Chapter XIV

CHAPTER XIV ECONOMIC CALCULATION IN A SOCIALIST SOCIETY WHERE THERE IS NO FREE CHOICE O;F GOODS OR OCCUPATION "Those to whom the King had entrustedme, observinghow ill I was clad, ordereda Taylor to come next Morning, and take my Measure for a Suit of Cloths. This operatordid his 0lfice after a different Manner from those ~f his Trade in Europe. He jir.rt took my Altitude ~y a Quadrant, and then with Rille and Compasses, described the Dimensions and Out-l~ines of my whole Body; all which he enteredupon Paper, and in six Days brought my Cloths ve,:y ill made, and quite out of Shape, by h~ppening to mistake a Figure in the Calculation. But my Comfort was, that I observed such Accidents very frequent, and little regarded."-"A Voyage to Laputa." THE SUGGESTED solutions of the problem of calculation which we are to discuss here, are a class in themselves. Whilst the other suggestions have all more or less explicitly. assumed that the aim of economic activity is to satisfy the needs of the members of the community, and that they are to have free choice of goods and occupation, those who put forward these suggestions have stated that socialism is only possible if the members of the community are deprived of their freedom in these respects. They agree with the more perspicacious of those who have suggested solving the problem by competition, that com petition and a planned economy are irreconcilable; but, while the others deduced from that, that it was the planned economy which would have· to be abandoned, those in this group take the view that one must cease to let the wishes of the members of the community be the decisive factor.

The sharpest criticism of those solutions which assume free choice of goods and employment has been made by Dr. Maurice Dobb 1 but, as we shall see, he has not realized all the implications oEhis attitude. Dr. Dobb begins by attacking the generally accepted conception of the universal applicability of the economic theory. 2 He mentions Mises' and Brutzkus' view that socialism cannot be carried out, because the socialist society will lack a free market and a free price 1 EconomicJournal, December, 1933. 2Dr.Dobb refers in a footnote to H. D. Henderson (Supply and Demand, pp. II and 14), Wieser (Natural Value, p. 164), Pareto (Cours, Vol. II, p. 364) and Cassel (Theory of Social Economy, Vol. 1, p. 76). 166 CALCULATION WITHOUT FREEDOM OF CHOICE 167 system, and that H. D. Dickinson has disputed this, maintaining that it is a question of combining socialism with a price system. In a footnote Dr. Dobb explains that he used to hold the same view, but that he now considers it to be false. He goes on to point out that both Mises and Brutzkus on the one hand, and Dickinson on the other, assume that the economic theory will be as applicable in the socialist, as in the capitalist, society, and this he disputes. (In this connection,see Chapter III, p. 1.7,) Dr. Dobb says that in these days it has become general to abandon the old hedonistic basis for the modern· theory of value, and to treat social economy as a non-normative equilibrium theory. He mentions Professor Robbins as having carried this viewpoint to its logical conclusion and defined the entirely formalistic character of the economic theory, but without, in Dr. Dobb's opinion, entirely realizing what this involves. Let us quote Dr. Dobb: "Yet, when it comes to such judgments, the equilibrium theorist, of course, tacitly appeals to a norm. Despite his trumpet ings against the welfare-economists, he in fact secretly imports an assumption which at once places him precisely on the same ground as the Hedonist whom he has pretended to disown.

And in this assumption the whole apparatus of Utility and Welfare, which it was his pride to dispense with, is implied. But the manceuvre has not been for nothing: it has enabled the scientific dignity of an ethical neutrality-to be combined with an undiminiShed capacity to deliver judgments on practical affairs. The crucial assumption is as simple as it is questionable: it amounts to the sacredness of consumers' preferences (as a general rule, and subject to unimportant exceptions here and there)."! Dr. Dobb then says that this "sacredness" is attacked by advertisers and the magnates of the Press, and that in the economic market there is not equal voting rights, but plural voting. In his view, the "central dilemma" is the following: "Precisely because consumers are also producers, both 'costs' and 'needs' are precluded from receiving simultaneous expression in the same system of market valuations. Precisely to the extent that market valuations are rendered adequate in one direction they lose their significance in the other. Mr. Dickinson cannot have it both ways."

Dr. Dobb sees no reason to expect the consumer to be any cleverer under socialism. In a competing market they will be just as much lOp. cit., pp. 590-591. (A footnote with reference to the assumptions of Marshall is here omitted.) 168 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY subject to influence, whether the society is socialist or capitalist. His main objection to the price system-in both communities-is that there is no basis for a relationship. between the two categories of costs: hire of a tool for one day and hire of a man for one day. What is this basis to be? HOn the answer to this question the whole costing problem turns, and the whole 'balance' between different types of industry depends. But the question receives no answer from any spon taneous verdict of a free market; since the two categories of cost are incurred by dissimilar agencies (or persons). Neither is it answered in a socialist, any more than in a capitalist, economy."

Dr. Dobb calls it an illusion to believe that a free market can provide the relation mentioned above, and he then goes over to a relatively long discussion of the question of interest. Dr. Dobb's views have been attacked, first and foremost by Dr. A. P. Lerner in his paper "Economic Theory and Socialist Economy" in the Review of EconomicStudies, 1934-35. Dr. Lerner maintains that Dr. Dobb seems to think that a free price-system is necessary to give people what they want, but that he does not want to give it them. "It is only by disputing this end, that Mr. Dobb rejects the means", writes Dr. Lerner, who then says that as an economist he cannot "adjudicate" the correctness or legitimacy or goodness of such an end, but that as a human being and a sympathiser with socialist ends he has a different view (for this quotation see p. 70, footnote). HBut if it is impossible to argue about attitudes, it is still possible to show that, even if Mr. Dobb's attitude is accepted, his conclusion does not follow."

Dr. Lerner thinks that the problem remains the same whether it is the consumer himself or somebody else who decides what is good for him. In this event, this other person or group becomes the consumer. "Without the pricing system that Mr. Dickinson, and once Mr. Dobb, were seeking to develop, it is impossible for an economic system of any complexity to function with any reason able degree of efficiency. All Mr. Dobb's arguments and illustra tions to the contrary are erroneous or irrelevant. While starting out with the argument that pricing is not necessary, Mr. Dobb soon finds himself in the company of 'Mises' in dogmatic assertions . of its impossibility." He goes on to say that Dr. Dobb's demand for exact equality of voting goes ill with his bureaucratic contempt for the intelligence of CALCULATION WItHOUT FREEDOM OF CHOICE 169 the voter. He also points out that Dr. Dobb has not drawn the natural conclusion from his. allegation that voting is destroyed by advertisers and Press magnates, namely, that the Press magnates and harmful advertisements should be abolished in a socialist state, but reaches the surprising one that the popular verdict is to be ignored.

After some interesting remarks about Dr. Dobb's political views, which, though irrelevant, do give the psychological background for the change in his ideas, Dr. Lerner goes on to discourse eloquently in favour of the price system, without which, according to him, we should just be playing Blind Man's Buff. He says that the loss from not having an adjustment of factors (with the help of the marginal productivity of different factors) will be seen in a difference in the concrete commodities produced. Dr. Lerner adds that this will be distinct from the loss caused, because the consumers are unable to get the goods they desire, a loss that cannot be objectively demonstrated. In his opinion, a price system tends to eliminate both kinds of loss. Dr. Lerner himself is inclined to consider the loss due to the replacement of consumers by bureaucrats the more important, but he is mainly concerned in his article with the first form of loss, since even the most avowed bureau crat must recognize departures from the objective maximum.

Dr. Lerner upholds the democratic character of the price system: "Just as the bureaucracy tries to free itself from the direct democratic control of the masses whom it comes to despise, so it is anxious to be above and beyond the external control of a still more democratic pricing machine to which it would in certain respects be subservient." He then quotes Dr. Dobb's recipe: "In a socialist society the rate of interest, the level of wages, and the distribution of resources between constructional and finishing trades are all elements in a single decision taken by the State as to the distribution of resources between present and future."1 and counters this with certain sayings of Leon Trotsky, "a great revolutionary leader who has had practical experience of the problems". "If there existed the universal mind, that projected itself into t,he scientific fancy of Laplace; a mind that would register simul taneously all the processes of nature and of society, that could measure the dynamics of their motion, that could forecast the results of their i~ter-reactions, such a mind, of course, could 1 Gp. cit., p. 58.

L 170 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY a priori draw up a faultless and an exhaustive economic plan, beginning with a number of hectares of wheat and down to the last button for a vest. In truth, the bureaucracy often conceives 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. "The innumerable living participants of economy, State as well as private, collective as well as individual, must give 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 plan is checked and, to a considerable measure, realized through the market. The regula tion of the market itself must depend upon the tendencies that are brought out through its medium. The blueprints produced by the offices must demonstrate their economic expediency through commercial calculation.

"Economic accounting is· unthinkable· without market relations."! Dr. Lerner, after having said that several of Dr. Dobb's points are not in harmony with the main contentions, goes on to show that Dr. Dobb does not actually despise consumers' preferences so much. His statement that the same pricing principles cannot be used for capital and labour "since the two categories of cost are incurred by dissimilar agencies (or persons)" Dr. Lerner calls obscure, and also contests several of Dr. Dobb's views on interest, saying that he has got hold of an inadequate formulation in Dickinson's scheme. In his reply2 Dr. Dobb comments on the strangeness of Dr. Lerner's view that it makes no difference to the theory whether the consumer himself makes his choice, or someone else does it for him. He says that it will, of course, make no difference in a "formal analysis", but that, in his view, it puts things on the "plane of abstraction" where all discussion becomes meaningless. Dobb says that he understands Dr. Lerner's contention as being that unless an economic system achieves, or approaches, a maximum, it will be inefficient, and to achieve a maximum the concept of marginal productivity must be employed. Since the concept of marginal productivity is merely part of the definition of a maximum, this cannot be refuted; but what use is it to talk of maxima, without knowing what it is one is maximizing?

Dr. Dobb maintains further that, when one speaks of a maximum in economics, the maximum must necessarily be expressed as a quantum lLeon Trotsky, Soviet Economy in Danger, New York, 1933. 2"Economic Theory and Socialist Economy", in Review of Economic Studies, 1934-35, p. 144· CALCULATION WITHOUT FREEDOM OF CHOICE 171 of values. According to Dr. Dobb economic value is not a simple objective quantity, like energy or weight or height, or any of the things with which the technician deals.1 On closer examination it appears that Dr. Dobb does not wish to neglect consumers' preferences altogether; but when it comes to the valuation of intermediary products and factors of production; he sees no adequate grounds for having a competitive price system. Dr. Dobb's m!lin point is th!lt !l discussion of the extent to which a special form of production is "economic", implies a judgment of the pro duction result in terms of value, and that this of necessity must stand in relation to the scale of valuation which is used.

In "A Rejoinder" (see RevielVof EconomicStudies,p. 152) Dr. Lerner explains that he disagrees with Dr. Dobb on two issues. The first is p~rely one of values, his point being that individuals ought to have the maximum of freedom in the conduct of their lives. He believes that this can only be approached if there exists a free market in con sumers' goods. He also says that the "average man" does not exist, and illustrates this by pointing out that Procrustes' bed would not be much more comfortable even if it were fitted with scrupulous exactitude to the length of the average man. Dr. Lerner stresses, however, that this issue being a value-judgment does not lend itself to useful discussion. If Dr. Dobb does not consider the fulfilment of the individual's choice as important, there remains nothing but to record a difference in outlook. On the other hand Dr. Lerner maintains that, once the State has decided what is to be done to fulfil or not to fulfil the individuals' choice, and has established its priorities, those ends will not be achieved with· any reasonable degree of efficiency without the use of a price-system, and by price-system he does not mean a posteriori juggling with figures by auditors, but prices which the managers of factories will have to take into account. (See the quotation on p. 147.) Dr. Dobb has discussed the problem further in his PoliticalEconomy and Capitalism,a book that is a curious mixture of interesting theor etical reflections and demagogical statements, unproved and unlEconomists are often inclined to overestimate the stability of the quantitative measures used by technicians. A pint of milk is a very variable magnitude, if account is taken of fat-content, vitamins and other ingredients, to say nothing of bacteria. A certain quantity, measured by volume, will vary in weight according to the dampness of the atmosphere. A yard of wet cloth will usually be different in length once it is dry .. Even technicians, therefore, operate with variable yard sticks, but it is important to remember that the economist is up against the additional difficulty that value is also influenced by subjective factors, by the individual's "private" yardstick of quality not to mention the fact that the yardstick used for expressing value, the monetary unit, is exposed to variations, inter alia, because its possible gold-content may be altered or done away with.

172 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY provable. His attitude to the problem of calculation is both defined and impaired in the chapter on "Economic Law in the Socialist Economy", where he writes: "Either planning means overriding the autonomy of separate decisions, or it apparently means nothing at all" . He reiterates that any scale of priority whatsoever will do to make quantitative calculation possible. With a given quantity of resources and the relative value of consumer goods given, he considers that the only other thing required to be known is the "real productivity of these resources, used for various ends"; and this, he says, is a "concrete" detail of technical character. Here, as often elsewhere, Dr. Dobb seems to overlook the fact that the technical decision-in a community employing more than one factor of production-must vary with the value of the factors of production. This factor of value, which Dr. Dobb rightly shows as being implicit in the word "economic", and which he would so gladly do away with, will crop up also in technical decisions in com munities with scarce means. (The question will be further discussed later.) However, as Dr. Dobb begins considering how his system will function, he seems to become doubtful of its suitability. His planned economy ceases to be "unified", and he says that in practice it will naturally be cumbersome and unnecessary to distribute every little factor of production in accordance with a fixed plan. He counts, too, on the possibility of decisions "outside the plan", that a factory on its own initiative can buy directly from another factory, or directly from a co-operative farm. In such cases Dr. Dobb seems to assume free formation of prices, and he writes of "a kind of competitive market"

for such goods. He also reaches the conclusion that the questionnaires he advocated earlier will probably not give very good results, and gegins to talk of a "consumers' market" which can give facilities for the consumers' free choice, though without going into the question of how" far the consumers' choice is to influence the formation of prices and determine future production. The members of the community are to be able to choose .their occupati9n according to differences in wages, so it is obvious that he has come to doubt, or, possibly, found it inopportune to maintain, his demand for an authoritarian planned economy. The contribution to the discussion made by Dr"s. Dobb and Lerner has been quoted so extensively, both because it raises interesting theoretical questions and because it throws light on the problem we are discussing. Before further examining their two points of view, we shall mention what has been said by two other economists who CALCULATION WITHOUT FREEDOM OF CHOICE 173 have assumed the abolition of free choice of goods and employment, namely, Herbert Zassenhaus and Oskar Lange.

We have already mentioned! Dr. Zassenhaus' subsidiary solution of the problem of calculation, which is mathematical and put forward on the assumption that there exists·free choice of goods and employ ment. This, however, he regards as a "special case", and his principal solution implies the abolition of free choice of goods and employment. According to this, one is led to believe that Dr. Zassenhaus considers that the central authority will control production. Much of what he says points to this; he writes, amongst other things, of "valuation of consumers' goods by the. Ministry of Production", but all the same it is not clear what he is really proposing. He apparently wants to have free competition, too, for he says: "We assume for the time being, still keeping to the modus proccdcndj of the Theory of Individual Business, that free com petition exists."2 That regard for the consumers' preferences is not to be set aside appears from other of his statements, such as: "This scale of valuation for the final products will, under pressure from individual influences, alter continuously until it achieves an appearance of equilibrium."3 For all its lack of clarity Dr. Zassenhaus' treatise now and again throws valuable light on the problem. With many of his views one must agree, for instance, with that on the unit of calculation, and, partially, with those on interest. Where he makes positive suggestions, however, he tries to combine solutions that are irreconcilable, such as a planned economy and free markets,. authoritarian fixation of prices and regard for consumers' preferences. Nor does he discuss how "individual influences" are to exercise "pressure". To say that the Ministry of Production should follow Gossens' laws (apart from the fact that their validity has been disputed) is devoid of sense, when there is no indication of how the individuals' constantly varying interest curves for the different goods are to be obtained. As a final example of the lack of reality in Dr. Zassenhaus' discussion, it may be mentioned that he assumes throughout that the community is static, and that there is an "infinite rate of reaction". (See p. 116.) The greatest interest attaching to his treatise is that he, in common l"Uber die okonomische Theorie der Planwirtschaft" in Zeitschrift fur National okonomie, 1934.

2/bid., p. 513. 3/bid., p. 515.

174 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY with Dr. Dobb, maintains that the prices fixed by the J\tIinistry of Production can serve as a basis for calculation. He' has, however, defined his point of view more closely in a later article, l but here, too, he writes of a free·market for consumer goods and of the managers of concerns having a free hand in their decisions. 2 The real basis for calculation is, however, something different: "Income and prices, in as far as they are actually paid, are merely technical means for the distribution; it is only those valuation-indices of the Ministry of Production that are the basis for calculation." While Dr. Dobb sharply defines the fundamental difference between socialist and the capitalist societies, Dr. Zassenhaus says: "The importance and place of the free markets in private capitalist societies are taken by the Social Distribution of Products; there is no fundamental difference between the two forms of economy." 3 Here it is well to remind oneself that public retail-sale in the socialist society will not necessarily provide satisfactory data for determining demand-curves, wishes and needs, as Drs. Dobb and Zassenhaus and others who have taken part in this discussion, wrongly assume.

(Cf. Chapter VI.) If one accepts the assumption, as has generally been done in this discussion of the socialist society, that the central authority in deter mining wages, or in distributing a social dividend, is to see that the whole of that part of the social income which is allotted for distribution really is distributed, the statistics of sales will not give the data required. This assumption means that the whole quantity will have been sold, and that the central authority in consequence will not know whether one quality or group of goods is in greater demand than another. Should more money be distributed than there are goods, with the result that there occur periodical partial or complete ,shortages of goods, the value of the statistics as a barometer will likewise be minimal, as the members of the community would in that event be inclined to take what they could get, so as to have something at least for their money.

A tendency to buy all the goods obtainable at any time for the money distributed (and a corresponding lessening of the reliability of the statistics) would also be a natural consequence of lack of confidence l"Neiire Planwirtschaftsliteratur und die Theorie der Planwirtschaft" in Zeit schrift fur Nationalokonomie, 1936. 20p. cit., p. 114. sp. 520 in the first mentioned treatise.

CALCULATION WITHOUT FREEDOM OF CHOICE 175 in the value of money, e.g. as a result of the socialist society having been transformed from a former capitalist society and having gone through a period, when distrust, flight of capital and other circum stances had occasioned a fall in the value of its currency. Dr. Lange, too, has discussed the possibility of disregarding the wishes of the consumers. 1 He asserts that-his trial and error method can also be used in cases where the central authority establishes a scale of preferences to serve as a basis for evaluating consumer goods. He says that just as the consumer in a competitive market never has to work out a mathematical formula of utility or preference function before knowing what he shall choose, so, too, the central authority will not need to do so. "By simple judgment it would "assign,for instance, to a hat the valuation of ten monetary units, when 100,000 hats are produced monthly, whereas it would assign a valuation of eight monetary units to a hat, when 150,000 hats per month are produced."2 Such a simplification of the problem is not permissible, and Dr.

Lange here again makes the mistake to which we have already drawn attention: he overlooks the fact that the individual undertakes a partially subconscious weighing of his need against the sactifice entailed, while the problem is quite different and far more complicated for a central authority. (See p. 141.) While Dr. Dobb admits the need for certain competitive markets, Dr. Lange insists that all prices shall be "accounting prices". The instructions which Dr. Lange considers the central authority should give to managers of concerns appear somewhat confused, for his idea seems to be that their aim should be (I) to produce a given quantity, (2) to 111inimalizecosts, and (3) to operate with "given" prices. How this problem is to be solved, he does not mention, but, according to him, his trial and error method will function splendidly in this case, too. Dr. Lange indicates, however, that if the accounting prices are made too low for a factor of production, the demand will be too great, and this will lead to rationing. Such rationing will lead to a point where "equilibrium prices" have been attained. However, such rationing has certain unfortunate consequences, which Dr. Lange himself describes in eloquent language: "But if rationing becomes a general procedure the rules enumer ated above cease to be reliable indices of the consistency between l"On the Economic Theory of Socialism" in Review of Economic Studies) Vol. IV) No.1, October, 1936.

20p. cit., p. 68.

176 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY the decisions of the managers of production and the aims estab lished by the plan. The consistency of those decisions with the plan can be, instead, measured by fixing quotas of output and comparing them with the actual achievement (as is done in the Soviet Union). But there is no way of measuring the efliciencyin carrying out the plan without a system of accounting prices which satisfy the objective equilibrium conditions, for the rule to produce at the minimum average cost has no significance with regard to the aims of the plan unless prices represent the relative scarcity of the factors of production."! In a footnote Dr. Lange asserts that prices are not needed to carry out the plan satisfactorily, if one assumes constant production "co efficients", which assumption, however, is, as he says, "extremely unrealistic" . Dr. Lange ends by saying that it was by no means his intention to recommend a system in which consumers' free choice of goods is to be replaced by preference scales calculated by the bureaucrats of the central authority. He says that Dr. Lerner has clearly shown how undemocratic such a system would be and how at variance with socialist ideals, and that hardly any civilized nation would tolerate it.

The rationing of consumers' goods in the Soviet Ucion he attributes to the fact that the standard of living was so low, that any increase was welcome. Dr. Lange's continual references to an existing society, that is, the Soviet Union (of which he speaks with great respect) are somewhat disturbing in so far as his trial and error method is, actually, based on the assumption of a static community. (See p. 139,) Even though objections can be raised against the form of those proposals that assume the elimination of free choice of goods and employment, and even though those who put them forward have been unable to maintain them consistently a:nd unreservedly, these proposals are very interesting from a theoretical point of view. They represent, in fact, a solution of the problem of calculation that can be said to be formally satisfactory, provided one is willing to define calculation and prices in such a way, that these concepts do not require any rational content.

In a society with an authoritarian central authority that can make decisions without taking the wishes of the individual into considera tion, all data necessary for calculation is obtained by the authority's arbitrary fixation of prices. The prices of means of production can be the historical, previous prices, those at which they are taken over, or lOp. cit., pp. 69-70' CALCULATION WITHOUT FREEDOM OF CHOICE 177 arbitrary prices, fixed once for all, or periodically, by the central authority. The prices of intermediate and final products can be fixed beforehand or be calculated at the various stages of production and have added to them the costs incurred (the magnitude of which is determined by the central authority). The costs can-or not-include all costs, including profit, depreciation, obsolescence, rent and interest. The wages that figure in the calculation can correspond to those actually paid out, but they· don't need to. The· position really is that, since the central authority in sucb a society ex hypothesi fixes all prices, it can-irrespective of how it calculates and what use it makes of things logicalfyclaim that its calculationis economic.

• The first objection to such an arrangement is that made by Dr. Lerner, Dr. Lange, and many others, that it conflicts with democratic and socialist ideals, and that it would not be tolerated in a civilized society, etc.1 These arguments, however, are irrelevant from a theoretical and logical point of view. The decisive question is whether or not the central authority can calculate economically under the given hypotheses. In this connection it should be noted that Dr. Dobb's assumption of the central authority's sovereignty, the absence of any specific aim fot its economic activity, and the abolition of free choice of goods and employment, is far less unrealistic than those put forward in the suggestions of others taking part in this discussion. Dr. Lerner has also denied that Dr. Dobb's conclusion follows logically from his premises. Dr. Lerner considers that economic calculation is not possible in such a case, and he adduces· weighty arguments to assert the necessity of price-and competition-markets, whatever the form of the society.

Dr. Dobb's solution has also been strongly attacked by Professor Hayek. Professor Hayek compliments Dr. Dobb on his courageous proposal, which constitutes a clear break with the opinion that is often put forward, that Socialism will not mean regimentation and barrack-life. Hayek grants that abolition of the consumers' free choice of goods and employment will simplify the problem in certain respects l"Commodities must be adapted to human needs and not to the raw by-products of the heavy industry," wrote Leon Trotsky in Soviet Economy in Danger. In Principles of Economic Planning, G. D. H. Cole writes: ". . . it is for men-for all men-and not as an end in itself that production is carried on. The end is happiness, as well-being, and not output". And, again: "There will be 'workers' control'; only the inexorable discipline of the machine-system. There will be no freedom in industry, except for a few happy technical directors, free to manipulate their tools, human and inhuman, to their hearts' content. There will be no democracy; for political democracy will be stultified by the autocracy of the economic system".

What Cole says refers to the alternative of the worker's not having guild control. His comments on the possibility we are· discussing here would, presumably, be still more pathetic.

178 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY by eliminating one of the incalculable variables, but he says that Dr. Dobb seems to be under a "curious delusion", if he believes that it is only consideration for consumers' preferences that makes it necessary to have price-processes, and that categories of value would cease to have any significance. Prices would only cease to have significance, says Professor Hayek, if one could assume that production in the socialist state would have no specific aim whatever. Professor Hayek ends his criticism by saying that changes in the public's taste is not the only unforeseeable variable with which a dictator will have to reckon. Climatic changes, alterations in the size of the population and in its state of health, technical changes and inventions, or exhaustion of mineral deposits, these and a hundred other changes that are continually taking place, will necessitate constant alterations in the plans. He says: "The distance of the really practicable and the obstacles to rational action will have been only slightly reduced at the sacrifice of an ideal which few who realized what it meant, would readily abandon".

The views and arguments put forward by Dr. Lerner and Professor Hayek in this connection are weighty ones, but they cannot be said to touch Dr. Dobb's solution in its pure, original form, and it is that which they are discussing. Dr. Lerner overlooks the strength of Dr. Dobb's logical position in his assumption of the central authority's sovereignty, its opportunity to neglect the wishes of the members of the community, and its omission to set up any goals. Professor Hayek is on safe ground with his criticism, in so far as he points out the possibility-mainly to reduce it in absurdum-that Dr. Dobb's socialist society has no aim at all. That, however, is the actual fact. Dr. Dobb does not state any ends for the activities of the society he is discussing. He merely points out that the public's free choice of goods and employment will have to stand aside for the benefit of the central authority'splan and sovereignty. There is one other reservation Professor Hayek makes: "His attitude would only be tenable if costs determined value, so that so long as the available resources were used somehow, the way in which they were used would not affect our well-being, since the very fact that they had been used would confer value on the product."

Such an attitude to costs and values would not be unnatural in one who presumedly sympathizes with non-subjective theories of value, but that is not the point at issue. Dr. Dobb's point of view is tenable, whatever his view on formation of prices. By assuming the sovereignty of the central authority and freeing it from any necessity to follow CALCULATION WITHOUT FREEDOM OF CHOICE 179 goals, he makes it unnecessary to take extraneous prices into con sideration at all. As long as one sticks to more or less subconscious concepts of a "natural value", or those of a value determined by s~arcity, labour costs, by subjective value-judgments, or that value is created in the mind of the individual or in the market by barter-relationships, it is difficult to accept calculation on this basis, as economic calculation. Logically speaking, however, there is nothing to prevent "value" and what is "economic" being determined by the central authority. The only condition is, that one accepts the central authority as the only judge of value, and that there is no need for it to state its ends. It is, of course, highly doubtful whether the value-judgment of the central authority will coincide with that of the individuals, but one must not forget· that discrepancies between different individuals' valuations of goods and services exist all the time. In reality this discrepancv is one of the necessary conditions for barter-activity (in communities where it is allowed).

Whether the official, communal valuation is. expressed in market prices, monopoly-prices or in officially determined prices, it will not necessarily coincide with that of the individual. How often do you meet a person whose valuation of his own ability and contribution coincides with that of society and his employer? In a community where all forms of private exchange are forbidden, and where the central authority's valuation is the only lawful one, then that valuation is the value.! The use of molybdenum for making toy swords, and of high-class lenses for microscopes to be used in elementary schools would be considered "waste" in a society where satisfaction of needs is con sidered as a matter of course, and where such a metal and such lenses would fetch a higher price for other uses. Y~t, this would be con sidered neither wasteful nor uneconomic if the aim set were, for example, that children in the society in question should have only the best possible technical equipment, or that the lens-makers in that society should be favoured, in order, for instance, to maintain their numbers. When no ends are stated at all, as Dr. Dobb assumes, the matter grows even clearer; then, one can say that economic calculation has been accomplished; as long as calculations are made on the basis of the prices and scales of preferences laid down by the central authority.

lSince most of the economic theory assumes the existence of markets and prices determined by supply and demand, such a transition to official fixing of price and value means that the foundation for our present economic theory itself disappears in its essentials.

180 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY From a logical point of view it must be conceded that the central authority in such a society will still follow "the economic principle", in that the result, according to the central authority's yardstick, will always be, or can (still according to the central authority's yardstick) be made greater, than the in-put. In these given circumstances the central authority can value the means of production as it will, produce what it will, and give the members of the society what, as many, or how few social goods it will, and yet still follow "the economic principle" . One can call it a caricature of "economic calculation", if the con sumption of the individual is to be adapted to the whims of the central authority, and it can be asked whether one is not reducing the discussion to absurdity in suggesting the possibility of a society where goods, which strictly speaking are not necessary, are produced to subsidize a certain group of the population, or that a society's economic activity should not have goals, or not aim at satisfying the needs of its members. That is a matter of valuation. After all, in the world to-day you can find conditions not so very different from those just mentioned.

Underlying the tendency to characterize such a social order as absurd and meaningless is a humanistic, individualistic and, to a certain extent, emotional, respect for the individual. If socialism is regarded as an end in itself, to be preferred whatever form it takes and whatever its consequences (and many of the comments on capitalism in Dr. Dobb's book point to this), it is logical to put forward any proposal whatever, that can contribute to its realization. It is, however, clear that the assumption of the central authority's sovereignty in matters of valuation brings us precariously close to absurdity, even if one manages to rid one's mind of individualistic points of view and accustomed categories of value. The central authority can, according to the assumption, say that it "calculates economically", if it makes more, for example, hats and beds, than the population can use. Similarly, if from material sufficient for 5 million suits, it only makes 4 million, it can still say that its calculation and use were "economi<;". The production of goods consists of the transformation of material, and the central authority can maintain that the four million suits in their final form have a value in excess of the costs involved-as estimated by the central authority. Valuation is its exclusive province. The central authority could also maintain that 5,000 small loaves are worth more than 5,000 large ones, if there is a difference in quality .. Even if the quality were exactly the same, the central authority could say that 4,500 loaves have the same value as 5,000, if there were some difference in time or place. This, however, is to approach absurdity, and, if the central authority, in order to CALCULATION WITHOUT FREEDOM OF CHOICE 181 preserve the impression that. its calculations and use were economic, should maintain that 4,500 loaves had the same value as 5,000 equally large loaves of the same quality in the same place and at the same time, that is, were it to say that a smaller quantity is larger than a larger one, one must, irrespective of "institutional" and "structural"

points of view, admit that absurdity has been reached. Dr. Felix Wei! has expressed himself very decidedly! on the subject of such arbitrarily determined prices. He says that "any accounting made on the basis of such fictitious prices is a worthless gamble; without general denominators and, further, without automatic checking, such figures cannot be compared". It must be added that Dr. Weil is one of the few, in fact the only one of those who have taken part in this discussion, who, while granting that economic calculation is impossible in the socialist society, concedes that such a society can, nevertheless, exist. He says in a footnote that Mises is right, and not Polanyi and Leichter, when Mises says that economic calculation is impossible in such a society, but that he is wrong in concluding that a socialist society is impossible. He says: "This conclusion merely shows that it is beyond the comprehension of the modern bourgeois scientist to imagine such an economy". Dr. Weil announced that he would justify his view in a later essay, but this does not appear to have been printed, at least in the Archiv.

In the same number of the Archiv Dr. Polanyi remarks that \Veil is alone in his opinion, and that he is not justified in his appeal to Marx, quoting one of Marx's sayings that in the socialist society value remains the decisive factor and that bookkeeping will become more important than ever. 2 It can also be questioned, as Dr. Lange has, whether a society where people could not choose their goods and occupation, would he tolerated by civilized people. This is a question which economic theory cannot answer. It is, fundamentally, a question of power; not merely of military power to prevent a possible uprising, but of the power to isolate and influence by propaganda .. Man's sense of happi ness depends only to a small extent on his standard of living and economic circumstances. Provided that the central authority manages to satisfy the people's physiological needs, there need not necessarily be any danger of dissatisfaction and rebellion. For this, however, the population must be isolated from other societies where conditions might possibly be unmistakably better, or, what from the point of lSee "Gildensozialistische Rechnungslegung" in Archiv fur Sozialwissenschaft und Sozialpolitik, 1924.

2Dr. Polanyi refers to Das Kapital, III, p. 388.

182 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY view of leadership is the ideal, that it should be persuaded into thinking that just those conditions under which it is living, are the ideal. The technique of propaganda and cultural isolation has been so enormously developed and improved in the last few years, that Aldous Huxley's Brave New World can no longer be regarded as just an imaginative tour de force. Even though there are few theoretical and logical objections to Dr. Dobb's suggestion, it can be said with some justice that a society where activities can possibly be undertaken without any aim, is no society at all, and that the result must be anarchy and chaos. This seems to be the opinion of the majority of socialist economists (see Chapter I). In this connection it must be stressed that, if ends are stated, then Dr. Dobb's solution of the problem of calculation appears in a different light, for, in that case, the final products can no longer be valued arbitrarily. In that case, the economic principle requires that the input should be less than the produced result, judged from the ends accepted. In that case, there 'will again arise the need for a mechanism capable of registering the value and scarcity of resources in relation to the ends· and to the changes of various kinds that will occur in a dynamic society. The problem of calculation will in that case still remain unsolved.

All the same, Dr. Dobb's solution is-logically-an advance on the others, because he eliminates the need to take account of the indi viduals' free choice of goods and occupation. Professor Hayek points out that his abolition only eliminates one of the variables that have to be considered: " ... the changes in taste are by no means the only, and perhaps not even the most important, changes that cannot be foreseen" . Professor Hayek here seems to emphasize an unessential side of the question. The importance of eliminating free choice of goods and occupation lies not in having got rid of one variable (or two), but in having done away with this particular assumption. The greatest difficulties in the other solutions are created by just the specific demands inherent in this assumption. Not only is it difficult to obtain correct data on the (shifting) wishes of the individuals, but these wishes, in an industrialized society, must influence the valuation of a number of constantly changing intermediary products, in order to obtain a correct valuation (according to the end) and thereby a correct use of scarce resources. Dr. Dobb avoids this difficulty by his particular assumption -or lack of assumptions.

Even had Dr. Dobb set up ends for the activities of his society, the possibilities for economic calculation in it are considerably greater, because he has eliminated regard for the wishes of its members. If, CALCULATION WITHOUT FREEDOM OF CHOICE 18, for example, the society takes as its only aim the development of a war machine of a certain size within a certain time, a military central authority will, presumably, be able better than any other to determine the relative value of existing resources in the light of this 'particular aim. The military experts will determine \\That raw materials, power and labour are required to produce the various machines of war in the given space of time. The ideal economic calculation, naturally, demands that each of the va.riables, to which Professor Hayek rightly draws attention, should be taken into consideration; yet a plan of this kind will, presumably, grosso modo, be capable of attainment if one is content to judge it in the light of technical development in the armament industry only. The task of the military authorities will be considerably easier, if they can disregard questions of satisfying the wishes of the individuals. If so, the military central authority will only need to see that the production of armaments does not encroach so far on the production of foodstuffs, that the health of its forces is adversely affected.

The same conclusion (that the task will be easier) is reached if it is assumed that the sole aim of the society is to impress the world, e.g. with modern underground railways, or with a rapid development of its productive apparatus. Also, if one assumes the aim to be' that of increasing the knowledge and capabilities of the society, which would mean a one-sided concentration on the building of universities, schools and libraries. If, on the other hand, the aim were to create a foreign exchange reserve of a certain size, the problem would apparently be different. This implies, in fact, a new scale of preferences determined by the demand abroad, and there should then, strictly speaking, be a need for economic calculation in the usual sense. However, considering that the aim does not involve paying attention to the immediate needs of the members of the socialist society, it can be attained by exporting whatever can be sold abroad. In theory, there is nothing to prevent grain and foodstuffs being exported, even if this results in famine.

The attainment of this goal, too, is made easier, because the central authority can neglect the needs and wishes of the individuals. We have so far treated Dr. Dobb's solution as though it were far more consistent than it actually is. In later articles, as well as in his books, he concedes the necessity for certain competitive markets, and satisfaction of the needs and wishes of the individuals is also for him a desirable aim. It is in its pure, origi~al form that Dr. Dobb's solution has the greatest theoretical interest. We have already discussed the practical possibilities of his solution.

184 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY From an individualistic point of view there are, of course, obvious objections to it. The validity of the other objections will depend on the degree of development of the society in question. In a society that can only produce enough to maintain its members on the bare existence level, objections. to an official scale of preferences will have little weight. The minimum quantity of fats, carbohydrates, vitamins, etc., is more or less the same for everybody of the same age and sex. Needs of this kind can presumably be fixed by the central authority dieticians just as well as by the members of the community. (We are not competent to judge whether idiosyncracies and unusually strong likes and dislikes in one individual are an indication of what his organism demands or cannot support.) If, however, the socialist society can produce more than the bare minimum-and it is generally asserted that it can-and it becomes a question of supplying con veniences and satisfying cultural needs, then this form of distribution is inadequate by reason of the variability and elasticity of the various needs of various individuals.

Where production takes no regard of what the public really wants, it will in practice easily become anarchic, and even though the central authority can-from a purely logical point of view-maintain that it is calculating economically, it can be objected with considerable justice that such calculation is just as arbitrary and valueless as accounting "in natura.