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)

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.