Socialist calculation debate
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The socialist calculation debate, sometimes known as the economic calculation debate, was a discourse on the subject of how a
The historical debate was cast between the
While the debate was popularly viewed as a debate between proponents of capitalism and proponents of socialism, in reality a significant portion of the debate was between socialists who held differing views regarding the utilization of markets and money in a socialist system and to what degree the law of value would continue to operate in a hypothetical socialist economy.
Debate among socialists has existed since the emergence of the broader socialist movement between those advocating
Foundations and early contributions
Although Marx and Engels never elaborated on the specific institutions that would exist in socialism or on processes for conducting planning in a socialist system, their broad characterizations laid the foundation for the general conception of socialism as an economic system devoid of the
An alternative view of socialism prefiguring the neoclassical models of market socialism consisted of conceptions of
Early arguments against the utilization of central economic planning for a socialist economy were brought up by proponents of
Early neoclassical contributions
In the early 20th century, Enrico Barone provided a comprehensive theoretical framework for a planned socialist economy. In his model, assuming perfect computation techniques, simultaneous equations relating inputs and outputs to ratios of equivalence would provide appropriate valuations in order to balance supply and demand.[13]
Proposed units for accounting and calculation
Calculation in kind
Calculation in kind, or calculation in-natura, was often assumed to be the standard form of accounting that would take place in a socialist system where the economy was mobilized in terms of physical or natural units instead of money and financial calculation.
In the 1930s, Soviet mathematician Leonid Kantorovich demonstrated how an economy in purely physical terms could use determinate mathematical procedure to determine which combination of techniques could be used to achieve certain output or plan targets.
Debate on the use of money
In contrast to Neurath, Karl Kautsky argued that money would have to be utilized in a socialist economy. Kautsky states the fundamental difference between socialism and capitalism is not the absence of money in the former; rather, the important difference is in the ability for money to become capital under capitalism. In a socialist economy, there would be no incentive to use money as financial capital, therefore money would have a slightly different role in socialism.[15]
Labor-time calculation
Jan Appel drafted a contribution to the socialist calculation debate which then went through a discussion process before being published as Foundations of Communist Production and Distribution by the General Workers' Union of Germany in 1930. An English translation by Mike Baker was published in 1990.[16]
Interwar debate
Economic calculation problem
Ludwig von Mises believed that private ownership of the means of production was essential for a functional economy, arguing:
Every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.
— Ludwig von Mises, Economic Calculation in the Socialist Commonwealth[17]
His argument against socialism was in response to Otto Neurath arguing for the feasibility of central planning.[18] Mises argued that money and market-determined prices for the means of production were essential in order to make rational decisions regarding their allocation and use.[19]
Criticism of the calculation problem
Knowledge problem
Proponents of
If a universal mind existed, of the kind that projected itself into the scientific fancy of Laplace – a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of their motion, that could forecast the results of their inter-reactions – such a mind, of course, could a priori draw up a faultless and exhaustive economic plan, beginning with the number of acres of wheat down to the last button for a vest. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy. But, in reality, the bureaucracy errs frightfully in its estimate of its spiritual resources. [...] The innumerable living participants in the economy, state and private, collective and individual, must serve notice of their needs and of their relative strength not only through the statistical determinations of plan commissions but by the direct pressure of supply and demand.
— Leon Trotsky, The Soviet Economy in Danger[22]
Lange model
This model came to be referred to as the
Paul Auerbach and Dimitris Sotiropoulos have criticized the Lange model for degrading the definition of socialism to a form of "capitalism without capital markets" attempting to replicate capitalism's efficiency achievements through economic planning. Auerbach and Sotiropoulos argue that Friedrich Hayek provided an analysis of the dynamics of capitalism that is more consistent with Marxian economics' analysis because Hayek viewed finance as a fundamental aspect of capitalism and any move through collective ownership or policy reform to undermine the role of capital markets would threaten the integrity of the capitalist system. According to Auerbach and Sotiropoulos, Hayek gave an unexpected endorsement to socialism that is more sophisticated than Lange's superficial defense of socialism.[24]
Contemporary contributions
Networked digital feedback
Peter Joseph argues for a transition from fragmented economic data relay to fully integrated, sensor-based digital systems, or an Internet of things.[25] Using an internet of sensory instruments to measure, track and feed back information, this can unify numerous disparate elements and systems, greatly advancing awareness and efficiency potentials.[26]
In an economic context, this approach could relay and connect data regarding how best to manage resources, production processes, distribution, consumption, recycling, waste disposal behavior, consumer demand and so on. Such a process of networked economic feedback would work on the same principle as modern systems of inventory and distribution found in major commercial warehouses.[27][28] Many companies today use a range of sensors and sophisticated tracking means to understand rates of demands, exactly what they have, where it is or where it may be moving and when it is gone.[29][30] It is ultimately an issue of detail and scalability to extend this kind of awareness to all sectors of the economy, macro and micro.[31]
Not only is price no longer needed to gain critical economic feedback, but the information price communicates is long delayed and incomplete in terms of economic measures required to dramatically increase efficiency. Mechanisms related networked digital feedback systems make it possible to efficiently monitor shifting consumer preference, demand, supply and labor value, virtually in real time. Moreover, it can also be used to observe other technical processes price cannot, such as shifts in production protocols, allocation, recycling means, and so on.[32] As of February 2018, it is now possible to track trillions of economic interactions related to the supply chain and consumer behavior by way of sensors and digital relay as seen with the advent of Amazon Go.[33]
Cybernetic coordination
Paul Cockshott, Allin Cottrell, and Andy Pollack have proposed new forms of coordination based on modern information technology for non-market socialism. They argue that economic planning in terms of physical units without any reference to money or prices is computationally tractable given the high-performance computers available for particle physics and weather forecasting. Cybernetic planning would involve an a priori simulation of the equilibration process that idealized markets are intended to achieve.[34]
Participatory economics
Proposals for decentralized economic planning emerged in the late 20th century in the form of participatory economics and negotiated coordination.
Decentralized pricing without markets
Market socialism
James Yunker argues that public ownership of the means of production can be achieved the same way private ownership is achieved in modern capitalism through the shareholder system that separates management from ownership. Yunker posits that social ownership can be achieved by having a public body, designated the Bureau of Public Ownership (BPO), owning the shares of publicly-listed firms without affecting market-based allocation of capital inputs. Yunker termed this model pragmatic market socialism and argued that it would be at least as efficient as modern-day capitalism while providing superior social outcomes as public ownership of large and established enterprises would enable profits to be distributed among the entire population rather than going largely to a class of inheriting rentiers.[37]
Mechanism design
Beginning in the 1970s, new insights into the socialist calculation debate emerged from mechanism design theory. According to mechanism design theorists, the debate between Hayek and Lange became a stalemate that lasted for forty years because neither side was speaking the same language as the other, partially because the appropriate language for discussing socialist calculation had not yet been invented. According to these theorists, what was needed was a better understanding of the informational problems that prevent coordination between people. By fusing game theory with information economics, mechanism design provided the language and framework in which both socialists and advocates of capitalism could compare the merits of their arguments. As Palda (2013) writes in his summary of the contributions of mechanism design to the socialist calculation debate, "[i]t seemed that socialism and capitalism were good at different things. Socialism suffered from cheating, or 'moral hazard', more than capitalism because it did not allow company managers to own shares in their own companies. [...] The flip side of the cheating problem in socialism is the lying or 'adverse selection' problem in capitalism. If potential firm managers are either good or bad, but telling them apart is difficult, bad prospects will lie to become a part of the firm".[38]
Relation to neoclassical economics
In his book Whither Socialism?,
See also
- Analysis of Soviet-type economic planning
- Critique of political economy
- Cybernetics
- Economic calculation problem
- Government by algorithm
- Input-output model
- Linear programming
- Material balance planning
- Project Cybersyn
- Post-capitalism
- Social peer-to-peer processes
- Socialism
- Socialist economics
- Socialization (economics)
- Resource-based economy
- Why Socialism? - an essay by Albert Einstein advocating for a planned economy.
References
- ^ Levy, David M.; Peart, Sandra J. "Socialist calculation debate". The New Palgrave Dictionary of Economics (2nd ed.).
- .
- ^ A Companion to the History of Economic Thought, Wiley-Blackwell by Biddle, Jeff and Samuels, Warren and Davis, John. 2006. (p. 319): "What became known as the socialist calculation debate started when von Mises (1935 [1920]) launched a critique of socialism."
- ^ Economic Calculation under Socialism: The Austrian Contribution, by Vaughn, Karen. 2004. Economic Inquiry, vol. 18, issue 4, p. 537. 1980: Although it is conventional to treat the economic calculation controversy as a debate between those who favored socialism and those who opposed it, this is not descriptive of the actual course of events...by that time, the real debate, in so far as one took place in the journals, was among the socialists themselves..."
- ^ Buick, Adam; Lawrence, Pieter (1984). "How Socialism Can Organise Production Without Money". Libertyandsocialism.org. Archived from the original on 15 October 2014. Retrieved 13 February 2013.
- . Retrieved 6 August 2020. "Virtually all socialists have distanced themselves from the economic model long synonymous with socialism (i.e., the Soviet model of a nonmarket, centrally planned economy. [...] Some have endorsed the concept of market socialism, a postcapitalist economy that retains market competition but socializes the means of production and, in some versions, extends democracy to the workplace. Some hold out for a nonmarket, participatory economy. All democratic socialists agree on the need for a democratic alternative to capitalism".
- ^ The Rise and Fall of Socialist Planning, Ellman, Michael. (p. 17): "Marx devoted most of his life to the analysis of capitalism and was notoriously opposed to attempts to design utopias. Nevertheless, from his scattered observations about socialism, and from those of his close comrade Engels, his followers drew the idea that in a socialist economy the market mechanism would be replaced by economic planning...Similarly, the superiority of planning, which would enable society as a whole to coordinate production ex ante, became a widespread view in the international Marxist movement."
- ISBN 978-0-8047-7566-3.
According to nineteenth-century socialist views, socialism would function without capitalist economic categories – such as money, prices, interest, profits and rent – and thus would function according to laws other than those described by current economic science. While some socialists recognized the need for money and prices at least during the transition from capitalism to socialism, socialists more commonly believed that the socialist economy would soon administratively mobilize the economy in physical units without the use of prices or money.
- ISBN 978-0-86091-606-2.
- OCLC 182529204.
- OCLC 182529204.
- ^ Cox, Robin (2 March 2020) [2005]. "The 'Economic Calculation' Controversy: Unravelling of a Myth". Socialism or Your Money Back. Socialist Party of Great Britain. Retrieved 17 August 2020.
- ISBN 0-618-26181-8.
- ^ Cockshott, Paul (2008). "Calculation in-Natura, from Neurath to Kantorovich". p. 12. Retrieved 15 June 2020.
- ^ Kautsky, Karl (1924). "The Economic Revolution". The Labour Revolution. Ruskin House, 40 Museum Street, W.C.1. Retrieved 3 March 2013.
- ^ Appel, Jan (1990), Fundamental Principles of Communist Production and Distribution, London: Movement for Workers' Councils
- ^ Ludwig von Mises (1920). Economic Calculation in the Socialist Commonwealth.
- ISBN 978-1-84980-065-5.
- ^ Calculation in-Natura, from Neurath to Kantorovich, Cockshott, Paul. (p. 9): "Mises was initially debating against Otto Neurath. In an article dated 1919 Neurath had argued that a socialist economy would be able to operate calculations in-natura rather than by means of money."
- ^ Trotsky, Leon. Writings of Leon Trotsky (1932-33). p. 96.
- ^ Leon Trotsky (October 1932). "The Soviet Economy in Danger". Marxists Internet Archive. Retrieved 13 February 2013.
- ^ Revisiting the Socialist Calculation Debate: The role of markets and finance in Hayek's response to Lange's challenge, by Auerbach, Paul and Sotiropoulos, Dimitris. 2012. Kingston University London, Economics Discussion Paper 2012-6, pp. 1–2: "Lange took up the challenge of Mises’ claim of the impossibility of constructing a socialist economy. He readily acceded to the need for efficiency calculations to be made in value terms rather than using purely natural or engineering criteria, but claimed that these values could emerge along lines consistent with neoclassical value theory, without the need for a market in capital goods and without private ownership over the means of production. Lange drew heavily upon the dominant neoclassical tradition to defend socialism."
- ^ Revisiting the Socialist Calculation Debate: The role of markets and finance in Hayek's response to Lange's challenge, by Auerbach, Paul and Sotiropoulos, Dimitris. 2012. Kingston University London, Economics Discussion Paper 2012-6, pp. 2–3: "Hayek implicitly realized the danger of undermining functional capitalist behaviour and therefore the nature of capitalist relations. If we see economic behaviour in capitalism as the outcome of capitalist social relations of power, then Hayek's perspective renders capital markets as a central arena in the organization of capitalism as a system of exploitation. He also perceives every movement towards collective ownership of the means of production as a real threat to the reproduction of the logic of capitalism. In this sense, he implicitly ends up giving an unexpected endorsement to socialism that is much deeper and sophisticated than the superficial 'defence' of Lange."
- ISBN 9781942952657.
- ISBN 9781942952657.
- ^ Davidson, Ellis (2010). "The Uses of Computers in Inventory Control". Chron.com.
- ^ Applegate, Mark. "How to Keep Track of Computer Inventory". Chron.com.
- ^ Burnson, Forrest (2016). "6 Ways Amazon Is Changing Supply Chain Management in 2016". Software Advice.
- ^ Benton, Dale (February 10, 2017). "Supply Chain 4.0: Adidas and Amazon re-write the rules on supply chain management". Supply Chain Digital.
- ISBN 9781942952657.
- ISBN 9781942952657.
- ^ Coldewey, Devin (21 January 2018). "Inside Amazon's surveillance-powered, no-checkout convenience store". Tech Crunch.
- ISBN 0851245455. Archived from the original(PDF) on 2014-11-17. Retrieved 2017-08-02.
- ^ McMullen, David (2014). "The Economic Case for Social Ownership" (PDF). Working Paper no. 1. Post-Capitalism Project, April 2014.
- ^ McMullen, David (2014). "Re-Opening the Debates on Economic Calculation and Motivation under Socialism" (PDF). Working Paper no. 2. Post-Capitalism Project, May 2014.
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.
- ISBN 978-0043350492.
The point of all this is to stress that a perfect 'socialist' capital market is just as unimaginable as 'rational' investment under assumptions of neo-classical perfection.
- ISBN 978-0043350492.
Further reading
- Boettke, Peter (2000). Socialism and the Market: The Socialist Calculation Debate Revisited. Routledge Library of 20th Century Economics. 978-0415195867.
- Cockshott, Paul and Cottrell, Allin (1993). Towards a New Socialism. Coronet Books Inc. ISBN 978-0851245454.
- Devine, Pat (2010). Democracy and Economic Planning. Polity. ISBN 978-0745634791.
- OCLC 750831024.
- Lavoie, Don (1985). National economic planning: what is left?. Ballinger Pub. Co. ISBN 978-0887300561.
- Lavoie, Don (1985). Rivalry and central planning. ISBN 978-1-942951-12-4.
- Mandel, Ernest (1986). "In Defence of Socialist Planning". New Left Review, Issue 159.
- Nove, Alec (1983). The Economics of Feasible Socialism. Routledge. ISBN 978-0043350492.
- Pollack, Andy (September 1997). "Information Technology and Socialist Self-Management". Monthly Review 49. 4: 32–50.
- Rigi, Jakob (2013). "Peer production and Marxian communism: Contours of a new emerging mode of production". Capital & Class 37. 3: 397–416.
- Rothbard, Murray N. (1991). The End of Socialism and the Calculation Debate Revisited. The Review of Austrian Economics.
- Steele, David Ramsay (1999). From Marx to Mises: Post Capitalist Society and the Challenge of Economic Calculation. Open Court. ISBN 978-0875484495.
- White, Lawrence H. (2012). The Clash of Economic Ideas. New York, NY: Cambridge University Press. pp. 32–67. ISBN 978-1107621336.
- von Mises, Ludwig (1951). "Socialism: An Economic and Sociological Analysis". New Haven, Yale University Press, Ludwig von Mises Institute. .