The Economic Calculation Problem and Libertarian Socialism

The economic calculation problem is an argument against socialism that’s been around a long time

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The Theory

The theory revolves around proving that a functioning socialist economy is “illogical”. This is my best attempt at fully understanding the theory. It is split into parts, so my argument flows better.

Part One
The theory claims that if all the means of production were treated as public property capital goods would become internal exchange, so all prices associated with them would be irrational. This is because there is no common unit with which to measure value so all values given would be subjective, and thus illogical. With irrational prices, the best option is “impossible” to determine. Without prices profits could not be determined, so the best materials and best projects to undertake can not be determined. This lead to the claim that with these irrational prices, any socialist economy would simply be “chaos”.

* Part Two *
The theory states that money allows consumers to buy and compare goods without needing to know what it takes to produce them. This combined with the law of diminishing marginal utility means that to determine how much to buy the consumer only needs to know the price of the good, not what possible factor increases the price and quality. The willingness of the consumer to buy these is what turns subjective prices into “objective” prices. They do not need to know how the entire society functions around it, just that it is the job that pays the most and thus “needs” to be done the most.

* Part Three *

Since all businesses must coordinate with each other based on prices, this creates a semi-coherent operation. Each business adapts to the changing markets to gain the most profit, which supposedly satisfies the needs of all consumers. This is because as the profit margins of different areas increase (more subjective want), the amount of production in them should increase as well. (As has been proven in history all production will actually increase until it all crashes.)

This comes to the biggest part of the argument, the “knowledge problem”. To sum it up, the economy could theoretically be predicted by a set of equations but we aren’t smart enough to do that. Which leads to the conclusion centralized planning and prediction are impossible and it must be taken up by smaller groups operating independently in a market system.

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Libertarian Socialism
Libertarian is only used to refer to the right wing in the United States, and that commonly only since the 1970s. (The first known was the 1940s.) For over a hundred years before that libertarian was synonymous with anarchist, so I may use them interchangeably.

The most common form of libertarian socialism is anarchist-syndicalism. This system is based on worker unions that control the means of production. These unions are called syndicates, and are usually organized in such a way that successfully larger syndicates control the large-scale movement of goods and capital. This is not a top-down hierarchy, but instead runs from the bottom up.

A society built on unions would have a different structure and set of goals from capitalism. Unions would likely focus on one form or another of consensus democracy, where the goal is to get everyone to agree on a plan of action before carrying it out. This is done through debate and compromise.

Part One

The main part of the first argument is that the society would have no unit of accounting and thus all choices would not be based on rational reasoning. It also claims that internal exchange is always illogical.

This disregards the labor theory of value completely. Under the labor theory of value the value of objects are the amount of human labor it takes to produce them. The best material would be determined by a variety of means, not just price. Capitalism does not account for environmental impact or the total amount of the resource in existence, which is why using prices alone to determine a course of action is irrational. This leads to overconsumption and the destruction of our environment, which we see running rampant today. This combined with the natural boom and bust nature of capitalism makes it chaotic.

Part Two

This next section of the argument speaks of consumer welfare. It claims that every worker must relate labor to the goods they consume and use prices of said goods to determine their preferred consumption.

Under capitalism the theory is that if one can not afford to consume something, they do not need it. Instead libertarian socialism would only allocate resources in a way that satisfies as many needs as possible. Nobody would willingly go along with a plan that would not give them what they need, so through consensus democracy that is guaranteed. Determining the most beneficial labor to the person would be planning through the union.

* Part Three *

This last part of the argument asserts that by chasing the most profit the capitalist class will organize together in a coherent organization and that this process can not happen without a market because having full knowledge of production is impossible.

In libertarian socialism the separate unions can organize into markets and fulfill this the capitalist way, or it could do it the anarchist-syndicalist way by distributing resources based on need. Through a series of debates used all people with knowledge they personally deem important to speak.

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Examples
There are examples of libertarian socialism allocating resources better than capitalism, which provides more than enough proof that these methods work. Revolutionary Spain is one of the most prominent examples, and my personal favorite. The CNT in spain wanted to create a libertarian communist society, but overall many places stopped at mutualist or collectivist anarchism. This was because of many mistakes and the rise of fascism making it difficult. To quote Kropotkin on the issue "It is only those who do nothing who make no mistakes,". The rise of fascism made it hard for the entire country to operate, and thus makes every achievement that much more impressive.

This does not mean the revolution overall was a failure, while it was short lived it proved a libertarian socialist economy is viable. Over 70% of the workers were involved in the revolution in the most active areas of Catalonia and Aragón. Barcelona everything was taken over by workers’ councils and within hours utilities and goods changed ownership and within weeks things like public transport were revived and immediately running better than before. They had 700 tram cars running, instead of 600 as just one example. The anarchists then went on to build and control a textile industry employing over a quarter of a million workers. It took years to fully craft a plan to collectivize agriculture.

Some industries could not get materials, as they were either rare or foreign. These industries instead decided to be efficient and turned towards producing materials to help with war efforts. Other industries that were not immediately needed also did this. So instead of producing commodities for each individual the individual’s came together and decided that they needed something more, which is nearly impossible under a market system. Then as time went on the workers voluntarily decided that they needed to give away the massive progress in their personal condition to help save refugees and help more in war efforts. The most “rational” economic decision in the short-term would usually be to let them die, but in the end that would reduce overall progress rather than increase it.

The vast majority of the workers involved were from industrial side of things, few rural workers helped. During the entire existence revolutionary Spain was in control of industrial machinery with which is supported itself.

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The opinions of people outside the political sphere viewed the functioning of anarchist Spain as amazing.

"In the midst of the civil war the Anarchists have proved themselves to be political organizers of the first rank. They kindled in everyone the required sense of responsibility, and knew how, by eloquent appeals, to keep alive the spirit of sacrifice for the general welfare of the people. "As a Social Democrat I speak here with inner joy and sincere admiration of my experiences in Catalonia. The anti-capitalist transformation took place here without their having to resort to a dictatorship. The members of the syndicates are their own masters and carry on the production and the distribution of the products of labor under their own management, with the advice of technical experts in whom they have confidence. The enthusiasm of the workers is so great that they scorn any personal advantage and are concerned only for the welfare of all." -Andrea Oltmares, professor in the University of Geneva

Many well-known anti-fascists also supported anarchist Spain

”In three months Catalonia has been able to set up a new social order on the ruins of an ancient system. This is chiefly due to the Anarchists, who have revealed a quite remarkable sense of proportion, realistic understanding, and organising ability...all the revolutionary forces of Catalonia have united in a program of Syndicalist-Socialist character: socialisation of large industry; recognition of the small proprietor, workers' control...Anarcho-Syndicalism, hitherto so despised, has revealed itself as a great constructive force...I am not an Anarchist, but I regard it as my duty to express here my opinion of the Anarchists of Catalonia, who have all too often been represented to the world as a destructive, if not criminal, element. I was with them at the front, in the trenches, and I have learnt to admire them. The Catalan Anarchists belong to the advance guard of the coming revolution. A new world was born with them, and it is a joy to serve that world." -The well-known anti-Fascist, Carlo Rosselli, before Mussolini's accession to power was Professor of Economics in the University of Genoa
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Many capitalist arguments against socialism can be beaten easily with a little research. The question is how much research people can handle.

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