From: Robert.Vienneau@launchpad.unc.edu (Robert Vienneau)
Subject: Re: Von Misses Correct? USSR not centrally planned?
Followup-To: sci.econ
Organization: University of North Carolina Extended Bulletin Board Service
Distribution: na
Date: Sun, 8 Nov 1992 12:47:30 GMT

David Wright writes:
>
>We have a lecturer comming who claims the above: that Misses' thesis
>is correct, socialism cannot exist (due to information problems) and
>that the USSR was and Russia is not now a centrally planned economy.
>Instead, he describes it as mercantile.
>
>Is this true? [...]
>
>					All comments  are mine---(David Wright) 
>						david@cats.ucsc.edu.

Von Mises and Hayek began with at least one false premise, that
socialism could not exist without central planning. At the time, there
were plenty of socialists with an anarcho-syndicalist streak who did
not advocate central planning, as far as I know. Examples: Sorel in
France, the Spartacus group in Germany, Gramsci in Italy. Also, there
were some interesting groups on the Republic side of the Spanish Civil
War.

Given that caveat, what about the argument that complete central
planning cannot work? First, I think Hayek had the better argument. The
central planner needs to set up a system of equations whose solutions
are the desired prices and quantities that should apply to different
goods and industries. Von Mises argument is that the equations are too
complicated to solve. Hayek's argument is that the central planner
cannot gather all the needed information to determine the parameters of
the equations anyways. The price system in a market economy is a
decentralized information processor.

I think the consensus among the economics profession at the time was
that Von Mises and Hayek lost their argument to Lange and Lerner.
Personally, I disagree. I do think that the Austrians share with
Neoclassicals a conception of how prices encourage substitution among
alternatives, and that conception has been shown to be deficient. Also
Herbert Simon's later development of the theory of "bounded rationality"
argues that Hayek's philsophy of the efficiency brought about by markets
is not an accurate description of how markets can work either. Neither a
pure market economy, nor a pure centrally planned economy can work
perfectly efficiently. Whether or not the USSR is a demonstration of the
inability of centrally planned economies to function, I have no definite
opinion on. I tend to lean toward believing that it is.

Hayek and Von Mises also argued that a mixed economy was impossible. The
planning elements would tend to grow until the system was a centrally
planned hell. I think the history of western Europe over the last half
century, and Japan too, pretty well refutes that thesis.

A socialist can accept the thesis that central planning is a bad idea
and still be a socialist. Sometimes I think I'm the only reader in the
U.S. who took Hayek's dedication in the Road to Serfdom seriously. ("To
the socialists of all parties.") For a competent exploration of some of
these issues by a contemporary Marxist economist, see Geoff Hodgson's
book _After_Marx_and_Sraffa_ (1992?).

                                      Robert Vienneau
--
   The opinions expressed are not necessarily those of the University of
     North Carolina at Chapel Hill, the Campus Office for Information
        Technology, or the Experimental Bulletin Board Service.
           internet:  laUNChpad.unc.edu or 152.2.22.80
Newsgroups: sci.econ