Talk:Economic calculation problem

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[edit] Kalkin

The change on November 4, 2005 was me. (I don't have a Wikipedia account yet but this is my internet moniker ;))

I reorganized the debate section to move the discussion of decentralized socialism as a potential solution to its own section. This makes clearer the pre-existing fact that the rebuttal and reply subsections referred only to this issue.

I added a summary of the socialist argument based on the existence of centralized planning in actually existing capitalism. This is commonly heard, in my experience, because it's a fairly simple reply.

(Anti-socialist responses to that argument, and the 'philosophical objection' below it, would be welcome additions. I'm not going to provide them as, since I don't believe them, I'm not sure I could formulate them fairly. Please don't simply remove anything, though.)

I also made a few minor changes in wording to make sentences clearer, at least to me.

[edit] Gregholmes

The change on 18:10, 22 Sep 2004 was me (Gregholmes). I forgot to log in first.

I may have seen the example that I added somewhere, but I can't remember where.

[edit] Moved from article

Furthermore, decentralist socialists would argue that there is no need for a common unit of accounting or, rather, that such a need only derives from the exigencies of economic exchange i.e. as a more efficient form of exchange than barter. In capitalism costs are measured in monetary terms. It is a tautology to argue that only a monetary-based system can measure costs in this fashion. On the other hand, if monetary accounting is supposed to "capture" costs in some other substantive sense one would then have to demonstrate a correlation between these two kinds of "costs". Since this would entail measuring costs directly and not in terms of money, if follows that the economic calculation argument is logically inapplicable.

I don't entirely understand this, but I know its POV ;) [[User:Sam Spade|Sam Spade Arb Com election]] 21:56, 29 Nov 2004 (UTC)

[edit] "A continuing debate"?

"A continuing debate"? Who still questions it? Even Soviet communists accepted that Mises was right! User:Tacitus Prime (comment moved from now merged Talk:Economic Calculation Debate, sig added by [[User:Sam Spade|Sam Spade Arb Com election]] 12:00, 1 Dec 2004 (UTC))

  • It's pretty widely criticised. Bryan Caplan, who is sympathetic to the Austian school on many things, devoted section 3.1 of his Why I Am Not an Austrian Economist to why he thought the Misean argument is incoherent. Robert Allen's "Farm to Factory : A Reinterpretation of the Soviet Industrial Revolution" [1] [2] (one of two winners of the 2005 Ranki Prize of the Economic History Association) provides an account of the economic history of the USSR from 1928-1942 that is hard to square with Mises being right. --- Charles Stewart(talk) 20:52, 21 February 2006 (UTC)
Caplan's argument is that the incentive problem was enough to cripple the Soviet Union even without the calculation problem, not that socialist economies perform economic calclation as well as capitalist ones. He agrees that inability to calculate poses a major problem to socialist economies, just that the point at which it starts to apply is theoretically undefined. He's even used it as a basis to critique interventionism. I haven't read Allen's work, but I can't imagine how it would refute Mises argument unless it argues that "The socialist economy allocated resources near optimally given the effort the workers put in", which I seriously doubt it does. No one has proposed a widely accepted method for performing economic calculation under socialism. That's why I think User:Sam Spade was questioning the "continuing debate" bit. MrVoluntarist 21:02, 21 February 2006 (UTC)
  • Sam Spade was not doing the questioning, it was Tacitus Prime. Caplan's argument assertion is that (i) the failure of Soviet Communism can be attributed to the incentive problem, and that (ii) the economic calculation argument doesn't work. Mises doesn't argue that socialism is not optimal, which would not be a strong argument against socialism or marginally less efficient than capitalism, but that a wholly planned economy cannot support industrial levels of wealth without outside assistance. The claim, and I haven't come to a conclusion about the evidence, is that Stalin's five year plans successfully delivered growth in excess of the rates achieved in Europe (though lagging the growth in the USA), and did so without market mechanisms. --- Charles Stewart(talk) 22:32, 21 February 2006 (UTC)
  • Interesting. Would not a counter-argument be that the Gosplan planners had access to Western prices for numerous commodities and products?Ultramarine 22:56, 21 February 2006 (UTC)
That's precisely how Mises explains how they could function. Caplan replies that did nothave a notable effect on the outcome, since the planners outright ignored the information from the outside that they didn't like. (Mises probably would have responded that this was praxeologically impossible -- they can't act "as if" they don't see the outside world.) Note that their of them denies the need for prices to direct production, and socialists' inability to come up with one. MrVoluntarist 23:02, 21 February 2006 (UTC)
  • Yes, this is an important counter argument. If Mises made this claim, it would be good to have a citation. Of course it leaves open the question of how necessary this source of information was to the Soviet economy. --- Charles Stewart(talk) 15:36, 22 February 2006 (UTC)
Charles_Stewart: you have an odd conception of what "doesn't work" means. Caplan doubted some of the more extreme claims based in the calculation argument. He has written papers that specifically agree that lack of price signals poses fundamental problems for socialism. You don't have to accept Mises's more extreme claims to regard the argument as a devastating blow to socialism. As for the paper, I don't know how five years counts as "sustained", and I think the paper (if you've represented it correctly) responds to Mises point -- you can build factories all day. You can dig holes and fill them up all day. The crucial question is whether these "productive" activities actually satisfy human desires. Plus, there's that nasty issue of the famine. I can create sustained growth without markets too, if you cut the test off at five minutes and ignore all starving people. MrVoluntarist 23:07, 21 February 2006 (UTC)
  • It doesn't work in the sense that it doesn't establish the conclusions that Mises claimed. Caplan does agree with the Hayekian view of economic calculation, that socialist economies are deprived of a source of economic information and thereby are inefficient, but he says it is entirely open how much inefficiency this entails, and that only quantitative economics can settle this. And of cource the Hayekian view is rather different to the Misean view in this respect. Allen's work is a book, the links I gave contain only an incomplete summary, and I don't have access to the book right now, though I am fairly confident what I said is a faithful recollection. --- Charles Stewart(talk) 15:36, 22 February 2006 (UTC)
The article isn't about "Mises's calculation critique". The article is about the general economic calculation problem. That has no ongoing debate, i.e., there is no widely accepted answer to how socialist economies replace the pricing information for optimizing efficiency without just falling back on the market. That may change, if someone comes up with a great idea. We'll know when it happens, but it hasn't happened. MrVoluntarist 16:59, 22 February 2006 (UTC)
Postscript Allen's book claims that the Soviet Union had a robust economy from the beginning of the first five year plan in 1928 until planning went off the rails in the late 1960s or early 1970s. The period of Stalin's first three five year plans is most interesting, because this 14 year period appears to have had no market mechanisms at all, had the most instability (the purges, mass starvation during the failure of agricultural collectivisation, military defeat by the Finns) and yet delivered higher economic growth than Western Europe. --- Charles Stewart(talk) 15:42, 22 February 2006 (UTC)
I still don't see how this is a refutation of Mises's argument. He didn't define success by the usual metrics of conventionally-counted GDP. He never denied that government can spend spend spend and then say "hey, look at GDP growth!". The question is whether those factories satisfied actual human desires. Given the extreme flux of people from the Soviet Union to the USA in that time period, and the relative ease of acquiring necessities in the US, it seems Mises was completely correct on this. I agree that the paper would refute the argument "Socialist economies can't fool the Keynesian GDP metrics" thought. MrVoluntarist 16:59, 22 February 2006 (UTC)
I haven't read Mises in the original, but instead Steele's summary of the economic calculation debate. Steele is very clear (as is Caplan) that Mises was not arguing that socialism is relatively inefficient, but that it cannot support an industrial economy at all. It is hard to reconcile this claim with the scholarship of Allen. Ultramarine gives a possible basis for a reconciliation. --- Charles Stewart(talk) 19:39, 22 February 2006 (UTC)
Higher economic growth is by itself not evidence for superiority, a developing economy should have higher economic growth than a developed nation. Compare China today with Western Europe. Here are some interesting links:[3][4] The Soviet Union achieved growth in essence simply by being blessed with many natural resources, similar to "growth" in oil states. "By contrast, growth in western capitalist economies originates predominantly from improved use of resources, rather than increased use of resources." Also, arguably the Soviet Union achieved growth by sacrificing its environment and the health of its people. Ultramarine 17:02, 22 February 2006 (UTC)
The first reference you give pretty much conflicts with Allen's characterisation of planning as being successful from 1928 until the mid 1960s: maybe we should email one of the authors and ask about this? The second supports it: the author claims that the health and consumption of the Soviet population improved until the mid 1960s and then went into decline. The point about sacrificing the environment seems besides the point wrt. the economic calculation argument, which doesn't involve any notion of natural capital: I rather doubt that Mises would have been sympathetic to the idea.
BTW, Allen's book is on google books [5]. Page 6 says that between 1928 and 1970 that the USSR's growth rate exceeded that of any other developing country save Japan. --- Charles Stewart(talk) 19:39, 22 February 2006 (UTC)

[edit] Two points

Just for clarity:

1. The aim of my argumentation is not to hold up the USSR as an enviable model. It is to show that the evidence does not support the economic calculation argument in the way that many suppose. Caplan's point, that calculation problems did not seem very prominent amongst Soviet worries, is as cogent as Allen's claims about the success of Soviet planning.
2. There seems to be some doubt as to what the economic calculation argument actually establishes. Does it show socialism to be impossible? Or that socialist economies will have lower standards of living that capitalist economies? Or that socialist economies can be rather efficient but will have certain inefficiencies? The article should be clear on this but is not. There doesn't seem to be any doubt amongst scholars that Mises claimed the first.

I'm not an expert on this, and I don't know how best to incorporate my objections into the article, but I'm pretty sure they will help to make for a much more interesting article. --- Charles Stewart(talk) 19:39, 22 February 2006 (UTC)

"Actually there is a refutation of Caplan arguments: www.mises.org/journals/scholar/Boettke.pdf

And the Soviets did have economic calculation problems:

"If all the factories and workshops together with the whole of agricultural production are combined to form an immense cooperative enterprise, it is obvious that everything must be precisely calculated. We must know in advance how much labour to assign to the various branches of industry; what products are required and how much of each it is necessary to produce; how and where machines must be provided. These and similar details must be thought out beforehand, with approximate accuracy at least; and the work must be guided in conformity with our calculations” (Bukharin and Preobrazhensky 1966 [1919], 70)"--RafaelG 01:52, 5 July 2006 (UTC)

[edit] Resources on Allen's From Farm to Factory

Robert Allen did a summary of his book [6]

Reviews:

1. Mark Harrison [7] (PDF)
2. R. W. Davies [8]
3. Simon Clarke [9]
4. Paul Josephson [10]

Josephson's review is pretty critical, claiming there isn't much value to the kind of study Allen performed, but the other 3 generally seem to be impressed by Allen's analysis. --- Charles Stewart(talk) 20:48, 22 February 2006 (UTC)

[edit] optimum economic settings

"It could also be argued that the philosophical basis of the calculation problem has a flaw. Proponents argue that optimum economic settings are unknowable but also purport to know that the market can provide them." I've mentioned Pareto efficiency. Really I cannot think of any reasons that his piece can stand, but maybe someone can give a cite for details? Intangible 00:41, 5 July 2006 (UTC)

Maybe we're just interpreting it differently. To me, that paragraph simply says "those who support the calculation problem argue that (1) it is impossible to find out what kind of distribution of wealth and resources is best, and (2) the market provides the best distribution of wealth and resources". Obviously, if you can't know which distribution is best, then how do you know that there isn't some possible distribution that is better than the one provided by the market? (note that Pareto efficiency only refers to the best distribution you can get without redistributing wealth) -- Nikodemos 00:47, 5 July 2006 (UTC)
Ah, because of these same economists claiming that interpersonal values cannot be compared (marginalism), because value is subjective. Intangible 01:19, 5 July 2006 (UTC)
Why is the paragraph being removed? 72.139.119.165 01:12, 10 July 2006 (UTC)
Who are those proponents? Intangible 01:14, 10 July 2006 (UTC)

[edit] Needs a clean up

1)The extended explanation strikes me as incorrect - the problem isn't that the price of consumer goods is unknowable, or even that demand is unkowable, but that without a market in ccapital goods you cannot rationally choose between methods of production - least that's my reading of Mises. The destruction of the distinction between producer and consumer, and teh break of the link between production and consumption righst (through wages and profits) seems to be at the heart of this - I'll make changes later unless anyone drastically disagrees.--Red Deathy 07:44, 27 July 2006 (UTC) 2) The stuff about prices and price controls isn't relevent, Mises made clear that a market in consumer goods could exist (i.e. with prices and everything) but the problem would remain so long as there was no market in capital goods. he freuqently mentioned that demand for conumer goods could be known. but the problem would be choosing rational economic methods to produce them. Finally, although clearly opposed to LTV he maintained that marginalism/ltv debates were beside the argument, and the ECP held even if you applied labour time theory. 3) My next set of changes will be: i) Purge much of the debate section ; ii) Start citing reference to back claims up. Any help in cleaning up this very important article would be appreciated.--Red Deathy 08:07, 28 July 2006 (UTC)

There is a difference also between the Mises' argument (calculability) and Hayek's (knowledge). Intangible 20:53, 30 July 2006 (UTC)
True, however demand could be met without being known (as it were) so I think the point about capital goods is more restricted and more relevent. Anyway, I've tried to upgrade teh example, althoiugh the original was taken straight from Mises it wasn't informative and wasn't really an example more of a short illustration. I've tried to convey how complicated simple economics can be.--Red Deathy 07:35, 31 July 2006 (UTC)
Tidied (IMNHO) extended explanation. Removed the zero sum stuff, which didn't strike as quite correct - the argument that you cannot have optimal production, doesn't necessarilly mean that you'll have shortages of goods (it could just mean you put in twice as much effort as is necessary to produce them - yes, that excess effort could have made other useful goods, or equally it could be used to have teh good of leisure time). Later this week I really will purge teh debate section.--Red Deathy 08:04, 8 August 2006 (UTC)

[edit] Confused

Now, I am not stupid but this article doesn't seem to make sense. Is it the article or is it the theory? I have a basic grounding in economic principals and business studies but this just doesn't seem to fit. For example, it seems that part of the article argues that prices for goods couldn't be calculated due to there not being any way to calculate their production costs. This would be easily be countered by looking at things in terms of man-hour cost... Or am I just missing the point? -Localzuk (talk) 21:04, 2 September 2006 (UTC)

No, it is arguing that without a free market in capital and capital goods you cannot have a rational complex economic system - competetive production techniques could not make themselves known and that the various distributed utilities across the economy could not be satisfactorilly realised. That's the theory, anyway.--Red Deathy 07:22, 4 September 2006 (UTC)
You see, this is the problem. The article does not cover enough of the basics for a lay person to understand the theory. I think the article needs work to remove what I see as a high level of jargon and allow a normal person to understand at least the basics.-Localzuk (talk) 16:59, 4 September 2006 (UTC)
Well, the example is meant to do just that, and it reads clearly and relatively jargon free to me.--Red Deathy 07:07, 5 September 2006 (UTC)

Localzuk, I think you are in fact missing the point. I'm going to respond to what you have said with my "junior economist's hat" on and see if it generates ideas for how to better present the material. You say that the problem of not being able to calculate production costs can be handled by looking at man-hour costs. However, this doesn't solve it. For one thing, man-hours are heterogenous. You may have an expert blacksmith who has various skills, a carpenter who has various skills, etc, and then lots of people only good at grunt work. If a task takes one hour of the expert carpenter, or a half-hour of each of the grunts, which option should be used? And then man hours aren't the only input. There's also the land. If one task takes more man-hours but less land, is it better? Or is it better to use more land and fewer man-hours? And then time: if it takes more man hours but gets it done sooner, is that preferable? To determine the best use, you have to have an exchange ratio by which to compare all of these, and that in turn requires a market in which such preferences can become concretely revealed. Does that answer what you were asking? MrVoluntarist 21:38, 5 September 2006 (UTC)

I th9ink that kinda of misses the point of the ECA - it's not so much about consumer markets (per se - though they are important) but that there are no capital markets, Mises dealt at length with the idea that you could have a market for consumer goods without a capital market, and things would still go arse over tit. The Hayekian argument could be answered through distributed us of IT, but the problem of deciding how to defer consumption (i.e. invest "capital") would remain.--Red Deathy 07:33, 6 September 2006 (UTC)
Wha? Did you actually read my post there? I didn't "miss the point" of the ECA, I was explaining it at base level in the context of a specific discussion. Second, I did mention capital markets: "And then time: if it takes more man hours but gets it done sooner, is that preferable? " Let's try to be a little more thorough in reading others' posts. And less gratuitous obscenity would be nice too. I'm not a prude, but do you really have to chase opportunities to swear down a dark alley, beat them up, and then carry them here? MrVoluntarist 14:37, 6 September 2006 (UTC)
Sorry, the focus seemed to be on the consumer market end of things, which I think is a persistent fault in ECA debates, generally. What obscenity?--Red Deathy 15:28, 6 September 2006 (UTC)
My "focus" was on explaining the ECA to Local in layman's terms so that through a discussion here we could come up with better ways to present the material, not to give the be-all, end-all of defenses of the ECA. That's what this page is for. As for obscenity, you really didn't need to refer to "tits and arse". I haven't seen the expression you used that contained that before, so it didn't add to anyone's understanding. Just say what you mean. You don't get bonus points for your cliches here. MrVoluntarist 17:10, 6 September 2006 (UTC)
Oh, that phrase, it's Yorkshirespeak, and it's pretty self explanitory. I merely, and politely, commented on your simplified explanation, suggesting that it might be in some part eroneous, so as to better add to the chances of improving the article, and got me hand bit off.

[edit] Criticism

In line with oterh criticism sectiosn of articles, I've stripped this one of twoing and froing, the article per se sets out the case for ECA, let the criticisms stand for themselves. This is a preliminary to strengthening the wording of the remainign criticisms sections. One bit at a time.--Red Deathy 13:44, 27 March 2007 (UTC)

There is no excuse for violating NPOV by massively deleting opposing views. Other criticisms articles and sections include counter-arguments.Ultramarine 14:16, 27 March 2007 (UTC)
Hardly violating NPOV -the older version had a 'on one hand and the other' feel many of which were simply restatements of the original proposition. Let the criticisms stand on their own, as happens in both the Socialism and Capitalism articles. Articles that read like a debate are oor. Besides it's a false sort of NPOV to have that, the description of the article itself should set ouit the "case for" the ECA, and then just mention the critciisms (which are currently badly worded, IMNSHO.--Red Deathy 14:34, 27 March 2007 (UTC)
Again, deleting opposing views is simply not acceptable. Read the policy. You may reorganize, but do not delete them.Ultramarine 14:38, 27 March 2007 (UTC)
AFAICS the opposing views to the critciisms section are in the first three paras, I'll try and reorganise, and tidy, I can see two small sections that can go, and one that's long and pointless, I'll defend in the change statements.--Red Deathy 14:41, 27 March 2007 (UTC)
Again, read about NPOV. You are not allowed to remove opposing views. Wikipedia is not a soapbox for one side.Ultramarine 16:09, 27 March 2007 (UTC)

p.s. My purge of external luinks, there were far to many, and I've only left primarilly primary soruces setting the case, and one oppositional link, if that's OK. This article as it is is crap and needs substantial work still.--Red Deathy 14:41, 27 March 2007 (UTC)

No, we cannot just purge links for no reason. For example just the first one removed: The Socialist Calculation Debate Why? Ultramarine 16:08, 27 March 2007 (UTC)

More generally, this is a well-known problem with many arguments from thinkers of both sides. I suggest that we remove all unsourced material in order to avoid original research. As can be seen in the link above, there is much misrepresentation in this article.Ultramarine 16:24, 27 March 2007 (UTC)

Ultramarine, I didn't just remove opposing views, I removed redundancy, and left in criticism - the bloc quote from trotsky is undue weight, if nothing else, and poor style. I removed most links because they were secondary discussions, leaving either primary sources, one discussion of a notable thinker in the field and a critical site. I reject your implication that I was editing unneutrally, I was trying to make the article more readable, and wish you'd consider each change on a case by case basis.--Red Deathy 16:49, 27 March 2007 (UTC)

Again, I will remove everything unsourced according to policy, there are lots of sources from both sides available, no need for original research. Regarding the links, Wikipedia prefer "secondary sources", if this is even applicable to this subject.Ultramarine 16:52, 27 March 2007 (UTC)
Secondary soruces are for citations, links are better for primary texts. I'll support your changes, but pelase do lose the pointless trotsky quote, it goes on for ever for no good reason...and please do consider some of my heading changes and ordering changes--Red Deathy 16:55, 27 March 2007 (UTC)
This is your own idea, not policy. I disagree, generally it is more useful with an overview than reading through a dozen economic books and papers. The trotsky quote could be place in a footnote and briefly mentioned.Ultramarine 16:57, 27 March 2007 (UTC)
Yes, that is my own idea, we do have some grounds for judgement, such as examples, surely an explanation doesn't need to be sourced - truth claims must be sourced, but we can word how we work out truth claims (I happen to think some sort of worked example is needed to clarify the article).--Red Deathy 17:04, 27 March 2007 (UTC)
Also see WP:EXTERNAL I think the first not-to-link criterion is enough to kibosh many of those linked articles. I'll leave that decision to others, but think it should be done.--Red Deathy 17:15, 27 March 2007 (UTC)
"Any site that does not provide a unique resource beyond what the article would contain if it became a Featured article." Obviously the first link that you have deleted, see above, contains lots of valuable information. Read it.Ultramarine 18:32, 27 March 2007 (UTC)
Urk, I see - I hadn't deleted that link, I made it a reference for the lead, which is a stronger use of such an article. In general I'd prefer if some more of the links were moved to references...--Red Deathy 07:24, 29 March 2007 (UTC)
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