I feasted on the Calculation Debate -- both sides -- when I was a student!
Your criticism is well taken. The closest thing to Lange-Lerner that has been implemented has been the EU Common Agricultural Policy [CAP] and it illustrates well how a real life Central Planning Board will set prices.
The CAP is a whole set of prices enforced by the government through buying product. Those are political prices, set to make the least efficient farmer vote for the party that gives him the bounty of the high price. Of course there were surpluses -- the wine lake, the butter mountain, and the milk ocean. Prices were kept in check only when it seemed politically feasible to do so.
The only other constraint on this behavior was the budgetary cost of financing the surpluses. High tariffs lowered the budgetary cost.
"If it follows orders from the CPB it produces a profit which it turns over to the CPB. It has the alternative of spending the profit they were making on the workers themselves instead of turning it over to the planning board, deliberately raising costs by paying more to the workers or spending more on them to make"
Thats more or less what happened with all the socialist and anarchist cooperatives on the Republican side during the Spanish Civil War. They didnt necessarily do marginal cost pricing but they did have arrangements where any profit was to be turned over to a central authority and redistributed among all the relevant cooperatives. Very quickly each individual cooperative found a way to make zero profit by driving up their own costs by driving up the wages. Since amount of "true" profit (before it was purposefully eliminated) varied by cooperative size and also by whether the factory/firm/farm they seized had previously modernized its equipment or not, this rapidly created a "workers aristocracy" within these cooperatives
It seems to me that there might be another issue with Lerner and Lange's model of socialism with markets: the Central Planning Board will be slower to adjust prices to changes in circumstances than a free market would be. In a free market, each individual actor can adjust immediately to any change they see. In the Lerner-Lange model, they can't adjust until the CPB changes the prices they set (which they might have to do multiple times in response to a change since they are doing it by trial and error).
Indeed, it seems possible to me that the CPB might not be able to keep up with changes in circumstances: that the average time it takes them to find the right equilibrium price for a given set of circumstances by trial and error, will be longer than the average time it takes for circumstances to change and force them to start the trial and error process all over again.
Empty shelves during any kind of sudden turn in circumstances seems incredibly likely. If the items are priced too cheaply, then they get purchased by the first people to see the price mismatch. If too expensive, then the item doesn't get produced because earlier steps in the process are better uses of time/money.
According to these implications, should we prefer society be ran by corporations rather than the government? It appears that we should even though most people seem to think that would be dystopian.
My experience has been that people who claim to hate capitalism actually hate crony government, but blame it on capitalists, incredibly backwards to me, since government has the monopoly on making laws, enforcing laws, and interpreting laws.
As for the correctness of this essay, it all seems perfectly cromulent, but IANAE and have long since decided that maximum individual liberty solves almost all problems (I won't say all, since I don't know all problems), and just leaving businesses to figure it out on their own tends towards the most efficient solutions. And if some business thrives in spite of being less efficient than its competitors, great, others will try to copy its secret sauce and the world will continue progressing at its own pace.
If efficiency were our only consideration then almost certainly yes. But we give votes to people who don't own land or aren't employed, and we do that for good historical reasons.
A court system is supposed to be available even to people who can't afford any of the proceedings. A corporation would charge for the court's time. This would almost certainly result in a much more efficient court system, such that the price per interaction would decrease - but at the cost that many people would not be able to use the system at all.
A system that benefits people with money and/or connections but leaves the poor with no remedy definitely fits "dystopian" in my mind.
I don’t see how excluding anyone besides a government from producing law and arbitration services is more beneficial to the poor than allowing competition. Clothing, phones, and food are all produced on the private sector and poor people have better quality of those than they do of policing, education, and healthcare, which are all largely produced on the public sector. If that weren’t the case, I still don’t see why we should make everyone worse off to make the lower class better off. If anything, that should apply to the global poor. For example, instead of tax benefits going to the lower class in America, they should go to the most effective charities helping the worst off in the world. But that is rarely the initiative put forth by those in favor of taxes and governments.
All that said, even in that case, I’m not convinced the benefits of helping the global poor are great enough to outweigh the harms that come along with having a government.
It's a philosophical question and very few are willing in practice to bite the bullet. To make markets truly shine you need to be as hands off as possible, and I strongly suspect that a free market court would quickly be changed to allow more people access even if they cannot afford it. The first time someone is egregiously wronged with a clear legal right but cannot afford to take it to court, we give up on the backing such a system would need. It wouldn't have to be a sympathetic little old lady, but as a test case it easily could be.
I’m not sure how this addresses the points I made. Markets exist for governments just as they do for corporations. The question is whether it’s better that the market of law and arbitration be produced by competing entities through contracts rather than a single organization perceived as legitimate in using force to prevent others from competing with them. In both cases the poor old lady is worse off than the rich old lady. However, at least with competing services she doesn’t get beat every time. She will lose most of the time, though not always. While in democracy markets, the poor are those that are part of a smaller faction. They lose every time to the groups with more votes.
From that perspective voting markets leave the worst off even worse than money markets leave the worst off.
What would the difference be? Isn't a government essentially a corporation whose citizens are share holders (in the case of democracy) and whose residents (and citizens, in the case of Eritrea and the US) are customers?
Many people claim that capitalist countries ARE, effectively, run by corporations.
You need some top level entity to prevent people/companies taking from each other by force.
War and theft are not in either the capitalist or socialist models. Anarchists try to claim that they can work it out but their solution has never seemed even remotely plausible to me.
Yes. It IS the rationalization for coercive monpolistic government. You agree with me that anarchy is not the alternative so what exectly do you think the solution is? Maximal individual liberty IS anarchy.
If you really want to know, follow my Substack link and read the Nutshell. I only claim I would be happy in such a system, and that I think most people would be happier in such a system than they are now. But I don't actually care much if anyone else likes it or even thinks it feasible. It is my baseline thought experiment for trying to understand legacy judicial and political systems, and I believe plausible enough for fiction.
And if you do have questions about it, I'll be glad to answer them -- but there, not here. I don't want to clutter up other forums with that kind of debate.
I thing there is a difference between a centrally planned economy that's an island in a sea of market, and a centrally planned economy that's an entire economy, with no context.
If the centrally planned economy interacts with the outside world? Absolutely. An outside economy can help coordinate what internal prices should be, while without that information it's set by the central planner.
The socialist taking from some to give to others means there are physical losers. Two houses or horses become 1 or 0, a real use loss.
Intellectual Property’s actually govt enforced monopoly, copying IP is not a physical loss. The creators still have it, but its market price has gone down, hugely, tho wide copying of something of value means the total wealth has gone up.
I guess some 39-40% of China’s growth has been because of their IP copying, without paying, including their stealing of trade secrets.
Our entertainment business should be moving towards more mass copying & tax credits ot other forms of govt incentives to creators.
It seems that the most important aspect of a capitalist system is having a market backstop other decisions. Two strangers talking about how to coordinate a trade between them with unlike goods (one person's labor against another person's precious gem) is going to want to look at what the market rates for either of those things are. If it turns out that an hour of labor is worth $1 and the gem is worth $200, that's valuable information for both of them. Without a market to price those goods, then the amount can be anything and that will create a significant barrier to trade. The guy (or more on point, the central planner) demanding the gem for 5 hours of labor wouldn't necessarily be wrong, but the guy with the gem would likely feel that the exchange was not fair - with little leverage to question it. If it took him 100 hours to get/make the gem, it's clearly a bad deal to take 5 hours of labor in exchange.
Two individuals attempting to trade within the same firm may have similar troubles, but if there's a real outside market then there's a basis for communication and negotiation.
And the market rate would have to be "real," on some level. Based on actual repeat trades that establish a price. If the entire economy is fiat, then there's no basis to compare between goods and services and we lose the ability to push efficiency. Or, as with the gem and labor example, the guys with the gems stop trading because it's not worth their time to get more gems (which based on the market above take effort worth $200) and then the market loses access to a good which it previously enjoyed. Not such a big deal with gems, but a huge issue when that becomes wheat or steel. A fiat economy telling wheat farmers to produce X wheat at Y price needs to know what a reasonable price is, otherwise there's too much risk of pricing wheat at less than it costs to make and forcing the farmers to all quit. Like toiler paper in Venezuela a few years ago.
Ah, I seem to have botched the threading again. Sorry. This was in response to "wouldn't that imply that we would be better off if society was run by corporations".
I keep three books about the controversy on my shelves: von Mises' Socialism, which is the original source; Steele's From Marx to Mises, which is a history of the controversy; and Spufford's Red Plenty, which presents the Soviet experience with central planning in a series of narratives and essays, very well written. I recommend all three.
Its misnomer to say firms are examples of centrally planned. "Planning" implies force, while capitalist workers are free to leave or renegotiate any time. Firms could in theory be considered to dissolve at close of business every night, and reform with possibly entirely new members every morning, but its obviously more efficient for both sides to negotiate at least near future commitments for job descriptions and wages.
In a post a few months ago, I remember you writing about bad arguments some left-libertarians like Jeffery Tucker made to why firms would be smaller without government intervention. An argument for their position in line with your post might go as follows.
Especially in high-technology sectors where there are rapid innovation cycles and technology interdependence is strong (e.g. microchips) transaction costs are probably significantly increased by patent protections. If you want to work through the market, then you have to engage in costly and time consuming lawyering around licenses and you loose a lot of flexibility.
If you can acquire the patents (or are big enough to scare of suitors with potential counter-suits) and do the same thing in-house, these costs go away.
It is certainly possible that patent law increases the equilibrium size of firms. For an argument that it is a mistake, makes us worse off, see _Against Intellectual Monopoly_ by Boldrin and Levine:
That's true for socialist states in our world. But what Mises was criticizing was proposals to have the entire economy centrally planned, either in an isolated country or in a fully socialist world. And in that case you don't have any world market to cast that shadow.
It's not like the Soviets had no price theory. They were adherents to the labor theory of value, though the system did not let prices and individual decisions of the periphery guide production quantities. Quantity determination was centralized, prices be damned.
Soviet economists knew their prices were screwy. Best exemplified by a joke extant there. Will communism conquer the whole world? No, we have to leave Switzerland to know what prices should be.
What Cuba, North Korea, and Venezuela do I have no clue. My guess is that they do not either, except perhaps to keep prices low as a false favor to consumers.
In this context I think this is a matter of degree and not type. But many people overstate the argument forgetting that many larger firm often have internal markets between divisions or subsidiaries (e.g. Amazon or Asian conglomerates like Samsung.)
I feasted on the Calculation Debate -- both sides -- when I was a student!
Your criticism is well taken. The closest thing to Lange-Lerner that has been implemented has been the EU Common Agricultural Policy [CAP] and it illustrates well how a real life Central Planning Board will set prices.
The CAP is a whole set of prices enforced by the government through buying product. Those are political prices, set to make the least efficient farmer vote for the party that gives him the bounty of the high price. Of course there were surpluses -- the wine lake, the butter mountain, and the milk ocean. Prices were kept in check only when it seemed politically feasible to do so.
The only other constraint on this behavior was the budgetary cost of financing the surpluses. High tariffs lowered the budgetary cost.
"If it follows orders from the CPB it produces a profit which it turns over to the CPB. It has the alternative of spending the profit they were making on the workers themselves instead of turning it over to the planning board, deliberately raising costs by paying more to the workers or spending more on them to make"
Thats more or less what happened with all the socialist and anarchist cooperatives on the Republican side during the Spanish Civil War. They didnt necessarily do marginal cost pricing but they did have arrangements where any profit was to be turned over to a central authority and redistributed among all the relevant cooperatives. Very quickly each individual cooperative found a way to make zero profit by driving up their own costs by driving up the wages. Since amount of "true" profit (before it was purposefully eliminated) varied by cooperative size and also by whether the factory/firm/farm they seized had previously modernized its equipment or not, this rapidly created a "workers aristocracy" within these cooperatives
It seems to me that there might be another issue with Lerner and Lange's model of socialism with markets: the Central Planning Board will be slower to adjust prices to changes in circumstances than a free market would be. In a free market, each individual actor can adjust immediately to any change they see. In the Lerner-Lange model, they can't adjust until the CPB changes the prices they set (which they might have to do multiple times in response to a change since they are doing it by trial and error).
Indeed, it seems possible to me that the CPB might not be able to keep up with changes in circumstances: that the average time it takes them to find the right equilibrium price for a given set of circumstances by trial and error, will be longer than the average time it takes for circumstances to change and force them to start the trial and error process all over again.
Empty shelves during any kind of sudden turn in circumstances seems incredibly likely. If the items are priced too cheaply, then they get purchased by the first people to see the price mismatch. If too expensive, then the item doesn't get produced because earlier steps in the process are better uses of time/money.
According to these implications, should we prefer society be ran by corporations rather than the government? It appears that we should even though most people seem to think that would be dystopian.
My experience has been that people who claim to hate capitalism actually hate crony government, but blame it on capitalists, incredibly backwards to me, since government has the monopoly on making laws, enforcing laws, and interpreting laws.
As for the correctness of this essay, it all seems perfectly cromulent, but IANAE and have long since decided that maximum individual liberty solves almost all problems (I won't say all, since I don't know all problems), and just leaving businesses to figure it out on their own tends towards the most efficient solutions. And if some business thrives in spite of being less efficient than its competitors, great, others will try to copy its secret sauce and the world will continue progressing at its own pace.
If efficiency were our only consideration then almost certainly yes. But we give votes to people who don't own land or aren't employed, and we do that for good historical reasons.
A court system is supposed to be available even to people who can't afford any of the proceedings. A corporation would charge for the court's time. This would almost certainly result in a much more efficient court system, such that the price per interaction would decrease - but at the cost that many people would not be able to use the system at all.
A system that benefits people with money and/or connections but leaves the poor with no remedy definitely fits "dystopian" in my mind.
I don’t see how excluding anyone besides a government from producing law and arbitration services is more beneficial to the poor than allowing competition. Clothing, phones, and food are all produced on the private sector and poor people have better quality of those than they do of policing, education, and healthcare, which are all largely produced on the public sector. If that weren’t the case, I still don’t see why we should make everyone worse off to make the lower class better off. If anything, that should apply to the global poor. For example, instead of tax benefits going to the lower class in America, they should go to the most effective charities helping the worst off in the world. But that is rarely the initiative put forth by those in favor of taxes and governments.
All that said, even in that case, I’m not convinced the benefits of helping the global poor are great enough to outweigh the harms that come along with having a government.
It's a philosophical question and very few are willing in practice to bite the bullet. To make markets truly shine you need to be as hands off as possible, and I strongly suspect that a free market court would quickly be changed to allow more people access even if they cannot afford it. The first time someone is egregiously wronged with a clear legal right but cannot afford to take it to court, we give up on the backing such a system would need. It wouldn't have to be a sympathetic little old lady, but as a test case it easily could be.
I’m not sure how this addresses the points I made. Markets exist for governments just as they do for corporations. The question is whether it’s better that the market of law and arbitration be produced by competing entities through contracts rather than a single organization perceived as legitimate in using force to prevent others from competing with them. In both cases the poor old lady is worse off than the rich old lady. However, at least with competing services she doesn’t get beat every time. She will lose most of the time, though not always. While in democracy markets, the poor are those that are part of a smaller faction. They lose every time to the groups with more votes.
From that perspective voting markets leave the worst off even worse than money markets leave the worst off.
What would the difference be? Isn't a government essentially a corporation whose citizens are share holders (in the case of democracy) and whose residents (and citizens, in the case of Eritrea and the US) are customers?
Coercion and monopoly come to mind.
There are about 200 sovereign governments in existence at the moment. While more would be better, I wouldn't call that a monopoly.
Don't be daft. Each has its own territorial monopoly.
Yes. So do corporations that act as landlords, so it doesn't appear to be a distinguishing feature of governments.
I do not believe you are that daft.
Many people claim that capitalist countries ARE, effectively, run by corporations.
You need some top level entity to prevent people/companies taking from each other by force.
War and theft are not in either the capitalist or socialist models. Anarchists try to claim that they can work it out but their solution has never seemed even remotely plausible to me.
"You need some top level entity to prevent people/companies taking from each other by force."
That's the rationalization for coercive monopolistic government. Funny how it attracts what it claims to protect the people from.
"Anarchists try to claim that they can work it out but their solution has never seemed even remotely plausible to me."
Anarchy only works for a society of angels. Otherwise it just leads to gangs which coalesce into a government of thugs.
There have been functioning stateless societies in the past that remained stateless for centuries. For a sketch of what a modern one might look like, see my first book: http://www.daviddfriedman.com/The_Machinery_of_Freedom_.pdf
For a fictional version, Verner Vinge's story "The Ungoverned."
https://www.baen.com/Chapters/1416520724/1416520724___4.htm
Yes. It IS the rationalization for coercive monpolistic government. You agree with me that anarchy is not the alternative so what exectly do you think the solution is? Maximal individual liberty IS anarchy.
If you really want to know, follow my Substack link and read the Nutshell. I only claim I would be happy in such a system, and that I think most people would be happier in such a system than they are now. But I don't actually care much if anyone else likes it or even thinks it feasible. It is my baseline thought experiment for trying to understand legacy judicial and political systems, and I believe plausible enough for fiction.
And if you do have questions about it, I'll be glad to answer them -- but there, not here. I don't want to clutter up other forums with that kind of debate.
I thing there is a difference between a centrally planned economy that's an island in a sea of market, and a centrally planned economy that's an entire economy, with no context.
If the centrally planned economy interacts with the outside world? Absolutely. An outside economy can help coordinate what internal prices should be, while without that information it's set by the central planner.
The socialist taking from some to give to others means there are physical losers. Two houses or horses become 1 or 0, a real use loss.
Intellectual Property’s actually govt enforced monopoly, copying IP is not a physical loss. The creators still have it, but its market price has gone down, hugely, tho wide copying of something of value means the total wealth has gone up.
I guess some 39-40% of China’s growth has been because of their IP copying, without paying, including their stealing of trade secrets.
Our entertainment business should be moving towards more mass copying & tax credits ot other forms of govt incentives to creators.
It seems that the most important aspect of a capitalist system is having a market backstop other decisions. Two strangers talking about how to coordinate a trade between them with unlike goods (one person's labor against another person's precious gem) is going to want to look at what the market rates for either of those things are. If it turns out that an hour of labor is worth $1 and the gem is worth $200, that's valuable information for both of them. Without a market to price those goods, then the amount can be anything and that will create a significant barrier to trade. The guy (or more on point, the central planner) demanding the gem for 5 hours of labor wouldn't necessarily be wrong, but the guy with the gem would likely feel that the exchange was not fair - with little leverage to question it. If it took him 100 hours to get/make the gem, it's clearly a bad deal to take 5 hours of labor in exchange.
Two individuals attempting to trade within the same firm may have similar troubles, but if there's a real outside market then there's a basis for communication and negotiation.
And the market rate would have to be "real," on some level. Based on actual repeat trades that establish a price. If the entire economy is fiat, then there's no basis to compare between goods and services and we lose the ability to push efficiency. Or, as with the gem and labor example, the guys with the gems stop trading because it's not worth their time to get more gems (which based on the market above take effort worth $200) and then the market loses access to a good which it previously enjoyed. Not such a big deal with gems, but a huge issue when that becomes wheat or steel. A fiat economy telling wheat farmers to produce X wheat at Y price needs to know what a reasonable price is, otherwise there's too much risk of pricing wheat at less than it costs to make and forcing the farmers to all quit. Like toiler paper in Venezuela a few years ago.
Some people are trying to approximate that. https://www.prospera.co/en but last I heard, people were suing each other, so it seems to be hard to do.
I am not sure what you mean — are you viewing Prospera as socialism or an agoric economy?
I have visited. The main problem at present seems to be too low a population.
Ah, I seem to have botched the threading again. Sorry. This was in response to "wouldn't that imply that we would be better off if society was run by corporations".
more here: https://theaisherpa.substack.com/p/the-honduran-startup-city-that-wont
I keep three books about the controversy on my shelves: von Mises' Socialism, which is the original source; Steele's From Marx to Mises, which is a history of the controversy; and Spufford's Red Plenty, which presents the Soviet experience with central planning in a series of narratives and essays, very well written. I recommend all three.
Its misnomer to say firms are examples of centrally planned. "Planning" implies force, while capitalist workers are free to leave or renegotiate any time. Firms could in theory be considered to dissolve at close of business every night, and reform with possibly entirely new members every morning, but its obviously more efficient for both sides to negotiate at least near future commitments for job descriptions and wages.
I doubt that Lerner or Lange expected their state to have a wall preventing exit.
We can make socialism work. For us!
To make socialism work for the masses, you need two instruments: An input-output table and a firing squad.
In a post a few months ago, I remember you writing about bad arguments some left-libertarians like Jeffery Tucker made to why firms would be smaller without government intervention. An argument for their position in line with your post might go as follows.
Especially in high-technology sectors where there are rapid innovation cycles and technology interdependence is strong (e.g. microchips) transaction costs are probably significantly increased by patent protections. If you want to work through the market, then you have to engage in costly and time consuming lawyering around licenses and you loose a lot of flexibility.
If you can acquire the patents (or are big enough to scare of suitors with potential counter-suits) and do the same thing in-house, these costs go away.
It is certainly possible that patent law increases the equilibrium size of firms. For an argument that it is a mistake, makes us worse off, see _Against Intellectual Monopoly_ by Boldrin and Levine:
https://cdn.nakamotoinstitute.org/docs/against-intellectual-monopoly.pdf
The socialist state is run in the shadow of world market prices. It is a difference of degree, not of kind.
That's true for socialist states in our world. But what Mises was criticizing was proposals to have the entire economy centrally planned, either in an isolated country or in a fully socialist world. And in that case you don't have any world market to cast that shadow.
It's not like the Soviets had no price theory. They were adherents to the labor theory of value, though the system did not let prices and individual decisions of the periphery guide production quantities. Quantity determination was centralized, prices be damned.
Soviet economists knew their prices were screwy. Best exemplified by a joke extant there. Will communism conquer the whole world? No, we have to leave Switzerland to know what prices should be.
What Cuba, North Korea, and Venezuela do I have no clue. My guess is that they do not either, except perhaps to keep prices low as a false favor to consumers.
In this context I think this is a matter of degree and not type. But many people overstate the argument forgetting that many larger firm often have internal markets between divisions or subsidiaries (e.g. Amazon or Asian conglomerates like Samsung.)