Historical Perspectives on the Relationship Between Markets and Planning
Discussion
Jan Groos et al. :
"The respective strengths and weaknesses of markets and planning and the question of whether economic planning on the scale of an entire economy is possible and desirable have been discussed throughout the 20th century in what has been termed the socialist calculation debate. The debate mainly featured Austrian, Marxist, and neoclassical economic theorists, the latter in turn being divided into socialist and non-socialist neoclassical economists. The traditional narrative of the debate holds that it started when Austrian economist Ludwig von Mises ([1920] 1990) published a critique of the Otto Neurath’s ([1919] 1973) proposal for a form of moneyless (‘in kind’) economic planning based on the experience of war-time economic planning. Von Mises asserted that in the absence of private property and a free market for factors of production, socialist planning would struggle to engage in rational economic calculation. Socialist economists soon rediscovered Enrico Barone’s ([1908] 2012) suggestion that if an economy can be displayed as a system of equations, economic planning could in principle be conducted by solving these equations. The ground of the debate thus shifted from whether planning was theoretically possible to whether it was feasible in practice to solve the enormous number of equations in time. With neoclassical socialists Oskar Lange and Fred Taylor (1938) suggesting that a planning board could set the prices of capital goods and adjust them in response to excess supply or demand, and with the computer on the horizon to ‘obtain the solution in less than a second’ (Lange, 1979), most contemporary economists (e.g. Bergson, 1948) concluded that socialist planning was indeed practical.
In his highly influential 1948 introduction to economics, for instance, neoclassical economist Paul Samuelson (1948: 590ff) used a model similar to Lange’s to illustrate among other things ‘a possible method of attacking the almost unbelievably complex problem of socialist economic planning’. He did not assume that mathematicians will ‘have to be called in to solve thousands and thousands of simultaneous equations’, because ‘the decentralized planners would proceed by successive approximation, by trial and error’ instead (Samuelson, 1948: 602). Joseph Schumpeter (2003: 188) in 1942 argued along similar lines that there ‘is nothing wrong with the pure logic of socialism’, a fact he considered ‘so obvious that it would not have occurred to me to insist on it were it not for the fact that it has been denied and the still more curious fact that orthodox socialists, until they were taught their business by economists of strongly bourgeois views and sympathies, failed to produce an answer that would meet scientific requirements’. Schumpeter claimed that socialist planning was not only theoretically possible, but indeed practically feasible, because a planning agency ‘would command information sufficient to enable it to come at first throw fairly close to the correct quantities of output in the major lines of production, and the rest would be a matter of adjustments by informed trial and error’ (Schumpeter, 2003: 185).
Against the background of the crises of Western Keynesianism, Southern Developmentalism, and Eastern state socialism and the related rise of neoliberalism since the 1970s, Austrian economists (e.g. Kirzner, 1988; Lavoie, 1985) managed to successfully transform this narrative of the debate (Adaman and Devine, 1996; O’Neill, 1996). They argued that socialist neoclassical economists had fundamentally misunderstood the Austrian challenge to planning, which they argued1 had always centred on the discovery and mobilization of ‘tacit knowledge’, most forcefully articulated by Friedrich August Von Hayek (1945). Such knowledge was dispersed among different actors, embodied in time and place and thus could not simply be aggregated by central planners. Instead, they argued, tacit knowledge required free entrepreneurs to act on it. The terrain of the debate thus shifted from what were essentially questions of computation to questions of knowledge, with most economists now being increasingly sceptical about the prospects of encompassing economic planning (on this shift in historiography: Lavoie, 1985; O’Neill, 1996; Adaman and Devine, 1996). Even critics of capitalism grew increasingly pessimistic about planning and instead suggested different models of market socialism (e.g. Roemer, 1994; Schweickart, 2002) as the politics of ‘feasible socialism’ (Nove, 1983). They conceded the market as a superior form of social mediation but maintained that it was possible to combine it with worker self-management of workplaces.
This period constitutes the prelude for the present-day wave of the socialist calculation debate. It was in explicit contrast to market socialist ideas that a series of new models of democratic economic planning emerged, which have only very recently been rediscovered by a broader audience. These models maintained that democratic economic planning as a third alternative to market economies (including socialist ones like in Yugoslavia) and statist command economies remained possible. The first of these models was Pat Devine’s (1988) notion of ‘negotiated coordination’, which stresses the need to replace atomistic decision-making on investment with deliberation by representatives of the major groups affected by a decision. In his model, market exchange between different cooperatives would generate the necessary qualitative and quantitative information for non-market deliberation over societal priorities and investment decisions.
Michael Albert’s and Robin Hahnel’s (1991) ‘participatory economics’ approach suggested a libertarian model of participatory planning, in which worker and consumer councils, respectively, determine societal supply and demand in a bottom-up process. After the councils have suggested plans for societal supply and demand, a technical Iteration Facilitation Board would adjust prices based on these plans and thus facilitate an iterative process of finding an equilibrium between supply and demand. A third and much less libertarian ‘cyber-socialist’ model has been suggested by Paul Cockshott and Allin Cottrell (1993), who argue for computerized central planning. Digitally connected workplaces communicate required inputs and production capacities to a central planning agency, which uses this information to optimize economic production via linear programming and thus produce options for economy-wide plans. These are in turn subjected to referendums. Fourth and final, David Laibman (1992, 2002) has developed a model that he calls ‘multilevel democratic iterative coordination’ (MDIC) in which democratic coordination is achieved through a continuous multilayered feedback process between decentralized units with locally embedded knowledge and a democratically legitimized centre with system-level knowledge of interdependencies. In order to maximize local autonomy of workplaces, he argues that the main task for the centre is to aggregate information and use it to centrally plan prices in a way that aligns the particular interests of workplaces with societal interests."
(https://journals.sagepub.com/doi/full/10.1177/10245294241273954)