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.

Keynes’s Opinion of Communism and Marxism

Ralph Raico quotes a radio interview by Keynes, where Keynes supposedly praises the Soviet Union:

Ralph Raico, “Keynes and the Reds,” Mises Daily, February 13, 2002.

“The Case for Robert Skidelsky as a Liar,” August 20, 2011.

The remarks in question were allegedly made by Keynes in a radio talk for the BBC in June 1936 in which he discussed Sidney and Beatrice Webb’s book Soviet Communism: A New Civilization? (Longmans, 1935), a rather disgraceful apologia for Soviet communism.

Raico draws attention to this comment of Keynes:

“Until recently events in Russia were moving too fast and the gap between paper professions and actual achievements was too wide for a proper account to be possible. But the new system is now sufficiently crystallized to be reviewed. The result is impressive. The Russian innovators have passed, not only from the revolutionary stage, but also from the doctrinaire stage.

There is little or nothing left which bears any special relation to Marx and Marxism as distinguished from other systems of socialism. They are engaged in the vast administrative task of making a completely new set of social and economic institutions work smoothly and successfully over a territory so extensive that it covers one-sixth of the land surface of the world. Methods are still changing rapidly in response to experience. The largest scale empiricism and experimentalism which has ever been attempted by disinterested administrators is in operation. Meanwhile the Webbs have enabled us to see the direction in which things appear to be moving and how far they have got.”

If Keynes really thought that Soviet Union was “impressive,” then that was a wrong, ridiculous, contemptible and disgraceful remark.

However, I have not seen the full interview yet, and I suspect that there is some kind of selective quotation going on here. Why? The reason is that such a remark blatantly contradicts Keynes’s other writings and statements. The fact is that Keynes’s explicit public and private condemnation of Marxism, communism, and the Soviet Union is well attested.

First, Skidelsky is clear that Keynes did not support the Webbs’ book:

“unlike the Webbs, he [sc. Keynes] could never think of Soviet Russia as a serious intellectual resource for Western civilisation. In the 1920s he had said that Marxism and communism had nothing of scientific interest to offer the modern mind. The depression did not alter his view. Russia ‘exhibits the worst example which the world, perhaps, has ever seen of administrative incompetence and of the sacrifice of almost everything that makes life worth living ...’; it was a ‘fearful example of the evils of insane and unnecessary haste’; ‘Let Stalin be a terrifying example to all who seek to make experiments.’” He found Kingsley Martin too ‘pro-Bolshie’ in the New Statesman.” (Skidelsky 1992b: 488).

Secondly, Keynes wrote a letter in reply to George Bernard Shaw in 1935 on the issue of Marx, where he was quite clear in rejecting Marxism:

“Thank you for your letter. I will try to take your words to heart. There must be something in what you say, because there generally is. But I’ve made another shot at old K.[arl] M.[arx] last week, reading the Marx-Engels correspondence just published, without making much progress. I prefer Engels of the two. I can see that they invented a certain method of carrying on and a vile manner of writing, both of which their successors have maintained with fidelity. But if you tell me that they discovered a clue to the economic riddle, still I am beaten – I can discover nothing but out-of-date controversialising.

To understand my state of mind, however, you have to know that I believe myself to be writing a book on economic theory which will largely revolutionalise – not, I suppose, at once but in the course of the next ten years – the way the world thinks about economic problems. When my new theory has been duly assimilated and mixed with politics and feelings and passions, I can’t predict what the final upshot will be in its effect on action and affairs. But there will be a great change, and, in particular, the Ricardian foundations of Marxism will be knocked away.

I can’t expect you, or anyone else, to believe this at the present stage. But for myself I don’t merely hope what I say, – in my own mind I’m quite sure.”
(Keynes to Shaw, 1 January, 1935, quoted in Skidelsky 1992b: 520–521).

Thirdly, Keynes rejected the Soviet system:

“And so he [sc. Keynes] could both love the communist generation for their idealism, and despise them for their muddle-headedness. If Keynes could not solve the ‘primal question’ of how to live, he felt he could solve the secondary question of what to do. His assault on the scientific pretentions of Marxism and the horrors of the Soviet system was unremitting, and needed no revelation of mass murder. He insisted on the supreme importance of ‘preserving as a matter of principle every jot and tittle of the civil and political liberties which former generations painfully secured ....’. He was outraged when London University tried to silence the loquacious Professor Laski of the LSE, writing in the New Statesman to defend Laski, but adding, ‘Too many of the younger members of the Left have toyed with Marxist ideas to have a clear conscience in repelling reactionary assaults on freedom.’” (Skidelsky 1992b: 518).

His verdict on Bolshevism was made in 1922, in a remark that unfortunately also evinces some anti-Semitism:

“Bolshevism is such a delirium, bred by besotted idealism and intellectual error out of the sufferings and peculiar temperaments of Slavs and Jews. But we can no more regard this culminating delirium as a lasting fact or influence than the rule of Robespierre or the Jacobins.” (Keynes 1977 [1922]: 373).

But suppose, for the sake of argument, that Keynes did praise the Soviet Union in this one radio address, even though on numerous other occasions he condemned it. The correct response to this by any modern progressive liberal or Keynesian is to condemn Keynes for this particular morally disgraceful remark, and to question why he would have been so inconsistent when he clearly and correctly criticised and rejected communism many times. This example of a personal, moral failing of Keynes does not, however, invalidate his ideas in the General Theory.

To dismiss Keynesian economics on the basis of an ad hominem attack on Keynes is nothing but an informal logical fallacy.

If Austrians really think the ad hominem fallacy is valid, then by the same fallacious reasoning all of Mises’s economics can be dismissed by this remark:

“It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error.” (Mises, 1978 [1927]: 51).

You could not find a clearer apology for fascism. Keynes, for all his moral faults (for example, his support for eugenics and anti-Semitism), never declared that fascism “saved European civilization” or that the “merit that Fascism has … won for itself will live on eternally in history”. It was Ludwig von Mises - the Austrian school hero - who wrote this vile nonsense.

Appendix: Paul Sweezy and Keynes

I will note as an interesting appendix that many of the less doctrinaire Marxists of the late 20th century abandoned pure Marxism and came to see merit in Keynes’s work, as noted by Gilles Dostaler:

“It was in the Anglo-American world that Marxism, much less established, or recognized than in France, or in other Latin countries, particularly Italy, was more receptive to Keynesianism, and where efforts were made to rethink Marx in the light of Keynes thought. The pioneer here was Paul Sweezy, who was first a disciple of Hayek, in his book The Theory of Capitalist Development, published in 1942. The Keynesian-Marxist synthesis that he put forward lead him to call into question fundamental ideas developed by Marx, such as the tendency of the rate of profit to fall, which was replaced by the tendency of the surplus to rise. Sweezy developed his ideas with his co-author Paul Baran in Monopoly Capital, published in 1966, and wrote about them extensively in Monthly Review which he co-founded.” (Dostaler, “The General Theory, Marx, Marxism and the Soviet Union,” p. 18).

Paul M. Sweezy (1910–2004) was a leading American Marxist and abandoned Marx’s value theory and the belief that the rate of profit had an inevitable tendency to fall in modern capitalism. His version of Marxism attempts to reconcile Marxism with Keynesian macroeconomics.


BIBLIOGRAPHY

Dostaler, Gilles, “The General Theory, Marx, Marxism and the Soviet Union,”
http://appliphp.univ-tlse1.fr/LEREPS/spip/IMG/pdf/Dostaler-Marx_et_Keynes.pdf

Keynes, J. M. 1977. The Collected Writings of John Maynard Keynes. Vol. 17, Activities 1920–1922, Treaty Revision and Construction (ed. E. Johnson), Macmillan, London.

Mises, L. von. 1978 [1927]. Liberalism: A Socio-Economic Exposition (2nd edn; trans. R. Raico), Sheed Andrews and McMeel, Mission, Kansas.

Skidelsky, R. J. A. 1992a. John Maynard Keynes: Hopes Betrayed 1883–1920 (vol. 2), Macmillan, London.

Skidelsky, R. J. A. 1992b. John Maynard Keynes: The Economist as Saviour 1920–1937, Macmillan, London.

Skidelsky, R. J. A. 2000. John Maynard Keynes: Fighting for Britain 1937–1946 (vol. 3), Macmillan, London.

Webb, S. and B., Webb, 1935. Soviet Communism: A New Civilization?, Longmans.