[lbo-talk] [Spam] Yes, a Planned Economy Can Actually Work

Jim Farmelant farmelantj at juno.com
Tue Mar 26 14:12:42 PDT 2019

I have posted this here before:

A few years back, I co-authored an article on Friedrich Hayek. This article includes an appendix on the socialist calculation debates, including both the well known between Hayek and Oskar Lange, as well as the less well known between Hayek and Otto Neurath. BTW the socialist calculation debates were triggered in the first place when Hayek's mentor, Ludwig von Mises, wrote his 1920 essay, "Economic calculation in the socialist commonwealth" in response to Neurath's writings in defense of socialist economic planning.

Here is a a link to the article by Mark Lindley and myself: https://www.academia.edu/3291616/The_Strange_Case_of_Dr._Hayek_and_Mr._Hayek

And here is a link to Mises's 1920 essay: https://mises.org/library/economic-calculation-socialist-commonwealth/html

And a link to Hayek's 1945 article, The Use of Knowledge in Society, where he summarized his views on socialist calculation. http://www.econlib.org/library/Essays/hykKnw1.html

I also have a review of David Laibman's book, Deep history: a study in social evolution and human potential. Although that book was mostly about Laibman's ideas concerning the materialist conception of history, Laibman also discussed socialist calculation issues as well. So I addressed that as well. https://www.academia.edu/205061/Review_of_David_Laibmans_book_Deep_history_a_study_in_social_evolution_and_human_potential

"I think it is appropriate to point out that there is no reason to be smug about economic calculation under capitalism. "

An issue which Lange addressed in his writings (and which was reiterated by Maurice Dobb too). Lange, citing A. C. Pigou's analysis of externalities argued that market failures were, in fact, rather ubiquitous under capitalism, so that we cannot expect capitalist markets to produce rational allocations of resources. Hence, the need for socialist economic planning to provide a corrective.

A few other things to add:

One point that I would make is that the young Ronald Coase made his own contribution to the socialist calculation debate with his famous concept of transaction costs, which he introduced in his 1937 paper, "The Nature of the Firm." https://msuweb.montclair.edu/~lebelp/CoaseNatFirmEc1937.pdf

In that paper, Coase pointed out, that firms internally DO NOT work like markets and Coase made the argument why that should be rational behavior on their part, and more importantly, why firms should exist in the first place within a market economy.

Back when he wrote that, Coase was a socialist (he would later become a conservative). He was a close friend of Abba Lerner, and like Lerner, was at that time very much interested in the "socialist calculation" debate.

One of his concerns at that time was to show how to reconcile the apparent economic success of the Soviet Union with the neoclassical economics that he was committed to. His paper, "The Nature of the Firm" sketched out the kind of economic reasoning which could reconcile support for socialist economic planning with a commitment to neoclassical economic theory. For Coase, the key concept here was that of "transaction costs", which denoted the costs incurred by relying on the market and price system for organizing economic activity. It's precisely because transaction costs are often of significant size that people turn away from direct reliance upon the market and price system. Coase also used the concept of transaction costs in his famous 1960 paper, "The Problem of Social Cost", where he presented what has come to be known as "Coase's Theorem." http://bev.berkeley.edu/ipe/readings/The%20Problem%20of%20Social%20Cost.pdf

Coase's Theorem has often been taken as constituting some sort of refutation of Pigou's analysis of externalities. But Coase himself insisted that in most cases involving environmental pollution, and probably for most other kinds of externalities, the relevant transaction costs are of significant size, in which case, Pigou comes back into his own again. It is interesting to note that both Oskar Lange and Maurice Dobb used Pigou's analysis of externalities to make their cases for socialist economic planning. And the young Ronald Coase himself had been supportive of socialist economic planning precisely because he believed in the existence of high transaction costs.

And in his Nobel Lecture, Coase admitted as much concerning his own history:

"The view of the pricing system as a co-ordinating mechanism was clearly right but there were aspects of the argument which troubled me. Plant was opposed to all schemes, then very fashionable during the Great Depression, for the co-ordination of industrial production by some form of planning. Competition, according to Plant, acting through a system of prices, would do all the co-ordination necessary. And yet we had a factor of production, management, whose function was to co-ordinate. Why was it needed if the pricing system provided all the co-ordination necessary? The same problem presented itself to me at that time in another guise. The Russian Revolution had taken place only fourteen years earlier. We knew then very little about how planning would actually be carried out in a communist system. Lenin had said that the economic system in Russia would be run as one big factory. However, many economists in the West maintained that this was an impossibility. And yet there were factori es in the West and some of them were extremely large. How did one reconcile the views expressed by economists on the role of the pricing system and the impossibility of successful central economic planning with the existence of management and of these apparently planned societies, firms, operating within our own economy?" https://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1991/coase-lecture.html

Louis Proyect has mentioned Paul Cockshott's work on the use of computers in socialist economic planning. As I think, Paul Cockshott would be the first to point out, Oskar Lange already had that idea back in the 1960's. In fact, that the topic of his Lange's very last paper, "The computer and the market", which he wrote in 1965, shortly before he died. http://econc10.bu.edu/economic_systems/Theory/NonMarx_Socialism/Soc_Contraversy/lange_computer_and_the_market.htm

Jim Farmelant http://independent.academia.edu/JimFarmelant http://www.foxymath.com Learn or Review Basic Math

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