Economic calculation problem: Difference between revisions
Jump to navigation
Jump to search
imported>JJMC89 bot III m Removing Category:Management cybernetics per Wikipedia:Categories for discussion/Log/2025 July 10#Category:Management cybernetics |
→Example: deleted the "neutrality" tag for this section. there was no specific explanation for this tag on the talk page. if some prominent economist or other person responded/criticized to Mises's concept here, please post the response |
||
| Line 1: | Line 1: | ||
{{Short description|Critique of planned economies}} | {{Short description|Critique of planned economies}} | ||
{{multiple| | {{multiple| | ||
{{more citations needed|date= | {{more citations needed|date=January 2026}} | ||
{{essay-like|date= | {{essay-like|date=January 2026}} | ||
}} | }} | ||
{{Austrian School sidebar|theory}} | {{Austrian School sidebar|theory}} | ||
{{socialism sidebar|related}} | {{socialism sidebar|related}} | ||
The '''economic calculation problem''' ('''ECP''') is a criticism of using central [[economic planning]] | The '''economic calculation problem''' ('''ECP''') is a criticism of using central [[economic planning]] (rather than [[Market (economics)|market-based mechanisms]]) for the allocation of the [[factors of production]]. It was first proposed by [[Ludwig von Mises]] in his 1920 article "[[Economic Calculation in the Socialist Commonwealth]]" and later expanded upon by [[Friedrich Hayek]].<ref name="Mises">{{cite book|title=Economic calculation in the Socialist Commonwealth|last=Von Mises|first=Ludwig|author-link=Ludwig von Mises|year=1990|publisher=[[Mises Institute]]|url=https://mises.org/sites/default/files/Economic%20Calculation%20in%20the%20Socialist%20Commonwealth_Vol_2_3.pdf}}</ref><ref>Hayek, Friedrich (1935). "The Nature and History of the Problem"; "The Present State of the Debate". ''Collectivist Economic Planning''. pp. 1–40, 201–243.</ref> | ||
In his first article, Mises described the nature of the price system under [[capitalism]] and described how individual [[subjective value theory|subjective values]] (while criticizing [[Labor_theory_of_value|other theories of value]]) are translated into the objective information necessary for [[Rational choice theory|rational]] allocation of resources in society.<ref name="Mises"/> He argued that central planning necessarily leads to an irrational and inefficient [[allocation of resources]]. In market exchanges, prices reflect the [[supply and demand]] of resources, labor and products. In the article, Mises focused his criticism on the deficiencies of the [[Socialization (economics)|socialisation]] of capital goods, but he later went on to elaborate on various different forms of socialism in his book ''[[Socialism (book)|Socialism]]''. He briefly mentioned the problem in the 3rd book of ''[[Human Action: A Treatise on Economics|Human Action: a Treatise on Economics]]'', where he also elaborated on the different types of [[socialism]], namely the [[Paul von Hindenburg|"Hindenburg"]] and [[Leninism|"Lenin"]] models, which he viewed as fundamentally flawed despite their ideological differences.<ref>{{Cite book|last=Mises|first=Ludwig|title=Human Action: a Treatise on Economics|year=1949}}</ref> | In his first article, Mises described the nature of the price system under [[capitalism]] and described how individual [[subjective value theory|subjective values]] (while criticizing [[Labor_theory_of_value|other theories of value]]) are translated into the objective information necessary for [[Rational choice theory|rational]] allocation of resources in society.<ref name="Mises"/> He argued that central planning necessarily leads to an irrational and inefficient [[allocation of resources]]. In market exchanges, prices reflect the [[supply and demand]] of resources, labor and products. In the article, Mises focused his criticism on the deficiencies of the [[Socialization (economics)|socialisation]] of capital goods, but he later went on to elaborate on various different forms of socialism in his book ''[[Socialism (book)|Socialism]]''. He briefly mentioned the problem in the 3rd book of ''[[Human Action: A Treatise on Economics|Human Action: a Treatise on Economics]]'', where he also elaborated on the different types of [[socialism]], namely the [[Paul von Hindenburg|"Hindenburg"]] and [[Leninism|"Lenin"]] models, which he viewed as fundamentally flawed despite their ideological differences.<ref>{{Cite book|last=Mises|first=Ludwig|title=Human Action: a Treatise on Economics|year=1949}}</ref> | ||
Mises and Hayek argued that economic calculation is only possible by information provided through market prices and that centralist methods of allocation lack methods to rationally allocate resources. Mises's analysis centered on price theory while Hayek went with a more feathered analysis of information and entrepreneurship{{Citation needed|date=June 2025}} | Mises and Hayek argued that economic calculation is only possible by information provided through market prices and that centralist methods of allocation lack methods to rationally allocate resources. Mises's analysis centered on price theory while Hayek went with a more feathered analysis of information and entrepreneurship.{{Citation needed|date=June 2025}} The debate raged in the 1920s and 1930s and that specific period of the debate has come to be known by [[Economic history|economic historians]] as the [[socialist calculation debate]]. Mises' initial criticism received multiple reactions and led to the conception of trial-and-error [[market socialism]], most notably the [[Lange–Lerner theorem]]. | ||
In the 1920 paper, Mises argued that the pricing systems in state socialist economies were necessarily deficient because if a public entity owned all the [[means of production]], no rational prices could be obtained for [[capital goods]] as they were merely internal transfers of goods and not "objects of exchange", unlike final goods. Therefore, they were unpriced and hence the system would be necessarily irrational as the central planners would not know how to allocate the available resources efficiently.<ref name="Mises"/> He wrote that "rational economic activity is impossible in a socialist [[commonwealth]]".<ref name="Mises"/> Mises developed his critique of socialism more completely in his 1922 book ''[[Socialism (book)|Socialism]]'', arguing that the market price system is an expression of [[praxeology]] and cannot be replicated by any form of [[bureaucracy]]. | In the 1920 paper, Mises argued that the pricing systems in state socialist economies were necessarily deficient because if a public entity owned all the [[means of production]], no rational prices could be obtained for [[capital goods]] as they were merely internal transfers of goods and not "objects of exchange", unlike final goods. Therefore, they were unpriced and hence the system would be necessarily irrational as the central planners would not know how to allocate the available resources efficiently.<ref name="Mises"/> He wrote that "rational economic activity is impossible in a socialist [[commonwealth]]".<ref name="Mises"/> Mises developed his critique of socialism more completely in his 1922 book ''[[Socialism (book)|Socialism]]'', arguing that the market price system is an expression of [[praxeology]] and cannot be replicated by any form of [[bureaucracy]]. | ||
Notable critics of both Mises's original argument and Hayek's newer proposition include [[ | Notable critics of both Mises's original argument and Hayek's newer proposition include [[anarcho-capitalist]] economist [[Bryan Caplan]]<ref name=":0" /> and Marxist computer scientist [[Paul Cockshott]], as well as other [[communist]]s. | ||
== Theory == | == Theory == | ||
| Line 21: | Line 20: | ||
=== Subject === | === Subject === | ||
The economic calculation problem is primarily applied to centrally planned economies.<ref>{{Cite web |last=Davis |first=Evan |date=2022-10-31 |title=Socialism's Economic Calculation Problem |url=https://econreview.studentorg.berkeley.edu/socialisms-economic-calculation-problem/ |url-status=live |archive-url=https://web.archive.org/web/20240508095519/https://econreview.studentorg.berkeley.edu/socialisms-economic-calculation-problem/ |archive-date=2024-05-08 |access-date=2024-06-21 |language=en-US |quote="It is also worth noting that this problem applies mainly to centrally planned socialist societies. There exist forms of ‘market socialism’, where competitive markets remain, but hierarchical business models are entirely replaced by co-ops. But the majority of Marxian socialists see market competition as an anarchic issue of unplanned chaos to be solved through central planning."}}</ref> Mises had utilized ''Economic Calculation in the Socialist Commonwealth'' to counterargue [[Otto Neurath]]'s statements concerning central planning's feasibility, invoking "the supreme economic council" and equating socialism to "a society where the means of production are State controlled."<ref name="Mises" /> | The economic calculation problem is primarily applied to centrally planned economies.<ref>{{Cite web |last=Davis |first=Evan |date=2022-10-31 |title=Socialism's Economic Calculation Problem |url=https://econreview.studentorg.berkeley.edu/socialisms-economic-calculation-problem/ |url-status=live |archive-url=https://web.archive.org/web/20240508095519/https://econreview.studentorg.berkeley.edu/socialisms-economic-calculation-problem/ |archive-date=2024-05-08 |access-date=2024-06-21 |language=en-US |quote="It is also worth noting that this problem applies mainly to centrally planned socialist societies. There exist forms of ‘market socialism’, where competitive markets remain, but hierarchical business models are entirely replaced by co-ops. But the majority of Marxian socialists see market competition as an anarchic issue of unplanned chaos to be solved through central planning."}}</ref> Mises had utilized ''Economic Calculation in the Socialist Commonwealth'' to counterargue [[Otto Neurath]]'s statements concerning central planning's feasibility, invoking "the supreme economic council" and equating socialism to "a society where the means of production are State controlled."<ref name="Mises" /> | ||
=== Comparing heterogeneous goods === | === Comparing heterogeneous goods === | ||
As a [[means of exchange]], [[money]] enables buyers to compare the costs of goods without having knowledge of their underlying factors; the consumer can simply focus on his personal cost-benefit decision. Therefore, the price system is said to promote economically efficient use of resources by agents who may not have explicit knowledge of all of the conditions of production or supply. This is called the [[Signalling (economics)|signalling]] function of [[price]]s as well as the [[rationing]] function which prevents over-use of any resource.<ref>[[Murray Rothbard|Rothbard, Murray]] (1962). ''Man, Economy and the State''. Chapter VIII. Paragraph 6. p. 498.</ref> | As a [[means of exchange]], [[money]] enables buyers to compare the costs of goods without having knowledge of their underlying factors; the consumer can simply focus on his personal cost-benefit decision. Therefore, the price system is said to promote economically efficient use of resources by agents who may not have explicit knowledge of all of the conditions of production or supply. This is called the [[Signalling (economics)|signalling]] function of [[price]]s as well as the [[rationing]] function which prevents over-use of any resource.<ref>[[Murray Rothbard|Rothbard, Murray]] (1962). ''Man, Economy and the State''. Chapter VIII. Paragraph 6. p. 498.</ref> | ||
Without the market process to fulfill such comparisons, critics of non-market socialism say that it lacks any way to compare different goods and services and would have to rely on [[calculation in kind]]. The resulting decisions, it is claimed, would therefore be made without sufficient knowledge to be considered rational.<ref>Perry, Mark J. (17 September 2013). [http://www.aei.org/publication/thomas-sowell-on-the-minimum-wage/ "Thomas Sowell on the minimum wage"]. American Enterprise Institute. Retrieved 19 February 2019.</ref> | Without the market process to fulfill such comparisons, critics of non-market socialism say that it lacks any way to compare different goods and services and would have to rely on [[calculation in kind]]. The resulting decisions, it is claimed, would therefore be made without sufficient knowledge to be considered rational.<ref>Perry, Mark J. (17 September 2013). [http://www.aei.org/publication/thomas-sowell-on-the-minimum-wage/ "Thomas Sowell on the minimum wage"]. American Enterprise Institute. Retrieved 19 February 2019.</ref> | ||
=== Entrepreneurship === | === Entrepreneurship === | ||
Entrepreneurs lack the [[profit motive]] to take risks under socialism and so are far less likely to attempt to supply consumer demands. Without the price system to match consumer utility to incentives for production, or even indicate those utilities "without providing incentives", state planners are much less likely to invest in new ideas to satisfy consumers' desires. Entrepreneurs would also lack the ability to economize within the production process, causing repercussions for consumers.<ref name=":1" /> | Entrepreneurs lack the [[profit motive]] to take risks under socialism and so are far less likely to attempt to supply consumer demands. Without the price system to match consumer utility to incentives for production, or even indicate those utilities "without providing incentives", state planners are much less likely to invest in new ideas to satisfy consumers' desires. Entrepreneurs would also lack the ability to economize within the production process, causing repercussions for consumers.<ref name=":1" /> | ||
=== Coherent planning === | === Coherent planning === | ||
As for socialism, Mises (1944) and Hayek (1937) insisted that bureaucrats in individual ministries could not coordinate their plans without a price system due to [[local knowledge problem|the local knowledge problem.]] Opponents argued that in principle an economy can be seen as a set of equations. Thus, using information about available resources and the preferences of people, it should be possible to calculate an optimal solution for resource allocation. [[Friedrich von Hayek]] responded that the system of equations required too much information that would not be easily available, and the ensuing calculations would be too difficult.{{Citation needed|date=October 2010}} This is partly because individuals possess useful knowledge but do not realize its importance, may have no incentive to transmit the information, or may have incentive to transmit false information about their preferences.<ref>{{cite book|last=Hayek|first=Friedrich|author-link=Friedrich Hayek|title=[[The Road to Serfdom]]|publisher=[[University of Chicago Press]]|edition=50th anniversary|year=1994|isbn=0-226-32061-8}}</ref> He contended that the only rational solution is to utilize all the [[dispersed knowledge]] in the market place through the use of [[price signal]]s.<ref>{{cite book|last=Steele|first=David Ramsay|author-link=David Ramsay Steele|title=From Marx to Mises: Post-capitalist Society and the Challenge of Economic Calculation|year=1992|publisher=Open Court|location=La Salle, Illinois|isbn=0-8126-9016-8}}</ref> The early debates were made before the much greater calculating powers of modern [[computers]] became available but also before research on [[chaos theory]]. In the 1980s, [[Alexander Nove]] argued that the calculations would take millions of years even with the best computers.<ref>{{cite book|last=Nove|first= Alec|title=The economics of feasible socialism|date=1983|publisher=G. Allen & Unwin|isbn=0-04-335048-8|location=London|oclc=8827566}}</ref> It may be impossible to make long-term predictions for a highly complex system such as an economy.<ref>Bergstra, Jan. [http://www.phil.uu.nl/~janb/phloofin/eclog.html "Economic Logic: A Survey and Variations on the Theme"]. {{webarchive|url=https://web.archive.org/web/20070105024440/http://www.phil.uu.nl/~janb/phloofin/eclog.html|date=5 January 2007}} Utrecht University, Department of Philosophy, section Theoretical Philosophy, group of Applied Logic. Retrieved 4 January 2015.</ref> | As for socialism, Mises (1944) and Hayek (1937) insisted that bureaucrats in individual ministries could not coordinate their plans without a price system due to [[local knowledge problem|the local knowledge problem.]] Opponents argued that in principle an economy can be seen as a set of equations. Thus, using information about available resources and the preferences of people, it should be possible to calculate an optimal solution for resource allocation. [[Friedrich von Hayek]] responded that the system of equations required too much information that would not be easily available, and the ensuing calculations would be too difficult.{{Citation needed|date=October 2010}} This is partly because individuals possess useful knowledge but do not realize its importance, may have no incentive to transmit the information, or may have incentive to transmit false information about their preferences.<ref>{{cite book|last=Hayek|first=Friedrich|author-link=Friedrich Hayek|title=[[The Road to Serfdom]]|publisher=[[University of Chicago Press]]|edition=50th anniversary|year=1994|isbn=0-226-32061-8}}</ref> He contended that the only rational solution is to utilize all the [[dispersed knowledge]] in the market place through the use of [[price signal]]s.<ref>{{cite book|last=Steele|first=David Ramsay|author-link=David Ramsay Steele|title=From Marx to Mises: Post-capitalist Society and the Challenge of Economic Calculation|year=1992|publisher=Open Court|location=La Salle, Illinois|isbn=0-8126-9016-8}}</ref> The early debates were made before the much greater calculating powers of modern [[computers]] became available but also before research on [[chaos theory]]. In the 1980s, [[Alexander Nove]] argued that the calculations would take millions of years even with the best computers.<ref>{{cite book|last=Nove|first= Alec|title=The economics of feasible socialism|date=1983|publisher=G. Allen & Unwin|isbn=0-04-335048-8|location=London|oclc=8827566}}</ref> It may be impossible to make long-term predictions for a highly complex system such as an economy.<ref>Bergstra, Jan. [http://www.phil.uu.nl/~janb/phloofin/eclog.html "Economic Logic: A Survey and Variations on the Theme"]. {{webarchive|url=https://web.archive.org/web/20070105024440/http://www.phil.uu.nl/~janb/phloofin/eclog.html|date=5 January 2007}} Utrecht University, Department of Philosophy, section Theoretical Philosophy, group of Applied Logic. Retrieved 4 January 2015.</ref> | ||
However, Hayek's argumentation is not only regarding computational complexity for the central planners. He further argues that much of the information individuals have cannot be collected or used by others. First, individuals may have no or little [[incentive]] to share their information with central or even local planners. Second, the individual may not be aware that he has valuable information; and when he becomes aware, it is only useful for a limited time, too short for it to be communicated to the central or local planners. Third, the information is useless to other individuals if it is not in a form that allows for meaningful comparisons of value (i.e. money prices as a common basis for comparison). Therefore, Hayek argues, individuals must acquire data through prices in real markets.<ref>{{cite web|first=Carlo|last=Zappia|title=The economics of information, market socialism and Hayek's legacy|url=http://www.econ-pol.unisi.it/pubdocenti/HEI99.pdf|access-date=3 April 2007|url-status=dead|archive-url=https://web.archive.org/web/20070614110711/http://www.econ-pol.unisi.it/pubdocenti/HEI99.pdf|archive-date=14 June 2007}}</ref> | However, Hayek's argumentation is not only regarding computational complexity for the central planners. He further argues that much of the information individuals have cannot be collected or used by others. First, individuals may have no or little [[incentive]] to share their information with central or even local planners. Second, the individual may not be aware that he has valuable information; and when he becomes aware, it is only useful for a limited time, too short for it to be communicated to the central or local planners. Third, the information is useless to other individuals if it is not in a form that allows for meaningful comparisons of value (i.e. money prices as a common basis for comparison). Therefore, Hayek argues, individuals must acquire data through prices in real markets.<ref>{{cite web|first=Carlo|last=Zappia|title=The economics of information, market socialism and Hayek's legacy|url=http://www.econ-pol.unisi.it/pubdocenti/HEI99.pdf|access-date=3 April 2007|url-status=dead|archive-url=https://web.archive.org/web/20070614110711/http://www.econ-pol.unisi.it/pubdocenti/HEI99.pdf|archive-date=14 June 2007}}</ref> | ||
=== Financial markets === | === Financial markets === | ||
Prices in [[futures markets]] play a special role in economic calculation. Futures markets develop prices for commodities in future time periods. It is in futures markets that entrepreneurs sort out plans for production based on their expectations. Futures markets are a link between entrepreneurial investment decisions and household consumer decisions. Since most goods are not explicitly traded in futures markets, substitute markets are needed. The stock market serves as a ‘continuous futures market’ that evaluates entrepreneurial plans for production (Lachmann 1978). Generally speaking, the problem of economic calculation is solved in financial markets as Mises argued: | Prices in [[futures markets]] play a special role in economic calculation. Futures markets develop prices for commodities in future time periods. It is in futures markets that entrepreneurs sort out plans for production based on their expectations. Futures markets are a link between entrepreneurial investment decisions and household consumer decisions. Since most goods are not explicitly traded in futures markets, substitute markets are needed. The stock market serves as a ‘continuous futures market’ that evaluates entrepreneurial plans for production (Lachmann 1978). Generally speaking, the problem of economic calculation is solved in financial markets as Mises argued: | ||
{{Blockquote|The problem of economic calculation arises in an economy which is perpetually subject to change [...]. In order to solve such problems it is above all necessary that capital be withdrawn from particular undertakings and applied in other lines of production [...]. [This] is essentially a matter of the capitalists who buy and sell stocks and shares, who make loans and recover them, who speculate in all kinds of commodities.<ref>Von Mises, Ludwig (1922) [1936]. ''[[Socialism (book)|Socialism]]''. p. 121.</ref>}} | {{Blockquote|The problem of economic calculation arises in an economy which is perpetually subject to change [...]. In order to solve such problems it is above all necessary that capital be withdrawn from particular undertakings and applied in other lines of production [...]. [This] is essentially a matter of the capitalists who buy and sell stocks and shares, who make loans and recover them, who speculate in all kinds of commodities.<ref>Von Mises, Ludwig (1922) [1936]. ''[[Socialism (book)|Socialism]]''. p. 121.</ref>}} | ||
== Example == | == Example == | ||
Mises gave the example of choosing between producing wine or oil within a centrally planned economy, making the following point: | Mises gave the example of choosing between producing wine or oil within a centrally planned economy, making the following point: | ||
{{quote|It will be evident, even in the socialist society, that 1,000 hectolitres of wine are better than 800, and it is not difficult to decide whether it desires 1,000 hectolitres of wine rather than 500 of oil. There is no need for any system of calculation to establish this fact: the deciding element is the will of the economic subjects involved. But once this decision has been taken, the real task of rational economic direction only commences, i.e., economically, to place the means at the service of the end. That 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 of production without such aid. It would simply stand perplexed before the problems of management and location.<ref name="Mises"/>}} | {{quote|It will be evident, even in the socialist society, that 1,000 hectolitres of wine are better than 800, and it is not difficult to decide whether it desires 1,000 hectolitres of wine rather than 500 of oil. There is no need for any system of calculation to establish this fact: the deciding element is the will of the economic subjects involved. But once this decision has been taken, the real task of rational economic direction only commences, i.e., economically, to place the means at the service of the end. That 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 of production without such aid. It would simply stand perplexed before the problems of management and location.<ref name="Mises"/>}} | ||
== Implementation of central planning decisions == | == Implementation of central planning decisions == | ||
In ''[[The Road to Serfdom]]'', Hayek also argues that the central administrative resource allocation, which often must take away resources and power from subordinate | In ''[[The Road to Serfdom]]'', Hayek also argues that the central administrative resource allocation, which often must take away resources and power from subordinate leaders and groups, necessarily requires and therefore selects ruthless leaders and the continued strong threat of coercion and punishment in order for the plans to be somewhat effectively implemented. This, in combination of the failures of the central planning, slowly leads socialism down the road to an oppressive dictatorship.<ref>{{cite book|last=Hayek|first=Friedrich|author-link=Friedrich Hayek|title=[[The Road to Serfdom]]|publisher=[[University of Chicago Press]]|edition=50th anniversary|date=1994|isbn=0-226-32061-8}}</ref> | ||
Central planning was also criticized by socialist economists such as [[Janos Kornai]] and [[Alexander Nove]]. [[Robin Cox]] has argued that the economic calculation argument can only be successfully rebutted on the assumption that a moneyless socialist economy was to a large extent spontaneously ordered via a self-regulating system of stock control which would enable decision-makers to allocate production goods on the basis of their relative scarcity using calculation in kind. This was only feasible in an economy where most decisions were decentralised.<ref>{{cite web|url=https://www.scribd.com/document/215256501/The-Economic-Calculation-Controversy-Unravelling-of-a-Myth|title=The Economic Calculation Controversy, Unravelling of a Myth|website=Scribd|access-date=5 June 2017}}</ref> | Central planning was also criticized by socialist economists such as [[Janos Kornai]] and [[Alexander Nove]]. [[Robin Cox]] has argued that the economic calculation argument can only be successfully rebutted on the assumption that a moneyless socialist economy was to a large extent spontaneously ordered via a self-regulating system of stock control which would enable decision-makers to allocate production goods on the basis of their relative scarcity using calculation in kind. This was only feasible in an economy where most decisions were decentralised.<ref>{{cite web|url=https://www.scribd.com/document/215256501/The-Economic-Calculation-Controversy-Unravelling-of-a-Myth|title=The Economic Calculation Controversy, Unravelling of a Myth|website=Scribd|access-date=5 June 2017}}</ref> | ||
| Line 93: | Line 57: | ||
=== Equilibrium === | === Equilibrium === | ||
Allin Cottrell, [[Paul Cockshott]] and Greg Michaelson argued that the contention that finding a true economic equilibrium is not just hard but impossible for a central planner applies equally well to a market system. As any [[universal Turing machine]] can do what any other Turing machine can, | Allin Cottrell, [[Paul Cockshott]] and Greg Michaelson argued that the contention that finding a true economic equilibrium is not just hard but impossible for a central planner applies equally well to a market system. As any [[universal Turing machine]] can do what any other Turing machine can, a system of dispersed calculators, i.e. a market, in principle has no advantage over a central calculator.<ref>{{cite book|last1=Cottrell|first1=Allin|last2=Cockshott|first2=Paul|last3=Michaelson|first3=Greg|year=2007|title=Is Economic Planning Hypercomputational? The Argument from Cantor Diagonalisation|url=http://www.macs.hw.ac.uk/~greg/publications/ccm.IJUC07.pdf|publisher=International Journal of Unconventional Computing|access-date=13 March 2008}}</ref> | ||
[[Don Lavoie]] makes a local knowledge argument by taking this implication in reverse. The market socialists pointed out the formal similarity between the neoclassical model of [[General equilibrium theory|Walrasian general equilibrium]] and that of market socialism which simply replace the Walrasian auctioneer with a planning board. According to Lavoie, this emphasizes the shortcomings of the model. By relying on this formal similarity, the market socialists must adopt the simplifying assumptions of the model. The model assumes that various sorts of information are given to the auctioneer or planning board. However, if not coordinated by a capital market, this information exists in a fundamentally [[Distributed knowledge|distributed]] form, which would be difficult to utilize on the planners' part. If the planners decided to utilize the information, it would immediately become stale and relatively useless, unless reality somehow imitated the changeless monotony of the equilibrium model. The existence and usability of this information depends on its creation and situation within a [[Price discovery|distributed discovery procedure]].<ref>{{cite book|last=Lavoie|first=Don|title=Rivalry and central planning: the socialist calculation debate reconsidered|date=1985|publisher=Cambridge University Press|isbn=0-521-26449-9|location=Cambridge, UK|oclc=11113886}}</ref> | [[Don Lavoie]] makes a local knowledge argument by taking this implication in reverse. The market socialists pointed out the formal similarity between the neoclassical model of [[General equilibrium theory|Walrasian general equilibrium]] and that of market socialism which simply replace the Walrasian auctioneer with a planning board. According to Lavoie, this emphasizes the shortcomings of the model. By relying on this formal similarity, the market socialists must adopt the simplifying assumptions of the model. The model assumes that various sorts of information are given to the auctioneer or planning board. However, if not coordinated by a capital market, this information exists in a fundamentally [[Distributed knowledge|distributed]] form, which would be difficult to utilize on the planners' part. If the planners decided to utilize the information, it would immediately become stale and relatively useless, unless reality somehow imitated the changeless monotony of the equilibrium model. The existence and usability of this information depends on its creation and situation within a [[Price discovery|distributed discovery procedure]].<ref>{{cite book|last=Lavoie|first=Don|title=Rivalry and central planning: the socialist calculation debate reconsidered|date=1985|publisher=Cambridge University Press|isbn=0-521-26449-9|location=Cambridge, UK|oclc=11113886}}</ref> | ||
| Line 115: | Line 77: | ||
Leigh Phillips' and Michal Rozworski's 2019 book ''[[The People's Republic of Walmart]]'' argues that multinational corporations like [[Walmart]] and [[Amazon (company)|Amazon]] already operate centrally planned economies in a more technologically sophisticated manner than the Soviet Union, proving that the economic calculation problem is surmountable.<ref>Phillips, Leigh; Rozworski, Michal (2019). [https://www.versobooks.com/books/2822-people-s-republic-of-walmart ''The Peoples Republic of Walmart: How the Biggest Corporations are Laying the Foundations for Socialism''] {{Webarchive|url=https://web.archive.org/web/20180810072631/https://www.versobooks.com/books/2822-people-s-republic-of-walmart |date=2018-08-10 }}. Verso Books.</ref> There are some contentions to this view however, namely how economic planning and planned economy ought to be distinguished. Both entail formulating data-driven economic objectives but the latter precludes it from occurring within a free-market context and delegates the task to centralized bodies.<ref>{{Cite web |last=Kónya |first=Márton |date=2020-05-21 |title=Planned Economy and Economic Planning: What The People's Republic of Walmart Got Wrong about the Nature of Economic Planning |url=https://mises.org/library/planned-economy-and-economic-planning-what-peoples-republic-walmart-got-wrong-about-nature |access-date=2023-06-23 |website=[[Mises Institute]] |publisher=[[Quarterly Journal of Austrian Economics]] |language=en}}</ref> | Leigh Phillips' and Michal Rozworski's 2019 book ''[[The People's Republic of Walmart]]'' argues that multinational corporations like [[Walmart]] and [[Amazon (company)|Amazon]] already operate centrally planned economies in a more technologically sophisticated manner than the Soviet Union, proving that the economic calculation problem is surmountable.<ref>Phillips, Leigh; Rozworski, Michal (2019). [https://www.versobooks.com/books/2822-people-s-republic-of-walmart ''The Peoples Republic of Walmart: How the Biggest Corporations are Laying the Foundations for Socialism''] {{Webarchive|url=https://web.archive.org/web/20180810072631/https://www.versobooks.com/books/2822-people-s-republic-of-walmart |date=2018-08-10 }}. Verso Books.</ref> There are some contentions to this view however, namely how economic planning and planned economy ought to be distinguished. Both entail formulating data-driven economic objectives but the latter precludes it from occurring within a free-market context and delegates the task to centralized bodies.<ref>{{Cite web |last=Kónya |first=Márton |date=2020-05-21 |title=Planned Economy and Economic Planning: What The People's Republic of Walmart Got Wrong about the Nature of Economic Planning |url=https://mises.org/library/planned-economy-and-economic-planning-what-peoples-republic-walmart-got-wrong-about-nature |access-date=2023-06-23 |website=[[Mises Institute]] |publisher=[[Quarterly Journal of Austrian Economics]] |language=en}}</ref> | ||
One reason includes how they are dependent on [[Big data|Big Data]], which in turn is entirely based on past information. Hence, the system cannot make any meaningful conclusions about future consumer preferences, which are required for optimal pricing. This necessitates the intervention of the programmer, who is highly likely to be biased in their judgments. Even the manner by which a system can "predict" consumer preferences is also based on a programmer's creative bias. They further argue that even if artificial intelligence is able to ordinally rank items like humans, they would still suffer from the same issues of [[Dispersed knowledge|not being able to conceive]] of a [[Marginalism|pricing structure]] where meaningful pricing calculations, using a common cardinal utility unit, can be formed. Nonetheless, Lambert and Fegley acknowledge that entrepreneurs can benefit from Big Data's predictive value, provided that the data is based on past market prices and that it is used in tandem with free market-styled [[bidding]].<ref name=":1">{{Cite journal |last1=J. Lamber |first1=Karras |last2=Fegley |first2=Tate |date=2023 |title=Economic Calculation in Light of Advances in Big Data and Artificial Intelligence |url=https://doi.org/10.1016/j.jebo.2022.12.009 |journal= Journal of Economic Behavior & Organization|volume=206 |pages=243–250 |doi=10.1016/j.jebo.2022.12.009 |s2cid=255170322 |via=Elsevier Science Direct|url-access=subscription }}</ref> | One reason includes how they are dependent on [[Big data|Big Data]], which in turn is entirely based on past information. Hence, the system cannot make any meaningful conclusions about future consumer preferences, which are required for optimal pricing. This necessitates the intervention of the programmer, who is highly likely to be biased in their judgments. Even the manner by which a system can "predict" consumer preferences is also based on a programmer's creative bias. They further argue that even if artificial intelligence is able to ordinally rank items like humans, they would still suffer from the same issues of [[Dispersed knowledge|not being able to conceive]] of a [[Marginalism|pricing structure]] where meaningful pricing calculations, using a common cardinal utility unit, can be formed. Nonetheless, Lambert and Fegley acknowledge that entrepreneurs can benefit from Big Data's predictive value, provided that the data is based on past market prices and that it is used in tandem with free market-styled [[bidding]].<ref name=":1">{{Cite journal |last1=J. Lamber |first1=Karras |last2=Fegley |first2=Tate |date=2023 |title=Economic Calculation in Light of Advances in Big Data and Artificial Intelligence |url=https://doi.org/10.1016/j.jebo.2022.12.009 |journal= Journal of Economic Behavior & Organization|volume=206 |pages=243–250 |doi=10.1016/j.jebo.2022.12.009 |s2cid=255170322 |via=Elsevier Science Direct|url-access=subscription }}</ref> | ||
| Line 141: | Line 101: | ||
* [[Tax choice]] | * [[Tax choice]] | ||
* [[Transition economy]] | * [[Transition economy]] | ||
* ''[[Why Socialism?]]'' | * ''[[Why Socialism?]]'' | ||
{{colend}} | {{colend}} | ||
| Line 184: | Line 144: | ||
* Roemer, John (1994). ''A Future for Socialism'', Verso Press. | * Roemer, John (1994). ''A Future for Socialism'', Verso Press. | ||
* Rothbard, M. N. 1991. [https://mises.org/library/end-socialism-and-calculation-debate-revisited The End of Socialism and the Calculation Debate Revisited]. ''The Review of Austrian Economics''. | * Rothbard, M. N. 1991. [https://mises.org/library/end-socialism-and-calculation-debate-revisited The End of Socialism and the Calculation Debate Revisited]. ''The Review of Austrian Economics''. | ||
* Spufford, Francis. 2010 ''Red Plenty'', Faber & Faber. | * Spufford, Francis. 2010 ''[[Red Plenty]]'', Faber & Faber. | ||
* Stiglitz, J: 1994. Whither Socialism? MIT Press. | * Stiglitz, J: 1994. Whither Socialism? MIT Press. | ||
* Vaughn, Karen. 1980. Economic Calculation under Socialism: The Austrian Contribution. Economic Inquiry 18 pp. 535–554. | * Vaughn, Karen. 1980. Economic Calculation under Socialism: The Austrian Contribution. Economic Inquiry 18 pp. 535–554. | ||
| Line 198: | Line 158: | ||
[[Category:Socialism]] | [[Category:Socialism]] | ||
[[Category:Criticism of socialism]] | [[Category:Criticism of socialism]] | ||
[[Category:Socialist calculation]] | |||
[[fr:Ludwig von Mises#Le calcul économique et l'économie socialiste]] | [[fr:Ludwig von Mises#Le calcul économique et l'économie socialiste]] | ||