Critiques of the Socialist Calculation Debate
Mises-Hayek's Weak Point
Mises and his student Hayek are highly critical of socialism as an antipode of the doctrine of free markets they are advocating. They attack socialism mainly because of the violation of private property, the social losses stemming from it, and the absence of adequate system of monetary prices. They condemn is as an unfeasible absurd system contradicting Austrians’ ideology of economic calculation, efficient use of resources, and liberal incentives for entrepreneurship.
Mises equates the nonexistence of economic calculation to irrationality. Planned economy deprives any possibility of cooperation or distribution of inputs and outputs. By abolishing private property, socialism annihilates any fundamentals on which economic calculation is performed. Prices synthesize information about the market conditions and the scarcity of goods but without private ownership, there is no way to figure prices. Hayek strengthens the above argument by accentuating their focal significance to the decision-making process: “Prices are vital inputs into the decision process” (35). If individuals and businesses are not aware of market circumstances, they are not able to coordinate their actions, and this de-harmonization imminently leads not only to personal losses, but to market failure. The losses are further aggravated by the inefficient allocation of resources controlled by a central institution rather than by the rules of self-regulatory market. Furthermore, Austrians criticize socialists for denying the problem of scarcity instead of acknowledging the urgency of change in the socialist system. Hayek argues that once the ideology that socialism would offer a plenitude of goods has collapsed, its pioneers are trying to convince people that “goods after all are not important.” (Hayek, 3) This is just another affirmation of Mises’ allegation that socialism leads to lower standard of living. It fails to adjust to changes while the free market is fast to incorporate them in its structure. Hayek states the superiority of the market economy: “The continual, and marginal, adjustment and adaptability of the market to changes in the underlying data is the source of its relative effectiveness in allocating scarce resources.”(38)
According to Mises and Hayek, the inefficiency of socialism is exacerbated by the marginal cost pricing system. Moreover, in disequilibrium, it is absolutely inapplicable, and this makes it valueless for the model that Austrians endorse, namely the dynamic state of disequilibrium. Along with the free market and prices, it reveals a lot of information considered important by Austrians. Conversely, knowledge in socialism is supposed to be possessed by the central authority, the sole idea of which sounds “absurd” to Hayek. There is no perfect information, and Austrians reject categorically the idea that a central planner could acquire all the necessary knowledge (even if it was attainable), let alone be sufficiently cognizant to aggregate over the individual preference curves, and make a decision maximizing the social welfare. Hayek and Mises focus on the knowledge problem for the socialist system where without the market, it is just underivable. As Boettke words it, “socialism is impossible precisely because the institutional configuration of socialism precludes economic calculation by eliminating the emergence of the very economic knowledge that is required for these calculations to be made by economics actors.”(41)
Finally, Mises criticizes the political nature of socialism. He argues that the suppression of private property also leads to political control over people’s right to make choices, which is equivalent to depriving them of fundamental freedoms. Mises’ counterproposal to this doctrine is liberalism. Here is where I perceive of the weakest points of Mises- Hayek. They might be underestimating socialism’s efficiency- far from agreeing with its principles, I think that it should be able to evolve, change forms, and learn from its mistakes. Cost might be an inefficient way to motivate individual reactions but could be a good method to regulate the economy in the short run and take decisions concerning the entire state. Also, just as way interventionism offers some degree of intervention in the free market, socialism might be prone to favor a degree of competition in the centrally planned economy. Whether it would have the same avalanche effect, i.e. whether it would transform the socialist economy towards completely free market, is a question that might challenge the minds of contemporary Austrians, firmly believing in the impossibility of socialism.
Hayek's Subjectivity
"Austrian economics is just a set of questions ad a basic attitude about the best way to attempt to answer those questions." (Boettke)
Although Hayek has fervent supporters at a number of schools, we would be ignorant to not acknowledge the the presence of his opponents. A few eminent economists attack Hayek for being overly subjective and now fully understanding human nature. Lawson (1992) has argues that psychological and sociological research has revealed that human behavior is highly routinized and coordinated in the main by unconscious brain functions. Furthermore Daniel Dennett, a prominent American philosopher who currently holds the position: Director of the Center for Cognitive Studies and the Austin B. Fletcher Professor of Philosophy at Tufts University, claims that experiments in neuropsychology indicate that people act first, and become conscious of their intention to act later. The economic subject of Hayek is not "empirically given at all, but is rather a reification of economic theory." The rational economic subject makes sense only in terms of formalized calculating procedures, which, if they are realized in practice, are more likely to be materialized in the accounting and management practices of firms than in the brains of individuals. Economic theory then projects back these practices, rational for the enterprise as a juridical subject, onto a supposedly constitutive human subject.
Some argue that Hayek's argument is more moral than scientific, and dissolves the essence of economics with psychology by attributing too much value on the human behavior. Another strong criticism of Hayek is that all his attention is taken by the knowledge problem. The knowledge problem though can be solved with efficient means of communicating information, such as have been quickly developing not only in the present but also in the past century.
He does not attribute enough value to contractabilty. Economic relations have always been using methods to convey information such as labor contracts, for example. Each party is given the liberal right to give as much information as wanted, so even not giving full information can be red as a message. In this context, the knowledge problem cannot be a good vindication of all the problems of socialism.
Another criticism points out that our commercial society cannot survive without mathematical calculation. Economic rationality and mathematical calculation are not only compatible, they actually co-exist in a sustainable symbiosis. "Economic rationality is an algorithmic process supported by a machinery for computation and information storage."
Hayek denies the possibility to use knowledge locally, and this is definitely a short-sightedness of his argument. Though centralizing knowledge leads to inefficiency, this does not mean that local knowledge cannot be utilized efficiently by local municipalities for example. However, the critics do not offer an alternative for overcoming the incoherence that would result from aggregating this local planning.
The Price as an Inefficient Messenger
Hayek's Tin Example is an overstatement of the real power of price. Hayek suggests that a rise in the price of a tin conveys information about what is happening with the world's resources. But tin's price might rise because a miner's labor union has gained more political power. Thus, prices are a necessary but not a sufficient signal of information. Further, we are not aware whether the change in price is temporary or permanent, and prices would be comprehensive signals only if they are at long-run equilibria. Users of tin bid up the price for different reasons : because supply is reduced, because demand will go up but their forecasts might be made on unreasoned assumptions. So, when the price goes up, it still does not give us any knowledge- only the individuals who bid it up know why exactly they did it. So in a way opinions form prices, not prices opinions
Salerno: it is not bad that knowledge be dispersed. “dispersed knowledge is not a bane but a boon to the human race; without it, there would be no scope for the intellectual division of labor, and social cooperation under division of labor would consequently, prove impossible.
Oscar Lange[[1]] sees prices just as an accounting experience. He suggests that when socialist managers are minimizing costs, they are actually using prices and the information they contain in the same way as Hayek suggests. Lange argues that the state economy could be at least as efficient if not even more efficient that the free market economy.
Friedrich A. Hayek || Ludwig Von Mises || What is Socialist Calculation Debate? || Critiques of the Socialist Calculation Debate || Advocates for the Socialist Calculation Debate || Knowledge Problem || The Impact of Hayek's 1945 Paper || Questions to Ask|| Our Sources
