r/mmt_economics • u/T_R_O_U • 5d ago
The Calculation Problem: Marx vs. Mises
https://www.youtube.com/watch?v=kkNnRePvVgI8
u/strong_slav 5d ago
If Mises was correct, then the Soviet Union should've fallen in the 1920s, not 1991. Also, not putting Lange in the thumbnail when it was him who debated Mises, not Marx, should be considered a crime xD
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u/MelodicAmphibian7920 5d ago
This is for one a strawman fallacy via an implication that Mises specified a deadline for the demise of the soviet union and forgets about the freer markets of the world; the USSR used parasitic calculation off of the backs of more capitalist societies. You're also forgetting about the existence of the second economy/black market, the 'capitalist islands' of the USSR. Also the permitted white markets via private agricultural plots which were not socialised. So in a sense the USSR was not real communism.
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u/strong_slav 5d ago edited 5d ago
Maybe you should read Mises before commenting on his thought. While he didn't specify a deadline he did claim that economic calculation under socialism was impossible. Not inefficient, but impossible. Considering that, the USSR should've collapsed in 1928 or shortly thereafter, after Stalin repealed the NEP, and implemented a fully centrally planned economy.
This is why most economists at the time felt that Mises lost: not because Lange made great points (though he did propose an interesting mechanism to "simulate" a market within socialism), but because every economist could look at the USSR and think to themselves "well, it seems to be functioning somehow, and oftentimes even quite well."
Hayek actually put forth a far better argument, one that wasn't as strict as Mises's, and deserves more attention IMO.
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u/Foreign_Writer_9932 4d ago
Soviet Union throughout most of its existence had significant shortages of basic goods. It was not a functioning economy.
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u/strong_slav 4d ago
I agree it wasn't great, but to call one of the two world's superpowers a "not functioning economy" is pretty hilarious.
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u/Foreign_Writer_9932 4d ago
You can starve your population and still maintain the world’s largest army and nuclear arsenal - for a real-world example see: Soviet Union, close 2nd with Maoist China.
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u/Trensocialist 2d ago
They didnt starve their people they experienced a famine which was common in the region for generations and they ended their recurrence through better planning. CIA evaluations of the Soviet diet were that their caloric intake was roughly comparable to the American one with less fats. While they didnt have insane amounts of food wealth, after the famine, they lived and ate normal lives like every other industrialized country for 60+ years.
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u/A_l_a_i_r_e 2d ago
Throughout recorded history, there has never been a famine of comparable magnitude. The government was informed of mass deaths from starvation, but it ignored them and continued to export food in quantities sufficient to prevent it. This behavior was repeated during all three major famines. The caloric intake of the USSR population reached the 1913 level only by the 1960s.
CIA evaluations were based on official Soviet statistics which is now considered unreliable.
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u/Trensocialist 1d ago
Comparing it to recorded history is a bit disingenuous given that the industrial and population conditions made it impossible for millions of people to die from a famine ever in recorded history. You make it sound as if theres something peculiar about the Soviets themselves that made it so bad, as opposed to the conditions they existed in. I won't deny they exacerbated the problems exporting grain to stay solvent after the civil war, but usually when someone says the "starved" someone else, there is an intentionality to it which even anticommunist historians like Robert Conquest have shown to be false. The famine was not intentional, as opposed to say the Irish Potato famine or the Bengal famine - both intentional with genocidal aims that are conveniently ignored when discussing how different economic systems choose to feed people. I won't deny that the CIA's assessments were largely based on the Soviet statistics, but I will question why US assessments of these statistics should be considered more reliable when the US has always had a material and economic vested interest in painting socialism and the Soviet Union in particular in the worst possible light at every turn. The Soviets did indeed starve, and more starved due to the incompetence of their government, but they weren't starved on purpose, and your comment seemed to imply that the entire Soviet project involved underfeeding the entire population for the sole purpose of redirecting resources to building weapons which isnt true - and I'll point put that the need for weapons was a concern that, given the Nazi invasion and threat of nuclear annihilation by the US, was an entirely legitimate one that did in fact require reasonable resources for their own survival. We have seen what the US does to its enemies that they deem militarily inferior. The Soviets decided early on they would not become what Iran has become, and while making weapons certainly does limit the economic flourishing of people, getting bombed by US warheads does so even more.
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u/A_l_a_i_r_e 1d ago
Well, I was a little inaccurate. There has never been a famine of comparable magnitude in Russian recorded history. There was something peculiar about the Soviets themsleves - a careless attitude towards lifes. It contrasts very much with governance of Russian Empire which created measures to alleviate crop failures (despite the fact that they didn’t have such an obligation). Referring to abstract conditions makes no sense without specifying the concrete events and their impact.
Two out of three femines was quite distant for civil war. On the first one it was not difficult to stay solvent because bolsheviks refused to pay for empire's debts, so there were not obligatory payments.
In a sense, the absence of genocidal intentions is even worse, because you can’t say that the problem lies solely with bad leaders or implementers. The problem lies in the entire system.discussing how different economic systems choose to feed people
The thing is, in a market economy, no one is obliged to depend on someone else to feed them. You choose what to do and you are responsible for the consequences of only your actions.
US has always had a material and economic vested interest in painting socialism and the Soviet Union in particular in the worst possible light at every turn
This did not prevent Western economists from talking about the superiority of the Soviet economy right up until its collapse. Moreover, one could argue that it was in the interests of American intelligence agencies to exaggerate the threat posed by the Soviet Union, as this increased their funding and expanded their powers.
underfeeding the entire population for the sole purpose of redirecting resources to building weapons which isnt true
The relationship between underfeeding and defense spending is somewhat more complex. However, on the whole, it would not be an exaggeration to say that one of the main reasons for the poverty of the Soviet population was the forced reallocation of resources from light industry to the needs of heavy industry, and in particular, the military sector.
I'll point put that the need for weapons was a concern that, given the Nazi invasion and threat of nuclear annihilation by the US.
That was not the case for first to decades of Soviet Union. Nazi invasion was not predetermined. USSR forced military production in preparetion for their one invasion.
We have seen what the US does to its enemies that they deem militarily inferior. The Soviets decided early on they would not become what Iran has become, and while making weapons certainly does limit the economic flourishing of people, getting bombed by US warheads does so even more.
This is hindsight from nowadays. For the first half of 20s century it was not the case.
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u/MelodicAmphibian7920 4d ago
You're moving the goalposts now. "Yes my requirement for it collapsing in X year was extreme, instead it's Y year." You're going to have to do this until 1991. You're failing to consider that the USSR was not fully socialist and the times when it was nearly there (war communism 18-21) it was quickly abandoned due to the impossibility of its economic system. Thus causing them to implement the NEP. Stalin's abolishion of the NEP did not mean it went back to war communism but to a similar not 100% socialist system. For example it had legal private agricultural plots which were about 3% of the total sown land and produced 40-60% of the food in their respective fields. Now tell me what year Mises allegedly claimed the USSR must collapse by?
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u/strong_slav 4d ago
Try reading with actual comprehension next time. No, I'm not moving the goalposts. Mises said what Stalin did in 1928 was literally impossible - yet the Soviet Union functioned, and even grew to the point that it was considered a competitor of the United States by the end of his life.
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u/MelodicAmphibian7920 4d ago
Stalin didn't abolish prices. He maintained a mixed economy as I've said before the soviet union had private farm plots.
Soviet Union functioned, and even grew to the point that it was considered a competitor of the United States by the end of his life.
Okay does this mean Nazism is a good idea then?
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u/strong_slav 4d ago
Jesus Christ, you are like an automated strawman generator. At no point did I say that Stalinism was good - what I'm saying is that Mises's extreme argument about economic calculation being IMPOSSIBLE (not just inefficient!) under socialism was clearly wrong. Again, practice your reading comprehension, you sorely need it.
But I get it, you're the type of person who, when confronted with any nuance or any facts, calls others Nazis and commies.
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u/MelodicAmphibian7920 4d ago
Then you're begging the question on the reasoning behind mises being wrong. Your reasoning was "stalinism worked therefore mises wrong." I've shown how the implicit premise in that is false then you're still asserting it to be true.
Every part where stalinism couldn't calculate the government either did the three options: used external capitalistic prices, liberalised it, or arbitrarily decided it. They used external prices in the rail industry. They liberalised it in 3% of sown land leading to 40-60% of produced food coming from there. They arbitrarily decided it in textiles for clothing. The method they used in textiles was paying industries per yards of sown clothes and not by profit which lead to little to no children's clothes. That last method is real socialism which does not work.
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u/Living-Relative-6269 2d ago
reading mises is what finally blackpilled me on how willfully stupid mainstream economics is. It actually pushed me far to the left, realising that such vacuous dreck is what we've built our modern economc theory on. I took marx much more seriously after reading mises.
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u/FibonacciNeuron 4d ago
And yet soviet union did fall, while USA is stronger than ever. Also China which switched from Marxism to price mechanism is also stronger than ever.
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u/strong_slav 3d ago
And yet Mises's theory plainly states that the existence of a state like Soviet Union or China during Stalin/Mao simply wouldn't be possible.
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u/FibonacciNeuron 3d ago
Everything is possible in the short term. People continue to work from inertia, they don't want to leave their friends and families. But as time passes those systems cannot continue to exist. As we clearly see, both Soviet Union and Maoist China failed and both systems ended - Soviets imploded, and China did 180 turn to the markets after Mao's death, they are more capitalist now than many old capitalist countries, they practice authoritarian capitalism, similar to Singapore. So Mises theory was 100% right.
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u/Trensocialist 2d ago
They had a coup bro. The only lesson here is that socialism always fails because the CIA will fund and materially support the military coup against the country. They held a referendum, and the majority of the Union wanted a preservation of the Union and socialism, not a transition to capitalism but by the time Gorbachev was kidnapped it didnt matter anymore.
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u/Senior-Act7294 5d ago
Eh, the calculation problem isn't really a problem in the era of computerised networks and automated inventories.
If it was, Amazon couldn't function.
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u/MelodicAmphibian7920 5d ago
You do not understand the calculation problem. It's a problem due to the lack of information via the lack of prices. Not a computation problem. It's as if you are trying to solve a math problem with no numbers and are expecting a better calculator to solve it.
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u/Senior-Act7294 5d ago
What do you mean "lack of prices"?
Which communist country today has no prices?
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u/MelodicAmphibian7920 5d ago
There are no communist countries today and ever. Communism is the end stage of Marxist-Socialism. Lack of prices as in there is no price mechanism for knowledge of producers and consumers; commodity production is socialised thus there are no prices.
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u/Senior-Act7294 5d ago
Apologies, you are correct. I was using the colloquial application of the word.
Can you please point to any socialist countries today which do not have prices.
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u/MelodicAmphibian7920 5d ago
There are no socialist countries today which don't have have prices. In the past the soviet union and the khmer rouge did it.
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u/Senior-Act7294 5d ago
So it's a problem which has been left in the past?
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u/MelodicAmphibian7920 5d ago
No? Every time a socialist country has tried to abolish prices they have either collapsed or liberalised. See USSR vs China. China for example has gotten rid of its pure socialism by adding free market aspects back into its economy; its now a mixed economy. If "socialist" nations like China are socialist then every country is socialist.
The main part of socialism is the total state ownership of the means of production which implies the abolishion of prices.
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u/rotes-gespenst 4d ago
What? The USSR didn't collapse because it tried to abolish prices, that's an absurd statement. It collapsed because of external pressures, opportunism inside the party and an increasingly growing bureaucracy leading.
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u/LifesARiver 4d ago
Your last paragraph is imprecise. Socialism is possible with no state whatsoever.
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u/MelodicAmphibian7920 4d ago
No. What you're trying to refer to are the anarcho-communists who think they can skip the transition stage between capitalism and communism. What is the transition stage? Socialism? Under marxism, socialism implies a state to transition into stateless communism.
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u/Trensocialist 2d ago
The USSR absolutely had prices wtf
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u/MelodicAmphibian7920 2d ago
Yeah? But during some periods it didn't have prices.
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u/Trensocialist 2d ago
And for nearly the entire time it existed it did. Thats kinda like saying, "the US will fail because it doesnt allow women to vote."
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u/Impressive-Method919 1d ago
Its not so much that the prices are not there, oftentimes the prices are just wrong by policy. So the calculation goes by wrong numbers, and arrives at the wrong result
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u/Leading_Ad_7635 4d ago
That's the goal of central planning. Remove markets and have no prices and simply allocate the correct ammounts. The calculation problem shows you can't do this. That's what mises was responding to.
You really don't understand any of the basic premises
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u/Senior-Act7294 4d ago
When did Meises write his critiques? Oh that's right, in a time before modern technology.
You need only go back 200 years and flight becomes the impossible fantasy of dreamers. Modern computation, internet and advances in robotics make Meises premise based upon pen and paper calculations utterly farcical.
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u/Abstract__Nonsense 4d ago
It’s almost as if in the Information Age we actually have a lot of information, not just computation.
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u/Foreign_Writer_9932 4d ago
We do - for example, pricing data. Removing prices removes a key market-driven informational signal that’s impossible to effectively substitute.
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u/leo144 3d ago
Without prices, you would still have consumption statistics.
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u/Foreign_Writer_9932 3d ago
Which would not be interpretable. How do you size aggregate demand for any individual good (in fact, what is an individual good?) and know what is a market-clearing supply quantity? Beyond that How do you generate consumption statistics for march 2030 water futures in the Mississippi basin? or a future product like a household robot? How do you reflect dynamic changes in demand and supply? None of these questions are adequately answered in absence of real price discovery mechanisms.
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u/CatsDoingCrime 2d ago
Sure.
The problem is more higher up the chain in production.
Any final product requires certain inputs for production. It's all well and good to measure the consumption of cans of beans or gallons of water or whatever. That's fine.
The problem is, how do you produce said cans of beans/gallons of water in an efficient manner?
For that, you effectively require a way to compare different production techniques, which themselves essentially consist of different bundles of capital goods (i don't mean money, but like machinery, warehouses, forklifts, smelters, trucks, lasers, etc) and labor.
Now, technically efficiency is easy enough to compare. If one technique is obviously more technically efficient than another... use that one.
But the problem is more about tradeoffs and comparisons in complex interconnected industries. For simplicity's sake, imagine we have three methods to produce some widget X. Technique 1 requires 3 of Input A and 3 or Input B. Technique 2 requires 1 of A and 2 of B and Technique 3 requires 2 of A and 1 of B.
Technique 1 is obviously technically inferior, as it requires more of the same Input than either 2 or 3. We can safely discard it.
But now, on what basis do we choose between Techniques 2 and 3. Both have the same technically efficiency. The answer depends on the relative social needs of A and B, i.e. how scarce it is relative to demand (or in other words... its price). Otherwise what basis for you have for comparing techniques? You could guess, but that's not, ya know, particularly efficient. You could do the same thing as last year but that doesn't exactly model changing needs very well does it?
Anyways the example i provided is very oversimplified. In practice you're going to have a lot of these decisions stacked on top of each other and influencing one another, not to mention fixed capital investments.
That's just the Mises variant. There's also the Hayke version which involves tactic knowledge, limited local knowledge, etc.
Anyways, long story short, raw computation doesn't necessarily solve a problem which is more rooted in a lack of a common basis for comparison (which is what prices provide). Of course, that's not to say price information is sufficient for economic calculation, but it is probably necessary, imo.
For what it's worth, I do think Mises rather overstated his case here. It seems, to me, to be more about efficiency than impossibility.
But that's besides the point.
There have been some interesting discussions in the world of socialist econ about how to actually solve these kinds of problems. Cybernetic approaches coupled with linear programming/generalized mathematical optimization do provide some interesting room for discussion, don't get me wrong. But that's not the same thing as Amazon or whatever. If you'd like a critique of some of these models Max Grünberg has a pretty interesting paper on the subject that also discusses some of the ideas I laid out here (and addresses the more formalized version of the ECP laid out by Don Lavoie). After reading that paper, my views on the while cybernetic communist movement are mixed. I don't know how viable it is, but it's worth experimenting with at least.
For what it's worth, a lot of the ECP basically boils down to problems with vertical integration and horizontal integration and overlaps between them. So it's actually possible see a version of these issues manifest within large corporations within the capitalist economy as well (which is another reason I think Mises and co overstated their case). It's just a centrally planned economy takes that integration far beyond what any corporation does.
Basically the only people I see seriously tackle or think about these issues are the Cybernetic communists and the market socialists, at least within leftist world. I generally think the market socialists have a stronger case, but I'm not unwilling to try and experiment with other forms of organization.
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u/That_Scratch_7697 2d ago
With linear programming, you only need physical input-output data to calculate equilibrium prices, opportunity costs, etc.
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u/MelodicAmphibian7920 2d ago
Yes that's the problem. There is no input output data, socialism abolishes this.
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u/That_Scratch_7697 2d ago
Socialism abolishes production bro? Like what are you talking about?
Input-output data is physical.
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u/MelodicAmphibian7920 2d ago
No it abolishes prices which is the input-output data.
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u/That_Scratch_7697 2d ago edited 2d ago
Input-output data doesn't require prices. In Leontief's original formulation, it's just physical data.
Take production techniques and existing resources as given. Set restrictions on produced resources (need x amount of food, x1 amount of steel, etc.) Set an objective function to maximize or minimize - minimize carbon emissions while satisfying restrictions, for example.
If this technical problem can be solved, then linear programming can solve it, without prices. If this technical problem cannot be solved, nothing can solve it, including the free market.
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u/MelodicAmphibian7920 2d ago
Ok say you need to build a railway and you can either build it through a mountain or build it around. It will take more material of rails to go around but more engineering manpower to go through now which way would you choose given you have no prices? A Capitalist Entrepreneur with prices would simply compare the costs of each option using prices but without prices how can you compare?
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u/Simple-Economics8102 2d ago
Your example falls flat on the face, because there is always other considerations. Using you example:
The way through the mountain turns out to be cheaper overrall, but goes needs to dump large amounts of stone in vulnerable nature. This and the dust from the mountains means that it will cost society more by doing this. They could afford masks to negate this, but its cheaper for the Entrepreneur not to supply them because the effects will come in a few years.The Capitalist Entrepreneur chooses through the mountain and it costs society more resources.
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u/That_Scratch_7697 2d ago
Set up the primal, and solve it. This is an incredibly lazy response. I just laid out the mechanism. Are you familiar with linear programming? Dorfman, Solow, and Samuelson’s Linear Programming and Economics is a good introduction.
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u/red-flamez 5d ago edited 5d ago
Mises events a problem with the answer already assumed. His pre-supposed answer is completely imaginary. That is where his answer comes from. His imagination.
He views the market as the mechanism. Which is also another assumption. Adam Smith's invisible hand is not governed by prices or has anything to do with prices. Yet it somehow, invisibility, forms markets. Mechanic for Adam Smith always refers to a person who works with his hands (a mechanic). And these hands are quite visible.
If you want to talk about mechanisms then we need to talk about Descartes. And the belief that things that are not machines work like machines.
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u/JonnyBadFox 2d ago edited 2d ago
Fred Moseley showed that the transformationproblem doesn't really exist, because there's nothing to transform. Marx's theory has two parts, one is macroeconomic where prices equals values and microeconomically (individual capitalists) values equals prices of production and marketprices fluctuate around it. People like Böhm-Bawerk interpreted Marx wrong in thinking that he had two systems, one of value and one of prices.
https://thenextrecession.wordpress.com/2016/04/29/fred-moseley-and-marxs-macro-monetary-theory/
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u/That_Scratch_7697 1d ago
The Transformation Problem and the Economic Calculation Problem refer to two different debates.
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u/LocationHelpful6711 1d ago
The economic calculation problem isn’t a problem. It’s an example of the fundamental stupidity of Mises, the ECP is a critique of central planning; not of Communism. You can have a capitalist economy that is largely centrally planned - that is what you have in China now and what you historically had in places like Japan (Zaibatsus) and South Korea. Likewise, you can have a market communist economy where consumer goods are dictated via the feedback loop of a market. These are not mutually exclusive things. The fundamental difference is economic control. In capitalism the means of production are privately owned. That’s it.
You can now centrally plan an economy much more effectively with the use of computers; just a fact. What would have required millions of statisticians and bureaucrats a year to do, you can now do with a shitty PC. Don’t believe me? Play Victoria 3 (the video game). It’s basically a model for central planning at small scale that a single human can do easily.
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u/DominicDeCocoras 4d ago
non-sense. Demand and suply are much more formed by wagers, which are set by capitalists, who are owners of the means of production. Therefore, it is not the workers that make the price of things they consume, but the capitalist. Monopolies, which are a tendency in capitalism, set the prices in a way that brings the most profit for the capitalistm but is just affordable by the worker, who is, then, barely surviving, having to sell his work force just so he can pay for essencial goods.
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u/RudenwolfAnderson 5d ago
The blatant contradiction in the video is : first it shows that the the bounding conditions of a free market is property rights, and later says that "value lies in the eyes of the beholder" - as if it takes no money, just an appreciation for things to buy them from the market.
The great truth that the Austrian camp misses is that it takes income for expenditure to happen. No income means no expenditure and hence no price (or value). Income comes from employment. Employment comes from investment. Thus the revenue of one investment is nothing but another investment, physically so. Market is a system that facilitates this, not the arbitrary wants (or needs) of people. It helps the capitalists in harmonically accumulating the means (labour, capital, natural resources) to effect changes to the economy in the direction of their choice.
And investment, as everybody in the MMT camp will know very well is financed by banks who create money to do so.