I'm asking if you could explain to me the different arguments against command economies: the hayekian and the misesian.
Although I'm pretty sure what the misesian argument is there is one thing that is dramatically retarding my ability to understand it. When mises speaks of the businessman as using profit and loss to calculate and states that socialist planning is impossible without this same profit and loss, it makes it seem that all that socialism needs to suceed are accountants and double-entry bookeeping.
So here's my view of the calculation argument:
1) too many means to organize to create given ends
2)no private property in capital so no price/allocation for capital.
3) prices and the profit-loss system is exactly what the socialists need to compare whether their stores of means are half-empty or half-full
4) it is quite comical that socialist directors, who don't even risk their own property, should be ordered to play market with each other.
5) market socialism is impossible because it is a creature of a) false neoclassical paradigms and b) rests on a foundation of socialized property without profit-loss anyways and so is subject to the calculation errors of such a system.
Am I right?
P.S. is there a maximum number of posts one can create for I am posting frequently and I'd hate to have monopolized this whole forum with my questions.
There's nothing inherently evil about double-entry bookkeeping. The evil part is the State subsidies that large corporations receive, in the form of negative real interest rates and regulations restricting competition.
The "economic calculation" problem occurs in communism because there's no price signals. Without market prices, how do you know if you should produce shoes or televisions?
Most industries are organized as a monopoly or oligopoly. With a monopoly, how can you determine if your internal costs are appropriate? For example, how do you know if Microsoft isn't using 5x as many software engineers as they actually need? They have a practical monopoly, so the cost can always be passed on to customers.
The CEO of a large corporation suffers from the "Agent-Principal Problem". He isn't the owner of the corporation, but he controls its resources. This means that he can line his pockets by giving himself and his friend huge option/stock grants. If he mismanages the corporation, it doesn't matter much, because the State shields him from competition. That is the evil of the limited liability corporation. "Ownership" and "control" are separated, and nobody is actually responsible for anything. In the event of misconduct, the corporation is sued and not the CEO. Further, "tort reform" limits damages when misconduct actually occurs.
The current US economy represents a communist society more than a free market. Since the State distorts the market so much, price signals don't convey appropriate information about what to produce.
I have my own blog at FSK's Guide to Reality. Let me know if you like it.
fakename:I'm asking if you could explain to me the different arguments against command economies: the hayekian and the misesian. Although I'm pretty sure what the misesian argument is there is one thing that is dramatically retarding my ability to understand it. When mises speaks of the businessman as using profit and loss to calculate and states that socialist planning is impossible without this same profit and loss, it makes it seem that all that socialism needs to suceed are accountants and double-entry bookeeping.
That is the socialist centrally planned economy.I'm not well versed in the Misesian and Hayekian differences.
fakename:P.S. is there a maximum number of posts one can create for I am posting frequently and I'd hate to have monopolized this whole forum with my questions.
I would make a great bureaucrat. Wanna see? Click here. It's fun.
Another question: I've read Mises's discourse on the nature of probability and, perhaps owing to only an elementary handling of statistics and/or a misreading of the essay, I've been convinced that Mises slipped up on saying that case probability is unamenable to probability theory because human action occurs only in unrepeatable steps. But since the practice of probability (like making repeated experiments) is an action it too occurs in unrepeatable steps and so it happens that even class probability is impossible. Of course this is absurd so the original assumption must be wrong. Yet I know that it is right so clearly I'm in the wrong. But what is my mistake?
And addressing my old question on the calculation problem, it's true that without profit and loss there is no way for entrepreneurs to create and allocate resources but with the gov. and with business there are ways of calculating the flow of revenues yet there is a distinct ontological difference for the economy between the way business calculate (profit/loss) and the way gov. does (budgets). What is this difference that makes the former superior?
That's all, thanks.
fakename:And addressing my old question on the calculation problem, it's true that without profit and loss there is no way for entrepreneurs to create and allocate resources but with the gov. and with business there are ways of calculating the flow of revenues yet there is a distinct ontological difference for the economy between the way business calculate (profit/loss) and the way gov. does (budgets). What is this difference that makes the former superior?
Competition in the market place between entrepreneurs creates a 'friction' amongst the various market actors that sets the prices of the various inputs to the chains of production to reflect their most efficient uses...if that even makes sense that is.
How about, prices of producer goods are bid up to the point to where they will only be used in the most economically efficient way because an entrepreneur who more highly values a good will bid it away from a competitor if they expect to receive a return on the investment. This is the mechanism where prices are set in the marketplace.
With the government bureaucrats setting prices outside of this process it basically comes down to one person's subjective view on how the good in question should be priced through studying the statistics that are available to be studied. It is highly unlikely that they would ever be able to guess the 'correct' price of any given good because they have no way to tell if there is an alternative more efficient use for it or even if the current production is over, under or just right as they have no pricing signals to convey this information to them.
Not sure if that answers your question because I don't actually know what 'ontological' means...off to look it up...Ok, still don't know if I answered your question.
So, uhm, what's an ontological difference?
sorry for the obscurity. Ontological=outside the mind as opposed to the purely mental. I figured that there is nothing different mentally between the operation of a gov. agent calculating with his budget and a businessman calculating with his spreadsheets yet, the latter can plan his actions according to real world market conditions while the other can't so the difference had to be in the realm of reality. That's why my question was on ontological differences.
Rothbard once wrote at length about the impossiblity to calculate mathematically, a person's utility (through functions, cost/benefit analysis, etc.). This seems to me to be a lot like what was posted above. Is there any overlap between the rothbardian essay and mises's calculation essay?
fakename:5) market socialism is impossible because it is a creature of a) false neoclassical paradigms and b) rests on a foundation of socialized property without profit-loss anyways and so is subject to the calculation errors of such a system.
I think (if I've understood you correctly) that essentially hits the nerve of the issue. Callahan puts it well (and he may be quoting someone else's analogy) when he describes a bunch of school children and says if you asked them all if they wanted to be olympic swimming champions, you'd probably get 5 out of 30 or maybe even more that would say "yes, I want to be an olympic swimming champion". But if you watched all 30 of those children over the course of 10-15 years, you would see that only one (if any - statistically probably none) of them in fact wanted to be an olympic champion so much that they were willing to pay the real price that was required in order to obtain such an accolade... probably none of them was willing to spend all their spare time swimming, have no social life, foregoe the possibility of doing all the other things they could have done if they hadn't spent all their time swimming etc. in order to actually achieve being an olympic swimming champion.
The same is true of pretty much everything provided in the socialist system. You have a limited number of scarce resources and a whole bunch of individuals with all sorts of kinky desires (they all want different stuff) and you have to work out the best use of all these resources such that you obtain maximum resource utilization from them. If you go round and ask everyone (as politicians do) what they want, they'll tell you one thing. However until they are actually asked to pay (in cash, lost opportunity, their personal time etc.) for whatever it is you're offering them you'll never know exactly how much that thing is worth to them... so there's no way of even getting an accurate census of what the population wants (certainly not at any one point in time, since even an approximate census of such things would take months or years for the most efficient of governments) much less calulcating how much they want each indivudal thing and finally working out where the resources should be assigned. The calculation of such values in a socialist system is impossible, because people are never asked to pay the price themselves (it's always someone else - or the population as a whole - that pays the price).
If ice cream was "free" and provided by the government, you'd probably eat it all the time... you'd grab one to cool your thumb cause you just struck it with a hammer. You'd have ice cream fights, do all kinds of perverse strange things with ice cream (well, you might). It's only when you're faced with the prospect of paying for ice cream that you seriously weigh up the possibility of having ice creams with alternate possible uses for the money that you use to buy these (and thus the resources that that money represents). As such, only a free market (and I mean truely free - no subsidies, tariffs etc.) can accurately guage the relative values that individuals (and thus society as a whole) places on the various possible uses of scarce resources. This is the impossibility that socialism faces vis a vis calculation - it has no mechanism to calculate those values that are calculated with such precision (and with no effort whatsoever - much less complicated, expensive and lengthy census surveys) in a free market.
fakename:Rothbard once wrote at length about the impossiblity to calculate mathematically, a person's utility (through functions, cost/benefit analysis, etc.). This seems to me to be a lot like what was posted above. Is there any overlap between the rothbardian essay and mises's calculation essay?
Yes, see above. They're both talking about exactly the same problem.
Ontological=outside the mind as opposed to the purely mental.
It means pertaining to existence/being.
-Jon
I cannot be caged. I cannot be controlled. Understand this as you die, ever pathetic, ever fools.
Irenicus' Diaries.
Ludwig von Mises Institute | 518 West Magnolia Avenue | Auburn, Alabama 36832-4528
Phone: 334.321.2100 · Fax: 334.321.2119
contact@Mises.org | webmaster | AOL-IM MainMises
Mises.org sitemap