MARKET VERSUS PLAN THE INTER-WAR SOCIALIST CALCULATION DEBATE By Mick BrooksFirst the development of the socialist calculation debate is outlined. It is asserted that the challenge by Mises and his supporters as to the viability of a planned economy was adequately answered by the socialists in the neoclassical terms in which it was presented to them. The ‘market socialist’ reply, however, raised real problems of its own. Criticisms of these socialist solutions converged from right and left. The nature of economic rationality originally raised by Mises is then discussed. It is emphasised that the rationality derived from neo-classical concepts is capitalist rationality. Questions relating to the nature of economic thought are taken up. It is argued that neo-classical economics is a system of tautologies derived from market economies and is therefore incapable of being used to assess a planned economy. The limits to the neo-classical theory of value and costs are then stressed, Finally instances of market failure are referred to. what is important is to discuss how far such ‘waste’, widelyrecognised in standard discussions of welfare economics, is inherent in economic activity or specific to a market economy.Introduction This is an analytical history of a debate which raised fundamental questions of economic theory. The issues raised have once again become topical. Apart from the revival of the socialist calculation debate in labour movement circles over recent years, during the course of writing the ‘crisis of the planned economies’ has become a hot news item. The question is approached here from the standpoint of classical marxism. After outlining the history of the debate, the issues raised during its course are then taken up. It is not possible of course to discuss all the views put forward during the inter-war period and since on questions which are quite fundamental to economics. We intend to concentrate particularly on the proposals of the Austrian strand of neo-classical economics which was both dominant on the anti-socialist side and most conscious of its own political implications. As Lavoie (1985: 6) correctly points out "most histories of thought treat the Austrian tradition of economics as a branch of neo-classical economics parallel to the Marshallian and Walrasian branches, and it seems that this was the view of the Austrian economists themselves at the time of the debate". As we shall see, the debate accelerated the process of differentiation between the Austrian school and the neo-classical mainstream. Lavoie’s book opens with the statement that "the socialist calculation debate is widely acknowledged to have been the mostimportant theoretical controversy in the field of comparative economics". (ibid pl). Taking part in the debate shaped the subsequent patterns of thought and preoccupations of the participants and of economics generally into the post-war period. Dramatis personae The problems of economic calculation in a socialist community were first brought to international notice in 1920 by Mises, an outstanding representative of the Austrian school. Mises’ attack was based on a discussion already taking place in German on the feasibility of a planned economy. among others who contributed on the anti-socialist side was Max Weber. The English language debate was more sharply formulated as a result, and provides ample scope to discuss the issues which arose. Mises’ critique of socialism implied that a planned economy would necessarily slide into chaos. We can surmise that his 1920 essay was influenced by the view then general in the West that the Soviet Union under War Communism was on the point of collapse or capitalist restoration. He intended to dance on its grave. This is also Lavoie’s interpretation. (ibid p4). The perspective before Hayek in 1935 was rather different. Capitalism had gone into its deepest crisis ever, while Stalin’s Russia under the Five Year Plans seemed to be surging ahead. Hayek, a follower of Mises and an outstanding theorist in his own right, was able to apply the same approach to this new situation and to develop the arguments to deal with its critics.Building on Mises’ basic arguments about the impossibility of rational calculation under socialism and the problen of incentives, Hayek added the issue of complexity of the planning process and the perception of the market as a necessary institution for the dissemination of knowledge. The socialists who opposed them, with the sole exception of Dobb, did not regard themselves as marxists. They were university trained in neo-classical economics and attempted to apply it to the problems of a planned economy. In fact they represented a new generation of intellectuals, who in Britain were organised in various think tanks around the Labour Party. Durbin and Dickinson were associated with Gaitskell, whose 1931 memorandum on the practicalities of a socialist programme raised all the basic questions which were discussed in their writing. Barbara Wootton’s political activity is well known. Dobb’s intervention was quite different. He defended the twists and turns of the line of the Communist International and explicitly offered the Soviet Union as a model for socialist development. Nevertheless, his academic work took him into the labyrinth of welfare economics. As Bergson (1948: 444) remarks: “he makes free use of orthodox value theory in his analysis of socialist resource allocation" and adds "in Dobb’s analysis the labour theory is not so much an analytic tool as excess baggage" Schumpeter (1954: 884) commented that Dobb: "cannot be described as marxist as far as economic analysis is concerned". Widely regarded as a supporter of the Bukharin faction, in 1928 Dobb’s Russian Economic Development defended universal price calculation in a socialist economy. He repudiated this at the time of thefirst Five Year Plan. Nevertheless there are consistent themes in his work which differentiate him from the ‘market socialists’, as we shall call them. Aftermath Increasingly during the debate Hayek retreated into the mists of metaphysics as he developed the anti-socialists’ further lines of defence. He began to formulate the argument that the community was incapable of developing a common scale of values. It followed that a plan could only be implemented by the state imposing its own scale upon those of the citizenry. This of course was the theme of the Road to Serfdom (1944). The other major participants were also affected in their intellectual development by their intervention in the debate. After the war Lange offered his services to Polish stalinism, by which he was undoubtedly changed but which he was perhaps able to influence with some of his pre-war concepts. Dobb continued to work within welfare economics, his work neverthless reflecting the changes in economic policy and thinking in the Soviet Union. The most influential assessment of the debate, by Bergson (2948: 412), showed the socialists to have won a splendid victory: "By now it seems generally agreed that the argument on these questions advanced by Mises himself is ....without much force". Yet the fate of these doctrines is paradoxical. The standard anti-communist economic histories of the Soviet Union by such asWiles (1962) and Nove (1970) have uncritically appropriated the critique of Mises and company. In 1983 Nove’s Economics of Feasible Socialism, an influential book, particularly in Labour Party intellectual circles, unveiled the problems of calculation, of compexity and of incentives an an invincible argument against @ planned economy. Some definitions and qualifications The case for a planned economy can be stated very simply. A basic feature of capitalism is that it is an unplanned system of generalised commodity production. Marx (1962: 316) exploited its ironies in the following passage: “The very same bourgeois mentality which extols the manufacturing division of labour denounces just as loudly every kind of deliberate social control and regulation of the social process of production....It is characteristic that the inspired apologists of the factory system can find nothing worse to say of any proposal for the general organisation of social labour, than that it would transform the whole of society into a factory." By planned production then we mean that resources are allocated ex ante, as happens in a factory, and not found in the market, ex post. This essay should in no sense be regarded as a general discussion on the relative merits of capitalism and socialism,even in regard to strictly economic matters. Its purpose is much more narrowly conceived. ‘capitalism versus socialism’ is a much more broad and general question and cannot be resolved just by comparing the market economy with a plan of production. Clearly there is an overlap, since under capitalism relations between classes appear as market relations. For the sake of simplicity, however, it should be noted that we assume that capitalism is incompatible with planning the economy as a whole (though individual capitalists of course attempt to plan). This assumption was shared by all the participants in the inter-war debate, from both right and left. It might be asked whether a post-capitalist economy will necessarily be governed by a plan of production. Again, this was the assumption of all the participants in the inter-war debate, though many had different conceptions of what planning was and how it would be undertaken. Though we have differentiated ‘plan’ from ‘socialism’, all the debaters who regarded themselves as socialists advocated planning in some form, and were criticised by their opponents for doing so. Therefore we may identify the two terms for shorthand purposes during our description of the debate. This view is qualified somewhat in our discussion of the ‘politics of planning’. We intend to neglect entirely what Marx (1966(2): 15) called the "higher phase of communist society", where each individual gives according to their ability and takes according to their needs. In so far as we deal with a post-capitalist planned economy: "what we have to deal with here is a communist society, not as it has developed on its own foundations, but on thecontrary, just as it emerges from capitalist society; which is therefore, in every respect, economically, morally and intellectually still stamped with the birth marks of the old society from whose womb it comes. In the debate the socialists accepted Mises’ definition of socialism (as against communism) as a society where the predominant means of production are communally owned but there continues to be a labour and a consumer goods market. This seems to derive from Marx’s description of the ower phase of communism" in Critique of the Gotha Programme (1966(2)) - which was later called socialism by Lenin in State and Revolution (1976(1)), and as such passed into usage in the international communist movement. More likely, however, it comes from Kautsky’s (1907) pamphlet On the Day after the Social Revolution. The next preliminary is to discuss whether markets and money will exist under socialism as we have defined it. It is important to understand that this lower phase of communism is not inaugurated by the seizure of state power by the working class. Lenin, to the day of his death, did not refer to the Soviet Union as socialist. And in many of his works (eg. State and Revolution (1976(1)) and Politics in the Era of the Dictatorship of the Proletariat (1976(2)) he refers to an entire "epoch" or "era" between the seizure of state power and entry onto the stage of socialist development. It is necessary to point this out since pro-capitalist critics and those who defend what they call “actually existing socialism" both persist in referring to every post-capitalist society as immediately socialist. The founding fathers of marxism believed there would not becommodity production, money and market relations under socialism. Thus, for instance, Engels in Anti-Duhring (1959: 427) in the section on ‘Socialism’: "the useful effects of the various articles of consumption, compared with one another and with the quantities of labour required for their production, will in the end determine the plan. People will be able to manage everything very simply, without the intervention of much vaunted ‘value’. He was emphatic that the law of value regulates only a commodity producing society. For our part we emphasise that we are discussing post- capitalist societies in transition to socialism where market and plan co-exist. We will not discuss socialism as defined by Lenin here. Since it is accepted that markets and a plan will exist side by side for a whole period, in what sense are we discussing ‘market versus plan’? The participants in the inter-war debate recognised that they were discussing societies with different laws of motion. There would have been no point in debating the question otherwise. Review of the literature. The attack on socialism. As Joan Robinson has reminded us: "The whole point of utility was to justify laisser faire". (1962: 53). It remained for neo-classical economists to marshall their basic assumptions and demonstrate their incompatibility with belief in theviability of a planned economy. Though Pierson had achieved this in 1902, it was Mises who first brought this line of attack to international notice. The central thrust of his assault was on the question of economic calculation, or in other words on the rationality of a planned economy. His most important work was Economic Calculation in a Socialist Community (in Hayek 1935); his larger work Socialism (1936) mainly repeated the same arguments on this point. The rest of the latter book was devoted to unoriginal anti-socialist dogmas and prejudices. The basic premises of his argument are very simple. They were accurately restated by Sweezy in his own book Socialism (1949: 223). "1) under capitalism resources are allocated to various industries and the appropriate means of production are determined through the medium of a price system, which in turn is regulated by the market competition of independent owners of the means of production... "2) under socialism all means of production are the property of the community as a whole "3) since therefore there are no independent owners to compete in the market, it follows that there can be no pricing of the means of production under socialism "4) without prices for the means of production rational economic caculation is impossible "5) hence, finally, socialism is bound to fail". Mises begins with a discussion about using labour units as a method of calculation and labour tokens as a means of distribution. He shares this preoccupation with Pierson and theother early generation of anti-socialist writers. Mises seems to have been polemicising as much against the perspectives for in natura planning of such as Neurath (1919) (inspired by interventionism during the First World War) as against Marx. Mises concludes (1936: 119): "without calculation economic activity is impossible. Since under socialism economic calculation is impossible, under socialism there can be no economic activity in our sense of the word...it would no longer do to speak of rational production. In the absence of criteria of rationality, production could not be consciously ecoriomical." When Mises speaks of “economic caclulation" he is harking back to the fundamental notion of opportunity cost. Since resources are scarce, it is necessary to choose between alternatives. Choice depends upon the relative scarcity (‘value’) of resources. For instance if you intend to get a hole dug, whether you employ one man with a JCB or a whole gang with shovels depends upon the xelative cost of labour power and capital. There is no choice which is ‘correct’ in all circumstances. Mises concentrated on the need for a common denominator in evaluating costs. This could only be money. He accepted that the value of ‘factors’ were imputed from that of the final product they contribute to produce, in the neo-classical manner. The nature of value, and particularly the subjective nature of costs is an important underlying issue in the debate. Mises thus responded to the socialist challenge by spelling out what markets do. The debate therefore raised all the underlying theoretical issues as to the nature and object of economics. 10Heyek, intervening at a later stage in the debate, had a much more lively awareness of the central issues as they had been debated. Hayek’s (1935(1)) introduction to collectivist Economic Planning, entitled The Nature and History of the Problem is a fuller and more articulate defence of Mises’s proposition. He begins with the ends of economic activity. Implicitly he accepts Robbins’ (1935: 16) definition of economics as the: "science which studies human behaviour as the relationship between ends and scarce means which have alternative uses." Of course he assumes consumer sovereignty - that the individual chooses their ends. They do so within a framework of given market prices. They do not approach the market with any preconception as to what they want independent of the price of these wants compared with alternatives. Hayek therefore draws a clear distinction between the activity of an engineer whose end is given and that of an economist. Economic calculation can also be applied to the means of achieving these ends. Here again we are confronted by alternatives with production methods different with respect to money cost. Moreover the relative prices of both consumer goods and capital goods are all interdependent. Hayek (1945: 525) therefore feels entitled to refer to the market as a "means-end structure". Each price is dependent upon every other. In other words though, as Hayek emphasises, the individual is confronted with given prices, these prices change in order to reflect changes in preferences, and these changes gradually aneliminate deviations from equilibrium. This is wnat Lange (1967: 402) later described as the "feedback principle", comparing it with the servo-mechanism of a computer. Thus the data, as Hayek observes, is continually changing. The process through which proportionality is established in a market economy is of course the operation of the laws of supply and demand. Hayek finally emphasises the role of supply and demand factors upon prices. This analysis in effect defines markets as processing “two kinds of information: first, information about what people want; second, information about the economic costs of meeting those wants" - a standard definition from an Economist ‘Schools Brief’ (11/10/86: 90). The modern emphasis on markets as providing signals owes much to Hayek’s work and in particular to the clarification provided by the inter-war debate. The Austrian approach enables Hayek (1935(2): 209) to marshall some interesting defences of his position: “It follows that the excellence, from a technological point of view, of some parts of the Russian industrial equipment, which most strikes the casual observer and which is commonly regarded as evidence of success, has little significance in so far as the answer to the central question is concerned". In fact he is able to imply that such technical sucess is a mark of deep economic irrationality - without of course providing a shred of evidence. Most notably Hayek’s introduction (1935(1): 36-37) modifies Mises’ original position on the grounds that: "Mises had originally used the somewhat loose statement that socialism a2was impossible, while what he meant was that socialism made rational calculation impossible. Of course any proposed course of action is possible in the strict sense of the word, ie. it may be tried. The question can only be whether it will lead to the expected results, that is whether the proposed course of action is consistent with the aims which it is intended to serve." He goes on: “the real difficulty here is, of course, that for most people the decision on this point will depend on the extent to which the impossibility of rational calculation would lead to a reduction of output in a centrally directed economy compared with that of a competitive systen...it must be admitted that there is no simple way to prove how great that difference would be." The reader may not find this argument against socialism as devastating as Hayek evidently intended it to be. Complexity We see that Hayek is beginning to explore other themes. Though planning is not impossible it is very complicated. The problem of complexity arising from the market as a source of information represents, as Lange (1964: 63) put it: "a second line of defence". Hayek raised the spectre of the solutions of hundreds of thousands of simultaneous equations, Robbins of millions. They were evidently referring back to the work of Barone, a follower of Pareto, who had shown in 1908 that if a 13scale of wants, available capital and a productivity of capital coefficient were given, a series of simultaneous equations could simulate the working out of a position of optimum allocation of resources provided by a perfectly competitive market (a ‘Pareto optimum’). Barone (1935: 267-) was no socialist, as the concluding remarks of his essay show. He hinted darkly that: "an army of officials would appear" and ended with the bizarre comment that we "cannot talk about organised production and free love". Evidently his essay was conceived as a simple intellectual exercise. In fact with the exception of Dickinson (1933) none of the socialists who responded to Mises’ challenge used this framework. Dickinson specifically repudiated this approach in Economics of Socialism (1939) on the grounds that the data would be constantly changing - one of Hayek’s favourite points. Nevertheless Hayek and Robbins continued to belabour the issue. This was despite the fact that Taylor’s (1964: 51, 53) pioneering defence of the possibility of socialist planning combined with a free market in labour and consumer goods as early as 1928 had clearly and specifically been based on solution of the problem of factor pricing through trial and error. He describes it as: "the method which consists in trying out a series of hypothetical solutions till one is found which proves a success...A too high valuation of any factor would cause the stock of that factor to show a surplus at the end of the productive period...a too low valuation of any factor in the tables would be certain to cause a deficit in the stock of that factor. Surplus or deficit, one or the other 14would result from every wrong valuation of a factor". Incentives The anti-socialists raised as a third string to their bow the question of incentives to managers of nationalised enterprises. Lange (1964: 109) replied: "these public officials must be compared with corporation officials under capitalism and not with private small-scale entrepreneurs. The argument thus loses much of its force. The discussion of this argument belongs to the field of sociology rather than economic theory". We merely note in passing that Pigou (1937: 101) that doyen of Cambridge economics opined on this issue that: "socialism should be allotted, I think, some more marks than its rival." Certainly Hayek’s assertion that the departments of big corporations act towards each other as firms are supposed to do in the market is quite incredible and could only be defended by those like Hayek with an unlimited contempt for empirical enquiry. It hardly seems necessary to do more than quote Shaw (from a letter to The Times in reply to Mallock) on “the obvious fact that interest is paid mostly to people who could not invent. @ wheelbarrow much less a locomotive". No more than rustic ignorance is "the notion that the people who are now spending, in weekend hotels, on motor cars or in Switzerland, the Riviera and Algeria the remarkable increase in unearned incomes recently noted, have ever invented 15anything, ever directed anything, ever even selected their own investments without the aid of a stockbroker or a solicitor, or even as much as seen the industries from which their incomes derive". (quoted in Dobb 1966: 7). What lay behind this dismissal of the question of incentives by the socialists of course was the recognition that the development of monopoly capitalism had led to a separation of ownership and control. As far as we have been able to ascertain Hayek never even addressed the growth of monopoly in his voluminous writings - implicitly a powerful critique of the whole austrian approach. Mises, for instance, was still asserting in 1949 that: “capitalism is not a managerial system; it is an entrepreneurial system." Nor did Hayek ask himself whether his examples (for instance of the unique knowledge of a tramp steamer skipper) are of more than of marginal significance in a world of great corporations. Review of the Literature. Ihe Socialist Response. The socialists who picked up the gauntlet thrown down by Mises were working entirely within the canons of welfare economics. They denied that a society of abundance could ever exist (note that we have specifically excluded this question from our purview) and accepted Robbins’ classic definition of the function of economic science. Indeed both Hall’s (1937) and Dickinson’s (1939) books start with a chapter on "the economic problem". Both works then continue to grind through the basic precepts of neo- 16classical economics. Most of the other participants, too, emphasise the role of economic calculation as an eternally valid method. In a word, the socialists present themselves as more consistent neo-classical economists than their opponents. Dickinson (1933: 247) even avers that: “only in a socialist community is it possible to realise the true principles from economic valuation" and “the beautiful systems of economic equilibrium described by Bohm-Bawerk...are not descriptions of society as it is but prophetic visions of the socialist economy of the future". The reason why socialism was envisaged as providing a better approximation to the ideals of welfare economics will be dealt with later. We are being offered utopias in the strict sense. No means of getting from the present to the ideal state presented is outlined. The major exception to this is Lange’s work, which rather resembles a prize essay on the subject "reconcile socialism with the precepts of welfare economics". Since Lange was in many respects the most rigorous and aware of the basic issues of welfare economics (to which he was a major contributor in the 1930s) we will use his presentation most extensively. The basic solution to the problem of pricing capital goods was again very simple. Since the prices of ‘factors’ in neo- classical theory are held to be imputed from the value of final goods, what is the problem with accounting prices being imputed arbitrarily by the Central Planning Authority and varied by trial and error? The neo-classical opponents of socialism were hoist on their own petard. a7Lange (1964: 59-60) begins with what he calls the "parametric" function of prices. Though prices are supposed to be the resultant of choices by producers and consumers, under perfect competition they confront both as given. He quotes Wicksteed to show that ‘price’ has two meanings: "It may mean either price in the ordinary sense, ie. the exchange ratio of two commodities on a market, or it may have the generalised meaning of ‘terms on which alternatives are offered’." He goes on: "To solve the problem three data are needed: 1) a preference scale which guides the acts of choice; 2) knowledge of the ‘terms on which alternatives are offered’; 3) knowledge of the amount of resources available." (Note the similarity of this to Barone’s data from which the series of simultaneous equations were to be worked out.) Since (1) and (3) are given as in capitalism, (2) can be derived from the production functions: "the technical possibilities of transformation of one commodity into another". (ibid p60) Lange goes on to exorcise the ghost of solving millions of equations used by Hayek and Robbins: "The only ‘equations’ which would have to be ‘solved’ would be those of the consumers and managers of production. They are exactly the same ‘equations’ which are ‘solved’ in the present economic system and the persons who do the ‘solving’ are the same also. Consumers ‘solve’ them by spending their income so as to get out of it the maximum total utility; and the managers of production ‘solve’ them by finding the combination of 18factors that minimises average cost and the scale of output that equalises marginal cost and the price of the product. They ‘solve’ them by a method of trial and error, making (or imagining) small variations at the margin as Marshall used to say, and watching what effect those variations have either on the total utility or on the cost of production. And only a few of them have been graduated in higher mathematics. Professor Hayek and Professor Robbins themselves ‘solve’ at least hundreds of equations daily, for instance in buying a newspaper or in deciding to take a meal in a restaurant, and presumably they do not use determinants or Jacobians for that purpose. And each entrepreneur who hires or discharges a worker or who buys a bale of cotton ‘solves equations’ too. Exactly the same kind and number of ‘equations’, no less and no more have to be ‘solved’ in a socialist as in a capitalist economy, and exactly the same persons, the consumers and managers of production plants have to ‘solve’ them." (ibid p.88-89) We have quoted at length here because Lange excellently demystifies the problem handed to the socialists by Hayek and the Austrians. Following from this it was a simple matter to show that Mises had confused the two meanings of ‘price’ in the narrow sense with ‘price’ in the wider sense of an index of alternatives. It is only in the latter sense that ‘prices’ are indispensable for the allocation of resources. It follows that: "the accounting prices in a socialist economy, far from being arbitrary, have quite the same objective character as the market 19prices in a regime of competition." (ibid p82). Lange, like most of the socialists, accepted that historically given prices would provide the basis in practice for the accounting prices of capital. He envisages a society where "the Central Planning Board performs the function of the market". It imposes rules on a society where, by consumers maximising their utility ana producers their profit, an equilibrium with the optinum allocation of resources as envisaged by Pareto is reached. Managers of state-owned firms must choose the combination of factors which minimises the average cost of production. A second rule determines the scale of output at the point where marginal costs equals price. The output of the industry is fixed in exactly the same way. Thus the picture presented by Lange and his co-thinkers was of a post~capitalist society dominated by rules rather than by planning, as Sweezy (1949) quite rightly remarks. As an exercise in taking the premises of neo-classical economics (which were after all developed to defend the capitalist system) and using them against the protagonists its effect was devastating. But in what sense was this a realistic picture of a post-capitalist society? It became increasingly clear on both sides that the solution was to a problem - the optimum allocation of resources in a state of static equilibrium under conditions of perfect competition - which quite simply does not and cannot exist. The unrealistic and impossible assumptions of perfect competition - no historical time, perfect knowledge, no externalities, homogeneous goods and no economies of scale - have been outlined so often it seems 20pointless to repeat them here. Finally, the victory of the socialists up to this point in the debate was ‘pyrrhic’, to quote Dobb, since rent, interest, unequal incomes determined by market forces, one man management of factories and many other phenomena which had been denounced by socialists for generations re-emerged. It was also a moot point whether the problem of mass unemployment would exist. As to further proposals, the market socialists all recognised that in practice the rate of investment would be fixed by conscious decision of the Central Planning Authority and not ‘automatically’ by the rate of interest (see below). Moreover, all the socialists had developed a critique of capitalist society because of the wider social implications (positive and negative externalities) of economic activity that were ignored in decisions taken by individual firms. This had led them to propose quite extensive sectors of economic activity which could be provided free. Dickinson’s (1939) list involves cases where increased consumption would increase social welfare as a whole; where services would not be wasted if provided free; and where the ‘free’ service does not compete with marketed commodities. All basic wants, he suggests, could come into this category. Secondly, there are cases where collective needs must be provided communally as they are consumed in common (ie. public goods). Finally, there are goods where individual enjoyment is bound up with other’s ~ such as concert halls or phone lines. Clearly the principles laid down, though vague, can be interpreted to take large areas of economic activity out of market provision. 21There is some justification then in Hayek’s grumble about the large number of “arbitrary elements" injected into the market socialist project. Dobb's intervention In the first place Dobb built on the perception held by the market socialists that the rate of investment is inevitably an ‘arbitrary’ element even in a ‘market socialist’ economy. Basing his case on the argument that the Central Planning Authority must set the rate of investment he goes on to point out that this necessarily means central planning of at least the major direction of investment and its nature and purpose. He goes on to point out that actual investment decisions are necessarily concrete, not deriving from general economic laws. Here we come up against another problem in Dobb’s voluminous writings on planning over a long period. What role has economic decision-making (in the sense of the word used by Hayek and Co) to play in a planned economy? In Political Economy and Capitalism (1940: 319) he grants that it will be "very small or Most non-existent and at any rate...kapidly diminishing" importantly, investment changes relative prices throughout the economy and destroys equilibrium positions as society is in constant change. Rather than dealing with static equilibrium we are discussing dynamics of economic development. In the same work Dobb cites the main failing of capitalism as lack of foreknowledge. Naturally, since we cannot foresee the 22future, uncertainty in all things cannot be abolished. yet there exists an important area of what is called ‘secondary uncertainty’ - that is uncertainty of individuals about the likely behaviour of others because of the atomised decision- making process in a market economy. He ticks off four different effects of secondary uncertainty which can be overcome by a planned economy, causing investment decisions to be taken differently from a capitalist economy. First, there is the effect of parallel or rival investment (by others) on entrepreneurs’ own decisions. Secondly, there is the problem of anticipating complementary investment. As Dobb points out, infrastructure is an essential precondition for investment activity, particularly in a newly developing area. Capitalism typically develops a whole series of related investment areas and markets together - for instance car production, roads and petroleum. Thirdly, there is the level of investment and saving in an economy as a whole, which in a market economy characteristically develops in cycles. Finally, there are problens associated with anticipating the future rate of interest, a crucial determinant for present investment decisions. (ibid pp278-). Elsewhere (1939: 596) Dobb uses the example of a pursuit curve to show the way lack of foresight affects the dynamics of capitalist investment. The point is that he is dealing not with static problems of allocative efficiency but with society in change. From this vantage point: "what are problems of cost become ones of allocation.” (1940: 45). He therefore denounces the decision of the market socialists to impute accounting prices 23to capital goods as a "Heath Robinson device", insisting that the rates of investment, saving and interest be treated as a unitary decision by the planning authority. Hayek's counter-offensive Surprisingly, the same point is taken up by Hayek (1940: 131), who denounces the market socialists for: "an excessive preoccupation with problems of pure theory of stationary equilibrium”. These are almost the same words Dobb (1939) uses and it is a criticism which had already arisen within the ranks of the market socialists (eg Lerner 1937: 254). Yet Austrian theory also holds that there is a tendency to equilibrium over time. If it did not, there could quite simply not be a criterion of optimality with which to criticise the planned economy. and it is problems of change which Hayek principally raises in objection to Lange and Dickinson. His main objection seems to be the practical one as to how quickly the imputed prices of capital goods are to be varied. This second wave or counter-critique also differs from his first onslaught in that he now raises the notion that the prices of factors reflect entrepreneurs’ expectations about the economy and have to be discovered through speculation. He singles out the role of entrepreneurs (after the manner of Mises’ praise of the "creative few") compared with the bureaucratic lassitude of state managers. We have already ruled the question of incentives out as a complete red herring. 24Hayek responded to the debate by asserting that the socialists had significantly climbed down over the necessity of the market. This is not strictly true in the sense that his opponents in the debate had never put forward in natura planning or calculations in labour time as a serious alternative. Certainly Elizabeth Durbin (1984: 108) quotes Lachman, a young student of Hayek at the LSE as saying he “felt like a junior officer in a war which was being lost". Shapiro (1986:139-) sums up the novel points offered in Hayek’s counter offensive. Hayek emphasises not only the amount of information to be assimilated, but also the fact that this information is continually changing. It is the interdependence of these two problems in his view which makes central planning so complex. We shall discuss later (in the section on costs) whether costs are objectively given to the economic agent or remain to be found by entrepreneurial activity. At one point Hayek (1940: 132) completely gives the gane away. He points out that: "much machinery, most buildings and ships and many parts of other products are hardly ever produced for a market but only on a special contract". It is odd to find Hayek here agreeing with Marx and Engels on the obsolescence of market relations. Finally, to the obvious argument that pre- existing capital prices would be used as a basis for calculation by the Central Planning Authority, Hayek (1935: 213) argues that this would be impossible after the chaos following a revolution, presumably in consequence of the changes in income distribution and hence the structure of demand, though this is not clear from his account. Both left and right had identified basic weaknesses in 25Lange’s and other market socialists’ solution to the problem posed by Mises. They relied on the postulate of static equilibrium. Yet Mises added in the 1936 edition of his book the perception that socialism would have no problem under stationary conditions. Whereas Lange’s solution dealt quite adequately with the production of given commodities, what was to happen if there was a shift in the whole pattern of demand? The entrepreneur in those circumstances would have to switch to a different line of production if that were technically possible, or withdraw his capital altogether from that sector. But it was not clear how the manager of a state-owned firm would exercise that initiative. Lange might justifiably complain that by appealing to static equilibrium analysis he was merely applying concepts of ‘economic science’ as they were taught to millions of people throughout the capitalist world. The terms of debate were being shifted against him, The dissemination of information fo the three basic objections against planning - the problem of calculation, of complexity and of incentives - was to be added a fourth, the dissemination of information. The Austrian strand of neo-classical theory had always been the most militantly pro- capitalist, and Hayek (1945: 519) worked up.this further theme in 26his later articles and summed it up in The price system as a mechanism for using knowledge. He states: "the ‘data’ from which the economic calculus starts are never for the whole society ‘given’ to a single mind which could work out the implications, and can never be so given". He goes on: "the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form". (ibid p524). Recently Lavoie (1985) and Shapiro (1986) have attempted to prove that the notion of the market as a necessary institution in spreading knowledge was explicit in Mises’ original formulation and did not represent a "second line of defence" as Lange asserted. The problem with this view is that Mises categorically stated that socialism was impossible, a formulation which Hayek was forced to correct while raising the issue of complexity and the related one of knowledge. Let us cali in witness Lionel Robbins (1971: 107), a close collaborator of Mises in the debate and a (partially) pentitent sinner: "I think it was a pity that (Mises) stated his denials in terms which were liable to suggest that productive activity of any kind was impossible in a totalitarian system - which is obviously not true. Hayek's most recent discussion of socialist calculation in The Fatal Conceit (198: : 85-88), (which raises the issue of knowledge dissemination as the sole and fundamental objection) states that he began this line of enquiry in 1936 - after the publication of Collectivist Economic Planning. Certainly his articles on the 27subject post-date 1935. It seems that recognition that the Austrian school is not simply a slight variant of the neo-classical orthodoxy is partly a product of the debate itself. surely the views of Lavoie and Shapiro downgrade the originality of Hayek’s insight. The source for this insight may be somewhat unexpected. The Left Opposition’s critigue of forced collectivisation and the way the first Five Year Plan was implemented focussed on the incapacity of the bureaucracy to plan, monitor and supervise all economic activity in a nation of over 200 million people. Later we quote Trotsky more fully (1976: 113) from 1932: "If there existed the universal mind that projected itself into the scientific fantasy of Laplace...such a mind of course could a priori draw up a faultless and exhaustive economic plan". This quote was injected into the debate in 1935 by Lerner in an effort to twit Dobb. This seems to be the first reference to the question of knowledge dissemination in the debate. Could it be argued that Leon Trotsky was the father of the modern Austrian school? It is certainly a consequence of the division of labour that every worker is equipped with unique levels of knowledge. But, as a worker, she has no interest in communicating this to her employer - quite the contrary. The follower of Hayek will argue that all this is beside the point since we are dealing with market relations between firms, not relations in the workplace. It is accepted by the Austrian school that the other side of ‘consumer sovereignty’ is that the mass of producers (who also 28make up most of the consumers) should be mindless helots at work. It is only ‘the few’, the entrepreneurs, who are the bearers of this useful knowledge. To conclude our analysis, the critique of ‘market socialism’ converges from right and left. Wants and the Social System Neo-classical economists refer to a ‘scale of wants’ or values or preference scale. It is clear that nobody has ever articulated their own scale of wants or written it down on the back of an envelope. Nor would it be possible to do so. There is no pre-existing scale of wants. People’s scales of wants do not include items such as ‘food’ but articles such as bread, potatoes, pasta, steak, etc., and are totally dependent on their relative prices, as the theory of opportunity costs states. Clearly the ‘scale of wants’, the very foundation and end of economic activity has only a fleeting and nebulous existence. For neo-classical economics consumption is the purpose of production. Wants are exogenously given and in principle infinite. We will not deal with the huge literature on the attempts to manipulate wants under modern capitalism. We will merely note with Marx (1971: 21): “mankind inevitably sets itself only such tasks as it is able to solve, since closer examination will always show that the problem itself arises 29only when the material conditions for its solution are already present or at least in the course of formation". It is highly likely that medieval peasants were bored during long winter nights, but unlikely that any of them were wishing someone would hurry up and invent television. Wants are determined by the development of the productive forces and by one’s class position within society. "The consumer is no freer than the producer. His judgement depends on his means and his needs. Both of these are determined by his social position, which itself depends on the whole social organisation.” (Marx 1967(2): 41). So wants are endogenous to the social system. This was certainly Schumpeter’s (1939: 73) view. In his work Business Cycles, he states: "We will throughout act on the assumption that consumers’ initiative in changing their tastes...is negligible and that all change in consumer taste is incidental to, and brought about by producers’ action." Purchases and consumption patterns vary mainly not with mysterious exogenously given changes in taste or the weather (to use favourite neo-classical examples) but with purchasing power dictated by the stage of the boom-slump cycle. A discussion took place after the Russian revolution on the role of demand in relation to the workings of the law of value. Rubin (197: : chi7) summarises its basic conclusion: that social need depends on value rather than value depending on social need. Value determines both the volume of demand and the quantity of supply and it is changes in value which lead to changes of supply and demand. This accords with Marx (1966(1): 188): "qualitatively the 30definite social wants are very elastic and changing. Their fixedness is only apparent. If the means of subsistence were cheaper, or money wages higher, the labourers would buy more of them and greater ‘social need’ would arise for thom...", It seems therefore that Mandel (1986: 11), a contemporary critic of Nove’s market socialism, goes too far when, in polemicising against the myth of unlimited and exogenously given wants, he asserts that consumption patterns are largely independent of the market. He puts forward the notion of a hierarchy of needs, appealing to the statistician Engel, and also calls in witness the ‘saturation model’ of Dobb, who suggests the demand curve for a wide variety of commodities (such as television sets) may look like diagram 1 below. Mandel expresses this as the marginal elasticity of demand tending to zero. Phice QvAN TITY What seems to be true is that marginal price changes do not dramatically change the pattern of demand. vet major shifts in relative prices such as those produced by the oil shock of 1974 and 1979 have had their effects. Resistance to changes in relative prices cannot just be attributed to inertia or what neo- classical economists might regard as irrational behaviour. 31Neo-classical economics regards people as rational egoistic atoms. In addition to Adam Smith’s ‘invisible hand’ and the ‘visible hand’ of corporate power (from Chandler), Okun has added to this lexicon the notion of the ‘invisible handshake’. Mandel calls the same phenomenon “objective informal cooperation". “Invisible handshake’ seems an inappropriate expression for relations which are often quite literally short-sighted - such as loyalty to work-mates, the small local shop or to known suppliers. We are extremely reluctant to enter into this huge area of human behaviour so these remarks will be in the nature of basic cautions. People live in society. Nobody can deny that such yelations are extremely important in shaping human behaviour. Nor can they be regarded as any less rational than the model assumed by economists. The fact is that they do cause people to behave differently. Rationality Our survey of the literature began by raising the question of rational calculation. Hutchison (1965: 116) quotes Mises as laying down a "fundamental principle that everybody behaves rationally" (Grundprobleme der Nationalokonomie) and goes on to show that rationality is then defined by Mises as “how people behave" This vacuous definition, if taken seriously, would make 32the whole onslaught by Mises and his school on the feasibility of socialism quite misplaced. For neo-classical economics rationality can only refer to the means of achieving ends. Ends are given and cannot be subjected to a test of rationality. The matter is complicated by the principle of opportunity cost, by which people choose between existing alternatives at given prices. This is why Hayek (1945: 525) refers to value’s "significance in view of the whole means-ends structure". The ends of economic activity are set in the scale of wants and rationality is taken to mean consistency or “optimising behaviour" (McAuley 1967:340) in attaining those wants. Any society can therefore be rational if it orders production so as to satisfy "its" wants. Nove (196 73) quotes Stalin’s reported desire that "his own" works be visible from Mars. As McAuley comments, Nove cannot deride this scale of values as irrational, though ‘the man on the Clapham omnibus’ would doubtless regard it as insane, and he would be right. Likewise it is impossible for the economists to denounce the desire of sections of the Federation of Conservative students to legalise heroin so pushers can stand outside our schools and hand out free samples. This is no less insane, and entirely within the canons of consumer sovereignty. The problem is that the scale of wants or preferences is tacit and invisible. Any economy which looks irrational from 33outside can in fact be performing rationally according to a different scale of values from our own, rather than failing to optimise. This is important since most orthodox post-war critiques of the Soviet economy merely record the undoubted fact that it behaves differently from a capitalist economy as evidence of its deep-rooted irrationality. Schumpeter (1954: 114-15) had already remarked on the "habit economists have of setting themselves up as judges of the rationality not only of means but of ends (motives); ie. to call rational ends (motives) that seem reasonable to thesmelves and to dispose of others as irrational". Lange also deals with this question in Political Economy (1976: ch5). He shows how the very notion of rationality developed with a market economy. Lange, of course, believes that commodity production will continue under socialism, so a planned economy can share that rationality and develop it by applying it to the economy as a whole. He defines economic activity as: "the realisation of given ends by the use of certain means" (our emphasis) - an interesting variation on Robbins’ classic definition. We believe that one major difference with a planned economy is that the scale of values is articulated and that economic activity begins with given ends, just as Marx believed human labour in general does. The expression "planners preferences" has long entered the jargon alongside "consumers preferences" (consumer sovereignty). The problem is that the utilitarian basis of neo-classical economics is incurably individualistic. The attempt to draw up a ‘social welfare function’ seems to have foundered. As Ball (1979: 3467) points out: "The (social welfare function) is, however, only a formal statement that the object of the analysis is to find out what society prefers. It gives no rules by whch to derive the actual parameters of the function". Dobb and others have concluded in fact that no such rules can be found. Consumer sovereignty Under a market economy the scale of values is said to be provided by the consumers. This is consumers’ sovereignty. unless this is intended as a cruel joke it should be called "buyers’ sovereignty", for consumption is only possible with effective demand - that is with money. Robbins (1937: 193) enthusiastically refers to the market as a "continous referendum", though even he is unable to completely gloss over an economic ‘franchise’ that makes the pre~1832 ‘Old Corruption’ look like a model of Periclean democracy. Apart from unequal incomes, the market socialists had a fairly standard list of distortions to consumer sovereignty imposed by capitalism. Dickinson’s (1939: ch2) list is typical. He denounces the tendency to monopoly, the creation and manipulation of wants we have already referred to, and the neglect of externalities or social costs which we shall deal with later. Durbin (1935) raises an additional point. Robbins refers to the market as a referendum not an election, and indeed the consumer is confined to yes/no responses. Take it or leave it is 35the choice. In the case of a poor person this may mean which slum you live in, since at your income the alternative of decent accommodation is not available. Hoff (1981: 341) spills a great deal of ink attempting to show that Russian peasants bought inferior goods from Russian industry because there was no better quality available. He sees this as some sort of distortion of market forces. On the contrary that is the way the market works. There can be no independent check in in a market economy as to whether people really liked a commodity, found it worthwhile, etc. In a planned economy there can be a check on the difference. Commodities are produced only because there is no conscious decision as to what society’s priorities are and because spending power is concentrated in the hands of the rich and their state. Recent surveys in Britain have shown that people would be prepared to pay higher taxes for a better health service. But that alternative is not for sale. In other words there can be a difference between individual well-being and the preferences revealed in the market place. How do we know what people want? Since we are supposed to have consumer sovereignty in a market economy, people can spend their money as they please. It is taken that they will spend it so as to maximise their utility or welfare. Earlier variants of the theory assumed people would seek something till its marginal utility was equalled by the marginal disutility of getting it. Marshall used the homely example of a boy whose marginal utility for the next blackberry is suddenly equal to the disutility of picking it. So he stops. How do we know that they are equal? Because he has stopped. The whole thing is an empty tautology. It 36has no explanatory or predictive value. Later formulations of the theory (revealed preference) merely abandon any pretence at measuring anything, even ordinal utility. They openly parade their own nakedness. Evaluation, measurement, is taking place - but nothing is being measured. The whole edifice of neo-classical economics is a magnnificent cathedral of concepts built in honour of a god who does not exist. Its explanatory power is non- existent, and so is its policy value. This view is shared by none other than Hayek (1973: 45): "the tautologies, of which formal equilibrium analysis in economics essentially consists, need statements about how knowledge is acquired and communicated to tell us anything about causation in the real world". With faulty knowledge: “a positiion of equilibrium....is not an equilibrium in the special sense in which equilibrium is regarded as a sort of optimum position.” (ibid p65) Hutchison (1965:56-7) points out that: “every single central proposition and system of economic theory since the Physiocrats...has been criticised as circular or as ‘assuming what it is required to prove’." He quotes Cairnes on Jevons: "value depends upon utility and that utility is whatever affects value." And Davenport on the Austrians: "it explains value by marginal utility and resolves marginal utility into market value". Hutchison goes on: "The liberal tautology is that if people know how to achieve maximum returns, wanted to do so and were free from obstruction, they would in fact maximise their returns. At least one part of the assumptions usually left unstated is obviously false". (that relating to 37expectations in his view) (ibid p1e3). So when Robbins (1937: 199, 204) says: "we know that a consumer has planned his expenditure rationally when...the things that he would gain would give him less satisfaction than the things he would lose", we know no such thing. All we know is that the consumer has spent his money on fashion A and not fashion B. Equally when Robbins deduces from this that in a planned economy “the division of labour is likely to be distorted", we are entitled to ask, ‘by whose criterion?’, or more rudely, ‘so what?’. Wootton explores some of these absurdities in Lament for Economics (1938). The destruction of use-values such as coffee is not the destruction of wealth if the coffee is unsaleable. Payment of dole to an unemployed person is diminution of social welfare, since society clearly has no use for that person’s services. Resources were optimally employed before, because they must have been. All these absurdities result from using ‘value’ as explanandun and explanans. Hutchison (1965: 189) believes the debate to have been useful but that it could have been more so without liberal economics "advancing purely theoretical arguments based on unstated, one-sided and empirically false assumptions". Welfare and economics We can now move on to discuss more of the basic assumptions of neo-classical economics which influenced both sides in the debate. All variants of neo-classical theory postulate a tendency 38of the economy towards equilibrium, though it is quite true that the Austrian school has a more dynamic concept of movement towards equilibrium. This equilibrium state represents in some sense an ideal allocation of resources. Without a tendency to equilibrium it would be quite impossible to speak of a market economy optimising any scale of values. of this equilibrium theory one of the most well known and influential forms is the Pareto-optimum. At equilibrium no consumer is prepared to continue trading because each is convinced they nave the best deal possible. Likewise the producer condition of equilibrium is that each firm is convinced it has used the factors available to it in the most efficient manner. In that sense the economy has reached an optimum position: producers all seek to maximise their profits, so profits become equal; and consumers maximise their utility. This occurs under the restrictive conditions of perfect competition. We have already quoted the Economist Schools Brief definition of markets (1986:90), that they "process two kinds of information; first information about what people want; second information about the economic costs of meeting those wants." It is markets therefore which provide the possibility for attaining an optimum equilibrium position. The first point to be made is that the fundamental proposition of ‘welfare’ could apply while people are starving. A Pareto optimum is defined in a limited way as a position where nobody can becone better off without somebody else being made worse off. It quite specifically abstracts from the initial distribution of income between people. Dobb has written reams to show that there are as many optimum positions as there are 39possible divisions of income between the participants. In fact this is excessively obvious. Marshall and Pigou had concluded that welfare would be maximised where, other things being equal, income was as equal as possible. This argument is a blow against market capitalism, which relies on a far-reaching gulf of inequality in wealth and in income between the classes. They did this on the grounds that money, like anything else, should have a declining marginal utility. An extra pound in the pocket of a poor person would mean much more for utility than in the pocket of a rich person. Robbins and others objected to this on the grounds that interpersonal comparisons are invalid. This argument is very Gifficult to rebut. All that can be said is, first, that the whole of marginal utility theory collapses if an example can be found where utility is not subject to diminishing returns; secondly, that Robbins’ reliance on verstehen doctrine in Nature and Significance of Economic Science (1935: 76): “elementary fact of experience ...only have to be stated to be recognised as obvious" and "better grounded than in physics" (ibid p79) falls to the ground if that is the case. Dobb (1953: 60) finds the whole argument "solipsist". He quotes Little (1960: 57): "those who deny interpersonal comparisons must deny the existence of other minds" Lange (1964: 103) commented on differences in sensitivity in a way clear to all except neo-classical economist: "Besides, the differences in ‘sensitiveness’ existing in present society are chiefly due to the social barriers between classes, eg. a Hungarian count being more sensitive than a Hungarian peasant." 40In a particularly stupid passage, Hoff (198 114) responds: “This new assumption that the citizens of the socialist state will grow into insensitive automatons is doubtful, but very revealing, and so is his disregard of individual characteristics." Actually Lange is guilty only of taking bourgeois economics seriously. Finally, as we have pointed out earlier, the whole theory is a massive tautology. People have bought things that they like; Proof: they must like them or they would not have bought them. Our knowledge is no further advanced than Samuel Butler’s: "What is worth anything But as much money as it will bring?" The nature of value The next question that arises is the nature of value, the central issue that has bedevilled political economy from its early beginnings. Marx and the classical economists regarded value as objective, having a substance independent of the subject. One clear formulation of this may be found in Marx’s critique of Bailey. (1969: 124-167). For Bailey value was purely relative to the person, while for Marx, whatever the exchange ratio, there was an identical social substance shared by two commodities before they were brought into comparison. That is why they could be compared. Likewise, Marx saw money arising from value, rather than the existence of money giving rise to the ‘fiction’ of value. For Bailey, value is in the eye of the beholder. In other words Bailey saw value as simply equivalent to 41price. Bailey's analysis raises the question of how we can compare commodities at different periods. For Marx this already happens with money as a means of payment, evidence of the objective character of value. Bukharin (1972) identifies the conflict over value as part of the clash between two alternative world outlooks, materialism and idealism. Marginal utility theory (and its modern refinements) conceives the economy essentially as the result of what people want. subjective theory thus ultimately flows from philosophical idealism. Yet for materialists, individuals start in a determinate environment, presented with prices, a rate of interest and a rate of profit given as objective facts. Nature of economic categories This is the setting to the debate under discussion. The neo- classical economists on both sides embraced a subjective notion of value. For Hayek (1935: 24) value is the "attribution of the economic subject". The anti-socialists were anxious to prove that rent and interest and all the economic categories of the old regime must necessarily reappear. But is this because such categories are eternal laws or because they are a necessary part of a rational economic calculus? Influenced by the ideas of neo- classical economics they plumped for the second alternative. In doing so they entangled themselves in contradictions which were exploited by the socialists. Indeed Lange used these to turn the tables on his opponents, catching Mises in flagrante delicto. For 42iff economic calculation is applicable only to a capitalist society, then we must assume the bases of neo-classical economics are only historically relative. If they are universal, what is the problem in applying them to a planned economy? Lange says (1964: 612): "Professor Mises does not regard himself as an institutionalist and...has stated explicitly the universal validity of economic theory. But there is a spectacular contradiction between this statement and his assertion that private ownership of the means of production is indispensable for a rational allocation of resources." For Hayek (1973: 47) economics itself is a "pure logic of human choice". Some neo-classical economists such as Schumpeter (1974: 987) recognised that: "any attempt to develop a general logic of economic behaviour will automatically yield a theory of socialist economy as a by-product". Wieser used a communist community as an “expository device" (according to Hayek (1935(1)) to illustrate his universal formulae. And Robbins, astoundingly, averred in 1932 that the theory of value is as applicable to the behaviour of isolated men or the executive authority of a communist society as to the behaviour of men in an exchange economy.” (1935: 19). What are we to make of his criticisms of the possibility of socialism two years later then? Intellectually it all seems very inconsistent. But what is the purpose of neo-classical economics in this case? Any Arthur Daley figure can optimise quite satisfactorily without a qualification in economics. The role of the economist is merely to describe his manoeuvres and to applaud them as rational. As we have already pointed out they can hardly be described as explaining them. 43The real question is the institutional framework within which economi: agents optimise. Boys in third world countries can and do withdraw themselves from school in order to sell pens, vazor blades and post cards on the street. They are, no doubt, optimising (maximising). The collective result of their activity is to reduce the level of skilled labour power available to their country. The principles of optimising behaviour are indeed so universal that they have been applied to non-economic behaviour. The results may well be risible. We feel the following from McKenzie and Tullock (1978: 48-49) on sexual intercourse needs no comment. Parties "consume sex up to the point that marginal benefits equal the marginal costs (or until MUs/Ps = +++MUa/Pa = ...MUn/Pn where MU and P denote marginal utility and price respectively and where s represents sex and a and n other goods). If the price of sex rises relative to other goods, the consumer will rationally choose to consume more of other goods and less sex. (Ice cream as well as many other goods, can substitute for sex if the relative prices require it)", Principles that explain everything in this way really explain nothing. A savage who lives off root tubes dug up with a stick is as rational as someone who earns a living as a computer programmer. They are both confronted with different factor endowments, that is all. We therefore agree with Engels (1959: 203): "anyone who atttempted to bring the political economy of Tierra del Fuego under the same laws as operate in present day England would obviously produce nothing but the most 44banal commonplaces. Political econoomy is therefore essentially a historical science. It first investigates the special laws of each individual stage in the development of Production and exchange and only when it has completed this investigation will it be able to establish the few quite general laws which hold good for production and exchange in general." The Nature of Costs The critics of socialism we have been discussing are by no means free of these sort of ambiguities as they approach the question of costs. In his introduction to Collectivist Economic Planning (1935(1)) Hayek uses an objective notion of opportunity cost. He discusses what Lange called the ‘parametric’ function of prices. Vet in his summing up essay in the same volume Hayek argues that costs are not objective: "Much of what is usually termed cost of production is not really a cost element that is given independently of the price of the product but a quasi-rent or a depreciation quota which has to be allowed on the 45capitalised value of expected quasi-rents and is therefore dependent on the prices which are expected to prevail" (p227). Once again the unhappy Lange has been caught not only by the eel- like Hayek changing his position in the course of a single volume but also by divergences within neo-classical economics. Hayek and the other Austrians believed costs to be subjective in this further sense - that they embodied expectations as to the future. As James Buchanan (1973: 13) points out, this "theory of opportunity cost threatens the very foundations of modern applied economics." We need to be less concerned about the nihilistic effect of their criticisms, however, since one of their number, Wiseman (1973: 241), having discussed the significance of all this for a "liberal collectivist (market socialist)order" lamely concludes in a footnote (!) that "a valuation problem similar to this arises of course in a market economy" We have every sympathy with Machlup when he complains against Lange: "by measuring units of factors in terms of their market value, marginal productivity analysis is to my mind veduced ad absurdum. One must bear in mind that marginal productivity analysis as a part of the theory of distribution is to serve as explanation of the market values of factors or services. To define services in terms of their market values is to give up the task of explaining them". (1936:256). In defence of Lange we would say that his method is the method of the neo-classical mainstream. Like the neo-classical theory of value, its theory of costs moves in vicious circles. While the value of capital goods is 46‘imputed’ from the price of consumer goods, in fact decisions as to the use of factors depends upon the given prices of these goods. Moreover, the fall in the price of capital goods occurs before the fall in the price of consumer goods. As Bukharin (1972:97) puts it: "It is particularly clear that a drop in value, ie. in the long run the price...of the productive commodities occurs earlier than a drop in the value of the consumption commodities." Thus, as Marx pointed out (1962: 49) the law of value imposes itself quite objectively "like an over-riding law of nature. The law of gravity exerts an over-riding influence in like fashion when a house tumbles about our ears. At another point Marx (1969: 495) explains that the “comparision of value in one period with the value of the same commodities in later periods is no scholastic illusion....but rather forms the fundmental principle of the circulation process of capital". Periodic revolutions in the value of capital goods provide capitalists with an unpleasant reminder about the objective character of economic laws. The reason we deal with this is because Buchanan (ibid pps- 10), who seems to see himself as some sort of heir to the Austrian tradition, has suggested that the subjective notion of costs is the solution to the controversy. In fact raising it seems only to produce own goals in the form of splits in the anti-socialists between the Austrians and the neo-classical mainstream. 47Cases of Constant and Diminishing Costs Another issue which partly sprang from the debate in hand was the issue of pricing policy for public utilities. Lange’s solution to the problem of economic calculation assumed perfect competition. In that situation average cost is equal to marginal cost, which in turn equals price and the producing firm is at the optimum size. His rule could therefore be described as the marginal cost rule. Marginal cost of course takes no account of the cost of replacing fixed capital. Lerner, (1937: 264) who throughout the debate acted as a sort of drill sergeant for welfare economics continued to assert the validity of the Rule (as he capitalises it) in the case of public utilities, denouncing any other policy as a "useless carry-over from capitalist book-keeping practices". He was opposed in this by Durbin, who argued for average cost pricing. This may be regarded as the beginning of the controversy on public utility pricing. The point about public utilities of course is that because of very large indivisible costs, they offer an example of marginal costs which are falling rather than rising as in the well known nodel of perfect competition. They are natural monopolies. At what level should they produce, and how should they fund the replacement cost of fixed capital? There was also an extensive discussion along these lines in 48Eastern Europe after the Second World War. The possibility was posed of charging at average cost. The reason for this is stated by Wiseman (in Buchanan 1973: 249): ‘each tub should stand on its own bottom’. This raised the problem of separating prime costs from overheads which in turn depends upon whether one takes a short term or a long term point of view, since in the long term fixed costs become variables. The socialists devoted a lot of attention to this and related matters. Dickinson, for instance, who was evidently fanatical about railways, dealt at length with the issue of railway charges and the desirability or otherwise of charging like a discriminating monopoly. Clearly these arguments were important for them to establish the viability of their schemes in terms of welfare economics. We do not intend to deal with the pricing policy of public utilities since the problem is exactly the same in the case of a market economy. Wiseman’s (ibid p247) conclusion was that the whole theory was "an empty box" (of which more anon). A separate but related question is the extent to which capital equipment, once paid for, should be used. The broader vision of a planned economy can look at this like lending a bike to a friend when it is not in use. In a market economy such a notion comes up "against capitalistic book-keeping practices" (Lerner 1937: 264). The point about natural monopolies, as we have pointed out, is that since costs decrease, marginal cost is below average cost. Should these industries be run at a loss or should excess capacity go unused to make capital ‘pay’? The 49separation out of real costs to society requires not only the vista of an economy planned as a whole but a break with the subjective theory of costs. In the 1950s, Cambridge economists in England argued that capital, being heterogeneous, can only be measured against a given rate of interest. Yet according to Austrian capital theory the rate of interest is supposed to measure the ‘productivity of capital’ ie. to be a resultant of this value. So we encounter yet another vicious circle. Moreover, the ‘switching theorem’ showed that there was no linear relationship between the rate of interest and the demand for capital. So the neo-classical theory of capital remains in a state of crisis. Indeed, in his discussion of the switching theorem, Blaug (1985: 523) announces: “and now for the final nail in the coffin of the Austrian theory of capital". The reason we have dealt with these issues is to draw attention to the problem of constant and increasing returns in relation to the general issue of calculation in a planned economy. Lange (1964: 94) had isolated the case of constant coefficients of production as one where efficiency could be measured without value calculation. Constant costs could be an indication of such rigidities: "There exists, however, a special case where prices are not needed to carry out the plan efficiently. This is the case of constant coefficients of production...no prices and no cost accounting whatever are needed. Efficiency in production is maintained merely by the technological consideration of avoiding waste of materials 50etc. It seems that those who deny the necessity of an adequate price system in a socialist economy have this case in mind..,But we need not say how extremely unrealistic is the assumption that all coefficients of production are constant." No real evidence is offered for this final assertion. In fact the eminent statistician Leontieff found (in The Structure of the American Economy 1919-39) that for broad industrial groups production coefficients are constant. Bergson (1948: 443) also quotes "numerous" cost studies to the same effect, at least for short run output variations. During the debate there was no mention (except from Dobb) of Sraffa’s 1926 conclusion that: "in normal cases the cost of production of commodities produced competitively...must be regarded as constant in respect of small variations in the quantity produced". (1926:542). And further: “Everyday experience shows that a large number of undertakings - and the majority which produce manufactured consumers’ goods - work under conditions of individual diminishing costs...Business men...would consider absurd that the limit to their production is to be found in the internal conditions of production in their firm". (ibid 543). Clearly if this is the case it has important implications for economic planning. Hayek (1940: 138) questions Dickinson’s (1939) assertion that diminishing costs are commoner than increasing costs - as usual without providing evidence. the point we want to underline is that the whole of neo-classical economics is founded on the 51basic assumption of declining marginal utility, leading one to assume diminishing returns and increasing marginal costs. This was simply “assumed" in the way an economist stranded on a desert island with a tin of food "assumes" a tin opener. “Picture an economist, well educated in the dominant British school...0n the shelves of his mind are also boxes. There is a row labelled Diminishing Return Industries, Constant Return Industries, Increasing Return Industries...yet from all his reading and conversation he cannot recall a scene in which anyone opened the boxes and said, with authority and convincing evidence ‘constant Return Industry, hosen; Increasing Return Industry, hats or used any like words. Nor can he think of an industrial monograph in which profitable use was made of the Law of Returns in commenting on the things of life...He tries ‘The economics of welfare’ to find that, in nearly a thousand pages, there is not even one illustration of what industries are in which boxes, though many an argument begins ‘when conditions of dimishing returns prevail’, as if everyone knew when that was." (Clapham 1922: 305). Whether there are constant coefficients of production or not, the point Dobb makes is that it is impossible to make investment decisions independently of the use-value of the investment and its specific technical role. He uses the example of the rate at which steam locomotives may be retired in favour of diesel or electric power. Clearly the economist cannot lay, down edicts about investent decisions in this case in complete ignorance of railway technology. Investment decisions taken within the firm 52are of course taken on a technical basis, though relative prices are important. Moreover, if we lift the veil on decision-making within the firm for a moment, it is quite clear that managers cannot combine discrete homogeneous units of capital and labour power in whatever combinations is most financially favourable - they are constrained by the nature of the technology. Hayek had raised the complexity of the production process as an argument against the feasibility of planning. In his counter- offensive against the market socialists he had argued that in directing investment to take up problems of change the Central Planning Authority would increasingly have to involve itself in the detail of investment decision-making. We have suggested, in the section on incentives that an important backdrop to the debate, never spelt out by either side, was the growth of monopoly corporations. The ‘beauty’ of the market socialist solution was the separation of ownership from decision-making. Already, under monopoly capitalism we find as a result the development of techniques of control over management - the audit. Why could the same methods not be applicable in a planned economy, market socialist or otherwise? Eactors of production When Mises and his followers raised the question of factor prices, they were not concerned solely with the price of capital goods, to which the socialists addressed themselves. Mises had specifically defended the need for a money market, markets in 53futures and the usefulness of speculators. This aspect of their thought is expounded most systematically by Hoff (1981). He isolates interest, rent, risk insurance (ie. profit) and depreciation quotas. These are not merely ‘factors of calculation’ of course. He defends real revenues accruing to classes of people - for the most part in the form of what the Inland Revenue recognises as unearned income. In Hoff's view (ibid pp191-2) it is necessary to separate out the ‘reward’ to each factor: “if rent is left out of its calculation the Central Authority will have no means of knowing whether a difference in results is due to human factors, to the use of a greater or smaller amount of capital, or to the nature and position of the land". He should bear in mind that the separate ‘contribution’ of inputs (even if we accept the concepts of neo-classical economics for a moment) are far from simple to isolate in any social system. The statistical problems are discussed in Nove’s (1984:50) Observations on Intersystemic Comparisons. Secondly, we are entitled to ask, what real risk is there for the multinationals? once again we are offered a perfectly competitive ideal as a justification for a world which is very different. Hoff mentions risk insurance as a justification for profit. The very unfamiliarity of the expression ‘risk insurance’ as a pseudonym for profit should have suggested to Hoff that the factors of production are not quite the eternal categories he presents. In fact the notion of profit has quite a fly-by-night existence in neo-classical literature. what Marx would have described as manufacturing profit (as against rent and interest) 54is assimilated to the concept of interest, while profit (or risk insurance as Hoff will have it) is a temporary super profit or technological rent in Marx's terms. Of course any society needs a reserve or insurance fund, as Marx pointed out in his Critique of the Gotha Programme (1967(2)). Tt was partly for this reason, no doubt, that he referred to the society of the future as involved in ‘continous relative overproduction’. But why can this not be provided nore simply by alloting a reserve fund operated on insurance principles? The answer - that is what is already done in modern capitalist society. Furthermore Hoff’s quest is complicated by "the fact that landed property and capital are sources of income for their owner, that is has given them the power to appropriate a part of the values created by labour, does not make them sources of the value they appropriate". (Marx 1968:94). Likewise in relation to rent, "from the standpoint of a higher economic form of society private ownership of the globe by single individuals will appear quite as absurd as private ownership of one man by another". (Marx 1967(1): 776). Marx also suggests that differential rent can be used to improve land of lower natural fertility and so eliminate productivity differences. As Marx (1967(1)! 814, 817, 830) says, land, labour and capital: "have about the same relation to each other as lawyer's fees, red beet and music". "Vulgar economy actually does no more than interpret, systematise and defend in doctrinaire fashion the conception of the agents of bourgeois productiion who are entrapped in bourgeois 55production relations..." "It is an enchanted, perverted, topsy-turvy world in which Monsieur le Capital and Madame la Yerre do their ghost-walking as social characters and as mere things." The rate of interest, saving and investment The traditional justification for interest on capital is that it is reward for waiting, though other terms have been used. capitalists’ ‘abstinence’ has been deservedly ridiculed by socialists over the last century and a half. Yet the waiting theory is equally fallacious. Capital goods and consumer goods are of course produced simultaneously. Certainly society has to choose between producing consumption and investment goods. But in a market economy ‘society’ does not consciously choose this. In any case it is chiefly the rich who take decisions pertaining to saving and investment. As we shall see below, in the dynamic context of growth it is not simply a question of either investment or consumption, ie. which way to slice up a given cake. The market socialists who had taken on board the basic assumptions of neo- classical theory focussed their attention on the rate of interest, which is held to harmonise the rate of saving and investment within the economy. Pigou’s excursions into welfare economics had already caused him to denounce the deficiency of "the telescopic facility for present gain against future good", where people are supposed to behave like small children crying 56for a lolly now as justification for the rate of interest. During this debate of course Keynes published his General Theory of Employment, Interest and Money, which tried to show that the rate of interest equalised the supply and demand for money, not the rate of saving and investment. Though this perception had little effect directly upon the participants, there was a widespread understanding among economists in the Great Depression, particularly among those inclined to socialisn, that the interest rate was not functioning adequately as an automatic regulator of economic activity. an exception must be made in the ccase of Hoff’s work, where he showed that he had assimilated the problems associated with the earlier view of the natural rate of interest. Likewise more recent commentators such as Lavoie know of the problems in viewing interest as the reward for waiting. The market socialists realised, moreover, that under capitalism it was the rich who saved and the abolition of the major inequality in society between the owning and wage-earning classes would choke off the main source of savings. It was accepted by all the socialists that the rate of investment would be arbitrarily fixed by the state. (The word ‘arbitrarily’ is taken from the lexicon of welfare economics. in this case it means a democratic decision by the state, as the representative of society as a whole, rather than by the rich as the expression of ‘consumer sovereignty’). It was Preobrazhensky’s (1965: 214) view that: "if we were to distribute credit resources from a single centre and its departments according to a definite plan...then interest 87would cheerfully disappear without any change in the essence of production relations within the state sector". The politics of planning As to forms of planning, Robbins and Heyek used such Gefinitions as "centralised disposal of factors of production". (Robbins 1934: 153). It is then child’s play to show that planning means this ‘centre’ imposing its own scale of values upon the community. Moreover, there is no way the shop, firm or trust can either participate in drawing up the plan or monitor its achievement. In other words the conclusion is drawn by Hayek in Road to Serfdom and by East European dissidents such as Brus and Selucky in many books that planning is economic dictatorship (vertical relations between ‘centre’ and production agencies) and the only alternative is the market (democratic, horizontal relations between economic agents). Secondly, the notion of planning is attacked by neo-classical economists as a massive and impossible surveillance and countermanding of consumer sovereignty: with the Central Planning Authority laying down what should be produced - right down to the proportion of Easter bonnets with red polkadots upon them as opposed to blue. We cannot deal comprehensively here with the politics of planning, though it has never, in our view, been adequately explained why in principle a plan cannot be drawn up and implemented democratically through an articulation of layers of decision-making. Nor has it been explained why the ‘centre’ must 58have different interests from the rest of the economic organism. We agree with Trotsky (1976: 113), on the contrary, that a plan can only be carried out in a democratic way: "If there existed the universal mind, that projected itself into the scientific fancy of Laplace, a mind that would register simultaneously all the processes of nature and of society, that could measure the dynamics of their motion, that could forecast the results of their inter-reactions, such a mind, of course could a priori draw up a faultless and exhaustive economic plan, beginning with the number of hectares of wheat and down to the last button for a vest." However, such a conceit flows from bureaucratic arrogance, as Trotsky goes on to point out. He calls for: "1) special state organs, that is the hierarchical system of plan commisions in the centre as well as locally 2) trade as a system of market regulation 3) Soviet democracy as a system of living reaction of the masses upon the structure of the economy". (1971: 113) Without this combination, planning simply does not exist, as astute commentators on the Soviet Union in the period discussed point out. (For example, Lewin’s Disappearance of Planning in the Plan 1973:271-) Of course it was crucial to the way Soviet plannning has been carried out that power had already been usurped by the bureaucracy. All post-capitalist societies today are bureaucratically deformed (as Trotsky put it). Since planning is inaugurated through state agencies the nature of the state power 59is critical. However we cannot discuss the effect of stalinism on the planning process here. certainly the arguments that Hayek raised about the dissemination of knowledge through a market economy do strike a chord when we look at the overcentralised planning apparatuses of the bureaucratically deformed workers’ states. But this is in origin a political problem, reflecting itself in the economy. There was a bureaucracy in the Soviet Union before there were Five Year Plans. The phenomenon of ‘planning from the achieved level’ does show a mutual suspicion between the planning and managerial sections of the bureuacracy. Clearly the obsessive detail in which targets have been handed down has proved in practice impossible to supervise. Nove (1983: 77) quotes a figure of 2,700-3,600 million plan indicators in the Soviet Union. Trotsky (1976: 113-114) stated: "rhe innumerable living participants of economy, state, as well as private, collective as well as individual, must give notice of their needs of their relative strength not only through the statistical determination of plan commissions but by the direct pressure of supply and demand. The plan is checked and, to a considerable measure, realised through the market...Economic accounting is unthinkable without market relations". As we have tried to show though the market alone is not an adequate check upon the planners. That requires also institutions of workers’ democracy. 60How markets fail The conclusion of our analysis so far then is that neo- classical economics derived from an idealised model of a market economy does not and cannot provide the framework for a ‘calculus’ of the relative merits of a market economy as against a plan of production. Its rationality is capitalist rationality. In any case we cannot say that markets are ‘better’ than a plan or vice versa, since that poses the question - ‘better for what‘? Common sense would seem to suggest that there could be a straight-forward comparison of relative efficiency between social systems through simply looking at the growth figures.In fact there are insurmountable problems in handling the statistics, apart from the fact that the Soviet Union (which cannot strictly be regarded as planned in our terms) and the USA both combine market and non-market provision of use-values, though in different proportions. Clearly the whole preceeding history of particular countries would have to be taken into account in comparing economic performance.Finally, any comparison will be theory-laden. We have seen that Hayek did not view the signs of technical efficiency and growth in parts of the Soviet economy in the 1930s as a disproof of the position he was defending. any concept of efficiency and of waste is generated by the social system which produces it. For instance"inefficiency" in capitalism only becomes recognised when it is an obstacle to the expansion of surplus value,which is the aim of production. conn, for instance, observes "while most economists (in the 61Unites States at least) believe in the superiority of a decentralised system over centralised ones, it is very hard to find specialists in comparative economics(the present author included)who are willing to commit themselves on this issue". (1984:16) Intuitively it may seem that a market economy should be inefficient.First there is the perpetual non-use of existing productive resources of both labour power and capital,swelling to gigantic proportions when the boom turns into slump. Secondly there is the apparent misuse of resources through duplicated sales effort as a result of competition, apart from the luxury spending ofthe rich. These latter are the problems handled in Baran and Sweezy’s (1966) and Kidron’s (1974) calculations on the US economy. For the last year they analysed (1963) Baran and Sweezy saw 56.1% of the US G.N.P. as "economic surplus". This concept does not correspond to Marx’s notion of surplus value and may be regarded as a measure of waste.The categories they include as waste are wasteful expenditures in the business sector, property incomes and government spending. Since the last cannot simply be described as waste inherent in the market system, it will be eliminated for our purposes. Government spending amounted to a little over half the economic surplus, so market induced waste maybe regarded as 28% of G.N.P. (1966:appendix) Kidron’s different calculations for the USA in 1970 shows 61.43% of the G.N.P. to have been waste (which Kidron, wrongly in our view, identifies with Marx’s concept of unproductive labour). His categories of waste include military spending, waste 62industries, waste personal consumption, and business and property incomes. Of this figure 8.01% of G.N.P. is government spending in one form or other and should therefore be ignored. It goes without saying that there are daunting problems with these statistics. They are quoted merely to make out the indictment of an unplanned economy. What would the defenders of capitalism make of these arguments? Mises was well aware of the arguments of socialists in his own age as to the waste of competitive advertising and commercial salesmen. His own onslaught on socialism was his counter-offensive. In other words there is no rational alternative to a market economy. A.E. Buchanan lists seven reasons for market inefficiency. They are as follows: transaction costs, uncertainty, the tendency to monopoly, the existence of externalities, of public goods, the difference between individual well-being and revealed preferences, and the problem of unemployment. We intend to concentrate on the problems of uncertainty and of externalities, since we believe that they correspond to the inner nature of the capitalist system as an unplanned system motivated by private profit. For reasons of space we intend to largely ignore the question of monopoly, important as it is. We would refer the reader back to the discussion on incentives, where it appears as an important but largely unstated premise of the socialist case, while on the other side it was assumed but not proven that capitalism was powered by entrepreneurial dynamism. What we can do is to contrast the dynamics of the market 63economy as against that of a plan. It was agreed by all the participants in the debate we have surveyed that the economy wouold behave differently if planned than if left to market forces. We must caution however that planned economy is still a system struggling to be born. The remarks about how the systems will work differently is therefore necessarily of a theoretical nature. Production for profit Marx defined capitalist production as generalised commodity production where labour power is also a commodity. There has never been an economy consisting mainly of a petty commodity producers. Commodity production only becomes generalised with the development of capitalism. The ain of capitalist production is the expansion of surplus value. Yet it has been a basic proposition of welfare economics that the aim of production is consumer satisfaction. This belief is the foundation of Say’s Law, which in that form is now fairly generally discredited. Say denied the possibility of a general crisis of overproduction since he held that production was identical with consumption. Marx pointed out that producers (sellers) and consumers (buyers) are by no means identical under 64capitalism. Since the aim of capitalist production is the expansion of surplus value, sale and purchase can become separated acts at any time that valorisation of capital is threatened. This disruption in the circular flow of commodities may in turn pose problems for other capitalists in realising their surplus value in a knock-on fashion. Hence the interdependence of producers and so of prices that so fascinated Hayek may manifest itself as a nasty surprise. Moreover, the periodic revolutions in prices which Marx adduced to show the objective nature of costs (see earlier) can also have disruptive effects on production. Marx’s treatment of this in Theories of Surplus Value vol 2 (1969) is intended solely to demonstrate the possibility of crisis. Interestingly, Preobrazhensky accepts the possibility of overproduction in what he calls a ‘commodity socialist’ economy. He believes, however, that this could be localised through the simple expedient of distributing the unsold product free to the working class. Clearly, this is not possible in a capitalist economy because production is for profit. We have tried to show that planning attempts to restore the purposive nature of the labour process (which Marx believed defined it as labour) to the productive activity of society as a whole. Market anarchy In a market economy productive resources are left to be found 65in the market place rather than being allocated in advance. In addition the pattern of consumer demand (the "ends" of economic activity) emerge from market anarchy. A market economy has no central decision-making process. Its equivalent in the animal world is the Brontosaurus which had no central nervous system or brain...but this creature has long since been extinct. The case for a market economy is that it regulates the division of labour without any conscious direction. In a commodity economy private labour manifest itself as its opposite, social labour. The private producers are interdependent, and this takes the form of a mutual dependence on price signals. In his little essay The Computer and the Market, Lange (1967) looked back on the debate from the standpoint of the market as a checking device on people’s intentions: “The market mechanism and trial and error proposed in ny essay really play the role of a computing device for solving a system of simultaneous equations...the iterations were based on a feed-back principle operating so as to gradually eliminate deviations from equilibrium. It was envisaged that the process would operate like a servo-mechanism which would through feed-back action automatically eliminate disturbances". Lange regards the market as: "A computing device of the pre-electronic age" (pp402). Now of course we have the real thing..."My answer to Hayek and Robbins would be: so what’s the trouble?" (p401). Nevertheless Lange recognises limits on the use of computers in economic planning, imposed by the sheer vastness and complexity 66of the processes under examination. "Secondly, the market is institutionally embodied in the present socialist economy". on the other side the computer is quicker. Because of time lags and oscillations the market may not produce convergent results, but cycles. Also "its iterations cause income effects" as we know to our cost (ibid p403). In other words the market only adjusts ex poste. This inevitably means waste. Moreover, the conventional fixation of neo-classcial economics on states of static equilibrium ignores the fact that production takes place over time. In addition to commodities being brought on to the market and found unsaleable, we also have the waste of continued devalorisation of capital mentioned earlier. As a result of the rising productivity of labour there are revolutions in prices which expose many outlays as a serious waste of society’s resources. Mises is not inclined to deny that such waste occurs. He believes uncertainty is inevitable. The beauty of a market economy is that the damage is limited to the entrepreneur instead of being spread over society as a whole. But wasted resources are still wasted resources. For society as a whole there is no such thing as a free wasted nuclear power plant. ‘The argument of the socialists, including the market socialists, was that primary uncertainty may be regarded as inherent in human affairs. There is also secondary uncertainty owing to atomised decision-making in a market economy. This could be overcome either by direct allocation of resources to certain tasks or (as the market socialists believed) by surveys informing people as to what other investors’ intentions were. 67Hayek simply "abstracts" from this argument, that is, he ignores it. "If we abstract, as we are probably entitled to, from the case where there is reason to assume the planning authority possesses greater foresight and is better qualified to judge the probability of further technical progress than the individual entrepreneur...that which is supposed to eliminate waste is in fact a cause of waste". (1935(2): 225) We have also tried to demonstrate that welfare economics is inadequate as a judge of the performance of a planned economy. Flowing from its preoccupation with the state of static equilibrium is its obsession with problems of allocative efficiency. Problems of planning are problems of dynamics. The ‘data’ necessary to establish an optimum are continually changing. Also, as Dobb (1961 : 45) says, planning "changes unknowns into knowns" and requires a completely different method of analysis. James Buchanan (197. : 5) says: “of course there can be efficiency in a planned economy but it is a wholly different efficiency framework that is involved here". Morcever, we too often have the case where the real faults of a real and bureaucratised planned economy are contrasted with an ideal model of how markets are supposed to behave. As Nove puts it: "Muddle is contrasted to model". We live in an era of monopoly control and state intervention in the capitalist economy. Clearly monopoly price distortions can lead to distortions throughout the economy. We can get equilibrium positions, as Hayek put it, which are not genuine optimising positions. We are reminded of the Second Best Theorem of Welfare 68Economics - that if any one price position is wrong then all the other will be as well, and the marginal cost rule belaboured by Lerner and others is unjustified, for the conditions for optimal equilibrium are much more complex. The optimising postulate in any case assumes perfect foresight. As Durbin has pointed out (1935: 700-): atomistic competition and perfect foresight are quite simply incompatible. Social and private benefits and costs Under capitalism production is carried out for profit. Halm opines that under capitalism "productivity and profitability are identical". In other words “what’s good for General Motors is good for the country". This is recognised in welfare economics not to be the case where externalities exist. In the category of externalities (or external effects or spill-overs) we intend to discuss the whole xange of problems where there is a difference between private and social costs or benefits. This is well established in neo- 69classical economics and was recognised by Pigou. In fact the notion of an externality can be traced back to Marshall. Indeed there is a whole branch of economics ~ Cost Benefit Analysis — devoted to its implications. Externalities mean the savings or costs imposed upon a firm, industry or the economy as a whole by the economic activity of others. Such costs or benefits are not conveyed by price signals. ‘The problem of incorporating them into a neo-classical framework is as Mishan puts it “their number is virtually unlimited". (1971: 117). Mishan believes that spill-over effects are a bigger problem than monopolies in vitiating the conditions for a Pareto optimun. Thus the ‘measuring rod’ held up for the efficiency of planned and unplanned systems is not only a theoretical but a practical delusion. Negative externalities such as pollution occur where the polluting firm does not bear the cost to the community (and we are speaking here of economic costs) of the pollution caused. The whole nature of decision-making in the market economy is such that managers take decisions which are the only ones possible for them but which take no account of costs which are off balance sheet. In other words we are back to Lange’s distinction between the private rationality characteristic of capitalism and the possibility of extending rational calculation to social costs overall in a planned economy. This is in our view the principal difference between a plan and a market economy. Marx (1966: 86-7) was well aware of the myopic nature of the decision-making process under capitalism: "The capitalist mode of production is generally, despite all 70its niggardliness altogether too prodigal with its human material just as conversely, thanks to its method of distribution of products through commerce and manner of competition, it is very prodigal with its material means and loses for society what it gains for the individual capitalist! The reason why capitalism recklessly squanders labour power in injury, illness and premature death is blindingly obvious. These are quite simply not expenses for the individual employer. at another point Marx (1962: 418) states: "In England women are still used at times for hauling canal boats, in as much as the labour requisite to produce horses and machinery is an accurately known quantity, whereas that required to maintain women members of the surplus population is below all calculation." Yet this was presumably an optimum allocation of factors for the individual employer. Marx (1962: 416-7) comments: "If we regard machinery exclusively as a mean for cheapening the product, the limit to its use is that its own production shall cost less than the labour which is replaced by its employment. As far as capital is concerned, however, the limitation is even narrower. Since capital pays, not the labour which is applied but the value of the labour power that is applied, the use of machinery to capital is limited by the difference between the value of the machine and the value of the labour power replaced by it". He adds in a footnote: "Hence in a communist society scope for the use of machinery will be very different from what it is ina Uaebourgeois society." These considerations have been applied in pamphlets such as The Economic Case Against Pit Closures (Glyn 1984). The NCB, like any employer in a market economy, makes decisions so as to improve its profit and loss accounts. These decisions take no account of unemployment pay and other social costs because they are not borne by the NCB. We may say, for the sake of example, that the NCB decides to close a pit because they perceive they are paying a miner two hundred pounds and only making one hundred and fifty pounds from his labour. As a result society pays him eighty pounds unemployment benefit to produce nothing. The NCB gains, society loses. Clearly, such pamphlets are produced for propaganda purposes, not as micro models of a planned economy. Still, they make the point. Many other social audit pamphlets have hammered it home. In a market economy waste is hidden. There is no way of measuring it. If a firm is making a profit Halm’s view will tend to hold sway - that it must be operating productively. This is so even if it is carrying costs only made necessary by the anarchy of the market place. In fact a basic criticism of neo-classical economics (despite later developments in the theory of the firm) is that it treats the firm like a black box, as Friedman for instance has been criticised for doing. Harman (1989: 3-) provides some interesting material from Halberstam’s book The Reckoning on the American car industry. For instance, Detroit executives dumped thousands of useless parts in the River Delaware. In a word, they behaved exactly like stalinist 72bureaucrats. Contrast the attitude towards the visible waste of bureaucracy in the Soviet Union with the assumption of smooth well-oiled efficiency in western capitalism ~ only because the waste is hidden. Murray (1987: 104) for instance, reckons 375,000 planners work in London (in an unplanned economy). It is the case of course that any economy has to operate with a reserve. It was for this reason no doubt that Marx spoke of continuous relative overproduction in a planned economy (1967(1): 473). A market economy, however, continually operates below capacity, both in terms of idle capital and of labour power ready for work. Apart from a substantial non-use of resources (which represents for the system as a whole a massive degree of X-inefficiency) there is the waste of resources which are in use. By an X-inefficiency we mean, following Leibenstein, the Gifference between potential and actual output within the firm. The term (as its definition suggests) is excessively vague and unquantifiable. Leibenstein (1981: 97-) points out that the discussion on efficiency conducted within neo-classical economics is concerned exclusively with static problems of allocation. It is true that Wiles (1965: 31) raises the question of x- efficiency as well as the more familiar allocative efficiency in his discussion of the Soviet economy. Writing of the 1950s, he refers to the fact that there were apparently too few hair brushes and too few nail brushes. He goes on to point out that if the Soviet economy were to grow at a rate of 10% as against 2% in capitalist countries, the USSR would soon have more hair brushes as well as nail brushes. The Soviet rejoinder to market economies 73would be “why aren’t you making a quart pot like me?". As Leibenstein (198: 98) points out, this type of inefficiency is "assumed away by the maximisation postulate". As he goes on to say, the notion of maximisation is often interpreted tautologically (see our discussion above in relation to Mises). "The tautological approach immunises the postulate and a many implications of the theory of which it is a part from all criticisms" (Leibenstein ibid p100). It may be argued that the case of externalities is well known. In the first place their application is usually more limited than the one given here. Welfare economics does allow for non-market provision of public goods, closely related to externalities, becaue of the free-rider and assurance problems. However as Durbin (1935) has pointed out, there is no natural non-market sphere. At one time human beings were regarded as commodities - as slaves. That is now proscribed by law, by a conscious decision of the state as representative of society as a whole. Barbara Wootton (1938) points out that provisions such as the Fire Service were formerly regarded as a marketable comnodity - with lamentable results. Markets and scarcity So long as prices remain in existence they will have to take into account supply and demand considerations - otherwise they would not be prices. There is no need to invest them with an occult optimising significance once the static framework of equilibrium analysis is accepted to be unrealistic. There has 74been an extensive and sophisticated literature on the use of shadow prices in a planned economy, which we have no intention of surveying. Dobb (1969: ch7) Lists no less than six levels of prices. There are accounting prices as the basis for a plan; programming prices which are prices not used for planning; shadow prices, ie. ideal prices used as a dual of linear programming; cost prices of inputs - used primarily as a standard of comparison with other prices; incentive payments such as wages which are still not full prices in a planned economy; and true market prices eg. retail prices. The concern of welfare economists is that prices should reflect some notion of "real cost". Hoff's "efficiency calculus" is based on that premise. We have rejected categories such as interest and rent as being real costs - though they may be retained for rationing resources in the first stages of a planned economy. Likewise, Hoff is forced to admit that depreciation is calculated in a more or less arbitrary way at present. Any society has to take decisions as to replacement of fixed costs and new investment, and to put resources aside for the purpose. As we pointed out, for firms such decisions are technically constrained, and that must be so for society as a whole. Welfare economics advocates direct transfers of resources rather than subsidies if income distribution is regarded as unsatisfactory. It is opposed to an orgy of cross-subsidisation, but recognition of the totality of social costs inevitably. means recognition of cross-subsidisation as a necessity. Preobrazhensky (1965: 81) pointed out that during primitive capitalist accumulation the individual capitalist production 75units could win the battle of competition against petty commodity producers through their superior efficiency. For what he called primitive socialist accumulation the individual firms and factories were technically inferior to the surrounding capitalist world. Their advantage can only lie in a plan of production as a whole. That inevitably means a planned economy gradually developing an alternative criterion of rationality as commodity production is gradually superseded. Dealing with the fact that both costs and selling prices are increasingly known in advance Preobrazhensky explains: "This standardisation leads to both prices and the corresponding rate of profit losing their regulatory character for the distribution of the productive forces, in so far as this distribution is achieved, not in a roundabout indirect, spontaneous way but is directly provided for in the general economic plan of the given year." (ibid p198). As Preobrezhensky emphasises, the law of value becomes increasingly formal in operation. We said at the outset that we would rule out discussion of Marx's ‘higher stage of communism’. A contemporary commentator, Nove (1983)stigmatises the ‘higher phase of communism’ as absurd since it implies abundance. By abundance we mean the sufficiency to meet requirements at zero price. Now surely the task of a plan of production is to raise the level of productivity,in the process equalising the productive powers of labour by eliminating areas of technical backwardness. To go back to our earlier example the taks is provision of enough JCBs so that the choice of digging big holes with shovels simply does not arise. 76According to Nove: "Abundance removes conflict over resource allocation, since by definition there is enough for everyone, and so there are no mutually exclusive choices, no opportunity is foregone and therefore there is no opportunity cost." (ibid p15). “But resources (and time) being finite, everything has an opportunity cost". (ibid pL7). Nove dismisses this as a "golden age, a communist steady state equilibrium. Barbara Wootton on the other hand believes the existence of unemployment undermines the whole neo-classical assumption of economics as about making choices under conditions of scarcity since if the economy can be expanded we can have more of both ‘a! and *b’. In exactly the same way planning diverts our attention from the problem of slicing up a given cake in a optimum way by providing a continually growing cake. (That is not to say that the problem of efficient allocation disappears). For our part, we agree with Lenin (1976: 118-9) who said: "No-one has ever promised or has even thought of introducing (the higher phase of communism) because it cannot be introduced at all". He means it must be allowed to evolve. Our discussion is abstract. That is the way the debate was conducted. Nevertheless, one can discuss the market in general, versus the plan in general, only with serious reservations. The discussion only became relevant at a certain juncture of human history. According to Engels (1959: 369): "Now modern industry, in its more complete development comes 77into collision with the bounds within which the capitalistic mode of production holds it confined" and "modern socialism is nothing but the reflex in thought of this conflict in fact". (ibid p373). This contradiction "brought out the incompatibility of socialised production with capitalist appropriation...the contradiction between socialised production and capitalist appropriation now presents itself as an antagonism between the organisation of production in the individual workshop and the anarchy of production in society generally". (ibid p376). This contradiction is a necessary result of the very development. of capitalism and puts planning on the agenda as the market becomes obsolete. Hoff (1981: 299) recognises this when, in the course of the debate he speaks of the "tendency in capitalism to do away with the price mechanism". Hayek (1935(1): 23-24) also has a premonition of it when he says: "We are certainly as far from capitalism in its pure form as we are from any system of central planning. The world of today is just interventionist chaos’. In conclusion, let Trotsky have the last word (1967: 65- 66): “Phe death blow to money fetishism will be struck only upon that stage when the steady growth of social wealth has made us bipeds forget out miserly attitude towards every excess minute of labour, and our humiliating fear about the size of our ration. Having lost its ability to bring happiness or trample men in the dust money will turn into mere book- keeping receipts for the convenience of statisticians and for planning purposes. In the still more distant future, 78probably these receipts will not be needed. But we can leave this question entirely to posterity who will be more intelligent than we are." BIBLIOGRAPHY 79WORKS CITED Ball, M. - Cost benefit analysis: a critique in Green, F. and Nore, P. (eds) - Issues in political econony (pp 63-87) Baran, P. and Sweezy, P. - Monopoly capital. Penguin, Harmondsworth, 1966 Barone E.~ Ministry of production in the collectivist state in Hayek, F.A. - Collectivist economic planning (pp 245-291) Bergson, A. - Socialist economics in Ellis, H. A. - (ed) Survey of contemporary economics (pp 412-448) Blaug, M. - Economic theory in retrospect. C.U.P., cambridge, 1985 Bornstein, M. (ed) - Comparative economic systems. Chicago U.P. Homewood I11. ist ed 1965 Bornstein, M. (ed) - Comparative economic systems. Chicago U.P. Homewood, T1l. 2nd ed 1969 Buchanan, A.E. - Ethics, efficiency and the market. Clarendon, oxford, 1985 Buchanan, J.M.(ed) - L. S. E. Essays on cost. Weidenfeld, London, 1973 Bukharin, N. I. - Economic theory of the leisure class. Monthly Review Press, N.Y. 1972 Clapham, J. M. — Of empty economic boxes. E. J. 1922 pp 305-314 Conn, D. ~ Evaluation of centrally planned economic systems: methodological precepts. in Zimbalist , A. (ed) - Comparative economic systems (pp 15-46) Dickinson, H. D. - Economics of socialism. 0. U. P. Oxford, 1939 Dickinson, H. D. - Price formation in a socialist community. E. J. June 1933, pp 237 -250 Dobb, M. H. - Argument on socialism. Lawrence and Wishart, London, 1966 Dobb, M. H. ~ Economic theory and the problems of a socialist economy . E. J. ,Dec 1933, pp 588-598 Dobb, M. H., ~ A note on saving and investment in a socialist 80economy in Nove, A. (ed) - Socialist economics pp 113-129 Dobb, M. H. - On economic theory and socialism. Routledge, London, 1955 Dobb, M. H. - Political economy and capitalism. Routledge, London, 1940 Dobb, M. H. - Socialist planning: some problems. Lawrence and Wishart, London , 1970 Dobb, M. H. ~ Welfare economics and the economics of socialism: a commonsense approach. C.U.P. Cambridge, 1969 Durbin E. F. M. - Social significance of the theory of value. E.J. 1935 , pp 700-710 Durbin, Elizabeth ~ New Jerusalems: the Labour Party and the economics of democratic socialism. Routledge, London, 1984 Economist = Marvellous markets: schools brief. Economist 11 Nov 1989, pp90-91 Ellis, H. S. (ed) - Survey of contemporary economics. A.E.A. Homewood Ill., 1948 Engels, F. - Anti-Duhring. F.L.P.H., Moscow , 1959 Explorations in economics: essays in honor of F.W. Taussig. Harvard U.P., Cambridge Mass., 1931 Feinstein C.H. (ed) - Capitalism , socialism and economic growth. Essays presented to Maurice Dobb. C.U.P., Cambridge , 1967 Glyn, A. - Economic case against pit closures. N.U.M., Sheffield 1984 Green, F. and Nore, P. (eds) - Issues in political economy. Macmillan, London, 1979 Halberstam, R. - The reckoning. Bantam , N.Y., 1987 Hall, R. L. - Economic system in a socialist state. Macmillan , London, 1937 Harman, C. - Myth of market socialism . International Socialism 42, London 1989, pp 3-57 Hayek F. A. - Collectivist economic planning. Routledge, London, 1935 Hayek, F.A. - Economics and knowledge (1937) in Buchanan, J. M.(ed) - L.S.E. essays on cost (pp45-67) Hayek, F. A. - Fatal conceit: errors of socialism. 821Routledge, London, 1988 Hayek, F. A. - Nature and history of the problem, 1935(1) in Hayek, F. A. - Collectivist economic planning (pp 1-40 ) Hayek, F. A. - Present state of the debate, 1935(2) in Hayek, F. A. (ed) - Collectivist economic planning (pp 201-243) Hayek, F. A. - Road to serfdom. Routledge, London, 1944 Hayek, F. A. - Socialist calculation : the competitive solution Economica May 1940, pp 125-149 Hayek, F. A. ~ Use of knowledge in society A.E.R., Sept 1945, pp 519- 530 Hoff, T. B. - Economic calculation in the socialist society. Liberty, Indianopolis, 1981 Hutchinson, T. - Significance and basic postulates of economic theory. Augustus M. Kelly , N.Y., 1965 Kautsky, K. - Social revolution and on the day after the socialist revolution. Charles Kerr, Chicago, 1907 Keynes, J. M. - General theory of employment, interest and money. Macmillan, London, 1937 Kidron, M. - Waste. in Kidron, M. - Capitalism and theory. Pluto Press, London, 1974 Lange, 0. R. - Computer and the market in Feinstein, C. H.(ed) - Capitalism, socialism and economic growth (pp 158-161 ) Lange, 0. R. - On the economic theory of socialism in Lippincott, B.(ed) - On the economics of socialism (pp57-143) Lavoie, D. - Rivalry and central planning. C.U.P., Cambridge, 1985 Lange, 0. R. - Political economy. Pergamon, Oxford, 1976 Leibenstein, H. ~ Microeconomics and X-efficiency theory: if there is no crisis, there ought to be. in Bell, D. and Kristol, I.(eds) - Crisis in economic theory (pp97-110) Lenin, V. I. ~ Economics and politics in the era of the dictatorship of the proletariat. F.L.P.H., Peking, 1976(1) Lenin, V. I. - State and revolution. F.L.P.H., Peking, 1976(2) Lerner, A. P. - Statics and dynamics in a socialist economy. E.J. June 1937, pp 253-270 Lewin, M - Disappearance of planning in the plan. Slavic Review, June 1973, pp 271-287 a2Lippincott, B. (ed) - On the economics of socialism. McGraw Hill N.Y., 1964 Little, I - Critique of welfare economics. OUP, Oxford, 1957 McAuley, A.N.D. - Rationality and centrai planning. Soviet Studies, January 1967, pp 340-355 McKenzie, R. B. and Tullock, G. - New world of economics. McCraw Hill, N.Y., 1978 Machlup, F. - On the meaning of the marginal product in Explorations in economics:essays in honor of F. W. Taussig Mandel, E. - In defence of socialist planning. New Left Review 159. Sept-Oct 1986, pp 5-38 Mandel, E. - Myth of market socialism. New Left Review 169, May- June 1988 pp 108-121 Marx, K. - Capital vol 1. Everyman, Dent, London, 1962 Marx, K. - Capital vol 2. Progress, Moscow, 1967 Marx, K. ~ Capital vol 3. Progress, Moscow 1966(1) Marx, K. - Contribution to a critique of political economy. Lawrence and Wishart, London, 1971 Marx, K - Critique of the Gotha Programme. Progress, Moscow, 1966(2) Marx, K - Poverty of philosophy. International Publishers, N.Y., 1967(2) Marx, K - Theories of surplus value, vol 1. Progress, Moscow, 1968 Marx, K. - Theories of surplus value, vol 2. Progress, Moscow, 1969 Marx, K. - Theories of surplus value, vol 3. Progress, Moscow. 1972 Mises, L. - Economic calculation in the socialist commonwealth in Hayek, F. A. (ed) - Collectivist economic planning (pp 87- 131) Mises, L. - Human action. William Hodge, London, 1949 Mises, L. - Socialism. Cape, London, 1936 Mishan, E. J. - Cost benefit analysis. Allen and Unwin, London 1971 Murray, R. - Ownership, control and the market. New Left Review 83164, July-Aug 1987, pp 87-112 Neurath, A.- Durch die Kriegwirtschaft zur Naturalwirtschaft. G.D.W. Callwey, Munich, 1919 Nove, A. ~ Economic history of the USSR. Allen Lane, London, 1970 Nove, A. - Economics of feasible socialism. Allen and Unwin, London, 1983 Nove, A. - Planners’ preferences, priorities and reforms. E.J. June 1966 pp 267-277 Nove, A. ~ Some observations on intersystem comparisons in Zimbalist, A. - Comparative economic systems (pp 47-64) Pigou, A. - Socialism versus capitalism. Macmillan, London, 1937 Preobrazhensky, E. - New economics. Clarendon, Oxford, 1965 Preobrazhensky, E. - From N. to socialism. New Park, London, 1973 Robbins, L. - Autobiography of an economist. Macmillan, London, 1971 Robbins, L. - Economic planning and the international order. Macmillan, London, 1937 Robbins, L. - Essay on the nature and significance of economic science. Macmillan, London, 1935 Robbins, L. - Great depression. Macmillan, London, 1934 Robinson, J. - Economic philosophy. Penguin, Harmondsworth, 1964 Rubin, I. I. - Essays on Marx’s theory of value. Black Rose, Montreal, 1973 Schumpeter, J. A. — Business cycles. McGraw Hill,N.Y., 1939 Schumpeter, J. A. - Capitalism, socialism and democracy. Allen and Unwin, 1950 Schumpeter, J. A. - History of economic analysis. Allen and Unwin, 1954 Shapiro, D. - Reviving the socialist calculation debate: a defence of Hayek against Lange. Social Philosophy and Policy, vol 6 no 2, 1986, pp 139-159 Sraffa, P. - Law of returns under competitive conditions. E.J. Dec 1926, pp 535-550 Sweezy, P. M. - Socialism. McGraw Hill, NY, 1949 Sweezy, P. M. - Theory of capitalist development. Monthly Review, 84N.Y. ,1968 Taylor, F. M. ~ Guidance of production in a socialist state. in Lippincott, B - On the Economics of Socialism (pp41-54) Trotsky, L. D. - Revolution betrayed. New Park, London, 1967 Trotsky, L. D. - Soviet economy in danger. in Trotsky, L. D. - Towards capitalism or socialism? Trotsky, L. D. - Towards capitalism or socialism. New Park, London, 1976 Wiles, P. - Growth versus choice. in Bornstein, M. (ed) - Comparative economic systems, 1965 ed (pp 19-34) Wiles, P. - Political economy of communism. 0.U.P., Oxford, 1962 Wiseman, J. - Theory of public utility price - an empty box. in Buchanan, J. M. (ed) - L.S.E. essays on cost (pp 247-271) Wiseman, J. - Uncertainty, costs and collectivist economic planning. in Buchanan, J. M. (ed) - L.S.E. essays on cost (p229- 243) Wootton, B. - Lament for economics. Allen and Unwin, London, 1938 Zimbalist, A. (ed) - Comparative economic systems. Kluwer, Lancaster, 1984 OTHER WORKS CONSULTED Abramsky, C. (ed) - Essays in honor of E.H. Carr. Macmillan, London, 1974 Archibald, G. C. ~ Welfare economics, ethics and existentialism. Economica, vol 26, 1959, pp 316-327 Auerbach, P., Desai, M., and Shamsawari, A. - Transition from actually existing capitalism. New Left Review 170, July-Aug 1988, Ppp 61-79 Bell, D. and Kristol, I.(eds) - Crisis in economic theory. Basic Books, N.Y., 1982 Bell, D. - Models and reality in economic discourse. in Bell, D. and Kristol, I.(eds) - Crisis in economic theory (pp 46-80) Bergson, A. - Market socialism revisited. Journal of Political Economy, vol 75, 1967, pp 655-673 Bettelheim, B. - Transition to socialist society. Harvester, Brighton, 1979 85Bettelheim, B. - Economic calculation and forms of property. Routledge, London, 1976 Blaug, M. ~ Methodology of economics. C.U.P., Cambridge, 1980 Bleaney, M. - Do socialist economies work? Blackwell, Oxford, 1988 Britain without capitalists (Anon). Lawrence and Wishart, London, 1937 . Brus, W. - Remarks on the problem of marginal accounting in socialist economy. in Lange, 0.(ed) ~ Problems of the political economy of socialism (pp 171-191) Brutzkus, B. ~ Economic planning in Soviet Russia. Routledge, London, 1935 Buchanan, A.E. ~ Ethics, efficiency and the market. Clarendon, oxford, 1985 Bukharin, N.I. and Preobrazhensky, E. - ABC of Communism. Penguin, Harmondsworth, 1969 Bukharin, N.I. - Economics of the transformation period. Pluto Press, London, 1974 Bukharin, N.T. - Selected writings on the state and the transition to socialism. Spokesman, Nottingham, 1982 carr, E.H. - Soviet industrialisation. in Feinstein, C.H.(ed) - Socialism,capitalism and economic growth (pp 271-284) Dasgupta, P. - Utilitarianism, information and rights. in Sen, A. and Williams, B. (eds) - Utilitarianism and beyond (pp 199-218) Davies, R. W. ~ Aspects of Soviet investment policy in the 1920s. in Feinstein, C.H.(ed) - Socialism, capitalism and economic growth (pp285-307) Davies, R.W. - Economic planning in the USSR. in Bornstein, M. (ed) - Comparative economic systems, 1969 ed (pp 253-267) Day, R.B. ~ Leon Trotsky and the politics of economic isolation. C.U.P., Cambridge, 1973 Devine, P. - Democracy and economic planning. Polity Press, Oxford, 1988 Dickinson, H.D. - Economic basis of socialism. Political Quarterly, Sept-Dec 1930, pp 561-572 Dickinson, H.D. - Labour theory of value and marginal utility. notes to an article by L. Johansen. Economics of Planning, vol 3, 86Sept 1963 Dickinson, H.D. - Review of Hoff "Economic calculation in socialist society". E.J. June - Sept 1940. pp 270-274. Dobb, M. H. - Economic theory and a socialist economy: a reply R.E.S. May 1935, pp 144-151 Dobb, M. H. - Economists and the economics of socialism. Modern Quarterly, vol 11 no 2, April 1939(2) Debb, M.H. - Essay on economic growth and planning. Routledge, London, 1960 Dobb, M. H. - Review of "Economics of socialism’ by H. D. Dickinson in Science and Society, 1940(2) Dobb, M. H. - Review of the discussion concerning economic calculation in a socialist economy (1953) in Dobb, M. H. - On economic theory and socialism Dobb, M. H. - Some historical reflections on planning and the market in Abramsky, C.(ed) - Essays in honor of E. H. Carr Dobb, M. H. - Soviet economic development since 1917. Routledge, London, 6th ed 1966 Durbin, E. F. M. - Economic calculus in a planned economy, E.J. Dec 1936, pp 678-690 Durbin, E. F. M. - A note on Mr Lerner’s dynamical proposals. Had. Sept 1937, pp 577-581 Elster, J. - Sour grapes , utilitarianism and the genesis of wants. in Sen, A. and Williams, B. - Utilitarianism and beyond Elson, D. - Market socialism or socialisation of the market? New Left Review 172, Nov-Dec 1988 Erlich,B. - Soviet industrialisation debate. Harvard U.P., Cambridge, Mass, 1960 Fine, B. - Marx on economic relations under socialism. in Matthews, B. - Marx:100 years on Fine, B. - Theories of the capitalist economy. Edward Arnold, London, 1982 Gamble, A. - Capitalism or barbarism: the Austrian critique of socialism. in Socialist Register 1985-86, Merlin, London, 1986 Gourvitch, A. - Problem of prices and valuation in the Soviet system. A.E.R. supplement, March 1936, pp 267-282 Hahn, F. - General equilibrium theory. in Bell, D. and Kristol,I. 87(eds) - Crisis in economic theory (pp 123-138) Hahn, F. - On some difficulties of the utilitarian economist in Sen, A. and Williams, B. - Utilitarianism and beyond (pp 187-198) Halm, G. ~ Further considerations on the possibility of adequate calculation in a socialist community. in Hayek, F. A. (ed) - Collectivist economic planning Harrison, M. - Soviet economy in the 1920s and 1930s. in Capital and Class no 5, Summer 1978, pp 78-94 Hayek, F. A. - Free enterprise and competitive order. in Hayek, F. A. - Individualism and economic order (pp 107-118) Hayek, F. A. - Individualism and the economic order, Routledge, London, 1988 Hayek, F. A. - Meaning of competition. in Hayek, F. A. - Individualism and the economic order (pp 92-106) Haynes, M. ~ Extent and nature of waste and inefficiency in the Soviet Union, unpublished, no date Haynes, M. - Nightmare of the Market. International Socialism 41, 1988 pp 3-47 Heller, A. - Theory of Need in Marx. Allison and Busby, London, 1976 Kaldor, N. - Review of Karl Landauer’s "Planwiertschaft und Verkehrschaft" E.J. 1932 pp276-281 Kalecki, M. ~ Outline of the method of constructing a plan. In Nove, A (ed) - Socialist Economics (pp 213-222) Kantorovitch ~ Mathematical formulation of the problem of optimal planning. In Nove, A (ed) Socialist Economics (pp 435-468) Kirgner, I.M. — Austrian perspective on the crisis. In Bell, D. and Kristol, I. (eds) - Crisis in Economic Theory (pp 111-122) Knaack, R. ~ Dynamic comparative economics: lessons from socialist planning. In Zimbalist, A. (ed) - Comparative economic systems Knight, F.H. - Place of marginal economics in a collectivist system. A.E.R. supplement March 1936 (pp 255-226) Kornai, J. - Mathematical programming as a tool of socialist economic plan. In Nove, A. (ea) Socialist Economics (pp 475-488) Kristol, I. - Rationalism in Economics. In Bell, D. and Kristol, I. (eds) - Crisis in economic theory (pp201-218) 38Iandauer, C. - Value theory and economic planning. Plan Age vol 3, October 1937, pp 217-224 Lange, 0.R. - Marxian economics and modern economic theory. R.E.S. June 1934 Lange, 0.R. - Marxian economics in the USSR. A.E.R. March 1945, pp 127-135 Lange, 0.R. - Problems of the political economy of socialism. Peoples Publishing House, New Delhi, 1962 Lange, 0.R. ~ Role of planning in a socialist economy. In Lange, 0.R. Problems of the political economy of socialism Lerner, A.P. - Economic theory and socialist economy. R.E.S. vol 2, Oct 1934, pp 51-61 Lerner, A.P. - Economics of control. Macmillan, New York, 1944 Lerner, A.P. - Rejoinder to Mr Dobb. R.E.S. May 1935 pp 152-154 Lerner, A.P. - Note on socialist economics. R.E.S. vol 4 no.1, Oct 1936, pp 72-76 Lerner, A.P. ~ Theory and practice in socialist economies. R.E.S. vol 6, 1938, pp 71-75 Levine, A. - Arguing for socialism. Verso, London 1988 Lewin, M. ~ Political undercurrents in Soviet economic debates. Pluto, London, 1975 Lieberman, M. - Profit and Profits. Labour Monthly, Dec 1965, pp 542-547 McKee, B. - Market economy or socialist plan? Militant International Review 38, Autumn 1988 pp 26-31 Marx, K. - Grundrisse. Penguin. Harmondsworth 1973 Mandel, E. ~ Marxist economic theory. Merlin, London, 1968 Mandel, E. - Ten thesis on the social and economic laws governing a society transitional between capitalism and socialism. Critique no 3, Glasgow, 1975, pp 5-21 Matthews, B.(ed) - Marx:100 years on. Lawrence and Wishart, London, 1983 Meyer, G. - Contribution to the theory of socialist planning. Plan Age vol 3, Oct 1937, pp 209-216 Milenkovitch, D. D. ~ Is market socialism efficient? in Zimbalist, A. (ed) - Comparative economic systems (pp 65-102) Mosse, R. - Theory of planned economy. Plan Age vol 3, Oct 1937, 89pp 193-208 Mumford, L. - Technics and civilisation. Routledge, London, 1934 Nove, A. - Mandel on planning. New Left Review 161, Jan-Feb 1987, Pp 98-104 Nove, A. - Marxism and ‘really existing socialism’. sTBS, Harwood, N.¥., 1986 Nove, A. - Politics of economic rationality: observations on the Soviet economy. Social Research vol 25, 1958, pp 127-144 Nove, A. (ed) - Socialist economics. Penguin, Harmondsworth, 1972 Nuti, D. M. - Contradictions of socialist economies. in Soci: Register 1979, Merlin, London, 1979 (pp 228-273) Ollman, B. - Marx"s vision of communism. Critique 8, Glasgow, 1977, pp 4-42 Pierson, N.G. - Problem of value in the socialist society. in Hayek, F. A. (ed) ~- Collectivist economic planning (pp 41-87) Preobrazhensky, E - Crisis of Soviet industrialisation. Macmillan, London, 1980 Rakovsky, C. - Five year plan in crisis. critique 13, 1981, Glasgow, pp 7-54. Robinson, J. - Consumer’s sovereignty in a planned economy. in Nove, A. ~ Socialist economics (pp 263-274) Robinson, J. - Fundamental objection to laissez-faire. E.J. Sept 1935, pp 580-582 Robinson, J. - Socialist affluence. in Feinstein, C. H. - Socialism, capitalism and economic growth Roper, W. Crosby ~ Problem of pricing in a socialist state. Harvard U.P., Cambridge, Mass, 1931 Rosdolsky, R. - Making of Marx's Capital. Pluto, London, 1977 Rothschild - Socialism, planning, economic growth. in Feinstein, C. H. (ed) ~ Socialism, capitalism and economic growth (pp 162- 175) Rubin, I. I. - Abstract labour and valuue in Marx’s system. in Capital and Class 5, Summer 1978, pp 107-139 Selucky, R. - Marxism, socialism and freedon. Macmillan, London, 1979 Sen, A. - Collective choice and social welfare. Oliver and Boyd, 90London and Edinburgh, 1970 sen, A. and Williams, B. (eds) - Utilitarianism and beyond. C.U.P., Cambridge, 1982 Sik, O. - Socialism, market relations and planning. In Feinstein, C.H. (ed) ~ Socialism, capitalism and economic growth. (pp 133- 157) Socialist Register 1979. Merlin, London 1979 Socialist Register 1985-86. Merlin, London 1986 Sweezy, A.R. - Economists’ place under socialism. In Explorations in economics: essays in honour of F.W. Taussig (pp442-443) Ticktin, H.H. - Class structure of the USSR and the elite. critique 9, Glasgow, 1978 pp 37-61 Ticktin, H.H. - Contradictions of Soviet sociaty and Professor Bettelheim. Critique 6, Glasgow 1976 pp 17-44 Ticktin, H.H. - Is Market socialism possible or necessary? (Symposium on market socialism led by W. Brus and H.H. Ticktin) Critque 14, Glasgow (pp13-39) Ticktin, H.H. - Socialism, the market and the state: another view. socialism versus Proudhonism, Critique 3, Glasgow 1975 Ticktin, H.H. - Towards a political economy of the USSR. Critique 1, Glasgow 1974 Trotsky, L.D. - Challenge of the left opposition 1926-27. Pathfinder, NY, 1980 Trotsky, L.D. - Challenge of the left opposition 1928-29. Pathfinder, NY, 1981 Trotsky, L.D. - Third International after Lenin. New Park, London, 1974 Trotsky, L.D. - Where is the burueaucracy leading the USSR?. In Trotsky, L.D. - Writings 1934-35. Pathfinder, NY, 1971 Wienstein, S. - Notes on optimal planning. In Nove, A. (ed) Socialist Economics (pp 469-474) Wooton, B. - Plan or no plan? Allen and Unwin, London, 1934 91