Economic Calculation Problem

[Connolly]

Iv encountered this while debating with someone on another forum.

Briefly looking at it, I can see some things I could argue against, though im curious to know whether it has been properly addressed by Marxist economics and refuted.

Whats your thoughts on it?

http://en.wikipedia.org/wiki/Economic_calculation_problem

[Dimentio]

Novak talked about it. I think it has a point in that politicians and bureaucrats have no means of acquiring knowledge about the public demands, but the same applies for immature markets.

I would say that those who are bringing forth it as a point most likely are adherents to the Austrian school of economics, a school which few scholars take seriously.

[mikelepore]

Almost all capitalism versus socialism debates get around to this issue. I don't know what's the best thing to read, but here are my own conclusions.

Ludwig von Mises claimed that a management system that lacks the "information" conveyed by prices determined in a competitive market would have no way to know what is efficient. The truth is that prices don't convey information that is useful to industry.

(1) How low in price sellers are willing to go, and high in price buyers are willing to go, only communicates how desperate people are, which mainly seems to be useful in a system based on taking advantage of the misfortunes others for your own financial benefit. Such "information" is not inherently necessary to have industrial production.

(2) What people buy doesn't indicate what they want. Buyers can choose what to buy only out of the limited set of things that already exist and they can afford. There is no data conveyed about what they want or need but they didn't buy it because it isn't made and sold yet, or it exists but is priced at a high level where they can't consider it.

(3) There's no way that any one-dimensional measurement, say, a price, could convey multiple dimensions of information, such as what goods people want, how rare nature's resources are, what is an efficient manner of using tools, etc. The set of advantages that Mises' supporters claim for price "information" is impossible.

(4) A system without prices negotiated in a competitive market, for example, a system in which all goods could be priced automatically at their cost of production and sold nonprofit, would still have all necessary information to evaluate efficiency. People in industry can tabulate energy consumption, pollution emission, the rate of material recycling, product reliability, miniaturization, and other physical units. Labor time is the major resource to be tabulated, since all production ultimately is the mixture of labor time with nature's raw materials. Geologists can tell industry which substances are rare and are therefore most critical to conserve. There is no need to have competitive market prices to know whether or not industrial processes are efficient.

In short: for a college professor, Mises sure had a very poor imagination.

[trivas7]

I would say that those who are bringing forth it as a point most likely are adherents to the Austrian school of economics, a school which few scholars take seriously.
Perhaps, but it has great cultural cache with today's neo-liberals all over the world, no?

[Connolly]

Almost all capitalism versus socialism debates get around to this issue. I don't know what's the best thing to read, but here are my own conclusions.

Ludwig von Mises claimed that a management system that lacks the "information" conveyed by prices determined in a competitive market would have no way to know what is efficient. The tre truth is that prices don't convey information that is useful to industry.

(1) How low in price sellers are willing to go, and high in price buyers are willing to go, only communicates how desperate people are, which mainly seems to be useful in a system based on taking advantage of the misfortunes others for your own financial benefit. Such "information" is not inherently necessary to have industrial production.

(2) What people buy doesn't indicate what they want. Buyers can choose what to buy only out of the limited set of things that already exist and they can afford. There is no data conveyed about what they want or need but they didn't buy it because it isn't made and sold yet, or it exists but is priced at a high level where they can't consider it.

(3) There's no way that any one-dimensional measurement, say, a price, could convey multiple dimensions of information, such as what goods people want, how rare nature's resources are, what is an efficient manner of using tools, etc. The set of advantages that Mises' supporters claim for price "information" is impossible.

(4) A system without prices negotiated in a competitive market, for example, a system in which all goods could be priced automatically at their cost of production and sold nonprofit, would still have all necessary information to evaluate efficiency. People in industry can tabulate energy consumption, pollution emission, the rate of material recycling, product reliability, miniaturization, and other physical units. Labor time is the major resource to be tabulated, since all production ultimately is the mixture of labor time with nature's raw materials. Geologists can tell industry which substances are rare and are therefore most critical to conserve. There is no need to have competitive market prices to know whether or not industrial processes are efficient.

In short: for a college professor, Mises sure had a very poor imagination.


I can see the solutions to many of the problems he brings up. Price does not indicate much at all about goods or services, very little infact.

I could also see a system of 'supply and demand' working without a price system being necessary in a socialist society. The measure of how "successful" a product is, or 'popular' with the consumer, could be exactly the same way as it works in a capitalist system - people dont consume it, things get left on the shelves. Tie that into alienation and people's search, for as i put it, 'social recognition', and the there is no logical reason why someone, or a society, would want to produce things not being consumed.

Thats all fine, and I dont necessarilly see a socialist/communist society having to be 'centrally planned' either.

But what stumps me, is the lack of "incentive" to use resources efficiently. Efficiency is not measured by price, that is quite clear. If someone sets out to create something which, say, uses the least amount of metal possible - it does not necessarilly require price, just engineering.

But, what is the incentive for a manufacturer who manufactures, say, dog bowls, to use 3mm of steel as opposed to a more sturdy, quality, but not neccessarilly needed, 6mm of sheet steel.

I as a consumer would opt for a 6mm bowl, but its not efficient, and my 'consumption' of it simply spurs the manufacturer on.

Capitalism would use the price system in this case, an extra 3mm is more expensive - but from what i can see, no such system I can think of could incentivise a 3mm dog bowl in a socialist system. This problem gets more significant when it becomes precious metals such as Gold, and others, which are used in industry.

But as i say, the efficient use of material does not require price, but it requires incentives.

What is the incentive in this case? - or should I say the solution. Now it may be that my concept of a socialist society and economics is wrong, but, it seems to work out until faced with an issue like this.

[Connolly]

Novak talked about it. I think it has a point in that politicians and bureaucrats have no means of acquiring knowledge about the public demands, but the same applies for immature markets.

I would say that those who are bringing forth it as a point most likely are adherents to the Austrian school of economics, a school which few scholars take seriously.

:D No he's a bit of an idiot who just happen to come across a link to this "debunking of socialism" and accepts it as gospel.

[Dimentio]

Perhaps, but it has great cultural cache with today's neo-liberals all over the world, no?

Neo-liberal bloggers only stay unified when they're confronting what they see as leftism. Most of them are pseudo-educated, and believe that Mises, Hayek, Rand, Friedman and the rest of them all had the same ideas.

[Dimentio]

:D No he's a bit of an idiot who just happen to come across a link to this "debunking of socialism" and accepts it as gospel.

Some people I know swallows all bourgeoisie information as gospel, while they are extremely sceptical of socialist-inclined information. I think it has to do with their class situation.

[Schrödinger's Cat]

Energy accounting, or something similar, effectively disputes Von Mises's claim. Replace money with tracking.

[Connolly]

Well anyway, and from the same piece in the other thread "Marxian economic theory and an ontology of socialism: A Japanese intervention"

It touches on 'economic calculation':


"Calculation, motivation, discovery and the ontology of socialism:


Calculation. At the centre of the debate among those who believe a 'complex' modern non-capitalist socialist economy to be a practical impossibility, proponents of so-called market socialism and defenders of various forms of socialist economic planning, is the question of economic 'calculation'. To trace the contours of the debate over calculation through its twists and turns across the better part of the twentieth century would certainly outstrip the bounds of this article. However, for expository purposes the core problematic may be succinctly summarised as follows: Reflecting the predominance of neo-classical economics in economic discourse, with its concern over the so-called allocation of scarce resources among competing ends, the challenge for a viable socialism was presumed to be the ability of planning mechanisms to simulate or possibly even trump the 'efficient' information transmitting property of the market and the tendency of markets to approach a `Pareto-optimal' equilibrium outcome.9 It is precisely the attempt to meet such a requirement of socialist economic organisation, for example, that animates the recently posed and influential models of democratic participatory planning of Albert and Hahnel (1991) and Cockshott and Cottrell (1997). For Albert and Hahnel, equilibration of supply and demand is to be effectuated through an iterative planning process where decentralised micro-level consumers' and workers' councils make allocatory demands that are subject to revision according to information transmitted from relevant meso- and macrolevel bodies. In the model of Cockshott and Cottrell, democratic central planning is to achieve an optimal equilibrium balancing of inputs and outputs vis-a-vis information derived from direct calculation of labour time, transmitted through computer networks.

The endeavour of such models to defend democratic and participatory modalities of economic planning against those opponents of socialism convinced the scope of the planned economy to be exhausted by soviet style exemplars is certainly laudable. However, my concern is the way in which the models unwittingly co-opt some of the dubious presuppositions of neo-classical economics. The fact is, neo-classical economics treats the market as a supra-historic 'economic' institution and never problematises the effacing and replacement of face-to-face socio-material reproductive relations marking past human societies by the integrated system of self-regulating markets characteristic of the capitalist commodity economy. Contrariwise, Marxian economic theory recognises that the equilibrative tendencies of the capitalist market stem precisely from the historically specific and ontologically peculiar modus operandi of the capitalist commodity economy that involves the production of use-values as value objects utilising commodified labour power. That is, in a purely capitalist society the law of value constitutes the fundamental organisational principle of material reproduction guaranteeing the viability of capitalism as a human society by ensuring that basic goods are neither over-produced nor under-produced relative to the existing pattern of social demand.10 But it does this while simultaneously managing the economic life of human beings for the abstract purpose of value augmentation."

And it continues on into the next few pages: http://findarticles.com/p/articles/mi_qa3780/is_200210/ai_n9096682/pg_6?tag=artBody;col1


I think mikelepore has it spot on with "In short: for a college professor, Mises sure had a very poor imagination." :).

[Lynx]

Needed: an analysis of Towards a New Socialism by Paul Cockshott and Allin Cottrell and more details regarding energy accounting.
Edit: plus an examination of participatory economics, as per Robin Hahnel + Michael Albert

[mikelepore]

But, what is the incentive for a manufacturer who manufactures, say, dog bowls, to use 3mm of steel as opposed to a more sturdy, quality, but not neccessarilly needed, 6mm of sheet steel.

Incentive is needed for an individual to perform work, but not for administration to have a policy that something should be done. Policy is the result of comparisons and discussions, and putting the final determinations into writing with interdepartmental distribution. Product designers have enough technical education to know the specifications of the materials needed to ensure reliability, and also the point of diminishing returns beyond which stricter specifications are wasteful.

One of the most important parts to answering your question is: socialism means that the plant that makes bowls wouldn't have to buy the steel from the plant that makes steel. The two plants would be departments of the same economic system, and would not be separate financial entities. It would be an interdepartment transfer for the output of one plant to become an input for the next plant (which economists call an "intermediate product.") Likewise, each industry wouldn't have to pay for labor, buildings, tools, or energy. The directors would therefore be intellectually free solely to follow a set of written policies, such as: measure what consumers express a desire for, add to those things new products according to the creativity of the design departments, and manufacture them according to such standards as efficient use of resources, environmental conservation, and health and safety guidelines. Humanistic objectives, not profit trends, are what management would summarize in annual reports and be judged on (and it would be some mixture of worker and/or community constituencies that would elect the management, not a class of stockholders.) As with capitalism, the job description required of management would have a formal structure, but the basic charter of the organization, production solely for social use, would give it different content.

[GPDP]

The Anarchist FAQ had some things to say on this subject as well.

http://www.infoshop.org/faq/secI1.html#seci11 - This one deals with socialism in general
http://www.infoshop.org/faq/secI1.html#seci12 - This one deals explicitly with an anarchist society

[Revolution 9]

The Austrian school's critique of socialism and communism were sound. They just didn't realize there are alternatives (like mutualism :cool:).

The economic calculation problem can be summed up like this:


In a society with no money where goods are "pooled" and then used by members, there would be constant shortages since the absence of prices would create a very high demand.
In a society with central planners arbitrarily setting prices, you'd have shortages in some goods and surpluses in others as the prices would be set either lower or higher than the market-clearing price.
State enterprises would be monopolies and thus not subject to competition. This would, of course, mean shitty products as there really would not be any incentive to produce better ones (as an example compare water utilities with electronics).



Lange's response was essentially that central planners would set prices according to supply and demand and learn "on the go." The problem with this is that demand varies greatly from city to city and even street to street. If some disaster happens and prices all of a sudden should raise, the central planners might have the day, week, or month off, which would cause all sorts of havoc as shortages would ensue.

[Hyacinth]

Whatever issues there were for socialist planning back when this debate was taking place have largely been solved by the advances in computing that have taken place over the last two decades. As it stands we have the computational capacity to both gather the necessary data required for economic planning (we could, for instance, keep track of economic activity in an economy in real time using existing technology), as well, we have the processing capacity to solve the equations for such an economy (be they linear or otherwise). The biggest hurdle that faces socialist planning is no longer technical limitations, but rather instead coming up with the proper model of an economy; the task of constructing an economic model composed of all the myriad of linear equations that go into the production of any given good or service is no easy one, but hardly insurmountable. (Another poster has already mention Paul Cockshott's and Allin Cottrell's "Toward a New Socialism", for those more interested in the economic side of socialism is it worth looking into, the site is here: http://reality.gn.apc.org ; as well, some of the readings on the recommended readings sections expand further on this issue, and specifically go on to directly refute the arguments of the Austrian school in greater technical detail)

[Revolution 9]

^ Wrong. The economy cannot be represented by a series of equations. There's a reason why many mathematical economists using all sorts of technology can't even predict basic economic events.

Even if computer models would be able to set a "perfect price" there still would be the problem I mentioned in point number three, as managers would have no incentives to produce higher quality programs unless you created a whole new class of bureaucrat planners that would essentially leech off of the productive forces of the nation.

The only alternative to capitalism is some kind of anarchist society, e.g. anarcho-syndicalism or mutualism.

[Hyacinth]

^ Wrong. The economy cannot be represented by a series of equations. There's a reason why many mathematical economists using all sorts of technology can't even predict basic economic events.

Even if computer models would be able to set a "perfect price" there still would be the problem I mentioned in point number three, as managers would have no incentives to produce higher quality programs unless you created a whole new class of bureaucrat planners that would essentially leech off of the productive forces of the nation.

The only alternative to capitalism is some kind of anarchist society, e.g. anarcho-syndicalism or mutualism.
There's a considerable difference between forecasting what the market will do when market trends are often based on irrational decisions on numerous agents acting on limited information, and planning an economy with full information. That being said, you are mistaken that economists aren't capable of making accurate predictions about market behavior. Wal-mart is an excellent example to the contrary, in fact, many of the tools that Wal-mart uses to predict consumer behavior (the models of which are detailed enough to predict the increase of sales of, say, beer on a rainy day; it's actually quite impressive what they do) are strikingly accurate. Capitalists already use the sort of tools and mathematical models that can be applied for planned economies (in fact, corporations are planned economies, only ones that operate in the context of a market) in their own economic planning.

As for the claim that planned economies need be highly bureaucratic I hardly see how that would follow. You can have, for instance, demarchic (citizens selected by lot) councils overseeing the entire processing, and being in charge of innovation. So, for instance, if you wish to introduce a new technology into production on the consumer level you can consult various interested groups to see what they want produced. As for technical innovation involving non-consumer goods (i.e. the introduction of new means of production) there is a technically best solution to questions of this sort without need to recourse to political considerations. There is no reason in principle why you need the sort of coordinator class to oversee the regulation of economic life under communism. In fact, anarcho-syndicalism is, I think, a viable way in which to organize the political side of communist society, but it still doesn't resolve the economic issues: you need some sort of rational way to coordinate economic activity.

[Revolution 9]

There's a considerable difference between forecasting what the market will do when market trends are often based on irrational decisions on numerous agents acting on limited information, and planning an economy with full information.

Just that planners do not have the full information. Mathematical models cannot predict the price of a product, as that price reflects second-to-second changes. Those changes can only be accounted by the "frontmen" for said product, who then raise their price, demand more of the product from the producers, then the producers raise their price to stave off demand, then resource-owners raise prices, ad infinitum.

Furthermore, mathematical models cannot accurately measure utility or the marginalization of utility.


That being said, you are mistaken that economists aren't capable of making accurate predictions about market behavior. Wal-mart is an excellent example to the contrary, in fact, many of the tools that Wal-mart uses to predict consumer behavior (the models of which are detailed enough to predict the increase of sales of, say, beer on a rainy day; it's actually quite impressive what they do) are strikingly accurate. Capitalists already use the sort of tools and mathematical models that can be applied for planned economies (in fact, corporations are planned economies, only ones that operate in the context of a market) in their own economic planning.

As for the claim that planned economies need be highly bureaucratic I hardly see how that would follow. You can have, for instance, demarchic (citizens selected by lot) councils overseeing the entire processing, and being in charge of innovation. So, for instance, if you wish to introduce a new technology into production on the consumer level you can consult various interested groups to see what they want produced. As for technical innovation involving non-consumer goods (i.e. the introduction of new means of production) there is a technically best solution to questions of this sort without need to recourse to political considerations. There is no reason in principle why you need the sort of coordinator class to oversee the regulation of economic life under communism.

Your two examples would do nothing but slow the introduction of better methods of production. Have some kind of "regulatory committees" deciding what technology is good and what isn't will just put major halts, as each new technological discovery would have to be put through extensive examination, debate, etc. Technology might be adopted much slower than it otherwise would be on a free market.

Furthermore, such a system would be highly dependent on the special interests represented by each regulator. Whether you like it or not, each regulator would still end up acting for him or herself (as we see with modern regulators and the regulators of ex-socialist countries). For example, a regulator might see some kind of technology threaten previous advancements of a buddy of his, it might be in his interest to block the new technological advancements.

A genuinely free market, on the other hand, allows individuals to choose technology based on how they believe it will maximize their utility. Thus, if a technology is deemed useful by at least one person, it might spread if it actually becomes successful (i.e. if that person gains from it somehow). On the other hand, unsuccessful technologies would never be adopted by the society as a whole, since the few who use it wouldn't be as successful as those who don't. This is another issue with your proposed system, since unsuccessful technologies, if adopted by a planning board, would wreck havoc on the entire productive system.


In fact, anarcho-syndicalism is, I think, a viable way in which to organize the political side of communist society, but it still doesn't resolve the economic issues: you need some sort of rational way to coordinate economic activity.

The only rational way to coordinate economic activity is to allow genuinely free markets to exist - that is, allow individuals to choose what they want. Central planners and mathematical models do not know how I subjectively value one product over another product.

You still have not responded how a centrally planned system would insure a variety of products meant to satisfy the needs of consumers who want varying degrees of quality, quantity, etc. The main problem with state socialism is that you have one, uniform, low quality product on the market that never improves due to a lack of competition. What you would need to make socialism more responsive would be competing state-owned businesses that are not subsidized by government - something that would be similar to highly regulatory capitalism.

[Hyacinth]

Just that planners do not have the full information. Mathematical models cannot predict the price of a product, as that price reflects second-to-second changes. Those changes can only be accounted by the "frontmen" for said product, who then raise their price, demand more of the product from the producers, then the producers raise their price to stave off demand, then resource-owners raise prices, ad infinitum.
Nonsense, that mathematics cannot predict the prices of products. By measuring consumer behavior you can make very accurate predictions for demand. In fact, we are capable of tracking consumption, and by extension, demand in real time. Given existing telecommunications technology there is no technical reason why planners couldn't have access to *all* economic information at a glance, and at that in real time too (think of factories sending in information via the internet of their inputs/outputs, stores of their sales/stocks, etc.).

As for the assertion that these changes can only be account for by "frontment", again false, especially if the examine the way real market economies work. Markets are very slow in responding to changes in demand, it can take months before market prices reflect consumer demand, and so there is always a delay between consumer behavior and market responses.


Furthermore, mathematical models cannot accurately measure utility or the marginalization of utility.
Nor do they need to, the responsibility of socialist planners is to respond effectively and efficiently to consumer demand.


Your two examples would do nothing but slow the introduction of better methods of production. Have some kind of "regulatory committees" deciding what technology is good and what isn't will just put major halts, as each new technological discovery would have to be put through extensive examination, debate, etc. Technology might be adopted much slower than it otherwise would be on a free market.
First of all, the way things currently work is the same. Technology goes through extensive testing before being released onto the market, and this doesn't even have to do with government regulation of technologies, but more so to do with the fact that capitalist corporations take into consideration the costs/benefits of releasing a possibly faulty product onto the market.

As well, to claim that we shouldn't have such oversight is authoritarian. Democracy might not be the fastest decision making process, but if you want fast go with a dictatorship. I never claimed that this would be the fastest, but it would be the process by which all interested parties could have a say, which is more than can be said for capitalism.


Furthermore, such a system would be highly dependent on the special interests represented by each regulator. Whether you like it or not, each regulator would still end up acting for him or herself (as we see with modern regulators and the regulators of ex-socialist countries). For example, a regulator might see some kind of technology threaten previous advancements of a buddy of his, it might be in his interest to block the new technological advancements.
Except that the regulatory bodies that I propose are to be composed of ordinary people, and they wouldn't be entrenched in their positions. There wouldn't be an opportunity for these people to act in their own interests since they wouldn't be in the office long enough to reap the benefits. As well, given that demarchy is selection by lot (i.e. at random) there isn't a way for someone sitting on a regulatory board to influence the outcome of a selection process of "a buddy of his or hers".


A genuinely free market, on the other hand, allows individuals to choose technology based on how they believe it will maximize their utility. Thus, if a technology is deemed useful by at least one person, it might spread if it actually becomes successful (i.e. if that person gains from it somehow). On the other hand, unsuccessful technologies would never be adopted by the society as a whole, since the few who use it wouldn't be as successful as those who don't. This is another issue with your proposed system, since unsuccessful technologies, if adopted by a planning board, would wreck havoc on the entire productive system.
I don't know where you're getting the idea that individuals wouldn't choose what they want under such a system. Planned economies aren't there to make people consumer things which they don't want or need (capitalism, btw, does indeed to exactly this), but are there to simply respond to existing demand in the most efficient ways. It doesn't set any ends itself, it merely is the means to all the economic ends that individuals in society have.


The only rational way to coordinate economic activity is to allow genuinely free markets to exist - that is, allow individuals to choose what they want. Central planners and mathematical models do not know how I subjectively value one product over another product.

You still have not responded how a centrally planned system would insure a variety of products meant to satisfy the needs of consumers who want varying degrees of quality, quantity, etc. The main problem with state socialism is that you have one, uniform, low quality product on the market that never improves due to a lack of competition. What you would need to make socialism more responsive would be competing state-owned businesses that are not subsidized by government - something that would be similar to highly regulatory capitalism.
Who said anything about *not* allowing individuals to choose? Certainly not I, whatever position you're attacking it isn't mine, nor that of any sane socialist. Again, as I said before, you're missing the point: planned economies don't set econonmic ends themselves, they are a means to the economic ends of society and the individuals therein. As for free markets being rational, look at the results capitalism produces, they are far from rational. As well, the Austrian school has lost the economic calculation debate, those who still stide with them do so for ideological reasons, not technocal reasons. Look through the academic papers that are in the link I posted in my last post to find out more.

Nowhere did I say *centrally* planned, nor do I support *state socialism*, so I'm afraid whatever criticisms there are of these systems they don't apply to what I have to say. Planning is merely a way for a democratic society to organize its economic life. The sorts of systems that you criticize are those which don't have democratic oversight and control of the means of production.

[Kwisatz Haderach]

Just that planners do not have the full information. Mathematical models cannot predict the price of a product, as that price reflects second-to-second changes.
Ummm, actually, prices don't change every second, you know. It takes a considerable amount of time - weeks or months - for most firms to respond to price signals.

[mikelepore]

Even if computer models would be able to set a "perfect price" there still would be the problem I mentioned in point number three, as managers would have no incentives to produce higher quality programs unless you created a whole new class of bureaucrat planners

I don't understand the point. What is anyone's incentive to do their job attentively? Why does a librarian stack books on the shelf instead of throwing them into a pile on the floor? Why does a teacher cover the syllabus instead of ignoring it? We assume that if a job description has been defined then some people will think it's interesting, decide to go into that field, and pay attention to their responsibilities. There are some people who enjoy tinkering with the graphs and charts involved in planning projects, and they can work on management. What's the reason for the assumption that having management personnel who care about quality would require some additional sort of incentive beyond that which anyone needs to get up out of bed and go into work?

[Agnapostate]

Iv encountered this while debating with someone on another forum.

Briefly looking at it, I can see some things I could argue against, though im curious to know whether it has been properly addressed by Marxist economics and refuted.

Whats your thoughts on it?

http://en.wikipedia.org/wiki/Economic_calculation_problem

Enrico Barone developed a Pareto efficient model of a socialist economy twelve years before Mises even made his original argument. (Though some claim that he overextended the usefulness of shadow pricing.) Similarly Oskar Lange and Fred Taylor argued against Mise's model, in addition to later arguing against Hayek and Lionel Robbins.

Libertarian socialism and market socialism largely bypass the socialist calculation problem because the knowledge issues obviously do not impact forms of socialism that retain markets or rely on local, decentralized planning structures in the same manner as they would highly centralized state planning. Ironically, the lack of knowledge aspects would more accurately apply to capitalist entities, inasmuch as their centralized, hierarchical structures cause principal-agent problems.

[cyu]

While the following describes the flaw in capitalist markets, it describes how a market with economic equality wouldn't be so bad:

From http://everything2.com/index.pl?node_id=1940667

Demand is not measured in units of people, it is measured in units of money

A market economy can work pretty well to determine what needs to be produced, provided there's one condition: that everyone has relatively equal amounts of spending power. Consider the concept of supply and demand: in theory, the more demand there is for some product or service, a market economy will be encouraged to increase the supply for that product or service.

However, there is a flaw in the theory above that many pro-capitalists overlook: demand (in a capitalist economy) is not measured in units of people, it is measured in units of money. Thus you can have 99% of the people "demanding" basic necessities of life, but it won't matter a bucket of spit compared to a rich man with millions of times more money, who is demanding luxury goods. As the gap between rich and poor increases, the market economy will be focused more and more on producing luxury goods.

In order to have a market economy that serves everyone, rather than the wealthy few, spending power must be relatively equal. But can that be achieved through non-violence?

If wealth is concentrated in stocks, then employees should assume democratic control over their companies, thus rendering stocks worthless.

If wealth is concentrated in the hoarding of commodities, then people who will actually use those commodities should just take them from the storage areas where they are just being held for speculation.

If wealth is concentrated in paper money or gold, then people should just stop accepting that paper money or gold as legal tender, and start using something else as legal tender.

All these acts are non-violent. However, you may be attacked while carrying out these activities, in which case fighting back would only be self-defense.

[Agnapostate]

Yes, market socialism effectively bypasses the socialist calculation problem, and the primary authority on those interested in market socialism would probably be David Schweickart.

[GX.]

There is no such thing as market-based socialism. If it preserves money, wage slavery, commodity production, and other features of capitalism, guess what it probably is.

[SocialismOrBarbarism]

You still have not responded how a centrally planned system would insure a variety of products meant to satisfy the needs of consumers who want varying degrees of quality, quantity, etc. The main problem with state socialism is that you have one, uniform, low quality product on the market that never improves due to a lack of competition. What you would need to make socialism more responsive would be competing state-owned businesses that are not subsidized by government - something that would be similar to highly regulatory capitalism.

"Socialist" systems so far have lacked any sort of major consumer input, so your arguments about having one uniform crappy product wouldn't apply to a democratically run socialism, as no one would choose to produce a crappy product and most people would want variety. As far as lack of innovation due to lack of competition, that argument is pathetic. The idea that people wouldn't create or share their ideas because they couldn't profit is completely idiotic. The reason why monopolies in capitalism don't innovate is because of the profit motive. Paying for R & D is simply less profit. Luckily, socialism is based on production for use, not profit. There's a reason that the saying is "necessity is the mother of all invention" instead of "capitalism is the mother of all invention." I'm pretty sure most major innovations weren't invented by companies anyway, but by governments, universities, private inventors, etc, unless you consider producing an mp3 player exactly like your competitions but with a sleeker casing a major innovation. Then we have the idea that socialist governments will pave the roads with gold if they don't have prices indicating that asphalt is cheaper. This has been pretty much covered, as it's not like socialists planners wouldn't have labor time information and all of that good stuff. Seriously, I'm sorry if I'm sounding simplistic, but it doesn't require a lot of thought to realize that this argument is ridiculous.

[griffjam]

Socialism: http://infoshop.org/faq/secI1.html#seci11

Communism: http://infoshop.org/faq/secI1.html#seci12

[Kibbutznik]

There is no such thing as market-based socialism. If it preserves money, wage slavery, commodity production, and other features of capitalism, guess what it probably is.

It doesn't preserve wage slavery. Market socialism replaces the capitalist firm with cooperative enterprises, in which the worker's democratically manage the firm in part with elected and recallable managers. They divide the value created by the firm according to a person's relative contribution.

I don't believe that market socialism is an ideal system, but it is the logical first step to take. It requires the least amount of institutional change and yields the greatest immediate benefit. We can move forward from there, but we must cross that hurdle first.

[cyu]

The market came with the dawn of civilization and it is not an invention of capitalism. If it leads to improving the well-being of the people there is no contradiction with socialism. -Mikhail Gorbachev

Was Gorbachev contradicting the basic assumptions of socialism? I don't see a fundamental contradiction.

Consider this: Everyone in the economy gets paid the same monthly salary - regardless of whether you're a child, an engineer, retired, or whatever (yes, people in more difficult jobs may get more "respect" than other jobs, but that's just social conditioning and not related to their salaries). They then spend that money in a market to buy what they want / need. Market pricing still determines prices.

Here's the rub: instead of higher profits going to the producers, the extra money going into those industries just means there is more demand for those products and services. So the money is used to pay new producers in those industries, thus increasing supply - and everyone still has the same monthly salary.

As long as everyone has an equal salary, that is similar to economic democracy. Everyone has an equal amount of "votes" as to what to produce next. The concept of a salary is no longer a "reward" for work (there are plenty of psychological studies like http://www.alfiekohn.org/books/pbr.htm that show "rewarding" work results in people liking the work less, and focusing on only the reward as their goal), but as just a method used so that everyone can help determine what goods and services are valuable.

[Hyacinth]

Even if markets aren't necessarily incompatible with socialism, that is, even if it is possible to effect socialist planning with market mechanisms, proponents of market socialism are working on the now long false assumption that the socialist calculation problem is irresolvable. This certainly was true in the 1930's when this debate took place, and it remained true for most of the 20th century, but with advanced in computers we are today capable of both gathering and processing the data necessary to plan an economy without the need for markets in near real time. Even if markets are something that have been with us since the dawn of civilization, it doesn't mean that they will be something here to stay forever; in fact, the material conditions are near, or already here, to supersede markets altogether.

[Kibbutznik]

It's important to remember, comrade, that the form that our system of rational planning takes is very important. The form that it takes must be compatible with institutions of worker's self-management, or else the danger exists for the creation of a new class society.

I think the best scholars on this point have been Michael Albert and Robin Hahnel, with their Parecon project. They've been working the past two decades to develop systems of rational allocation that are both efficient and consistent with our values of worker solidarity and equity. There is still a lot of work to be done, but their model is structurally sound, and a number of practical applications of the model exist.

[Schrödinger's Cat]

Even if markets aren't necessarily incompatible with socialism, that is, even if it is possible to effect socialist planning with market mechanisms, proponents of market socialism are working on the now long false assumption that the socialist calculation problem is irresolvable. This certainly was true in the 1930's when this debate took place, and it remained true for most of the 20th century, but with advanced in computers we are today capable of both gathering and processing the data necessary to plan an economy without the need for markets in near real time. Even if markets are something that have been with us since the dawn of civilization, it doesn't mean that they will be something here to stay forever; in fact, the material conditions are near, or already here, to supersede markets altogether.

I'm one "market socialist"* who thinks planned economies would be more efficient.

*Though I hate the terminology.

[cyu]

As long as everyone has a say in how the economy is run and what should be produced, then it's generally good.

Whether this is accomplished by market mechanisms, voting, data mining, mind-reading, or crystal balls, each may have their own advantages and disadvantages, but choosing the means isn't as important as choosing the end we're aiming for.

[Hyacinth]

It's important to remember, comrade, that the form that our system of rational planning takes is very important. The form that it takes must be compatible with institutions of worker's self-management, or else the danger exists for the creation of a new class society.

I think the best scholars on this point have been Michael Albert and Robin Hahnel, with their Parecon project. They've been working the past two decades to develop systems of rational allocation that are both efficient and consistent with our values of worker solidarity and equity. There is still a lot of work to be done, but their model is structurally sound, and a number of practical applications of the model exist.


As long as everyone has a say in how the economy is run and what should be produced, then it's generally good.

Whether this is accomplished by market mechanisms, voting, data mining, mind-reading, or crystal balls, each may have their own advantages and disadvantages, but choosing the means isn't as important as choosing the end we're aiming for.

I think we're fundamentally in agreement here. The failure of so-called socialist countries in the 20th century (aside from the fact that they couldn't actually plan an economy due to technically limitations) was the lack of control of the means of production, and by extension lack of input into the planning process, by the workers and consumers. Soviet shortages of consumer goods were not a consequence, for example, of the failure of the Soviet plans, the bigger issue was that consumer goods weren't being planned for.

And yes, I'm quite interested in participatory economics, I think it is onto something. Alas I haven't had much time recently to look at it in depth, but the fundamental idea seems sound.

[Unclebananahead]

I am personally of the opinion that a functional, efficient planned economy is more than possible--it's the inevitable future (that is of course, unless we destroy ourselves first). The only question is in what form it will take. In particular, the question of demand calculation is an interesting one. Previous planned economies, such as those of the 20th century, did indeed have a manifestly minimal or absent degree of input from the masses regarding consumer demand for goods and services, resulting in shortages and general dissatisfaction. This wasn't necessarily deliberate, as the countries in question usually inherited less than ideal circumstances. Countries like the USSR, PRC, and Vietnam all faced severe economic and infrastructural backwardness when their respective revolutionary struggles finally achieved victory. Before their revolutions, these countries were saddled with economies geared primarily towards agricultural production, and lacked much of any significant industrial productive capacity. Due to this backwardness, they were forced to prioritize heavy industry and military production over other considerations in order to survive in a world dominated by imperialism. It was only later that alternatives would become possible, but the USSR suffered a successful counter-revolution, and the Chinese Communist Party became dominated by 'capitalist roaders,' and it would appear that the same is regrettably taking place in Vietnam. But I digress, the topic at hand that that of calculating demand in a planned economy.

A successful revolutionary movement could now, using current computer technology, plan the economy in a more equitable, sane manner, and make it work. Computers could measure consumer demand in real time, so that appropriate numbers of commodities are produced, and shortages thwarted.

Here in the United States, we do not have a dearth of technological development, or advanced infrastructure. In fact, the technological and material resources of this country are quite rather remarkable. These could be used to plan and produce a better, more stable, secure, equitable, environmentally sustainable, and comfortable life for all. And over this productive process, we would have a constitution, the rule of law, checks and balances and elected, recallable public officials. We would have courts, police, judges, and yes, social workers. It is the present outmoded system's deathgrip on its luxuries at our expense that holds us back from building this better world.