Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered (Historical Perspectives on Modern Economics)

Rivalry and central planning The socialist calculation debate reconsidered

Don Lavoie George Mason University

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CAMBRIDGE UNIVERSITY PRESS Cambridg. London

New York

Melbourne

Sydney

New Rochelle

Published by the Press Syndicatc of 1 he lJllh'ersily (Jf C:unbridge

The Pill Building, Trumpington Street, Cambridge CB2 lRP 32 East 57th Street, New York, NY 10022. USA

10 SlamfOl'd Road. Oaldeigh, Melbourne 3166. Aush;ilia For

m)' mulher, Rulh Evelyn Knight Lavoie, for imtilling in me Ihe love of reading

� Canlhridgc University Press 1985

First published 1985 Printed in the United StalcS of AOIcl"ica

Libral)' (if Ctmgms C(ltalogJ'/lg i" PNbiicalivIl Data I.;",oi(" 1 l0ll , IH51-

Rivtilry and central planning.

(Ilistorical I� ..spenivcs

nn

lHodem ectHlOlllic.:s)

P,,,scd 011 the authur's thesis (dOl:toralj, New Yor k lln;vc,·siIY· Ribliogr;tphy; p.

I ndudcs ilHicx.

I, f!.-larxiall ct:onolllics.

2, Cenlral planning.

3. Austrian .school of cconomisls. s.t.IIO()lofccol'ltllnics.

IiBm,5.1.292 1985 ISBN 0521 2G449 9

l. Title.

3:\!l

4. Neoclas1iit:al

II. Series.

84-17659

Contents

Acknowledgments l.

2.

3.

Introduction

Purpose, scope, and procedure The standard account of the debate An alternative account of the debate Rivalry and central planning Marx's socialism: the critique o f rivalry

Beyond utopian socialism Consciously ordered versus anarchic social production

Mises's challenge: the informational function of rivalry

Th e nature o f economic calculation ull:der capitalism Economic calculation under socialism Difficulties with the labor time solution M ises's anticipatory critique of market socialism 4.

The diversion of the debate into statics: rivalry assumed away

From "formal similarity" to "theoretical possibility" The limitations of static analysis The static answer to Mises reconsidered

5.

The market socialists' "competitive" response: rivalry ignored

Lange's extension of the " formal similarity" argument The crucial ambiguity of "trial and error" Variations on the Lange theme

vii

IJage ix I I

JO 20 22

28 29 39

48 48 60 67 74

78 79 1 00 Il4

1 17 118 1 25 1 32

-

Contents

viii

G.

The Austrian rejoinder: learning from rivalry

Rohbins and Hayek: retreat or restatemenl? Rohbins's and Hayek's early critique of I.he competitive solution

7.

145 145

Acknowledgments

Hayek's later rejoinders to the market socialists Mises's own rejoinder

158 1 66 17 3

Conclusion

1 79

llefercru:es

1 84

Kirz.ner, who served as chairman of the original dissertation commit· tee (with Frilz M achlup James Becker, Elizabeth Durbin, an d Ger­ ald O'Driscoll) at New York University. From the first paper that I

20 1

wrOte on the calculation debate in his course on the history of ceo· nomic th ou ght to the final draft of the disser.tation, he provided

My d eep est debt in the writing of this book is owed to Israel M. ,

incisive criticism and constant support. His exa mpl e of thorough schularship in the history of thought and his way of makitlg old

ideas come alive serve as a COllsl;;tnt i nspiration. A special acknowtcdgmcllt is due to the late Fritz Machlup, whose well-known LlJUCern (or precision in the choice of words had a sub� stantial effect on the book and whose extraordinary warmlh and

generosity had a s ubstantial effect on its author, Of the other mem­ � ,ers of my (Ptnmiuee,

James Becker

helped me to appreciate the

lI·nponanc.:e of Marxism and introduced me to Makoto ltoh, whose

approach [0 Marxian scholarship had a significant impact on this hook; Elizabeth Durbin pro vided extremely u se ful background in­ I�>l"nlation on the English market socialists, including (but not only) Iter father, E. F. M. Durbin; and Gerald O'Driscoll showed me the importance of monf�tary theory for understanding (he Austrian cal­ culation argument. In addition,

the ea rly encouragement and guidance of Ludwig M .

Lachmann, Walter Grinder, and Roy A . Childs,Jr., kept me working

on

life

econ o m ics at a time when I was ready to

sellie fa)" a

comfortable

a s a computer systems analyst. Although my income has not

henefi te d from this advice, my subjective standard of living most certainly ha s ,

Valuable research leads were supplied by my friends Richard Ebel­ ing and John Battalana, as well as by ihe me mb ers of the weeki), colloquium ill Austrian economics at NYU. The extent to which my ideas were sba p ed by innumerable and lively discussions with these people is beyond estimation. The transformation of the dissertation into a book has been I(really facilitated by the editors of Cambridge Univefsity Press in-

..

x.

Acknowledgments

eluding copy editor Christie Lerch, and in particular by an anony­ mous reader who provided me with very valuable comments. The Center for the Study of Market Processes and especially Wayne Br.ough and David Prychitko at George Mason University provided some helpful research services at the final stages of the project. Finally 1 must express a profound personal debt to my wife Mary, who has supported me in every way throughout the production of this book.

CHAPTER I

Introduction

Purpose, scope, and procedure

The socialist calculation debate of the 1930s is widely acknowledged to have been the most important theoret.ical controversy in the his· tory of the field of comparative economics. Alexander Eckstein (197 I, p. 2) was not exaggerating when he referred to the debate as a "theoretical controversy ... of far-reaching importance in the :;tudy of comparative economics" that "focused on a range of prob­ lems that had a profound impact on the development of the field.'" References to the debate (or at least to some of the writings of which it is composed) can be found not only in most texts in compar· ative economics but also in many treatments of socialist economics, welfare economics, and general histories of economic thought. Sig­ nificantly, many of these works take rhe debate as their theoretical starting point, and even those. discussions of socialist economics that rail to refer to the debare explicitly nonetheless focus on issues that were first systematically examined in the calculation debate. Oskar I.ange's famous contribution to the debate is considered the defini­ I,ive precursor of "market socialism," the dominant trend in modern central planning theory. The 'whole character of socialist economics has changed dramatically since the time of the controversy, largely, to be sure, because of subsequent practical experience with central planning but also because of the impact of this theoretical exchange. Thus it may well be that a clearer understanding of this controversy could prove an invaluable aid in explaining, and possibly correcting, Ihe problems encountered,in socialist practice loday. Moreover, it can be argued that this debate has an importance that I John Elliot (1973. pp. 232--3) calls the Mises.Hayek argument '·probably the most predominent and 'fundamental' of the posl·Marxisl critiques of the economic theory of socialism" and stresses the imponant effeCllhat contributiolU to the debate 5uch as that of Oskar Lange had on later theories uf sociali51n. Loucks (1957, pp. 257-8) says thallhe tlebale raised "theoretical problems involved in the operation of a socialized order which go to the very heart of economic process, and which up to (he present lime h
And each of these comments is immediately followed by an indica­ tion that later events in central planning practice have further cor· roborated each theoretical position. Thus Drewnowski says we can

Introduction

5

lorgive Mises for his lack of faith in central plann i ng because he lacked sufficient data about the Soviet Union to see that central planning is now working there in practice. but Hayek points to lhe reintroduction of competition in socialist countries as evitlclll.:e that Mises was correct. What is most striking about these assessments of Ihe debate is not just that they are diametrically opposed but that each discussant believes that he can cite overwhelming scholarly sup­ port for his statement and that each is in a sense correct about the mnsensus in the scholarly community that he confidently refers to'* The resolution or this paradox will require a careful examination of hoth the way in which the debators are alleged to have "retreated" as well as of the underlying differences in paradigms that concealed .,ome of the basic disagreements. As Thomas Kuhn has shown, in his Structure of Scientific Re'Jolutiotls (1962). oft en in the history of ideas a controversy emerges that is belatedly found to represent a clash of basic paradigms. Each side makes interesting points. but since it Lries to translate its adversaries' arguments into the, framework of its own system, each side fails to ' sterile. If we wish to learn something significant about the relative strengths alid w e aknesse s of socialism and cap italis m, it is arg ued, I.he thing to do is conduct elllpirical invest.igations of each, rather than p ostul at. e and compare unreaJistic models of hypothetical sy st ems . Bu t a lthough the imp ortance of empirical work cannot he doubted, in order for sti ch investigations into the facts to be pro­ ductive some essential theoretical issues must first be clarified. The most obvious of these is the question, Just what is m eant by

ism and

sodaliull? As

[ have indicated in

ca/,;/a/­

my references tu Hayek

and Drewnowski, each si d e of t h is controversy believes that the empirical evidence is consistent wi th its v iewpo int.

In my view,

these di ffere nt assessment.s of empirical eviden ce arc not rooted in

either side's reluctance to consider rhe real world but their diver­

gent interpretations of facts thcn in I hem selves are not disputed. As

thl' famous philosopher of sc i ence Sir Karl Popper has ably demon­ strated (1972). all facts are to one degree or another theory -lade n and must be placed into a con ceptual framework to be rendered mea ningf u l. Many of the fundamental issues of conl.ent ion in com· parative economics arc more matters of alternative theoretical ana· lyses of facts lhan d ispu tes over the facts thems elve s .

Moreover, the common conclusion that economic theory is barren' is itself a reaction to a particular concept of economic theory - that of lIeoclas�.ical economics-which is not sha red by Marxian alld Austrian approaches. Neoclassical economic theory may indeed be sterile, but other theoretical frameworks may be able to go further than neoclas­ sical theory can g o in yielding substantive conclusions ",bout the real world. When "economic t he ory " appear s barr en, p erhaps our re· sponse ought not to be La ab andon explicit theorizing in oroer tu study the facts (thereby nec essa r ily relying on unexamined implicit theoretical concepts) but rather to deve lop beller economic lheories that may be more useful in equipping emp irical researchers with the conceptual

tools lhal

they

require

for their important studies.

� See Chapler 6 for some discussion of the relationship between the calc:ulalillll argu· ment and lhe historical experience of central planning.

Rivalry and central planning

This book is exclusively concerned with the microeconomic rather than macroeconomic aspects of central planning theory. Although d u ri n g the calculatioll debate itself very little was said about. macro­ economic planning (the mai n exception being some cont ri b utions of Maurice Dobb), su b se quentl y macroct:unornic planning has become a subsWntial if no t the dominant part of the t.heory of ce.ntral eco­ nomic planning. But since this study lIlust confine itself to the main arguments of the rivals in the calculation debate, space will nO( per­ mil an examination of the suhsc'l uent flourishing of macroeconomic themes in the lite ra ture . Enough will be said, however, to suggest t h