How do Socialists respond to the Austrian School's "economic calculation problem" criticism?

[Marvin the Martian]

Which, simply put, postulates that resources are allocated much more efficiently and rationally in a Free-Market economic system in comparison to a Socialist economic system.

[Brian]

They don't, other than claiming some sort of bias or mistake..

[SomeGuy]

Funny.
When I was in business school, there was a separate class we had to take for the economics of healthcare.
It just doesn't follow the same rules as a can of cream corn.

[yoselahonda]

Socialists have never been worried about efficiency. If that were the case, Socialism might actually work. Instead, Socialists are more worried about what is "fair" or what we "deserve".

[coyotecoup]

A good working system can be neither completely "free-market" nor "socialist". A good system requires both. Both have their place.

[Buzz Kill]

That is one of the few decent questions I've ever seen a conservative ask, The only problem with it is that there are so few socialists around to answer it.

[Party Marty Graw]

I am a zany free market Marxist tycoon who graduated from the Serbian School of Socialist Strategies. I believe that the best economic policy is one that puts all private income in the hands of the state to be handed out in dribbles and dabs to only those who will beg for it.

[j p]

I have to respond to Nokilleye's long, and honestly absurd post. First, let me say that I am not bashing her personally. I respect her, although her opinions are, frankly, bizarre in some cases. Like this one. To say that the value of anything can be scientifically and objectively ascertained is ridiculous. "Value" cannot be objectively determined because it is, in itself, a subjective measure. To say that the value of an apple is always an apple is merely circular reasoning which gets us nowhere. And to say that an apple is not worth more because a group of superstitious idiots merely supposes its worth is a direct contradiction of the definition of "value." A thing is worth whatever people think it's worth, and the measure of that worth is what the market will pay for it, not what a group of scientists determines is its "objective" value. Let's take the diamonds vs. water example. Leaving scientific and industrial uses aside, diamonds have very little "objective" value. Water, on the other hand, is absolutely essential for life. Why, then, do diamonds cost so much more than water? Our socialist friends might claim this is only an artifact of some mass hysteria. That the "idiots" have vastly miscalculated the actual worth of diamonds and are being duped by their own superstitions. Nonsense. Diamonds are worth more: (A) because they are relatively rare, and (B) because people want them for whatever reason. And for that reason, they're expensive. More expensive than water. If we are to buy into the reasoning Nokilleye advances, who then determines what is produced, and who gets what? Frankly, I don't want a system where a rarefied group of "scientists" is making determinations as to the value of all things, and imposing it on the rest of us. Perhaps I am one of the superstious "idiots" that she refers to. But dammit, if I want diamonds, and I'm willing to work for them that should be my choice, not hers.

[Joe S]

The only serious response from a socialist was from one of my contacts: nokilleye, whose star directed me here. Her answer, it seems, is with knee-jerk reactions to what she perceives as flawed premises in capitalism. If she even understands at a fundamental level what is the economic calculation problem as described Ludwig von Mises (generally accepted as the founder of the Austrian school), she has failed to demonstrate such an understanding as far as I can tell.

The suggestion by yoselahonda is reasonable. A person dedicated to first understanding the matter could read Mises most familiar enunciation of the problem here [1]. I also think that this source [2] is useful in summarizing the matter though he gets bogged down, I think, in discussing the various literatures.

A socialist who actually understands the argument could respond in a number of ways. For one, there is the question of what “socialism” means. To be sure, we would have to exercise caution that, for someone’s position on socialism, to invoke Mises is to engage in a straw man argument. I think that Mises tried to be explicit about what he criticized. Still, a useful debate would first establish that we are all debating the same points.

Another response was admitted by Mises himself. His contention was that socialism could not calculate in order to continue the advanced consumption that we enjoy. Socialism could be feasible, especially on smaller scales, if its practitioners were willing to subsist at more primitive levels. Many socialists complain about our obsession with consumption, arguing that it fails to make us happier. Their arguments have merit. Adopted voluntarily, I think that emphasis on non-material wealth would considerably enrich society. However, the idea of forcing those decisions through socialist states (not what every socialist endorses) is a horrible idea. Discussing its consequences goes beyond the economic calculation debate.

Having been directed here by nokilleye, I hope that you will forgive me if I respond to her reasoning:

Her very first paragraph displays her *gross* (with all due respect to her, I mean that in the strongest term) lack of knowledge for even the most fundamental knowledge of the Austrian school of thought. Austrian economics attempts to study human action generally. Far from prices being “organically occurring elements of a product, independent of human thought or action”, Austrians explicitly state that prices arise directly from human action. To whit, individuals place varying degrees of value on goods. These varied valuations lead to exchange. A shoemaker may value a dozen loaves of bread more than a baker who values a pair of shoes more than the bread he has just baked. This exchange could be enacted by simple barter. However, more complex society (notice I don’t write “economy”) requires a great deal more exchange to operate [3]. This embarks us upon the economic calculation debate though I will allow readers to review the supplied sources without elaboration on my part.

“Value is NOT subjective, ” says nokilleye. But it is. True, to mistake an apple for something else is just to reveal poor perception powers. But does one value apples over oranges? How about the same weight of fine caviar? Does one value an apple over a new shirt? If food is sufficiently scarce, one might value an apple over a new sports car. Thereby, you see that valuations are not static. In our thankful situation of abundance (only made possible by social cooperation on a vast scale – the debate here being the role of economic calculation in that cooperation), apples are valued so little only because they are so abundant. Their low market price signals that more resources are not as urgently required to produce apples. Those resources are directed toward uses that are more urgently called for.

At the risk of belaboring the issue, even the value of gravity is subjective. Note that its nature is not. Placed in close proximity to a massive object such as the earth, objects will tend to accelerate to meet it. However, its value is subjective. Gravity is valued very low by a person who has just fallen off a cliff. He would have avoided it entirely if he could have. On the other hand, a person attempting to build a machine may value it very highly if he can employ it to assist its workings. Such a machine would have an advantage over another design which required burning fuel or even manual labor. That advantage is revealed through subjective market prices.

The remainder of nokilleye’s post could be turned upon itself. Socialism could be charged as a superstition, its premises portrayed as flawed and assumptions uncontested (at least by its adherents – of course; socialism, capitalism and nearly every other body of ideas has been contested at some point). I won’t attempt to so broadly paint socialism here. While I do find flaws in many of its precepts (among which is the failure to even perceive the economic calculation problem, let alone respond to it), I have actually come around to seeing the merits in some of their views even if we disagree on the proper course of action.

nokilleye is strong in her condemnation of capitalism. In many ways, as practiced in our society, her condemnation is just. I share it with her. She does not seem to have attempted to discover what the economic calculation problem was, reasoning, I suppose, that if it condemned socialism, it must try to support the things that she rejects in capitalism. Rather than engaging in such assumptions, I encourage her and other interested readers to actually explore the ideas. No doubt, her preconceived values (also subjective, it seems, as are mine) would make her as ill-disposed to full acceptance as am I of socialism on reading its works. Yet I have found myself discovering the merits of socialism while reading the likes of Marx’s Communist Manifesto though obviously I have not fully accepted it.

Thanks to anyone who bothered to read my lengthy essay. This is entertaining to me as I explore my own thoughts. I hope that it will be useful to others.

ADDITION for nokilleye: It is possible that you do understand the concept, but (in my opinion) you didn't demonstrate it. I write that because you never discuss what the economic calculation problem is. While your criticisms of capitalism were worth their own debate, I did not see a connection to the problem at hand.

In any event, in reaction to Sowcratees (to whom I will respond below), since I also conside you a friend (at least as much as can be considered only through only contact in this forum), I apologize if you found anything that I have written offensive (also gleaned from you since you appear to have stopped reading after the 1st paragraph). It's easy to lose your manners under the cover of anonymity. I will continue to debate my view strongly but want to accept my share of the burden to keep it respectful.

ADDITION to Sowcratees:

While I don't like to be called a "pretentious boob", I appreciate the feedback. Much of my writing reflects me being caught up in my personal musings. However, being public (and especially with much of it directed at an individual other than the asker in this case), it is better to make it persuasive. My greatest problem has always been to get to the point without such lengthy essays [to be fair, nokilleye has that same problem - I think she'll admit it if you ask her]. Your feedback is valuable because I want to know when my writing fails to be persuasive though it may have failed with you for personal reasons (you saw it as attacking a friend).

Being in defense of a person I think worth defending, I will take it easy in responding to your personal attacks though I *will* defend myself. First, it is probably best to respond softly with a concession. In all likelihood, nokilleye knows Mises as well or better than I know Marx. If I was inadvertently "bragging" about my reading of Marx, I agree that I was being foolish. My intent was not to brag but to state that my reading of Marx was beneficial. I learned more about socialist positions and actually changed my attitude in some respects favorably in their regard. If you continue to think that is pretentious, then we have nothing more to say to each other.

More in my defense, the only "shot" that I have intended to take against nokilleye is that she has not demonstrated an understanding of the topic at hand and that her response has been off-topic. I continue to take that shot even if I risk offense. While I accept the burden to communicate in such a way as to be understood and to maintain respect, I will not allow anyone to disarm me of legitimate debate tools. It is fair to argue that nokilleye, though she too engaged in a "long speech", did not really address the topic. If she says that she has read Mises, I believe her. But I remain inclined to think that she has not understood him on this matter, or if she has, she has not come up with a reasonable answer. Pointing to supposed flaws in capitalism (which are debatable themselves) does not qualify in my opinion. To qualify, she would need to explain how those flaws invalidate the calculation problem (which she has not even defined).

Regarding your expectation that I will praise you for your "subjective emotional reasoning", it's not so much that I value subjectivity as I believe it is inevitable. To be sure, friendship is very subjective and very valuable. While I think that your response was more "emotional" than "reasoning", I will gladly praise you, at least, for your friendship. Contrary to the capitalist cariacature, I value and recognize forms of exchange even when they don't involve the exchange of money.

[D S]

1. Economics is not a science
2. No economic theory (and there are not that many) has every been able to actually reflect reality or have predictive qualities (and I have studied and tried to prove a few statistically and practically)
3. Neither socialism nor capitalism in their pure form have ever existed
4. No economist has ever had to respond to another school's criticism, since there is no theory working in any real time that is measurable, so nobody can disprove the mindless drivel/postulates that economists write.

Humans have found out over the centuries that a combination of co-operation and competition works best and that to organise in groups with similar objectives (pooling of resources) is useful.
Anything beyond that has developed and is changing 'accidentally' into all directions.
So, don't get so uptight about being capitalist, socialist, communist, atheist, believer of the FSM or any other theory. It won't help your long-term survival.