There is a tired and ridiculous tactic I notice from internet adherents of Austrian economics. Confronted with the myriad problems with the Austrian business cycle theory (ABCT), their response is to shout the words: “you don’t understand economic calculation!”
Since the strict socialist economic calculation debate applied to communist command economies with no price system and no private ownership of capital goods, any Austrian charge of not understanding alleged “economic calculation problems” in an economy where the vast majority of all commodities are produced privately must refer to the alleged economic problems caused by the Austrian trade cycle theory.
For a non-command economy where most capital goods are privately owned, any alleged “economic calculation problems” imagined by Austrians are explained by the Austrian trade cycle theory, in works like Mises’s Human Action ((Auburn, Ala., 1998; pp. 568–583) or Hayek’s Prices and Production (London, 1931; 2nd edn., 1935), not in Mises’s Economic Calculation in the Socialist Commonwealth (“Die Wirtschaftsrechnung im sozialistischen Gemeinwesen,” 1920; trans. 1935). The latter is a critique of command economies (for a modern Austrian review of the socialist economic calculation debate, see Prychitko 2002).
The tactic of bandying about the concept of “economic calculation” in this way is a sign of utter ignorance, nor does it refute the problems with the Austrian trade cycle theory.
Moreover, regarding the economic calculation problems of the original socialist economic calculation debate in general, it should be noted that, while examples of failed command economies can easily be found, the US, the UK, Canada, New Zealand and Australia had moderate command economies during WWII (with a large degree of private production too of course), with a high degree of central planning, which worked extremely well. While the totalitarianism, repression and brutality of the Soviet system are not in dispute, the fact remains that the Soviet Union had significant, real output growth from the 1920s to the early 1970s. It is also well known that the Soviet Union outproduced Nazi Germany during WWII, in terms of domestic production of war materiel (Overy 1996: 183; 180-207).
The empirical evidence demonstrates that some real world economies with a high degree of central planning of production can in fact work, in some circumstances.
BIBLIOGRAPHY
Overy, R. 1996. Why the Allies Won, Pimlico, London.
Prychitko, David L. 2002. Markets, Planning, and Democracy: Essays After the Collapse of Communism, Edward Elgar, Cheltenam and Northampton, MA.
Didn't the austrians lose to the socialists in that economic calculation debate? why do the ausrians still uphold to it?
ReplyDeleteMany thought the Austrians lost, but you should note that their opponents (like Lange) used Walrasian general equilibrium (GE) theory to try and prove the possibility of central planning (but GE theory is a fantasy, so their defense based on it doesn't seem very useful), and this was one of the reasons Hayek abandoned Walrasian GE theory.
ReplyDeleteGood analysis here:
Donzelli, F. 1993. “The Influence of the Socialist Calculation Debate on Hayek’s view of General Equilibrium Theory,” Revue européenne des sciences sociales 31.96.3: 47–83.
It is one of those bizarre paradoxes in the history of economics.
A free marketer abandons Walrasian equilibrium after Walrasian equilibrium justifies socialism?
ReplyDeleteA strong paradox indeed.
Actually, certain Marxists have used free market critiques of interventionism to prove that interventionist capitalism does not work, hence only solution is socialism. That too is a paradox.
By the way, could you make a compilation of your 10 most useful or prominent blog posts and list them in the Useful Pages section?
ReplyDeleteThis way, everyone will know where you are coming from, and you won't have to re-establish or clarify your positions repeatedly, right?
"By the way, could you make a compilation of your 10 most useful or prominent blog posts and list them in the Useful Pages section?"
ReplyDeleteI once tried to do this actually, but couldn't make it work.
"A free marketer abandons Walrasian equilibrium after Walrasian equilibrium justifies socialism?"
It wasn't the only reason of course, but Donzelli's 1993 paper is an excellent account of it.
LK,
ReplyDeleteYou might want to check out The Market: Ethics, Knowledge and Politics by John O'Neill. I think this is the best book on the subject and shows how and why the Austrians lost the debate. O'Neil rejects the neoclassicals such as Lange and brings forth arguments that never got translated during the time of the debates.
I'd like to see someone write a response to Leonard W. Reed's "I, Pencil," titled, "I, AK-47," a successful product of Soviet central planning.
ReplyDeleteIronically the Mises Institute has digitized a lot of Austrian propaganda and gives it away as free ebooks over the internet, like Jehovah's Witnesses' literature or something, apparently because not enough people want to pay market prices for it. If the Mises Institute doesn't have price signals to tell it how many copies of its ebooks to produce, how can it do this without causing economic chaos?
"Ironically the Mises Institute has digitized a lot of Austrian propaganda and gives it away as free ebooks over the internet, like Jehovah's Witnesses' literature or something, apparently because not enough people want to pay market prices for it. If the Mises Institute doesn't have price signals to tell it how many copies of its ebooks to produce, how can it do this without causing economic chaos?"
ReplyDeleteI am still laughing after reading this.
That will be my quote of the day, Mark Plus.
Ohmygod - there's a knock at the door. Why, it's the Mises's Witnesses handing out their literature!
ReplyDelete(5 minutes pass)
Now I understand how an economy should never have a liquidity transfusion, no matter how direly it needs it. It indicates lack of faith in Smith, whose laissez-faire is the only path to redemption!
A tremendous insight, Mark Plus!
> I'd like to see someone write a response to Leonard W. Reed's "I, Pencil," titled, "I, AK-47," a successful product of Soviet central planning.
ReplyDeleteSounds great! Once that is done, please write "I, Rationed Food During Peacetime," a story of unsuccessful Soviet central planning.
The Mises Institute offers lots of free downloadable ebooks. The institute's doners pay for the bandwidth and storage. Why not beat the egalitarians at their own game?
Britain also rationed food during the war. It had the effect of improving the British population's health, one, by giving everyone the same rations, regardless of class; two, by making sure that pregnant women and small children got priority for high quality foods like oranges; three, by reducing consumption of damaging foods like butter, processed sugar and red meat; and four, by encouraging people to grow and eat their own vegetables to supplement their rations.
DeleteReference:
http://www.medicalnewstoday.com/releases/9728.php
For the sake of history, it should be noted that a) the USSR and similar states NEVER abandoned prices and currencies, and b) that they NEVER destroyed markets although they heavily regulated them and reduced their influence. Read Stalin's essay on the economic problems of the USSR in the 50s for the theoretical background that led them to that conclusion. Mises criticized a system that never existed. He never touched upon the real economic relations within the USSR (to be fair, he wrote his critique before the USSR actually developed, in the 20s, so it could only be a theoretical critique), and the rest of the Austrians and the command-economy theoreticians followed.
ReplyDeleteTo be frank I doubt you can find any economy that is purely command based (outside self-sufficient communities). Before market exchange, there was gift exchange, there is always a black market, and the exchange of goods and services through other methods as well, in parallel with central planning (or decentralized planning for that matter). Which makes the whole argument pointless.
As a recovering Misesian I couldn't agree more. In real life people engage in multiple modes of distribution (sharing, gift, theft, trade, planning) pretty much every day.
DeleteCommand economies can work temporarily, but they are not sustainable. Look at Venezuela. Not only is there a problem with the economic calculation for the long run, but there is a problem with temporal division of labor (however that applies to anarcho-communism only).
ReplyDelete