Posted 12:22 pm by Ken

Market exchanges

Michael Fahey commented on my remarks on socialism and economic calculation, and with his permission I'm posting our exchanges as a dialogue. In cases where I made a point for point response, I've given the whole of Michael Fahey's message first:

Economic calculation is not a barrier to socialism. Supply and demand operate, whatever the economic system, to determine the price (expressed in money) of commodities and services, based on availability and desirability/utility. The powers-that-be make political decisions to subsidize particular people, goods or activities. Subsidies may be exploitative or re-distributive, and subsidies may be offensive to some economists, but they are neither impossible nor unusual.

Thanks Mike. The only socialism that the economic calculation argument addresses is socialism that dispenses with money and prices. This was a common view of the socialist goal before WW1 and the Russian Revolution and it is this that Mises and others claimed was impossible. Other socialisms that retain the market and price system are, as you correctly say, unaffected.

Perhaps Steele and the writers he cites were demoralized by the daunting task of society-wide computation in the pre-digital era. Nowadays, two honest brainiacs with one Pentium could do a better job calculating and articulating the wants and needs of humanity than the ''free" market ever will.

Sorry, no, this is exactly what the economic calculation argument claims can't be done. How on earth could a computer be programmed to register the 'wants and needs' of humanity? Not even a Culture Mind could do it.

Not so fast, MacLeod.

As to needs: six billion times the optimum personal amount of clean water, grams of protein, square feet of safe housing, linear feet of sewage pipe with supporting infrastructure, etc.

As to wants, I'm assuming the brainiacs will have access to polling data through which we can express our preferences as to ice cream flavors, garment styles, etc. (A socialist society presumably would not produce ice cream until malnutrition is conquered, botox until ...) And I'm not looking to hand myself over to Big Brother. Verify that I've done my share of the work, and then leave me alone. I believe that freedom is illusory without substantial leisure time and discretionary income. Not too much to ask given 21st Century labor-saving technology.

>Not so fast, MacLeod.
>As to needs: six billion times the optimum personal amount of clean water,
>grams of protein, square feet of safe housing, linear feet of sewage pipe
>with supporting infrastructure, etc.

At that point, the economic calculation problem only begins. Perhaps calling it 'economic calculation' is misleading. All it means is that you have to have an accurate measure of the value of the resources you're using, to make sure they aren't being wasted - that for any given project, your inputs aren't worth more than your outputs. Or to put it another way, that you aren't using up stuff for one use that would be better put to another use. For that you need a market price, or some measure that does the same job as a price. It is the contention of the economic calculation argument that no such measure has been found, or is likely to be found; and so far none has.

As Trotsky put it: 'Economic accounting is unthinkable without market relations.'

>As to wants, I'm assuming the brainiacs will have access to polling data
>through which we can express our preferences as to ice cream flavors,
>garment styles, etc. (A socialist society presumably would not produce ice
>cream until malnutrition is conquered, botox until ...)

There are some problems with this, starting with that polling data can't tell you (accurately) how much people want a particular good (i.e. what they would trade it off against) and that there is no link between the expressed preferences and the willingness of the brainiacs to supply them.

As to priorities not expressed through the market - as you said yourself, these can be dealt with by taxes and subsidies.

>And I'm not looking to hand myself over to Big Brother. Verify that I've
>done my share of the work, and then leave me alone. I believe that freedom
>is illusory without substantial leisure time and discretionary income. Not
>too much to ask given 21st Century labor-saving technology.

Indeed not, but unattainable (or at least, unlikely to be attained, and greatly at risk) if you don't have a way of counting costs.

Points taken, MacLeod.

1. Re: Market price as necessary for efficiency:

1a. We can set prices without a capitalist market. In our roles as consumers, shop-floor producers, or enterprise managers, we constantly establish the value of things for the purpose of exchange. E.g. six hours of baby-sitting in exchange for help with the school paper; one Barry Bonds trading card for two Mark McGuires. Consider the "black market" in Cuba, or the barter among factories in late Soviet Russia.

1b. There is no "correct" price in the abstract. Price is the product of subjective interactions, continually settled in our billions of transactions. Price need only be acceptable to the parties involved to be functional.

1c. Socialist societies have typically had a retail sector to facilitate distribution of consumer goods. Productive goods, such as hydroelectric dams or dialysis machines, for which there is no ready consumer market, must be assigned resources by the powers-that-be. Reason, trial-and-error, and good faith will do the job. (Capitalist relations of production retard our immense productive capacity. Mal-distribution is one of capitalism's most glaring defects. Distributing things [e.g. toilets!!] by selling them requires that they be scarce relative to demand.)

1d. Efficiency is a means, not an end. Waste is certainly to be avoided, but would it be so bad if we built too much housing, or distributed too much AIDS medication? (Capitalists have never scrupled about redundant production in their weaponry and propaganda.)

2. Re: Preference and fulfillment:

2a. Polls routinely ask us to make choices and rank preferences.

2b. There is no automatic link between asking for people's preferences and fulfilling them. We're assuming an honest socialist government, which will require the constant vigilance and participation of its citizens.

3. Take heart, MacLeod! There are considerable obstacles to socialism, but they are not theoretical.

>Points taken, MacLeod.
>1. Re: Market price as necessary for efficiency:
>1a. We can set prices without a capitalist market. In our roles as
>consumers, shop-floor producers, or enterprise managers, we constantly
>establish the value of things for the purpose of exchange. E.g. six hours of
>baby-sitting in exchange for help with the school paper; one Barry Bonds
>trading card for two Mark McGuires.

Absolutely correct. And if prices are set by bargaining between enterprise managers, presumably they are exchanging means of production - machines, tons of cement, etc, and you do have a market not just in consumer goods but in means of production. Whether that is being done in a capitalist market or market socialism is irrelevant to the point that it's not non-market socialism: it's not the 'communistic abolition buying and selling', 'production for use', the society in which 'the producers do not exchange their products', but instead 'manage things very simply, without the intervention of the famous "value"', in other words the socialism of Marx and Engels, of the SPGB, and of Bukharin and Preobrazhensky's _ABC of Communism_, and of Bolshevik practice (or heroic attempt) between 1918 and 1921, when it was abandoned after resulting in complete breakdown of industry. That's the socialism that the economic calculation argument primarily cuts against.

> Consider the "black market" in Cuba, or
>the barter among factories in late Soviet Russia.

These were/are regarded by the authorities as a bug, not a feature. In fact the enormous black and grey markets, the activity of fixers, etc, contributed quite a lot to the survival of the Soviet economy, which might otherwise have simply ground to a halt for lack of the right stuff in the right place at the right time. So functionally, the illegal market was a feature, but the authorities kept trying to remove it as a bug, until they gave up and the bug ate the program.

>
>1b. There is no "correct" price in the abstract. Price is the product of
>subjective interactions, continually settled in our billions of
>transactions. Price need only be acceptable to the parties involved to be
>functional.

Again correct. So 'prices' set by central planners are unlikely to replicate the prices set by billions of transactions, and won't fulfil the function of balancing supply and demand. That will result in dislocations of all kinds. It's beginning to sound like we are in vehement agreement.

>1c. Socialist societies have typically had a retail sector to facilitate
>distribution of consumer goods. Productive goods, such as hydroelectric dams
>or dialysis machines, for which there is no ready consumer market, must be
>assigned resources by the powers-that-be. Reason, trial-and-error, and good
>faith will do the job. (Capitalist relations of production retard our
>immense productive capacity. Mal-distribution is one of capitalism's most
>glaring defects. Distributing things [e.g. toilets!!] by selling them
>requires that they be scarce relative to demand.)

The socialist retail sector wasn't exactly its bright, inviting shop window.

The consumers of hydroelectric dams and dialysis machines are the suppliers of electricity and health care. Whether great public works, health care, sanitation or for that matter flush toilets should be produced (or subsidised) by the powers that be is outside the scope of this argument. Most people would say that they should. But with the best will in the world, and with all technical competence assured, gigantic malinvestments by the powers that be are quite possible. The first glimmer I had of this was seeing a fucking enormous oil-rig production site [or some such facility] on the west coast of Scotland, with a huge hole in the ground and workers' housing all ready, built by the powers that be in (quite reasonable) anticipation of a boom in oil-rig construction ... which was never used.

>1d. Efficiency is a means, not an end. Waste is certainly to be avoided, but
>would it be so bad if we built too much housing, or distributed too much
>AIDS medication? (Capitalists have never scrupled about redundant production
>in their weaponry and propaganda.)
>

Building too much housing would mean building too little of something else; distributing too much AIDS medication would mean distributing too little of other medication (or other desired products of whatever was used to over-produce AIDS medication).

>2. Re: Preference and fulfillment:
>2a. Polls routinely ask us to make choices and rank preferences.

The preference ranking we give in polls can notoriously differ from what our real preference ranking as expressed by purchases is.

>
>2b. There is no automatic link between asking for people's preferences and
>fulfilling them. We're assuming an honest socialist government, which will
>require the constant vigilance and participation of its citizens.
>

Indeed we are, and indeed it would. As Oscar Wilde said, too many meetings. Not to be flippant, but to ask billions of people to engage in time-consuming participation just to accomplish what they do today by shopping is to ask a lot.

>3. Take heart, MacLeod! There are considerable obstacles to socialism, but
>they are not theoretical.
>Fraternal regards - Mike Fahey
>
>

It all depends on what you mean by socialism. 'Feasible socialism' as proposed by Alec Nove and various kinds of market socialism are theoretically possible, but aren't all that different from a 'mixed economy' and wouldn't do all (or in fact much) that Marxian non-market socialism hoped to do, notably ending the anarchy of production and establishing conscious control over the economy.

With your permission, I'd like to post our exchanges so far to my blog, along with your last word for the moment, should you care to give it.

You have my permission to post our exchange. I've added some comments below, but feel free to take the last word. And at the risk of
appearing tendentious, I'm happy to continue our dialogue. Fraternal regards
- Mike Fahey
>>>>>
Has experience taught us to choose capitalism over communism on the basis of market relations vs. command economy? No.

* The main problem with markets is what they won't do. The "free" market is accessed by cash. Half the world has no money or virtually none.

*Efficiency? Consider planned obsolescence, chronically idle industrial capacity, and most-of-all the wasted energy and creativity of the billions who are un- or under-employed, or slogging along without the benefit of labor-saving technology.

*Capitalism's bookkeepers (Enron, Parmalat, Shell, ad infinitum) have demonstrated their unreliability for an accurate inventory and accounting of resources.

*Bureaucracy exists in capitalism. Ask anyone who has worked in or dealt with capitalist corporations or the governments they control.

*Consider degree-of-difficulty. Socialism takes on a much more challenging task, that of promoting the general welfare vs. abetting conquest by the "fittest". (The Soviet Union subsidized its satellites; the capitalists exploit theirs. Compare the standard of living in the former USSR with that of Bulgaria, Hungary, Latvia, etc. Now compare the USA with El Salvador,
Haiti, the Philippines or Zaire.)

*Has there been a fair test? No society has been able to experience socialism undistorted by war-mobilization. From the attempt to strangle the soviet infant in its cradle, through the Cold War, to Oliver North's terrorist campaign against Sandinista Nicaragua, and four decades of
strangulation of Cuba.

Will socialism mean "too many meetings" and "time-consuming participation"? Yes, if I must sit on the board of my local library, housing estate, food co-op, football club, child-care center, etc. Let the government provide these services.

By all means, let's have maximum freedom of action and exchange, but keep the "commanding heights" of the economy under socialist control. This requires "production for use'' and "communistic abolition of buying and selling" in key sectors. To leave the major means of production in private hands is to choose barbarism.

Rather than go through Mike's closing points, I'll just remark that I agree with some, disagree with others, and I'm sure it's easy enough to tell which is which. To be continued another time, perhaps, and in the meantime thanks to Mike Fahey for his comments.