What the Socialist Calculation Problem really meansOctober 6, 2011 Tim WorstallEconomics3 CommentsMarkets for the factors of production are, of course, impossible, by definition, under socialism. previousWell, yes SeumasnextSo here\’s a question 3 thoughts on “What the Socialist Calculation Problem really means” So Much For Subtlety October 6, 2011 at 10:35 am Well that is not true. Open, legal, law bound markets that use money are impossible under socialism. But illegal or quasi-illegal markets that use favours and gifts are not. Every Soviet factory used to have its fixer who would go out and make sure they got what they needed. One way or another. Gene Berman October 7, 2011 at 2:23 pm Misunderstanding of this relationship–the absolute necessity of private ownership (and a market for such ownership) is the single, most important obstacle to the further intensification and development of civilization and counts (in my opinion) as the single most important reason that even “free” (in the sense of being governed under one or another democratic form) nations, at their heights of technological progress and productivity can now be seen as teetering on the brink of descent into poverty and barbarism. It’s not “rocket science.” Indeed, it seems (at least to me) to be within the mental grasp of the great preponderance of human adults, once satisfactorily explained. But, unless (and until) voting majorities everywhere incorporate such understanding into their political behavior, we look forward to an extended future in which the Rev. Malthus shall have been vindicated and rehabilitated–“in spades.” Gene Berman October 7, 2011 at 4:21 pm SMFS: You seem to have a decent half-grasp of the problem. As far as I can reduce it, it’s that being “economic” means that we aim to make choices that actually make us better off than before. This means we choose or attempt outcomes in which outputs exceed inputs or, put another way, seek profit and avoid loss, substitute a more desirable state, etc., etc. As you note, markets (and the use of money) made such determination easier. The failure of the socialist (or any non-market) arrangement ( and, by “non-market” I mean specifically to include the “special” types you mention) is very simple: without a real market and legally-protected entitlement to offer what he’d like to offer, an offerer has no way to determine the denominator, “I,” in what we know as “ROI.” (The misappropriator can, of course, simply assume that he’s always “ahead,” since he stole the thing in the first place but that’s no way to run an airline–or a country.) This recognition is, perhaps, the single greatest discovery (made by Mises in 1920) of the Austrian School since Karl Menger first recognized and expounded on the subjective nature of value almost three generations previously. But, though Mises formulated this theorem (and predicted the eventual dissolution of the USSR) and, thoughout his years, illustrated tirelessly the overwhelming failure of “policy” (gov’t. intervention in the market), he never made the obvious (to me), unavoidable conclusion, so I will now do it for you (and everyone else) following. All government is socialistic in that it does not own the assets it wields and can calculate neither inputs nor outputs to determine if it is making profit (success) or loss (failure). It has an approximate guide in the form of a budget and the mandated accomplishments required by a legislature but success or failure are doubly obscured: first, by the non-market, compulsory nature of the “goods” it is to furnish; second, by the reality that the budget is but an illusory limit, given ability not only to “borrow” against presumable future receipts but to manipulate the quantity (and value thereof) of money itself. Voluntary restraint is foreign–unknown–to government; it must be imposed (and closely monitored). The good that government can provide is very limited, though extremely important; but the damage of which it is capable is limited, if at all, only by the total wherewithal of the polity (not that government will necessarily even realize that limit). Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.