[OPE-L:2084] Re: *What will happen in the 21st Century?*

["clyder" <wpc@xxxxxxxxxxxxx>]

----- Original Message -----
From: Claus Germer <cmgermer@xxxxxxxxxxxxxxx>
To: <ope-l@xxxxxxxxxxxxxxxxxxx>
Sent: Monday, January 10, 2000 6:09 PM
Subject: [OPE-L:2080] Re: Re: Re: Re: *What will happen in the 21st
Century?*


> In [OPE-L:2055] Duncan wrote:
>
> > I'm not sure I want to sign on to this concept, but I think it's worth
> > discussing. I am puzzled as to how to imagine a society operating an
> > advanced division of labor economy without recourse to the market, and I
> > think we should be thinking about how to adapt Marxist thinking about
> > socialism to Hayek's point that markets are more important as
> informational
> > than as allocational mechanisms. (Of course, they also redistribute...)
> >
>
> Isn't it true that, theoretically, if socialism means the abolition of
> private property of means of production, there can no longer be a market,
> since this implies the sale and purchase of commodities, hence a commodity
> producing society. Things that are sold are private property.
>
> The market is the capitalist mechanism for the distribution of use values,
> but it is also the way through which social labor is distributed. Once
> there is no longer a market, this means that the distribution of social
> labor and of use values has to be made in another way, i.e., through
> previous planning of production and distribution. If we admit that the
> market should still have a role in the distribution of commodities,
> shouldn't we also admit the same role for the distribution of the labor
> force? This would imply wage labor .... Or not?
 I must say that I fully concur with Claus here.

As soon as you allow for the existence of markets under a socialist economy
except in the limited sense of the 'market like' distribution of consumer
goods for labour tokens described by KM, you end up with the
re-establishment
of the circuit of capital.

Any unit of production that purchases its inputs and requires to sell its
outputs in order to reproduce itself is a capital, so that any economy is
based
on such units is a capitalist economy.

I agree with Duncan that we have to take Hayek's criticisms seriously, but
taking them seriously is not the same thing as giving his ideas credence.
What one has to do is produce a critique of his ideas, bearing in mind that
the sole purpose of his putting forward these ideas was to discredit
socialism.

I believe that Allin and I have at least started a critique of Hayeks work
on the informational functions of the market in our paper "Information
and Economics: a critique of Hayek" which appeared in Research In Political
Economy, vol 16.

There is a systematic failure in both Hayek and the  Neoclassical
literature on information and economics which stems from an misunderstanding
of basic Shannon/Weaver information theory.

Hayek himself, dispite having done some work in the '40s on neural nets and
leaning, makes no references to information theory in his work as far as I
am aware, so that his use of the term information remains at a
pre-scientific
ideological level. This is dispite the fact that the late '40s and '50s saw
a
flowering of work applying Shannon/Weaver information theory to diverse
areas - computing, biology, psychology etc.

The use of information theory by the Neoclassical is reviewed by Jordan in
Information Incentives and Economic Mechanisms (University of Minisota Press
1987). What both Hayek and the neoclassical users of information theory
share in common is their treatment the economy as being
characterized by a set of agents each of whom may emit one or more messages.
The
receipt of these messages by other agents causes them to adjust their
activity in such
a way as to bring the system into equilibrium. The messages are assumed to
be real
valued variables, and taken in aggregate the set of possible messages sent
by all of the
agents forms a Euclidean vector space. The informational cost of the system
is taken
to be proportional to the dimension of the vectors.

This definition is highly abstract, and one encounters problems if one tries
to con-cretize
it. First, from an information theoretic standpoint, to treat messages as
real-valued
variables is to accord them an infinite information content. If each message
requires an infinite bit string, it then makes little sense to compare costs
in terms of
the number of such infinite strings required to achieve a task. This,
however, is a
relatively minor problem, since theoretical work of this sort can almost
certainly be
recast in terms of messages defined over a finite subset of the integers. A
more serious
problem relates to the choice of the dimension of the message vector as the
metric for
informational cost.

In the work of Hurwicz, Mount, Reiter and Jordan (the formative contribution
be-ing
Hurwicz, 1960), each agent has a response function that takes as a parameter
the
message vector in the current time-step in order to calculate the
appropriate action in
the next timestep. In Hurwicz these messages m are defined as symbols drawn
from
some set M . It is not made clear whether this is a finite set but the
argument is not
altered if we make this assumption, which is necessary from an information
theoretic
viewpoint. The real problem is that the process by which the messages get
from one
agent to another is not considered. In effect it is assumed that the
messages are broad-cast.
This tacit assumption is highly questionable. The broadcasting of messages
can
only be done using a scarce resource such as a portion of the
electro-magnetic spectrum.
If a radio station were available to broadcast the messages, the channel
would
have to be time-multiplexed between the different economic agents: only one
agent at
a time could send a signal, and the time to perform one adjustment cycle
would grow
linearly with the number of agents involved.

But as a practical matter the assumption that messages take the form of
radio broad-casts
is unreal, and if the messages must pass from each agent to all agents in
each cycle
they must be delivered by multiplying the messages-mail shots or something
similar.
In that case the total number of messages sent will be proportional to the
square of the
number of agents. In the simple case where the agents each emit a single
integer scalar
as their message, the number of messages sent will be proportional to the
square of the
dimension of the message vector. Thus, in using the dimension of the message
vector,
rather than its square, as a metric, the authors seriously underestimate the
amount of
information that would have to be transmitted in their model of a
decentralized economy.

Were this a realistic model, it would if anything demonstrate the
impossibility of
any large scale competitive economy because of the highly non-linear
informational
cost function associated with the number of agents. This applies most
obviously to
the total number of letters, telexes, or email messages that would have to
be sent. In
addition, it implies that agents must spend a number of person-hours
proportional to
the number of agents in the economy processing their incoming mail.

The lack of realism in such models stems from two factors: the idea that
information
can somehow be broadcast to all participants in a single operation, and the
idea that
each agent must process messages from all others. This idea is probably a
hangover from
the Walrasian concept of an auctioneer who calls out prices. We have
attempted to be both more
realistic and more conservative in our estimates of the informational costs
of the market
economy, since we explicitly count all individual messages sent, and only
compel a
firm to accept information from its suppliers and customers. Given these
assumptions,
which are much more favorable to the market economy than those of Jordan,
the number
of messages we take into account is a lower bound on what must actually
occur. In
particular we explicitly omit all messages associated with the payment and
clearing of
checks between bank accounts.

We are able to demonstrate that the information transmission overheads
associated
with the market are in fact higher than those which would be associated with
a system
of centralised planning.

Our full form of the argument is available on:
http://ricardo.ecn.wfu.edu/~cottrell/socialism_book/hayek_critique.pdf