But what is most curious is Mises’s view of a syndicalist economy (see Mises 1924 and 2002):
“ … [sc. Mises found] Polanyi’s concept of … [sc. syndicalism] as nebulous as that of the Guild Socialists. The ‘body politic’ is to be the ‘owner’ of the means of production, but it does not have the right of use (‘usus’) over them. That is reserved for the producers ‘association’; chosen by the workers on a sectoral basis. This ownership arrangement resembles the Yugoslav property system.Mises’s ideas have some interesting consequences: a syndicalist system where “associations engage in mutual exchange relations, [sc. and where] they give and receive as if they were the owners of the goods” would actually be a certain type of capitalist system!
Von Mises considers the basic flaw of this construction to be the vagueness by which it seeks to evade a crucial question: Is the system supposed to be socialist or syndicalist? Polanyi first assigns the means of production to society as a whole, the ‘commune’; and thus seeks to absolve himself from the charge of ‘syndicalism’ (which must have been quite a crime among Austrian Marxists in the early 1920s) But von Mises states, ‘Property is the right of use, and if that is assigned to the production associations, then these are the owners and then we are dealing with a syndicalist society’ (N.B., p. 491). A choice must be made: there can be no reconciliation between socialism and syndicalism. This strict distinction between the two (which von Mises had in common with all Marxist socialists of the time – and perhaps of today), he made on the basis of a theory of property rights. Property rights over the means of production must be assigned to some concrete body: if neither the ‘commune’ nor the production associations have the final say in their allocation, then the system is not viable. If final decision-making power rests with the commune (the political organization of the community), then one is dealing with a ‘zentrale Verwaltungswirtschaff’; a centrally administered economy such as Soviet Russia’s. Polanyi agrees that rational economic calculation is impossible here. If the final power rests with the production associations, then there exists a syndicalist commonwealth.
Polanyi’s confusion on this point make him suggest a pseudosolution to von Mises’s problem. His associations engage in mutual exchange relations, they give and receive as if they were the owners of the goods, and thus a market and market prices are created. Polanyi does not notice that this is irreconcilable with the essence of socialism, von Mises agrees that rational economic calculation is possible under syndicalism or under any other producer cooperative-based system where the cooperative bodies are the owners of the means of production. Thus, there is some kind of group-collective private ownership, what the Maoists during the Chinese cultural revolution used to criticise as Yugoslav group-capitalism. Group-capitalism is also capitalism and allows rational calculation.” (Keizer 1987: 113–114).
Such a syndicalist system would, then, be perfectly capable of engaging in rational economic calculation.
It also has another consequence: a capitalist economy merely with Keynesian macroeconomic management is also free from the original and strict “economic calculation” problem defined by Mises: lack of market prices for capital goods eliminating producers’ goods markets needed by capitalists to calculate profit and loss.
A capitalist system with Keynesian policy is an economy where the overwhelming, vast majority of capital goods are owned, produced and sold privately on markets, and the vast majority of all production is private. As in a syndicalist system, it would be free from Mises’s original economic calculation problem.
I say this because confused internet Austrians are both ignorant and clueless on this issue. Time and again, these vulgar Austrians wave the original socialist economic calculation debate around as if it constitutes a serious argument against Keynesian economics.
The Austrian argument against Keynesian economics on the basis of alleged “economic calculation or miscalculation” problems involves quite different issues, as follows:
(1) the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT) (or what other Austrians refer to as the “theory of intertemporal discoordination”). The ABCT is one of economic miscalculation and malinvestment. The ABCT is one part within the broader Austrian theory of economic coordination and discoordination, but it remains a flawed and false theory.
(2) the assertion that government spending, or other interventions, causes price distortions. Yet virtually all spending can potentially cause “price distortions” from what they would otherwise have been. Whatever “distortion” government causes is no more or less severe than what the private sector itself imposes. For example, it is absurd to believe that the millions of agents offering goods and services get their prices right in terms of demand/supply dynamics. Many corporations and business are in fact price setters/administrators: they set their prices according to production costs and then a profit markup, then leave them unchanged for significant periods of time, even when demand changes. The prices are not fundamentally set by supply/demand dynamics at all: they are set by central planners in corporations. A market economy at any one moment has a vast number of “wrong” prices. But this does not mean that the market collapses: it still achieves investment, production and economic growth over long periods.
Supposedly, government deficit spending, price controls, subsidies, income policies, and so on, will also impair economic calculation on the market by impairing prices, presumably in some disastrous, destabilising way. But it is not difficult to see how the Austrians have a view here that sees the market as ridiculously feeble. For example, does the existence of some minor government subsidies cause an Austrian trade cycle? Would they impair the ability of the private sector to engage in production of commodities with rising real output? Would they distort the market so badly that nobody could engage in “economic calculation”?
The idea that the normal types of government spending cause some severe problems of “economic calculation” leading to market chaos is patent nonsense. The alleged price “distortions,” either public or private, don’t cripple capitalist economies, and it is doubtful whether they are harmful at all, in the way imagined by Austrians. They don’t prevent vast and successful private production of wealth and investment. In the case of price setting, the empirical literature suggests that it has benefits they outweigh costs: stability of profits and the prevention of disastrous price wars between businesses, for example.
(3) on some occasions Austrians point to Cantillon effects, but this argument does not work as I have shown here.
(4) Some of the more ignorant internet Austrians point to this quotation from Hayek, alleging that it contains other economic calculation issues and “simple basic [sc. Austrian] concepts that … all the other anti-Austrians refuse to comprehend”:The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured.” (Hayek 1975: 6–7).Yet the central concept here is nothing but the notion of a tendency to a price vector that will clear all markets (with flexible wages clearing the labour market). This is not an “Austrian” idea at all: it is a Walrasian or neo-Walrasian neoclassical idea, straight from general equilibrium theory. The Austrians did not invent this, but simply borrowed it from Walrasian neoclassicals.
Anyone who denies that markets have a real world tendency to general equilibrium can easily refute this argument: for the notion that markets are coordinated in this way at all is nothing but a myth.
Hayek, Friedrich A. von. 1975. A Discussion with Friedrich A. von Hayek. American Enterprise Institute, Washington.
Keizer, W. 1987. “Two Forgotten Articles by Ludwig von Mises on the Rationality of Socialist Economic Calculation,” Review of Austrian Economics 1.1: 109–122.
Mises, L. von. 1924. “Neue Beiträge zum Problem der sozialistischen Wirtschaftsrechnung,” Archiv für Sozialwissenschaft und Sozialpolitik 51.2 (December): 488–500.
Mises, L. von. 1935 . “Economic Calculation in the Socialist Commonwealth,” in F. A. von Hayek (ed.), Collectivist Economic Planning: Critical Studies on the Possibilities of Socialism. G. Routledge & Sons, London. 87–131.
Mises, L. von. 2002. “New Contributions to the Problem of Socialist Economic Calculation,” in Richard Ebeling (ed.), Selected Writings of Ludwig von Mises: Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression. Liberty Fund, Indianapolis.
Mises, L. von. 2009 . Socialism: An Economic and Sociological Analysis (new edn; trans. J. Kahane). Ludwig von Mises Institute, Auburn, Ala.