Economics Questions

Re: My stupidity persists on the calculation problem

fakename — Tue, 21 Oct 2008 01:13:04 GMT

This question is starting to stray off of the calculation argument and into utility (should I therefore start a new thread for my utility question?). Well for the sake of saving space on the forum I will ask this here.

Utility is hard for me to understand and I've read rothbard's main essay on welfare economics twice. So here are my objections so far:

I think one of the axioms of austrian economics is that people will act and that they act according to their self-interests. Both result in contradictions if they are denied.

To continue, therefore a person's actions will always be taken only if this action is utilty maximizing. (utility maximizing being =to self interests).

So if a person's preference scale is this 1) not get married, 2) get married and then the state forces the person to act such that the preference scale is 2) get married, 1) not get married, then there is a contradiction between the statement that people act according to their self-interests and this preference scale; for the person is getting married (performing an action) while prefering to be unmarried.

Clearly then, the preference scale has to be this 1) get married, 2) not get married after the state intervenes. This would be utility maximizing.

Aside from either a total lack of understanding of the terms of the argument (e.g. utilty, preferences...) or a lack of additional information on this subject I think that I am correct because the logic looks good.

Re: My stupidity persists on the calculation problem

Black Bloke — Sun, 12 Oct 2008 00:49:43 GMT

Niccolò:
P.S. I use quotes because I don't subscribe to the view that capitalism = free market (what Mises seems to have been referencing), nor do I believe that socialism = teh evil collective-centralized boogeyman.

Perhaps it'd be better if you called it Marxist calculation rather than socialist calculation, so you could avoid the use of scare quotes.

Re: My stupidity persists on the calculation problem

Niccolò — Sat, 11 Oct 2008 17:04:44 GMT

jimmy:

Niccolò:

Solid_Choke:

Do you deny that the commonly used means to attain socialism tends toward totalitarianism?

I guess a socialist would reply, "it depends upon what you mean by socialism."

Mises was defining socialism as a state in which the means of production could not be privately owned... and as such were exempt from monetary calculation. In the socialist state that he described, there was money but it's use was restricted to the purchase of consumer goods. Factories and the like were "publicly owned" and their production was directed by the commune.

Well, I don't think too many current socialists think in that aspect of Bolshevism.

Re: My stupidity persists on the calculation problem

jimmy — Sat, 11 Oct 2008 00:57:15 GMT

Niccolò:

Solid_Choke:

Do you deny that the commonly used means to attain socialism tends toward totalitarianism?

I guess a socialist would reply, "it depends upon what you mean by socialism."

Mises was defining socialism as a state in which the means of production could not be privately owned... and as such were exempt from monetary calculation. In the socialist state that he described, there was money but it's use was restricted to the purchase of consumer goods. Factories and the like were "publicly owned" and their production was directed by the commune.

Re: My stupidity persists on the calculation problem

Niccolò — Fri, 10 Oct 2008 23:18:15 GMT

Solid_Choke:

Do you deny that the commonly used means to attain socialism tends toward totalitarianism?

I guess a socialist would reply, "it depends upon what you mean by socialism."

I would say that most movements that have called themselves communist or socialist have ended in totalitarian despotism, but I don't know if that's so much a problem with socialism as it is with the state.

Re: My stupidity persists on the calculation problem

Jon Irenicus — Fri, 10 Oct 2008 17:05:40 GMT

Actually, Rothbard (and I think Mises) argue that money profits are just a particular instance of the more general notion of psychic profits. They're simply the type that dominate in any advanced economic system, though.

-Jon

Re: My stupidity persists on the calculation problem

Jon Irenicus — Fri, 10 Oct 2008 17:03:53 GMT

It does mean that total state-imposed socialist systems cannot even qualify as economic systems though because they fail in addressing the major economic problem of allocating economic resources.

-Jon

Re: My stupidity persists on the calculation problem

hayekianxyz — Fri, 10 Oct 2008 11:57:35 GMT

Niccolò:

fakename:

It is probable that my conception of utility is wrong, and I have been reading, but I still think that if utility is subjective then there is no way to scientifically asses the welfare benefits or costs of socialism versus capitalism. So even if it is known that socialism cannot calculate, we cannot say from this fact that socialism is less preferable to capitalism.

Knowing that this must be wrong I ask if you would know any good articles/books on utility or calculation.

Fakename, I think you're on the right track here. The more subjective and individualistic you get in poli. econ, the better.

I think the basic point for "socialist" calculation isn't so much that it is preferrable as it is that "socialism" cannot efficiently allocate resources and possesses no means to assess the proper use functions.

This, as you have pointed out, does not mean that "capitalism" is superior to "socialism" on every level, merely that "capitalism" can do something that "socialism" cannot.

P.S. I use quotes because I don't subscribe to the view that capitalism = free market (what Mises seems to have been referencing), nor do I believe that socialism = teh evil collective-centralized boogeyman.

But then surely if the socialist does admit that utility is subjective then their whole argument for socialism falls apart.

Re: My stupidity persists on the calculation problem

Solid_Choke — Fri, 10 Oct 2008 08:37:43 GMT

Niccolò:

fakename:

It is probable that my conception of utility is wrong, and I have been reading, but I still think that if utility is subjective then there is no way to scientifically asses the welfare benefits or costs of socialism versus capitalism. So even if it is known that socialism cannot calculate, we cannot say from this fact that socialism is less preferable to capitalism.

Knowing that this must be wrong I ask if you would know any good articles/books on utility or calculation.

Fakename, I think you're on the right track here. The more subjective and individualistic you get in poli. econ, the better.

I think the basic point for "socialist" calculation isn't so much that it is preferrable as it is that "socialism" cannot efficiently allocate resources and possesses no means to assess the proper use functions.

This, as you have pointed out, does not mean that "capitalism" is superior to "socialism" on every level, merely that "capitalism" can do something that "socialism" cannot.

P.S. I use quotes because I don't subscribe to the view that capitalism = free market (what Mises seems to have been referencing), nor do I believe that socialism = teh evil collective-centralized boogeyman.

Do you deny that the commonly used means to attain socialism tends toward totalitarianism?

Re: My stupidity persists on the calculation problem

Niccolò — Fri, 10 Oct 2008 06:09:52 GMT

fakename:

It is probable that my conception of utility is wrong, and I have been reading, but I still think that if utility is subjective then there is no way to scientifically asses the welfare benefits or costs of socialism versus capitalism. So even if it is known that socialism cannot calculate, we cannot say from this fact that socialism is less preferable to capitalism.

Knowing that this must be wrong I ask if you would know any good articles/books on utility or calculation.

Fakename, I think you're on the right track here. The more subjective and individualistic you get in poli. econ, the better.

I think the basic point for "socialist" calculation isn't so much that it is preferrable as it is that "socialism" cannot efficiently allocate resources and possesses no means to assess the proper use functions.

This, as you have pointed out, does not mean that "capitalism" is superior to "socialism" on every level, merely that "capitalism" can do something that "socialism" cannot.

P.S. I use quotes because I don't subscribe to the view that capitalism = free market (what Mises seems to have been referencing), nor do I believe that socialism = teh evil collective-centralized boogeyman.

Re: My stupidity persists on the calculation problem

meambobbo — Fri, 10 Oct 2008 05:31:45 GMT

To be honest, I have not read any of Mises's works. I do know that his two main works on socialism were Socialism from i think 1920, and the revision of Human Action from the 60's. I'm not 100% on that. If I find it I'll link.

Utility is odd. Often the socialist will argue that egalitarian distribution of wealth is moral or promotional of social values or something of that nature. Yet socialist regimes are marked by not simply the wealthy or well off attempting to flee to freer markets, but also the poor. And capitalism is not marked by individuals attempting to hoard wealth. They are free to use, exchange, or donate their property as they please. If they value the well-being of others, then it increases their utility to donate to charity. The capitalist's argument is that capitalism will best provide such charitable people with means to fight poverty and human suffering.

Economics is not supposed to be firmly connected to morality or maximizing some conception of utility. It is supposed to be a study of how to most efficiently coordinate the production and exchange of property so that people can acheive their desired ends. These ends may be self-centered or generous.

Capitalism is often seen as cold because it appears to define utility through the calculation of profit. This is a little off. We may define economic efficiency in terms of profit, but not utility. Utility is defined by the individual and can occur or be absent in both profitable and unprofitable ventures.

Re: My stupidity persists on the calculation problem

fakename — Fri, 10 Oct 2008 03:52:58 GMT

I read your article and mises' article too. Rereading the last one was actually like reading a whole new book! Did mises even mention the perfect manager in his article? For the life of me I couldn't find one reference! Well in that case I guess his calculation argument is pretty much perfect. Nevertheless can you point out an instance where he actually addressed the perfect planner?

Thanks

Also, the utility thing is still hard to grasp.

Re: My stupidity persists on the calculation problem

meambobbo — Wed, 08 Oct 2008 20:22:42 GMT

fakename - it's not the unknown preferences of consumers that makes socialism fail. It is the unknown market value of capital goods, as they cannot be privately owned or exchanged. central planners will indeed use the preferences and opinions of consumers to attempt to compute values to certain capital goods. This may give some indication as to how valuable one capital good is to another capital good inside an existing structure of production; however, it does not suggest alternative structures of production.

In any case, none of the proposed methods of determining the values of capital goods have been attempted by a socialist regime. They all use the command economy. This might be because the equations needed to be solved could take years to solve even with the most modern computers. Or it could be because it is more accurate to simply use the market values of comparable capital goods in capitalist markets. Or because the central planners know their consumer preference information isn't complete or accurate.

Or because those setting the accounting prices would be rational to fudge the numbers and keep their jobs rather than reveal rampant losses - or inefficient use of property allocation.

For a more complete argument, look here.

Re: My stupidity persists on the calculation problem

fakename — Tue, 07 Oct 2008 04:23:19 GMT

Paul:

What don't you understand? In one case she's choosing between getting married and getting shot, and in the other she's choosing between getting married and not getting married. Her "preference scale" looks like this:

1) don't get married

2) get married

3) get shot

So I suppose that one can know the utility of something for a person but not in between people? And also doesn't economics deal with human action at the present without regard to human action in the past (utility from an exchange ex ante rather than ex post)? If this is true wouldn't basing a preference scale on past action (like her decision not to be married) be illicit?

Paul:
A "mind reading machine" wouldn't help. There are no "ratios" to figure out - you can only rank preferences in order (sort of; you can't even really do that very far - it's enough to just rank your highest preference above everything else), you can't put values on them ("I rank X at 35 preference units, Y at 32 preference units, ..."), which would be necessary to compare preferences between two people (and even if you could, you'd have to build Deep Thought and run the universe at fractional speed to solve the humongous preference matrix in "real time"; and then the planner would be operating on past data: he knows your preferences now, but production takes time and he can't know your future preferences until the future is the present, so he'll still misallocate resources!)

Notwithstanding the seeming innanity of my questions, I still think that in a market the ratios (prices) are directly indexed to preferences and preferences, though ordinal, can be compared by a person in terms of ordinal rank. In my scenario, I don't see how a central planner with knowledge of everyone's preferences is in any different position than a person who ranks his very own preferences. Indeed, it is true that these preferences would be a comparison of apples to oranges for the planner but a person with preferences for apples and/or oranges is still able to "plan" how to get them and uses his ordinal rankings and the market to do so -I don't see how a central planner with perfect knowledge of everyone's preferences and their rankings would be in any different position for he has all the same data that the people going to market have.

And finally, on aguilar I heard that there are good rebutals of him on this site. Where could I find them? I read that he uses obscurantist language -do the critics even know what he is talking about?

Re: My stupidity persists on the calculation problem

Paul — Mon, 06 Oct 2008 09:55:12 GMT

fakename:

True but another thing, after reading around on utility some more I'm still unable to fathom how we know in the above case that the woman's utility actually declined due to gov. force. I know that it wasn't maximizing for her to do it before, but now in the case of the shotgun wedding she clearly demonstrates her preference for the marriage?

What don't you understand? In one case she's choosing between getting married and getting shot, and in the other she's choosing between getting married and not getting married. Her "preference scale" looks like this:

1) don't get married

2) get married

3) get shot

Clearly, in constraining her to only choosing between (2) and (3), her choice of (2) is not maximizing her utility, since (1) is of higher utility, but you're not letting that be a consideration.

fakename:

Yeah, but my scenario is =to someone inventing a mind-reading machine on the market. I know it is impossible for socialism to calculate w/humans but with a mind reading machine everything is possible and the constant changes in the market and the preferences people have are known so figuring out the ratios shouldn't be that hard.

A "mind reading machine" wouldn't help. There are no "ratios" to figure out - you can only rank preferences in order (sort of; you can't even really do that very far - it's enough to just rank your highest preference above everything else), you can't put values on them ("I rank X at 35 preference units, Y at 32 preference units, ..."), which would be necessary to compare preferences between two people (and even if you could, you'd have to build Deep Thought and run the universe at fractional speed to solve the humongous preference matrix in "real time"; and then the planner would be operating on past data: he knows your preferences now, but production takes time and he can't know your future preferences until the future is the present, so he'll still misallocate resources!)

fakename:

One more question: Who is this aguilar who wrote axiomatic economics? i read an exchange between him and others and I was just wondering how wrong he was (having never read his paper) on a scale of 1-10?

18.7