The Socialist Calculation Debate: Mises’ and Hayek’s senseless accusations
Author: Dragan Drača
Summary
This paper examines the scientific validity of the arguments in support of the thesis that socialism is economically impossible, presented in the famous “socialist calculation debate”. A brief commentary on the history of the debate itself is given, and then the critique of the most important arguments put forward by Ludwig von Mises and Friedrich von Hayek as the most prominent supporters of the mentioned thesis is given. Criticism of Mises’s arguments includes consideration of the methodological foundations of his theory of economic calculation, his understandings of ownership, distribution, rational activity, and types of economic calculation. Criticism of Hayek’s arguments is preceded by their brief presentation, and then they are analyzed. The conclusion of this paper is that the arguments of Mises and Hayek are not scientifically valid and do not represent evidence of the economic irrationality of socialism.
Content:
I. History of the Socialist Calculation Debate
II. Interpretations of the history of the debate
III. The scientific status of Mises’ theory
IV. Mises’ method and theory
V. Ownership
VI. Distribution and economic calculation
VII. Rational activity
VIII. The nature of the economic calculation
IX. Slanders
X. Hayek’s argument
XI. Conclusion
I. History of the Socialist Calculation Debate
In 1920, Ludwig von Mises laid the foundations of a decades-long polemic known as the “socialist calculation debate” in an essay entitled “Economic calculation in the socialist commonwealth”. The essence of the mentioned essay boils down to the thesis that socialism is economically impossible, and that any attempt to realize it is doomed in advance. In the words of Mises:
“Socialism is the abolition of rational economy.”[1]
This essay of Mises appeared in the midst of the theoretical and practical struggle for socialism. Marx’s devastating critique of classical political economy and capitalism set the theoretical framework for the practical struggle of the working class to win political power and build socialism at the end of the 19th century. The October Revolution of 1917 in Russia, the growth of class consciousness and organization of the proletariat, and the threat of the revolution spreading to Germany and other Western capitalist countries, imposed the question of socialism as the first and most important issue that humanity must solve. In parallel with the armed attack of the largest imperialist powers on the Bolsheviks and support for the White Guards, with the intensification of the political struggle in their own countries, the Marxist doctrine of scientific socialism was opposed by the entire arsenal of philosophical, ideological and “scientific” weapons of the bourgeoisie in defense of capitalism.
Mises joined the attack from the position of the so-called Austrian economic school. First, Eugen von Böhm-Bawerk challenged Marx’s labor theory of value[2] from the point of view of the subjectivist theory of value of the Austrian school and thus tried to overthrow the entire doctrine of scientific socialism. The futility of Böm-Baverk’s accusations was soon proved by Rudolf Hilferding[3]. Mises, unlike Böm-Baverk, made his attack on the theory of socialism primarily by challenging the conclusions of the Marxist critique of capitalism and not by challenging the validity of the critique itself. Mises’s work leans on Böm-Baverk’s in the sense of accepting his objections to the labor theory of value, but the focus is on proving the economic unsustainability of socialism. To the extent that Mises appeals to the authority of Böm-Baverk’s arguments, with their collapse, his own theory also collapses. Nevertheless, the new elements that Mises brings into the polemic require special attention.
Mises was not the first to write about the economic organization of socialism. Apart from the presentation of the foundations of scientific socialism in the works of Marx and Engels[4] with their explicit remarks that it is not up to them to give recipes and ready-made solutions, and Lenin’s later comments, Enrico Barone’s attempt[5] to prove that — at least in principle — a socialist economy can be effective is known. Barone based his speculations on the subjectivist theory of value of the Lausanne economic school and its theory of general equilibrium. According to him, the problem boils down to determining prices as a solution to a system of equations, and it doesn’t matter whether they are solved by the market or the public authority.
However, only with the victory of the Bolsheviks and the publication of Mises’s essay “Economic Calculation in the Socialist Commonwealth”, and the book “Socialism”[6] a few years later, greater importance began to be given to this issue. The success of the October Revolution turned the theoretical principles of the transition period from capitalism to socialism into practical tasks: after winning political power, it was necessary to take the first steps of the socialist transformation of Russia. It was necessary to expropriate the means of production and begin the planned organization of the economy. On the other hand, the simultaneous publication of the aforementioned Mises’s essay called into question the success of the entire undertaking in advance. If Mises’ claims about the economic impossibility of socialism are true, then any attempt to establish it is pointless.
In addition to the theoretical attack on the doctrine of scientific socialism, Mises simultaneously tried to empirically prove the correctness of his claims by attacking the measures taken by the Bolsheviks in an attempt to organize the Russian economy. The problems of hunger, war destruction and economic underdevelopment of Russia that the Bolsheviks faced in the first years after the revolution should have been a confirmation of Mises’s conclusions. This Misesian empirical “proof” is the most common straw man fallacy. Socialism did not come about through the mere conquest of political power by the Bolsheviks — it was only the first step in the revolutionary transformation of society, not its end. Ahead of the Bolsheviks and the working class of the Western capitalist countries stood the task of completing the revolution as a world process, the task of the global abolition of capitalism. Only the successful fulfillment of this task could make it possible to really tackle the issue of the economic organization of socialism in the right way. But instead of a global triumph, the working class in the West experienced a heavy historic defeat. The betrayal of Western social democracy, the terrible consequences of the First World War and other factors contributed to the limitation and isolation of Bolshevik Russia. In such a situation, as Leo Trotsky showed in his criticism of Stalinism[7] a couple of decades later, the degeneration of the revolution and revisionist tendencies had to happen. In such a situation, it was also not possible to organize a “socialist economy” in the truest sense of the word. With Lenin’s death, bureaucratization and revisionism rapidly gained momentum, the dictatorship of the proletariat was replaced by the dictatorship of the party, workers’ democracy was replaced by Stalinist totalitarianism… The theory of international socialist revolution was replaced by the theory of socialism in one country and later by the theory of peaceful coexistence of capitalism and socialism; instead of the withering away of the state, the strengthening of the “socialist state” took place. All that remained of Marxism as a unity of revolutionary theory and practice was empty dogmatic rhetoric.
The abandonment of the world revolution has put in the way of the Stalinist bureaucracy an obstacle of organizing “socialism in one country”. The bureaucrats had to find a model of planned organization of the economy that would enable its maintenance in a capitalist environment. The central-plan model of the Soviet economy was not in accordance with the principles outlined in the theory of scientific socialism,[8] so its abandonment and the collapse of Stalinism in the last decades of the 20th century do not represent empirical evidence of the economic unsustainability of socialism, as claimed by Mises’s followers. The same applies to other “socialist states” that emerged during the 20th century — China, Cuba, Yugoslavia, etc., and their variants of planned and market “socialism”. Socialism as a world system has not yet been established, so it cannot even be claimed that it is empirically proven to be economically irrational.
As for Mises’s theoretical arguments, they are the starting point around which the “socialist calculation debate” intensified in the following decades. The core of Mises’s argument is that socialism is economically impossible because by abolishing private ownership of the means of production, the basis for monetary calculations in making economic decisions is lost. Without it, economic decisions cannot be rational, says Mises.
II. Interpretations of the history of the debate
There are two widely held interpretations of the history of the “socialist calculation debate”[9]. According to the first interpretation, Barone already responded to Mises’s arguments in advance when he established that even in socialism a general equilibrium can be established, under the assumption of complete information about the valuation of various commodities by consumers, about production techniques and unlimited “logical abilities” of those who carry out planning. It is only necessary to solve the corresponding systems of equations. This view was advocated by H. D. Dickinson and others. It is believed that Friedrich Hayek, another member of the Austrian economic school, accepted this position, and that:
“…the Austrians thereby retreated from an untenable strong impossibility claim, to the weaker claim that socialist calculation would face practical difficulties — in effect, it was being claimed that the socialists could not solve all the necessary equations, while the market mechanism could.
This weakened Austrian position was then successfully assailed by Lange in 1938, when he showed that the socialists could emulate the Walrasian auctioneer, using a ‘trial and error’ process to arrive at the general equilibrium price vector. It was not necessary to solve all the equations ‘on paper’, in advance.
Thus according to the standard version the debate closed with a clear defeat for the Austrians. It had been shown that rational calculation in a socialist economy was, as it were, practicable in principle. Of course, one might have doubts about the real practicability of a Lange-type system, but it sufficed as a theoretical answer to Mises and Hayek.”[10]
The problem with this interpretation of the debate is that the theoretical propositions themselves, namely the subjectivist theory of value and the theory of general equilibrium, on which Barone based his arguments, are untenable. Ahistoricity, mathematical and logical formalism, methodological individualism and other defects of this favorite “science” of bourgeois economists make any argument from its positions meaningless in advance. Barone’s, Lange’s[11] and similar systems of market socialism are not consistent with scientific socialism, so it is pointless to use them in its defense.
According to another interpretation, neither Barone nor Lange provided arguments to refute Mises. He points out that the Lausanne school of economics dealt with the problem of static general equilibrium, and that Mises himself never disputed that socialism in static conditions could be economically rational. But supporters[12] of this interpretation claim that static equilibrium is too unrealistic assumption. According to them, Mises had in mind a constant dynamic adjustment in the conditions of continuous changes in the preferences of economic subjects, technologies and conditions in the economy. Static equilibrium can only serve as a theoretical, end point of dynamic adjustment of the economy, which is never achieved in reality — neither in capitalism nor in socialism. Hence, they argue, the achievement of a static general equilibrium is irrelevant to the argument that socialism could not function successfully under conditions of constant change. Their position that Barone’s and Lange’s model is an inadequate answer to Mises can be accepted, but primarily because of the aforementioned methodological shortcomings of the Lausanne school, and not because of the claims that static equilibrium is never achieved in reality.
These two interpretations of the history of the debate have led to a division over the significance of Friedrich Hayek’s arguments[13]. Some believe that Hayek’s contribution to the debate is in line with Mises’s, while others object that Hayek reduced the problem of economic calculation to a simple arithmetical problem and highlighted the problem of the nature of information[14], which was more vulnerable to socialist arguments.
The first interpretation of the history of the debate dominated in the period from the fifties to the eighties of the last century, in the works of the authors of the so-called neoclassical schools — Bergson, Schumpeter, Samuelson… The decades-long existence of the USSR and the formation of a whole series of countries that declared themselves socialist after the Second World War and that introduced some of the variants of economic planning represented a great difficulty for those who would eventually want to to defend Mises’ views. It might still be possible to argue that socialism is less economically efficient than capitalism — despite the high official statistical growth rates recorded by these countries, but it was certainly absurd to argue that socialism is economically impossible. Only in the mid-1980s, as a result of the rejection of Keynesianism in the West and the revival of orthodox liberalism, the works of authors (Don Lavoie, David Ramsay Steele, Gabriel Temkin…) were published that questioned Barone’s and Lange’s answer to Mises and gave a different interpretation of the history of the debate than the one generally accepted until then — that the debate ended with the theoretical defeat of Mises and the Austrian school. In the late 1980s and early 1990s, the Soviet planning system was abandoned, which was soon used as “irrefutable” empirical evidence that Mises was right. The criticism of Barone and Lange becomes generally accepted and the end of the debate on socialist planning is declared as a definitive victory for Mises.
From the camp of critics of Mises’s conclusion about the economic impossibility of socialism, apart from the famous Lange model, numerous versions of market socialism have emerged in the past five decades. Some argued that even in socialism there must be money and some form of market, others suggested that the planning authority simulate the market process of price formation, etc. What they all have in common is that they did not understand the essence of Marx’s critique of commodity production and money under capitalism, or they were ready to renounce it in their desire to defeat Mises with “his weapon” — proving that socialism can also successfully perform monetary calculations. More than a hundred years ago, Plekhanov, noting a similar phenomenon among utopian socialists who accepted the ‘objectivity’ of Malthus’ population theory, wrote:
“Utopian dilettantism was forced to make theoretical concessions to any more or less learned defender of the bourgeois order.”[15]
One can hardly express a better assessment of the attempts of contemporary utopian socialists to come up with a model of market socialism that would refute Mises. Their arguments are sunk in advance to the extent that they tend to incorporate into their model what according to Mises (and with which they obviously agree) represents the elements of economic rationality — be it prices, money or consumer commodities markets.
Criticism of Mises’s theory and methods must be the starting point in the debate, not acceptance of his conclusions. Scientifically, it can be proven that Mises’ claims about the economic impossibility of socialism are incorrect only by proving that his view of the economic rationality of capitalism and economic rationality in general is incorrect, by proving the incorrectness of the claim that capitalism is the only system that is economically rational, by criticizing his analytical method. By debunking Mises’s fallacies, his claim that socialism is economically impossible will collapse by itself.
A number of authors[16] tried to respond to Mises by creating a model of socialism based on working hours or natural units as the basis for economic calculation. Without going into the consideration of which of those models is theoretically consistent and practically implementable, it is enough to determine to what extent they refute Mises. So far, the best criticism of Mises’s concepts of economic rationality and optimality, and Hayek’s concept of information, was given by Allin Cottrell and Paul Cockshott[17] in the first half of the 1990s, and based on it they gave their proposals for a socialist economic calculation. However, their critique of Mises and Hayek is incomplete. The aim of my essay is to complement it.
By showing that the arguments of Mises and his like-minded people are untenable, the task is accomplished. The burden of proof falls back on those who claim that socialism is economically impossible, and scientific socialism today faces another, practical task: the realization of a socialist revolution and the abolition of global capitalism.
III. The scientific status of Mises’ theory
The specter of communism had already engulfed Russia and was widely circulating in Europe at the moment when, in 1920, Ludwig von Mises, then a celebrated theorist of the Austrian economic school, got involved in saving capitalism from the ‘red terror’. Armed with the ideas of orthodox liberalism, under the guise of the scientific objectivity of bourgeois political economy, he embarked on proving that socialism is economically impossible. He presented his first arguments in an essay entitled “Economic Calculation in the Socialist Commonwealth”[18], and Mises’ attack on the Marxist doctrine of scientific socialism was further developed in the work “Socialism”[19] published in 1922. And in his later works, Mises kept returning to these topics, supplementing them with new “arguments”.
Mises’s works were greeted enthusiastically in the circles of apologists for capitalism as a deadly ideological weapon, a moral stimulus and as “scientific proof” of the superiority of capitalism. Marx’s famous remark that:
“The weapon of criticism cannot, of course, replace criticism of the weapon, material force must be overthrown by material force; but theory also becomes a material force as soon as it has gripped the masses.”[20]
seems that in their eyes it was equally valid. However, the historical fate of the liberal doctrine from which Mises was speaking was such that it was very quickly pushed to the back burner. Keynesianism became the official credo of the Western bourgeoisie after the great economic crisis of the late 1920s and early 1930s. Liberalism was seen as a simplified, unrealistic, idealistic theory — which it was, a vain glorification of the perfect mechanism of the “invisible hand of the market”. Capitalism was rocked by crises to which it was no longer possible to turn a blind eye, and Keynesianism was a theoretical recognition of that fact. The capitalist state is called upon to help save capitalism; the liberal principle of laissez faire, laissez passer and seeing the state as an intruder in the economy had no place anymore. “Real socialism” in the East also contributed to the abandonment of Mises’s views and the declaration of his defeat in the socialist calculation debate.
It was only in the 1970s and 1980s that neoliberal ideas began to appear again as a response to the crisis of capitalism, which Keynesianism led to this time. The growth of inflation and unemployment, stagnation, structural crises were the image of Western capitalism in the seventies. Economic theorists of capitalism, in search of an explanation of new problems, reached for the abandoned theories of the “golden age of capitalism” from the archives. The monetarist critique of Keynesianism based on the quantitative theory of money and the critique of state bureaucracy originated from the point of view of classical liberal orthodoxy. Deregulation, reprivatization and surrender to market forces are the new-old cure for the crisis of capitalism. With the restitution of the liberal dogma about the perfection of the market mechanism, Mises’s argument against socialism was resurrected. The history of the debate was revised, and with the collapse of the USSR and the Eastern Bloc, a practical confirmation of Mises’s arguments was announced. Thus, Mises’ theory was returned from the dustbin of history to the rank of scientific truths.
What is the real scientific status of Mises’ theory? This question seems to have no great practical significance today, since the Marxist doctrine of scientific socialism in the former Soviet Union and other Eastern European countries has been officially abandoned, and revisionism and ideological capitulation to capitalism are observed in the remaining “socialist countries” such as China, Cuba, North Korea… Socialism has definitely failed, Fukuyama’s end of history has come — claim the apostles of neoliberalism.
On the contrary, establishing the truth of Mises’s claims is extremely important. The question of an alternative to contemporary imperialist capitalism, which every day unstoppably pushes humanity closer to self-destruction, is not an insignificant scholastic but a crucial existential question. Private ownership of the means of production is not only a brake on the further development of humanity’s productive forces, it is a factor in their permanent destruction. The imperialist militarism of the largest capitalist powers in conquering new markets and resources mercilessly kills human lives across the planet, leads to immeasurable material destruction and ecological disasters. Capital has outgrown the narrow borders of nation-states, it confronts and tears them apart, producing constant economic, political and military conflicts. Capital has subjugated the nation-states, they have become its weapons in the global race for profit. The history of the twentieth century and two world wars clearly testify to the consequences of the conflicts of capitalist states, and the existing armed and nuclear potential in their hands represents a threat to the very existence of humanity and all life on the planet.
In conditions where billions of people live in extreme misery and poverty even though there are material conditions to ensure a decent life for every individual, when children die of hunger and curable diseases while a handful of people control more wealth than individual countries[21], more than ever it is necessary to determine whether humanity is really doomed to capitalism. Is Mises’ statement that:
“…the only workable system of human cooperation in a society based on the division of labor is private ownership of the means of production.”[22]
really a scientific fact?
IV. Mises’ method and theory
In Mises’s oeuvre, one can find various attacks on socialism, but the central place is occupied by his alleged proof that socialism is economically impossible. Mises says:
“Without economic calculation there can be no economy. Hence, in a socialist state wherein the pursuit of economic calculation is impossible, there can be — in our sense of the term — no economy whatsoever.”[23]
Despite the fact that the critical analysis should apparently start right here — from questioning the truth of this claim, from determining whether economic calculation is really a necessary assumption of the economy and whether economic calculation in socialism is possible or not, it must start from a completely different side. The analysis must start from Mises’s methodology, from the basic terms and assumptions on which Mises’s theoretical construction rests.
Mises’ theoretical standpoint is subjectivist utilitarianism. The foundations of utilitarianism were laid by William Stanley Jevons, Karl Menger and Léon Walras in the seventies of the XIX century, by rejecting the labor value theory of classical political economy and developing the concept of subjective utility. Despite the fact that utilitarianism is dominant in academic circles today in the form of microeconomic theory — economics, it represents a break with political economy as a science. The unscientific character of utilitarianism is reflected in ahistoricity, logical formalism, apriorism and methodological individualism.
The ahistoricity of utilitarianism implies the rejection of the existence of historical laws of the development of human society and the possibility of their realization. History as a science is reduced to a mere chronology of events, and sociology is given the task of finding the universal laws of human society. Social relations are tried to be observed separately from the material basis of society, which breaks the connection between historical changes in the form of production — i.e. of human relations towards material things, and the corresponding relations of people in the social process of production. The study of historical changes in the relations of people in production, which is the object of political economy, replaces the abstract treatment of currently existing capitalist relations as universal. Universal laws are tried to be determined by logical reasoning “from reason”, a priori, as knowledge that precedes experience. Marx’s criticism of classical (bourgeois) political economy is equally valid against utilitarianism:
“Economic categories are only the theoretical expressions, the abstractions of the social relations of production…. The same men who establish their social relations in conformity with the material productivity, produce also principles, ideas, and categories, in conformity with their social relations. Thus the ideas, these categories, are as little eternal as the relations they express. They are historical and transitory products.”[24]
Methodological individualism means considering the subjective relationship of an isolated, abstract individual to things — preferences and utility are the starting point of utilitarianism. Human activity is viewed as a function of realizing preferences and maximizing utility. Instead of the human-thing-human relationship, which is the subject of political economy as a science, the object of observation becomes the human-thing relationship.
Through logical reasoning using concepts that are found in reason, and which supposedly precede experience (a priori), universal social laws are tried to be established. But each individual may have a different understanding of the same concepts, especially when it comes to high-level abstractions such as the state, society, etc. The content that an individual, even an economic theoretician, assigns to a concept is a combination of social and individual meanings resulting from the concrete conditions of his life and work. Concepts do not precede experience, on the contrary, they can only develop through experience. The meaning of the terms activity, exchange, benefit, does not have to be, and is not the same for different people. Therefore, no scientific truth can be deduced by “pure” formal logic using such concepts.
“Indeed, the categories are no more eternal than the relations they express. They are historical and transitory products. To Mr Proudhon, on the contrary, the prime cause consists in abstractions and categories. According to him it is these and not men which make history. The abstraction, the category regarded as such, i.e. as distinct from man and his material activity, is, of course, immortal, immutable, impassive. It is nothing but an entity of pure reason, which is only another way of saying that an abstraction, regarded as such, is abstract. An admirable tautology! Hence, to Mr Proudhon, economic relations, seen in the form of categories, are eternal formulas without origin or progress.”[25]
Science does not operate with arbitrary terms but with concepts that correspond to objective reality. Concepts are the result of dialectical and not formally logical reasoning. Only dialectics as a method of reasoning that tends to understand things concretely in their movement, change and mutual conditioning can create concepts that represent an adequate mental reflection of reality. Unlike formal-logical reasoning, which starts from a fixed definition of a thing, from highlighting some of its attributes, dialectics explains that thing as part of a wider whole with which it is connected, through its emergence from something and development into something else, thus revealing the essence and laws that they rule it. Only by this method can the essence of natural and social laws be penetrated, and since utilitarianism rejects the dialectical method, it is incapable of producing truly scientific conclusions. Mises’s economic theory is as unscientific as the utilitarianism on which it is based.
V. Ownership
The abolition of private ownership of the means of production is the basic premise of socialism. That is why the starting point of the analysis is Mises’ understanding of ownership. Consistently sticking to his methodological individualism, Mises claims:
“Regarded as a sociological category ownership appears as the power to use economic commodities. An owner is he who disposes of an economic good. Thus the sociological and juristic concepts of ownership are different. This, of course, is natural, and one can only be surprised that the fact is still sometimes overlooked. From the sociological and economic point of view, ownership is the having of the commodities which the economic aims of men require. This having may be called the natural or original ownership, as it is purely a physical relationship of man to the commodities, independent of social relations between men or of a legal order. The significance of the legal concept of property lies just in this-that it differentiates between the physical has and the legal should have.”[26]
From a sociological point of view, property is “purely a physical relationship of man to the commodities,” says Mises, arguing this with the authority of Böm-Bawerk[27] in a footnote. The question that arises is: how does this physical relationship manifest itself, that is, how do the properties of an individual or an object of his ownership change when an object becomes or ceases to be his property? Not at all, of course. But first, let’s see what Mises says about it:
“Considered economically, ownership is by no means uniform. Ownership in consumption commodities and ownership in production commodities differ in many ways, and in both cases, again, we must distinguish between durable commodities and commodities that are used up. Commodities of the first order, the consumption commodities, serve the immediate satisfaction of wants. In so far as they are commodities that are used up, commodities, that is, which in their nature can be used but once, and which lose their quality as commodities when they are used, the significance of ownership lies practically in the possibility of consuming them.”[28]
Mises’ fallacy stems from the division of commodities into durable and disposable as their objective, absolute property. For him, this division is conditioned by the nature of commodities. But, just as the division into production and consumption commodities is relative, carried out from the aspect of the purpose assigned to them, so is the division into durable and disposable commodities conditioned by the purpose. Moreover, only in the light of the decision to use a good as consumption or as production can it be determined whether it is durable or disposable. A wooden log can be used either for lighting a fire or as a pillar in a factory hall, as a one-time consumable or a durable productive asset. (Of course, the ways of use are limited by the achieved level of socio-economic development, accumulated knowledge and the general level of development of productive forces.) Mises equates the “possibility of consumption” as deciding on the use of an object of ownership and actual consumption. But he immediately claims that:
“The owner may also allow his commodities to spoil unenjoyed or even permit them to be destroyed intentionally, or he may give them in exchange or give them away. In every case he disposes of their use, which cannot be divided.”[29]
Therefore, he allows the possibility that ownership is not manifested exclusively in the act of consumption, but also before it because the owner can put his object into circulation. Deciding to spend and spending itself are not the same thing. The question arises, what is the physical relationship between the owner and the object of ownership if the owner can alienate it in an unchanged form? An apple will not stop being an apple by being sold. This is where the real truth of ownership is hidden! Ownership of a consumable good is established over it in the process of social production, which logically and historically precedes consumption. Mises’s “possibility of consumption” is in fact a social relationship, the possibility of imposing one’s will on another regarding an object. Ownership is a relationship between people over things, not between people and things. Whether the will is imposed through direct physical coercion or indirectly through legal and moral norms is irrelevant. Mises’s separation of “economic” and “legal property” would make sense only as a distinction between two types of social relations, not as a distinction between natural and social relations as he wants.
Mises further claims that productive commodities can have two types of ownership under conditions of the social division of labor:
“Here in fact the having is always two-fold: there is a physical having (direct), and a social having (indirect). The physical having is his who holds the commodity physically and uses it productively; the social having belongs to him who, unable to dispose physically or legally of the commodity, may yet dispose indirectly of the effects of its use, i.e. he who can barter or buy its products or the services which it provides.”[30]
Bearing in mind that Mises always talks about “economic” and not “legal” property, we have to ask ourselves: how is a “purely physical relationship of man to the commodities, independent of social relations” manifested in the social form of property? The answer is: no way, Mises fell into a contradiction. “Social property” is nothing more than a social relationship, as he himself admits:
“Since all production consists in combining the various means of production, some of the owners of such means must convey their natural ownership to others, so that the latter may put into operation the combinations of which production consists. Owners of capital, land, and labour place these factors at the disposal of the entrepreneur, who takes over the immediate direction of production. The entrepreneurs, again, conduct production according to the direction set by the consumers, who are no other than the owners of the means of production: owners of capital, land, and labour. Of the product, however, each factor receives the share to which he is economically entitled, according to the value of his productive contribution in the yield.”[31]
“To have production commodities in the economic sense, i.e. to make them serve one’s own economic purposes, it is not necessary to have them physically in the way that one must have consumption commodities…”[32]
So Mises cannot have both. Either property in the economic sense is not a purely physical relationship independent of social relations, or productive commodities are not subject to economic ownership. In both variants, Mises’s claim that each factor of production receives its economically due share becomes untenable. With this, his argument that the demands of socialists for the “whole of the produce of workers’ own labour” are absurd also falls away. But these were never the demands of scientific socialism![33] What is important is the fact that distribution in capitalism cannot be justified by the argument that it is “just” because it arises from the nature of the ownership of the factors of production and that it is proportional to their participation in it.
Mises’ methodological individualism, which starts in defining ownership from an abstract individual, torn from the historical and social context, is incapable of penetrating the essence of things.
VI. Distribution and economic calculation
Mises claims that in socialism there is no connection between production and distribution since ownership of the means of production has been abolished, so the problem arises of determining how distribution will be carried out. He then lists and criticizes four possible ways of distribution in socialism: equal distribution per capita, distribution according to the service rendered to the society, according to needs and according to merit…
But it is not at all true that socialism means severing the link between production and distribution. The relationship between distribution and production in conditions of private ownership of means of production is twofold:
1) distribution of products results from production,
2) the distribution of means of production determines the production itself.
With the abolition of private ownership of the means of production and the planned organization of the economy, this double relationship is transformed.
1) Since the use of means of production that are now in the hands of the society is decided in advance, plannedly, the anticipated distribution appears as a determinant of future production. The distribution plan in socialism derives from the consumption plan. The consumption plan (and thus the distribution plan) is integrated into the production plan together with the production plan of new means of production (for the purpose of replacing used ones and accumulation).
2) Actual production results, which may be equal to or deviate from the plan, are distributed according to the plan with certain corrections due to possible deviations.
3) On the other hand, the plan of consumption and distribution, that is, the plan of production is limited by the production possibilities of the economy — quantities and types of means of production, technological knowledge and working-age population.
Mises accepts the possibility that a socialist society can determine the types and quantities of consumable commodities it wants to produce, but that determining how the manufactured commodities can be most efficiently used for their production is a problem.
“To solve this problem it is necessary that there should be economic calculation. And economic calculation can only take place by means of money prices established in the market for production commodities in a society resting on private property in the means of production.”[34]
Let’s leave aside for now Mises’ claim that monetary calculation is the only possible form of economic calculation. One can appreciate the view that even in socialism there must be some kind of economic calculation, that is, that the production plan must be harmonized with the production possibilities. Even in socialism, a choice must be made between alternative uses of the means of production, i.e. alternative production methods. Cottrell and Cockshott[35] indicate that Mises has in mind the problem of creating the greatest useful effect on the basis of a given set of economic resources, i.e. optimization problem. They point out that this formulation of the problem is imprecise, because the question is what does “the greatest beneficial effect” mean, the benefit for whom?
“If one wishes to argue that a given type of economic system, say S1, solves this general problem more effectively than some other, S2, then strictly speaking one is obliged to show that for S1 there exists an attractor that is closer to the ‘true optimum’ than any corresponding attractor for S2. One is therefore faced with the problem of producing a definition of the ‘true optimum’, and if this is to be defined in the sense of maximal satisfaction of wants, one presumably has to construct some kind of social welfare or utility function, a notoriously difficult if not chimerical task, and one that Mises does not attempt. On the other hand, if one dismisses as unreal the notion of a ‘true optimum’-an ultimate independent standard by which the results of certain concrete systems may be judged-then one must find a different basis for arguing in favour of one system over others. We find that Mises wavers on this point: he wants to argue that capitalism does get closer to optimality, while holding at arm’s length the type of formal static general equilibrium theory which might be thought to support such a claim.”[36]
The alternatives that Mises identifies as possible principles on which distribution in socialism would be based, which he then tries to prove are inappropriate, are meaningless because they deal with the ex post distribution of the produced, and planning implies that the distribution is determined ex ante, before production. The same applies to Mises’s speculations about the emergence of the exchange of consumer commodities and money in a socialist economy. Exchange is a specific form of (re)distribution in societies dominated by commodity production, and its existence in socialism is impossible because in it distribution is predetermined by consumption. The essence of the planned organization of the economy is to coordinate in advance what the individual wants and what he can get from society in return by investing his labour. Exactly what will be consumed is distributed, so there is no room for exchange. What is not spent and what is not used by an individual does not belong to him but to the society. The roots of Mises’ misunderstanding of this fact lie precisely in his misunderstanding of private property — as already shown, that is, his misconception that private property over consumer commodities cannot be abolished[37] due to the supposed physical relationship between the owner and the object of property. The acceptance of the existence or even necessity of exchange by the proponents of market socialism is their intellectual capitulation to bourgeois political economy.
The production plan defines the types and quantities of means of production to be produced, and the types and quantities of means of consumption. Assuming that the types and quantities of available means of production, all types of products that can be produced and all possible production processes are known during planning, economic calculation is reduced to the task of finding the combination of products that can be produced and which the society considers the most desirable. The criteria that will be used in decision-making may be different, but the society must respect this universal fact, which is the assumption of every society: that the total available social fund of current labour (in the form of the sum of individual hours of work of the able-bodied population) must be distributed to different production activities in order to provide a sufficient amount of consumable commodities for its reproduction. Then part of the social labor fund must be set aside to compensate for the spent means of production, and the rest can be divided between accumulation and expanded consumption. Regardless of the fact that Mises disputes the possibility of an economic calculation based on working hours, one cannot imagine a society that does not perform this function directly or indirectly. What can change in historically different states is only the form of manifestation of this necessity. There is no production without human labor, and human existence and labor are limited by time.
The rational use of the social fund of current labor is the objective law of the maintenance of every form of society — both the primitive communism, and slavery and feudalism, and capitalism. This does not refer to the abstract rationality of the individual as the maximization of personal benefit, which is a priori postulated by bourgeois political economy in the subjectivist theory of value, but to objective rationality in the sense that the maintenance of a given order can only be achieved by reproducing the material conditions that allow the preservation of property and production relations on which it rests.
VII. Rational activity
By criticizing Mises’ concept of optimality, Cottrell and Cockshott indirectly addressed the central point of Mises’ theory — rational activity. According to Mises, the starting point of praxeology, a science that strives to establish universal laws of rational human behavior, is the individual. Praxeology is an a priori science, derived from reason and not experience. Rational activity arises out of need, out of dissatisfaction, it is a purposeful striving towards something. Rational activity has only one goal — the greatest satisfaction of the individual. It is the choice of goals and means for their realization. Since human energy, time and resources are limited, rational activity is at the same time an economic activity. All rational activity is primarily an individual activity. Only the individual thinks, only the individual acts, says Mises.
But there is no abstract individual isolated from the material world and the society in which he lives. There is only a concrete man, who lives and acts in certain material and social conditions. Therefore, he necessarily thinks and acts as a social being. The activity of other people manifests itself towards him as a material force, just as his activity towards them manifests itself as a material force. Society is not, as Mises thinks in the spirit of true subjectivist idealism:
“…the product of thought and will. It does not exist outside thought and will. Its being lies within man, not in the outer world.”[38]
It is a product of thought and will, but it has an objective existence that is reflected in material things. Society exists outside the consciousness and will of the individual precisely because there are other individuals who act independently or depending on him, who also manage material things. The material basis of society is the same for all individuals, the field and subject of their activities are common.[39] Society becomes objectified in the products of human labor. Therefore, there cannot be an abstract individual who chooses goals and means of their satisfaction independently of the will and behavior of others.
The essence of rational activity, according to Mises, comes down to choosing between different needs, giving priority to some at the expense of others, choosing between different commodities that are available for their satisfaction. But what does “available” mean? Mises here implies a certain social relationship, implies that an individual chooses between the commodities that are owned by him! Consumption is conditioned by production and distribution, social relations that exist in these stages of the social reproduction process determine consumption. Before they can be consumed, commodities must be produced. Since they are produced under conditions of social division of labor, they must be distributed. The alternatives that an individual can choose from depend on how they will be distributed, that is, what kind of ownership relations will be established over them. So, there can be no question here of universal human rationality, but at best of rational activity in the conditions of private ownership. It can be rational behavior only if it does not violate existing property relations — only if an individual chooses between commodities in his own possession, he behaves rationally. If he wants a good that is not his property, he must become its owner, that is, enter into a different social relationship. Otherwise he cannot satisfy his need.
Mises continues:
“Such judgments concern firstly and directly the satisfactions themselves; it is only from these that they are reflected back upon commodities. As a rule anyone in possession of his senses is able at once to evaluate commodities which are ready for consumption. Under very simple conditions he should also have little difficulty in forming a judgment upon the relative significance to him of the factors of production. When, however, conditions are at all complicated, and the connection between things is harder to detect, we have to make more delicate computations if we are to evaluate such instruments. … Here the processes of production are so many and so long, the conditions necessary to the success of the undertaking so multitudinous, that we can never be content with vague ideas. To decide whether an undertaking is sound we must calculate carefully. … But computation demands units. … Judgments of value do not measure: they arrange, they grade. … To aid his calculations he must assume substitution relations between commodities. As a rule he will not be able to reduce all to a common unit. But he may succeed in reducing all elements in the computation to such commodities as he can evaluate immediately, that is to say, to commodities ready for consumption and the disutility of labour and then he is able to base his decision upon this evidence. It is obvious that even this is possible only in very simple cases.”[40]
Therefore, since subjective value judgments cannot be reduced to a common unit, this calculation is impossible. It follows that Mises’s abstract individual cannot behave rationally, except in “very simple cases”. A truly paradoxical conclusion for someone who a priori postulates rational behavior. True, Mises later tries to show how value judgments in exchange appear objectified in exchange through commodity prices, but before moving on to that, it is necessary to explain the true nature of rational behavior.
The true essence of human rationality can be correctly displayed if one starts from the real, most developed form of capitalist production. It must be started from the proletarian who has no other means of production — except his own body and labor power, which he would use to create commodities to satisfy his needs. Only here is the true nature of the individual’s economic calculation of liberation a mystification of bourgeois political economy, which under the guise of aprioristic methodological individualism universalizes the historical categories of commodity production — ownership and exchange. The proletarian must sell his labor power, enter into a wages relationship with the owners of the means of production in order to receive money in return and thus buy commodities to satisfy his needs. Which needs and to what extent he can satisfy them is determined by the amount of money he can get for a certain amount of his labor expressed in working hours. The price of every commodity that a worker buys to satisfy his needs is measured by the amount of money that must be exchanged for it. And since there is a quantitative relationship between the amount of spent working time and money, the price of each commodity can be expressed as a function of working time, as a certain amount of working time required for its production. A monetary calculation is only an indirect method of calculation in working hours because money is an intermediary in the exchange of commodities. The fact that in capitalism, on the contrary, it manifests itself as “natural” and direct, and the calculation of working time as indirect, is a consequence of the commodity character of production. Marx’s criticism of the “Robinsonade”[41] of political economy showed that in conditions of isolation and self-sufficiency, the individual resorts to exactly this kind of economic calculation.
Instead of explaining how the “rational” individual then calculates since he is deprived of the possibility of reducing subjective judgments to a common measure, Mises simply postulates the existence of exchange and commodity production:
“In an exchange economy, the objective exchange value of commodities becomes the unit of calculation.”[42]
What is objective exchange value? Exchange value is the ratio by which two commodities are exchanged, x commodities A = y commodities B. Mises claims that the exchange value makes it possible to take as the basis for the calculation
“…the valuation of all individuals participating in trade.”[43]
But how can other participants express their subjective judgments about utility in an exchange? What is assumed here is that an individual can value all the commodities he owns, because only then the comparison with the commodities that are exchanged makes sense. If he cannot, “except in very simple cases”, rank the production commodities he owns due to “numerous and complex production processes”, i.e. if he cannot determine how useful his production good A is to him, how can he determine whether it is more useful to him than the good B he would receive in exchange? That which has yet to be proven is assumed to be valid.
“The subjective valuation of one individual is not directly comparable with the subjective valuation of others. It only becomes so as an exchange value arising from the interplay of the subjective valuations of all who take part in buying and selling.”[44]
Here we have a real dialectical transformation of quantity into quality — it is not valid in an individual case, but it is valid in a mass of cases. How and why, Mises did not explain.
But let’s move on to the second argument of Mises — that the calculation based on exchange value enables control over the use of the means of production. With the appearance of money as a general equivalent, the “value” of each means of production appears as a certain quantity of money, a price in money. Indeed, the capitalist uses the monetary calculation to “rationally” fertilize his capital, he predicts future costs and revenues based on expected price movements and on this basis evaluates the potential profitability of alternatives. According to Mises, this is the universal method of economic calculation. It is not disputed that indeed prices represent a means of economic calculation in capitalism, but Cottrell and Cockshott[45] point out that the implicit identification of the most profitable and the most economical or the best is unjustified. In support of this, they cite the reduction of monetary costs through reckless exploitation of non-renewable natural resources. They also point to the unsustainability of the alleged identity of profit maximization and “maximum satisfaction of human desires”. Since, according to Mises, each factor of production receives as much as it contributed to the result, this would mean that in conditions of income inequality, human desires are formed as a function of the size of income — those who have low incomes have low wants and needs, and vice versa.
“Rather, Mises will have to be satisfied with the claim that capitalism ‘works quite well’ in certain ways, to which socialists can of course respond that it works rather badly in other ways.”[46]
Mises himself admits the imperfection of the monetary calculation. He believes that it stems from the fact that money expresses exchange values and not subjective preferences. Therefore, all those elements of value that are not subject to exchange (health, honor, beauty of the object…) cannot enter the calculation. Mises points out that this does not reduce the value of the monetary calculation because they are valued directly and thus taken into calculation even though they do not enter into the economic calculation. It is enough to answer this with the question: how is environmental pollution “directly valued” by waste water from the factory?
In defense of the monetary calculation, Mises makes an inductive argument:
“The relation between money and commodities perpetually fluctuates not only on the “commodities side,” but on the “money side” also. As a rule, indeed, these fluctuations are not too violent.”[47]
Since, according to the subjectivist theory, changes in the exchange value of commodities are caused by changes in their valuation by individuals — about which nothing can be said because they are subjective, nothing can be concluded about the nature of changes in the exchange value either. To say that “as a rule they are not too violent” is pure speculation by Mises’s own methodological standards.
The monetary calculation is rational only in the sense of the fertilization of capital. The capitalist applies the monetary calculation to increase his capital and not to satisfy his needs. Here the economic calculation is mystified, it appears in a deformed form because it is viewed from the point of view of exchange and not production.
The monetary calculation of individual capitalists is part of the mechanism of the capitalist system by which the total social fund of labor is distributed to different activities and thus reproduces the system, but since it is indirect, the allocation is realized with great waste of resources and labor, through random and fluctuating exchange relations. Mises confuses the specific historical form in which the economic calculation appears with its essence.
The economic calculation is a social mechanism by which the law of proportional distribution of the social fund of labor is realized. Commodity exchange and monetary calculation are only historical forms through which this law is manifested, and their abolition cannot mean the abolition of this basic law, because:
“The law of proportional distribution of the social fund of labor represents the most general economic law that operates in all socio-economic formations and has general importance…”[48]
In all previous socio-economic formations, this law acted indirectly, spontaneously and in a roundabout way. The understanding of this law and the planning of the distribution of the social labor fund on various activities is the basis of the socialist economy, and its basic difference compared to earlier ways of production. The socialist method of production is the “transition from the realm of necessity in the realm of freedom”. Because, paraphrasing Hegel, freedom is understood necessity.
VIII. The nature of the economic calculation
Since the unsustainability of Mises’s subjectivist concept of economic rationality and the monetary calculation as an instrument of its realization has been demonstrated, it is necessary to say something about his thesis on the impossibility of economic calculation in socialism. This refers to the economic calculation understood in the broadest sense, as a mechanism for determining the combination of products that can be produced and which the society considers the most desirable.
In an attempt to argue his claim that economic calculation is impossible under socialism, Mises lists three possible methods of economic calculation:
1) planning “in kind”,
2) calculation based on market prices, and
3) calculation in working time units.
1. Planning “in kind”
Mises claims that the economic calculation requires the reduction of all quantities to a common unit of measure, because above a certain level of complexity of the production process and interdependence between commodities, the human mind becomes unable to perceive them and directly choose the most optimal solution. From here it is obvious that Mises assumes that man is the only being capable of economic calculation. In capitalism, according to him, economic calculation is possible because all individuals participating in exchange make their calculations on a limited scale, on the basis of “objective exchange value”, dynamically adapting to ever-changing conditions in the economy. All commodities are reduced to the same unit of measure — money, so simple arithmetical calculations can be used to determine what is offered by which alternative. In socialism, according to Mises, decisions are made by the central planning body, and due to limited human capacities, it is not capable of looking at complex problems and making economically rational decisions.
However, arithmetic calculation is only one form of calculation, and the development of computer technology in recent years shows two things — that neural networks and other methods can be used as a form of calculation, and that human ability to process information is not limited by their individual capacities, computers can also be used for these purposes. Of course, one cannot complain to Mises that he did not know about something that did not exist in his time. But, those who today want to claim that his theories are correct, have to face his mistakes and misconceptions that are in contradiction with modern scientific knowledge. Mises, on the other hand, is guilty of pretentiously puffing his chest that he “scientifically proved” that economic calculation in socialism is impossible — not in his time, which might still be a defensible thesis, but in general, for all time. This belief of his originates from the non-scientific method he applied, from an attempt to find universal laws of human society that would be valid for all time without understanding their historical character. Mises’s reasoning is reminiscent of the speculations of a learned astronomer from the 19th century who, having learned how many kilometers away Mars is from the Earth, claims that man can never reach Mars because the journey on foot or by carriage would take longer than his life. It is a formally-logically completely correct judgment as long as the correct premise is that walking and carriage driving are the only possible forms of human movement. Just as the internal combustion engine, aviation technology, and spacecraft propulsion rendered such speculation meaningless, so the development of computer technology, telecommunications, and more rendered Mises’s assumptions meaningless and thereby demolished his entire theory.
As an illustration of non-arithmetic calculation, critics of Mises often cite the example of the butterfly’s nervous system:
“…calculation can be seen as a particular instance of the more general phenomenon of computation or simulation. What a control system requires is the ability to compute. This is true whether the control system in question is a set of firms operating in a market, a planning agency, an autopilot on an aircraft or a butterfly’s nervous system. But it is by no means necessary for this computation to proceed by arithmetical means.
The important thing is that the control system is able to model significant aspects of the system being controlled. …A butterfly in flight has to control its thoracic muscles to direct its movement towards objects, flowers or fruit, that are likely to provide it with energy sources. In doing this it has to compute which of many possible wing movements are likely to bring it nearer to nectar. As far as can be determined it performs these computations without the benefit of a training in arithmetic.
To use economic terminology the butterfly has many choices open to it. Different sequences of muscle movement have different costs in the sense of energy consumption and bring different benefits in the sense of nectar. Its nervous system has to try to minimise the costs and maximise the benefits using non-arithmetical methods of computation. The continued survival of butterflies is evidence of their computational proficiency.”[49]
The widespread use of computer technology and new scientific knowledge in the field of neural networks pave the way for the use of non-arithmetic planning methods. The application of computers is not only limited to arithmetic and non-arithmetic data processing, but also overcomes another limitation of the human mind — the limited ability to create information. Among countless examples, one can cite GPS[50] technology, which enables the monitoring and coordination of the movement of objects without direct human participation — the “smart bombs” that in recent decades have sown death all over the planet for the sake of “defending national interests” of the most powerful imperialist power — U.S., represent a very convincing illustration of the effective abuse of this possibilities.
So, people are limited producers of information and some central planning body (if there must be one?) can be led by people with limited abilities, but this does not mean that information cannot be processed massively and efficiently.
The economic calculation is only part of the planned activities that the socialist society must perform. Planning must necessarily be a political process, and all members of the society must participate in it in a certain way. The structure of needs cannot be determined otherwise than by allowing each individual to participate in deciding what is to be produced. The experience of bureaucratic centralist planning in the former USSR clearly shows that the broad masses of people cannot be excluded from the planning process without it becoming meaningless. The political character of decisions is reflected in the definition of what can be the subject of production in general — for example, the decision not to produce items of luxury consumption, in decisions to devote greater priority to areas of general interest, in decisions on the ratio of current consumption to accumulation, etc. Contrary to Mises’ claims that it does not matter whether decisions are made by an absolute monarch or an assembly of all citizens, true political democracy is inseparable from socialism. Compiling the production plan must be a dynamic process in which all members of society participate, it must be an integral part of their daily practice, the result of shared experience and communication. Socialism must represent
“…a society of free individuals, carrying on their work with the means of production in common, in which the labour power of all the different individuals is consciously applied as the combined labour power of the society.”[51]
2. Calculation based on market prices
Mises allows for the possibility that there can be an exchange of consumer commodities in socialism, and that it can be done through money. But, he says, the means of production must remain the property of the society — res extra commercium. Because of this, their monetary value cannot be determined, which makes a monetary economic calculation impossible.
Oskar Lange based his response to Mises on a critique of his concept of price. According to Lange, the term price has two meanings. According to the first meaning, price represents the relationship by which two commodities are exchanged on the market, and according to the second, the concept of price used in a wider context has the meaning
“…of the terms on which alternatives are offered to us. It is only “prices” in the generalised sense which are indispensable to solve the problem of allocation of resources.”[52]
In socialism, there can be no prices in the sense of commodity exchange relations because there can be no exchange, but this does not mean that the mechanism of prices understood in a broader sense cannot be used. Lange points out that solving the problem of choice between different alternatives requires three data:
1) a preference scale which guides the activity of choice,
2) knowledge of the terms on which alternatives are offered,
3) knowledge of the amount of resources available.
When these three data are given, the problem of choice is solvable. Lange further claims the data under 1) and 3) can be treated as given in a socialist economy, at least in the degree in which they are given in the capitalist economy, and that Mises denies the data under 2) is accessible to the administrators of a socialist economy. Lange claims that alternative possibilities are determined by the technical possibilities of transformation of one commodity into another, i.e., by the production functions, and therefore the administrators of a socialist economy will have exactly the same knowledge or lack of knowledge of the production functions as the capitalist entrepreneurs have. What is needed is for the administrators of a socialist economy to establish “calculationing prices” for all means of production and instruct the directors of socialist enterprises to choose that combination of means that minimizes the average cost of production at given prices, and fix the output at the level where the marginal cost is equal to the price of the output. Decisions on capacity expansion, i.e. investments, would be made in the same way. On the other hand, workers would make their decisions on demand and employment based on parametric prices. In the event of a mismatch between supply and demand, the planning administrators, similar to the auctioneer from Walras’ general equilibrium model, would raise the price of commodities whose demand is greater than supply and lower the price of commodities whose supply is greater than demand. Lange adds that a socialist economy is superior to a capitalist economy because it can avoid the problems of monopoly and the so-called “externalities”.
This kind of reasoning by Lange led Hayek to revise the position of the Austrian school and to say that “it must be admitted that this is not an impossibility in the sense that it is logically contradictory”[53] but that it is not feasible in practice. The elaboration of Hayek’s argument went in two directions: that the scope of the necessary equations and individual calculations is so great that at the moment when the calculation is completed the plan would be unusable due to the obsolescence of the starting information, and that the theory of general equilibrium of the Lausanne school is static and thus incapable of explaining the dynamics of capitalist system. In response, Lange offered the “trial and error” method as a simulation of capitalist competition. A few decades later, when the possibilities of using computers as a means of facilitating calculations were already visible, Lange commented that their application would also enable “direct solving of equations”.[54] The objection to Lange about the obsolescence of information is untenable today. In support of the thesis that Lange’s model is unrealistic because it is too static, it is pointed out that the problem does not lie in “collecting data” but in “creating” it. Don Lavoie states that since technology and consumer demand are constantly changing, the best way to achieve a goal is not given in advance, but must be experimented with. Entrepreneurs have that function in capitalism. As a solution, Cottrell and Cockshott[55] propose the formation of an “innovation budget” where part of the resources and social labor time would be set aside for such experimentation with new processes and products. Different individuals and companies could apply for budget funds, and successful new technologies and products would later be included in the plan.
Emphasizing entrepreneurs as drivers of the market mechanism, Mises argues that they cannot be compared to the directors of socialist enterprises because of their different motivations. Entrepreneurs, i.e. capitalists who decide to invest their capital, are forced to make the most optimal decisions under the pressure of material losses. They bear material responsibility for the success of investments, withdrawing capital from certain activities, speculating by buying securities, etc. On the other hand, Mises points out that directors of socialist companies are only morally but not materially responsible for their decisions, so they are not even motivated to look for optimal solutions. Cottrell and Cockshott ironically respond that it will be enough to be motivated as much as the prospect of personal wealth motivated Mises and Hayek to engage in an intellectual defense of capitalism. Also, the separation of capital-property and capital-function in modern capitalism has led to the innovation functions being performed by professional workers, while the role of the capital owner is reduced to appointing a general manager and speculating on the stock market.
According to Mises, an entrepreneur is an irreplaceable innovator, his social role cannot be imitated. But, Mises loses sight of the fact that the entrepreneur always decides based on the anticipation of consumer behavior and desires, while socialism allows them to be determined directly, and thus precisely. The entrepreneur estimates what the demand for a commodity will be, and only then based on the estimate does an economic calculation to determine whether and how much it pays to invest in the production of that commodity. His calculation includes not only anticipated quantities, but also anticipated prices. On the other hand, the economic calculation in socialism enables the exact determination of the desired quantities. The degree of exactness of the socialist economic calculation is limited only by the possibility of keeping the actual spending of resources and labor in the production of products within the framework of the planned ones. And every entrepreneur in capitalism starts from that assumption.
Critical objections to Lange’s model, more specifically the tâtonnement (“trial and error” method), come from both the Austrian school and the Marxists. Don Lavoie points out that if the socialist economy is not in a state of permanent general equilibrium, there will be “trading at false prices” and inconsistencies in the plans of scattered economic agents (socialist enterprises). For example, an increase in the number of requests for certain means of production can lead to disruption, so the creation of a single, balanced plan must await the resolution of the “trial and error” process. Otherwise, the plan would be bad, the instructions to the companies too ambitious, there would be a mismatch between the requested and available quantities… which would result in the appearance of informal exchange and other disturbances. If tâtonnement takes place in a simulated, so-called processing time of the computer and not as a real process, that problem disappears, but Cottrell and Cockshott point out that then the problem of lack of consumer information appears, i.e. their reactions to the tâtonnement that takes place in real time. Consumers would react differently to different price levels and it is not possible to have information about their potential reactions in advance.
Paresh Chattopadhyay points out[56] that Lange’s model actually represents a form of commodity production, because even an interpretation of price as “the terms on which alternatives are offered” cannot avoid the fact that the transactions of the means of production between socialist enterprises are mediated by the form of monetary price, and represent a form of exchange . He believes that Lange wrongly identifies the rational allocation of resources as such with its specific historical form through the price mechanism.
The fundamental shortcoming of Lange’s model is that it is based on the theory of general equilibrium of the Lausanne school, which failed to provide an adequate model of the functioning of the capitalist economy, and thus not to penetrate the essence of the economic calculation. In contrast to Lange’s rejection of the classical Marxist propositions of a working time based calculation, Cottrell and Cockshott propose precisely that.
3. Calculation in working time units
Before moving on to Mises’s arguments against planning in units of working time, it is necessary to briefly explain Marxist positions on this issue. The law of value that regulates the capitalist mode of production was understood by Marx as a specific form of manifestation of the general law of proportional distribution of the social fund of labor, which is universal for all forms of society.
“Every child knows a nation which ceased to work, I will not say for a year, but even for a few weeks, would perish. Every child knows, too, that the masses of products corresponding to the different needs required different and quantitatively determined masses of the total labor of society. That this necessity of the distribution of social labor in definite proportions cannot possibly be done away with by a particular form of social production but can only change the mode of its appearance, is self-evident.”[57]
In pre-socialist social formations, this law acts as an unconscious force, as an objective necessity. In capitalism, its action manifests itself as economic coercion, through random and fluctuating exchange relations on the market. Socialism, on the contrary, means a conscious, planned definition of proportions in which the total labor of society will be divided into appropriate proportions. Engels says that then the labor of each individual, regardless of how different his specific useful character may be, becomes at the same time direct social labor. Then the content of labor in each commodity no longer has to be expressed in a roundabout way in the form of exchange value.
“Society can simply calculate how many hours of labour are contained in a steam-engine, a bushel of wheat of the last harvest, or a hundred square yards of cloth of a certain quality.”[58]
Using this knowledge, the beneficial effects of various consumer commodities, compared to each other and to the amounts of labor required to produce them, ultimately determine the plan.
Marx points out that the use of machines is a function of labor economy, that is, it is introduced when it is necessary to invest less labor for their production than if it would be produced without machines. In capitalism, says Marx, another limitation arises — the capitalist does not pay for the labor of the worker, but for the use of his labor power. Therefore, the use of machinery is limited to the difference between the value of the machine and the value of the labor power (i.e., the value of the necessary foodstuffs) that it replaces. Hence it follows that the capitalist fails to economize on labor to the full extent, which is especially pronounced when wages are at their lowest level, and when the divergence between the economy of labor and the economy of money costs is the greatest.[59] From there, Marx concludes that the field of application of machines will be completely different under socialism than under capitalism. The general goal of socialist planning must be an economy of labor — a progressive reduction of the working time required for the production of commodities.
In the “Critique of the Gotha Programme”, Marx sharply criticizes the delusions of the German social democrats that the worker should receive “the undiminished proceeds of labor” in socialism. He points out that the socialist society must set aside a part of the total social product for the replacement of the means of production used up, for expansion of production, for social insurance, joint consumption, meeting the needs of the population that is not able to work, etc., and that only a part of the total social product is distributed to personal consumption. In contrast to numerous utopian proposals of supporters of this idea of appropriating the full product of labor, Marx points to the historical character of distribution in socialism. At some point in the future, at a higher level of development of the productive forces, it will be possible to “cross the narrow horizons of bourgeois right” and implement the ideal “from each according to his ability, to each according to his needs”, but until then:
“The individual producer receives back from society — after the deductions have been made — exactly what he gives to it. What he has given to it is his individual quantum of labor. For example, the social working day consists of the sum of the individual hours of work; the individual labor time of the individual producer is the part of the social working day contributed by him, his share in it. He receives a certificate from society that he has furnished such-and-such an amount of labor (after deducting his labor for the common funds); and with this certificate, he draws from the social stock of means of consumption as much as the same amount of labor cost. The same amount of labor which he has given to society in one form, he receives back in another.”[60]
However, by the time the debate about the socialist calculation flared up, most supporters of socialism in the West had abandoned this conception of socialist planning. This may explain the fact that Mises wrote off this kind of economic calculation in a few sentences, and that his arguments were not met with serious intellectual resistance.
Mises’s first argument against the calculation in units of labor time is based on the claim that such a calculation does not take into account the natural conditions of production in the sense of non-renewable resources. He accepts that the calculation in units of working time takes into calculation changes in the conditions of production related to socially necessary labor time, but argues that this is not enough. Mises gives the example of two commodities, P and Q, which require the same amount of socially average labor for production — 10 hours. The production of both commodities implies the use of limited raw material A, the production of which costs 1 working hour. Commodity P is produced in a combination of 2A + 8 working hours, and commodity Q in a combination of 1A + 9 working hours. Therefore, in the sense of calculation in working hours, both commodities “cost” the same — 10 working hours. But Mises argues that Q must be “more valuable” because it consumes less of the raw material A. He also argues that socialist planners would have to invent some arbitrary quantity to use to express nonrenewable resources in labor hours. Cottrell and Cockshott point out that the capitalist system also fails to solve the same problem, especially in cases where a limited resource does not provide short-term diminishing returns. They cite as an example the expansion of American agriculture to the west, which in the 1930s had serious consequences (“Dust Bowl”)[61]. Noting that socialist planners should take a more far-reaching view of the consequences than profit-maximizing firms when deciding on the use of limited resources, they speculate that the principle could be implemented that whenever technologies using non-renewable resources are used, investment is made in the research of substitutes. However, the calculation in working time units cannot be a mechanical decision process for all planning issues. A socialist society can open a democratic debate on issues of the environment and the use of resources.
“We have no problem with the idea that environmental considerations and labour-time calculationing are not necessarily reducible to a scalar common denominator, and that the balancing of these considerations may require political judgment on which opinions can differ. Mises, to his credit, is also quite willing to admit that important environmental issues cannot be brought within the ambit of monetary calculation either-witness his discussion of the decision whether to build a waterworks which might destroy the natural beauty of a waterfall, which is designed to illustrate the general point that money “can never obtain as a measure of those value-determining elements which stand outside the domain of exchange transactions” (1935: 98–99). Whether the conservation of Mises’ waterfall can better be trusted to a private landowner, voluntarily eschewing the maximization of profit, or to a National Parks Board, is a matter of judgment: we incline to the latter.”[62]
Another shortcoming of the calculation in units of labor time, Mises sees, is that it does not take into account the “different qualities of labor.” He disputes the possibility that different forms of labor can be reduced to a common denominator without the mediation of the market, that is, without the “mediation of product valuation by economic subjects”. According to Mises, Marx’s claim that complex labor is reduced to multiplied simple labor is not tenable. He concludes that an arbitrary proportion between simple and complex labor would have to be established. Cottrell and Cockshott propose to treat complex labor in the same way that Marx treats the means of production in “Capital”, as a productive input that “transmits embodied labor to its product over time”. Their proposal is that on the basis of the working time required to develop the skills contained in complex labor and the time of its useful use, the “transfer rate” is determined by which the simple labor would be multiplied, thus increasing the “price” of the product. Since the labor required to develop these skills would most likely be a combination of simple and complex, an iterative procedure is needed to calculate the “transfer rate” until convergence is achieved. On the other hand, in cases where different workers with the same skills perform the same type of labor differently efficiently, a gradation by productivity (eg above average, average, below average) can be performed, and appropriate multipliers to be used in distribution can be determined. Cottrell and Cockshott conclude the defense of calculations in units of working time with the words:
“When discussing market prices, he is quite willing to concede that “monetary calculation has its inconveniences and serious defects”-he even discusses some of these at length- yet he concludes that “for the practical purposes of life”, such calculation “always suffices” (1935: 109). When discussing labour-time calculation, he draws attention to two defects, but instead of concluding that such calculation is then only approximately valid, or that there is a need for further thought on how the issues he raises might be dealt with in the context of labour-time accounting, he takes these defects as grounds for complete dismissal of the idea, and claims that the socialists therefore have no means of economic calculation whatever.”[63]
They also touch on the objection that is often raised in the debate about the socialist calculation — that “it is not possible to measure the necessary labor content of goods produced in a socialist economy.” It could be heard both by the opponents of scientific socialism and by some of its supporters who doubted that it was practically achievable. That is why Cottrell and Cockshott propose a theoretical model[64] that is already technically feasible today. The basic assumption from which they start is that the conditions of production can be represented by a linear input-output model, whereby the task of calculating labor values for all goods is reduced to solving the Leontiev matrix. Every good can be represented by the following equation:
vi = λi + ai1v1 + ai2v2 + · · · + ainvn
where
vi — the value of good i,
λi — the direct labour required to produce one unit of good i,
aij — the technical coefficient representing the input of product j required to produce one unit of good i.
The complete vector of labour values is therefore given by:
V = Λ + AV
Where:
V = (n x 1) vector of labour values,
Λ = (n x 1) vector of direct labour coefficients,
A = (n x n) matrix of technical coefficients
It then follows that:
V = (I — A)-1Λ
Assuming that A and Λ are known and that the inverse Leontiev matrix can be made, a vector of values of all goods is obtained, which is sufficient to calculate the output vector of all products required for the production of any vector of desired final products (both for consumption and renewal and accumulation of means of production). In other words, everything you need for a successful plan.
The question that arises is: is it possible to realize it or is the computational problem too complicated? Their view is that at the moment the standard Gaussian elimination method cannot provide satisfactory results. The Gaussian method is — in the sense of complexity theory — а time order[65] оf n3, where n is the number of products in the system. Starting from the estimate that in the Soviet economy the total number of goods that participated in production was of the order of 10 million (n = 107), the time order of Gaussian elimination would be 1021, which represents the number of elementary calculations that would need to be performed. Assuming that each calculation requires 10 computer instructions, a total of 1022 instructions would be needed to solve the problem. This means that on a commercial supercomputer of the mid-1980s capable of executing 108 instructions per second, it would take 5 x 1013 seconds, or over a million years. In this sense, this kind of calculation is practically impossible at today’s level of technological development, but that does not mean forever.
Instead, they propose more efficient iterative approximation methods[66] that have a time order of n2r, where r is the number of iterations needed to achieve a satisfactory approximation. Assuming that r = 20, the calculation time is reduced to 108 seconds, or about 3 years, which is still unsatisfactory for practical application. But, in practice, the matrix of technical coefficients is largely sparse because even though there are 10 million products in the system, the number of direct inputs for each product is probably in the order of tens or hundreds. Therefore, they propose to represent the matrix in the form of a linked-list data-structure, which would shorten the time-order of the iterative solution procedure to nmr, where m is the average number of direct inputs for each product. Assuming that m = 100, the calculation time would be 103 seconds, or 17 minutes. Socialist economic calculation in units of working time is practically feasible on the basis of today’s computer technology, they conclude, with the application of adequate data-structures and mathematical algorithms. As for the extensive work of gathering data for the realization of such a calculation, they propose a unique network of cheap personal computers in every enterprise at the level of the entire economy.
The functioning mechanism of their model is as follows: the plan foresees a certain vector of consumption goods and determines their labor content. If the planned volume of production and the demand at “prices” based on value (in working hours) coincide, the system is in a state of equilibrium. In a dynamically changing economy, it is most likely that they will not match immediately. In case of a mismatch between supply and demand, the planning administrators adjust the “prices” of goods in order to achieve a short-term equilibrium, raising the prices of more demanded goods and lowering the prices of less demanded ones. Then, the planning administrators examine the ratio of equilibrium prices and labor content for different goods (where both quantities are expressed in working hours). In the following planning period, the production of goods with an above-average ratio should be increased, and the production of goods with a below-average ratio should be reduced, with the use of other, non-mathematical methods of forecasting consumption. In each period, the plan is balanced using input-output or alternative methods. The total output supporting the target vector of final consumption goods should be calculated in advance (in “computer time”). This procedure allows overcoming the unrealistic assumption that the vector of consumer goods must be completely anticipated in advance — adjustment is made by a specific “trial and error” method that takes place in real time. Finally, Cottrell and Cockshott state both the criteria of a “successful innovation” and an “uneconomic process” of production, thus responding to Mises’ remarks that a socialist economy cannot function in dynamic conditions — a successful innovation is a product for which consumers are willing to “pay”, for example with their labor certificates, at least as much of their working time as the product contains social labor time; and an uneconomic process is one for which there is no volume of production for which this condition is met.
Their model unites democratic decision-making on the proportions of the distribution of the social fund of labor to different areas (renewal and accumulation of the means of production, joint consumption, personal consumption…), freedom of individual choice in personal consumption and the application of the principles of labor economics, and as such represents a great challenge for all those who dispute either the theoretical or practical possibility of an alternative to capitalism.
Criticism of Mises’ conception of economic calculation undermined the very foundations of his liberal theory of capitalism and showed its unscientific character, simultaneously exposing all the futility of Mises’ alleged theoretical proofs of the economic impossibility of socialism. Apologists for capitalism can no longer hide behind Mises’ “scientific evidence” and use it as a propaganda tool to hinder the intellectual efforts of the progressive forces of humanity to design and realize a more humane society.
IX. Slanders
Mises’ reckoning with socialism did not end only with theoretical speculations оn the impossibility of economic calculation in socialism. He sought to destroy and make the entire concept of scientific socialism absurd by attacking it from all possible sides — from challenging the materialist conception of history and dialectics to analyzing socialist ethics, and dealing with each of his accusations separately would require years of work and a fair amount of scribblemania. Fortunately, most of his arguments can be answered by pointing out the nature of his “scientific” method. Not only did he subject the socialist doctrine to the usual torture of pseudo-scientific logical formalism and abstract subjectivism, but he also gladly reached for the strongest weapon of “scientific objectivism” — distortions, lies, slanders and finding hidden motives. The only thing more shameful than these actions of Mises are the hypocritical statements of those who today have the nerve to assert that Mises “scientifically proved” something. So, for example, we can read:
“It never seems to have occurred to Marx that the productive forces are themselves a product of human thought, so that one merely moves in a circle when one tries to derive thought from them. He was completely bewitched by the word-fetish, “material production.” Material, materialistic, and materialism were the fashionable philosophic catch-words in his time, and he could not escape their influence.”[67]
Marx, therefore, “was bewitched” and “under the influence” of the philosophical fashion of his time, so what he wrote is automatically incorrect. A really nice illustration of an ad hominem “obvious” argument. Just a few lines down, Mises writes without any scruple:
“Abstract thought is independent of the wishes which move the thinker and of the aims for which he strives.”[68]
How then Marx’s “abstract thought” fell under the influence of his desires, and especially how Mises broke it off by analyzing his same thought, remains a mystery. But aside from this “psychological argument” and stylistic figure that it never “occurred to Marx” (that the productive forces are themselves a product of human thought). Mises told an outright lie! In “Grundrisse” Marx wrote the following:
“Nature builds no machines, no locomotives, railways, electric telegraphs, self-acting mules, etc. These are products of human industry; natural material transformed into organs of the human industry; natural material transformed into organs of the human will over nature, or of human participation in nature. They are organs of the human brain, created by the human hand; the power of knowledge, objectified. The development of fixed capital indicates to what degree general social knowledge has become a direct force of production, and to what degree, hence, the conditions of the process of social life itself have come under the control of the general intellect and been transformed in accordance with it.”[69]
Despite the fact that the work “Grundrisse” was first published only in the forties of the 20th century, two decades after Mises published “Socialism”, he never corrected himself in his later works, but, on the contrary, continued with slanders and lies despite the fact that the work was available to him. As for the claim that explaining the productive forces are themselves a product of human thought, and their feedback effect on thought is a circular movement, it is indeed contradictory from the point of view of formal logic. But that does not mean that it is not scientifically correct, because science cannot be based on formal logic. Formal logic is a static rummage of empty abstractions, concepts devoid of real content, and the subject of science — the objectively existing world, is in constant movement and change. Contradictions objectively exist, they are an integral part of the world around us, and only dialectical logic, as a method of thinking that seeks to understand things concretely — in their movement, changes, relations of mutual opposition and unity, can be a correct scientific method. Production forces simultaneously represent the result of the work and thus the ideas of previous generations of people, and they influence the ideas and relationships between people in current production because they are its necessary element.
In the same style elsewhere, Mises gives another brilliant psychological analysis:
“The terms ‘Capitalism’ and ‘Capitalistic Production’ are political catchwords. They were invented by socialists not to extend knowledge, but to carp, to criticize, to condemn.”[70]
Or:
“For the Marxist, historical research is merely a means of political agitation. Its use is to furnish him with weapons against the hateful bourgeois order of society. The main objection to this method is not that it puts forward frivolous, untenable theories without thoroughly examining the historical material, but that he smuggles an evaluation of this material into an exposition which pretends to be scientific.”[71]
There is no need to list Mises’ slanderss and lies any more. Sapienti sat.
“As a scientific writer Marx was dry, pedantic, and heavy. The gift of expressing himself intelligibly had been denied to him.”[72]
For Mises, on the contrary, it could be said that he expressed himself very comprehensibly, but that — unfortunately for him — nothing he said has any scientific validity.
X. Hayek’s argument
Lange’s reply to Mises soon after its publication became widely accepted as a definitive theoretical proof of the untenability of Mises’ claims. However, this did not mean the end of the socialist calculation debate. Friedrich A. von Hayek joined the debate with slightly modified positions of the Austrian school. Hayek, like Mises, attacked socialism from different sides, trying to prove that it is economically impossible or ineffective, that it must be undemocratic and totalitarian, etc. The development of these theses runs through his entire oeuvre. Many of his arguments are variations on the usual themes of liberal doctrine and as such have been challenged and refuted by various critics, so here attention will be focused only on his central argument, the essence of which is presented in the scholarly article “The Use of Knowledge in Society”[73] published in 1945. To the extent that Hayek’s arguments coincide with Mises’s, there is no need to analyze them again because the criticism of Mises has already shown their unsustainability, and the focus will be only on the new moments that Hayek brings to the debate. Hayek’s argument is relevant insofar as recent interpretations of the history of the socialist calculation debate emphasize its difference from Mises’s arguments, so the criticism of Mises may seem incomplete to refute the thesis about the impossibility of an economic calculation in socialism.
The essence of Hayek’s point of view is reflected in the following passage in the aforementioned article:
“What is the problem we wish to solve when we try to construct a rational economic order? On certain familiar assumptions the answer is simple enough. If we possess all the relevant information, if we can start out from a given system of preferences, and if we command complete knowledge of available means, the problem which remains is purely one of logic. That is, the answer to the question of what is the best use of the available means is implicit in our assumptions. The conditions which the solution of this optimum problem must satisfy have been fully worked out and can be stated best in mathematical form: put at their briefest, they are that the marginal rates of substitution between any two commodities or factors must be the same in all their different uses.”[74]
Hayek then points out that the assumptions on which this solution to the problem rests are unrealistic, and therefore the problem cannot be practically solved. Elsewhere,[75] Hayek admits the possibility of solving this problem theoretically, thus mitigating Mises’ claims that economic calculation in socialism is theoretically and logically impossible. As a reason for the practical impossibility of economic calculation in socialism, Hayek states that the “data” from which the economic calculation starts are never and cannot be “given” for the whole society in the sense that one mind can dispose of them. He defines it as the problem of using knowledge that no one can possess in totality:
“The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.”[76]
According to Hayek, the problem is not whether planning is needed in the economy, but whether planning is needed in a centralized or decentralized way. Under centralized planning, Hayek means the management of the economy by a single authority, and under decentralized planning is nothing but a market mechanism in which all individuals manage the assets they own. Which system will be more efficient, according to him, depends on whether it is better to make available to a central authority all the knowledge it needs, which is initially dispersed, or to provide individuals with as much additional knowledge as they need to coordinate plans with other individuals.
Hayek points out that there are different types of knowledge, so the solution to this question boils down to considering the relative importance of different types of knowledge. He divides knowledge into two types: scientific knowledge in the form of knowledge of certain universal laws, and “unorganized” knowledge. Hayek defines unorganized knowledge as:
“…the knowledge of the particular circumstances of time and place.”[77]
According to him, each individual has “some advantage” over others in the sense of possessing unique information that can be “usefully used”, but only on the condition that he himself makes decisions or actively participates in making them. He refers to information about people, and specific, local conditions, citing examples of a dealer who earns from knowing the differences in local commodity prices, a forwarding agent who earns from information about the degree of utilization of ship capacities, etc. Hayek believes that this kind of unorganized knowledge is the reason why we must stick to the “existing economic order”, i.e. that this knowledge is dominant in the field of economic activities and is far more important than scientific knowledge, and that it cannot be collected and used appropriately in a socialist economy. In support of this thesis, he cites constant changes in economic conditions. Hayek claims that advocates of central planning lose sight of the importance of these changes, which make long-term planning impossible and impose the need for constant “significant” changes to plans. Hayek points out that certain economic decisions must be made on a daily basis, citing the example of economic capacities that can be used at different cost levels by applying different management methods, the application of which depends on the constant observation of the effects of changes, that is, on information that was not available the previous day.
Hayek then claims that it cannot be expected that this unorganized knowledge can first be communicated to the central planning authority, and then integrated and form a production plan based on which orders would be issued. Decentralization is needed in order to use this knowledge in the right way. But, on the other hand, an individual cannot make decisions solely on the basis of this non-organizational knowledge, but must somehow obtain information that allows him to harmonize his decisions with the decisions of others and changes in the entire economic system. Hayek then says that practically everything that happens in the world can in some way influence the decision that needs to be made and that it is not possible to have all the relevant information. What you need to know, according to Hayek, is the relative importance of those changes, and it is precisely the price mechanism in the market that provides such information. As an illustration of this, he gives an example — for some reason there is a change in the supply of tin on the market, which leads to an increase in its price. Those who use tin are now forced to use it more economically because its use has become more profitable elsewhere, and those who produce it shift resources from other products to the production of tin, which has now become more profitable. The effect spreads quickly through the entire economy and there are changes in the structure of the production of not only tin, but also substitutes, raw materials, etc. At the same time, not everyone needs to know the reasons why the supply of tin was reduced, the information provided by its changed price is enough for them.
“The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all.”[78]
According to Hayek, the market is a knowledge communication mechanism that enables individual producers to adapt their activities to changes they know almost nothing about by observing several parameters (prices). Hayek admits that this mechanism is not perfect in the sense of the theory of general equilibrium, but that it is nevertheless “miraculous” because it unconsciously directs people “in the right direction”. The price mechanism of the market is created by spontaneous evolution, as
“…the result of an unintended adjustment…part of a process of unconscious self-organisation of a structure or pattern.”[79]
The price mechanism is a spontaneous formation that people have simply learned to use, mostly without understanding how it works.
So far, the most complete critique of Hayek’s argument was given by Cottrell and Cockshott in the articles “Information and Economics: A Critique of Hayek”[80] and “Against Hayek” published in 1994 and 2007, respectively. Their criticism begins with a general statement of the unsustainability of Hayek’s subjectivist conception of the social sciences, and especially his assumption of the individual’s behavior as a rational subject, which they argue with psychological and sociological research in recent decades.
They point out that the modern development of capitalism has reached a stage where the economic subject is a legal and not a physical category. Economic subjects are mostly companies and not individuals, and the activities of companies cannot be reduced to the inner subjective life of the manager who is at the top of the company. The activities of firms are complex decision-making procedures, actions and deliberations involving large numbers of people, and the question of procedures may be as important as the question of who occupies which position in the firm. The fallacy that only individuals perform economic calculations, which is characteristic of both Hayek and Mises, is a consequence of their methodological approach — observing an isolated, abstract individual as the basic unit of society, and observing society as a purely subjective entity that exists only in the heads of individuals. The undeveloped forms of private property characteristic of early capitalism are the basis of their identification of capital-property and capital-function with the physical individual.
“The agent of economic practice thus appeared to be the person of the capitalist or enterpreneur rather than the firm. But from the standpoint of current state of economice development, it can be seen that the rational calculating subject is the property-maximizing juridical subject.”[81]
For this reason, they believe, an attempt to observe the science of society in a subjectivist way, as Hayek does, is unacceptable. His philosophical subjectivism is also reflected in his concept of subjective information. Cottrell and Cockshott point out that the development of the scientific conception of information in recent decades, which led to the understanding of the objective nature of information and the application of that knowledge first in the field of telecommunications and then in microelectronics and other fields, made Hayek’s subjectivist point of view meaningless. They point out that the subjectivist conception of information as knowledge in the heads of individuals distracts attention from the research of the material basis of information, thus making it impossible to see the production and manipulation of information as a process of labor and technology. As an example of the connection between economic relations and the level of development of techniques for the objectification of information, they state that rent as an economic category could be stabilized only when the means for recording ownership and lease contracts were developed, whether they were written documents on papyrus or on stone. Monetary calculation and prices rely on the technology of counting and calculation, which they note can never be a purely mental operation in a commodity economy. For that, either small stones (calculi) from the Roman era, or calculation tables from later periods were needed. A developed trade without material means that enable records and accounting is very impractical and unsuccessful, if not impossible.
“Economic rationality is an algorithmic process supported by a machinery for computation and information storage.”[82]
Cottrell and Cockshott particularly emphasize the fact that the socialist calculation debate in the first half of the 20th century was conducted in the field of neoclassical theory, which influenced the very setting of the problem. The neoclassical model starts from the subjective preferences of the individual, which opens up space for Hayek’s argument that the planning administrators do not have information about the preferences of all individuals in advance. However, individual preferences cannot be given outside of concrete exchange relations, they are formed in the very act of choice during the exchange. Hence, they have no significance for the socialist economic calculation because it is not based on exchange at all. The problem of economic calculation can be defined as finding a combination of products that is consistent with the production possibilities of the economy and that the society prefers over other possible combinations. It should be the combined result of democratic political decision-making and aggregate consumer decisions, as already explained in the chapter on the economic calculation based on units of working time. With the use of appropriate data acquisition systems, compiling the output vector is no problem. Collecting data on production possibilities may seem somewhat more difficult, and this is precisely the context in which Hayek’s argument is considered.
The assumption on which both Mises’ and Hayek’s arguments against the socialist economic calculation are based, that all the necessary data must be available to “one mind”, is a distortion and reduction of the socialist argument to nonsense, so that it can be easily refuted. It would really be ridiculous to defend the thesis that one man has such intellectual capacities that he can plan the labor of the entire economy in detail by himself.
“Not even the most avid personality cultists claimed that Stalin drew up the 5-year plan himself.”[83]
It is not about that at all, but about the need to replace the market mechanism of information processing with the economic information processing mechanism within the planning organization. In the past, planning organization was based on the mental division of labor between a large number of people, and in the future, information processing will probably be based on computer technology. In both cases, in addition to human intellectual capacities, material resources — tables, exemplars, calculators, computer networks, etc. are included in the performance of this work. The development of the economic calculation has always depended on material means for performing calculation operations and records. The role of man in this process consists in inputting initial information and manipulating it. Strings of symbols representing physical quantities of goods are transformed by computational operations in order to model their potential movement… Therefore, Cottrell and Cockshott state, Hayek’s definition of the problem as the task of a single mind is inadmissible, and makes sense only if one wants to claim that no system administration has the ability to perform the task. In an age when computer technology has exponentially increased the quantum of information that can be processed, such a thesis cannot be taken for granted as valid.
Hayek’s division of forms of knowledge into scientific and unorganized, that is, into knowledge of general laws and knowledge of specific circumstances of place and time is also untenable. It omits a whole layer of different forms of human knowledge — such as knowledge of certain technologies and procedures, which are crucial for economic activities and which cannot be reduced to universal scientific laws, but at the same time are not completely specific to a certain place and time, and can be communicated. Licensing, franchising and other forms of transfer of technological and “know-how” knowledge in capitalism illustrate this fact. The assumption of a successful socialist economic calculation is the existence of a central register of all available technologies. Already today, there are material conditions for the same to be realized — most companies keep records of their inputs and outputs in various computer programs for tabular calculations, and such information could easily be connected in a single system, that is, centralized. Even Hayek’s disorganized knowledge in the narrowest sense, knowledge of the specific circumstances of time and place, does not represent a barrier to the construction of a centralized economic system. For example, individual information about available capacities of lines of bus or airline carriers is today connected in a unique national or international information system, so every passenger can find out at any moment whether and how they can be transferred from place A to place B.
Describing the way in which the market and the price mechanism regulate the movement of information and goods, Cottrell and Cockshott point out that the speed of transfer of information contained in prices is limited by the real movement of goods (or the introduction of new production capacities) that causes price changes, which means that the execution of production optimization is relatively slow. Decentralized processing of price-based data by market entities makes their adaptation to changed conditions limited and slow. In contrast, they highlight the benefits that centralized data processing would have. Of course, it is not possible to concentrate all the relevant information in one point, but it is in a relatively small space. If the information is collected on one or more powerful computers, the calculation of the best use of the available resources would eliminate the unnecessary waste of resources and time that occurs in the capitalist economy in the form of its realistic “optimization” procedure. Any potential future state of the economy could be calculated in “computer time” without changes in the real economy.
One of Hayek’s main conclusions is that the efficient functioning of the economy involves a significant use of scattered information, and that it is impossible to perform its centralized processing. Cottrell and Cockshott construct a mathematical model[84] based on algorithmic information theory in which they compare the communication costs of market and planning systems. Their conclusion is that, contrary to Hayek’s claims, it is necessary to transfer a significantly smaller volume of information in the planning system than in the market system and that centralized data collection is simpler and faster than the market system, with faster system adaptation to changes.
Regarding Hayek’s conception of prices and his explanation of their role in the market, which he illustrated with the example of the change in the price of tin, it is indisputable that indeed prices have a certain informational value and enable a certain degree of coordination of the economic activities of market subjects. But the given example raises many questions. The price change itself is not the basis for making a rational economic decision of an individual if he does not know the cause of its change. For example, the price increase may be short-term due to a miners’ strike or long-term due to the depletion of natural reserves of tin. Making a rational decision about the volume of production and investing in new capacities depends on whether this change is temporary or permanent, and the price itself does not carry that information. Applying the wrong decision will have negative consequences, so the decision maker must also rely on other types of information. The price, therefore, carries information about the current conditions under which goods are exchanged, and in order to see potential profitability, it is necessary to know future prices, that is, to predict them. Since Hayek talks about dynamic conditions in which constant changes take place, his thesis that prices carry enough information to make rational decisions cannot be successfully defended.
The dynamic aspect of prices is reflected in the fact that their information content increases at the moment of price change. For example, if the price can be expressed as a set of several bits[85], its information content represents a logarithmic value in the form of log2((x-1)/x) where x represents some time period in which the price does not change. At the moment of price change, its information content becomes log2((1/x)+A), where A is the number of bits used to express the price change. For example, if the price changes only once a year, the information content of the price on the day of the increase is about 3000 times higher than the day before the price increase. Price changes are important sources of information for market subjects because they reflect to a certain extent the changes taking place in the market. But one must distinguish between changes that are a consequence of the action of factors outside the market mechanism and that are independent of the social form of production, and changes that are a consequence of the functioning of the market mechanism itself. Only the former are relevant to Hayek’s argument. For example, drought or population growth objectively affect the production possibilities of the economy and the structure of needs that it should satisfy, and the market and planning systems must adapt to such changes. Internally caused changes by the functioning of the market mechanism, such as price growth due to credit expansion, speculative price fluctuations on the stock exchanges, etc. are not relevant to the problem of economic calculation in socialism.
In the chapter on the calculation in units of working time, it was already stated that computer technology already today enables the planning of complete vectors of output in a negligible time, so that any exogenous change can be taken into account and the plan can be reconfigured so that it corresponds to the new conditions. Since changes require the physical movement of goods and other work operations, this adjustment time consists of two parts: the computational time in which the iterative planning algorithm is executed and which, based on today’s computer technology, can be measured in minutes, and the physical adjustment time required to the necessary changes are being implemented. Since the physical adjustment time is longer than the calculation time, it is simultaneously the limit that determines the speed of the economy’s adjustment to changes. In a market system, on the other hand, each adjustment iteration — which in a planned economy is done on a computer — takes place in real time and is equal to the physical adjustment time for that iteration. Since more iterations are needed to adapt the entire system to the change, the total adaptation time is multiplied. In practice, things are even worse because even before the system adapts to one change, due to the length of the adaptation process, a whole series of other changes occur, which leads to chaotic and oscillatory behavior of the system.
“Hayek is to be commended on his ability to make best use of a bad case, to make virtues out of necessities. The unavoidable instabilities of the market are claimed as blessings. The very crudity of prices as an information mechanism is seen as providentially protecting people from information overload.”[86]
Hayek’s “spontaneous order” that supposedly results from the action of the price mechanism and exchange is just one more in a series of idealistic concepts completely detached from reality that treat social phenomena ahistorically, undialectically, separated from the material basis of society, and therefore unscientific.
XI. Conclusion
Now let’s go back to Mises’s original claim from which the socialist calculation debate began — that socialism is economically impossible because there can be no economic calculation in it. As the previous analysis showed, Mises’s argument cannot be considered scientifically valid because he confuses the specific historical form in which the economic calculation appears with its essence. His claim that the monetary calculation in capitalism is the only form of economic calculation does not hold, hence his conclusion that there can be no economic calculation in socialism, since the abolition of money, exchange and private property and thus the monetary calculation is desired. So, Mises did not prove that socialism is economically impossible.
Nor does Hayek’s argument, whether understood as an elaboration of Mises’s or taken independently, prove such a claim. Contrary to the triumphant boasting of their followers, fueled by the collapse of Stalinism in the past two decades, that the socialist calculation debate ended with the definitive victory of Mises, the truth is that the debate is at its very beginning. Not an inch was advanced in proving his claim. Mises’s pseudo-scientific theory of monetary calculation has, as it does today, repeatedly served as an ideological weapon in restraining and suppressing resistance to capitalism. By propagating the impossibility of any other property and economic system other than capitalism, they want to prevent any thinking about a more rational and humane society, about an alternative to capitalism. It is desired that the masses bow their heads submissively and look with gratitude at the bourgeois for the misery and poverty in which they languish[87].
In the end, the question can be asked, does it even matter if Mises was right or not? Many today proclaim the definitive collapse of socialism — the USSR and the Eastern bloc have collapsed, the planned economy has been completely dismantled. Such ideas should not be taken seriously. What failed was not socialism, but Stalinism[88] hiding behind the name of socialism. Stalinism and all its variations — Maoism, Titoism, etc., represented one of the manifestations of the struggle of the working class around the world, the result of the contradictions of this struggle. Its breakdown does not mean the end of this fight. On the contrary, a critical analysis of Stalinism makes it possible to draw important conclusions about the dangers lurking in the future. Today, this struggle takes place in other conditions and forms, it goes through ups and downs — despite the seeming lull of the last decades and the defensiveness that enabled the rekindling of the capitalist ideology and the triumphalist proclamation of the eternity of capitalism, the resistance of the working class increases year by year. Mass strikes in all countries of Western Europe and millions of demonstrations against imperialist wars all over the planet clearly testify to this. The working class at the international level is slowly becoming aware of its colossal strength and ability to change society. The coming years will not bring the idyll of capitalism, as naive bourgeois ideologues lull themselves into their fantasies.
Stalinist “socialism” did represent one form of planned economy, but it was not a model of socialist planning in the true sense of the word. A socialist planned economy is possible only through a specific form of organization — through proletarian democracy,[89] and Stalinism was its exact opposite, a totalitarian dictatorship. The abandonment of this planning model by the Stalinist bureaucracy was an expression of its aspirations to transfer its privileges based on official position and political power into its permanent ownership, ownership of the means of production. The new bourgeoisie in Russia and elsewhere in Eastern Europe emerged precisely from these structures, which, under the guise of privatization, poured social wealth into their pockets.
The planning model[90] in the former USSR was somewhat successful compared to capitalist economies. It enabled rapid industrialization — especially the development of the military industry that enabled the victory over the Nazi attack in World War II, but it also created numerous problems. In the beginning, rough plans were used in which a smaller number of goals were specified in the following planning period. With the growth of the complexity of Soviet industry, effective planning of this kind became less and less, and the discrepancy between the required quantities and the structure of the output and the production results was increasing. The reason for this is that the plans were not created from the structure of the final outputs backwards, because it was too complex task for the then planning apparatus, which for ideological and technical reasons managed the economy through directives instead of two-way communication and broad democratic participation of workers in the creation of plans. The plans were defined abstractly in aggregate quantitative quantities — in tons of steel and concrete, the growth rate of ore exploitation by a certain percentage, etc. This led to the independence of semi-product production plans as goals in themselves, instead of being a function of the final production plan. The increasing complexity of the Soviet economy led to several attempts to reform the planning system in the decades after World War II. Ideological resistance to the introduction of new planning methods slowed down change, and the application of the input-output model of linear programming never fully took off.
Even in Yugoslavia, the socialist economy model was never consistently implemented in the sense in which it is presented in the theory of scientific socialism. After the initial steps in the first decade after the Second World War in the direction of building a planned economy — in many respects similar to the Soviet model, a turn towards market socialism was already made in the 1960s, which de facto paved the way for the subsequent ideological capitulation to capitalism.[91] The socialist rhetoric was retained, but the relations of commodity production were established — in a specific form since the market actors were socially and state-owned enterprises and because the state retained certain instruments of control and planning. In the following decades, the contradiction between social property and commodity production began to create an economic crisis that culminated in the late eighties. Despite the fact that the economy was dominated by commodity production, socialist elements in other areas of social life (law, social protection…) were maintained in the following decades. The economic crisis produced dysfunctionalities in these areas as well, so Yugoslav socialism was increasingly reduced to political demagoguery, which lasted until the end of the eighties. A definitive ideological turn was made in 1989, when the foundations of the “transition to a modern market economy”, as the plan for the restoration of capitalism in Yugoslavia was euphemistically called, were laid. The following years brought the breaking up of the common state in a consciously fueled hysteria of nationalism and a bloody fratricidal war waged by the republican bureaucracies, the general looting of social property through hyperinflation, the pouring of capital into the private sector through harmful purchase contracts and through privatization schemes. Today, almost fifteen years later, it is clear that the restoration of capitalism has not brought anything progressive, nor can it bring. This process is still not fully completed, but the logic of capital has long governed people’s lives and the consequences are terrible: production has been halved with the tendency of further decline and stagnation, almost a million people are unemployed, the standard of living has fallen to one tenth of what it used to be, social polarization between the poor masses and the narrow stratum of the ultra-rich has reached fantastic proportions… Of course, we must not forget the dirty role played by the political and military institutions of Western capital.
Despite sweet political promises of universal prosperity “when the transition is over” (the end of which is constantly postponed further into the future) and the domestic economy is integrated into the global capitalist order, its future is bleak. The plan and concept of its development is reduced to a blind faith that by some miracle the “invisible hand of the market” will solve all problems. The eyes of the creators of the domestic economic policy are imploringly fixed on the foreign capital that will rush to the rescue in the billions. But such a scenario cannot happen here, nor in other countries in the region. The recession of the world’s largest capitalist economies, together with the abundance of cheap labor and resources in the countries of Eastern Europe, especially Asia and Africa, make Serbia unattractive for investment, and this is precisely the decisive factor, not the alleged high political risk. Serbia, Croatia, Bulgaria, Hungary and other Eastern European economic and political dwarfs, despite their ideological capitulation to capitalism and their political adulation of Western capital, cannot be compared to the hungry and barefoot masses of the third world who vegetate on a few tens of dollars a month. It is a real investment Mecca for Western capital. Nowhere can things change for the better. Capitalism has completed its historical role and has become an obstacle to further progress. Unable to further develop productive forces, it is forced to destroy them through economic crises and military conflicts in order to sustain itself.
The question of an alternative to capitalism is as topical today in these regions and on the entire planet as it was when it was first posed in a scientific way, with Marx’s critique of capitalism. Socialism or barbarism is still the most important choice humanity has to make. The experiences of the struggle for socialism in the past century, with all the defeats and victories, ups and downs, must be the subject of analysis in search of a solution. But, the solution cannot be found by mere theorizing in the armchair, the solution can only emerge as a result of the unity of the theoretical and practical struggle for the socialist transformation of society.
Belgrade, 29.10.2003.
Translation from Serbian:
Tomislav Zahov
[1] Ludwig von Mises, Economic calculation in the socialist commonwealth, 1920., p. 23. (Ludwig von Mises Institute, December 13, 2010)
[2] Eugen Böhm-Bawerk, Karl Marx and the Close of His System, 1896., (MIA)
[3] Rudolf Hilferding, Bohm-Bawerk’s Criticism of Marx, 1904. (MIA)
[4] Karl Marx and Friedrich Engels, Manifesto of the Communist Party, 1848, The Critique of the Gotha Programme, 1875, Socialism: Utopian and Scientific, etc., V.I. Lenin, The State and Revolution, 1917 (MIA)
[5] Enrico Barone, Ministry of Production in Collectivist State, 1908.
[6] Ludwig von Mises, Socialism, 1922 (Ludwig von Mises Institute, March 25, 2010).
[7] Leon Trotsky, The Revolution Betrayed, 1936. (MIA)
[8] This is not the place for a detailed critique of the Soviet model of planning — for an explanation of why it was inconsistent with the Marxist doctrine of scientific socialism see: Allin Cottrell and W. Paul Cockshott, Socialist Planning after the collapse of the Soviet Union, 1993.
[9] Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993.
[10] Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993.
[11] Oscar Lange, On The Economic Theory of Socialism, 1936.
[12] Don Lavoie, Rivalry and Central Planning: the Socialist Calculation Debate Revisited, 1985.
[13] Friedrich A. Hayek, Collectivist Economic Planning, 1935., The Use of Knowledge in Society, 1945., etc.
[14] Jeffrey M. Herbener, Calculation and Question of Arithmetics, Hans-Hermann Hoppe, Socialism: A Property or Knowledge Problem?, The Review of Austrian Economics, vol. 9, no. 1, 1996., Leland B. Yeager, Mises and Hayek on Calculation and Knowledge, The Review of Austrian Economics, vol. 7, no. 2, 1994. Israel M. Kirzner, The Economic Calculation Debate: Lessons for Austrians, The Review of Austrian Economics.
[15] Georgi V. Plekhanov, The Development of the Monist View of History, 1894.
[16] Marxist computer programmer Paul Cockshott argues that economic calculation is possible within a socialist state as long as computational devices are used. In Towards a New Socialism, Information and Economics: A Critique of Hayek and Against Mises, he argues that central planning is simplified by the use of computers in calculating the component of price not accounted for by Marxian labor theories of value. See also Fundamental Principles of Communist Production and Distribution published by the Movement for Workers’ Councils, London 1990.
[17] Allin Cottrell and W. Paul Cockshott, Information and Economics: A Critique of Hayek, 1996.
[18] Ludwig von Mises, Economic Calculation in the Socialist Commonwealth, 1920, (Ludwig von Mises Institute)
[19] Ludwig von Mises, Socialism, 1922 (Ludwig von Mises Institute)
[20] Karl Marx, Introduction to A Contribution to the Critique of Hegel’s Philosophy of Right, Deutsch-Französische Jahrbucher, 1844. (MIA)
[21] “The additional cost of achieving and maintaining access to universal education, basic health care, reproductive protection for women, adequate food for all, and drinking water and adequate sanitation is estimated at $40 billion per year — which is less than 4% of the combined wealth of the 225 richest people in the world. — 1.3 billion people in the world today try to survive on $1 a day. — 3 billion people in the world today try to survive on $2 a day. — 2 billion have no electricity. — Net worth of 10 billionaires, ten human beings, is greater than the total national income of the forty-eight poorest countries.” “The Global Humanitarian Crisis: World Statistics”, Manufacturing Dissent 1999 (http://www.afshinr.dircon.co.uk/index.html), based on UN Development Report/UNICEF 1997 and World Health Organization.
[22] Ludwig von Mises, Liberalism, 1929, (Ludwig von Mises Institute)
[23] Ludwig von Mises, Economic calculation in the socialist commonwealth, 1920., p. 18. (Ludwig von Mises Institute, December 13, 2010)
[24] Karl Marx, The Poverty of Philosophy, 1847.
[25] Karl Marx, A Letter to P. V. Annenkov, 1846. (MIA)
[26] Ludwig von Mises, Socialism, 1922., (Ludwig von Mises Institute, February 2, 2011), p.37.
[27] In the footnote after the sentence “Thus the sociological and juristic concepts of ownership are different.” it says: “1. Böhm-Bawerk, Rechte und Verhältnisse vom Standpunkte der volkswirtschaftlichen Güterlehre (Innsbruck, 1881), p. 37. Publisher’s Note: This has been translated into English by George D. Huncke as “Whether Legal Rights and Relationships Are Economic Goods,” in Shorter Classics of Böhm-Bawerk (South Holland, Ill.: Libertarian Press, 1962), vol. 1, pp. 25–138. Passage cited here is on page 58 of this edition.”
[28] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.38.
[29] Ibid.p.38
[30] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.40.
[31] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.41.
[32] Ibid., p.41.
[33] See Karl Marx, The Critique of the Gotha Programme, 1875, (MIA).
[34] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.142.
[35] Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 2.1.
[36] Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 2.1.
[37] “For consumption goods, any economically significant relationship other than that of the natural having by individuals is unthinkable.”, “…it would be quite absurd to think of removing or even of reforming ownership in consumption goods.” Ludwig von Mises, Socialism, 1922., (Ludwig von Mises Institute, February 2, 2011), p.39.
[38] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.291.
[39] “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past. The tradition of all dead generations weighs like an nightmare on the brains of the living.” Karl Marx, Eighteenth Brumaire of Louis Bonaparte, 1852. (MIA)
[40] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.114–115.
[41] Karl Marx, Capital, volume 1. p. 50–51., (MIA).
[42] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.115.
[43] Ibid., p.115.
[44] Ibid., p.115.
[45] “The person Mises refers to may ‘immediately notice’ whether he has worked more profitably than others or not, but the implicit assertion of identity between what is most profitable and what is most ‘economical,’ or simply ‘better,’ is unjustified. Certainly, capitalists cannot make profits by producing something nobody wants, or producing with gratuitous technical inefficiency, but that is not enough to sustain Mises’ claim. Is it not possible to reduce monetary cost of production by recklessly exploiting natural resources, cheap for the time being, yet ultimately exhaustible? If the production of luxury cars proves more profitable than simple housing, does that show that the cars represent a better use of resources? The list of questions could go on . . . One point that socialists have typically urged, as undercutting the alleged identity of the pursuit of profit and the satisfaction of needs, concerns the inequality of incomes under capitalism. Mises’ response to this argument is interesting; he claims that the very notion of a ‘distribution of income’ under capitalism is misleading, on the grounds that “incomes emerge as a result of market transactions which are indissolubly linked up with production” (1951: 151). There is no question of ‘first’ producing output and then ‘distributing’ it. Only under socialism could we speak of a ‘distribution of incomes’, decided politically as a separate matter from the production plan. But to adopt Mises’ position-that the allocation of purchasing-power under capitalism is an endogenous element in the productive system-is to admit that the production of commodities for profit is not governed by the ‘maximal satisfaction of human wants’, unless one tries to argue that human wants themselves are generated in miraculous correlation with money incomes.” Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 2.4.
[46] Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 2.4.
[47] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.115.
[48] Dragoljub Dragišić, Bogdan Ilić, Branko Medojević, Milovan Pavlović, Political Economy, Faculty of Economics in Belgrade, 1998.
[49] Cockshott, P., and Zachriah, D. (2012) Arguments For Socialism. Amazon, p.140.
[50] GPS — Global Positioning System
[51] Karl Marx, Capital, Volume I, p.51 (MIA)
[52] Oskar Lange, On the Economic Theory of Socialism, 1938.
[53] Friedrich A. Hayek, Collectivist Economic Planning, 1935. Ludwig von Mises Institute (July 7, 2015) p.207
[54] according to Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 3.
[55] Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 3.1.
[56] Paresh Chattopadhyay, Defence of Socialism in the Socialist Calculation Debate Revisited, Économie appliquée Année 2000, 53–3, pp. 135–170.
[57] Marx to Kugelmann, London, July 11, 1868.
[58] Frederick Engels, Anti-Dühring, Moscow, 1969, p. 367.
[59] According to Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 4.1.
[60] Karl Marx, The Critique of the Gotha Programme, 1875.
[61] According to Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 2.3.1.
[62] Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 2.3.2.
[63] Ibid.
[64] Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 4.2.
[65] time-order (complexity theory)
[66] The Gauss-Seidel method and the Jacobi method, according to Allin Cottrell and W. Paul Cockshott, Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again, 1993., 4.2.
[67] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.353.
[68] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.355.
[69] Karl Marx, Grundrisse, 1857., p. 706, (MIA)
[70] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.122.
[71] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.88.
[72] Ludwig von Mises, Socialism, 1922, (Ludwig von Mises Institute, February 2, 2011), p.460.
[73] Friedrich A. Hayek, The Use of Knowledge in Society, 1945. (MIA)
[74] Ibid.
[75] Friedrich A. Hayek, Collectivist Economic Planning, 1935.
[76] Friedrich A. Hayek, The Use of Knowledge in Society, 1945. (MIA)
[77] Ibid.
[78] Ibid.
[79] Friedrich August Hayek, The Fatal Conceit: The Errors of Socialism, Routledge, 1988, p.9.
[80] A. Cottrell and P. Cockshott, Information and Economics: a Critique of Hayek, 1994; Cottrell, Allin & Cockshott, W. Paul, 2007. Against Hayek, MPRA Paper 6062, University Library of Munich, Germany.
[81] A. Cottrell and P. Cockshott, Information and Economics: a Critique of Hayek, 1994., 3.
[82] Ibid.
[83] A. Cottrell and P. Cockshott, Information and Economics: a Critique of Hayek, 1994., 4.1.
[84] Due to the complexity and scope of the model, its elaboration is omitted. See: A. Cottrell and P. Cockshott, Information and Economics: a Critique of Hayek, 1994., 6.
[85] Bit — the smallest information unit, has two states — 0 and 1. Complex information can be represented as a set, a combination of bits with different states.
[86] A. Cottrell and P. Cockshott, Information and Economics: a Critique of Hayek, 1994., 7.
[87] “Paradoxical though it may sound, the poor receive what they do because rich people exist.”, Ludwig von Mises, Socialism, 1922., (Ludwig von Mises Institute, February 2, 2011), 30.3.
[88] “In contemporary parlance, the word “Stalinism” has come to embody a range of ideologies, specific political positions, forms of societal organization, and political tendencies. First and foremost, Stalinism must be understood as the politics of a political stratum. Specifically, Stalinism is the politics of the bureaucracy that hovers over a workers’ state. Its first manifestation was in the Soviet Union, where Stalinism arose when sections of the bureaucracy began to express their own interests against those of the working class, which had created the workers’ state through revolution to serve its class interests. Soviet Russia was an isolated workers’ state, and its developmental problems were profound. Chief among these was that Russia was a backward, peasant-dominated country, the “weakest link in the capitalist chain,” and had to fight for its survival within an imperialist world. This challenge was compounded by the defeat of the revolution in Europe, particularly in Germany… From a social point of view, then, Stalinism is the expression of these pressures of imperialism… The politics of Stalinism flow from these pressures. The political tenets of Stalinism revolve around the theory of socialism in one country… Leon Trotsky … called the Stalinist concept of “socialism one country” a “reactionary theory” and characterized its “basis” as one that sums up to sophistic interpretations of several lines from Lenin on the one hand, and to a scholastic interpretation of the ‘law of uneven development’ on the other. From “socialism in one country” flow the two other main tenets of Stalinist politics. First is that the workers’ movement — given the focus on building socialism in one country (i.e., the Soviet Union)–must adapt itself to whatever is in the best interests of that focus at any given moment. Hence we find the Stalinists engaged in “a series of contradictory zigzags”… from confrontation with imperialism to détente and from seeming support for the working-class struggle to outright betrayal of the workers. The second is the idea of revolution in “stages” –that the “national-democratic revolution” must be completed before the socialist revolution takes place. In terms of the organization of a state, Stalinist policies are quite clear: democratic rights threaten the position of the bureaucracy, and hence democracy is incompatible with Stalinism. In basic terms on a world scale, the forces of Stalinism have done everything in their power to prevent socialist revolution.” Encyclopedia of Marxism (MIA). Stalinism, therefore, is a revisionist distortion and de facto abandonment of the Marxist doctrine of scientific socialism, despite hiding behind quasi-Marxist rhetoric. The practice of Stalinism was not the realization of socialism, on the contrary, it was a counter-revolutionary phenomenon, the destruction of the achievements of the socialist revolution. There is no dispute that the October Revolution was a socialist revolution, the first step towards the realization of socialism. But this does not mean that socialism has been realized.
[89] See Planned economy in Encyclopedia of Marxism (MIA).
[90] See Allin Cottrell and W. Paul Cockshott, Soviet Planning After the Collapse of the Soviet Union, 1993.
[91] For an explanation of why commodity production, on which market socialism is based, is incompatible with the doctrine of scientific socialism, see: Dragan Drača, Mistakes of the Past: Critical Review of ‘Theses for the Theory of Socialist Commodity Production’, 2002.
