>Louis Proyect's notion of a global planning board rationing the use of motor
>vehicles meanwhile strikes me as utter madness. I understand why socialists
>are reluctant to make use of the pricing mechanism. Yet it is far and away
>the most efficient method. Correctly pricing motor vehicles, not to mention
>electric cars, mass transit, and even bikes decentralizes decision-making.
It
>allows each and every user to decide what is the most cost-effective way
to go
>from A to B without having to await instructions from command central. It
>encourages "the praxis of everyday life" in which people, individually or
>collectively, are free to develop solution to a myriad of mundane problems.
>This strikes me as far more democratic and creative.
That is what what market-o-philes are saying, but I think they are dead wrong.
In reality, markets and planning boards do not have to be mutually exclusive. Au contraire, planning board can make markets working more effciently.
To see why, try to conceptually decompose market price into three analytically separate components: production cost + transaction cost + profit margin. The cost of production is the socially necessary minimum to manufacture a product. The cost of transaction includes the cost of finding the most effcient producer the cost of finding the 'most efficient' buyer (i.e. the highest bidder), as well as the cost necessary to secure the production, sale and delivery process, disposal of the production and sale byproducts etc. Profit margin is self explanatory.
Assuming that producers and buyers are omniscient and 100% honest , the producer would know at an instant where to produce and sell most efficiently, and so would be the buyer. Hence the market price would reflect the global minimum cost of production plus shipping, plus the global minimum profit margin. However, humans are not gods, thus they are not omniscient and 100% honest.
That means that the producers may either (a) spend considerable amount of money on market research to find the most effcient producer and the most efficient buyer or (b) produce and sell the commodity under less than optimal conditions. In either case, the cost of research and the difference between the optimal and less than optimal conditions would add to the transaction cost component of the price, thus increase the price. Moreover, the lack of perfect knowledge/honesty can produce local surpluses or shoratges than can affect the profit margin (usually increase it).
The net effect of that information asymmetry is that it adds to the market price, either in the form of transaction cost or as profiteering. A central planning board can alleviate that problem, because it is in a better position to gather information about the most effcient producers, buyers, and possible externalities (byproducts and side-effects) than individual producers or buyers. Therefore, a central planning board, acting as information clearing house can improve the performance of the market in the follwing ways:
- by providing information about the most efficient producers, thus reducing the cost production to true minimum; - by finding the buyers with the greatest need for the product (i.e willing to paying the highest price), that would ascertain both th ebest possible price, but also reduce profiteeing because the buyers would have the same information as sellers; - by assessing externalities such as environmental costs, impact on other branches of economy etc, and thus control the unforeseen costs like environmental pollution, health hazard, etc.
A simple example: a central planning board would add the cost of health care for smokers to the price of tobacco products, thus avaoiding unnecessary litigation. Under the market condition, that cost of litigation will either directly add to the price of tobacco, or it will be passed on the taxpayers. Moreover, the 'true' price (i.e. reflecting the full cost) of tobacco from the starts would be higher than that under the current system from the start, thus reducing the number of smoked cigarettes, thus the cost of health care. Which proves that central planning board would make things more efficient than supposedly 'self-regulating' markets (in reality: corporate schmucks profiteering from public ignorance).
Of course, the central planning board (or 'hierarchy' in the TCE lingo) can have a cost of its own that will be added to the transaction cost; or the infotmation it gathers can be useless -- both factors, for example, turned out to be a problem under the Soviet-style central planning. But these are the problems of implementation, for example Soviet planners did not have adequate information technology to meet the task.
So the bottom line is that self-regulating market, aka invisible hand is a myth, a modern time version of the perpetual motion machine. To function effciently, market must have adequate information avaialable to everyone. Without that information, ineffciency will result. And the central planning board would be probably the most cost efficient way of providing that information.
The moral entrepeneurs who sell the idea of self-regulating makets to the public are either crooks who sell a product of which they know it will not perform as advertised, or misinformed supermarket clerks who do not know much about products they are selling.
Regards,
Wojtek Sokolowski