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The Forum > General Discussion > Economic Calculation in the Socialist Commonwealth

Economic Calculation in the Socialist Commonwealth

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Before 1920, the debate over socialism was how best to approach it. No-one doubted that it could be done. The question was how to implement it.

Economic debate focused on the incentive problem – the ‘who will take out the garbage?’ problem. If everyone is to be paid equally, then what would motivate people to do the hard, dirty jobs? These were the kinds of issues that discussion of socialist economics focused on.

In 1920, Ludwig von Mises published Economic Calculation in the Socialist Commonwealth. Mises showed that there was a much more fundamental problem.

The whole purpose of socialism was to replace capitalism – the private ownership of the means of production, with socialism – the public ownership of the means of production. But if there is no private ownership of capital goods, there will be no market for capital goods, because all the capital goods will have one owner: the ‘community’ or state.

Since there will be no market for capital goods, therefore there will be no prices for capital goods.

Prices are used to calculate the most economical way of doing things. This is fundamental, because the purpose of all economising is to satisfy a given subjective want with the least waste of resources necessary to do it.

Under capitalism, if you’re trying to figure out whether to sow wheat to grow lambs, or sow barley to grow seed, or whether to repair your old tractor or buy a new one, you can compare money prices. Prices provide a lowest common denominator for quantities that cannot otherwise be compared, like comparing the productivity of cows to make milk, with the productivity of tractors to grow apples.

Under socialism, the central planning authority will be faced with an impossible task. It will not be able to compare prices, but only to compare quantities directly. Thus socialism is not an alternative economic system that could work for a modern economy using complex, roundabout methods of production. It abolishes rational economising above the level of barter, and can only result in planned chaos.

Both logic and history proved Mises right.
Posted by Peter Hume, Tuesday, 10 August 2010 6:37:44 PM
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Peter, just read that last thread that you started too. Personally I think that you’re my way or the highway attitude is a bit misplaced. Most specifically, in my opinion, while the separateness of individuals and the subsequent competition between them is vitally important both from the personal and social perspective, so is our connectedness as a community and our subsequent tendency to cooperate together.

‘Good’ comes from both of these sources, but not when they are expressed in the extreme. Instead, what we are looking for is balance.

With regard to your issue of pricing, there are two main theories concerning how we should understand value. One is the ‘labour theory of value’, which basically looks at what it costs to produce something. The other is called ‘marginal utility’, which basically looks at how much we are willing to pay for things.

Within a more cooperative society, the labour theory of value will serve us better because if we are working together to produce something that we then consume, we will effectively be paying for it exactly what it cost to produce. Within a more competitive society, as sellers will be trying to sell for as much as possible, and the buyers to buy for as little as possible, marginal utility will be our choice for understanding value.

With my ‘walk the middle road and look for balance’ approach, I think that both these methods have a role to play.

To your comment….. I do not advocate a heavily centralized system, (neither by the way do I think that most people who call themselves socialists do), but I do not see why a central authority could not use the methods of the labour theory of value to determine the relative ‘value’ of different things and make their decisions accordingly.

Hopefully this comment will help swing this discussion away from the us-or-them debate of the previous one.
Posted by GilbertHolmes, Tuesday, 10 August 2010 11:25:59 PM
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I came from that place that socialism may have first grown.
The truly under privileged.
Few here truly knew hunger and what seemed a hopeless future, I did.
Having carried the idea communism or Socialism was the answer I look back and see it never was never can be.
We in this country are a combination of socialism and capitalism, and it works ok.
Education health pensions and welfare the list is very long and is in some way socialist.
However truly honestly I think a new way must be found, not past ideas that we miss used like communism blackened the word socialism.
Or socialism that knew how to give but not how to get first what it wanted to give.
We must one day confront the truth, we want no one to be without but some want to take not give back socialism alone is waste, our system refined and reworked may be the future but looking at the past for todays answers is not helping.;
Posted by Belly, Wednesday, 11 August 2010 6:37:46 AM
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I concur with Peter Hume’s opening post and disagree with Gilbert Holmes notion of a middle way

Capitalism versus Collectivism defines, economically,

1 the ownership and control of property and the means of wealth creation between private (capitalist) versus collective (government) ownership

2 whether “personal reward” should be based on “individual need” or “productive effort”

Capitalism concerns itself solely with economic ownership and control of productive resources

I view myself as a libertarian capitalist.

I do not believe there is any merit in middleclass welfare or corporate welfare. We are better off with fewer subsidies, less government interference and fewer bureaucrats, requiring fewer and less taxes levied against private individuals and businesses.

Leaving the rewards in the hands of those who take the risks.

Risks which government is neither entrepreneurially or emotionally equipped to take.

History has shown, creating a (collectivist) government monopoly does not benefit consumers over a privately owned monopoly and ineffectual companies end up less effectual when nationalised than they were when in private hands.

“Philanthropy” was not invented by “socialists” nor was “noblesse oblige”.

“Love”, ”compassion” and “charity” existed for millions of years before the notion of a “welfare state” was dreamed up.

The “market“ needs only to be regulated to maintain honesty in trade and where there is need to counter any imbalance of power between millions of disorganised consumers and a few organised suppliers.
there is an cynical old saying...

“capitalism” is what people expect for themselves and “collectivism” is what they expect for everyone else.

Well I don’t. I have a capitalist expectation for myself and for everyone else too.

I applaud you and wish you all the enjoyment you can derive from the rewards of your risks and efforts.

I do not expect to enjoy such “rewards” when I am just a mere bystander to those “efforts”.

Likewise, I expect my reward to come only from my risks and efforts and not from any government “redistribution” of other peoples rewards.

Cont....
Posted by Stern, Wednesday, 11 August 2010 9:55:39 AM
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To Gilbert and Bellys comments

Gilberts idea of a middle path, I presume Gilbert means a pluralistic system

And Belly’s comment “However truly honestly I think a new way must be found, not past ideas that we miss used like communism blackened the word socialism.”

If I could describe what I take Belly to mean that

“The moderation of socialism” has been blackened by the “excesses of communism”

We have seen before how “collectivism” cannot be treated as a “self-regulating” process able to stop at “moderate” and limiting itself to economic matters.

Ego and other human emotions drive people with access to power to see themselves as an all-knowing, all powerful authority. They then insinuate themselves into an ever increasing range of human activities, dominating private choices to education, healthcare, regulating more and more aspects of everyday life well beyond the expectation of the “moderate socialist”. Eventually determining state directed / limiting individual choices to religious faith ending up as another despotic autocracy, the type of thing which people revolted against in the first place.

The above reflecting Lenin statement

“the goal of socialism is communism”

What I see is this -

The danger of setting up “moderate socialism” is like setting a heavy object in motion –

Once moving, it achieves its own momentum -

Rapidly becoming out of control and unable to stop at “moderate socialism”, instead rolling on and into the “excessive communism” –
regardless the good intensions of those who set it on its initial course.

And that is the fatal flaw in all “collectivism”.

Whereas capitalism, since it devolves authority, cannot become the victim of its own momentum in the same manner as collectivism.
And capitalism does not mean we are the de facto victims of global corporations, any more than we are the victims of foreign empires, because, like I said previously

The “market“ needs only to be regulated to maintain honesty in trade and where there is need to counter any imbalance of power between millions of dis-organised consumers and a few organised suppliers (aka global corporations)
Posted by Stern, Wednesday, 11 August 2010 9:57:37 AM
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Gilbert, spoken like a true "public servant"

I suppose all bureaucrats must believe something approaching your idea of good central authorities, or they could not live with themselves.

Which comes first, the belief, or the job?
Posted by Hasbeen, Wednesday, 11 August 2010 10:41:39 AM
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