In the 1920s and 1930s, there was an intense debate in the economic literature about the possibility of economic calculations under socialism/communism. At that time, there was a theory of general economic equilibrium, according to which it is achieved by changing the prices and quantities of goods and services determined by supply and demand. A long and impressive list of economists, from Adam Smith to Leon Walras, Vilfredo Pareto, and Alfred Marshall, have demonstrated that a decentralized economy, in which economic activity is motivated by self-interest and driven by prices, is compatible with the concerted distribution of economic resources and is preferable to other possible methods of distribution. . Economists dealing with the economic theory of socialism/communism (Oscar Lange, Abba P. Lerner, Otto Neurath, etc.) argued that in this political regime the planning authority could perform the same calculations as private economic agents in a market economy. , and perhaps even boosts economic performance through government intervention.
The theses of the mentioned economists are contradicted by two facts. First, in practice, centralized planning is not enough to control the economy. Even authors such as Leon Trotsky, who were committed to building communism, wrote about a communist state bureaucracy (the “nomenklatura”) that imagined it had a “universal mind” and interfered with economic planning, making it completely unrealistic. The far-fetchedness of the plan and the unreliability of reporting on its implementation lead to low-quality products, shortages of goods, and waste of resources.
The second fact (especially emphasized by Friedrich Hayek) is that centralized economic planning is fundamentally impossible, because economics is a process of contextual discovery. Businesses do not know in advance their production costs or how they will react to unexpected events or new technologies. In addition, given the multitude and variety of possible products and prices, consumers do not know in advance which products they will choose. Workers also don’t know which job they will prefer until they see the job. Finally, no one knows in advance what innovations will be made and which of them will be useful in production or will be in demand by consumers until these discoveries are made and put into practice.
It is true that the state can perform certain roles that limit the operation of the market: forcing the redistribution of goods and services from the rich to the poor, funding education and infrastructure, subsidizing agriculture, and so on. The existence of a central planner that foresees all the consequences of the interaction between quantity, quality, innovation, prices and wages is, however, impossible. It is impossible to imitate the functioning of a market economy, if people are not deprived of freedom of choice – even partially.
Proponents of a planned economy argue that under socialism/communism, an increase in computing power increases the possibility of economic calculation. In this line of thought, some contemporary authors argue that recent advances in artificial intelligence (AI) lead to a situation where centralized planning is not only possible, but even superior to the free market. So, Chinese businessman Jack Ma, the founder of the Alibaba group, writes:
Over the last hundred years we have come to believe that the market economy is the best system, but I think the next three decades will see a big change and the planned economy will become bigger and bigger. why Because with access to all kinds of data, you can find the invisible hand of the market. The planned economy I am talking about is not the same as the Soviet Union or the early People’s Republic of China. The biggest difference between a market economy and a planned economy is that the former has the invisible hand of market forces. In the era of big data, people’s ability to acquire and process data is greater than we can imagine. With the help of artificial or multiple intelligence, our perception of the world will rise to a new level. As a result of this wealthdata will make markets smarter and allow us to plan and anticipate market forces, ultimately leading to a planned economy.
Ma’s statement is, of course, an implicit admission that planned economies have not worked very well in the past. However, his ideas have many modern supporters.
Technosocialism is not fundamentally different from the model of market socialism proposed by Oskar Lange and Abba Lerner in the 1930s in response to the arguments of Ludwig von Mises and F. A. Hayek, who claimed that economic calculation was impossible in socialism. In response to Mises and Hayek, Lange later wrote the following:
Let’s put the simultaneous equations into an electronic computer and we’ll have the solution in less than a second. The market process with its cumbersome inconveniences seems outdated. Indeed, it can be seen as a computing device of the pre-electronic era.
Lange’s position, like that of today’s techno-socialists, misunderstands the nature of the fundamental economic problem of any society: determining what goods are produced, how, and for whom. This is not just a computational problem, but a complex cognitive problem, the understanding of which involves, among other things, knowing how market mechanisms actually solve it.
A market economy is essentially a social way of discovering, using and sharing information and knowledge in a multitude of real-world contexts, a way that no computer can replace.
If we assume that there are static conditions and perfect knowledge of the economy, the problem of economic calculation is solved with the help of a hypothesis. In fact, economic calculation is only one tool that allows economic agents to move in a certain direction in a turbulent ocean of economic risk and uncertainty, which is constantly changing, in which the context is unknown, in which there are many hopes and fears and other such weightlessness. If all these things are removed, hypothetically or de facto, by the forceful installation of a socialist/communist economy, the functional meaning and therefore the usefulness of the economic calculation disappears. However, in the same way, opportunities to increase well-being, entrepreneurial innovation, opening up new opportunities, in short, economic development, disappear. _Read the entire article and comment on it on Contributors.ro
Source: Hot News
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