what do you think the product of calculation is? Non-information?
"if the ECP refers solely to prices for capital goods in a socialist economy, would its inclusion in the roads debate therefore be completely wrong?"
the calculation problem refers to any socialized good, even if the surrounding economic system is capitalist.
Answers to OP's two q's:
Yes.
Well, how would the government or market use the price mechanism to determine whether a road should or should not be built? Say they're determining whether a bridge should be built between Alaska and Russia. There is no existing price to gauge whether there is existing demand for a bridge to be built, so how exactly would a private firm be able to come to a better conclusion than the government?
There are two problems to the bureaucrat intending to use force in an economic plan or actually using force to execute that plan which are:
1. Hayekian Knowledge Problem-Your friend mentions the ECP but then discusses the Knowledge Problem. The Knowledge Problem comes from the fact that without a market based pricing system the bureaucrat does not have the specific information about scarce inputs and customer demand to behave efficiently.
2. Misean Economic Calculation Problem-Mises pointed out that even if the bureaucrat has specific information about production methods and the minute knowledge of customer demand, the bureaucrat still will encounter problems executing their plans because that bureaucrat can not select the optimal mix of scarce inputs that have alternate uses absent a market based pricing system. For example: A bureaucrat wants to build a bridge but has two designs: 1. Requires 2000 tons of concreate and 1000 tons of steel and 2. Requires 1500 tons of concrete and 1500 tons of steel. The one with 1500 tons of steel will last twice as long and require less maintenance. What is the most applicable design? Without an accurate pricing system the solution is unknown. The bureaucrat wants the latter bridge but what is the criteria in the short run? How about the long run? What about other usese of the materials like maintenance and building the cars and trucks that use the bridge? Without pricing these decisions are arbitrary.
So does a bureaucrat run into the ECP when building roads? Yes.
Is the reasoning of your friend using the ECP? No, he is referring to the Knowledge Problem.
Bogart,
Knowledge Problem and ECP apply only in a Socialist country, not when a govt huilds a brifge in a country with private ownership of means of production.
As to how private firm knows better than the govt about a never before built bridge, the answer lies in who is footing the bill. Since the private firm stands to actually lose its own money, it will not build the bridge unless it thinks [rightly or wrongly] there is money to be made. If they were right, they mamek money, meaning are rewarded for being right. If they were wrong, they lose money, meaning lose power to choose next time. Thus there is weeding out process of incompetents.
With govt, when wrong, there is no punishment. So they are careless in deciding, and also are not weeded out if wrong.
Finally, govt goals differ from pvt sector goals. Private sector goal is to make money, which can only be done meeting the public's needs. Govt goal is either to get votes or to give money to pals, regardless of cost to taxpayer or usefullness of the bridge.
RobinHood:Knowledge Problem and ECP apply only in a Socialist country, not when a govt huilds a brifge in a country with private ownership of means of production.
This is absolutely correct with regards to Mises' Calculation problem. The government indeed enjoys the benefits of resorting to market prices in order to calculate the costs of its wasteful and counterproductive squandering of scarce resources. There is no contradiction in that last statement. There is still a calculation problem (but not Mises' Calculation Problem) in that there is no method by which one can resort to in order to ascertain the benefit of the bridge relative to its costs from the point of view of the consumers. But who says consumers should be masters? Why should it be their values that direct production instead of benevelent dictators? Mises demonstrated that even if the problem of what to produce is already settled, absent private property of the means of production, there could be no market prices, and therefore, no rational means by which these dictators can resort to in order to plan anything.
Now Rothbard in MES expands and elaborates further and shows how and why Mises' calculation problem is indeed still very relevant to the interventionsit economy and not just to the socialist commonwealth, by talking about the "islands of chaos" that the government creates every time it intervenes into the economy. So it is still very relevant, although not the way most people think it is.
Student,
You mass of contradictions, you. If you agree with my post, how can you be a non-Austrian of whatever flavor, and support govt stimulus etc?
Once you grant that the private sector works to please the customer, and the govt could not care less, does it not follow to leave things in the hands of the private sector always?
Thx, DD5, didn't know about MES and islands of chaos. Will look into it.
The ECP appears from the lack of free market prices not from incentives. Sure the bureaucrats do not risk their own property so they have less of an incentive in the ultimate satisfaction of consumers, but even if the bureaucrat has all the incentive in the world they still experience the ECP. The bureaucrat gets paid through force. This is where the problem starts. So the force used to extract resources from society mucks up the entire pricing system. So in reality the ECP applies even to a mildly interventionist state. Obviously a centrally planned state like the USSR would feel the consequences the most, the most free economies experience it to some degree.
Bureaucrats do use the existing pricing system to create their plans and during their execution. But that differs ONLY in degree from what the Soviets did. Take the USA right now, the bureaucrats at all levels of govenrment build roads using "Eminent Domain". This is a direct back door around the necessity to include compensating property owners for stealing their property that some road building entrepreneur would have to incorporate into their calculations.