Economics Questions

Re: Failing at Calculation Debate?

Stephen — Tue, 03 Nov 2009 18:49:29 GMT

@ the OP

If you really want to be able to properly defend your position, you should do some heavy reading.

You should start off with Menger's "Theory of Price" from Principles of Economics.

Then you should read Part 3 as well as chapter 14, 16 and then part 5 of human action. Also Economic Calculation in the Socialist Commonwealth is good.

Also, I think the problem is one of economizing factors of production. Without prices there's no way to allocate factors of production to their most highly valued ends.

Re: Failing at Calculation Debate?

nirgrahamUK — Tue, 03 Nov 2009 16:28:02 GMT

ok, im done with this thread

Re: Failing at Calculation Debate?

Stephen — Tue, 03 Nov 2009 16:14:13 GMT

nirgrahamUK:

Stephen:
I've jumped through your hoops and answered your questions and as far as I can tell this isn't coming to a conclusion. How about you guys tell me what you would accept as a complete solution or produce a logical proof of the impossibility of correct FOP allocation in the absence of economic calculation for Kaju's example stating any additional assumptions.

first off, I consider your activity in this to be a threadjack.

So what? It's the internet.

nirgrahamUK:
This post was about Sphairon's difficulty of keeping faith with the Austrian calculation argument in the face of socialists, dictators and technocrats who blind him with science. For you to, interpret KKaju's post in a narrow way, as permission for you to deliver your proof that central planning is feasible and rational in the ERE literally adds, nothing to the conversation. what do you expect Sphairon to have taken away from it aside from more confusion?

I thought my interpretation of KK was reasonable. If you specify one type of structure and say nothing about any time variance, it's reasonable to assume its static (or evenly rotating). Generally if someone gives specifications but there are a few missing, one ought to be as conservative as possible but fill in those holes. Also, I don't see how Sphairon is supposed to learn anything from a poor illustration in which the opposite of what KK is attempting to demonstrate is what is demonstrated.Sphairon's difficulty stems from a lack of sound understanding of the matter, which can only be achieved by heavy reading and thinking on the subject, not by a handful of posts from similarly confused proponents who have not done heavy reading.

nirgrahamUK:
Secondly, using the construct of the ERE to think about the calculation argument is precisely the wrong way to go about it.

Or using a crappy example were everything's already specified.

nirgrahamUK:
whatever room you find for a central planner is utterly redundant. producers and consumers are going about their days with perfect certainty, all prices are set. no money is needed.the entrepreneur has no place, as all factors are already allocated. so introducing a central planner to dictate what is already being done is empty,

True enough, but that is not what the calculation problem is about.

nirgrahamUK:
please use the ERE as ridiculous is it is as a pedagogical tool to understand the difference
between entrepeneurial profit and interest; don't keep going back to it on holiday, you
wouldn't want to go native....

It's useful for more than just that. It's necessary for almost any thought experiment in economics.

Re: Failing at Calculation Debate?

Jon Irenicus — Tue, 03 Nov 2009 14:02:16 GMT

It just means repeating the bidding process and restructuring production each new period.

Repeating the bidding process of what? Consumer goods? You cannot factor in capital goods as costs if they're not priced (and as I have said backwards imputation will not suffice unless you're dealing with completely specific capital goods which was not what KK specified.)

Re: Failing at Calculation Debate?

nirgrahamUK — Tue, 03 Nov 2009 12:48:21 GMT

Stephen:
I've jumped through your hoops and answered your questions and as far as I can tell this isn't coming to a conclusion. How about you guys tell me what you would accept as a complete solution or produce a logical proof of the impossibility of correct FOP allocation in the absence of economic calculation for Kaju's example stating any additional assumptions.

first off, I consider your activity in this to be a threadjack.

This post was about Sphairon's difficulty of keeping faith with the Austrian calculation argument in the face of socialists, dictators and technocrats who blind him with science. For you to, interpret KKaju's post in a narrow way, as permission for you to deliver your proof that central planning is feasible and rational in the ERE literally adds, nothing to the conversation. what do you expect Sphairon to have taken away from it aside from more confusion?

Secondly, using the construct of the ERE to think about the calculation argument is precisely the wrong way to go about it. whatever room you find for a central planner is utterly redundant. producers and consumers are going about their days with perfect certainty, all prices are set. no money is needed.the entrepreneur has no place, as all factors are already allocated. so introducing a central planner to dictate what is already being done is empty,

Now to end on a nice quote bomb

The mathematical economists are almost exclusively intent upon
the study of what they call economic equilibrium and the static state.
Recourse to the imaginary construction of an evenly rotating economy
is, as has been pointed out,1 an indispensable mental tool of economic
reasoning. But it is a grave mistake to consider this auxiliary tool as
anything else than an imaginary construction, and to overlook the fact
that it has not only no counterpart in reality, but cannot even be thought
through consistently to its ultimate logical consequences. The mathematical
economist, blinded by the prepossession that economics must be constructed
according to the pattern of Newtonian mechanics and is open to treatment
by mathematical methods, misconstrues entirely the subject matter of his
investigations. He no longer deals with human action but with a soulless
mechanism mysteriously actuated by forces not open to further analysis. In
the imaginary construction of the evenly rotating economy there is, of
course, no room for the entrepreneurial function. Thus the mathematical
economist eliminates the entrepreneur from his thought. He has no need for
this mover and shaker whose never ceasing intervention prevents the imaginary
system from reaching the state of perfect equilibrium and static
conditions. He hates the entrepreneur as a disturbing element. The prices of
the factors of production, as the mathematical economist sees it, are determined
by the intersection of two curves, not by human action.

Ludwig v.M

please use the ERE as ridiculous is it is as a pedagogical tool to understand the difference
between entrepeneurial profit and interest; don't keep going back to it on holiday, you
wouldn't want to go native....

Re: Failing at Calculation Debate?

liberty student — Tue, 03 Nov 2009 06:21:38 GMT

I just started reading Economic Calculation in the Socialist Society by Hoff, still in the introduction, and there is this great bit from Maurice Dobb, a socialist who was uniquely not a market socialist in the 30s.

While Dobb's attitude was both paternalistic and authoritarian, he did notice something the market socialists overlooked in their enthusiasm for the model of perfect competition. A Dobb put it sometime later, "Either planning means overriding the autonomy of private decisions or it means nothing at all""

When I read about libertarian paternalism, it is really just the same paternalism of the 30s socialists. Which is the same paternalism of today's non-governmental libertarian socialists.

Re: Failing at Calculation Debate?

Stephen — Tue, 03 Nov 2009 05:55:51 GMT

Jon Irenicus:
How's production going to go on indefinitely outside of paedagogical constructs exactly? The Rothbard stuff you quoted of course doesn't really say anything on this. It matters because as the resource is depleted it becomes scarcer consequently must enter into new pricing relations.

It just means repeating the bidding process and restructuring production each new period.

To both you and UK,

I've jumped through your hoops and answered your questions and as far as I can tell this isn't coming to a conclusion. How about you guys tell me what you would accept as a complete solution or produce a logical proof of the impossibility of correct FOP allocation in the absence of economic calculation for Kaju's example stating any additional assumptions.

Re: Failing at Calculation Debate?

Cork — Tue, 03 Nov 2009 05:48:06 GMT

It’s funny how every harebrained scheme of socialists seeks to mimic the market without actually being a market. Don’t they ever grasp the futility?

Socialist: “Oh, we won’t have a market. But we’ll still have people producing things for consumers depending on what they take. And we’ll make a half-baked attempt at economic calculation, along with some lame mechanism for consumer feedback. Oh, and we’ll make sure hard-working people have more of a say than the slackers…”

Libertarian: “Hmm. Sounds like a market. Except inferior, since it’s not the real thing.”

Socialist: “D’oh!”

Re: Failing at Calculation Debate?

Jon Irenicus — Tue, 03 Nov 2009 05:32:55 GMT

How's production going to go on indefinitely outside of paedagogical constructs exactly? The Rothbard stuff you quoted of course doesn't really say anything on this. It matters because as the resource is depleted it becomes scarcer consequently must enter into new pricing relations.

Re: Failing at Calculation Debate?

Stephen — Tue, 03 Nov 2009 05:08:48 GMT

Jon Irenicus:

Where does Rothbard contradict what I said there?

According to standard Austrian analysis, there are no depleteable FOP in the ERE. And it doesn't follow from the fact that a good is used uneconomically that it will be depleted.

Maybe you are refering to capital consumption, but even if you are, I fail to see how it is relevant to the problem of calculation.

Re: Failing at Calculation Debate?

Stephen — Tue, 03 Nov 2009 05:03:00 GMT

nirgrahamUK:
the point is, all entrepreneurs as a 'collection' have determined how to allocate all the factors. no one entrepreneur does this, and every entrepreneur leaves the vast quantity of factors relative to him as a given that he will not be allocating. (others allocate). If a central planner takes the same attitude he is not allocating all the factors. if he doesn't (take that attitude) and rises to the challenge of allocating all factors (as the original premise was) then MPP conceptualizing isn't going to be of help to him. that's how it seems to me.

I just don't see the problem the same way that you do. The MPP relates the input to the ouput. Having to allocate several FOP at one time doesn't add to the difficulty. It just becomes a matter of solving a set of equations instead of one.

nirgrahamUK:

Stephen:
Economic efficiency is the production of goods at minimal cost.
but you have no market for factors, so where are these costs?

what is the cost of a shoe making machine of a certain type and model, made to a certain level of craftmanship? the question is incoherent with us having assumed away the market for factors.... or isn't it?

The cost is the next most highly valued good which must be given up to obtain the shoe making machine.

nirgrahamUK:

Stephen:
The central planner could distribute ration certificates to the consumers for good A prior to any actual production. Then, an auction could be set up where the consumers can bid (the maximum they are willing to pay) for units of good B with their ration certificates(play money). The central planner can then use those bids to construct minimum selling bids as a ratio of the tradeoff between the two goods on the production possibilities frontier. The sets of bids and offers can be used to construct a price reflects consumer demand given the range of possibilities available to them.

this does not even begin to address the challenge of economic calculation. you have here a recipe for figuring out what consumers say they like lots of. and because there is a market for the produced goods, that market will clear, every good will leave every shelf at whatever price it takes to do that. *assuming none of the items are economic bads, or are economic goods worth less than the transaction cost of bidding for them and using them". , still I fail to see how it could possibly lead you to a rational calculation of how to structure the next round of production. so the 5000 shoes cleared at 5fiat paper units each, and 30000 beef sandwiches cleared at 3 fiat paper units each. how is that going to help rationally structure production without a factor market?

This is a poor mischaracterization of my argument combined with a poor example. The consumers are bidding against each other with their future supply of one good for the other good.

Re: Failing at Calculation Debate?

Jon Irenicus — Mon, 02 Nov 2009 14:53:51 GMT

Where does Rothbard contradict what I said there?

Re: Failing at Calculation Debate?

nirgrahamUK — Sun, 01 Nov 2009 22:47:35 GMT

nir:
the central planner is not doing what he said he would do, allocate all the resources.

nir:
an entrepeneur decides to allocate only some of the factors in the economy, other entrepeneurs do others.the claim is that the central planner will replace all of them

stephen:
I'm sorry. I don't understand how the implications of your last point prove your original objection.

the point is, all entrepreneurs as a 'collection' have determined how to allocate all the factors. no one entrepreneur does this, and every entrepreneur leaves the vast quantity of factors relative to him as a given that he will not be allocating. (others allocate). If a central planner takes the same attitude he is not allocating all the factors. if he doesn't (take that attitude) and rises to the challenge of allocating all factors (as the original premise was) then MPP conceptualizing isn't going to be of help to him. that's how it seems to me.

Stephen:
Economic efficiency is the production of goods at minimal cost.

but you have no market for factors, so where are these costs?

what is the cost of a shoe making machine of a certain type and model, made to a certain level of craftmanship? the question is incoherent with us having assumed away the market for factors.... or isn't it?

Stephen:
The central planner could distribute ration certificates to the consumers for good A prior to any actual production. Then, an auction could be set up where the consumers can bid (the maximum they are willing to pay) for units of good B with their ration certificates(play money). The central planner can then use those bids to construct minimum selling bids as a ratio of the tradeoff between the two goods on the production possibilities frontier. The sets of bids and offers can be used to construct a price reflects consumer demand given the range of possibilities available to them.

this does not even begin to address the challenge of economic calculation. you have here a recipe for figuring out what consumers say they like lots of. and because there is a market for the produced goods, that market will clear, every good will leave every shelf at whatever price it takes to do that. *assuming none of the items are economic bads, or are economic goods worth less than the transaction cost of bidding for them and using them". , still I fail to see how it could possibly lead you to a rational calculation of how to structure the next round of production. so the 5000 shoes cleared at 5fiat paper units each, and 30000 beef sandwiches cleared at 3 fiat paper units each. how is that going to help rationally structure production without a factor market?

Re: Failing at Calculation Debate?

Stephen — Sun, 01 Nov 2009 22:00:58 GMT

Esuric:

Sphairon:
this pretty much nails down for me why I am not yet convinced of the a priori impossibility of economic calculation without market pricing.

You're not convinced of the a priori impossibility of economic calculation in a theoretical evenly rotating static economy; where the best production methods are given, and can be induced from static demand functions. But by now you should understand that economic calculation, in a dynamic world, in the real world, is entirely impossible.

In the real world, economic calculation is possible in a market economy. In a socialist economy it is impossible.

Esuric:
I don't know if Stephen is purposely being vague about his position, but he's talking about extremely simplified and abstract mathematical models, where all information is given. He's talking about the possibility of economic calculation in a world he creates, with equations he creates, and with constraints he chooses.

It's like making a utility function with cardinal rankings and saying, "hey look, value can be cardinally ranked!"

Crazy Kaju gave an example of a simplified (and incomplete) economic model as a demonstration of the necessity of economic calculation for rational capital allocation. All I'm trying to point out is that if you fill in the missing holes (and it doesn't matter which way) in his simplified model it in fact does become possible for a central planner to rationally allocate capital goods without economic calculation as a tool.

Re: Failing at Calculation Debate?

Stephen — Sun, 01 Nov 2009 21:39:13 GMT

JonBostwick:
Your plan requires a set "technological recipe", but determining the best way to make a good is a chief function of the price system.

No, it's an entrepreneurial function. The price system is allows for profit and loss which allows an objective measure of whether or not the entrepreneur was right.

JonBostwick:
By your own admission your plan relies on arbitrary production in lieu of economic calculation.

It's not arbitrary. It is in light of consumer preferences and the available alternatives.

JonBostwick:
And that's just one of the variables you are trying to set as a constant.

What would you infer from Kaju's example? I think that if he posits a simplified structure of production with missing details but mentions nothing about it changing, it's reasonable to presume that it's an economy that is evenly rotating.