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Some Ethical Implications for Capitalism of the Socialist Calculation Debate

Published online by Cambridge University Press:  13 January 2009

Israel M. Kirzner
Israel M. Kirzner
Affiliation:
Economics, New York University
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Extract

The debate that raged in the interwar period between the Austrian economists (who argued the thesis that under socialism it would not be possible to engage in rational economic calculation) and socialist economists (who rejected that thesis) was, narrowly conceived, a debate in positive economics. What was being discussed was certainly not the morality of capitalism or of socialism. Nor, strictly speaking, was the debate even about society's economic well-being under socialism; it concerned the ability of central planners to make decisions that take appropriate account of relevant resource scarcities, in the light of consumer preference rankings. To be sure, the extraordinary interest which surrounded the debate and the passions that lurked barely below its surface testified to the powerful implications of the debate for crucial issues in welfare economics. The Austrians were not merely exploring the economies of socialism; they were in effect demonstrating that, as an economic system attempting to serve the needs of its citizens, socialism must inevitably fail. But, even if the debate is interpreted in its broadest terms, as a debate in welfare economics, it represented a sharp break widi traditional polemics relating to the socialism-capitalism issue. Traditionally the arguments for or against capitalism had, until 1920, been deeply involved in ediical questions. Mises's 1920 challenge to socialism, in contrast, was explicit in making no attempt to address any claims concerning the alleged moral superiority of socialism. He simply argued that, as an economic system, socialism was inherendy incapable of fulfilling the objectives of its proponents; central planners are unable to plan centrally.

Type
Research Article
Information
Social Philosophy and Policy , Volume 6 , Issue 1 , Autumn 1988 , pp. 165 - 182
Copyright
Copyright © Social Philosophy and Policy Foundation 1998

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References

1 Mises, L., Socialism, An Economic and Sociological Analysis, trans. J., Kahane from 2nd German edition [1932], (London: Jonathan Cape, 1936), p. 135.Google Scholar

2 Two excellent book length histories (both sympathetic to the Austrian side of the debate) are: Hoff, T.J.B., Economic Calculation in the Socialist Society, trans. from Norwegian, edition (1938), (London: W. Hodge, 1949)Google Scholar; Lavoie, D., Rivalry and Central Planning, The Socialist Calculation Debate Reconsidered (Cambridge: Cambridge University Press, 1985).Google Scholar

3 For detailed references, see Hoff, , Economic Calculation, p. 1Google Scholar; Mises, L., Socialism, p. 135.Google Scholar

4 Mises, , Socialism, p. 131.Google Scholar

5 ibid.

6 ibid., p. 132.

7 ibid., p. 135.

8 See Hoff, , Economic Calculation, p. 131Google Scholar footnote, and entire chapter 11.

9 Taylor, F.M., American Economic Review, vol. 19, no. 1 (March 1929)Google Scholar, reprinted in Lippincott, B.J., ed., On the Economic Theory of Socialism (University of Minnesota Press, 1938Google Scholar; reprinted by McGraw-Hill, 1964).

10 Lange, O., “On the Economic Theory of Socialism,” Review of Economic Studies, vol. iv, numbers 1,2 (October 1936 and February 1937)Google Scholar, reprinted in Lippincott, Economic Theory, (subsequent page referencs will be to the Lippincott edition). Lerner, A.P., “Economic Theory and Socialist Economy,” Review of Economic Studies, vol. ii (1934)Google Scholar; and “A Note on Socialist Economics,” Review of Economic Studies, vol. iv (1936); see also, Lerner, A.P., The Economics of Control (New York: MacMillan, 1944).Google Scholar

11 Both papers were reprinted in Hayek, F.A., Individualism and Economic Order (London: Routledge and Kegan Paul, 1949).Google Scholar

12 Hayek did address Lange's solution (together with those of several others) in “Socialist Calculation III: The Competitive ‘Solution’,” in Individualism and Economic Order, chapter six (original paper first published in Economica, vol. vii, no. 26, May 1940).

13 See Lavoie, , Rivalry, p. 13Google Scholar, for a list of postwar writers who took this position.

14 See Hayek, “Socialist Calculation III”; see also Mises, L., Human Action (New Haven: Yale University Press, 1949), pp. 700–706.Google Scholar

15 See D. Lavoie, Rivalry.

16 See Kirzner, I.M., “The Economic Calculation Debate: Lessons for Austrians,” The Review of Austrian Economics, vol. 2 (1987).Google Scholar

17 Mises, L., Epistemological Problems of Economics, trans. G., Reisman, (New York: Van Nostrand, 1960), p. 214.Google Scholar The passage appears in a paper whose original German version was published in 1931.

18 von Mises, L., Notes and Recollections (South Holland, IL: Libertarian Press, 1978), p. 36.Google Scholar See Foreword (by Margit von Mises) pp. viii-ix, for the information that the book was completed in 1942.

19 Lange, “Theory of Socialism.”

20 ibid., p. 70; italics in original.

21 ibid., p. 71.

22 Hayek, F.A., “The Meaning of Competition,” in Individualism and Economic Order, chapter v.Google Scholar

23 On this see Kirzner, I.M., Competition and Entrepreneurship (Chicago: University of Chicago Press, 1973), pp. 42, 91ff.Google Scholar

24 Hayek, F.A., Individualism and Economic Order, p. 94.Google Scholar

25 Mises, , Socialism, p. 115.Google Scholar

26 Mises, , Human Action, pp. 332–335; italics in original.Google Scholar

27 Hayek, , Individualism and Economic Order, p. 121.Google Scholar

28 ibid., p. 54.

29 ibid., p. 202.

30 ibid., pp. 77f.

31 See O'driscoll, Gerald P. Jr., Economics as a Coordination Problem: The Contribution of Friedrich A. Hayek (Kansas City: Sheed, Andrews and McMeel, 1977Google Scholar; Kirzner, I.M., Competition and EntrepreneurshipGoogle Scholar, chapter 6 (“Competition, Welfare, and Coordination”).

32 See Hayek, F.A., “Competition as a Discovery Procedure” (first delivered as a lecture in 1968), in New Studies in Philosophy, Politics, Economics and the History of Ideas (Chicago: University of Chicago Press, 1978).CrossRefGoogle Scholar

33 Hayek, , Individualism and Economic Order, p. 188.Google Scholar

34 Mises, L., “Economic Calculation in the Socialist Commonwealth,” trans. S., Adler from the 1920 German article, F.A., Hayek, ed. Collectivist Economic Planning: Critical Studies on the Possibilities of Socialism (London: Routledge and Sons, 1935), p. 107.Google Scholar

35 We interpret these changes in the Austrian articulation of their position as increasing self-awareness of the implications of the Mengerian paradigm, rather than as any substantive modification in Austrian theory, for reasons that need not detain us here. For discussion of these issues, see Lavoie, D., Rivalry and Central Planning, p. 26Google Scholar; and I.M. Kirzner, “The Economic Calculation Debate: Lessons for Austrians”; see also Kirzner, I.M., “Ludwig von Mises and Friedrich von Hayek: The Modern Extension of Austrian Subjectivism,” N., Leser, ed., Die Wiener Schule der Nationalökonomie (Vienna: Böhlau, 1986).Google Scholar

36 On this see Wood, A., “The Marxian Critique of Justice,” Philosophy & Public Affairs, vol. 2 (Spring 1972)Google Scholar, and Baumol, W., “Marx and the Iron Law of Wages,” American Economic Review, vol. 73, no. 2 (May 1983), p. 306.Google Scholar

37 See Clark, J.B., The Distribution of Wealth: A Theory of Wages, Interest and Profits (New York, 1908)Google Scholar, esp. chapter 1; see also Friedman, M., Capitalism and Freedom (Chicago: University of Chicago Press, 1962)Google Scholar, chapter x.

38 See Sugden, Robert, The Economics of Rights, Cooperation and Welfare (Oxford: Basil Blackwell, 1986), p. 88Google Scholar, for a view of the finders-keepers rule that appears to differ from that developed here.