Austrian Economics
Discussion
Is capitalism is a computer?
Nick Dyer-Witheford:
"This is the contention implicit in one of the most serious intellectual challenges mounted against communist thought, ‘the socialist calculation problem’, formulated by ‘Austrian school’ economists such as Ludwig von Mises (1935) and Frederick Hayek (1945). Writing in the period defined by the success of the Russian revolution, these economists attacked the premises and feasibility of the centrally planned economy. All social systems, they recognized, need some form of resource planning.
The market, however, enacts a distributed, spontaneous and emergent, non-coercive plan – what Hayek (1976: 38) called the ‘catallaxy’. Prices provide a synoptic, abstracted signal of heterogeneous and changing needs and conditions, to which entrepreneurial investment responds. A command economy, in contrast, must be both despotic and impractical, as calculating an optimal distribution of scarce resources depends on innumerable local knowledges about consumption needs and production conditions that no central reporting method could compile and evaluate.
The Austrian economists thus offered an update of Adam Smith’s celebration of capital’s ‘invisible hand’, now re-envisioned as a quasi-cybernetic information system:
- 'It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.' (Hayek, 1945: 527)
Although he referred to telecommunications and engineering, Hayek, writing in the final year of the Second World War, might as well have invoked the giant mainframe computers of the Manhattan Project, for what he proposed was that the market acted as an automatic calculating engine: a computer.
This was, however, a two-sided argument deployed polemically against socialism. For if the market acts as a computer, why not replace it with a computer? If central planning suffered from a calculation problem, why not just solve it with real calculation machines? This was precisely the point made by Hayek’s opponent, the economist Oskar Lange, who, retrospectively reviewing the ‘socialist calculation’ debate, remarked: ‘today my task would be much simpler. My answer to Hayek … would be: so what’s the trouble? Let us put the simultaneous equations on an electronic computer and we shall obtain the solution in less than a second’ (1967: 159). Such was the project of the cyberneticians featured in Red Plenty, a project driven by the realization that the apparently successful Soviet industrial economy, despite its triumphs in the 1940s and ‘50s, was slowly stagnating amidst organizational incoherence and informational bottlenecks." (http://www.culturemachine.net/index.php/cm/article/view/511/526)