Modern socialist attempt to refute Mises' calculation argument

In 1920, the right-wing economist Ludwig von Mises declared socialism
to be impossible. A leading member of the "Austrian" school of
economics, he argued this on the grounds that without private
ownership of the means of production, there cannot be a competitive
market for production goods and without a market for production goods,
it is impossible to determine their values. Without knowing their
values, economic rationality is impossible and so a socialist economy
would simply be chaos -- While applying his "calculation argument" to
Marxist ideas of a future socialist society, his argument, it is
claimed, is applicable to all schools of socialist thought, including
libertarian ones. It is on the basis of his arguments that many right-
wingers claim that libertarian (or any other kind of) socialism is
impossible in principle.

As David Schweickart observes "t has long been recognised that von
Mises's argument is logically defective. Even without a market in
production goods, their monetary values can be determined." [Against
Capitalism, p. 88] In other words, economic calculation based on
prices is perfectly possible in a libertarian socialist system. After
all, to build a workplace requires so many tonnes of steel, of many
bricks, so many hours of work and so on. If we assume a mutualist
(i.e. market socialist/co-operative) libertarian socialist society,
then the prices of these goods can be easily found as the co-
operatives in question would be offer their services on the market.
These commodities would be the inputs for the construction of
production goods and so the latter's monetary values can be found
(this does not address whether monetary values accurately reflect real
costs.

Ironically enough, von Mises did mention the idea of such a mutualist
system in his initial essay. He wrote of a system in which "the 'coal
[miners'] syndicate' provides the 'iron [workers'] syndicate'" with
goods and argued that "no price can be formed, except when both
syndicates are the owners of the means of production employed in their
business" (which may come as a surprise to transnational companies
whose different workplaces sell each other their products!) Such a
system is dismissed: "This would not be socialisation but workers'
capitalism and syndicalism." [Op. Cit., p. 112] However, his logic is
flawed. Firstly, as we noted, modern capitalism shows that workplaces
owned by the same body (in this case, a large company) can exchange
goods via the price form. That von Mises makes such a statement
indicates well the firm basis of his argument in reality. Secondly,
such a system may be, as von Mises states, "syndicalism" (at least a
form of syndicalism, as most syndicalists were and still are in favour
of libertarian communism, a simple fact apparently unknown to von
Mises) but it is not capitalist as there is no wage labour involved as
workers' own and control their own means of production.

Indeed, von Mises ignorance of syndicalist thought is striking. In
Human Action he asserts that the "market is a consumers' democracy.
The syndicalists want to transform it into a producers'
democracy." [p. 809] Most syndicalists, however, aim to abolish the
market and all aim for workers' control of production to complement
(not replace) consumer choice. Syndicalists, like other anarchists, do
not aim for workers' control of consumption as von Mises asserts.
Given that von Mises asserts that the market, in which one person can
have a thousand votes and another one, is a "democracy" his ignorance
of syndicalist ideas is perhaps only one aspect of a general ignorance
of reality. Indeed, such an economy also strikes at the heart of von
Mises' claims that socialism was "impossible." Given that von Mises
accepted that there may be markets, and hence market prices, for
consumer goods in a socialist economy his claims of the impossibility
of socialism seems unfounded. For von Mises, the problem for socialism
is that "because no production-good will ever become the object of
exchange, it will be impossible to determine its monetary value." [Op.
Cit., p. 92] The flaw in his argument is clear. Taking, for example,
coal, we find that it is both a means of production and of
consumption.

If a market in consumer goods is possible for a socialist system, then
competitive prices for production goods is also possible as syndicates
producing production-goods would also sell the product of their labour
to other syndicates or communes. Thus, when deciding upon a new
workplace, railway or house, the designers in question do have access
to competitive prices with which to make their decisions. Nor does his
argument work against communal ownership in such a system as the
commune would be buying products from syndicates in the same way as
one part of a multi-national company can buy products from another
part of the same company under capitalism. That goods produced by self-
managed syndicates have prices does not imply capitalism, regardless
of von Mises' claims. Thus economic calculation based on competitive
market prices is possible under a socialist system. Indeed, we see
examples of this even under capitalism. For example, the Mondragon co-
operative complex in the Basque Country indicate that a libertarian
socialist economy can exist and flourish. There is no need for capital
markets in a system based on mutual banks and networks of co-
operatives (indeed, as we argue capital markets hinder economic
efficiency by generating a perverse set of incentives and misleading
information flows and so their abolition would actually aid production
and productive efficiency).

So many errors. It seems like they ignored the calculation debate completely. The first major problem is that just taking the consumer price for coal reveals nothing regarding its utility as a capital good. They gloss over and ignore Mises' argument against these
socialist communes being able to even price capital goods in the first place, ignoring the heterogeneity/complementarity of capital. They do not realize that the "islands of socialism in a sea of capitalism" destroys the argument that because firms can price goods within themselves that this means an entire economy can be run independently of the market. It's as though the calculation debate never took place. See this article by Rothbard, and you'll notice the horrific ignorance of anything that has happened since Lange's defeat. They even fail to realize that Mises' definition of capitalism is free exchange of private property, and so they rule out a priori that syndicalism is "worker's capitalism".

-Jon.

In response to von Mises initial challenge, a number of economists pointed out that Pareto's disciple, Enrico Barone, had already, 13 years earlier, demonstrated the theoretical possibility of a "market-simulated socialism." However, the principal attack on von Mises's argument came from Fred Taylor and Oscar Lange (for a collection of their main papers, see On the Economic Theory of Socialism, Benjamin Lippincott (ed.), University of Minnesota, 1938). In light of their work, Frederick von Hayek shifted the question from theoretical impossibility to whether the theoretical solution could be approximated in practice. Thus even von Hayek, a major free-market capitalist guru, seemed to think that von Mises's argument could not be defended.

Moreover, it should be noted that both sides of the argument accepted the idea of central planning of some kind or another. This means that many of von Mises's and von Hayek's arguments did not apply to libertarian socialism, which rejects central planning along with every other form of centralisation. This is a key point, as most members of the right seem to assume that "socialists" all agree with each other in supporting a centralised economic system. In other words, they ignore a large segment of socialist thought and history in order to concentrate on Social Democracy and Leninism. The idea of a network of "people's banks" and co-operatives working together to meet their common interests is ignored, although it has been a common feature in socialist thought since the time of Robert Owen.

 

Nor was Taylor and Lange's response particularly convincing in the first place. This was because it was based far more on neo-classical capitalist economic theory than on an appreciation of reality. In place of the Walsrian "Auctioneer" (the "god in the machine" of general equilibrium theory which ensures that all markets clear) Taylor and Lange presented the Planning Authority (the "Central Planning Board"), whose job it was to adjust prices so that all markets cleared. Neo-classical economists who are inclined to accept Walrasian theory as an adequate account of a working capitalist economy will be forced to accept the validity of Taylor and Lange's version of "socialism." Little wonder Taylor and Lange were considered, at the time, the victors in the "socialist calculation" debate by most of the economics profession (with the collapse of the Soviet Union, this decision has been revised somewhat -- although we must point out that Taylor and Lange's model was not the same as the Soviet system, a fact conveniently ignored by commentators).

 

Unfortunately, given that Walrasian theory has little bearing to reality, we must also come to the conclusion that the Taylor-Lange "solution" has about the same relevance (even ignoring its non-libertarian aspects, such as its basis in state-ownership, its centralisation, its lack of workers' self-management and so on). Many people consider Taylor and Lange as fore-runners of "market socialism." This is incorrect -- rather than being market socialists, they are in fact "neo-classical" socialists, building a "socialist" system which mimics capitalist economic theory rather than its reality. Replacing Walrus's mythical creation of the "Auctioneer" with a planning board does not really get to the heart of the problem! Nor does their vision of "socialism" have much appeal -- a re-production of capitalism with a planning board and a more equal distribution of money income. Anarchists reject such "socialism" as little more than a nicer version of capitalism, if that.

 

With the collapse of the Soviet Union, it has been fashionable to argue that "von Mises was right" and that socialism is impossible (of course, during the cold war such claims were ignored as the Soviet threat had to boosted and used as a means of social control and to justify state aid to capitalist industry). Nothing could be further from the truth. As we have argued in the previous section and elsewhere, these countries were not socialist at all and did not even approximate the (libertarian) socialist idea (which is the -only- true form of socialism).

Obviously the Soviet Union and Eastern European countries had authoritarian "command economies" with central bureaucratic planning, and so their failure cannot be taken as proof that a decentralised, libertarian socialism cannot work. Nor can von Mises' and von Hayek's arguments against Taylor and Lange be used against a libertarian mutualist or collectivist system as such a system is decentralised and dynamic (unlike the "neo-classical" socialist model they proposed). Libertarian socialism of this kind did, in fact, work remarkably well during the Spanish Revolution in the face of amazing difficulties, with increased productivity and output in many workplaces as well as increased equality and liberty (see Sam Dolgoff, The Anarchist Collectives or Gaston Leval's Collectives in the Spanish Revolution

 

Thus von Mises "calculation argument" does not prove that socialism is impossible. The theoretical work of such socialists as David Schweickart (see his Against Capitalism for an extensive discussion of a dynamic, decentralised market socialist system) and others on market socialism shows that von Mises was wrong in asserting that "a socialist system with a market and market prices is as self-contradictory as is the notion of a triangular square." Indeed, by suppressing capital markets in favour of simple commodity production, a mutualist system will improve upon capitalism by removing an important source of perverse incentives which hinder long term investment and social responsibility (see section I.4.8) in addition to reducing inequalities, increasing freedom and improving general economic performance.

So far, most models of market socialism have not been fully libertarian, but instead involve the idea of workers' control within a framework of state ownership of capital (Engler in Apostles of Greed is an exception to this, supporting community ownership). However, libertarian forms of market socialism are indeed possible and would be similar to Proudhon's mutualism. As anarchist Robert Graham points out, "Market socialism is but one of the ideas defended by Proudhon which is both timely and controversial. . . Proudhon's market socialism is indissolubly linked with his notions of industrial democracy and workers' self-management." ["Introduction", P-J Proudhon, General Idea of the Revolution, p. xxxii]

His system of agro-industrial federations can be seen as a non-statist way of protecting self-management, liberty and equality in the face of market forces (as he argued in The Principle of Federation, "owever impeccable in its basic logic the federal principle may be. . . it will not survive if economic factors tend persistently to dissolve it. In other words, political right requires to be buttressed by economic right" and "in an economic context, confederation may be intended to provide reciprocal security in commerce and industry. . . The purpose of such specific federal arrangements is to protect the citizens. . . from capitalist and financial exploitation. . . in their aggregate they form . . . an agro-industrial federation" [The Principle of Federation, p. 67 and p. 70]).

Indeed, some Leninist Marxists recognise the links between Proudhon and market socialism. For example, the unorthodox Trotskyite Hillel Ticktin argues that Proudhon, "the anarchist and inveterate foe of Karl Marx. . . put forward a conception of society, which is probably the first detailed exposition of a 'socialist market.'" ["The Problem is Market Socialism", in Market Socialism: The Debate Among Socialists, edited by Bertell Ollman, p. 56] In addition, see Against the Market in which the author, Dave McNally, correctly argues that Proudhon was a precursor of the current market socialists. Needless to say, these Leninists reject the idea of market socialism as contradictory and, basically, not socialist (while, strangely enough, acknowledging that the transition to Marxist-communism under the workers' state would use the market!).

Thus it is possible for a socialist economy to allocate resources using a competitive market. However, does von Mises's argument mean that a socialism that abolishes the market (such as libertarian communism) is impossible? Given that the vast majority of anarchists seek a libertarian communist society, this is an important question. While the "calculation argument" is often used by right-libertarian's as the "scientific" basis for the argument that communism (a moneyless society) is impossible, it is based on certain false ideas of what money does and how an anarchist society would function without it. This is hardly surprising, as Mises based his theory on the "subjective" theory of value and the Marxist social-democratic (and so Leninist) ideas of what a "socialist" economy would look like. As Libertarian Marxist Paul Mattick correctly argued:

"However divided the old [social-democratic] labour movement may be by disagreements on various topics, on the question of socialism it stands united. Hilferding's abstract 'General-Cartel', Lenin's admiration for the German war socialism and the German postal service. Kautsky's eternalisation of the value-price-money economy (desiring to do consciously what in capitalism is performed by blind market forces). Trotsky's war communism equipped with supply and demand features, and Stalin's institutional economics -- all these concepts have at their base the continuation of the existing conditions of production. As a matter of fact, they are mere reflections of what is actually going on in capitalist society. Indeed, such 'socialism' is discussed today by famous bourgeois economists like Pigou, Hayek, Robbins, Keynes, to mention only a few, and has created a considerable literature to which the socialists now turn for their material." [Anti-Bolshevik Communism

Therefore, there has been little discussion of what a true (i.e. libertarian) communist society would be like, one that utterly transformed the existing conditions of production by workers' self-management and the abolition of both the wages system and money. However, it is useful here to indicate exactly why a moneyless (i.e. truly communist) "economy" would work and why the "calculation argument" is flawed as an objection to it.

Mises argued that without money there was no way a socialist economy would make "rational" production decisions. Not even von Mises denied that a moneyless society could estimate what is likely to be needed over a given period of time (as expressed as physical quantities of definite types and sorts of objects). As he argued, "calculation in natura in an economy without exchange can embrace consumption-goods only." [Collectivist Economic Planning, F.A. Von Hayek (ed.), p. 104] Mises' argument is that the next step, working out which productive methods to employ, would not be possible, or at least would not be able to be done "rationally," i.e. avoiding waste and inefficiency.

As he argues, the evaluation of producer goods "can only be done with some kind of economic calculation. The human mind cannot orient itself properly among the bewildering mass of intermediate products and potentialities without such aid. It would simply stand perplexed before the problems of management and location." [Op. Cit., p. 103] Mises' claimed that monetary calculation based on market prices is the only solution. However, Mises' argument is based on a number of flawed assumptions. Firstly, he assumes a centralised, planned economy. While this was a common idea in Marxian social democracy (and the Leninism that came from it), it is rejected by anarchism. No small body of people can be expected to know what happens in society ("No single brain nor any bureau of brains can see to this organisation," in the words of Issac Puente [Libertarian Communism, p. 29]). As Bakunin argued, it would lead in practice to "an extremely complex government.

This government will not content itself with administering and governing the masses politically . . . it will also administer the masses economically, concentrating in the hands of the State [all economic and social activity] . . . All that will demand an immense knowledge and many heads 'overflowing with brains' in this government. It will be the reign of scientific intelligence, the most aristocratic, despotic, arrogant, and elitist of all regimes. There will be a new class, a new hierarchy . . . Such a regime will not fail to arouse very considerable discontent in the masses of the people, and in order to keep them in check . . . considerable armed force [would be required]." [Bakunin on Anarchism, p. 319] Hence anarchists can agree with Mises: central planning cannot work in practice. However, socialist ideas are not limited to Marxian Social Democracy, and so von Mises ignores far more socialistic ideas than he attacks.

His next assumption is equally flawed. This is that without the market, no information is passed between producers beyond the final outcome of production. In other words, he assumes that the final product is all that counts in evaluating its use. Needless to say, it is true that without more information than the name of a given product, it is impossible to determine whether using it would be an efficient utilisation of resources. But von Mises misunderstands the basic concept of use-value, namely the utility of a good to the consumer of it. As Adam Buick and John Crump point out, "at the level of the individual production unit or industry, the only calculations that would be necessary in socialism would be calculations in kind. On the one side would be recorded the resources (materials, energy, equipment, labour) used up in production and on the other the amount of good produced, together with any by-products. . . .

Socialist production is simply the production of use values from use values, and nothing more." [State Capitalism: The Wages System Under New Management, p. 137]

The generation and communication of such information implies a decentralised, horizontal network between producers and consumers. This is because what counts as a use-value can only be determined by those directly using it. Thus the production of use-values from use-values cannot be achieved via central planning, as the central planners have no notion of the use-value of the goods being used or produced. Such knowledge lies in many hands, dispersed throughout society, and so socialist production implies decentralisation. Capitalist ideologues claim that the market allows the utilisation of such dispersed knowledge, but as John O'Neil notes, "the market may be one way in which dispersed knowledge can be put to good effect. It is not . . . the only way." [Ecology, Policy and Politics, p. 118]

So, in order to determine if a specific good is useful to a person, that person needs to know its "cost." Under capitalism, the notion of cost has been so associated with price that we have to put the word "cost" in quotation marks. However, the real cost of, say, writing a book, is not a sum of money but so much paper, so much energy, so much ink, so much human labour. In order to make a rational decision on whether a given good is better for meeting a given need than another, the would-be consumer requires this information. However, under capitalism this information is hidden by the price. Moreover, a purely mark