Re: market socialism, etc.
JD writes: Marx distinguished an "industrial capitalist" (i.e., the capitalist who organizes production) from capitalists in general (those who own the means of production). This is not the same as the distinction between the entrepreneur and the capitalist, but it is close. No, it is not close - as is obvious in the dismissive (marxist) remarks which you and others in pen-l have made about entrepreneurship. Further, he talks about innovation (the activity which distinguishes the "entrepreneur" in Austrian lingo), though I don't think he uses that word. (The distinction seems an "Austrian" innovation.) For example, in chapter 12 of volume I of CAPITAL, he talks about one capitalist introducing an new way of producing things and how it is then imitated by other capitalists, due to the coercive force of competition. But the Austrian would never say "coercive force of competition" - and this is a crucial distinction - since for them it is not a matter of a *structure* pushing you do do something which you might otherwise not want/desire to do. Marx's emphasis is on _process_ innovation (rather than product innovation), The Austrians put a big emphasis on prices as signals (of tastes scarcity). My understanding of Marx is that one of the bases of his crisis theory is that these signals are wrong in the sense that they do not allow "entrepreneurs" to coordinate to prevent underconsumption and the like. Prices cannot provide an understanding of the nature of the capitalist totality and the conditions needed for its harmonious expanded reproduction over time. Instead of gradual change, we see "equilibration" through sharp crises. Schumpeter, on the contrary, minimizes the role of prices in innovation. Emphasis on prices gives the impression that capitalists/entrepreneurs are always passively responding to market signals. But S's concept of "creative destruction" activates the capitalist - at the micro-economic level - in a way that M's theory could never do, since, for starters, M has micro-economic analysis. S writes: "Economists are at long last emerging from the stage in which price competition was all they saw. As soon as quality competition and sales effort are admitted into the sacred precints of theory, the price variable is ousted from its dominant position. "In capitalist reality [what counts is] the competition from the new commodity, the new technology, the new source of supply, the new type of organization..." S never failed to praise M for his emphasis on the dynamic quality of capitalism, that cap "can never be stationary", but criticises him for viewing the capitalist as a mere personification of capital, rather than as an *agent* who understands his own actions and is consciously, willingly engaged in the market. The word "rational" in economics is basically a theoretical fiction. It is heuristically useful. You seem to confuse two meanings of rationality, formal and substantive, in the use of the value- judgement "narrow-minded individualistic..." in your definition of economic rationality. It is interesting to note that for Weber capitalism was irrational at the substantive level. I don't know about S, but using the word "rational behavior" does not imply undue emphasis on individuals - as Michael Perelman narrowly thinks as well - since we are talikng about rational behavior as a pattern or sequence of behavior. No reason to keep fighting the intellectual ghosts of the 50s. Marx believed, I think, that a holistic approach was superior to an individualistic approach. That is, he made a sociological statement that certain kinds of societies produce certain kinds of attitudes. Thus, he saw capitalism -- and specifically the societal environment of capitalist competition -- as encouraging narrow-minded individualistic profit-seeking (one vision of "rationality"). If Marx is seen as explaining the basis for profit-maximization, then all the results derived from that assumption can be accepted by Marx (as long as unreasonable auxiliary assumptions aren't introduced). Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
Re: market socialism, etc.
Not tyring to spoil the party (I agree this was a good post - the sort of stuff I am sure penners would read more if only they had not wasted their time finding them in the pile of shabby responses which pollute this place when there's a heated debate) but I have to take issue with the comment below, not because I want to pretend I know something about the Austrians (except what I thought I had to learn as a TA for Henryk Flakierski, the one Paul had in mind from York): The "Austrian" theory of competition is derivative from Marx and the classicals. I'm pretty sure that Bohm-Bawerk developed most of his stuff in response to Marx, while appropriating the parts of Marx he liked (e.g., the dynamic vision of competition). But here's Schumpeter himself, the one Austrian who was closest to Marx: For Marx the capitalist economy "is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure [...] This is how progress comes about in capitalist society. In order to escape being undersold, every firm is in the end compelled to follow suit, to invest in its turn and, in order to be able to do so, to plow back part of its profits, i.e., to accumulate. Thus, everyone else accumulates. Now Marx saw this process of industrial change more clearly...than any other economist of his time. This does not mean that he correctly understood its nature or correctly analyzed its mechanism. With him, *that mechanism resolves itself into mere mechanics of masses of capital. He had no adequate theory of enterprise and his failure to distinguish the entrepreneur from the capitalist*, together with a faulty theoretical technique, accounts for many cases of non sequitur and for many mistakes" When S says no adequate theory of enterprise he means that M had no adequate theory of rational behavior. Marx has no concept of rational action, his 'rational miser' is a mere personification of the capitalist system.
Re: market socialism, etc.
Ricardo quotes Schumpeter: But here's Schumpeter himself, the one Austrian who was closest to Marx: For Marx the capitalist economy "is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure [...] This is how progress comes about in capitalist society. In order to escape being undersold, every firm is in the end compelled to follow suit, to invest in its turn and, in order to be able to do so, to plow back part of its profits, i.e., to accumulate. Thus, everyone else accumulates. Now Marx saw this process of industrial change more clearly...than any other economist of his time. This does not mean that he correctly understood its nature or correctly analyzed its mechanism. With him, *that mechanism resolves itself into mere mechanics of masses of capital. He had no adequate theory of enterprise and his failure to distinguish the entrepreneur from the capitalist*, together with a faulty theoretical technique, accounts for many cases of non sequitur and for many mistakes" What "cases of non sequitur" and "mistakes" does Schumpeter have in mind? When S says no adequate theory of enterprise he means that M had no adequate theory of rational behavior. Marx has no concept of rational action, his 'rational miser' is a mere personification of the capitalist system. Why "theory of enterprise" = "theory of rational behavior"? Yoshie
Re: Re: market socialism, etc.
Because we are supposed to look at capitalism at the level of individual behavior. Yoshie Furuhashi wrote: Why "theory of enterprise" = "theory of rational behavior"? Yoshie -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Re: market socialism, etc.
I wrote: The "Austrian" theory of competition is derivative from Marx and the classicals. I'm pretty sure that Bohm-Bawerk developed most of his stuff in response to Marx, while appropriating the parts of Marx he liked (e.g., the dynamic vision of competition). RD comments: But here's Schumpeter himself, the one Austrian who was closest to Marx: For Marx the capitalist economy "is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new commodities or new methods of production or new commercial opportunities into the industrial structure [...] This is how progress comes about in capitalist society. In order to escape being undersold, every firm is in the end compelled to follow suit, to invest in its turn and, in order to be able to do so, to plow back part of its profits, i.e., to accumulate. Thus, everyone else accumulates. Now Marx saw this process of industrial change more clearly...than any other economist of his time. This does not mean that he correctly understood its nature or correctly analyzed its mechanism. With him, *that mechanism resolves itself into mere mechanics of masses of capital. He had no adequate theory of enterprise and his failure to distinguish the entrepreneur from the capitalist*, together with a faulty theoretical technique, accounts for many cases of non sequitur and for many mistakes" Marx distinguished an "industrial capitalist" (i.e., the capitalist who organizes production) from capitalists in general (those who own the means of production). This is not the same as the distinction between the entrepreneur and the capitalist, but it is close. Further, he talks about innovation (the activity which distinguishes the "entrepreneur" in Austrian lingo), though I don't think he uses that word. (The distinction seems an "Austrian" innovation.) For example, in chapter 12 of volume I of CAPITAL, he talks about one capitalist introducing an new way of producing things and how it is then imitated by other capitalists, due to the coercive force of competition. Marx's emphasis is on _process_ innovation (rather than product innovation), though he does talk about new ways to add non-nutritious filler to food (in order to lower the cost of labor-power). This is partly a product of the historical era in which he lived. He also does not sneak in the assumption (as Austrian economists do) that "innovation" is always a good thing (so that "entrepreneurs" should be rewarded) or that the market is the judge of what's good. This makes sense, since both Charles Ponzi and the unknown man or woman who introduced "crack" cocaine engaged in innovation and were thus entrepreneurs. Marx seems to assume that innovation can be good (i.e., building up the wealth needed for socialism) or bad (i.e., encouraging resistance to capitalism). The Austrians put a big emphasis on prices as signals (of tastes scarcity). My understanding of Marx is that one of the bases of his crisis theory is that these signals are wrong in the sense that they do not allow "entrepreneurs" to coordinate to prevent underconsumption and the like. Prices cannot provide an understanding of the nature of the capitalist totality and the conditions needed for its harmonious expanded reproduction over time. Instead of gradual change, we see "equilibration" through sharp crises. Since Schumpeter doesn't explain what he mans by "faulty theoretical technique," no comment can be made on that. When S says no adequate theory of enterprise he means that M had no adequate theory of rational behavior. Marx has no concept of rational action, his 'rational miser' is a mere personification of the capitalist system. The word "rational" in economics is basically a theoretical fiction. NC economists _assume_ that people are "rational." The usual textbook economist's meaning of this is that people are self-interested, not caring about other individuals. But the more sophisticated theorists use a definition that's basically tautological, single-minded goal-seeking. The only thing that differentiates irrationality from rationality is that the latter involves consistent preferences (i.e., under similar conditions, A will be preferred to B). But that doesn't make sense over time (since "tastes" change) and ignores the preference for variety. Crucially, the concept of rationality falls away when we realize that due to sociological effects, tastes are endogenous. Whether or not this is a reasonable approach is another issue, since social scientists make a lot of unreasonable assumptions (simplifying in order to understand). It's my impression that it's not the assumption of "rationality" that produces predictions or understanding as much as an understanding of the _constraints_ that limit individual (consumer or firm) choice. Consumer rationality cannot be used to predict an increased supply of labor-power as wages rise (because there are income
market socialism, etc.
THE SHORT VERSION (but still too long!) ellipsis Justin writes they [that famous rock'n'roll band, Hayek the Austrians] don't have the particular vices of the NCEists, math worthship, a conception of markets that is essentially static, and based on utterly counterfactual assumptions. They have a feel for real-world markets, if too little appreciation of their limits. I respond It's a mistake to use the NCEists as one's standard of comparison. It really doesn't settle anything, since there are a variety of schools (the institutionalists, the post-Keynesians, and a lot of other heterodox economists) that are better than the NCEs. Further, NC economists like George Akerlof are much better than the Austrians, to my mind. (His market for lemons paper is a classic. It's also a case where math is quite useful.) But many of the heterodox economists disagree with each other. If anything, I learn much more from the PKs, among other things because they have a serious theory of money and have learned Keynes' lessons, which is something that the Austrians never will do. The "Austrian" theory of competition is derivative from Marx and the classicals. I'm pretty sure that Bohm-Bawerk developed most of his stuff in response to Marx, while appropriating the parts of Marx he liked (e.g., the dynamic vision of competition). And the Austrians have their own "particular vices." Every time I try to read the Austrian stuff, it (a) doesn't seem to add anything substantive; and (b) gets into naturalist ideology. Similarly, though they talk about business cycles (as well-summarized by Haberler), they (a) get stuff from the Marxian tradition about how upswings create imbalances that need to be purged in the recession (unlike the mainstream Keynesian tradition, e.g., Krugman or DeLong) but (b) assume Say's Law and that the downswing is "natural" and/or painless. Crucially, they ignore the roles of the rate of profit and aggressive accumulation (i.e., they ignore capitalism). If I remember correctly, Nicholas Kaldor won his debate on business cycles with Fred von H (connected with the latter's "triangles," I believe). But the Austrians still like the idea of "letting nature take its course," so that the business cycle recession can drive wages down, etc. Before Keynes, the Austrian vision was dominant among policy-makers (as a rationalization for explicitly pro-business rule of people like Treasury Secretary Mellon). I think it was very apt for Robert MacEllvaine to title a chapter of his book on the Great Depression "Nature Takes Its Course." (Currently, Austrian economics seems popular among the shrinking number of "new classical economists," who are much much worse than the more NC-oriented Monetarists (a.k.a. "new Keynesians").) The Austrians may not believe in the "utterly counterfactual assumptions" of NC economics (which are what, by the way?) but a lot of them reject any kind of empirical testing of their theories. Deductive knowledge is totally privileged over inductive knowledge (while they can be dogmatic about their deductions because they're "self-evident"). Rothbart's Austrian book on the Great Depression starts with _an apology_ for using empirical evidence! He then goes on to make utterly counterfactual assumptions about the omniscience of his beloved entrepreneurs. That kind of stuff (a predecessor of the notion of "rational" expectations) is just as bad as -- if not worse than -- the Walrasians' assumption that an omniscient Auctioneer (the modern version of Smith's Invisible Hand) rules the roost. And the Austrians' belief in Say's law is quite counterfactual. ellipsis JS ... they [competitive markets] have postive results. Uncompetitive markets involve monopollies or oligopolies or price fixing and other bad things that lower production and increase prices while the gougers take rent. You may have noticed that I pointed to some advantages of monopolies. In fact, it may be that monopolies and competition are equally good. (The Industrial Organization economists seem to be going in that direction.) The key question is whether or not an industry can be controlled by the people, in a democratic way. Competition may make that _more_ difficult, by allowing each firm to avoid responsibility "I had to dump toxic waste in the woods (or put sawdust in the kids' meals or sell weapons to Hitler or ...) because _everyone does it_ and I'd suffer a competitive disadvantage." A monopoly has a harder time evading responsibility. Note that most government regulation give special treatment for smaller businesses. This is not only because of the remaining clout of the petty-bourgeois types and of their ideology. It's also because it's harder to get information about them. (Nixon's price-control scheme -- after the initial freeze -- was similarly aimed only at the bigger businesses, the oligopolies.) Competitive markets also involve competitive rent-seeking.
Re: market socialism, etc.
Excellent stuff, Jim. I'm emerging from my shell to add one point. Justin's faith in the informational content of prices is touching. Developments in financial theory over the last 15 or so years should counsel a bit more skepticism. Efficient market theory has been importantly discredited, and Shiller-style analyses of excess volatility and mean reversion are taken a lot more seriously, even by the likes of Eugene Fama. There are good psychological reasons behind overreaction - e.g., the human tendency to value the most recent piece of information excessively, at the expense of earlier knowledge. You also have herding, fads, crowd behavior, etc. So there's lots of noise mixed in with signal. This newer thinking about financial market prices is not without real world implications. As Terry Marsh and Robert Merton wrote in 1986: "To reject the Efficient Market Hypothesis for the whole stock market...implies broadly that production decisions based on stock prices will lead to inefficient capital allocations. More generally, if the application of rational expectations theory to the virtually 'ideal' conditions provided by the stock market fails, then what confidence can economists have in its application to other areas of economics...?" Less than Justin does, apparently. Doug
Re: Re: market socialism, etc.
At 03:15 PM 7/19/00 -0400, you wrote: Excellent stuff, Jim. thanks! (In the long version, I told Justin to go read Zizek. Never having read the dude, not only did I probably misspell his name, but I haven't the slightest idea what to recommend...) I'm emerging from my shell to add one point. Justin's faith in the informational content of prices is touching. Developments in financial theory over the last 15 or so years should counsel a bit more skepticism. Efficient market theory has been importantly discredited, and Shiller-style analyses of excess volatility and mean reversion are taken a lot more seriously, even by the likes of Eugene Fama. There are good psychological reasons behind overreaction - e.g., the human tendency to value the most recent piece of information excessively, at the expense of earlier knowledge. You also have herding, fads, crowd behavior, etc. So there's lots of noise mixed in with signal. yeah, the analysis of what's wrong with prices in financial markets has informed our knowledge of what's wrong with prices elsewhere. come back, Doug! Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
Re: Market socialism, etc.
Justin writes: I agree that Jim's replies are excellent, and I shall have to think about them. I wish that Jim would moderate his tone. If I have been repetitive, it is because some people--not Jim--weren't getting the point. I am sorry that I am irritated, but I've been familiar with the Hayek-kritik of totally-centralized planning for 30 years or so. It was in the intro textbook they assigned when I was a Frosh in college, just as it appears in Bowles Edwards, UNDERSTANDING CAPITALISM, 2nd ed. I get tired of repetition, too. I think that one obligation of a radical political economist is to get beyond the usual cant, so I try. I'll let others be the judge, but it's possible that (as with oysters) my irritation may have produced a pearl or two (perhaps discolored and misshapen, but what the hell). If there's someone out there in pen-l world who's an expert on this subject, do you want to be the (lead?) co-author to help me whip my points into a small book? Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~JDevine
Re: market socialism, etc.
[EMAIL PROTECTED] 07/19/00 03:15PM Excellent stuff, Jim. __ CB: ditto
Re: Market socialism, etc.
[EMAIL PROTECTED] 07/19/00 05:10PM If there's someone out there in pen-l world who's an expert on this subject, do you want to be the (lead?) co-author to help me whip my points into a small book? __ CB: You really should do that.
Re: Re: market socialism, etc.
While we are voting, I also found Jim's post quite helpful. I also support Neil's return. He added little traffic. He didn't insult anyone. Some people don't mind Spam. Personally I use Klik. Von Mises saw co-operatives as special interest groups who like every other special interest group wanted special grants and favors from the state to help them compete in the market thus distorting it. His article on Co-ops is availabe at the Von Mises site. Cheers, Ken Hanly Charles Brown wrote: [EMAIL PROTECTED] 07/19/00 03:15PM Excellent stuff, Jim. __ CB: ditto
Re: Re: market socialism, etc.
Justin wrote: Attacking Hayek for being too neoclassical is like attacking Marx for being too neoclassical. Hayek, Mises, and the Austrians dislike NCE for many of the same reasons that Marxists do: it's a poor description of actual markets (this is more Hayek than Mises) ... I didn't say that Hayek and the Austrians were NC economists (or if I did it was due to inadequate consumption of caffeine). But the Austrians are typically even more right-wing than the mainstream of NC economists, bringing in all sorts of pseudo-anarchistic stuff about "natural" or "spontaneous" order. (It's hard to tell whether the Austrians are worse than the Chicago-school NCers, since the right/left scale is not useful except on a very abstract level.) These people are ignorant of the fact that markets are human-created institutions, instead seeing them as gifts from the gods. Please, go read Hayek's Individualisma nd the Economic Order (Chicagao 1940+/-); it's short, clear, accessible, and reading it will avoid many problems and misunderstandings in the discussion. Besides, it is a very good and important book. I don't like being told: "go read this book" by some allegedly Great Man. It's a little bit like telling me to simply go away. Or like those folks who come the door with Good News who tell me that if read the Watch Tower, everything will make sense. "Go read X" is too much like appeal to authority, which is one of the basic logical fallacies. For a serious discussion, it's best to present a summary of one's viewpoint, defending it as well as one can, and then say "for more on this, go read X." Anyway, I've found that when I go and read X, I have a different interpretation of it than did the person who urged me to read it. I'd rather skip the X and discuss the interpretation (i.e., the urger's own views). Now, unlike Paul Phillips, I'm no expert on the subject under discussion, so someday when my research projects get into the territory of "how socialism should be organized" again, I'll read Hayek. (These days, of course, a Hayek-style information critique is applied to markets.) But I think I'll (re)read Horvat first. The reason is that I've never been one of those who thought that the whole economy could be planned using a spread-sheet or that GOSPLAN was the best thing since sliced bread. In fact, years ago, I would have described myself as some sort of "market socialist." As far as I can tell, Hayek's only relevant to those who think that planning is the only solution or those who think only in terms of a crude plan/market dichotomy. I'm not one of those. Anyway, tally-ho and all that, here's the discussion: I wrote: The point is (to repeat myself) that if the _centralized_ part of the planning process is only dealing with _abstract_ (or general) issues like the growth rate of the economy or the percentage of the total product that goes into investment or the balance between broad industrial sectors, there's no need for some Hayekian all-knowledgeable mind. OK, I agree with that sort of planning, as long as there are competitive markets operating below the Fed level. I don't see why it has to be a "competitive market," especially given the way "competitive markets" cause all sorts of negative results. (The fact that I have to repeat this is a sign of poor communication.) In many ways, monopolies are better (as when they are more able to pay high wages to their employees, while the textbook-standard monopoly's restriction of output can mean restriction of pollution, too). Competition in product markets encourages wage-cutting, which encourages the race to the bottom, increased human misery, and underconsumption. Among other things. Now in a different missive, Justin explains that the kind of "market socialism" that he favors involves workers' control. You should have said so earlier, Justin, because there are a lot of different kinds of market socialism (cf. Roemer). In any event, if workers control factories, that would probably prevent a race to the bottom, or at least discourage it. But it does not negate the other problems with markets. In yet another different missive, Justin writes that he thinks planning (without markets) won't work, would be inefficient. (In a market context, some, even much, planning is fine). I think that the comment that "planning (without markets) won't work, would be inefficient" begs the question. What is meant by "working" here? Different people have different definitions of success and therefore of "working" (as I noted, from the point of view of the military-industrial complex, a $500 toilet seat is a success -- while from the perspective of the Soviet ruling class, GOSPLAN worked for a long time). The term "efficiency" also does not speak for itself. It refers to the successful attainment of given goals. That means that the "efficiency" of the market would be judged differently by socialists and
Re: Re: Re: market socialism, etc.
Jim offers a long, meaty, and substantive discussion. I will look it over
tomorrow and see if I have more to say, but a few comparatively short
responses on a quick read through. Btw, this is part I of II. The message was
too long for my system to handle.
I didn't say that Hayek and the Austrians were NC economists . But the
Austrians are
typically even more right-wing than the mainstream of NC economists,
Good, and true. However, they don't have the particular vices of the NCEists,
math worthship, a conception of markets that is essentially static, and based
on utterly counterfactual assumptions. They have a feel for real-world
markets, if too little appreciation of their limits.
I don't like being told: "go read this book" by some allegedly Great Man
{Hayek]. . . . For a serious
discussion, it's best to present a summary of one's viewpoint, defending it
as well as one can, and then say "for more on this, go read X."
Sorry. I have, however, been summarizing and developing Hayekian arguments.
But I
think I'll (re)read Horvat first. The reason is that I've never been one of
those who thought that the whole economy could be planned using a
spread-sheet or that GOSPLAN was the best thing since sliced bread. In
fact, years ago, I would have described myself as some sort of "market
socialist."
Great!
As far as I can tell, Hayek's only relevant to those who think
that planning is the only solution or those who think only in terms of a
crude plan/market dichotomy. I'm not one of those.
Right, but there a lot of them around here.
I don't see why [we need] e a "competitive market," especially given the
way "competitive markets" cause all sorts of negative results.
Sure. But they have postive results. Uncompetitive markets involve
monopollies or oligopolies or price fixing and other bad things that lower
production and increase prices while the gougers take rent.
Competition in product
markets encourages wage-cutting, which encourages the race to the bottom,
increased human misery, and underconsumption. Among other things.
Ah, but therea re no wages in worker-controlled market socialism. The workers
take the profits, and are unl;ikely to reduce their own share to
benefit--whom?
Now in a different missive, Justin explains that the kind of "market
socialism" that he favors involves workers' control. You should have said
so earlier, Justin, because there are a lot of different kinds of market
socialism (cf. Roemer). In any event, if workers control factories, that
would probably prevent a race to the bottom, or at least discourage it. But
it does not negate the other problems with markets.
Right. I guess I thought I had explained that.
I think that the comment that "planning (without markets) won't work, would
be inefficient" begs the question. What is meant by "working" here?
Well, I think it wouldn't work in the sense that without accurate information
in the system, the planning would be inaccurate, needs would not be met,
there would be massive waste, people would spend a lot oif time making stuff
no one wanted, while there would chronic shortages and bottlenecks, and
innovation would be stifled,. In short, pure planning would replicate many of
the flaws of the former Soviet economy.
The term "efficiency" also does not speak for itself. It refers to the
successful attainment of given goals. That means that the "efficiency" of
the market would be judged differently by socialists and capitalists,
Sure. I defined efficiency in terms of lack of waste, real needs are actually
met with minimal expenditure of available resources. That strikes me as a
socialist, or anyway a humane, notion of efficiency.
(The standard kind of
efficiency that economists invoke is Pareto Optimality, which preserves the
existing distribution of wealth.) Or you should be very specific by what
you mean by efficiency, adding qualifications, such as "allocative
efficiency".
I don't mean Pareto Optimality, obviously, or I wouldn't be a socialist.
In any event, markets aren't efficient by any standard if externalities
exist (as they do, in spades), if information problems exist, if one of
your goals is egalitarian distribution of power, etc. Economists outside of
the University of Chicago and its pseudopodia are
quite conscious of market inefficiencies.
Sure. That's why I am in favor of big government, aggressive regulation, etc.
More importantly, I think that the parenthetical remark has things
precisely backward. I'd say instead that in a planning context, some, even
much, market allocation is fine. This requires qualification and
explanation, of course.
First, I think ideas of "market socialism" (or even better, Diane Elston's
idea of "socialized markets") make sense as part of a _transitional
socialism_, since the idea of instantly abolishing markets is crazy. ( Of
course, _all_ socialisms are
Designing Institutions: Is it Possible?, was Market Socialism, etc.
Rod Hay wrote:
If rationing is required, I think that we can design other institutions that do the
job better than the market can. Hence my advocacy (and I think Jim's) of democratic
control.
When a debate goes on as wildly as this debate has (and as the same debate has in the
past on other lists), one strong possibility is that (a) the parties to the debate (a)
really do not and cannot understand each other and (b) the propositions explicitly
argued are not the questions actully at issue.
I'm not sure myself what the core issues at stake are, but I want to make a
preliminary stab at naming one of them.
*Both* parties to the debate are deeply suspicious of Planning. And *both* parties to
the debate see the other as dangerously committed to planning -- the danger being that
of authoritarian and terrorist rule.
Justin believes that socialist planning of the economy wrong for two reasons:
1. It won't work (it is inefficient) and those in control will therefore
resort to terrorist or at least very heavy-handed methods ("Administrative Methods"
the Chinese called them) to make work what is unworkable.
2. Workers need a clear goal in order to be brought to vote for a socialist
system. Hence it is important to design in advance (plan) the institutions which can
work. The sort of negative organizing which I for example advocate (there are many
variations on this, discussed at the end of this post) is impractical, utopian,
because it can never attract a sufficient number of workers to bring about a social
change. (I'm not sure how to word what follows, so I won't necessarily defend my
specific wording.) And as a result those who favor such
organizing will *in practice* end up supporting some sort of minority ("elitist,"
"bureaucratic") revolution imposing an authoritarian rule by bureaucracy.
-
Now, Rod is trying to make the debate as rational as possible, and very roughly
speaking he and I are on the "same" side. There is a possible serious difference,
however, as brought out in the wording of the post quoted above: Rod believes that
institutions can be *designed*. He also believes in democratic control, however, and
that may qualify the meaning of "design" in this context. In any case, I believe,
roughly, that the designing of institutions *in thought* is fundamentally
totalitarian. I object, that is, to the kind of "Planning" that Doug and
Justin both seem to propose: the planning in advance of the kind of institutions that
will characterize a socialist order.
Now this kind of intellectual conviction will obviously be accompanied by reasonably
strong feeling, and when that feeling comes out quickly, it results in the kind of
insults that Justin and I exchanged.
Extrapolated into the future then, both sides (with some historical justification for
each) believe that the other's position can only result in authoritarian terror. Now I
doubt very much that either Justin or Doug would (at this time) propose shooting
Carrol or Yoshie. And neither of us would propose shooting Justin or Doug. But they
*do* think that our kind of "planning" will result (if successful) in people like them
being shot. And we *do* think that that commitment to "planning" of their type will
under quite possible historical conditions
(conditions that have in fact occurred in the past) result in the shooting of people
like us.
This is clumsy. But I think Justin and Doug should recognize (even if they cannot
understand) that both sides do object to planning -- it is just that each side has a
different perception of the *kind* of planning which is most dangerous.
And it is important to see that each side also regards the other as impossibly
utopian, and to see why this is so. And the kind of utopianism of which each suspects
the other is the kind which, developed in practice, leads to authoritarian terror. But
I'll leave that for another post.
Carrol
Re: Designing Institutions: Is it Possible?, was Market Socialism, etc.
I am not deeply suspicious of planning but of markets. I am not merely suspicious of
markets but on the whole I think them (real markets) evil and to be dispensed with as
far as possible since they ration unjustly, do not take into account externalities, do
not consider needs but effective demand only and lead not to efficiency but anarchy
(pace anarchists) in production. I do not favor top-down command planning with no
citizen and NGO input into the plan but that is another matter.
Cheers, Ken Hanly
Carrol Cox wrote:
Rod Hay wrote:
If rationing is required, I think that we can design other institutions that do
the job better than the market can. Hence my advocacy (and I think Jim's) of
democratic control.
When a debate goes on as wildly as this debate has (and as the same debate has in
the past on other lists), one strong possibility is that (a) the parties to the
debate (a) really do not and cannot understand each other and (b) the propositions
explicitly argued are not the questions actully at issue.
I'm not sure myself what the core issues at stake are, but I want to make a
preliminary stab at naming one of them.
*Both* parties to the debate are deeply suspicious of Planning. And *both* parties
to the debate see the other as dangerously committed to planning -- the danger being
that of authoritarian and terrorist rule.
Justin believes that socialist planning of the economy wrong for two reasons:
1. It won't work (it is inefficient) and those in control will therefore
resort to terrorist or at least very heavy-handed methods ("Administrative Methods"
the Chinese called them) to make work what is unworkable.
2. Workers need a clear goal in order to be brought to vote for a socialist
system. Hence it is important to design in advance (plan) the institutions which can
work. The sort of negative organizing which I for example advocate (there are many
variations on this, discussed at the end of this post) is impractical, utopian,
because it can never attract a sufficient number of workers to bring about a social
change. (I'm not sure how to word what follows, so I won't necessarily defend my
specific wording.) And as a result those who favor such
organizing will *in practice* end up supporting some sort of minority ("elitist,"
"bureaucratic") revolution imposing an authoritarian rule by bureaucracy.
-
Now, Rod is trying to make the debate as rational as possible, and very roughly
speaking he and I are on the "same" side. There is a possible serious difference,
however, as brought out in the wording of the post quoted above: Rod believes that
institutions can be *designed*. He also believes in democratic control, however, and
that may qualify the meaning of "design" in this context. In any case, I believe,
roughly, that the designing of institutions *in thought* is fundamentally
totalitarian. I object, that is, to the kind of "Planning" that Doug and
Justin both seem to propose: the planning in advance of the kind of institutions
that will characterize a socialist order.
Now this kind of intellectual conviction will obviously be accompanied by reasonably
strong feeling, and when that feeling comes out quickly, it results in the kind of
insults that Justin and I exchanged.
Extrapolated into the future then, both sides (with some historical justification
for each) believe that the other's position can only result in authoritarian terror.
Now I doubt very much that either Justin or Doug would (at this time) propose
shooting Carrol or Yoshie. And neither of us would propose shooting Justin or Doug.
But they *do* think that our kind of "planning" will result (if successful) in people
like them being shot. And we *do* think that that commitment to "planning" of their
type will under quite possible historical conditions
(conditions that have in fact occurred in the past) result in the shooting of people
like us.
This is clumsy. But I think Justin and Doug should recognize (even if they cannot
understand) that both sides do object to planning -- it is just that each side has a
different perception of the *kind* of planning which is most dangerous.
And it is important to see that each side also regards the other as impossibly
utopian, and to see why this is so. And the kind of utopianism of which each suspects
the other is the kind which, developed in practice, leads to authoritarian terror.
But I'll leave that for another post.
Carrol
market socialism, etc.
1. Justin writes: Please show me how the Hayekian argument I have been running depends on any particular features of planning that are peculiar to a Soviet-style planning process. It doesn't. The argument is abosolutely general. Waving the words "decentralized" and "democratic" doesn't expalin where we get incentives to find out correct information, reduce waste, innovate new producrs, services and production methids. "Decentralized democratic planning" is a shibboleth, meaningless. It answers NO questions. So you say. And I did NOT use the phrase "decentralized democratic planning" but instead _explained_ what I meant. Please read what I say. The point is (to repeat myself) that if the _centralized_ part of the planning process is only dealing with _abstract_ (or general) issues like the growth rate of the economy or the percentage of the total product that goes into investment or the balance between broad industrial sectors, there's no need for some Hayekian all-knowledgeable mind. If the Federal Reserve can make the decisions it makes in planning the US economy (along with its spillovers to the rest of the world), it's pretty easy for a democratically-controlled planning agency to deal with equally general issues. It might be more difficult, because there are more issues, but not impossible. I also think it's not planning: I mean, what makes it planned, if the decisions are made indeoendently of each other by production units and not coordinated? How's that different from markets operating "behind the backs of the producers," with all their disadvantages and none of theor advantages? But set that aside. Did you read the part where I noted that individual units made decisions within the framework set by the central planning agency? If so, you would have noted that decisions are not made "independently of each other." I used the word "independent" to mean as opposed to being under the thumb of the central bureaucracy. True independence of all of society is in any case impossible. The point is that we can learn from the Soviet experience of planning just as we can learb from the capitalist experience of markets. But the Hayek argument is general. It applies to all situations where there are no markets and production and distribution are authoritatively (or if you will, democratically) allocated. The objection is not based on the Soviet experience: in fact it antedates the Soviet experience. It does not presuppose an undemocratic one party state and a top down planning process. It presupposes only lack of competition and production being determined by some sort of targets arrived at politically. So let's avoid this red herring and actually argue the issues, shall we? One of the problems with the Hayekian argument is that it ignores the role of the undemocratic one-party state. In fact, Hayekians want such a state in order to prevent popular-democratic meddling with the beloved and sacred free market. (If he's like other "great thinker," Hayek was superior to his followers.) The ideal _laissez-faire_ system has a Pinochet in charge or a denatured democracy with many important powers spun off to "independent" agencies like the Fed which respond to the moneyed interests. Another problem is that there's an either/or here: plan _versus_ market. We don't have to go that way. For example, in Pat (no relation) Devine's model of planning, markets are used to make static decisions (subject to all sorts of government regulations to deal with externalities, unlike in the Hayekian vision) whereas the plan is used for more dynamic decisions. Note that in a different post, Justin gives a vague description of Schweickart's scheme that sounds similar to P. (NR) Devine's scheme. Maybe this can get us away from false market vs. plan dichotomies and allow some agreement. And what is competition? is it the mythical passive competition of lemonade stands for the consumer's business? is it the competition of small workshops hiring small numbers of workers who had similar resources to their "masters" that Smith saw? is it the grinding competition that drives small farmers out of business, into the hands of agribusiness, or under the thumbs of the agro-industrial complex? is it the aggressive competition of oligopolistic firms, trying by hook or crook or dirty trick to get advantage and market share? is it the competition of factions within the CPSU? We need clarity, not the wielding of neoclassical shibboleths. 2. in a different message, Justin wrote: No, we are not against democracy. But we have to recognize that not all its effects are wholly good in every context. In the context of planning, democarcy would make the calculation problem worse by amplifying the information distortions it involves. Democracy is not part of the solution to the calculation problem. What do _you_ mean by the "calculation problem"? To me, ultimately the democratic electorate
Re: market socialism, etc.
Jim: Attacking Hayek for being too neoclassical is like attacking Marx for being too neoclassical. Hayek, Mises, and the Austrians dislike NCE for many of the same reasons that Marxists do: it's a poor description of actual markets (this is more Hayek than Mises) and does not correctly model how they work. Austrians tend to go overboard about their good effects, as Marxists do about their bad ones, but they are of one mind that NCE is not very impressive. Please, go read Hayek's Individualisma nd the Economic Order (Chicagao 1940+/-); it's short, clear, accessible, and reading it will avoid many problems and misunderstandings in the discussion. Besides, it is a very good and important book. In a message dated Fri, 14 Jul 2000 4:51:08 PM Eastern Daylight Time, Jim Devine [EMAIL PROTECTED] writes: The point is (to repeat myself) that if the _centralized_ part of the planning process is only dealing with _abstract_ (or general) issues like the growth rate of the economy or the percentage of the total product that goes into investment or the balance between broad industrial sectors, there's no need for some Hayekian all-knowledgeable mind. OK, I agree with that sort of planning, as long as there are competitive markets operating below the Fed level. I asked: I also think it's not planning: I mean, what makes it planned, if the decisions are made indeoendently of each other by production units and not coordinated? Did you read the part where I noted that individual units made decisions within the framework set by the central planning agency? If so, you would have noted that decisions are not made "independently of each other." I used the word "independent" to mean as opposed to being under the thumb of the central bureaucracy. True independence of all of society is in any case impossible. OK, so we have competitive production units operating within Fed-like constraints? Or we have little monopolies meeting targets (set by whom?) as they see fit under the very broad and general supervision of government planning boards which exercise some kind of oversight, but not central planning? I am hazy here, help me out. One of the problems with the Hayekian argument is that it ignores the role of the undemocratic one-party state. This concedes taht nothing in the Hayekian argument depends on the existence of such a state. In fact, Hayekians want such a state in order to prevent popular-democratic meddling with the beloved and sacred free market. Well, in his political philosophy, Hayek was no fan of democracy. He blamed Hitler on democracy, foolish man. Hayek did not advocate a single-party state but rather a Schumpterian elite-compition democracy and a fairly minimal state. But I am no fan of Hayek's political philosophy. I do not have to be to see he is onto something with his calculation argument, any more than I have to subscribe to Marx's romantic ideal of planning to appreciate his critique of capitalism. (If he's like other "great thinker," Hayek was superior to his followers.) Meaning what, that he was smarter and more creative than them? Pretty much, yes, as Marx was smarter and more creative than we are. Another problem is that there's an either/or here: plan _versus_ market. We don't have to go that way. Sure, of course. I am a _market SOCIALIST_ after all. Plan what you can, I say, and market what you must. And what is competition? is it the mythical passive competition of lemonade stands for the consumer's business? is it the competition of small workshops hiring small numbers of workers who had similar resources to their "masters" that Smith saw? is it the grinding competition that drives small farmers out of business, into the hands of agribusiness, or under the thumbs of the agro-industrial complex? is it the aggressive competition of oligopolistic firms, trying by hook or crook or dirty trick to get advantage and market share? is it the competition of factions within the CPSU? We need clarity, not the wielding of neoclassical shibboleths. Ideally, it is fairly vigorous competition between worker-managed cooperatives who are actively trying to promote markets for products and services with new ways of makiing old ones and new products and services that no one has thought of, with at least enough coops in play so that there is actual consumer choice. For technical reasons (the Ward effect), coops will tend to be smallish, so more vigorous competition is likelier. i will explain this later. I said: Democracy is not part of the solution to the calculation problem. Jim asks, "What do you mean by the calculation problem?" Sigh. The calculation problem is the name given in the literature to the set of objections to planning that I have been pushing. It goes back to Mises' 1920 article on "Economic Calculationa nd the Socialist Commonwealth." To me, ultimately the democratic electorate must be sovereign, i.e.,
Re: Re: market socialism, etc.
A paper at the History of Economics session connected Hayek with A. Carr-Saunders, an important eugenicist, who apparently inspired much of Hayek's thinking on spontaneous order. I also used C.-S., many years ago, because I was impressed with his analysis of pre-industrial women's ability to control their reproductive systems. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
[PEN-L:8707] Re: market socialism, etc.
I agree that putting the costs on others and taking the advantages for oneself is how capitalist politics works. In fact my statement is a very close paraphrase of one by Justice Holmes (talking about capitalist legislation). The point that this is a psecial problems for planned socialism is that in it, the whole economy is politicized; there's no room for any nonpoliticized decisionmaking. I agree that rich coops exercising power in virtue of their wealth would be a problem in MS. --jks On Mon, 17 Feb 1997 [EMAIL PROTECTED] wrote: About a Hahnel Albert-type socialism, Justin S writes: Politicization of the whole economy will mean that each group will try to put the burdens and costs on other groups while reapin[g] advantages for themselves. Wait a sec, Justin! that's _exactly_ the way a capitalist market works (see, e.g., E.K. Hunt's critique of welfare economics in the Ed Nell edited volume, GROWTH, PROFITS, AND PROPERTY). I see _no_ reason to see a "socialist market" not acting in the same way. A "socialized market" would involve a lot of regulation, special taxes, etc. This in turn would encourage lobbying by the producers (whether they're run as cooperatives or not), in order to ease their regulatory burden and the effluent taxes they have to pay (and raise the bounties they get from central authorities for producing external benefits). Of course, the wealthier or luckier producers (co-ops) would have the most influence... They can then turn that influence into greater wealth. So they could dump costs on others and "internalize the external economies" of others. At least you have to admit that Robin is addressing the issue of how one can structure a socialist economy to avoid encouraging the aggressive-individualistic or particularistic motives that are both encouraged by and mess up the capitalist market and the "socialized market." BTW, Marx accurately pointed to the increasingly overt socialization of individualized production. In more common-sense terms, this refers to the growth of economic power, interdependency, the importance of external costs benefits, etc., etc. Increased socialization of production automatically produces increased politicization of individual activities. We can't avoid that politicization (meaning that we can't go up to our cabins in the woods, become totally self-sufficient, and avoid all other people). The question is: is the politicization going to be democratic (one person/one vote) or capitalist (one dollar/one vote)? I didn't see my pen-l missive on this subject from last week in the pen-l archives at csf.colorado.edu (or even in my own archives), so here it is again. Sorry if it is repetitive, redundant, pleonastic, or duplicative. In addition to the issue of external costs benefits, Robin Hahnel is onto something that Kenneth Arrow noted a long time ago: "Under the system of a free market, such feelings [social values, the ordering of social states according to moral standards] play no direct part in social choice... The market mechanism... takes into account only the ordering according to tastes [the ordering according to the direct consumption by the individual]." (SOCIAL CHOICE AND INDIVIDUAL VALUES, 1963: p. 18). Social preferences, like feelings of solidarity, cannot be expressed in an atomized market setting. Robin also stresses how a competitive environment encourages the type of personality that actively externalizes external costs (i.e., dumps) and internalizes internal benefits (cream-skims, etc.) Since external costs and benefits (including the "pecuniary" ones) are omnipresent, this argument has to be answered seriously. I'll get back to the NAIRU later... in pen-l solidarity, Jim Devine [EMAIL PROTECTED] [EMAIL PROTECTED] Econ. Dept., Loyola Marymount Univ. 7900 Loyola Blvd., Los Angeles, CA 90045-8410 USA 310/338-2948 (daytime, during workweek); FAX: 310/338-1950 "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- K. Marx, paraphrasing Dante A.
[PEN-L:8668] Re: market socialism, etc.
At 09:45 AM 2/17/97 -0800, Jim wrote: In addition to the issue of external costs benefits, Robin Hahnel is onto something that Kenneth Arrow noted a long time ago: "Under the system of a free market, such feelings [social values, the ordering of social states according to moral standards] play no direct part in social choice... The market mechanism... takes into account only the ordering according to tastes [the ordering according to the direct consumption by the individual]." (SOCIAL CHOICE AND INDIVIDUAL VALUES, 1963: p. 18). Social preferences, like feelings of solidarity, cannot be expressed in an atomized market setting. And more recently, Soros of all people said something quite similar; for an interesting, somewhat bizarre read, check out the latest Atlantic. Among other things, Soros admits that (surprise!) simply unleashing capitalism in Eastern Europe failed miserably, and he says that unfettered laissez-faire policies may destroy our society. Not exactly a shocker for folks here, but it's fun to have someone like Soros to smack Right-wingers over the head. Anders Schneiderman Progressive Communications
[PEN-L:8658] market socialism, etc.
About a Hahnel Albert-type socialism, Justin S writes: Politicization of the whole economy will mean that each group will try to put the burdens and costs on other groups while reapin[g] advantages for themselves. Wait a sec, Justin! that's _exactly_ the way a capitalist market works (see, e.g., E.K. Hunt's critique of welfare economics in the Ed Nell edited volume, GROWTH, PROFITS, AND PROPERTY). I see _no_ reason to see a "socialist market" not acting in the same way. A "socialized market" would involve a lot of regulation, special taxes, etc. This in turn would encourage lobbying by the producers (whether they're run as cooperatives or not), in order to ease their regulatory burden and the effluent taxes they have to pay (and raise the bounties they get from central authorities for producing external benefits). Of course, the wealthier or luckier producers (co-ops) would have the most influence... They can then turn that influence into greater wealth. So they could dump costs on others and "internalize the external economies" of others. At least you have to admit that Robin is addressing the issue of how one can structure a socialist economy to avoid encouraging the aggressive-individualistic or particularistic motives that are both encouraged by and mess up the capitalist market and the "socialized market." BTW, Marx accurately pointed to the increasingly overt socialization of individualized production. In more common-sense terms, this refers to the growth of economic power, interdependency, the importance of external costs benefits, etc., etc. Increased socialization of production automatically produces increased politicization of individual activities. We can't avoid that politicization (meaning that we can't go up to our cabins in the woods, become totally self-sufficient, and avoid all other people). The question is: is the politicization going to be democratic (one person/one vote) or capitalist (one dollar/one vote)? I didn't see my pen-l missive on this subject from last week in the pen-l archives at csf.colorado.edu (or even in my own archives), so here it is again. Sorry if it is repetitive, redundant, pleonastic, or duplicative. In addition to the issue of external costs benefits, Robin Hahnel is onto something that Kenneth Arrow noted a long time ago: "Under the system of a free market, such feelings [social values, the ordering of social states according to moral standards] play no direct part in social choice... The market mechanism... takes into account only the ordering according to tastes [the ordering according to the direct consumption by the individual]." (SOCIAL CHOICE AND INDIVIDUAL VALUES, 1963: p. 18). Social preferences, like feelings of solidarity, cannot be expressed in an atomized market setting. Robin also stresses how a competitive environment encourages the type of personality that actively externalizes external costs (i.e., dumps) and internalizes internal benefits (cream-skims, etc.) Since external costs and benefits (including the "pecuniary" ones) are omnipresent, this argument has to be answered seriously. I'll get back to the NAIRU later... in pen-l solidarity, Jim Devine [EMAIL PROTECTED] [EMAIL PROTECTED] Econ. Dept., Loyola Marymount Univ. 7900 Loyola Blvd., Los Angeles, CA 90045-8410 USA 310/338-2948 (daytime, during workweek); FAX: 310/338-1950 "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- K. Marx, paraphrasing Dante A.
