Economic Calculation --- The Austrians' Failure

An early objection to the inevitable failures of central planning that the self-described socialist USSR had embarked upon on the basis of its failure to incorporate dispersed knowledge and a condemnation of the party dictatorship that state "socialism" involved is found in Peter Kropotkin's 1919 postscript to Words of a Rebel, which was published the year before the publication of Mises's 1920 Economic Calculation in the Socialist Commonwealth. As Kropotkin wrote:

[P]roduction and exchange represent an undertaking so complicated that the plans of the state socialists, which lead inevitably to a party dictatorship, would prove to be absolutely ineffective as soon as they were applied to life. No government would be able to organize production if the workers themselves through their unions did not do it in each branch of industry; for in all production there arise daily thousands of difficulties which no government can solve or foresee. It is certainly impossible to foresee everything. Only the efforts of thousands of intelligences working on the problems can cooperate in the development of a new social system and find the best solutions for the thousands of local needs.

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The entire libertarian approach went virtually ignored by the Austrian school (Mises did devote an irrelevant cutting remark to Proudhon in his essay without actual argument), which placed focus on central planning mechanisms and procedures on account of the emergence of them in the economic structure of a country which was to later become a superpower of the world. That was their first failure.

Secondly, democratic market socialists have progressed beyond the mere punch in the gut that the development of the bureaucratic Lange model presented to Mises and have utilized Hayek's insights into dispersed knowledge problems to form a sound basis for advocacy of a decentralized market economy reliant on workers' ownership and management and in some cases a stakeholder economy, with Theodore Burczak in particular being integral in the development of "post-Hayekian" socialism, which even major Austrian scholars have admitted is serious. With the absence of any major Austrian argument against dispersedly planned socialism (with Mises incorrectly dismissing much of it as "workers' syndicalism," which he regarded as a form of capitalism), and the more recent development of adaptation of Hayek's insights by market socialists, have the Austrians now truly lost the economic calculation debate?

Nothing, huh? Damn, I thought our Schiff fans would be eager to jump on this one. :rofl

Steve Horwitz writes:

Steve Horwitz said:

Labor-managed firms themselves are not antagonistic to the market economy. Even if other forms of employment contract are not legally permitted, such firms still exist in a market context where competition and profit and loss determine their success or failure.

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I disagree.

In my Critique of Burczak Socialism after Hayek I write:

The classic example of property that people “own,” in the sense that their name is on the deed, but do not actually own, is rent-controlled apartment buildings. The “owner” cannot rent it at a fair price but, under penalty of law, he must maintain it lest he be fined for safety violations. Burczak would put common laborers in the same predicament. They would “own” their labor ability but, under penalty of law, they cannot hire themselves out to capitalists. Since they must maintain their labor ability (feed, clothe and house themselves), they are forced to work for one of Burczak’s labor-managed firms. Basically, this is slavery.

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Aside from the fact that attempts at ethical objections do not address the more pertinent fact of whether modern market socialism bypasses the economic calculation problem, I've made it clear time and time again that I'm not a fan of market socialism myself; I advocate decentrally planned socialism, specifically anarchist communism. You should therefore take this babbling to Reiver, not me.

As to the libertarian nature of these proposals, then, anarchism limits the growth of the capitalist firm due to the collectivization of the means of production that it entails. This does not entail a prohibition of attempts to establish capitalism; it simply means that it will be a difficult prospect because the disproportionate and vastly inequitable distribution of ownership and control of those productive resources that enabled the dominance of capitalist economic structure before will be absent. There will likely be little desire to re-establish it because capitalism involves authoritarian hierarchical relations in the labor market and internal firm structure, whereas anarchism involves horizontal and democratic relations. It follows then, that for the reactionary to attempt to implement capitalism in a libertarian society would be akin to an untalented entrepreneur going to a public park and attempting to sell water next to a drinking fountain. Establishment of democracy and limitations on the ability of monarchism to develop are hardly authoritarian; neither would establishment of socialism and limitations on the ability of capitalism to develop be authoritarian.

Agnapostate said:

An early objection to the inevitable failures of central planning that the self-described socialist USSR had embarked upon on the basis of its failure to incorporate dispersed knowledge and a condemnation of the party dictatorship that state "socialism" involved is found in Peter Kropotkin's 1919 postscript to Words of a Rebel, which was published the year before the publication of Mises's 1920 Economic Calculation in the Socialist Commonwealth. As Kropotkin wrote:



The entire libertarian approach went virtually ignored by the Austrian school (Mises did devote an irrelevant cutting remark to Proudhon in his essay without actual argument), which placed focus on central planning mechanisms and procedures on account of the emergence of them in the economic structure of a country which was to later become a superpower of the world. That was their first failure.

Secondly, democratic market socialists have progressed beyond the mere punch in the gut that the development of the bureaucratic Lange model presented to Mises and have utilized Hayek's insights into dispersed knowledge problems to form a sound basis for advocacy of a decentralized market economy reliant on workers' ownership and management and in some cases a stakeholder economy, with Theodore Burczak in particular being integral in the development of "post-Hayekian" socialism, which even major Austrian scholars have admitted is serious. With the absence of any major Austrian argument against dispersedly planned socialism (with Mises incorrectly dismissing much of it as "workers' syndicalism," which he regarded as a form of capitalism), and the more recent development of adaptation of Hayek's insights by market socialists, have the Austrians now truly lost the economic calculation debate?

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If anything, it suggests that your proposal is viable. No problems with that. The question is whether individuals wish to subject themselves to syndicated communism or anarchist-communism (my apologies if I have used the incorrect terms).

Consequently, assuming that your proposition can economically work in a manner akin to proposals from the Austrian School, why should (or would) the individual be attracted to your libertarianism as opposed to Austrian School-libertarianism?

Agnapostate said:

As to the libertarian nature of these proposals, then, anarchism limits the growth of the capitalist firm due to the collectivization of the means of production that it entails. This does not entail a prohibition of attempts to establish capitalism; it simply means that it will be a difficult prospect because the disproportionate and vastly inequitable distribution of ownership and control of those productive resources that enabled the dominance of capitalist economic structure before will be absent. There will likely be little desire to re-establish it because capitalism involves authoritarian hierarchical relations in the labor market and internal firm structure, whereas anarchism involves horizontal and democratic relations. It follows then, that for the reactionary to attempt to implement capitalism in a libertarian society would be akin to an untalented entrepreneur going to a public park and attempting to sell water next to a drinking fountain. Establishment of democracy and limitations on the ability of monarchism to develop are hardly authoritarian; neither would establishment of socialism and limitations on the ability of capitalism to develop be authoritarian.

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Could the reverse occur? Within a capitalist economy and the within a corporate entity, like an employee owned company, could the economic relations between emloyees be libertarian? In my mind, the interface between such an entity to the outside world would be reflective a country who have implemented anarchist-communism internally but still compete for gloabalized resources and services in an international market economy.

What replaces money as the medium of interchange of work?

Australianlibertarian said:

If anything, it suggests that your proposal is viable. No problems with that. The question is whether individuals wish to subject themselves to syndicated communism or anarchist-communism (my apologies if I have used the incorrect terms).

Consequently, assuming that your proposition can economically work in a manner akin to proposals from the Austrian School, why should (or would) the individual be attracted to your libertarianism as opposed to Austrian School-libertarianism?

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This is my issue as well. I have doubts such a system could be implemented based on transitivity (Onion Eater!).

I am starting to wonder if Agna will reply to this thread. Would be nice.

I'm snagging a subscription for when I can focus on this subject matter.

Australianlibertarian said:

If anything, it suggests that your proposal is viable. No problems with that. The question is whether individuals wish to subject themselves to syndicated communism or anarchist-communism (my apologies if I have used the incorrect terms).

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Or market socialism, though I'm not a proponent of it myself and believe that it suffers from its own deficiencies. The chief appeal of libertarianism, as I see it, is that persons desire to control things to the extent that they are affected by them. If you are a worker in a factory, you ought to have a say in the way it's run, rather than be subject to the purely hierarchical dictates of upper management, who are less affected by such rules than you are. You ought to have the right to place pictures of friends and family in your cubicle or office because you are the only one affected by their presence to any significant degree but playing a loud radio is another matter and you ought to be legitimately restricted from doing so, because it affects others.

There are some ideologies that various political interests found it necessary to discredit for one reason or another. Socialism entails the straightforward extension of democracy into the economic realm and management of workplaces by the labor class themselves, and therefore needed to be associated with authoritarianism and dictatorship. Anarchism entails the management of affairs to the extent that one is affected by them in a direct democratic manner, and therefore needed to be associated with chaos, disorder, and destruction of social organization. This libertarian ideology just makes such plain bottom-down sense that it was necessary to smear the entire idea with various red scares.

Australianlibertarian said:

Consequently, assuming that your proposition can economically work in a manner akin to proposals from the Austrian School, why should (or would) the individual be attracted to your libertarianism as opposed to Austrian School-libertarianism?

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I never stated that. In fact, the Austrian school's valuable contributions are effectively limited to Hayek, and only in the sense that his commentary on dispersed knowledge problems can enrich our understanding of a theory of the firm, really. Their business cycle theory is drivel, they have no coherent theory of the firm themselves, they have no understanding of labor economics, they have no knowledge of the empirical method because of their antipathy to sound methodology (especially after the ABCT was shown to be inconsistent with actual evidence by Friedman and the monetarists), their ethical commentary is inconsistent, and ultimately, they've lost the socialist calculation debate.

The Austrian school's proposals cannot and will not work because of the necessity of an expansive state in capitalist economic structure for growth and stabilization purposes, moreover. So the reason that persons that consider themselves libertarians (although I'd say there's a sound case for excluding advocates of capitalism from libertarianism), should prefer anarchism and market socialism is because of their feasibility and genuine libertarian qualities.

reefedjib said:

Could the reverse occur? Within a capitalist economy and the within a corporate entity, like an employee owned company, could the economic relations between emloyees be libertarian? In my mind, the interface between such an entity to the outside world would be reflective a country who have implemented anarchist-communism internally but still compete for gloabalized resources and services in an international market economy.

What replaces money as the medium of interchange of work?

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There could conceivably be internal libertarian relations if the democracy enacted in a worker-owned firm is sufficiently horizontal, though many ESOPs, for example, aren't actually run in a particularly democratic manner. Democratically managed firms are also more efficient due to their elimination of principal-agent problems and other agency problems, which renders the democratic firm the optimal system of organization. But how is your specific comment related to the topic?

Australianlibertarian said:

I am starting to wonder if Agna will reply to this thread. Would be nice.

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You should be aware that the prior updates to this thread occurred while I was away, and it was consequently buried in my subscriptions when I returned. Many thanks. :2wave:

I am starting to wonder if AL will reply to this thread. Would be nice.

*snickers*

MMMMMM

Agnapostate said:

You should therefore take this babbling to Reiver, not me.

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And I did.

Scucca/Reiver said:

With post-Hayekian socialism, we're effectively eliminating capitalists.

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I think we all know what Scucca/Reiver means when he speaks of "eliminating" people.

Thanks for the reply Agna. My apologies for taking a while to get back to you stuck in the middle of exam preps.

I agree with you that many firms are filled with rules for the sake of hierachy, and most businesses are strictly hierarchical and prevent worker input in the decision making process. I agree with you by on large on this issue.

However, I would like to defend the Austrians about their rejection of empirical analysis. As someone that has worked in science, I know how easy it is to manipulate stats, fudge them or make incorrect assumption (without having any particular malicious intention), or how easy it is to confuse correlation with causation.

Secondly, I am sure that you are aware of the criticism of Friedman's monetarism views. Thus, if Friedman's methodology has been questioned, how can we be sure that his conclusions based on this methodology are accurate? Specifically, how can we be sure that the Business Cycle theory has been repudiated by monetarism?

Thirdly, as libertarian do you think that sometime in the future you will implement your ideas in some form of a syndicated business? Can you personally see yourself forming some sort of collective enterprise that would produce some sort of good or service that is in demand?

I ask this question, because I am interested in whether you would put into practice your theory. Secondly, I believe that a syndicated-enterprise, that produces goods demanded by the market, could become highly successful against authoritarian structured businesses, precisely for the reasons that you have mentioned.

Australianlibertarian said:

However, I would like to defend the Austrians about their rejection of empirical analysis. As someone that has worked in science, I know how easy it is to manipulate stats, fudge them or make incorrect assumption (without having any particular malicious intention), or how easy it is to confuse correlation with causation.

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It is, but anomalous deficiencies aren't a sufficient reason to reject the entirety of the econometric literature, and certainly not the empirical aspects of the social sciences as a whole. There would need to be some proof that these deficiencies were so pervasive as to render empirical analysis wrong more often than it was right, and the Austrian school hasn't even begun to provide support for such a claim. As noted by Bryan Caplan (and it's known that I'm not a fan), much of the Austrian attacks on empirical analysis and its derivatives is related to their misunderstandings.

Australianlibertarian said:

Secondly, I am sure that you are aware of the criticism of Friedman's monetarism views. Thus, if Friedman's methodology has been questioned, how can we be sure that his conclusions based on this methodology are accurate? Specifically, how can we be sure that the Business Cycle theory has been repudiated by monetarism?

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This seems a fallacy of division to me if you're implying that the dubious veracity of monetarism considered as a "general" theory is sufficient to rebut Friedman's business cycle observations as applied to the Austrian school specifically. Regardless, there are sound theoretical critiques of the ABCT that originated long before Friedman's empirical criticisms, such as Nicolas Kaldor's Capital Intensity and the Trade Cycle.

Australianlibertarian said:

Thirdly, as libertarian do you think that sometime in the future you will implement your ideas in some form of a syndicated business? Can you personally see yourself forming some sort of collective enterprise that would produce some sort of good or service that is in demand?

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There are many existing forms of workers' ownership and management schemes, such as that of the Mondragon Cooperative Corporation in the Basque region of Spain, those of the factory recovery movement in Argentina (consider the Brukman factory, the Hotel Bauen, or the Fabrica Sin Patrones), the plywood cooperatives that existed for some time in the U.S., and various firms that incorporate employee stock ownership plans (ESOPs) as well as legitimate worker participation. As for my own prospects there, I don't know. I have entrepreneurial sentiments but realize that various barriers to firm entry exist due to market power and likely wouldn't form a new cooperative enterprise but would instead serve as an economic consultant to an existing one.

Australianlibertarian said:

I ask this question, because I am interested in whether you would put into practice your theory. Secondly, I believe that a syndicated-enterprise, that produces goods demanded by the market, could become highly successful against authoritarian structured businesses, precisely for the reasons that you have mentioned.

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If there was a balanced playing field, we'd have some variant of market socialism form due to spontaneous organization and development. However, the realities of market power exist, and as long as market and wealth concentration enable the continued existence of monopolies, monopsonies, oligopolies, and oligopsonies, even more productive firms will be driven out of business by more established firms due to their ability to generate negative local externalities as a result of their very presence as well as engage in more unscrupulous techniques like underselling.

Onion Eater said:

I think we all know what Scucca/Reiver means when he speaks of "eliminating" people.

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Those of us that know how to read do:

"Onion hasn't understood, however, that 'eliminate' doesn't actually mean class warfare. It merely means the protection of property rights. Labour should receive the value of their work. Theft, as illustrated by other mechanisms to protect property, cannot be tolerated."

Perhaps you should attempt to read what I myself wrote, as I said something much the same. However, he can defend himself quite well without the likes of me, and since I'm anti-market, I can't speak as to precisely what he'd say anyway.

Agnapostate said:

It is, but anomalous deficiencies aren't a sufficient reason to reject the entirety of the econometric literature, and certainly not the empirical aspects of the social sciences as a whole. There would need to be some proof that these deficiencies were so pervasive as to render empirical analysis wrong more often than it was right, and the Austrian school hasn't even begun to provide support for such a claim. As noted by Bryan Caplan (and it's known that I'm not a fan), much of the Austrian attacks on empirical analysis and its derivatives is related to their misunderstandings.

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Wait wait wait, so you're telling me that showing that your approach to economics is illogical isn't enough to cast doubt into your methods? Then what do we even have logic for?

phattonez said:

Wait wait wait, so you're telling me that showing that your approach to economics is illogical isn't enough to cast doubt into your methods? Then what do we even have logic for?

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You'll have to show me where I claimed any such thing; apparently, you're wearing reading glasses than I am. I'd never write that, because I know you'd never be able to "show" any such thing...because you don't even know what the methods I describe entail. :shrug:

[P]roduction and exchange represent an undertaking so complicated that the plans of the state socialists, which lead inevitably to a party dictatorship, would prove to be absolutely ineffective as soon as they were applied to life. No government would be able to organize production if the workers themselves through their unions did not do it in each branch of industry; for in all production there arise daily thousands of difficulties which no government can solve or foresee. It is certainly impossible to foresee everything. Only the efforts of thousands of intelligences working on the problems can cooperate in the development of a new social system and find the best solutions for the thousands of local needs.

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Sounds like Smith's invisible hand.

Ethereal said:

Sounds like Smith's invisible hand.

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There's the same acknowledgment of dispersed knowledge issues, but that would imply a lack of deliberate planning and spontaneous development and economic activity into decentralized structure, which isn't feasible in an industrialized capitalist economy characterized by market power. Decentrally planned socialism still constitutes a form of planned socialism.

Agnapostate said:

You'll have to show me where I claimed any such thing; apparently, you're wearing reading glasses than I am. I'd never write that, because I know you'd never be able to "show" any such thing...because you don't even know what the methods I describe entail. :shrug:

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I have shown it, you've just ignored it.

phattonez said:

I have shown it, you've just ignored it.

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Of course you haven't. You don't even know the basics of econometric analysis, and aren't able to. Now stop posting off-topic spam with no relation to the OP.

Agnapostate said:

Of course you haven't. You don't even know the basics of econometric analysis, and aren't able to. Now stop posting off-topic spam with no relation to the OP.

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I have, and you just brush it aside. I told you that unless you can account for every other variable then you don't have causation. Even in experiments it's not so easy. I'm sure you know about signal cascade pathways that happen in a cell. A protein will activate another protein which activates another protein etc. which elicits a response. You can add more of that first protein, but it may not cause that change. That might be the only change that you introduce into the cell, but it's not that protein that causes the change, it's a protein downstream that gets activated that causes the change. So even in an experiment it's not so easy. You're trying to use observational studies where you can't even account for all of the variables, and you're telling me that you can get causation from that? Nope, I'm not buying it.

I thought I just said I wasn't interested in your continued derailment. If you don't know anything about the OP, there's no shame in that. :shrug: