Socialist calculation debate

The socialist calculation debate, sometimes known as the economic calculation debate, was a discourse on the subject of how a socialist economy would perform economic calculation given the absence of the law of value, money, financial prices for capital goods and private ownership of the means of production. More specifically, the debate was centered on the application of economic planning for the allocation of the means of production as a substitute for capital markets and whether or not such an arrangement would be superior to capitalism in terms of efficiency and productivity.Every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.If a universal mind existed, of the kind that projected itself into the scientific fancy of Laplace – a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of their motion, that could forecast the results of their inter-reactions – such a mind, of course, could a priori draw up a faultless and exhaustive economic plan, beginning with the number of acres of wheat down to the last button for a vest. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy. But, in reality, the bureaucracy errs frightfully in its estimate of its spiritual resources. The innumerable living participants in the economy, state and private, collective and individual, must serve notice of their needs and of their relative strength not only through the statistical determinations of plan commissions but by the direct pressure of supply and demand. The socialist calculation debate, sometimes known as the economic calculation debate, was a discourse on the subject of how a socialist economy would perform economic calculation given the absence of the law of value, money, financial prices for capital goods and private ownership of the means of production. More specifically, the debate was centered on the application of economic planning for the allocation of the means of production as a substitute for capital markets and whether or not such an arrangement would be superior to capitalism in terms of efficiency and productivity. A central aspect of the debate concerned the role and scope of the law of value in a socialist economy. Although contributions to the question of economic coordination and calculation under socialism existed within the socialist movement prior to the 20th century, the phrase socialist calculation debate emerged in the 1920s beginning with Ludwig von Mises' critique of socialism. The historical debate was cast between the Austrian School represented by Mises and Friedrich Hayek, who argued against the feasibility of socialism; and between neoclassical and Marxian economists, most notably Cläre Tisch (as a forerunner), Oskar R. Lange, Abba P. Lerner, Fred M. Taylor, Henry Douglas Dickinson and Maurice Dobb, who took the position that socialism was both feasible and superior to capitalism. The debate was popularly viewed as a debate between proponents of capitalism and proponents of socialism, but in reality a significant portion of the debate was between socialists who held differing views regarding the utilization of markets and money in a socialist system and to what degree the law of value would continue to operate in a hypothetical socialist economy. Socialists generally held one of three major positions regarding the unit of calculation, including the view that money would continue to be the unit of calculation under socialism; that labor-time would be a unit of calculation; or that socialism would be based on calculation in natura or calculation performed in-kind. Debate among socialists has existed since the emergence of the broader socialist movement between those advocating market socialism, centrally planned economies and decentralized planning. Recent contributions to the debate in the late 20th century and early 21st century involve proposals for market socialism and the use of information technology and distributed networking as a basis for decentralized economic planning. Karl Marx and Friedrich Engels held a broad characterization of socialism, characterized by some form of public or common ownership of the means of production and worker self-management within economic enterprises and where production of economic value for profit would be replaced by an ex ante production directly for use which implied some form of economic planning and planned growth in place of the dynamic of capital accumulation and therefore the substitution of commodity-based production and market-based allocation of the factors of production with conscious planning. Although Marx and Engels never elaborated on the specific institutions that would exist in socialism or on processes for conducting planning in a socialist system, their broad characterizations laid the foundation for the general conception of socialism as an economic system devoid of the law of value and law of accumulation and principally where the category of value was replaced by calculation in terms of natural or physical units so that resource allocation, production and distribution would be considered technical affairs to be undertaken by engineers and technical specialists. An alternative view of socialism prefiguring the neoclassical models of market socialism consisted of conceptions of market socialism based on classical economic theory and Ricardian socialism, where markets were utilized to allocate capital goods among worker-owned cooperatives in a free-market economy. The key characteristics of this system involved direct worker ownership of the means of production through producer and consumer cooperatives and the achievement of genuinely free markets by removing the distorting effects of private property, inequality arising from private appropriation of profits and interest to a rentier class, regulatory capture and economic exploitation. This view was expounded by mutualism and was severely criticized by Marxists for failing to address the fundamental issues of capitalism involving instability arising from the operation of the law of value, crises caused by over-accumulation of capital and lack of conscious control over the surplus product. As a result, this perspective played little to no role during the socialist calculation debate in the early 20th century. Early arguments against the utilization of central economic planning for a socialist economy were brought up by proponents of decentralized economic planning or market socialism, including Pierre-Joseph Proudhon, Peter Kropotkin and Leon Trotsky. In general, it was argued that centralized forms of economic planning that excluded participation by the workers involved in the industries would not be sufficient at capturing adequate amounts of information to coordinate an economy effectively while also undermining socialism and the concept of worker's self-management and democratic decision-making central to socialism. However, no detailed outlines for decentralized economic planning were proposed by these thinkers at this time. In the early 20th century, Enrico Barone provided a comprehensive theoretical framework for a planned socialist economy. In his model, assuming perfect computation techniques, simultaneous equations relating inputs and outputs to ratios of equivalence would provide appropriate valuations in order to balance supply and demand. Calculation in kind, or calculation in-natura, was often assumed to be the standard form of accounting that would take place in a socialist system where the economy was mobilized in terms of physical or natural units instead of money and financial calculation.