As far as I understand, the difference between the Misesian and Hayekian positions in the calculation debate is that while Hayek was stressing the unlikelihood of a central planner guessing the right prices for a good or service, Mises claimed that calculation in and of itself was impossible in the socialist commonwealth due to a lack of means to assess the utility of the capital structure.But isn't that just Hayekian theory plus one more "layer of ignorance"?And how could Mises reconcile his assertion of an all-knowing central planner on the one hand with the planner's ignorance of the best distribution of the means of production on the other? If our planner knows about the best possible pricing and quantity of all commodities on the market, why doesn't he know how to best produce them?Thanks in advance.
an entrepeneur can look at market prices, and decide that a particular 'experiment' as you call it, is worth the risk of his personal failure and loss of his fortune and waste of his time, because his stake in possible profits is there for him; He therefore doesnt want to waste money, throw it away, he has market prices to judge the costs he will incur, so he can be somewhat rational about what not to buy as inputs to his experiment. i.e. chandaliers for the lobby of the beach ball factory. he has prices he can use to calculate a way through to be profitable. he can start somewhere reasonable from where to trial and error, and he has price's to watch on his balance sheet, he can point to the most expensive parts and look to cut costs there, which is rational framework to begin trial and error.
a socialist planner has no stake in 'losses' of fail experiments, there is both no way of quantifying the loss, in money terms, and no way making the socialist planner care about minimizing cost. how can he determine if its better to hire one more worker or one less worker? he could try both one week doing the one, the next week doing the other, but how would he know which way had worked out best for the great socialist economy?
so a socialist planning commitee can try out several ways of production and consilidate all related assets under one of the methods some time later, but has no way of judging the relative success/fails of the experiments. they have no way to judge when the experiments haveeven run long enough to start the evaluation process !. ..and they had no way of rationally setting up the experiments in the first place with a reasonable hope of not distorting the rest of their 'economy' by overburdensome, uncountable costs.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Hayek essentially claimed that market prices transmit information, which is fair enough. Without these prices the central planner would not know the various, dispersed information regarding the specific conditions of various actors. Now, once again, this is partly true, there exists various pieces of dispersed and uncollectable information held by individual actors that cannot be centralized, at least not without incurring significant costs or without loosing large amounts of the information. As such the problem from the central planner according to Hayek (and Robbins) is that they cannot collect the various pieces of information regarding the specific circumstances of time and place of various individuals.Now, to begin with, this doesn't square with the facts in that the manager of a firm, or the member of the family has no problem coordinating actions, this doesn't trouble the Mises argument but it does trouble Hayek, since individuals in the family/ firm/ club will have different information regarding their specific time and place. More fundamentally the information that prices "contain", so to speak, is nothing more than yesterday's (to use an arbitrary period of time) exchange ratios for various goods and services. Now, without private property (and this is Mises' argument) this information simply does not exist. Furthermore, if it is indeed true that prices "contain" information, then it is necessary to distinguish between types of information, Hayek seems to imply that he means what could be called "private information", which he means the specific circumstances of individuals, and yet, it is not these pieces of information that prices convey. The information that prices convey are "public information" that could simply be collected by the socialst planner, and it is indeed possible to do so.
Mises, on the other hand, claim that without the institution of private property and the consequent free market in capital goods there would not be prices established for these goods. As such it would be impossible for the entrepreneur to make profit and loss calculation, moreover it is also necessary that a sound money has been established and a stock market to dissolve firms. Mises' argument escapes all of the above points that trouble Hayek, since the firm/ family/ club is based on the institution of private property.
Salerno has an essay on this, as does Huelsmann, Hoppe and Herbener.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
http://mises.org/story/2401
Mises's Rebuttal: Valuation and Monetary Appraisement
In his original 1920 article, Mises emphasized that "as soon as one gives up the conception of a freely established monetary price for goods of a higher order, rational production becomes completely impossible." Mises then states, prophetically:
One may anticipate the nature of the future socialist society. There will be hundreds and thousands of factories in operation. Very few of these will be producing wares ready for use; in the majority of cases what will be manufactured will be unfinished goods and production goods. All these concerns will be interrelated. Every good will go through a whole series of stages before it is ready for use. In the ceaseless toil and moil of this process, however, the administration will be without any means of testing their bearings. It will never be able to determine whether a given good has not been kept for a superfluous length of time in the necessary processes of production, or whether work and material have not been wasted in its completion. How will it be able to decide whether this or that method of production is the more profitable? At best it will only be able to compare the quality and quantity of the consumable end-product produced, but will in the rarest cases be in a position to compare the expenses entailed in production.
Mises points out that while the government may be able to know what ends it is trying to achieve, and what goods are most urgently needed, it will have no way of knowing the other crucial element required for rational economic calculation: valuation of the various means of production, which the capitalist market can achieve by the determination of money prices for all products and their factors.[19]
also from the same:
Mises was one of the very first to realize that subjective valuations of the consumers (and of laborers) on the market are purely ordinal, and are in no way measurable. But market prices are cardinal and measurable in terms of money, and market money prices bring goods into cardinal comparability and calculation (e.g., a $10 hat is "worth" five times as much as a $2 loaf of bread).[23] But Mises realized that this insight meant it was absurd to say (as Schumpeter would) that the market "imputes" the values of consumer goods back to the factors of production. Values are not directly "imputed"; the imputation process works only indirectly, by means of money prices on the market. Therefore socialism, necessarily devoid of a market in land and capital goods, must lack the ability to calculate and compare goods and services, and therefore any rational allocation of productive resources under socialism is indeed impossible.[24]
nirgrahamUK: Mises points out that while the government may be able to know what ends it is trying to achieve, and what goods are most urgently needed, it will have no way of knowing the other crucial element required for rational economic calculation
Mises points out that while the government may be able to know what ends it is trying to achieve, and what goods are most urgently needed, it will have no way of knowing the other crucial element required for rational economic calculation
Yes, but that sounds like Hayekian reasoning plus one: Hayek says that it's difficult to find out the market price for a commodity without a market. Mises says that it's difficult to find out the most effective ways of production without a market. The two are interrelated. But couldn't one overcome the Misesian challenge just as easily as the Hayekian objection, by plain and simple trial and error?
Therefore socialism, necessarily devoid of a market in land and capital goods, must lack the ability to calculate and compare goods and services
Like I said: why can't the problem of a lack of capital markets be overcome by trial and error, as has been proposed for the problem of correct pricings of consumer goods?
you are imagining a costless trial and error...
if you find that beachballs are in demand, and you need to up beach ball production, what beach ball factory would you build ?, what materials would you source? what workers would you bid away from other lines of production?, what other capital industries need to be expanded etc?. would you build 50 factories of different sizes with different inputs and even if you did, you wouldnt be able to say which has cost you more to build. since you have no price system to use in such calculations. if one cost you more in car production and another cost you more in towel production, you dont know which was more economical etc. etc.
But isn't that exactly how capitalism works? Several ways of production are tried out, each of which has the backing of some entrepreneur and financiers, and in the end, the best method of production wins and buys up the asset of all competitors who were thereby driven out of business. Why can't a socialist planning committee try out several ways of production and consolidate all related assets under the most effective method after a successful experiment?
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
I think I'm beginning to see a pattern here. So, while a planner could, in theory, tinker with prices of commodities until they somehow match supply and demand, this assumes a given capital structure. A capital structure, however, is inherently different from a set of commodities since you only have one shot - you can use capital only once, whereas you can change the prices and conditions of commodities a lot more often.The beauty of the free market economy now is that with market pricing, the likelihood of capital misallocation decreases, and even if malinvestment occurs, only those directly involved with their capital suffer, whereas in the socialist commonwealth, the economy as a whole may be harmed due to forced misallocations of not only capital, but also labor and land. This is especially true since no stocks or bonds can be traded freely among investors, thereby notably increasing the time it takes to identify bad usage of capital, land and labor. In a free market, a bad automobile startup may be stopped by withdrawing capital or shorting stock before the purchased steel has been molten and transformed into machinery. A socialist planner would only know about the bad nature of his investment once produced cars could not be marketed which is way too late.As for Juan, yes, that's not plumbline socialism anymore, but rather some kind of Langean market socialism modified to cope with Hayekian calculational objections. It seems, though, that with better understanding of Misesian theory, even this brand of socialists can easily be argued against.
Of course, this assumes that planners had gone halfway anyway and established prices, as they claimed they would not do.
EDIT: Clearly I didn't properly read your last lines.
The difference between libertarianism and socialism is that libertarians will tolerate the existence of a socialist community, but socialists can't tolerate a libertarian community.
Sphairon:As far as I understand, the difference between the Misesian and Hayekian positions in the calculation debate is that while Hayek was stressing the unlikelihood of a central planner guessing the right prices for a good or service, Mises claimed that calculation in and of itself was impossible in the socialist commonwealth due to a lack of means to assess the utility of the capital structure.
I've been thinking about this after reading this Hoppe interview.
As I understand it, Mises' argument can be expressed in the following syllogism:
1- Without private property, there can be no exchange.2- Without exchange, there can be no prices.3- Without prices, there can be no economic calculation.4- Therefore, because socialism lacks private property, it cannot calculate.
While Hayek's argument says:
1- Information is decentralized.2- Only prices allow market actors to gather and use this information to rationally allocate resources.3- Prices only exist with private property.4- Therefore, because socialism lacks private property, it cannot gather the information needed to calculate.
It seems that Mises and Hayek are making essentially the same argument: without private property, socialism fails. So Hoppe's statement that "Hayek’s solution to this problem is not private property, but the decentralization of the use of knowledge" is clearly false. Private property is the lynchpin of Hayek's argument!
Hoppe also argues against Hayek by giving a counterexample: if central planners cannot gather decentralized knowledge, then neither can the owner of a firm.
But isn't this the whole point of Rothbard's "One Big Firm" and the "islands of calculational chaos"? That firms are similar to socialist economies, and therefore there is an upper limit on the size of the firm?
AnalyticalAnarchism.net - The Positive Political Economy of Anarchism
Sage:1- Information is decentralized.2- Only prices allow market actors to gather and use this information to rationally allocate resources.3- Prices only exist with private property.4- Therefore, because socialism lacks private property, it cannot gather the information needed to calculate.
Sage:1- Without private property, there can be no exchange.2- Without exchange, there can be no prices.3- Without prices, there can be no economic calculation.4- Therefore, because socialism lacks private property, it cannot calculate.
Yeah that seems like a good description. Or, even more simply as:
Mises: "1 litre fruit juice - (10 Oranges + 10 Lemons + 1 Grapefruit + 20 minutes of labour = ??????"
Hayek: "Are oranges scarcer in place A or B"
Sage:But isn't this the whole point of Rothbard's "One Big Firm" and the "islands of calculational chaos"? That firms are similar to socialist economies, and therefore there is an upper limit on the size of the firm?
No, because Rothbard's insight was concerned with intenal pricing mechanisms, without markets for various goods there would be no calculation. It was a Misesian argument.
Sage:It seems that Mises and Hayek are making essentially the same argument: without private property, socialism fails. So Hoppe's statement that "Hayek’s solution to this problem is not private property, but the decentralization of the use of knowledge" is clearly false. Private property is the lynchpin of Hayek's argument!
Well, Hoppe's objection mainly concerns an equivocation of Hayek's use of the word knowledge as regards prices.