I was discussing the calculation problem in the planned economy with someone and now I'm stumped. I'm not sure if I've maneuvered myself into the situation by arguing wrongly or if my opponent is unwilling to admit a defeat, so please help me out.Background: planned economy, planner X has control over all resources, consumer wishes are found out by a sophisticated electronic polling system without prices (we'll assume for the sake of the argument that this actually works).Me: People can tell you what they would like to have, but without a pricing system, how do they coordinate their wishes? I.e., why should they not demand a racing car as urgently as a washing machine?X: People will add preferences, i.e. "Most importantly, I need food, then a washing machine, then a racing car". My polling system will demand this.Me: Granted that it's possible to accurately discriminate between goods of different utility, what is keeping people from demanding the best, most expensive, most lavish in every single utility field? I.e., a Lamborghini instead of a Camry? Caviar instead of potatoes? There's no penalty for demanding the best because there are no prices to distinguish them.X: They will have to add alternatives. If they don't add proper alternatives, they may get nothing at all.Me: So who decides whom to give what kind of quality product? By what standard?X: Me, by my own.Me: So you're just acting arbitrarily and randomly, just like every central planner before you. You don't have a concept for distributing resources at all. You just admitted my point.X: You tried to prove that prices are necessary, not that my distribution system is bad. You failed.Any ideas? Thank you in advance.
I'm pretty sure that the problem in this scenario is not insurmountable for the central planner. If he discovers the ratio of A to B or B to A that the aggregate of consumers prefer (perhaps through a consumer goods market), then he can simply impute it back to producer goods according to the technological recipes used to create the consumer goods and lower order producer goods. But anyway...
Which producer goods to use seeing as they're not priced? All one has done is established which consumers' goods to produce.
Look, assuming an ERE and a fixed set of technological recipes, it is in fact possible to allocate capital goods efficiently
Without their being priced? No.
To darkness I condemn you...
nir:the central planner is not doing what he said he would do, allocate all the resources.
nir:an entrepeneur decides to allocate only some of the factors in the economy, other entrepeneurs do others.the claim is that the central planner will replace all of them
stephen:I'm sorry. I don't understand how the implications of your last point prove your original objection.
the point is, all entrepreneurs as a 'collection' have determined how to allocate all the factors. no one entrepreneur does this, and every entrepreneur leaves the vast quantity of factors relative to him as a given that he will not be allocating. (others allocate). If a central planner takes the same attitude he is not allocating all the factors. if he doesn't (take that attitude) and rises to the challenge of allocating all factors (as the original premise was) then MPP conceptualizing isn't going to be of help to him. that's how it seems to me.
Stephen:Economic efficiency is the production of goods at minimal cost.
what is the cost of a shoe making machine of a certain type and model, made to a certain level of craftmanship? the question is incoherent with us having assumed away the market for factors.... or isn't it?
Stephen:The central planner could distribute ration certificates to the consumers for good A prior to any actual production. Then, an auction could be set up where the consumers can bid (the maximum they are willing to pay) for units of good B with their ration certificates(play money). The central planner can then use those bids to construct minimum selling bids as a ratio of the tradeoff between the two goods on the production possibilities frontier. The sets of bids and offers can be used to construct a price reflects consumer demand given the range of possibilities available to them.
this does not even begin to address the challenge of economic calculation. you have here a recipe for figuring out what consumers say they like lots of. and because there is a market for the produced goods, that market will clear, every good will leave every shelf at whatever price it takes to do that. *assuming none of the items are economic bads, or are economic goods worth less than the transaction cost of bidding for them and using them". , still I fail to see how it could possibly lead you to a rational calculation of how to structure the next round of production. so the 5000 shoes cleared at 5fiat paper units each, and 30000 beef sandwiches cleared at 3 fiat paper units each. how is that going to help rationally structure production without a factor market?
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
@ the OP
If you really want to be able to properly defend your position, you should do some heavy reading.
You should start off with Menger's "Theory of Price" from Principles of Economics.
Then you should read Part 3 as well as chapter 14, 16 and then part 5 of human action. Also Economic Calculation in the Socialist Commonwealth is good.
Also, I think the problem is one of economizing factors of production. Without prices there's no way to allocate factors of production to their most highly valued ends.
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