Two Socialist Calculation Problems

There are two socialist calculation problems:

Hayek: Knowledge is distributed in the minds of individuals with specialized knowledge of particular circumstances of time and place. That knowledge can't be centrally collected and analyzed, meaning centrally-planned economies will inevitably make uninformed decisions that result in inefficiency.

Mises: With all industry owned by government, materials would be traded government-to-government, meaning there's no market for the determination of prices. Without the price mechanism, resources would be allocated inefficiently.

The Austrians can’t really answer the socialist critique of capitalism, so even if socialists failed to answer their critique of central planning it doesn’t really matter much. Also, the socialist responses to the Austrians are fairly adequate, and F. A. Hayek himself conceded, after the socialist calculation debates, that the socialist position of Lerner, Lange, and Tayler was feasible if not entirely plausible/desirable.

Firstly, as you observed, there's central planning within capitalistic firms. Kevin Carson, a libertarian socialist/mutualist, has went into this in his essay "Economic Calculation in the Corporate Commonwealth." He makes the case for moving towards smaller-scale cooperative industry and getting rid of the large-scale centrally-planned firms. His book "Organization Theory" is worth checking out too. A mutualist and libertarian socialist approach to socialism can easily avoid calculation problems, because it just doesn’t involve central planning. But the thing to remember is that capitalism has a calculation problem too, so the calculation argument isn't a good argument for capitalism over socialism.

There were various socialists that responded to the Austrians, each with differing solutions. Otto Leichter argued that "labor-time accounting" could solve the problem, harking back to the “labor note” currency idea of early socialists. Otto Neurath and Amadeo Bordiga defended a communist "calculation in kind" approach, describing how socialism could theoretically work in a moneyless economy. Fred M. Taylor, Oskar Lange, and Abba Lerner put forth a theory of market-socialism (Lange-Lerner model), which attempts to explain how the price mechanism could be preserved, fixed, and made to work under public-ownership of industry.

A combination of the Lange-Lerner solution and the mutualist solution is probably the most feasible solution. When I was a socialist, that was my preferred solution.

Wes Whitman, September 8, 2018

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