Austrian Nonsense About Economic Calculation

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.

Thomas Palley on the Disaster of Neoliberal Economics

Thomas Palley gives a talk here on macroeconomic disasters of neoliberalism over the past 30 years, and the underlying macro issues contributing to the financial crisis of 2008.

Thomas Palley is a leading Post Keynesian, and the author of Post Keynesian Economics: Debt, Distribution, and the Macro Economy (New York, 1996).