8 replies to this topic

[Murphy]

How did Mises contribute to the debate over socialism?

[Rune]

Before Mises entered this debate, socialism was mainly criticised by economists because a socialist economy would not give people incentives to produce. The counterargument from the socialists was that a community based on socialism will shape the citizens and program them with the right ethics – to always be motivated by the general interest of the society and to stop acting selfishly.

Mises demonstrated in his 1920 article “Economic calculation in the socialist commonwealth” and later (expanded) in his 1922 book “Socialism” that even if it was possible to create “the socialist man” these societies would not know what to produce or how to produce. The reason was that the loss of private ownership also means the extinction of the price mechanism as a tool that guides supply, demand and alternative use of resources. This makes calculation impossible for producers and the necessary outcome is that production can never become very advanced.

[Murphy]

Exactly. Mises did not invent this idea from scratch, but he certainly gave it the fullest exposition and was the most "dogmatic" in his criticism of socialist economy with it. (Even Oskar Lange concedes that Mises was their strongest critic on this point.)

[Joanne]

Murphy, on Sep 4 2005, 02:51 PM, said:

How did Mises contribute to the debate over socialism?

The chronology of the ideas of vMises in the period of history in which he lived puts gravitas in the expression that "timing is everything." vMises published his major works during a time (early 20th century) when socialism was increasingly seen as a force to create a noble, altruistic (New Socialist) man.

vMises had doubts about the ability of central planning to actually succeed in making determinations about how resources should be allocated in the public interest. These resources, furthermore, could not be priced in open markets, and since there was no private ownership, no titles could be taken or exchanged. This severely restricts economic calculation since the planners, not the users or producers, determine and rank the needs and their corresponding values in the economy. Labor is also a resource to be summoned by central planning and it's virtually impossible that the state can determine the roles, hourly quantities and efficiencies of all actors in the chain of the production process.

Rothbard states that socialism is really "economic chaos" because it assumes that the government has perfect information and can create an environment of perfect competition.

vMises theory about the lack of calculation in socialism persuaded younger economists who were enamored of socialism, to abandon it - namely von Hayek.

[Murphy]

Joanne, on Nov 20 2006, 08:03 AM, said:

vMises had doubts about the ability of central planning to actually succeed in making determinations about how resources should be allocated in the public interest. These resources, furthermore, could not be priced in open markets, and since there was no private ownership, no titles could be taken or exchanged. This severely restricts economic calculation since the planners, not the users or producers, determine and rank the needs and their corresponding values in the economy.

Just to be clear on the steps in the argument: Precisely because the State owns all the capital goods, there are no market prices for them and hence the State has no idea of the relative importance of a tractor versus a sledge hammer. This ignorance makes it impossible to draw up "rational" production plans, since the planners (we concede for the sake of argument) might be able to tell how valuable a given batch of consumer goods is, but they would have no way of evaluating the opportunity cost of that output. So they couldn't look at a particular production process and say whether its output justified the resources that it consumed.

[Murphy]

Doug K, on Apr 10 2007, 06:59 PM, said:

Mises asserted that - without prices - Socialism is unable to calculate or rationally plan a modern economic system since prices were necessary for the efficient allocation of resources.

Right. Of course there is more to it than just that--i.e. if you were explaining this to someone who had never heard the argument, you would need to elaborate. But I'm assuming you're being brief because of the responses above.

[Murphy]

Mart Grams, on Jul 7 2008, 04:55 PM, said:

Isn't it also due the as Hayek says later (I read ahead) that even brilliant social planners and (adding here for Hayek) with a Cray computer the time to calculate the data without some of the "tacit knowledge necessary. Just for a baseball game and its concessions would be nearly infinite to achieve, let alone a winter's need for fuel, socks, and blankets.

This is definitely a valid point, and the other participants in the debate were being very coy about the information processing that would be needed. However, this type of consideration wasn't really what Mises himself was focusing on. In fact, Mises explicitly concedes the "mere" problem of engineering and other technical knowledge, as well as computational power, to the planner.

Now to be fair, if you really start pushing some of these assumptions, you can paint yourself into a corner if you're not careful. But I'm just saying that on a first pass, I don't think Mises was focusing on (what we now call) the knowledge problem, so much as the calculation problem.