Aside from this being my first post, I'm going to try and tackle the challenge of disproving the economic calculation problem. Its always been hailed from online libertarians as the #1 issue with socialism, showcasing that any rational allocation can only be possible with free markets and private property.
For something being so popular, it must be an airtight argument, right? Right?
Sadly, we are not right; it is an argument with as many flaws as there are particles in the universe. My purpose as of now is to demonstrate those flaws, and I hope what I bring up is a bit more unique than what everyone else brings up.
To clarify my position, I am not in support of central planning or markets; I follow the path by Michael Albert and Robin Hahnel when it comes to my ideas in economics. Thus, do not treat what I say as a full-on support of central planning or market socialism.
Along with this, do not expect me to bust out an argument about our new and evolving technology; although it is a fair point to bring it, its already been beaten to death by other leftists to the point that its worthless bringing it up now.
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Lets start by describing what the economic calculation problem actually is. To do this, I'll bring up an example by the organization Learn Liberty with a mountain and a railway.
Assume that there are two cities that need a railroad to connect them, and between them is a mountain. You can build the railroad in two ways; go through the mountain, or go around the mountain.
By going through, we use more labor and time having to build a hole through the mountain, however we would use less materials necessary for the railroad and it would take less time for trains to go between cities.
By going around, we use less labor and time since we don't have to build a hole, but we need more railroad materials and it would take a bit longer for trains to travel around the mountain.
The question is then this: do we go around or through the mountain?
We first look to how capitalism will solve this; imagine you're a businessman in the railroad industry and you're asked to build this. How do you decide to go around or through? Simple, just look at your prices! They will show you what is the most profitable and efficient. Along with this, since prices are a generalization of individuals' preferences, they also show what people want more steel in or less labor in; the magic of supply & demand!
We then look at how central planning would not be able to solve it; imagine again you're a commissar in Soviet Russia. Because you do not have prices in this model, you lose that information on supply and demand, and thus have to calculate every method necessary that requires the resources you want to use in order to decide. You lose the ability to have efficient allocation, or as they like to say it, "rational calculation."
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Lets start with what they get right; central planning is a horrible system.
Now lets talk about what they get wrong; it isn't because they don't have prices.
There's two issues that I have right off with the example given here; one theoretical, and one empirical.
Theoretically, you should consider in this scenario that we're essentially in a vacuum; we, funnily enough, don't have the necessary information in order to make any rational decision here.
For example, what is the system of central planning that we're using as a challenge against capitalism? Sure, there may be no prices, but there's a million and one ways to make decisions without having to rely on prices (gift economies come off the top of my head), not to even mention the numerous types of systems that use central planning.
Further examples would include:
- Would one method be more environmentally viable than the other?
- What if there's already operations happening in and/or around the mountain?
- Could there be one or multiple movements that ask for us to act responsibly on any of these decisions?
All of these questions can be asked, but cannot be answered as we are in a vacuum; a hypothetical; a restrictive imaginary scenario. It may be excessive to account for it, but this would have to be even what an entrepreneur in Austrian economics would have to consider.
Empirically, I've noticed that a lot of supporters of the ECP and examples of it seem to rely on that invisible hand: supply and demand. All of this hinges on the fact that supply & demand is a sufficient model of commodity prices under capitalism, and that it is pervasive enough to where central planning cannot handle it.
The issue is that this is just wrong; there's no empirical proof of supply & demand determining prices, and instead a bunker's worth of evidence showing mark-up pricing as the main avenue that companies say they use.[1]
Sraffa also gave a fairly damaging critique to what he termed "marginism" (representing diminishing marginal utility for determining the demand in supply & demand): it just can't be measured.[2] Why make half of the most important method of determining allocation on something you can't measure? Maybe that's why companies use mark-up pricing.
Along with these points, I would also argue that capitalism also falls to the same types of economic miscalculations as central planning. For example, because prices (even under equilibrium) don't properly account for externalities because they focus on private benefit, there's an incentive for less socially beneficial goods to be produced more over more beneficial goods, as demonstrated by Albert & Hahnel in 1990.[3] Too much private ownership too can cause what Michael Heller terms the gridlock economy, which stops innovation and cooperation.[4] Heller describes gridlock in a simple context as such (pg. 2):
Consider the example of a brother and
sister who jointly inherit the family home. “All of us as parents want
to believe our children will be friendly when we’re gone,” says an
estate-planning expert, but leaving the house to the kids is “a
sure recipe for disaster.” One wants to rent the house out; the other, tear it down. If they can’t strike a deal, neither can move forward. The house sits empty. That’s gridlock.
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That's my case for the time being against the economic calculation problem. Short post, but its 0100 EST and I want to relax in bed. Stay tuned, I guess.
Sources Used
[1] http://socialdemocracy21stcentury.blogspot.com/2014/02/mark-up-pricing-in-12-nations-empirical.html
[2] https://academic.oup.com/cje/article-abstract/35/1/219/1733722
[3] https://zcomm.org/wp-content/uploads/zbooks/www/books/7/7b.htm#7.8
[4] https://1lib.us/book/925516/63bc31
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