Re: Von Mises on Calculation and Market Socialism

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

At 10:48 PM 7/18/00 -0500, you wrote:
> Here is a short piece that briefly summarizes von Mises views on
> calculation
> and the impossibility of market socialism. Why does von Mises
> assume that there must be a central planner who dictates the
> plan? Surely the collection of information would start with local
> info gathering and assessing of needs etc. and the central
> planning bureau would co-ordinate etc. Also there could be trips
> up and down of the plan and continual adjustment to bottlenecks
> etc. as plans are implemented. And why is all production just
> plan or market? Consider such activities as a barn raising,
> gifts, traditional hunting and gathering etc.etc.?

I don't know when he was writing. But I would guess that Herr von M is
responding to the "plannism" that was popular during the era between the
two World Wars, including not just Stalinism (Build the Fatherland with the
5 Year Plan!) but also the Technocracy movement (extreme Veblenism). To
some extent, the fascists got into the mystique of totally-top-down
planning, too. Of course, the popularity of this kind of planning was
encouraged by the rampant failure of the market during this period
(problems usually ignored or even encouraged by Herrs H and von M and their
followers), the (to naive observers) seemingly crisis-free Soviet Union,
and the way in which Italian trains were allegedly running on time.

Part of the problem is that so many people think in terms of simple
black/white on/off dichotomies (totally centralized planning versus totally
decentralized markets, monopoly vs. competition, etc.) I don't know why
people do this so often. I hope that we don't have to get into evolutionary
psychology to get an explanation...

von M writes: >The entrepreneurs and capitalists establish corporations and
other firms, enlarge or reduce their size, dissolve them or merge them with
other enterprises; they buy and sell the shares and bonds of already
existing and of new corporations; they grant, withdraw, and recover
credits; in short they perform all those acts the totality of which is
called the capital and money market. It is these financial transactions of
promoters and speculators that direct production into those channels in
which it satisfies the most urgent wants of the consumers in the best
possible way. <

That's quite an assumption. It ignores economies of scale (including
network economies), imperfect information, external costs and benefits, the
effect of advertising on what consumers want, and the role of financial
problems in driving the most worthy business (from the point of view of
consumers) into bankruptcy. It also ignores the way in which the
distribution of income and wealth distort the way in which the market
serves consumers, so that people can starve in the midst of abundance (as
when Ireland's potato famine co-existed with the export of food, a pattern
seen in most famines since then, according to Sen).

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine