So I just got done reading two books on the economic problems of USSR under Lenin and Stalin (specifically the massive agricultural and consumer goods shortages), and being fairly new to Austrian economics I'm still trying to grasp the economics of the shortages through the lens of Mises' Socialist Calculation problem.
I understand what he's saying—that without prices nothing can get allocated efficiently and the economy ceases to be an economy, causing waste and dislocation. But I'm trying to apply it to what I've just learned about the Soviet Union and in turn better understand the problem through real world application.
In light of that, how can I view/explain the shortages under Lenin and Stalin in light of the calculation argument? To clarify, I'd like to know how the argument directly correlates and explains the shortages. Any and all answers are welcome. Anyone who's willing to, please educate me on this.
Thanks much,
WSA
Growing crops is a complex business where local knowledge is immensely important. Certain crops grow well on inclines, others on flat ground, some kinds of soil favor one kind of crop over others and so on. Farmers take their expertise in growing crops (knowing the land, knowing the crops) and try to match that against market demand. If the price of wheat has gone up while the price of corn has gone down, and your land can grow either wheat or corn, which will you grow? Might as well grow the wheat. Farmers that do this well will earn profits for the crops that they produce. Farmers that do it poorly will suffer losses and eventually be driven out of farming and back to hourly labor. This is how the market provides feedback onto the decisions that farmers make.
Stalin wants to grow crops well, no less than a farmer does, but he also wants to do many other things like build tanks, train soldiers, spy on party dissidents, kill traitors and stop potential coups, among other things. Stalin has tax revenues with which to fund production of all these goods, including crops, therefore, his decisions are never subjected to the profit/loss test. This blinds him by depriving him of feedback from the market on whether he is making good or bad decisions regarding the growing of crops. There are only two kinds of feedback that Stalin has - a) coup or lack of coup, b) conquest or lack of conquest. If Stalin has no coups and is not being conquered, then he's making "good" decisions. If, however, there is a coup or he is overthrown by a foreign power, then he's making "bad" decisions. This kind of feedback is nearly useless in deciding whether he should have ordered more soybeans and less broccoli to be grown.
Thomas Sowell in his book Basic Economics mentions some of the absurd situations that arose in the USSR. One example I remember is where new tractors would be lined up ready to plow a field, rusting in the rain for lack of fuel while a few kilometers away, large fuel tanks sat filled with fuel earmarked for some other use. The two bureaucracies weren't under the same organization so nobody could arrange to use the fuel to power the tractors. So the fuel, the tractors and the field went to waste.
Clayton -
I wouldnt try to use examples of USSR to try to illustrate Mises calculation problem because the USSR did use prices in their system, which is why they were able to be for so long. (At least it is one of the reasons).
My Blog: http://www.anarchico.net/
Production is 'anarchistic' - Ludwig von Mises
But didn't the massive dislocations in the USSR have to do with the fact that they couldn't calculate? Yes, they had outside prices from world markets, but even with those the economy was marred with shortages. What prices they did use were made up, or loosely based on outside prices. Given that, doesn't Mises argument hold true, to some extent, with the USSR? Or does Hayek's view on the issue have more relevance? I believe Joseph Salerno has said the calculation problem was prevalent, but I might be wrong.
I found this paper by D.R. Steele The Failure of Bolshevism & its Aftermath very useful on this topic.
https://mises.org/journals/jls/5_1/5_1_6.pdf