Louis Proyect: The Unrepentant Marxist

June 27, 2012

Crooked Timber’s neo-Austrians

Filed under: conservatism,economics,Red Plenty — louisproyect @ 6:18 pm

Ludwig von Mises

I had a very strong sense of déjà vu reading the posts and the comments during the Red Plenty seminar at Crooked Timber, a liberal group blog resting comfortably on Keynesian/Fabian principles as if they were overstuffed cushions. They brought me back to objections I heard to a planned economy on the original Marxism list and on PEN-L in the early to mid-90s, when market socialism and its kissing cousin analytical Marxism were all the rage.

Striking a repentant pose, Ken MacLeod, science fiction novelist and erstwhile fan of Frank Furedi’s brand of socialism, commented:

In the 1970s I thought that central planning combined with democratic control along the lines argued for by (e.g.) Ernest Mandel was possible and desirable. Towards the end of the decade I stumbled upon the economic calculation argument, as briefly stated by David Ramsay Steele in a readable pamphlet. I didn’t understand it fully but I kept worrying at the problem it posed. In the 1980s I read Geoffrey Hodgson’s The Democratic Economy, and Nove’s The Economics of Feasible Socialism, which made some socialist sense of the same argument. More recently I’ve been interested in the more radical market socialism proposed by David Schweickart.

While it is hard to figure out where he is coming from politically, seminar participant Cosma Shalizi, a statistics professor at Carnegie-Mellon, says more or less the same thing:

We are pushed back, inevitably, to the planners having to make choices which express preferences or (in a different sense of the word) values. Or, said another way, there are values or preferences — what Nove called “planners’ preferences” — implicit in any choice of objective function. This raises both a cognitive or computational problem, and at least two different political problems.

The cognitive or computational problem is that of simply coming up with relative preferences or weights over all the goods in the economy, indexed by space and time. (Remember we need such indexing to handle transport and sequencing.) Any one human planner would simply have to make up most of these, or generate them according to some arbitrary rule. To do otherwise is simply beyond the bounds of humanity. A group of planners might do better, but it would still be an immense amount of work, with knotty problems of how to divide the labor of assigning values, and a large measure of arbitrariness.

Despite the sympathies that the seminar participants have for a nice polite liberalism, the intellectual roots of what Shalizi calls a “cognitive or computational problem” can be found in the writings of Ludwig von Mises, a luminary of the Austrian school of economics that begat Ayn Rand, Milton Friedman, Alan Greenspan and a host of others considered anathema in these circles and whose ideas about deregulation and free markets have led to immense suffering in Greece, Spain, and most of the third world.

In the pamphlet by David Ramsay Steele referred to by Ken MacLeod, von Mises is singled out as having figured something out that eluded socialists:

Of the trio which unleashed the economic calculation argument, Weber, Brutzkus and Mises, the outstanding figure was undoubtedly Mises. His statement was published first, it was soon incorporated into a comprehensive critique of socialism in all its aspects, Die Gemeinwirtschaft (Socialism: An Economic and Sociological Analysis), it quickly reached a wide audience of socialists and was so stinging and provocative that it could not be ignored.

Steele recapitulates the arguments found in the 1920 “Economic Calculation in the Socialist Commonwealth” that can be downloaded from the Ludwig von Mises institute website. This is a classic work for rightwing economics professors everywhere, the people that Michael Perelman labeled a “mafia” in a Nation Magazine article by Christopher Hayes on the degraded economics profession.

Antoaneta Dimitrova, another liberal professor who took part in the Red Plenty seminar, had this advice for the Greek victims of neoliberal-inspired economic collapse:

It may be anathema to Greece to let go of some national sovereignty as Eastern Europeans did when negotiating with the EU and submitting themselves to the guidance of the European Commission and sometimes also the IMF in their reform efforts. But, undemocratic and asymmetric as this external guidance has been, procedurally speaking, it has, on balance, proved good for democracy and governance in Eastern Europe.

Well, what does it matter if IMF reforms are undemocratic so long as if everything works out at the end of the day–to use a cable TV news show cliché? After all, the ends justify the means, don’t they? You gotta break some eggs to make an omelet, after all.

That’s something that old von Mises himself understood when he became an economic adviser to Engelbert Dollfuss, the fascist dictator in Austria. Here’s the self-described liberal economist in his 1927 “Liberalism: A Socio-Economic Exposition:

It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history.

The deeds of the Fascists and of other parties corresponding to them were emotional reflex actions evoked by indignation at the deeds of the Bolsheviks and Communists. As soon as the first flush of anger had passed, their policy took a more moderate course and will probably become even more so with the passage of time.

That sort of rings a bell, doesn’t it? When the Chicago boys, the ideological heirs of Ludwig von Mises, went down to Chile, they might have felt a momentary twinge of embarrassment about all the people being tortured, but in the long run it was for the good for the Chilean people to be saved from central planning. As Henry Kissinger once put it, “I don’t see why we need to stand by and watch a country go communist due to the irresponsibility of its people. The issues are much too important for the Chilean voters to be left to decide for themselves.”

Many years ago I—like my friend Doug Henwood—was a libertarian and took all the bullshit I read in National Review seriously. Well, half-seriously anyhow. Back in 1960, when JFK was a candidate, I decided to join the Young Americans for Freedom with my rich cousin Louis (who had material incentives to believe in this nonsense) in order to spite my high school classmates. As someone who was very “unpopular” back then, I decided to find other reasons for people to hate me besides being un-athletic and short. I embraced conservatism for the same reason that Charles Bukowski told his classmates in a Los Angeles high school before WWII that he liked Hitler—just to rile them up.

To refresh my memory of what the Austrian school was about, I read (very possibly reread) “Economic Calculation in the Socialist Commonwealth” by von Mises. Most of it consists of warnings about attempting to organize an economy other than on the basis of “economic calculation”, in other words money.

One may anticipate the nature of the future socialist society. There will be hundreds and thousands of factories in operation. Very few of these will be producing wares ready for use; in the majority of cases what will be manufactured will be unfinished goods and production goods. All these concerns will be interrelated. Every good will go through a whole series of stages before it is ready for use. In the ceaseless toil and moil of this process, however, the administration will be without any means of testing their bearings. It will never be able to determine whether a given good has not been kept for a superfluous length of time in the necessary processes of production, or whether work and material have not been wasted in its completion.

Von Mises was a member in good standing of the Austrian school of economics whose founder Carl Menger came up with the idea of marginal utility. The basic idea goes something like this. A consumer good like a hot dog might bring maximum enjoyment on the first eating, but subsequent dishes might provide a diminishing return—unless of course you compete professionally like Takeru Kobayashi who ate 69 Nathan’s hot dogs in ten minutes on July 4, 2011, setting a new Guinness world’s record. When I read about marginal utility, I can’t help but think of the stump speech that Peter Camejo used to give in the early 70s. Under socialism, there would be so much abundance that food would be virtually free. So if somebody walked out of a grocery store with a bunch of apple pies, the reaction would be to call mental health professionals rather than the cops.

Philip Wicksteed, a British preacher and disciple of the Austrians, tried to explain the theory this way:

We may now go on to the next great step in advance in our analysis of the scale of preferences or relative estimates. We have noted incidentally more than once that the question may arise not only, for example, whether to buy any new potatoes at all, but also how many to buy. Suppose the usual consumption of potatoes in a family is about 4 lbs. a day (2 stone a week), and sound old potatoes are about ½d. the lb. If new potatoes are 2d. the housewife may determine to buy 2 lbs. that week, for a treat, reckoning that they will go once round on Sunday, the second dish to be of old potatoes as usual, or if that takes too much trouble the second dish to be dispensed with. If they are 1½d. a lb. she may buy 4 lbs. and have all new potatoes on Sunday, or one dish on Sunday and one on some other day in the week; or she may buy enough for the birthday dinner of one of the children. But when new potatoes come down to a penny she will buy no more old potatoes at all.

What all this has to do with the rejection of socialism might not be obvious at first blush. Somebody trying to decide whether to buy potatoes or not would not, for example, explain the famine in the Ukraine of the early 30s, would it?

Von Mises took the marginal utility theory and applied it to money. Thorsten Polleit, an economist working for a precious metals firm, has a piece on the von Mises website titled What Can the Law of Diminishing Marginal Utility Teach Us?  that concludes with this profound lesson:

Violations of individual property rights (for instance through government taxation, regulations, etc.) will make property owners value present goods increasingly more highly than future goods — a conclusion which follows from the law of diminishing marginal utility.

Violations of individual property rights thus raise peoples’ time preference, increasing consumption at the expense of savings and investment, thereby reducing (or even reverting) the pace of capital accumulation. An interventionist-socialist societal order will therefore necessarily lead to impoverishment relative to a free market societal order, in which there are no systematic violations of individuals’ property rights.

The one thing you will note throughout the Austrian school literature, as well as its offspring from Chicago to business schools everywhere, is its emphasis on the individual. As Margaret Thatcher, one of their most fervent supporters put it in a 1987 interview: “And, you know, there is no such thing as society. There are individual men and women, and there are families.”

If you want to shift the focus away from social classes, this comes in very handy. Instead of trying to explain why millions of people don’t have the money to buy food and need to rely on food stamps, you create artificial scenarios where an abstract human being is contending with abstract baskets of goods. This is fundamentally how bourgeois economics is taught. In good times, it might pass muster but during a depression it prompts a Charles Ferguson to make an Academy award winning documentary that exposes people like Columbia’s Glenn Hubbard for the con artist that he is.

In doing some research on this article, I was happy to see that Nikolai Bukharin, my favorite Bolshevik next to Leon Trotsky, wrote a book that took the Austrians on. Titled “Economic Theory of the Leisure Class”  and written in the same year as von Mises’s dreadful “Economic Calculation in the Socialist Commonwealth”, it puts the focus on social classes rather than the individual.

Bukharin described the Austrian school in sociological terms as expressing the class outlook of the rentier, a representative of the dominant financial bourgeoisie that “is not capable of looking forward.” Bukharin describes their philosophy as “Enjoy the moment,” a characterization that would still apply to the hedge fund operators of today with their $30 million dollar penthouses and fleets of Ferraris.

The industrial bourgeoisie was consumed with the need to produce but this parasitical class was much more focused on consumption, hence the preoccupation of the marginal utility theorists with their potatoes, etc. Bukharin elaborates:

This crass individualism is likewise neatly paralleled in the “subjectivist-psychological” method of the new tendency. To be sure, the theorists of the bourgeoisie had assumed an individualistic attitude even in earlier periods; they always enjoy making references to Robinson Crusoe. Even the representatives of the “labour value theories” based their position on individualistic references: their labour value was not, as one might perhaps expect, the social objective law of prices, but the subjective evaluation of the “economic subject” (the economic man) who evaluates the commodity variously, depending on whether the expenditure of labour has been connected with greater or less inconveniences (for example, Adam Smith).

The brunt of Bukharin’s critique is directed against Eugen Böhm-Bawerk, whose rejection of Marx’s value theory was also based on marginal utility theory. Just as Crooked Timber became a hotbed of von Mises’s calculation thesis around the novel “Red Plenty”, so it became the sounding board of attacks on value theory based implicitly on Böhm-Bawerk. In a series of articles laying siege to Karl Marx, communism, and revolution, one of the blog owners—an Australian economist named John Quiggin who has more awards than Heineken beer–came close to being sued for plagiarism by the Böhm-Bawerk estate:

For those engaged in attempts to achieve a better, more equal and more sustainable society, Marx’s theory of value has little to offer. What can it tell us, for example, about the relative merits of trying to promote equality through higher minimum wages, through more progressive taxation or through expansion of public ownership? But, in the Communist Manifesto and elsewhere Marx had a lot to say about capital and capitalism that was, and remains, both interesting and insightful.

Considering the fact that Quiggin’s article was titled “Marxism without revolution: Capital“, it is hard to figure out why he felt the need to characterize Marx as “interesting and insightful”. As Karl Marx might have put it when his Jewish roots were acting up, “Favors like this who needs?”

Invoking the good Nikolai Bukharin, one might feel the need to look at Crooked Timber sociologically. How is that 100 years after the Austrian school was in its heyday, the professors on this high-profile blog are attempting to use the same arguments and for the same purpose: to put the final nail in Marx’s coffin.

There was an Austrian social scientist (a Hungarian citizen of the Austro-Hungarian Empire actually) who was von Mises and Böhm-Bawerk’s contemporary but drew much different conclusions about the capitalist system. His name was Karl Polanyi and his best-known work was “The Great Transformation”, a broadside against markets and those who serve as its apologists.

In June 1989, Monthly Review magazine published an article by Kari Polanyi Levitt, his daughter and only child, and Marguerite Mendell titled “The Origins of Market Fetishism”. It is worth quoting at some length:

In the setting of intellectual Vienna of the 1920s, Mises and Hayek and their associates were the misfits–the remnants of old Vienna’s privileged urban elites whose security had been shattered, whose savings had been decimated by wartime and postwar inflation, and whose taxes were financing the pioneering housing programs of Vienna’s socialist municipal administration. In their parlors and favorite coffee houses the patrician middle classes, now deprived of their prewar privileges, fed their fears of “the dictatorship of the proletariat.” They were particularly terrified by the 1926 Linz Program of the Social Democratic Party which resolved to defend Austria’s democratic constitution–by armed struggle if necessary–against threats by the Christian Socials to crush the working class and its organizations. They made common cause with the rising forces of clerical reaction which eventually led to the suspension of Parliament in 1933 and the violent destruction of the working-class movement in February 1934, leaving the country defenseless against Hitler’s occupation in 1938. The heirs of the Liberal tradition of the 1860s joined forces with clerical fascism in their paranoiac fear of the working classes.

A special target of Hayek’s polemics in the 1920s was the regime of rent control and public housing, which effectively eliminated private high-rental residential construction. (Hayek: 1929) Working-class families were now privileged in access to low-rental, bright, spacious, modern apartments with parks, kindergartens, and other communal facilities. These programs, together with a sweeping educational reform based on Alfred Adler’s theories of psychology, plus the large-scale participation of the working people of Vienna in a remarkable variety of cultural, recreational, and educational activities organized by the Socialists made “Red Vienna” a world-class showpiece of avant-garde urban lifestyle.

The elite of the intellectuals of Vienna were socialist sympathizers. In Vienna alone 350,000 people belonged to Social Democratic organizations, while socialist trade unions comprised 700,000 workers. “Never before or since,” wrote Ernst Fischer, “has a Social Democratic Party been so powerful, so intelligent, or so attractive as was the Austrian party of the mid 1920s.” (Fisher: 143) According to another contemporary, the “piecemeal reforms were to be the first building blocks of a future socialist society.” (Zeisel: 123)

“The ultimate justification of socialism derived from our expectation that it would usher in a new man, a new morality…. The essence of being a socialist is the holding of certain ethical positions about justice and about duties to our fellow man.” (Zeisel 123, 131) As we shall see, it is precisely the fundamental conflict of values which underlies the contending visions of democratic socialism and individualistic libertarianism.

For those who have been keeping track of current events, this does not sound that much different from the planet earth in the last 3 years or so, with its Arab Spring, its Greek protests against austerity both in the streets and in the ballot boxes, as well as the Occupy Movement in the USA which lives on despite its eviction from public spaces.

Our goal, of course, is to build once again a massive socialist movement that will not only give these neo-Austrians the fright of their lives but wipe a decadent system off the face of the earth.



  1. BTW Bukharin was quite aware of von Mises had to say in his “Economic Calculation in the Socialist Commonwealth”, as indicated in the following passage from his defense of NEP in his piece, ” Concerning the New Economic Policy and Our Tasks” (1925).

    There, he wrote: —————————————

    Although bourgeois critics of the policy of the proletarian dictatorship in Russia have offered mainly nonsense and foolishness, some of their comments were not so stupid and contained a relative truth. One of the most learned critics of communism, the Austrian Professor Mises,presented the following propositions in a book on socialism written in 1921-22. In agreement with Marxist socialists he declared that one must brush aside all sentimental nonsense and accept the fact that the best economic system is the one that develops productive forces most successfully. But the so-called “destructive” socialism of the communists leads to the collapse of productive forces rather than their development. This collapse occurs mainly because the communists forget the enormous role of private, individualistic incentives and private initiative. True, capitalism suffers from certain defects. But capitalist competition leads to growth of productive forces and drives capitalist development forward. As a result of the growth in society’s productive forces, the lot of the proletariat improves as well. So long as the communists attempted to arrange production by commands, with a stick, their policy would lead, and already was leading, to an inevitable collapse.

    There is no doubt that the system of War Communism, viewed in terms of its economic essence, somewhat resembled this caricature of socialism whose destruction was predicted by all the learned economists of the bourgeoisie. Thus, when we began to reject this system and shift to a rational economic policy, the bourgeois ideologists began to cry: Now they are retreating from communist ideas, they are surrendering their positions, they have lost the game, and are returning to time -honored capitalism. That is how they summarized the question. But in fact they were the ones who lost, not we.

    We have been placed in a certain position, and we acted me Only way we could. But then we had to consider how to go forward, and now we can say that our opponents were the ones who lost in this debate. In the course of the struggle, we upheld what was most important and had to be upheld, namely, the dictatorship of the proletariat.

    When we crossed over to the NEP we began to overcome in practice the above-outlined bourgeois case against socialism. Why? Because the meaning of the NEP lies in the fact that by using the economic initiative of the peasants, of the small producers, and even of the bourgeoisie, and by allowing private accumulation, we also placed these people objectively in the service of socialist state industry and of the economy as a whole. Freeing the commodity turnover, we made it possible to awaken the interest of small, private producers; we stimulated an expansion in production; we placed the individualistic stimuli of backward strata of the proletariat (who were motivated by noncommunist ideas and private interests) in the service of socialism; and by formalizing the previous wage system, by introducing piecework, and so on, we encouraged these strata to work in such a way that their private interests would promote an upsurge of social production. Our former view consisted of thinking it would be possible to introduce a planned economy almost immediately.

    Now we see things differently. We control the main commanding heights, we organize what is essential; then our state economy, by different means, sometimes even by competing with the remnants of private capital through market relationships, gradually increases its economic might and, in diverse ways, draws the backward economic units into its own organization, doing so, as a rule, through the market

    Comment by Jim Farmelant — June 27, 2012 @ 7:24 pm

  2. “Our goal, of course, is to build once again a massive socialist movement that will not only give these neo-Austrians the fright of their lives but wipe a decadent system off the face of the earth.

    Well said!

    Comment by Joe Vaugban — June 27, 2012 @ 8:58 pm

  3. Just a brilliant and informative post.

    Comment by purple — June 28, 2012 @ 12:35 am

  4. One thing about Chile is the copper industry was never re privatized, even during Pinochet.

    Comment by purple — June 28, 2012 @ 12:47 am

  5. Speaking of market socialism, interesting how the Soviet Union is used as a hammer against central planning but people tend to skip over the market socialist experiment of Yugoslavia. It’s not quite the poster child.

    Comment by SGuy — June 28, 2012 @ 1:38 am

  6. Interesting that Ludwig’s younger brother Richard was a member of the socialist-leaning Vienna Circle. I also know he was close to Philip Frank who was on the circle’s left. His wikipedia article mentions that he had disagreements with his brother over positivism and also mentions that the East German Academy of Science offered him an honorary membership after the war, which he declined. I wonder if his disagreements with his brother extended into the realm of politics. That would be an interesting relationship to know more about. There is of course another Austrian economics other than that of Ludwig and crew, namely that of Otto Neurath, to which I have always been somewhat partial. Maybe Jim F know more about this.

    Comment by dave x — June 28, 2012 @ 6:30 am

  7. Repentant pose, my ass. I’ve been saying this stuff for years.

    Mises may have been the first to fully lay out the economic calculation argument but it in no way depends on the Austrian (or any other) school of economics. As your number one favourite Bolshevik put it: ‘Economic accounting is unthinkable without market relations.’

    Jim Farmelant’s quote (#1) from your number two favourite Bolshevik is also on the money:

    ‘Our former view consisted of thinking it would be possible to introduce a planned economy almost immediately.

    Now we see things differently. We control the main commanding heights, we organize what is essential; then our state economy, by different means, sometimes even by competing with the remnants of private capital through market relationships, gradually increases its economic might and, in diverse ways, draws the backward economic units into its own organization, doing so, as a rule, through the market’

    Exactly. This is a classic statement of Right Wing Communism, the communism of Bukharin, Trotsky, and Deng Xiaoping. It’s been ably advocated in our own time by Carl Davidson, David Schweickart, and your old comrade and mine, John Ross.

    Comment by Ken MacLeod — June 28, 2012 @ 7:14 am

  8. Concerning Richard Mises, as far as I know, his political outlook was similar to his brother’s, despite the fact that he had some profound disagreements with on epistemological matters. Ludwig believed that economics and the other human sciences could be established on the basis of a priori principles. Richard as an empiricist and positivist strongly denied this. This was also BTW a point of contention within economics between Friedrich Hayek and Milton Friedman. Though both men shared much the same political outlook, they strongly disagreed over questions of methodology, with Friedman advocating an empiricist and, indeed, a positivist outlook, while Hayek, as an Austrian School economist, was critical of positivism.

    BTW Otto Neurath and Friedrich Hayek debated the socialist calculation argument by post in the 1940s. Neurath sought a public debate with Hayek, but Hayek declined. Then Neurath died suddenly, and so left a lot of issues hanging in the air.

    Comment by Jim Farmelant — June 28, 2012 @ 8:31 am

  9. Ive been looking for Neuraths articles online but so far no dice, anyone know where they are?

    Comment by SGuy — June 28, 2012 @ 10:53 am

  10. I would also add, that Mises’s “Economic Calculation in the Socialist Commonwealth” was largely written as a rebuttal to Otto Neurath’s writings in defense of socialist economic planning. And Neurath was, for many years, the implicit, and often explicit target, in many of Hayek’s writings on social science and philosophy. Neurath was a strong advocate of the Enlightenment belief in the possibility of a rational science-based reconstruction of the economic and social orders. Hayek was, in contrast, a strong critic of this belief. That’s why towards the end of his life, Neurath was so eager to have a public debate with Hayek.

    Comment by Jim Farmelant — June 28, 2012 @ 11:46 am

  11. Most of Neurath’s writings are not available on the Internet. There are, in English, collections of his economic writings like: Otto Neurath, ed. T. Uebel and R. S. Cohen, Economic Writings (2004), and his book, Empiricism and Sociology (1973).

    Comment by Jim Farmelant — June 28, 2012 @ 11:50 am

  12. BTW Stephen Cohen in biography of Bukharin pointed out that while living in exile, Bukharin did spend time attending Eugen Böhm-Bawerk’s seminars in Vienna. That’s how he became familiar with the doctrines of the Austrian School. I would dare say that Bukharin was a trenchant critic of the Austrian School while also being quite capable of absorbing the rational kernel in Mises’s economic calculation argument and drawing lessons from that in how to build socialism.

    Comment by Jim Farmelant — June 28, 2012 @ 12:00 pm

  13. Modern computer power has solved the calculation problem. The key question, of course, is what policy choices should be programmed into the computers. We could use constantly updated polling data through which we express our preferences as to ice cream flavors, garment styles, etc. (A socialist society presumably would not produce ice cream until malnutrition is conquered, botox until … )

    Comment by Seekonk — June 28, 2012 @ 6:20 pm

  14. Ken MacLeod posted an exchange with me on the subject of socialism and economic calculation on his blog in June 2004:


    Comment by Seekonk — June 28, 2012 @ 7:51 pm

  15. Your “second favorite” Bolshevik is the one who concocted “socialism in one country”??

    Comment by Sankara — June 28, 2012 @ 10:48 pm

  16. Trotsky a right wing communist? Only Paul Cockshott has given a good answer to market socialism? Well I think Ernest Mandel has given a good rebuke to market socialism, including a good analysis of the Yugoslav version of it. One of his main points being how can you have real workers management when the market is constantly forcing decisions including the unemployment of the very workers. What bothers me especially is how all this talk about calculation can let the Stalinists off the hook, how can they really be guilty of mismanagement when they never really had a chance at proper management? You can only then portray democratic planning as a lesser evil not something qualitatively different.

    Comment by SGuy — June 29, 2012 @ 5:01 am

  17. Von Mises doesn’t prove the “impossibility” of socialism in this work, only that it will not lead to “rational” economic outcomes, with “rationality” defined in terms of efficiency of resource utilisation. This may have cut effectively against some currents of Marxism which shared this narrow economic hyper-rationality. But as he acknowledges it is irrelevant to arguments for socialism on “ethical grounds” – which can be viewed as encompassing the non-material benefits that an egalitarian post-capitalist order could bring. The most valid response to his argument then becomes, “So?”
    “Our goal, of course, is to build once again a massive socialist movement that will … wipe a decadent system off the face of the earth.” An admirable sentiment, but one that we have no hope of realising until we begin to develop some concrete and tangible alternatives (even, dare I say, “models”) to crisis-ridden capitalism. The problem is not solving the socialist calculation debate, but getting to a place where issues like that have any more than antiquarian interest.

    Comment by Brian. S — June 30, 2012 @ 2:22 pm

  18. Otto Neurath’s responses to the arguments of Mises and Hayek were somewhat in content from those offered by Oskar Lange, but both Neurath and Lange emphasized the inadequacies of markets for dealing with issues like externalities; with Neurath in particular raising the issue of the fate of non-renewable resources. Lange’s treatment of externalities and market failures owed much to the pioneering work of the British economist A.C, Pigou. Neurath’s treatment of the issue of non-renewable resources is seen by many contemporary commentators as anticipating the insights of the ecological economists like Joan Martinez-Alier and Herman Daly.

    Comment by Jim Farmelant — July 1, 2012 @ 2:22 am

  19. In response to Brian, I would say that in one sense that it is appropriate to respond to the arguments of Mises and Hayek with “So?” since as many socialist and non-socialist writers have pointed out over the years, markets have quite a few inadequacies of their own. Even if central planning leads to inefficiency and irrationalities, it’s not self-evident that markets will do that much better either. They by no means guarantee optimal or even near-optimal results. On the other hand, Mises and Hayek could both argue that for socialism to constitute a viable alternative to capitalism it has to be if not as efficient as capitalism, close, or at least close enough to ensure that it develops the forces of production. That’s why people like Bukharin, Neurath, and Lange, all took this issue seriously, as do such contemporary socialists like Michael Albert,David Schweickart, and Paul Cockshott. While their proposed responses differ significantly, they all take the economic calculation issue seriously.

    Comment by Jim Farmelant — July 1, 2012 @ 2:36 am

  20. You have to take all ruling class propaganda seriously because these ideas become burned on the consciousness of society. That doesn’t\’t mean these ideas have any validity. I also think there is more to socialism than increased efficiency and developing the productive forces. Marx, in his positive statements about Irish co-ops, pointed out the social benefits of socialist formations (as well as the economic ones) – lower rates of alcoholism, lower crime etc etc etc. So even if socialism could only match capitalist efficiency, there would still be a benefit because society would be fundamentally organised in a different way.

    Comment by Steve — July 1, 2012 @ 10:49 am

  21. While, I don’t think you can call Trotsky a right-wing communist, he seems to have aware of some of the issues concerning economic calculation as illustrated by his 1932 piece, “The Soviet economy in danger.” (http://www.marxists.org/archive/trotsky/1932/10/sovecon.htm). There, he took Stalin to task for the hasty liquidation of NEP, and he stated that, “Economic accounting is unthinkable without market relations.”

    Comment by Jim Farmelant — July 1, 2012 @ 6:12 pm

  22. I can’t fully visualise socialism but I imagine that it is fundamentally different to capitalism.

    Capitalism creates wants, it creates the consumer, by its nature it systemises production for productions sake. Businesses try to find gaps in the market, production is directed toward new products, no matter how much use value they offer. Production is often speculative. Advertisers, magazine editors and PR consultants create the market for these useless products. Meanwhile some people go hungry, some can’t get access to medical care. All sense of proportion and rational thought is swept aside in the capitalist market.

    The market should be so very different under socialism that to even call it a market would be misleading.

    Comment by Steve — July 2, 2012 @ 1:43 pm

  23. @19. What I was suggesting saying “so” to was von Mises argument (as far as I can see his only real argument) that a socialist economy would be less efficient than a capitalist economy in input->output terms. The reason why many of his contemporaries on the left “took this argument seriously” (I think this may not fully be true of Bukharin) was that they shared this framework. As you say, there is a second side to an anti-Mises critique – he bases himself on an idealised view of the capitalist economy, which does not correspond to capitalist reality (particularily in the 21st centrury: tnc’s have huge “calculation” issues of their own.).
    Actually I think there are strong reasons for factoring market/quasi-market institutions into a model of future “transitional” post-capitalist economies: but they hinge primarily on things other than the “calculation” issue – responsiveness, innovation, decentralisation, avoidance of bureaucratism.

    Comment by Brian. S — July 2, 2012 @ 3:27 pm

  24. @ 19 – erratum: Sorry Jim : I’m becoming a bit screen dyslexic in my advancing years: I read your “appropriate” as “inappropriate” – so some of my comments above are redundant (apologies). But I think others are still relevant.

    Comment by Brian. S — July 2, 2012 @ 3:31 pm

  25. SGuy – I didn’t mean to imply that Trotsky was a right wing communist in terms of his general politics. His economic programme in the 1930s can fairly be described as right wing communism. There was a convergence of views between the former right and left oppositions in the early 1930s. The comparison with the economic policy of Deng’s China is made (favourably) by John Ross in three articles on ‘The Choices for Russia – The Economic Programme of the Left Opposition’ here.

    Comment by Ken MacLeod — July 3, 2012 @ 8:11 am

  26. A grotesque example of the efficacy of cyber assistance in executing economic policy is algorithm-based, computer-executed, high-frequency trading, which the banksters use to capitalize on their diabolical schemes such as rigging the LIBOR rate.

    Comment by Seekonk — July 3, 2012 @ 12:51 pm

  27. Towards the very end of his life, Oskar Lange wrote an essay, “The Computer and the Market,” on the use of computers in economic planning. He argued that the then recent developments in information technology made it possible to solve in relatively short periods of time the large sets of equations that are involved in certain aspects of rational central planning. This did not change his basic view that rational central planning required that the planners correct their plans, iteratively, by trial and error. He also contended that some economic processes are so complicated that it would still be impossible to construct good computerized models of them, and he observed that markets were already being used in socialist economies for the distribution of consumer goods; yet he argued that computers gave faster answers than markets do, and that market-price changes cause different social groups to experience either increases or decreases in their incomes (with results that would be problematic in a socialist economy where there is supposed to be a policy of evening out incomes) and indeed that markets sometimes fail to provide iterative solutions to the equations – that is, they do not always converge to equilibrium, there may instead be “cobweb-cycles” (inventory- or other reinvestment-cycles) as well as more general business-cycles. He felt that while computers could be used for making prognostications, (a) it would be unwise to try to replace markets altogether in regard to short-term decisions; economic planners could instead use sophisticated computer models to make forecasts which would then be verified against market data; whereas (b) markets are not very useful for long-term economic planning since they work by treating the accounting problem as a static issue. He was alert to the fact that prices reflect recent conditions but do not provide systematic information as to the possible effects of investment changes, of changes in technical conditions for production, and of the creation of new wants. Such shortcomings in the informative value of market prices were, in his opinion, present under capitalism as well as under socialism.

    Comment by Jim Farmelant — July 3, 2012 @ 7:26 pm

  28. Well if you put a computer in the hands of bankers you are likely to get profiteering and corruption. However, in the hands of doctors and nurses they can be a valuable tool. What no one has discussed is how markets seem incapable of operating without the very visible hand of the state.

    Also what are these economic processes that are so complex they are beyond the reach of mortal man?

    Comment by Steve — July 4, 2012 @ 10:45 am

  29. @27. I was vaguely aware that Lange had made a contribution to this debate but not of the details you so helpfully provide. They confirm my suspicion that the way these problems would be best addressed will be through hybrid solutions that employ an array of instruments and are prepared to live with sub-optimal outcomes that can be counterbalanced through corrective measures. This also fits in with the very high probability that a “transition to socialism” will be an historically extended iterative process, not a “big bang”. The question is, how to we get the damn thing kick-started?

    Comment by Brian. S — July 5, 2012 @ 5:19 pm

  30. On the Von Mises – Hayek – Otto Neurath debate, in an interview with L. Pellgrini published in “Development and Change” in 2012, I said.

    “My book Ecological Economics of 1987…considers authors who already criticized mainstream economics because it forgot the social metabolism. In this line, one main contribution is that I reassessed Otto Neurath’s role in the Socialist Calculation Debate of the 1920s and 1930s against Von Mises and Hayek. This could be called ‘“The Battle of Ecological Economics against Market Fundamentalism’”, and it’s still going on.

    Von Mises declared in the early 1920s that without prices there was no rational economy. A socialist economy would lack markets for production goods. Commensurability in the form of money prices was needed for rational calculation of decisions on production and allocation of consumption and production goods. Socialism in the form of Neurath’’s model of Naturalrechnung, a money-less economy, meant then the abolition of rationality.
    Neurath’s point was that there was no way to base decisions on prices when the issue was, for instance, whether to save labour by using more coal now, and therefore have less coal in the future. A factory owner would just look at the present prices of coal and labour. But there were other considerations to be taken into account. We were not sure about the amount of coal deposits remaining, we were uncertain about future technologies, and there were no prices for future options of coal deliveries in twenty years. Important decisions had to be taken outside markets, by what we now call deliberative, democratic planning.
    The Socialist Calculation Debate has not been properly taught in universities. It is one of the sources, because of Otto Neurath, for ecological economics. Writing in the American Economic Review (45, 4, Sept. 1955), K.W. Kapp (1955), who defended the incommensurability of values as a follower of Neurath, complained that the controversy initiated by Neurath, von Mises and Max Weber had becomegot sidetracked in various attempts to calculate the prices of productive factors, as in Oskar Lange’s elaboration of a theoretical model of ‘competitive socialism’.

    You will remember that Hayek’s strong critique of ‘social engineering’ in The Counter-Revolution of Science was directed not only against historical thinkers such as Saint-Simon but also against the whole tradition of what is now called ecological economics and also quantitative environmental history (with authors like John McNeill, Marina Fischer-Kowalski, Helmut Haberl, Fridolin Krausmann, Robert Ayres). This is a tradition that attempts to understand the ways in which economic institutions and relations are embedded within the physical world and have real physical preconditions, and which (as the philosopher John O’Neill explains in his work on Otto Neurath’s economics) is consequently critical of economic choices founded upon purely monetary valuation.

    Comment by Joan Martinez-Alier — August 5, 2012 @ 10:07 pm

  31. It’s interesting that Professor Martinez-Alier that has decided to intervene here. A little while back, I had worked on an article on Friedrich Hayek, with my friend Mark Lindley (whom I believe Professor Martinez-Alier knows). We found that we could not do any sort of justice to Hayek without including some discussion of the socialist calculation debates. As Martinez-Alier points out the socialist calculation debates that everyone knows about are the ones between Hayek and Oskar Lange (and his friends), not the ones between Hayek and Otto Neurath. Yet the whole socialist calculation discussion was triggered int he first place when Ludwig von Mises wrote his 1920 paper, “Economic Calculation in the Socialist Commonwealth”, as a rebuttal to Otto Neurath’s writings on socialist economic planning. In the 1940s there was an important discussion (conducted mostly by post) between Hayek and Neurath on socialist calculation. As Martinez-Alier correctly points out there was an important ecological dimension to Neurath’s approach to the issue. In fairness to Lange, I would point out that Lange did not completely ignore ecological issues. In his work, he approached them making use of A.C. Pigou’s analysis of externalities which in his view undermined the rationality of market pricing under capitalism.

    I should also say that we have found Professor Martinez-Alier’s writings on ecological economics to be quite a help in writing about the debates between Hayek and Neurath. These writings that we found helpful, include not only his 1987 book on the history of ecological economics, but various articles that Martinez-Alier has written for such publications like Science & Society.

    Comment by Jim Farmelant — August 5, 2012 @ 10:56 pm

  32. This paper, “Eastern Europe as a Laboratory for Economic Knowledge: The Transnational Roots of Neoliberalism’ “, by Johanna Bockman & Gil Eyal looks relevant to the discussions related to this blog post. Professor Bockman is also the author of the book, Markets in the Name of Socialism: The Left-Wing Origins of Neoliberalism, which apparently expands upon this topic.


    Comment by Jim Farmelant — January 31, 2013 @ 2:20 am

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