Economic calculation problem: Difference between revisions
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The ''' | {{stub}}The '''economic calculation problem''' or '''ECP''' refers to a number of arguments for the impossibility of rational allocation of resources within a [[planned economy|planned]] or [[command economy]], arguing that a [[money commodity]] is necessary to perform [[economic calculation|calculations]] involving the preferences of many economic actors. It is often referred to in the singular, suggesting that there is a single problem socialists have been unable to dissolve. In reality there have been various statements and revisions that deserve their own treatment, and due to these statements being wrapped in [[ideology|ideologically]] charged [[rhetoric]], multiple interpretations of them are possible. | ||
Variants of the economic calculationAttempts to understand such calculation problems are less common than vague references to them. They play an important role in [[anti-communism|anti-communist]] and [[right-libertarianism|right-libertarian]] ideology. | |||
Leftists may find engaging calculation problems worthwhile in their ideological and economic education, since it requires them to consider various modes of [[socialist calculation]] and discover how capitalist [[political economy]] is often grounded in [[idealism|idealist thinking]]. | Leftists may find engaging calculation problems worthwhile in their ideological and economic education, since it requires them to consider various modes of [[socialist calculation]] and discover how capitalist [[political economy]] is often grounded in [[idealism|idealist thinking]]. | ||
== | ==Formulation of the problem== | ||
The Economic Calculation Problem was first proposed by Ludwig | ===Ludwig von Mises === | ||
In the article, Mises intermittently refers to this ideal "rational economy" or "rational conduct", which he defines as "economically, to place the means [of production] at the service of the end", | The Economic Calculation Problem was first proposed by the [[Austrian economist]] [[Ludwig von Mises]] in his essay ''Economic Calculation in the Socialist Commonwealth'' published in 1920.<ref name="mises1920">[https://mises.org/library/economic-calculation-socialist-commonwealth/html Mises, Ludwig von. ''Economic Calculation in the Socialist Commonwealth.'' 1920]</ref> In it, Mises claims that Marxist socialism would not be economically feasible because of Marx's proposal to abolish money along with private ownership of the means of production, which he argues are the only way for society to distinguish between more and less valuable resources. Ultimately, he asserts "Socialism is the abolition of rational economy."<ref name="mises1920"/> | ||
In the article, Mises intermittently refers to this ideal "rational economy" or "rational conduct", which he defines as "economically, to place the means [of production] at the service of the end", i.e. "...producing the maximum possible useful effect (satisfaction of wants) on the basis of a given set of economic resources." <ref name="cockshott1993">[https://www.tandfonline.com/doi/abs/10.1080/09538259300000005 Cottrell, Allin and W. Paul Cockshott. ''Calculation, Complexity And Planning:The Socialist Calculation Debate Once Again.'' 1993]</ref> | |||
A problem with this formulation arises in its imprecise reasoning. Mises never makes it clear as to whom the economic effects are useful ''for'', or how they are defined. | A problem with this formulation arises in its imprecise reasoning. Mises never makes it clear as to whom the economic effects are useful ''for'', or how they are defined. | ||
Mises goes on to compare | Mises goes on to compare three different hypothetical means of planning and attempts to determine whether they meet the criteria for this ideal rational decision-making: | ||
* Planning in kind | * Planning in kind | ||
* Planning with an objectively recognizable unit of value (labor) | * Planning with an objectively recognizable unit of value (labor) | ||
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While a Marxist analysis would naturally be inclined to defend the 2nd mode of production listed above, a defence of planning in kind is also feasible, especially given contemporary advancements. This is the case even if one assumes (as Mises does) that no intermediary accounting unit like money would be present in such an economy. | While a Marxist analysis would naturally be inclined to defend the 2nd mode of production listed above, a defence of planning in kind is also feasible, especially given contemporary advancements. This is the case even if one assumes (as Mises does) that no intermediary accounting unit like money would be present in such an economy. | ||
=== Planning in kind === | |||
==== Planning in kind ==== | |||
In ''Economic Calculation in the Socialist Commonwealth'', Mises speaks of planning in kind, which he considers a valid method of planning in simpler situations or more primitive economic systems, to wit: "In such a case the processes of production involved are relatively short and the expense and income entailed can be easily gauged." He provides examples of this in the section "The Nature of Economic Calculation", of which the following are a part: | In ''Economic Calculation in the Socialist Commonwealth'', Mises speaks of planning in kind, which he considers a valid method of planning in simpler situations or more primitive economic systems, to wit: "In such a case the processes of production involved are relatively short and the expense and income entailed can be easily gauged." He provides examples of this in the section "The Nature of Economic Calculation", of which the following are a part: | ||
* a farmer choosing to expand pasture-farming rather than hunting | * a farmer choosing to expand pasture-farming rather than hunting | ||
| Line 22: | Line 24: | ||
Mises, however, considers it impossible for more complex economic systems, as the human brain would not be able to grasp all the possible changes that could be made to the entire system of production "without the aid of some system of computation" | Mises, however, considers it impossible for more complex economic systems, as the human brain would not be able to grasp all the possible changes that could be made to the entire system of production "without the aid of some system of computation" | ||
=== Planning with an objectively recognizable unit of value === | ==== Planning with an objectively recognizable unit of value ==== | ||
=== Planning based on market prices === | ==== Planning based on market prices ==== | ||
== | ===Friedrich von Hayek === | ||
== External | == External links == | ||
==== Statements of the ECP ==== | ==== Statements of the ECP ==== | ||
| Line 36: | Line 38: | ||
==== Critiques of the ECP ==== | ==== Critiques of the ECP ==== | ||
* [https://www.marxists.org/archive/mandel/1986/09/planning.html Ernest | * [https://www.marxists.org/archive/mandel/1986/09/planning.html Ernest Mandel's "In Defence of Socialist Planning" (1986) in HTML] | ||
* [http://ricardo.ecn.wfu.edu/~cottrell/socialism_book/ ''Towards a New Socialism'' (1993) and other texts by Paul Cockshott, in a number of formats] | * [http://ricardo.ecn.wfu.edu/~cottrell/socialism_book/ ''Towards a New Socialism'' (1993) and other texts by Paul Cockshott, in a number of formats] | ||
* [http://reality.gn.apc.org/econ/mises.htm Summary and commentary on Mises' "Economic Calculation in the Socialist Commonwealth"] | * [http://reality.gn.apc.org/econ/mises.htm Summary and commentary on Mises' "Economic Calculation in the Socialist Commonwealth"] | ||
| Line 42: | Line 44: | ||
== References == | == References == | ||
{{Reflist}} | |||
[[Category:Issues]] | [[Category:Issues]][[category:cybernetics]][[category:economics]] | ||
Latest revision as of 17:54, 25 October 2023
The economic calculation problem or ECP refers to a number of arguments for the impossibility of rational allocation of resources within a planned or command economy, arguing that a money commodity is necessary to perform calculations involving the preferences of many economic actors. It is often referred to in the singular, suggesting that there is a single problem socialists have been unable to dissolve. In reality there have been various statements and revisions that deserve their own treatment, and due to these statements being wrapped in ideologically charged rhetoric, multiple interpretations of them are possible.
Variants of the economic calculationAttempts to understand such calculation problems are less common than vague references to them. They play an important role in anti-communist and right-libertarian ideology.
Leftists may find engaging calculation problems worthwhile in their ideological and economic education, since it requires them to consider various modes of socialist calculation and discover how capitalist political economy is often grounded in idealist thinking.
Formulation of the problem
Ludwig von Mises
The Economic Calculation Problem was first proposed by the Austrian economist Ludwig von Mises in his essay Economic Calculation in the Socialist Commonwealth published in 1920.[1] In it, Mises claims that Marxist socialism would not be economically feasible because of Marx's proposal to abolish money along with private ownership of the means of production, which he argues are the only way for society to distinguish between more and less valuable resources. Ultimately, he asserts "Socialism is the abolition of rational economy."[1] In the article, Mises intermittently refers to this ideal "rational economy" or "rational conduct", which he defines as "economically, to place the means [of production] at the service of the end", i.e. "...producing the maximum possible useful effect (satisfaction of wants) on the basis of a given set of economic resources." [2] A problem with this formulation arises in its imprecise reasoning. Mises never makes it clear as to whom the economic effects are useful for, or how they are defined.
Mises goes on to compare three different hypothetical means of planning and attempts to determine whether they meet the criteria for this ideal rational decision-making:
- Planning in kind
- Planning with an objectively recognizable unit of value (labor)
- Planning based on market prices
While a Marxist analysis would naturally be inclined to defend the 2nd mode of production listed above, a defence of planning in kind is also feasible, especially given contemporary advancements. This is the case even if one assumes (as Mises does) that no intermediary accounting unit like money would be present in such an economy.
Planning in kind
In Economic Calculation in the Socialist Commonwealth, Mises speaks of planning in kind, which he considers a valid method of planning in simpler situations or more primitive economic systems, to wit: "In such a case the processes of production involved are relatively short and the expense and income entailed can be easily gauged." He provides examples of this in the section "The Nature of Economic Calculation", of which the following are a part:
- a farmer choosing to expand pasture-farming rather than hunting
- a father supervising the economy of his household
Mises, however, considers it impossible for more complex economic systems, as the human brain would not be able to grasp all the possible changes that could be made to the entire system of production "without the aid of some system of computation"
Planning with an objectively recognizable unit of value
Planning based on market prices
Friedrich von Hayek
External links
Statements of the ECP
- Mises' "Economic Calculation in the Socialist Commonwealth" (1920) in HTML
- Mises' Socialism (1951) in PDF, EPUB and MOBI
Critiques of the ECP
- Ernest Mandel's "In Defence of Socialist Planning" (1986) in HTML
- Towards a New Socialism (1993) and other texts by Paul Cockshott, in a number of formats
- Summary and commentary on Mises' "Economic Calculation in the Socialist Commonwealth"
- Extensive article on the economic calculation problem on the P2P Foundation wiki.