Socialist Calculation Debate
History
The Moments in the Debate
The 1920-30s
By Diogo Lourenço and Mário Graça Moura:
"As an ideal, socialism is not at issue either in this paper or in the Socialist Calculation Debate. The latter was triggered, just over a century ago, by Ludwig von Mises’ intervention. Mises’ (1920) central argument is simple and powerful. In a socialist economy, there would be no private property and, therefore, no market or money prices for higher order goods. In an economy with an extensive division of labour, market prices enable economic agents to make informed decisions and to revise them, or to learn, in the light of profit and loss. Since the market prices of higher order goods cannot be replaced by arbitrary numbers, it will be impossible to make rational decisions in a planned economy. Mises’ article set off a debate in German, now mostly forgotten, and later the English-language controversy known as the Socialist Calculation Debate. The most important socialist contributions to this debate are Taylor (1929) and Lange (1936; 1937). In Lange’s proposal, the prices of capital goods and productive resources (except labour) are initially fixed by the Central Planning Board. Managers of state-owned industries take these prices as given and resort to given production techniques so as to minimise cost. In the face of excess supply or demand, the Central Planning Board sets in motion a successive revision of prices. The economy is viewed as a giant mechanism, which is calibrated until it converges to competitive equilibrium. Hayek (1940; 1945) protested that the economy is not such a mechanism. Capital goods and production techniques are not ‘data’. Rather, it is the competitive market process that enables their identification or discovery. In the absence of this process, much of the knowledge required for a complex economy to function tolerably would not even exist.
By this time, however, most academic economists were not really listening. Positivism had become dominant, with its aversion to (‘metaphysical’) reflections on the nature of reality; its conception of theory as a ‘technique of reasoning’, ideologically ‘neutral by nature’, on which ‘objectively scientific’ work could be grounded (Schumpeter, 1954, p. 884); and its implicit vision of the economy as a mechanical device, with ‘objectively given quantities of commodities impinging directly upon each other, almost, it would seem, without any intervention of human minds’ (Hayek, 1945, p. 103). The Socialist Calculation Debate was over."
(http://www.ub.edu/histeco/esp/aihpe2022/pdf/Lourenso-Grasa.pdf)
The 1980s
"It rose from the ashes in the 1980s (see, especially, Lavoie, 1985), as the centrally planned economies were about to turn into ashes. Suddenly, Hayek was praised, but perhaps for the wrong reasons. Then, like now, many economists effectively identify economics with mainstream economics: much effort is devoted to analysing formal properties of constructs without real-world referents and too little to investigating the nature of the social world. Models of socialism currently proliferate, sometimes resting on surprisingly naïve assessments of the computing wonders of the digital age. The misunderstanding of the original debate is impossible to overlook. Hayek (1982a) once referred to the core of Lange’s argument as ‘two pages of fiction’. Now we have a plethora of such pages. Whilst there are no doubt many reasons for this, one of them is certainly the insidiousness of positivism. Perplexing examples of this insidiousness are easy to find. Take, for example, Camarinha Lopes’ (2021) rhetorically aggressive paper. The author longs for the time when there was ‘a universally accepted reading’ (p. 804) of the Socialist Calculation Debate, insisting that ‘socialism cannot be scientifically rejected’ (p. 787, 806). His position ultimately rests on a distinction between ‘technical’ and ‘political’ arguments, a distinction that will please all positivists. ‘Political’ is mostly used to dismiss ‘bourgeois’, ‘capitalist-allied’ authors wanting ‘to shape economic theory in order to discredit and disable the rise of communism’ (pp. 787, 789; see, however, pp. 791, 798, n. 9). ‘Technical’ refers to a ‘scientific consensus’; to ‘standard economic theory’; to ‘genuinely scientific contribution[s]’; to ‘mainstream economics’; to ‘the established paradigm of economic science’; to ‘official, recognised economic science’; to ‘economic science, as it is studied and taught in the main economic institutions of the world’; to ‘currently accepted scientific economics’; to ‘the criteria of efficiency acknowledged by the international scientific community of economists’ (pp. 787, 789, 790, 792, 794, n. 6, 802, 803, 805). Camarinha Lopes wants to convince his audience that the success of Lange’s technical arguments, and the forced replacement of Mises’ challenge by Hayek’s ‘political posture’ (p. 787), ‘effectively led to the expulsion of the Austrian School from mainstream economics’ (p. 789 et passim)––nay, ‘from universities’ (p. 797)––which was Lange’s strategic goal (see p. 794, n. 6). Lange’s orthodox language, we are told, ‘should not confuse us about his affiliation’ (p. 805). Lange thought that standard economic theory correctly described ‘the fundamentals of the human-nature relation’ as well as ‘the non-sociological aspects of material reproduction’ (p. 793), and was compatible with Marxian economics. Actually, his project was to ‘merge’ both (ibid.): ‘the market economy and the socialist economy are equal from the point of view of describing the technical balance of their input and output matrices’ (p. 795). For both, ‘the general state of equilibrium is linked to the total satisfaction of the individual needs of each member of society’ (ibid.). "
(http://www.ub.edu/histeco/esp/aihpe2022/pdf/Lourenso-Grasa.pdf)
Discussion
The Socialist Calculation Debate Today: what the left should do
Evgeny Morozov:
"If the Socialist Calculation Debate teaches us anything, it’s that the left should not waste time debating the merits of the price mechanism in isolation from its embeddedness in the broader system of capitalist competition, which generates non-price knowledge—reputation and so on—and produces the general social norms and patterns of legibility which allow the price system to do so much with so little. While it’s true that, evaluated on its own terms, the price system appears a marvel of social coordination, it’s also true that, without capitalist markets, it doesn’t exist. It thus makes sense to strive for a more comprehensive assessment, looking at how the existence of capitalist competition—and of capitalism in general—affect social coordination tout court. Social coordination can be mediated by a whole ecology of mechanisms, including law, democratic deliberation, decentralized ‘radical bureaucracy’ and feedback control, as well as the price system. Consider, for example, the non-price knowledge that circulates in capitalist economies, which not only informs the price system but also shapes our assessment of the urgency of threats, helping to inform our responses. The more accurate that information, the more likely we are to ensure social coordination in solving tasks which—like climate change—are crucial to the survival of the species.
Yet capitalist competition often ends up contaminating that knowledge, making an accurate assessment of the situation nearly impossible. After the neoliberal turn, competition is increasingly becoming a non-discovery procedure. Consider the energy companies or pharmaceutical firms who deliberately manufacture ignorance by selectively funding academics and think tanks. Or the media-military-industrial complex, shaping how the public thinks about the latest war. Or the increasingly privatized education system, unable to ‘discover’ the sort of knowledge that has no easily quantifiable impact. Or the credit rating agencies, whose business models often obscure the real state of the firms they are supposed to be evaluating. An entire academic industry—under the quirky name of ‘agnotology’—has sprung up to study the production of such manufactured ignorance and its use by capitalist firms.footnote38 The best possible outcome of this research would be a recalibration of how we assess the comparative advantages of various systems of social coordination—and a shift of focus, from measuring solely their respective contributions to economic efficiency, to weighing up their ability to perceive existential social problems, in all their complexity, and to propose possible solutions.
The ideological residue of the Cold War, with its binary choice between central planning and the price system, has obscured the existence of this broader ecology of modes of social coordination. The emancipatory promise of information technology is to rediscover and enrich this repertoire, while revealing the high invisible costs of relying on the current dominant mode of social coordination—capitalist competition. Given this possibility, the agenda of the neoliberal establishment is clear. On the one hand, they will rally behind a slogan of ‘There Is No Alternative (to Google)’, depicting any departure from the cartelized Silicon Valley model—or at least, any moves that dare go beyond the consumerist utopia of a ‘New Deal on Data’—as yet another step on the road to serfdom. On the other hand, they will continue filling in the empty social and political spaces which previously had their own logics and ways of doing things, with the ‘smart’ capitalist logic of digital platforms.
The left, then, should focus on preserving and expanding the ecology of different modes of social coordination, while also documenting the heavy costs—including on discovery itself—of discovering exclusively via competition. This mission, meanwhile, will be all but impossible without regaining control over the ‘feedback infrastructure’. The contradiction between collaborative forms of knowledge discovery and the private ownership of the means of digital production is already becoming apparent in the processes of ‘peer production’—long celebrated by liberal legal academics—used in the production of free software or services like Wikipedia. Under the current Silicon Valley private-ownership model, the feedback infrastructure is unlikely to be amenable to radical-democratic transformation.footnote39 Freedom, as neoliberals have long understood, must be planned; but so must their ‘spontaneous order’. In the absence of such planning, spontaneity quickly morphs into adaptation to an external reality that is not to be tinkered with. This may be an acceptable — even desirable— development for conservatives, but it should be anathema to the left."
(https://newleftreview.org/issues/II116/articles/evgeny-morozov-digital-socialism)
Against Labour-Time Calculation, for Calculation in Kind
Pieter Laurence and Adam Buick:
"An attempt to present an alternative to what they called the “State socialism” of both the Social Democrats and the Bolsheviks was made by a group of Dutch “Council Communists” in their Grundprinzipien kommunistcher Verteilung und Produktion (“Basic principles of communist distribution and production”) published in Berlin, in German, in 1930. The “Council Communists” were a group which had supported the Russian Revolution, really believing it to be what, in its propaganda, it said it was, namely a soviet (the Russian word for “council”) revolution. Within a few years, however, they realised their error and that Russia was heading rather for state capitalism. They called themselves “Council” Communists to distinguish themselves from “State Communists” such as Lenin, Trotsky and Stalin.
The Grundprinzipien outlined a plan for organising the production and distribution of wealth without money but on the basis of accounting in units of labour-time. They followed Otto Leichter here, but totally rejected the technocratic structure in which he had seen labour-time accounting replacing monetary calculation. In its place they proposed a federation of workers’ councils.
But when this plan is stripped of its socialist terminology, it turns out to be a scheme for a sort of self-regulating exchange economy in which money as we know it today would be replaced as the currency by a “labour-money”; in other words, the money-prices-wages system would continue to exist but would be run by workers’ councils and without exploitation. But to believe that an exchange economy could function in the interests of the workers if labour-money and labour-time accounting were to be used in place of the coins and notes and monetary calculation we know today is to completely misunderstand how capitalism works and to fall into the purest currency-crankism.
CALCULATION IN KIND: THE RIGHT ANSWER
In the end, then, it was Otto Neurath, with his view that socialist society could organise the production and distribution of wealth directly and solely in kind, who was on the right track. The only other personality in the Social Democratic and Bolshevik movements to take this view was Amadeo Bordiga, but not until the 1950s and in a quite different context to the so-called “economic calculation” controversy sparked off by Von Mises in 1920.
Bordiga had been the first leader of the Italian Communist Party but was eased out of this post in 1923 for his leftist views (which had already been denounced by Lenin in his famous pamphlet Leftwing Communism An Infantile Disorder) and was eventually expelled from the Party altogether in 1930. Although he himself dropped out of political activity till the fall of Mussolini in 1943, his particular brand of “leftwing communism” continued to be propagated by a group who came to be called “Bordigists”. Bordiga did not begin to reflect seriously on the nature of socialism till he was faced with the problem of explaining, after the war, to his followers why Russia was state capitalist and neither socialist nor a “workers’ state”. Thus, after commenting that planning in Russia wasn’t socialist because the plans there were drawn up in money terms as well as physical quantities and that in fact, just like in the capitalism analysed by Marx, these physical quantities had to be converted into money before the productive cycle could begin again, Bordiga went on:
If there is accumulation in socialism, it will take the form of an accumulation of objects, of materials useful to human needs, and these will have no need to appear alternatively as money, nor to undergo the application of a “moneymeter” allowing them to be measured and compared according to a “general equivalent”. Thus these objects will no longer be commodities and will not longer be defined except by their quantitative physical magnitude and by their qualitative nature, what the economists, and Marx also, for explanatory purposes, express by the term use-value. (A. Bordiga, Structure economique etsociale de la Russie d’aujourd’hui, Paris, 1975, pp. 191-2.)
Elsewhere, he pointed out that:
In post-bourgeois society, therefore, it will not be a question of “measuring value by labour-time”, as fools believe, but of finishing altogether with the measurement of value. (Quoted in J. Camette, Capital et Gemeinwesen, Paris, 1976, p.213.)
and,
The rational relationship between man and nature will be born from the moment when these accounts and these calculations concerning projects are no longer done in money but in physical and human magnitudes. (Quoted in J. Camette, Bordiga et la passion du communisme, Paris, 1975, p. 23.)
This is undoubtedly the correct position. Calculation in socialism can only be done directly in physical quantities without the need for any “general equivalent” or any general accounting unit, certainly not money but not labour-time either.
Basically, socialism does not need any general equivalent. Such a universal unit in which all goods can be expressed is only necessary in an exchange economy where all goods have to be reduced to some common denominator as a means of determining the proportions in which they exchange for one another.
...
The reason why it is not possible to use labour-time as a general equivalent in place of money is that the exchange-value of a product does not depend on the actual amount of labour incorporated in that product in the course of its production from start to finish but on the amount of socially-necessary labour incorporated in it, which is by no means the same (otherwise an inefficient worker would, because he took more time, produce more value than an efficient worker, but this is not the case).
While the actual amount of labour spent on producing a good could theoretically be measured, what labour is socially-necessary is a social average — taking into account average techniques, average productivity, average intensity of labour, etc — that can only be established through the social process that is the operation of the market whose price changes reflect the changes which are continuously taking place in the various factors we have just mentioned which determine the average. In other words, it is an average that can only be established after a good has been produced.
...
If calculation in labour-time is impossible under capitalism, it is simply unnecessary in socialism since socialism will have no place for the concept of “exchange value” of which both money and labour-time are proposed as units of measurement. In socialism goods will not be produced for sale, they will not be commodities and so will not have any exchange value or price. They will simply be useful things capable of satisfying some human need, or as Bordiga put it “materials useful to human needs”, use-values. While capitalism is only interested in the exchange value of goods — capitalism is in fact an economic mechanism geared to the accumulation of more and more exchange value — socialism will only be interested in their use-value. Socialism will be a society entirely geared, in the field of wealth-production, to turning out the specific useful things which people have indicated they want to live and enjoy life.
Under these circumstances calculations concerning the production and distribution of wealth will of course still be necessary, but these can be done exclusively in units to measure specific amounts and kinds of different goods — units such as kilos, litres, square metres, watts, even hours. There will be no need for any general equivalent by which to measure and compare all goods. In other words, calculation in socialism will not be economic but technical. In socialism calculations will be done directly in physical quantities of real things, in use-values, without any general unit of calculation. Needs will be communicated to productive units as requests for specific useful things, while productive units will communicate their requirements to their suppliers as requests for other useful things. "
More information
Articles
* Article: The Socialist Calculation Debate then and now. By Diogo Lourenço and Mário Graça Moura.
URL = http://www.ub.edu/histeco/esp/aihpe2022/pdf/Lourenso-Grasa.pdf
"In an age of rampant positivism, most economists agreed that the Austrians had lost the Socialist Calculation Debate. It is more worrying that contemporary economists assess this debate as if we were circa 1940 and take Oskar Lange’s arguments, or some sequel of them, as the blueprint for socialism. So is the seemingly popular belief, which Lange also held, that computers render socialism viable. In this paper, we want to establish three propositions, with the hope of correcting basic errors that blemish current debates on socialism. First, Lange’s arguments are ambiguous, not least institutionally, and useless for the implementation of socialism. Second, Ludwig von Mises and Friedrich von Hayek understood the nature of the market as the indispensable economic institution in a complex economy. Third, economists interested in investigating the possibility of socialism need to take Hayek seriously: at least one prominent example exists."
More at:
- Allin Cottrell and W. Paul Cockshott, ‘Calculation, Complexity and Planning: The Socialist Calculation Debate Once Again’, Review of Political Economy, vol. 5, no. 1, 1993, pp. 73–112;
- Cottrell and Cockshott, ‘Computers and Economic Democracy’, New Historical Project, 8 April 2003;
- Nick Dyer-Witheford, ‘Red Plenty Platforms’, Culture Machine, vol. 14, 2013;
- Ionela Bălţătescu and Petre Prisecaru, ‘Computability and Economic Planning’, Kybernetes, vol. 38, no. 7–8, 2009, pp. 1399–1408;
- Erick Limas, ‘Cybersocialism: A Reassessment of the Socialist Calculation Debate’, 4 February 2018, available at ssrn.
- The End of Socialism and the Calculation Debate Revisited. By Murray N. Rothbard. The Review of Austrian Economics 5, no. 2 1991 [1]
Books
- Daniel Saros. Information Technology and Socialist Construction.
- Leigh Phillips and Michal Rozworski, The People’s Republic of Walmart: How the World’s Biggest Corporations are Laying the Foundation for Socialism, London and New York 2019.
- Johanna Bockman, Markets in the Name of Socialism: The Left-Wing Origins of Neoliberalism, Stanford 2011.