Chapter XV

CHAPTER XV RESUME· AND CONCLUSIONS If all the world were apple-pie, And all the sea were in k, And all the trees were bread and. cheese, What would we have for drink? WE HAVE now discussed the possibilities of economic calculation, on the basis of generally accepted definitions and assumptions, in various types of socialist community. We have seen that one prerequisite for economic calculation was a monetary economy; also, that even in the socialist society one must calculate with factors such as risk-quotas, depreciation, interest on capital and ground-rent, as well as with the primary and produced factors of production, provided the end is maximum exploitation of existing. resources with a view to satisfying the needs of the community. We have seen that to reckon out the cost-quotas mentioned will be difficult because, in the socialist society, there are no given prices for primary and produced means of production. ,We have seen that this lack will have far more serious consequences than the mere fact of being unable to calculate those quotas. If such prices cannot be obtained, it will exclude all possibility of economic calculation. We have seen that the socialist economists are themselves agreed that economic calculation is a necessary condition for rational economic activity and for achieving given ends. As a direct result of this, the view expressed. by Professors von· Mises and Brutzkus that the neces sary data for calculation will not be obtainable has had a great effect, and many attempts have been made to refute it.

The question that naturally arises after such a survey of these proposed solutions is: are Mises and Brutzkus right in saying that economic calculation is impossible· in the socialist society? This is nota question that can be answered "yes" or "no" out of hand. The answer depends, in the first place, .on the definition used. If by calculation is understood computation of what a commodity costs, and by "cost" what the commodity is worth, and if it is taken that value can only be expressed by a price obtained in a market with competing buyers and sellers, then the answer is "yes". Mises and Brutzkus will be right, both in theory and practice, since in the socialist society there will, by defini tion, be only one owner of the means of production. This is, preM 185 186 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY sumably, what Professor Mises meant, and it explains the force with which he puts forward his point of View. He has not, however, made it sufficiently clear that he assumes the existence of markets with several buyers and sellers, and therefore his assertion appears some what dogmatic and categorical.

If,however, calculation is defined as a computation of what an article "involves" (as has been done in this book) and it is held that "what it involves" can be expressed with the help of any commen surable and any kind of data whatever, irrespective of whether they have any content or not, then calculation may be said to be possible also in a socialist society, in which case the view of Professor Mises and Brutzkus is not correct. Is there, though, anyone who will calculate with data that have no real content? As we have seen, many of the proposed solutions of the problem of calculation assume a planned economy with a central authority that· will fix the values of both the means of production and of the final products, as well as determine the quantities to be produced. 11ust these decisions be arbitrary? Not necessarily. It will depend on the aim the society in question has chosen for its activities. If, how ever, the end is to satisfy the material and cultural needs of the com munity, difficulties in calculation will arise, unless one makes the unrealistic and unrealizable assumption that there are resources enough to cover at all times the combined needs of the entire community.

Several of those who have taken part in the discussion maintain that they have solved this problem of calculation, at any rate in theory. Having surveyed the more important of these proposals, it is difficult to accept this. It is significant that the various solutions are con flicting and partly irreconcilable, and that several of those who have put them forward have sharply criticized each other's solutions. The dominant opinion at the present time is that the problem of calculation can only be solved in the socialist society, if it allows of conditions of competition similar to those to be found in the capitalist society. A few, but not all, put forward this proposal, well aware that it excludes the possibility of any planned economy. By doing this, they are tacitly admitting that the whole idea of socialism (with planned direction) is incompatible with economic calculation. At the other extreme there is a small group of proposals, where the opposite conclusion is drawn: a planned economy is the main thing; the central authority, not the members of the community, must determine the scales of preferences and the order of needs. In the view of those putting them forward, the prerequisite of economic calculation in a socialist society is that the community's right to free choice of goods and occupation must be abolished. This, too, is a remarkable result.

RESUME AND CONCLUSIONS 187 Having once accepted the (non-economic) assumption that the central authority can dispose without regard to the wishes and needs of the community, this solution is logically the strongest and, perhaps, the most interesting in theory, for in its pure and original form it constitutes a break with the normal conceptions of value. If, on the other hand, the central authority does not need to have any aim at all for its· activity, .this could lead to results· that will appear absurd to aU whose idea of economic activity is that it should aim at satisfying the needs. of the community, .hut this does not .prevent the proposal from providing· the best theoretic solution of the problem of calcula tion, and also the one that is least unrealistic. If the central authority in such a society· were to set itself an aim, the problem would appear in quite a different light. In that case, economic calculation would presuppose that the factors of production were valued, not only from the point of view of their usefulness in achieving this aim, but also that their valuation was continually being revised in the light of the changes that are constantly occurring in a dynamic society. The central authority would then meet with ·the difficulties that we have attempted to point out in this treatise. What ever the ci~cumstances, the solution of the problem will be easier, if it is assumed that the central authority does not need to consider the needs and wishes of the members of the community. Easier, not because one or two variables have been eliminated, but because valuation of the factors of production and the adaptation of production (when satisfaction of needs is aimed .at) .is not a thing that can be done by any technical experts, but will ex I:jypothesi be influenced by millions of individuals' valuations, and because the registration of these valuations and the adaptation of production to these and other variables meets with especial difficulties in the socialist society.

If one is to decide whether the problem of calculation has been solved, one must not only ask about definitions, but whether it is a theoretic or a practical solution that is intended. Between the two extreme solutions just mentioned there is a number of others, which, according to their proposers themselves, are theoretic, but· not practical solutions. Both Professor Hayek and Professor Robbins in commenting on· the discussion have reached the con clusion that economic calculation is not impossible, in the sense of being theoretically impossible or inconceivable, but that in the socialist society it is impossible in practice. This judgment, both goes too far and not far enough. It does not go far enough, in so far as economic calculation must be said to be practically possible in a society where the· central authority is powerful enough to make its valuations 188 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY paramount at all stages of production without needing to set· itself any aim. And, in the author's opinion, it goes too far in accepting various solutions as theoretically satisfactory.

Here arises the question of what are the criteria of a satisfactory solution of a theoretical economic problem. To answer that question in detail would lead us outside the framework of this book, but one or two comments will not be out of place in view of the suitable examples provided by this discussion. It is to a certain extent understandable that many of those who have proposed solutions should consider their task fulfilled, once they have pointed out a theoretical solution, even while admitting that it is impossible to put it into practice. Those who first took up the question, Pareto and Barone, drew a sharp distinction between the theoretical and practical usefulness (or uselessness) of their solutions. Professor Mises who has most clearly formulated the problem, on several occasions drew attention to the fact that what he had undertaken was a theoretic and scientific investigation. Without expressing here an opinion on Professor Mises' real intentions, or of the extent to which he has achieved them, one may say· that it would be very natural to regard his statements as expressing the desire to see the· problem treated theoretically and scientifically. What he says does not exclude the possibility of his having had socialist societies in the world of reality in mind when he denied that such societies can calculate economically. If this interpretation is right, one cannot say that the problem is solved by suggesting solutions that are notoriously im possible in practice.

In her Lament for Economics Barbara Wootton discusses what an economist can allow himself to assume. She has coined the term "apple-pie-ish" from the nursery rhyme used as the motto for this chapter and uses it to describe assumptions that have nothing to do with this world. If the writer records his agreement with Mrs. Wootton on this point, it does not mean that in principle he objects to discussions based on unrealistic assumptions. To select relevant factors, to discard irrelevant ones, and to construct model worlds, is in economic theory not only justified, but in certain cases necessary. Nevertheless, (and this should be emphasized) there must exist a methodological purpose, or necessity, for building on unrealistic premises. To use them, when not needed to simplify the discussion, merely to furnish a so-called theoretical solutionis, in the author's opinion an abuse of a technical instrument.

In this discussion of economic· calculation in the socialist society assumptions have been made that are highly "apple-pie-ish", par ticularly when one considers the nature of the problem. In some cases, the infinite velocity of reaction required by the static society has been RESUME AND CONCLUSIONS 189 assumed, in others a change in the psychological attitude of' the individual (in his "egoistic-individualistic" attitude) that has charac terized man throughout history, in others superhuman powers of vision, of omniscience and the gift of being able to get all relevant data and make a simultaneous solution of millions of equations that the mathematical solutions presuppose. It must be added, that the extreme solutions. are not based on un realistic assumptions. Those. that envisage competition, on the contrary. aim at creating conditions that resemble most those to be found, or rather those that used to be found, in the capitalist societies.

Nor is there anything unrealistic in assuming that economic calculation presupposes the concentration of all power in the hands of a central authority, and that men's right to free choice of goods and occupation be abolished. On the other hand, these groups of solutions imply a definition of price and calculation that robs those concepts of any reasonable meaning. Finally, it must be pointed out that in this treatise we have purposely omitted to discuss various factors that bear on the possibilities of calculation in the socialist society. These are (1) possible fluctuations of 'trade cycles; (2) possible fluctuations in the value of money; (3) the form of society in otherc~untries. (If there should still exist capitalist societies with competition it. will be possible to obtain from them certain indications and data for calculation, which would not be there if all societies had adopted socialism);· (4) the problems arising from foreign trade-and exchange of goods and services with other societies; (5) the effect of managers with private ownership-interests being replaced by official functionaries, as the transition to socialism de mands. Since the factors of production are, from the point of view of production, inanimate matter until they are combined by human endeavour, it would seem that it must lie within the scope of economic theory to discuss the conditions for maximizing that endeavour. It can, however, be objected that this is a question of social psychology, and, since it brings us into fields where opinions differ violently, we have not discussed it.

It must, however, be pointed out that the problem of calculation would not have been any easier to solve if we had assumed (1) fluctua tions of trade cycles, (2) fluctuating value of money, (3) that all countries in the world were socialist, (4) that our socialist society was not autarchic, but dependent on foreign trade, and (5) that the abolition of private property would have psychological effects on the conduct of the managerial class.

190 ECONOMIC CALCULATION IN THE SOCIALIST SOCIETY The fact that, in practice, economic calculation is impossible in a socialist society whose aim is the maximum exploitation of existing resources in order to satisfy the needs of the community does not, of course, mean that· a socialist society cannot· exist-at any rate for a time. As Professor Robbins has pointed out in Economic Planning and International Order, it is obvious that a socialist society with workers, material and engineering ability can build factories, workshops, and power stations, and produce consumer goods. Nor is there anything to prevent the managers, whether impelled by force or reward, from conducting them with technical efficiency. A socialist society that lacks industries of various kinds can set about producing almost anything and for a considerable time whatever it produces will be regarded as useful by the members of the community.

The question, however, is not whether factories can be built and efficiently conducted, but whether the factors of production could have been put to a more advantageous use by employing them elsewhere. In a society whose aim is the maximum production of needs its resources must not be used for producing what may be momentarily lacking and so have a certain value, but for producing goods which, according to the ends stated, are of greater value than other goods. Each factor of production must be so employed as to give the greatest return accord ing to the ends. This, and only this, is the criterion for rational economic activity. For determining this there is needed valuation apparatus, an apparatus with prices and costs varying with the variables with which one has to reckon in the world of reality, and it is here that there arise specific, and so far, unsolved difficulties for the socialist society.