Note on the Socialist Economic Calculation Debate

A crucial assumption of Ludwig von Mises in his argument against a command economy was the following:

“ … von Mises (as well as everybody else in those days) envisages socialism as operating under consumer sovereignty. He explicitly excludes ‘planners’ sovereignty’—the authoritarian determination of the output assortment and hence the scarcity relations between all goods and services on the basis of the ‘planners’’ (the political rulers’) own subjective preferences. The task of the socialist economy was to maximize social welfare on the basis of the individual citizens’ own preferences. It was this that he found socialist calculation incapable of doing.” (Keizer 1987: 115).

And yet it is obvious that former communist states like the Soviet Union did not operate their economies on the principle of “consumer sovereignty.”

These were command economies with production decisions by planners. And that is why so much of the socialist calculation debate seems mostly an academic exercise. If one assumes that the output of the command economy is planned by administrators by their own standards or designs, and not primarily to maximize “social welfare on the basis of the individual citizens’ own preferences,” then we have a different debate.

For example, the Soviets developed a space program that required planning and production on a large and complex scale, and its achievements were not insignificant:

“Over its sixty-year history, ... [sc. the Soviet space program] was responsible for a number of pioneering accomplishments in space flight, including the first intercontinental ballistic missile (1957), first satellite (Sputnik-1), first animal in space (the dog Laika on Sputnik 2), first human in space and Earth orbit (cosmonaut Yuri Gagarin on Vostok 1), first woman in space and Earth orbit (cosmonaut Valentina Tereshkova on Vostok 6), first spacewalk (cosmonaut Alexey Leonov on Voskhod 2), first Moon impact (Luna 2), first image of the far side of the moon (Luna 3) and unmanned lunar soft landing (Luna 9), first space rover, first space station, and first interplanetary probe.”
http://en.wikipedia.org/wiki/Soviet_space_program

The Soviet Union also created an industrial economy that beat Nazi Germany (albeit with help from the West), and delivered real output growth in consumer goods.

The empirical record shows that the Soviet Union “worked” in the sense that it was able to increase real output for some decades, as decided by its planners, though it had very serious economic problems from the 1970s (for the recent literature, see Allen 2003; Gregory and Lazarev 2003; Gregory 2004; Davies 2004). And note that the latter assertions are not an endorsement of, or support for, the brutal Soviet system or command economies in general, but merely statements of fact.

Even if in the long term it was inefficient and economic problems became severe, the Soviet planning system did manage to “work” in the short to medium term, though the stupidity, cruelty and incompetence of its rulers like Stalin imposed unnecessary suffering so great as to be on a level with Nazi Germany.


BIBLIOGRAPHY

Allen, Robert C. 2003. Farm to Factory: A Reinterpretation of the Soviet Industrial Revolution. Princeton University Press, Princeton, N.J. and Oxford.

Davies, R. W. 2004. Years of Hunger: Soviet Agriculture 1931-1933. Palgrave Macmillan, Basingstoke.

Gregory, Paul R. 2004. The Political Economy of Stalinism: Evidence from the Soviet Secret Archives. Cambridge University Press, Cambridge, U.K. and New York.

Gregory, P. R. and V. Lazarev. 2003. The Economics of Forced Labor: The Soviet Gulag. Hoover Institution Press, Stanford, CA.

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.