How a socialist economy works

In the SOURCE link, the article begins with a critique of the Argument of economic calculation (ACE) against the possibility of socialism.

It is an argument coming from the Austrian school of economics, the most radical anarcho-capitalist of all, and not taken seriously even by its neoclassical peers, as apologists for capitalism as they, nor for the Keynesians, their fire-extinguishing. Of course, for Marxists they do not have a pinch of relevance either. So let's get straight to the point:

5 ANATOMY OF A SOCIALIST ECONOMY

By "socialism" or "communism," as we saw earlier, it was traditionally understood as a society without markets, money, wage labor or the state. All wealth would be produced on a voluntary basis. The goods and services would be provided directly for self-determined needs and not for sale in the market, these would be freely available to be taken by the individuals, without requiring these individuals to offer something in direct exchange. The sense of mutual obligations and the knowledge of a universal interdependence that arises from this would color the perceptions and influence the behavior in that society. We could then classify that society as being built around a moral economy and a system of generalized reciprocity.

Free access to goods and services is a corollary of the common property of the means of production of socialism; where there is economic exchange, one must logically have private or sectional ownership of those means of production. Free access to goods and services denies any group or individual the political influence with which to dominate others (an intrinsic characteristic of any society based on private property or class society). This will work to ensure that a socialist society is guided by the basis of a democratic consensus. Decisions will be made at different levels of organization: global, regional and local, with the greatest burden of decision-making being made locally.26 In this sense, a socialist economy would be polycentric, not a centrally planned economy.

On these general characteristics that define a socialist economy one can identify a number of derived or secondary characteristics that interact with one another in a coherent way, and have particular relevance on the issue of resource allocation. In the same way as consumer goods, production goods will be freely distributed among the production units, without an economic exchange mediating in the process. We can list the various interconnected secondary characteristics of a socialist economy in the following way:

A) Calculation in kind

The calculation in kind implies the counting or measurement of the physical quantities of different quantities of factors of production. There is no general accounting unit involved in this process, such as money, work hours or energy units. In fact, any conceivable economic system must be based on in-kind calculation, including capitalism. Without it, the physical organization of production (for example, the maintenance of inventories) would be literally impossible. But where capitalism is based on monetary accounting as well as on calculation in kind, socialism is based only on the latter. This is one reason why socialism has a decisive productive advantage over capitalism; by eliminating the need to allocate vast amounts of resources and labor involved in the monetary accounting system.

One criticism of in-kind calculation is that it does not allow decision makers to compare the alternative costs of aggregates of combinations of factors of production to arrive at a "lower cost" combination. This, as we saw earlier, is based on a complete misunderstanding. In a socialist economy, there would be no need to perform such an operation. However, this does not mean that it will not be possible to compare alternatives of combinations of factors - such as method 1, 2 and 3 in our example - with another basis, and arrive at a decision on which is the most efficient use, as we will see later .

Otto Neurath was probably the most prominent proponent of calculus in kind. Neurath wrote a report to the Munich Workers' Council in 1919 entitled "From the War Economy to the Economy in Kind", which Mises later attacked. In his report, Neurath argued that Germany's war economy had demonstrated the possibility of also dispensing with any form of monetary calculation. However, at that time that position was somewhat weakened by the fact that he also subscribed to a central planning system.

This made him vulnerable to misean arguments against centralized planning that deals with The problems of gathering scattered information from economic actors in an economy. Neurath changed his centralized conception of socialism at a later point in his life and developed instead an "associational conception of socialism" that implied "a decentralized and participatory description of socialist planning" .27 In his debate with Mises, Neurath was scathing in his critique of the "pseudorationalism" employed by Mises, and the mistaken assumption that rational decisions require commensurability of different values.28 This, as O'Neill points out, reduces decision-making to "a purely technical procedure" that leaves aside "ethical and political judgments" (as we saw in our discussion of externalities). One of the advantages of a calculation-in-kind system is that it opens up the possibility of a more polished and nuanced approach to decision-making, and gives more weight to factors such as environmental concerns, often left out in the calculations of market. B) A self-regulated system of existences The problem with a centralized planning model of socialism is, among other things, its inability to deal with change. It lacks any kind of feedback mechanism that allows mutual adjustment among the different actors of such an economy.

It is completely inflexible in this sense. A decentralized or polycentric version of socialism, on the other hand, overcomes difficulties. It facilitates the generation of information concerning the supply and demand for the production and consumption of goods throughout the economy, through a distributed information network (now mostly computerized) in a way that was unimaginable when Marx was alive , or when Mises wrote his treatise on economic calculation. This information, as we shall see, would play an important role in the process of an efficient allocation of resources in a socialist economy. Inventory control systems or inventories, using the calculation in kind, are, as previously suggested, absolutely indispensable for any modern production system. Although it is true that they currently operate within a price environment, this does not mean that they will need such an environment to operate. The key to good stock management is the stock turnover rate - how quickly the stock is taken off the shelves - and the point at which it needs to be reordered. This will also be affected by considerations such as lead times - how long it will take for fresh stocks to arrive - and the need to anticipate possible changes in demand. These are considerations that do not depend on a market economy at all. It is interesting to note that Marx wrote in Capital Vol. II about the need for a socialist economy to provide a cushion of stocks as a safeguard for fluctuations in demand.

A typical frequency of information flows in a socialist economy could be as follows. Let's assume that a distribution point (store) has a certain amount of goods in stock - say, cans of baked beans. From previous experience it is known that it will be necessary to order approximately 1000 cans from the suppliers at the beginning of each month, because if this is not done, at the end of the month the stock will be few. Let's assume that, for whatever reason, the stock turnover rate increases rapidly by say 2,000 cans per month. This will require more frequent deliveries or, alternatively, larger deliveries. Possibly the capacity of the distribution point is not large enough to accommodate the extra quantity of cans required, in which case more frequent deliveries will be preferred. You could also increase your storage capacity, but this may take a little more time. In any case, this information will be communicated to the suppliers.

These suppliers, in turn, may need more tinplate (steel sheet covered with tin), to make more cans, or more beans, to be processed, and this information can similarly be communicated in the form of new orders to suppliers of those items that are further down the production line. And so on. The whole process is, in large part, automatic - or self-regulated - being driven by scattered information signals from producers and consumers about supply and demand for goods, and, as such, is far removed from the gross caricature of a centrally planned economy. It can be argued that this leaves aside the problem of opportunity costs, which is at the heart of the ACE argument. For example, if the supplier of baked beans orders tinplate manufacturers more tin, then this will imply that other uses of this material will be eliminated in that amount. However, you must have Note that the systematic overproduction of goods of which Marx spoke, that is, the buffer of existences, applies to all goods, both consumption and production.

So the increase in demand of a consumer / producer, will not necessarily imply a cut in the supply to another, or at least, not immediately. The existence of a stock buffer provides us with a period of readjustment. This brings us neatly to our second point - namely, that this argument leaves aside the possibility that there are alternative suppliers of this material or in fact, for that case, substitutes are more available for containers (say, plastic). Third, and more important, as we shall see, even if we assume the worst case scenario: in which we face an austere decision between having more cans of baked beans and less of something else, because of the deviation of supply of tinplate for the manufacture of Additional cans - even so there is a way to make a sensible decision that can ensure the most economically efficient allocation of resources in these austere circumstances. C) The Law of the Minimum The "law of the minimum" was formulated by a farmer chemist, Justus von Liebig in the 19th century.

What it says is that the growth of the plant is not controlled by the total resources that the plant has, but by the particular factor that is more scarce. This factor is called the limiting factor. It is only by increasing the supply of the limiting factor in question - say nitrogen fertilizer, or water in an arid environment - that the growth of the plant can be promoted. This, however, will lead to another factor taking on the role of limiting factor. Liebig's law can be applied equally to the problem of the allocation of scarce resources in any economy. In fact, Liebig's rejection of the claim that it is the total available resources that controls the growth of the plant finds an echo in the socialist rejection of the assertion that we must compare the "total costs" of alternative combinations of factors . For any given combination of factors required to produce a given good, one of these will be the limiting factor. Being all things equal, it makes sense from an economic point of view to economize more those things that are scarcer and make greater use of those that are abundant. The factors that lie between these two poles can be treated respectively in relative terms.

Affirming that all factors are scarce (because the use of any factor implies an opportunity cost) and, consequently, needs to be economized, is not a sensible approach to be adopted. An effective economization of resources requires discrimination and selection; You can not treat each factor in the same way - that is, equally scarce - or if it is done, this will result in a misallocation of resources and economic inefficiency. On what basis should you discriminate between factors? Essentially, the most sensible basis on which to make such discrimination is the relative availability of the different factors and this is precisely what the law of the minimum deals with. In fact, one can go further. As a socialist economy would for the most part be a self-regulating economy, involving a considerable degree of mutual adjustment and feedback, this would inevitably be carried in the direction of an efficient allocation of resources by the kind of restrictions alluded to in the minimum wage law. Liebig These restrictions on supply would inevitably operate in each sector of the economy and at each point along each productive chain.

When a particular factor is limited in relation to the multiple demands that fall on it, the only way it can be "inefficiently assigned" (although this is ultimately a value judgment) is choosing "incorrectly" to which end use particular should be assigned (a point we will consider shortly). Other than that, you can not misuse or misassign a resource if it is simply not available to be misallocated (that is, when there is an inadequate or nonexistent stock of inventory on the shelf, so to speak). By necessity one is forced to look for a more abundant or substitute alternative (which would be the sensible behavior in this circumstance). The relative availability of a factor is determined 1) by the gross supply of that factor in relation to other factors in any aggregate of factors required to produce a certain good, as revealed by the self-regulated system of the stock control system and 2) the technical reasons for all these factors in this aggregate, including our factor in question, required to produce this determined good.

This reason tells us how much of each factor is necessary, reason that we can compare with the supply of each factor to get some idea of ​​the relative availability of the factor in question in relation to other factors. Let's see how this could work in practice. Let's say that a unit of a good Y can be produced using 3 units of the M factor and 2 units of the N factor. If there are 6 units of M and 6 units of N then we work easily which of these factors - M or N - is the factor limiting In this case it is M because if 1 unit of Y can be produced using 3 units of M and there are only 6 units of M, it follows that only 2 units of Y can be produced in total (if we discard N). On the other hand, if 1 unit of Y can be produced using 2 units of N and there are 6 units of N in total this would allow us to produce 3 units of Y (if we discard M). If the total demand for Y were only 2 units or less then we would not have much to worry about. If the demand were more than 2 units of Y, we would have to consider ways to increase the supply of Y, for example, by altering the technical combination of inputs so that it requires fewer units of M and more than N. In others words, we would be reducing the supply constraints that M exercises by limiting the product of Y. Note that all this is perfectly possible without resorting in any way to market prices. Note also that it recognizes and puts into operation the concept of opportunity costs with which the ACE is ostensibly concerned. Thus, if we want to divert 4 units of N out of the production of Y to the production of any other good-let's call it Z-then we will know very well what we have lost by cutting off the supplies of N needed to produce Y. The 2 units of N with those that remain after the other 4 have been diverted to Z will only be sufficient for the production of 1 unit of Y. Whereas before we could have produced 2 units of Y where M was the limiting factor, diverting 4 units of N a Z would mean, in effect, that N would replace M as the limiting factor when producing, and that the opportunity cost of diverting 4 units from N to Z would give us the loss of a unit of Y. Slowly but inexorably we are closing the network around the ACE. It only remains to identify one more of the interconnected characteristics of socialism to close the circle completely. D) A hierarchy of production needs In any economy it is necessary that there is some way to prioritize production goals. In capitalism, as we have seen, this is done on the basis of purchasing power.

From the point of view of human needs, however, this can be extraordinarily inefficient. The economist Arthur Pigou argued in his influential work Welfare Economics that it is "evident that any transfer of income between a relatively rich man to a relatively poor one of similar temperament, by allowing the most intense desires to be satisfied at the expense of less intense desires , it must increase the aggregate sum of satisfactions. "29 Pigou's point is that the marginal utility of, say, a dollar, to a poor man was worth far more than that of a rich man. In that way, society as a whole would benefit - that is, the sum of the total utility would be improved - if there was a transfer from the last to the first. The problem is that this kind of income distribution, no matter how much it produces a palpably inefficient result, is not only a consequence, but a functional requirement of a market economy. In fact, this is a point that free market advocates routinely make. Redistribution, they say, tends to undermine the very structure of incentives on which a buoyant economy depends. It is this gross inequality of the distribution of income, or purchasing power, that has become most notoriously unequal in recent decades, both nationally and globally, which has such a profound effect on the whole pattern and composition of the population. production these days - and the consequent underlying resource allocation. This is reflected in the kind of production priorities that manifest around us: conspicuous consumption amid the most abject poverty. Such consumption is the cornerstone of a system of status differentiation that, in turn, provides the ideological foundations of a cumulative capitalist dynamic.

It is of such dynamics that the myth of insatiable demands flourishes. The logic of economic competition is expressed as an economic imperative that compels competing companies to seek and to stimulate market demand without limit. The increase in consumption produces an increase in status, which, in turn, conveniently allows these companies to increase their opportunities to make profits. As Thorstein Veblen suggested in his work The Theory of the Leisure Class (1925), within this hierarchical structure in which social esteem is related to the "pecuniary force" of the individual, is the way in which those who are at the top exert their pecuniary strength which provides the key signifier of social esteem in this system. Hence, the emphasis is on extravagant luxury, which only the rich can really afford. But as Veblen observes shrewdly, this does not stop those at the bottom of the hierarchy from imitating those above - even if this means diverting and squandering their limited income instead of meeting more urgent needs: "No class society, not even the most abject poverty, leaves aside conspicuous consumption habits.The last remaining elements of this type of consumption will only be abandoned by the pressure of a direct need.Many misery and discomfort will be borne before the last trinket or the last claim of pecuniary decency is set aside. "30 The irony is that even a modest distribution of wealth, if possible, would significantly improve the productive potential of hundreds of millions trapped in a quagmire of absolute poverty by means of improvement of their physical and mental abilities.

To put it simply, such an existence of inequality is not only morally offensive, it is also terribly inefficient. In a free-access socialist economy, the notion of income or purchasing power would obviously be meaningless. The same would happen with the notion of status based on the conspicuous consumption of wealth.

And because individuals would be in equal relationship with the means of production, and would have free access to the resulting goods and services, this would fundamentally alter the basis on which the scale of preferences of society is established. This would result in a much more democratic and consensual approach, and would enable a value system that reflects this approach, which would emerge and shape this agenda. Perhaps this is what lies behind the notion of broad social planning - some kind of coordinated and agreed upon common approach with which to establish the priorities of society. How could these priorities be determined? Here Maslow's "hierarchy of needs" arises in my mind as a guide of action. It would seem reasonable to assume that the needs that are most urgent and on which the satisfaction of other needs are contingent, would take precedence over those other needs. We are talking here about our basic needs for food, water, sanitation and home, and so on.

This would be reflected in the allocation of resources: the high priority goals would take precedence over the low priority goals where it is revealed (through the self-regulated stock control system) that the common sources of both have a low supply (this is, where the multiple demands for such resources exceed the offer of them). Buick and Crump speculated, not without reason, that some "point system" could be used to evaluate a range of different projects that such a society would face.31 This would certainly provide useful information with which decision makers could be guided in resource allocations in cases where there is a choice between competing end uses. But the main mechanisms to be used will be an issue that will have to be decided by the socialist society itself. CONCLUSION We have seen that a socialist economy would need some system of production priorities, and how it can be achieved. We have seen how this would impact the allocation of resources where the supply of those resources is less than the demand for them. We have seen the mechanism of a self-regulated stock control system, using in-kind calculation, which would allow us to track supply and demand. We have established that the need to economize in the allocation of resources is positively correlated with its relative scarcity, which, in turn, is a function not only of the gross supply, as revealed by the self-regulated inventory control system, but is a function of the demand and the technical reasons for the inputs involved. The comparison of the relative scarcity of the different inputs allows us to operationalize the law of the Liebig minimum.

Having identified our limiting factors, we can submit them to the guidance of our system of production priorities to determine how they will be allocated. In short, what we have finally arrived at is a coherent and functional system of interconnected parts that in no way need economic calculation in the form of market prices. What then remains of the Economic Calculation Argument? Based on a set of highly unrealistic assumptions about how a market economy works in the PRActice This practice attacks what is obviously a crude caricature of a socialist economy, which would be impossible to put into practice, in any case, for reasons other than economic calculation.

In all honesty, ACE's fortune was inextricably linked to the emergence of state capitalisms, which posed as socialist economies, and which offered themselves as an alternative to the so-called free market, which were the real target of their hostility. For that reason, the historical relevance of the Misean argument has disappeared, along with the collapse of these same state capitalisms. Robin Cox lives in the Sierra de la Contraviesa, in the south of Spain 'trying to be a farmer', and has an interest in environmental issues.

http://contraeconomia.blogspot.com/2008/09/el-argumento-del-clculo-econmico-ace.html#27