Quite a while back, I was looking at two famous pieces on economics: one by Friedrich Hayek and one by Leon Trotsky. The Hayek piece that I was looking at, "The Use of Knowledge in Society" is best remembered not only as an exposition of Hayek's arguments concerning the socialist calculation debate but also because there, he presented his notion of markets and the price system as functioning as information processing systems, whereby information that is dispersed among many different individuals and organizations is coordinated to make possible a rational allocation of resources. In that article, Hayek made a reference to Trotsky, writing:
"It is in many ways fortunate that the dispute about the indispensability of the price system for any rational calculation in a complex society is now no longer conducted entirely between camps holding different political views. The thesis that without the price system we could not preserve a society based on such extensive division of labor as ours was greeted with a howl of derision when it was first advanced by von Mises twenty-five years ago. Today the difficulties which some still find in accepting it are no longer mainly political, and this makes for an atmosphere much more conducive to reasonable discussion. When we find Leon Trotsky arguing that "economic accounting is unthinkable without market relations"; when Professor Oscar Lange promises Professor von Mises a statue in the marble halls of the future Central Planning Board; and when Professor Abba P. Lerner rediscovers Adam Smith and emphasizes that the essential utility of the price system consists in inducing the individual, while seeking his own interest, to do what is in the general interest, the differences can indeed no longer be ascribed to political prejudice. The remaining dissent seems clearly to be due to purely intellectual, and more particularly methodological, differences." (http://www.econlib.org/library/Essays/hykKnw1.html)
Hayek was presumably referring to the Trotsky piece that I was referring too: "The Soviet Economy in Danger." There, as Hayek correctly noted, Trotsky argued for the indispensability of market relations under socialism, at least for the transition phase. Trotsky presented one argument that has always struck me as being rather Hayekian in tone.
"In this connection three systems must be subjected to a brief analysis: (1) special state departments, that is, the hierarchical system of plan commissions, in the centre and locally; (2) trade, as a system of market regulation; (3) Soviet democracy, as a system for the living regulation by the masses of the structure of the economy.
"If a universal mind existed, of the kind that projected itself into the scientific fancy of Laplace ? a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of their motion, that could forecast the results of their inter-reactions ? such a mind, of course, could a priori draw up a faultless and exhaustive economic plan, beginning with the number of acres of wheat down to the last button for a vest. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy. But, in reality, the bureaucracy errs frightfully in its estimate of its spiritual resources. In its projections it is necessarily obliged, in actual performance, to depend upon the proportions (and with equal justice one may say the disproportions) it has inherited from capitalist Russia, upon the data of the economic structure of contemporary capitalist nations, and finally upon the experience of successes and mistakes of the Soviet economy itself. But even the most correct combination of all these elements will allow only a most imperfect framework of a plan, not more."
(http://www.marxists.org/archive/trotsky/1932/10/sovecon.htm)
This has led me to wonder what influence each guy may have had on the other. I'm not sure if Trotsky was ever aware of Hayek, but was certainly aware of Trotsky. I wonder if some of his own thinking on the workings of the price system and market relations may have been influenced, even if only to a small extent, by Trotsky. Ken McLeod has suggested that Trotsky might have been familiar with the arguments of the liberal Russian economist, Boris Brutskus, who had delivered a lecture in 1920 in Petrograd, in which he argued that the sort of socialist economic planning that the Bolsheviks were attempting to implement at that time as part of War Communism, could not even in principle work. His argument was basically similar to the economic calculation argument that Ludwig von Mises had published about the same time in his essay, "Economic calculation in the socialist commonwealth."
Jim Farmelant http://independent.academia.edu/JimFarmelant http://www.foxymath.com Learn or Review Basic Math
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