange it with each other in the manner described by a gift economy.

If you don't like working a particular job making a particular good and would rather go build some other good, then you are free to go to the commune that produces this good you'd like to produce.

There are however some goods which may be tailored specifically for the consumer. This would use some computer system to keep track of the consumers and their place of living.

This would be most useful for clothing, and other things (a record of what everyone in the world likes and dislikes would be very useful).

This could be rejected as cartoonish, but the internet was rejected as cartoonish too in the early 1980s.

And of course let's not forget that drastic introduction of automation would come in to play. Speaking as a physicist, I know that automation is something that could easily be introduced in everything from agriculture to industrial production. Nanotechnology too will be interesting in this regard.


Well, in a free market, consumers will bid up prices of the commodities (or their derivatives) that they want and refrain from buying those they don't; thus, competitive forces will bring the market into equilibrium. Not true, the market is a system that is constantly in disequilibrium.

And competition doesn't fall from the sky either.

Nor do consumers set the prices of goods. Instead the firm sets the price of the goods, that's basic microeconomics (yes the bourgeois economists have yielded to this point finally in their texts!).


Yet how does a central planner know what to produce without these market signals? Answer: they can't. There is no possible way to determine the subjective wants of consumers (that can't be cardinally measured in the first place) without a market. Hmm...odd use of cardinality here, but I'm thinking of it in the mathematical sense of the word (the size of a set or collection that is).

At any rate, that's not true at all. This presupposes that there is a continuous (or even discrete) spectrum of utility that is other than {0,1} or {useless, useful}.

It hinges critically on that one point. Alas, that one point is invalid; you don't measure utility as a continuous variable (or even a discrete variable). You measure it as a boolean quantity.

The entire argument for the market is moot.


Any decision will be purely arbitrary, thus the huge shortages, surpluses, and waste Knight mentioned. It's not as the "the planners" are using dartboards and dice to decide what to do.

Actually, ironically, this system (a classless gift economy) is more of a "free market" than capitalism is.


Think of market prices as the traffic lights of the economy - they send the signals to producers about what to produce. Without them, you get chaos. This is an over-simplification of an obviously nonlinear system.

The consumers buy goods, which fund the capitalists, which is used to hire the consumers and purchase raw materials (and so forth) to make more goods to sell. Yeah, that's nonlinear.

This "signal" explanation is a linear system. Consumers demand goods, which causes producers to produce them. It's like the explanation of a computer!

Let's run with such an analogy. In this picture, the circuitry is fixed (if we think of it parallel to traffic lights). What happens in reality is that the circuitry evolves depending on the information that flows through them (depending on the signals the transistors send and receive).

Otherwise you assume that the producers produce solely for the pleasure of supplying consumers...which contradicts the basic idea behind bourgeois economics that producers are selfish bastards.


The only reason centrally planned economies have hung on (with a standard of living a tiny fraction of freer-market economies) is that they have been able to rely on external markets to get pricing information. This is mere sophistry, there is no proof to back this up. Further, the "planned economies" of the U$$R and PRC weren't really planned insomuch as they were state capitalist.

And he's right in his criticism of state capitalism, it really does suck.

But he's generalizing it too much if he's including all forms of "planned" (i.e. non-market based) economies.