Economics Questions

Re: Socialism cannot calculate because...

Faustus — Sat, 11 Sep 2010 02:39:03 GMT

"Now Socialism goal is to abolish private property & markets in the means of production

Im not sure if that is more a reflection of Soviet socialism than marxism in general."

Well Marx himself envisioned a society in which industry had consolidated itself into a form that the workers could just take over rather easily & which they could then run with ''elaborate bookkeeping system''.(Schumpeter History of Economic Analysis p984) instead of markets & where there would be no private property after the property less proletarians expropriated the few remaining capitalists.

Re: Socialism cannot calculate because...

filc — Sat, 11 Sep 2010 00:04:43 GMT

Epicurus Ibn Kalhoun:

Now Socialism goal is to abolish private property & markets in the means of production

Im not sure if that is more a reflection of Soviet socialism than marxism in general.

Socialism is, at its base, about putting the means of production into workers hands. That's why you have everything from social anarchists to social democrats, to social dictators.

Right, thats why he said "Abolish private property".

Re: Socialism cannot calculate because...

Laotzu del Zinn — Fri, 10 Sep 2010 23:51:10 GMT

Now Socialism goal is to abolish private property & markets in the means of production

Im not sure if that is more a reflection of Soviet socialism than marxism in general.

Socialism is, at its base, about putting the means of production into workers hands. That's why you have everything from social anarchists to social democrats, to social dictators.

Re: Socialism cannot calculate because...

filc — Fri, 10 Sep 2010 23:49:11 GMT

Andy:
By money prices do you mean any prices at all?

Yes Jon's previous post brings up a good point. I try and make a distinction between Meaningful Prices, and just simply Prices. Meaningful prices being metrics formed at the hand of the market, prices or arbitrary prices are formed ad-hoc by some central authority. Arbitrary prices have no real function, perhaps aesthetics.

Re: Socialism cannot calculate because...

Faustus — Fri, 10 Sep 2010 22:47:30 GMT

Socialism cannot calculate because........

Because it has no way of working out the opportunity cost of a decision. Say that the planning board makes a decision that it wants 1000 of good A. It then has to decide about the method & resources to use to produce them out of many possible options.

Now Socialism goal is to abolish private property & markets in the means of production, so it can not use prices. Which in a market economy would signal which resources were relatively scarce & abundant for all good A's productive inputs. The best that the planner can do is guess, even with all the data of physical quantities available there is no way of knowing whether any given input is being used wastefully.

Re: Socialism cannot calculate because...

Jon Irenicus — Fri, 10 Sep 2010 20:10:15 GMT

Prices form via exchange of property and are in that manner a ratio. You can make up things called "prices" in a socialist system and arbitrarily assign a number to them but this has nothing to do with prices formed via exchange. It's because there is no private ownership in capital goods that prices cannot form accurately in their case, hence economic calculation with regard to them cannot occur.

Re: Socialism cannot calculate because...

Andy — Fri, 10 Sep 2010 20:01:28 GMT

No, it boils down to lack of money prices. You can have competition without money prices but you can't have money prices without competition.

By money prices do you mean any prices at all? How do you explain the socialist government arbitrarily setting a price under a socialist government? In that case there exists no competition yet there are still "money prices".

By money prices do you mean prices which are set through competition?

Re: Socialism cannot calculate because...

DD5 — Fri, 10 Sep 2010 19:55:58 GMT

Andy:
So it basically boils down to the lack of economic competition which distorts prices?

No, it boils down to lack of money prices. You can have competition without money prices but you can't have money prices without competition.

Re: Socialism cannot calculate because...

Jon Irenicus — Fri, 10 Sep 2010 19:54:38 GMT

Lack of ownership in the factors of production, so yeah lack of competition with regard to them. Price formation can't take place because they cannot be exchanged (and prices are ratios of exchange.)

Re: Socialism cannot calculate because...

Andy — Fri, 10 Sep 2010 19:50:10 GMT

Cool.Thanks for the verification guys.

So it basically boils down to the lack of economic competition which distorts prices?

Re: Socialism cannot calculate because...

filc — Fri, 10 Sep 2010 18:51:38 GMT

Ermm.. I agree with Bert. His is a nice summary.

Re: Socialism cannot calculate because...

filc — Fri, 10 Sep 2010 18:28:18 GMT

Without the pricing mechanism you cannot decide

What to create (Whats demanded)
How much of what to create
For whom to create it for
Whats the most effecient way of creating it

Essentially planners can only guess, what to produce for consumers. To perform this successfully it requires that the planner operate in a state of omniscience, that he is aware of all the wants and needs of every individual, and that he is aware of all factors and costs that go into production of all things. This ofcoarse is an impossible expectation to meet. Additionally, with socialism there is no consumer sovreignty, there are no key inputs which tells producers where best to allocate scarce resources. Where are raw materials most preferred to be developed as decided by consumers.

I describe the process in more detail here.

It's important to point out that the economic calculation problem does not only effect full scale socialized economic society's. But can effect isolated industry's which assume a socialised model. Any coercively provided/distributed government service for example is going to suffer from inadequate economic calculation to the extent at which they restrict the market from functioning as normal. Sure t hey can measure their service and compare it to current prices and metrics on the market, but since their service is coercively provided they have no way of knowing if customers are satisfied, and how much customers would actually be willing to pay had the service been provided voluntarily. Furthermore they can't even decide how many customers would actually even want their service, since by default everyone is forced to partake in it's services against their will regardless.

This is why some of us believe that Economic Calculation is an additional argument for privatized domestic and national security agencies, arbitration, and law creation.

Re: Socialism cannot calculate because...

Bert — Fri, 10 Sep 2010 17:54:38 GMT

There are no prices to know what the monetary value of resources would be, there's no way to check if you're taking on losses or gains. Since the government would own and manage the resources, there's no way to check (competition) to see if there are more effecient ways. Plus, if you agree that value is subjective, and the central planners are adding arbitrary objective values to goods, they don't resemble their real use value in a market.

A Wiki page on the economic calculation problem.

Socialism cannot calculate because...

Andy — Fri, 10 Sep 2010 17:50:04 GMT

I would like some help understanding the fundamental element in the economic caluclation problem.

Is the reason why a Socialist country can't caluclate efficiently because of the lack of compeition?

In other words, I would like to know exactly why the prices are distorted in a socialist economy. The Socialist government holds a monopoly over the means of production, not allowing for competition to enter and establish the prices in complementary goods. Is this correct analysis?