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Socialism and the Market: Methodological Lessons from in the Economic Calculation Debate

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Socialism and the Market: Methodological Lessons from in the Economic Calculation Debate SOCIALISM AND THE MARKET: METHODOLOGICAL LESSONS FROM IN THE ECONOMIC CALCULATION DEBATE KAMRAN NAYERI 1 For presentation at “The Work of Karl Marx and challenges for the XXI Century” conference, Institute of Philosophy, Havana, Cuba, May 5-7, 2003. An earlier draft of this paper was presented at a meeting of the Union for Radical Political Economics, Allied Social Sciences Associations, New Orleans, January 4-7, 2001. INDEX I. INTRODUCTION............................................................................................................................................. 1 II. THE EMERGENCE OF NEOCLASSICAL SOCIALISM ................................................................................ 3 III. METHODOLOGIES OF NEOCLASSICAL AND AUSTRIAN CRITIQUES ................................................... 4 IV. ESSENTIAL AND TECHNICAL ISSUES IN SOCIALIST PLANNING.......................................................... 5 V. THE TRANSITION PERIOD.......................................................................................................................... 7 VI. SUMMARY CONCLUSION .......................................................................................................................... 8 VII. REFERENCES ............................................................................................................................................ 8 by Ludwig von Mises (1920) who claimed that I. INTRODUCTION without private property market exchanges could not take place and without them rational 1. There is a renewed interest in ideas that are valuation would cease resulting in economic broadly known as market socialism. chaos. The historical background to this debate 2. The relation between socialism and the was the establishment of the Soviet power in market has been an issue of contention among Russia in 1917 and the subsequent degeneration socialists since Marx’s own time. For instance, of the Soviet state and the Communist party Marx, criticized Pierre Joseph Proudhon as “the after Lenin’s death in 1924. The second wave paradigmatic theorist of petty bourgeois of debates took place in the 1960s when market socialism” who “sought to improve society not socialist ideas gained significant support in by abolishing commodity production but, Eastern Europe and Soviet Union, and were rather, by purifying commodity exchange.” implemented in a number of countries most (McNally 1993:139) Proudhon offered a vision notably in Yugoslavia. At the same time the of a socially regulated network of private small- leadership of the Cuban revolution holdings through the administration of mutual aid including such means as interest free credit. engaged in a public international debate 3. The first great debate on the relationship regarding the relationship between socialism between socialism and the market was initiated and the market. 1 Kamran Nayeri: Ph. D. University of California Survey Research Center 2538 Channing Way, #5100 Berkeley, California 94720 U.S.A. Tel. 510.642.6566 Fax 510.643.8292 [email protected] SOCIALISM AND THE MARKET: METHODOLOGICAL LESSONS FROM IN THE ECONOMIC CALCULATION 1 DEBATE 4. The historical conjuncture for this new ethical terrain to the field of economics. The interest in market socialism is remarkably primary issue in the debate was the feasibility different: it is characterized by long-cycle of and desirability of replacing the market economic stagnation in industrial capitalist mechanism with central planning as the countries, failure of Keynesian policies and principal mode of economic organization of the nationalist projects of import-substitution socialist society. While the participants in the industrialization in latecomers, and demise of debate focused on economic advantages or bureaucratic central planning in the Soviet disadvantages of the use of central planning Union and Eastern Europe during the 1970s and instead of markets, they paid very little 1980s (Nayeri 1998). These developments attention to the character and goals of the aided the ideological campaign to advance neo- emerging socialist society, or if they did, these liberalism that aims to solve the capitalist crisis differed sharply from Marx’s theory. The upon the back of the working people. Thus W. Marxian theory is singularly concerned with the Scott Arnold writes: process of socialist transformation of the 5. Sometimes in the middle-to-late 1980s, capitalist society through replacing market- something approaching a limited consensus based or otherwise alienated and exploitive began to emerge among the intelligentsia in the human relations with those consciously formed West. This consensus holds that the on the basis of human needs and solidarity. The inefficiencies endemic to any centrally planned key here is the revolutionary potential of the economy are serious to the point of being working people to transform capitalist reality catastrophic and that the only reforms that have and in the process transform themselves. Thus, any chance of success are those which are part a methodological schism between means and of a process of fundamental change that ends has characterized the economic calculation replaces central planning with the market. The debate and subsequent debate on the view that central planning must be replaced by relationship of socialism and the market. some form of market economy and not just 8. Section 2 briefly reviews the contending augmented by the market in some way or other claims in the economic calculation debate seems to be the distinctive feature of the new focusing on their methodological consensus (Arnold 1994:35). underpinnings. The essential conclusion here is 6. This essay examines the underlying that market socialist ascendancy in the methodological issues in the “economic economic calculation debate resulted from its calculation debate” of the 1920s and 1930s ability and willingness to use the neoclassical from the perspective of the Marxian theory in theory and methodology to argue for socialistic order to shed some light on the current debate values. As such the modern market socialist on market socialism and to inform socialist claim that markets are consistent with and planning research and working class policy. I indeed necessary for socialism is based on will show that the participants in the 1920s and methodologies alien to the Marxian theory. 1930s debate used methodologies that are alien Section 3 outlines the essential methodological to the Marxian theory of socialism and I underpinning of the neoclassical and Austrian maintain (but do not attempt to show here2) that critiques of central planning. It is argued that much of the debate since then suffers from the these theories are not methodologically robust same fundamental methodological issues. and their critiques of central planning are based 7. The economic calculation debate shifted the on assumptions that a priori preclude socialist attention of many socialists from the political- transformation of the capitalist societies. The argument that Marxian socialist theory is 2 For some recent examples see Nayeri 2003. methodologically different from these and all SOCIALISM AND THE MARKET: METHODOLOGICAL LESSONS FROM IN THE ECONOMIC CALCULATION DEBATE 2 other pro-market theories, including market accomplishing the requirements of the socialist theories, is outlined in Sections 4 and competitive general equilibrium was formidable 5. Section 6 offers some concluding remarks in an actual planned economy. Ludwig von and directions for future research. Mises (1920) argued a stronger case against socialism. He claimed that without private II. THE EMERGENCE OF property market exchanges could not take place NEOCLASSICAL SOCIALISM and without them rational valuation would cease resulting in economic chaos. It is 9. There are conflicting histories of the generally agreed that Mises’ argument was very economic calculation debate. Early surveys by poorly stated and most also agree that his eminent economists such as Joseph Schumpeter original attack on central planning was not (1954), Abram Bergen (1948) and Paul sufficiently differentiated from the neoclassical Samuelson (1948) took the position that in critique. However, it is also true that Mises large measure the proponents of market gradually developed distinctively Austrian socialism—Oscar Lange, H.D. Dinkinson, Fred arguments against socialism (Chaloupek 1990). Taylor, Abba P. Lerner, and E.F.M. Durbin— 12. Oskar Lange (1938) refuted the marginalist offered the wining arguments against the critique while providing a neoclassical case for Austrians, Ludwig von Mises, Friedrich A. realization of values of equality, rationality, Hayek, and Lionel Robbins. planning and elimination of waste. Lange’s 10. Since the early 1980s, this view has been model even provided room for workers’ effectively challenged (Ramsey Steele 1981, participation or self-management. As such it Morel 1983, Lavoie 1985, Timken 1989). The has served as the prototype for subsequent most extensive of these re-interpretations is models of market socialism. Lange’s essential Lavoie’s restatement and defense of the insight was that neoclassical theory ignored Austrian position. Lavoie’s major criticism is capital-labor relations such that it makes no that the early interpretations were influenced by analytical difference whether capitalists hire the neoclassical readings of the Austrian workers or workers hire the management. Thus arguments. Thus he is able to recast the debate it was possible,
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