On the "calculation problem"

(written by Pavel Minorski)

The only reason Mises’ “calculation argument” is accepted so widely (even among people who want to call themselves socialists), it seems to me, is that (1) people want it to be true; (2) almost no one has actually read the original paper and, as is usual in these situations, imagine it to be more profound than it actually is; and (3) it is heavily promoted by the libertarian propaganda machine.

But I would urge anyone interested in socialism (by which I mean the abolition of value and property – not democratic, market, national, Arab, Prussian etc. “socialisms”) to read Mises’ paper. The Mises Institute has put it up for free, which is surely off-message but whatever. And if you survive the tedium of the Standestaat economist’s prose, I honestly don’t think you will throw your hands up and conclude socialism is impossible. But let’s go over the initial section to see why the argument is so bad.

Mises begins:

Under socialism all the means of production are the property of the community. It is the community alone which can dispose of them and which determines their use in production.

Now, at first glance this looks alright, but there is a nuance here that leads to problems down the line. First of all, in socialism property is abolished. All property. Just as it is impossible to divide a cake into one piece, there is no such thing as property that belongs to everyone. Second, Mises restricts this “communal property” to the means of production, as if means of consumption could be private property, on which more later.

Mises continues:

What basis will be chosen for the distribution of consumption goods among the individual comrades is for us a consideration of more or less secondary importance.

Now, first of all this is absurd. Socialism bases itself on one criterion - satisfying actual human need. To divorce distribution from production as even some socialists do might seem “Marxian”, but it’s also obviously incorrect. Second, Mises needs this odd assumption to make the contrived scenario set out in the rest of the section plausible.

Let us assume the simple proposition that distribution will be determined upon the principle that the State treats all its members alike; it is not difficult to conceive of a number of peculiarities such as age, sex, health, occupation, etc., according to which what each receives will be graded. Each comrade receives a bundle of coupons, redeemable within a certain period against a definite quantity of certain specified goods. And so he can eat several times a day, find permanent lodgings, occasional amusements and a new suit every now and again. Whether such provision for these needs is ample or not, will depend on the productivity of social labor.

In other words, and anticipating the next paragraphs, we give steaks to everyone and then “discover” that some people do not want steaks.

Moreover, it is not necessary that every man should consume the whole of his portion. He may let some of it perish without consuming it; he may give it away in presents; he many even in so far as the nature of the goods permit, hoard it for future use.

Now, the question is, why on Earth would a socialist society permit its members to hoard goods they are not using? Mises assumes it would because he assumes consumption goods will be private property. But in socialism, production is for use, and if goods are hoarded they are not being used. A socialist society would no more produce goods to be hoarded than it would produce goods to be destroyed.

He can, however, also exchange some of them. The beer tippler will gladly dispose of non-alcoholic drinks allotted to him, if he can get more beer in exchange, whilst the teetotaler will be ready to give up his portion of drink if he can get other goods for it. The art lover will be willing to dispose of his cinema tickets in order the more often to hear good music; the Philistine will be quite prepared to give up the tickets which admit him to art exhibitions in return for opportunities for pleasure he more readily understands.

And there we have it. Since in this contrived scenario everyone has been left with goods they do not want, they exchange them. Mises could not admit earlier that distribution would proceed on the basis of human need because his argument requires a distribution that leaves a significant number of individuals both lacking certain kinds of goods and having surpluses of other kinds of goods, which will then be exchanged away. Now, in socialism the principle dictating distribution is that every human need that does not conflict with the continued existence and development of society is met.

Now, in our lifetimes, this caveat means that many goods will not be abundant, particularly since it is necessary (and only socialism can do this) to massively wind down production. However, these scarce goods will still be distributed on the basis of need, which means that even if one wants to exchange for some good they want more of, there is nothing to exchange it for as there are no surpluses above what is needed. Any surplus represents a failure of socialist distribution.

But it gets worse:

The relationships which result from this system of exchange between comrades cannot be disregarded by those responsible for the administration and distribution of products. They must take these relationships as their basis, when they seek to distribute goods per head in accordance with their exchange value. If, for instance 1 cigar becomes equal to 5 cigarettes, it will be impossible for the administration to fix the arbitrary value of 1 cigar = 3 cigarettes as a basis for the equal distribution of cigars and cigarettes respectively. If the tobacco coupons are not to be redeemed uniformly for each individual, partly against cigars, partly against cigarettes, and if some receive only cigars and others only cigarettes, either because that is their wish or because the coupon office cannot do anything else at the moment, the market conditions of exchange would then have to be observed. Otherwise everybody getting cigarettes would suffer as against those getting cigars. For the man who gets one cigar can exchange it for five cigarettes, and he is only marked down with three cigarettes.

In other words:

  1. it is assumed that there will be exchange;
  2. furthermore it is assumed that such exchange will be so regular and formal it will have a fixed rate of exchange that will be a matter of public policy; and finally and most importantly
  3. it is assumed the community (which has by this point become “the state” for Mises, incidentally) will act to help people making the exchange.

The third assumption is really the most amusing one – even if we grant all of of Mises’s previous assumptions it isn’t clear why a socialist society would encourage this sort of anti-social behaviour. No, actually, it is clear: so that Mises can demolish a strawman.

And of course if you assume all that then it follows that, as Mises says earlier:

The principle of exchange can thus operate freely in a socialist state within the narrow limits permitted. It need not always develop in the form of direct exchanges. The same grounds which have always existed for the building-up of indirect exchange will continue in a socialist state, to place advantages in the way of those who indulge in it. It follows that the socialist state will thus also afford room for the use of a universal medium of exchange—that is, of money. Its role will be fundamentally the same in a socialist as in a competitive society; in both it serves as the universal medium of exchange.

And then it is “discovered” that a system of planned production does not mix well with a system of anarchic exchange driven by a universal equivalent. Except the assumptions are rubbish and so is the argument. And this is how men without qualities like Mises and Hayek “disprove” socialism.

The most unfortunate thing is that some self-proclaimed “socialists” have fallen for this and even repeat Misean arguments. But this just goes to show that any socialism that is not radical and anti-market is going to be demolished. Any compromise means that you are abandoning all logical coherence.