The Socialist Calculation Debate: Me Against the World
Well, not quite the world, but in the latest issue of Critical Review I debate Pete Boettke, Pete Leeson, David Gordon, Rodolfo Gonzalez, and Ed Stringham. The subject: My earlier CR article, “Is Socialism Really ‘Impossible’?”, which argued that the Austrians have (a) no sound theoretical argument that lack of calculation makes socialism impossible, and (b) no good empirical evidence that lack of calculation was the main reason for the economic failures of socialism:
The collapse of Communism has led many to proclaim that “Mises was right.” Yes, he was right that socialism was a terrible economic system; indeed, only the collapse of Communism has shown us how bad it really was. However, history does nothing to show that economic calculation was the difficulty facing socialist economies. There is no instance of a socialist economy that suffered solely from its lack of economic calculation. Indeed, the experience of collectivization in less-developed economies comes close to the opposite natural experiment: since calculation had generally not taken root in these places to begin with, the subsequent dislocations must be largely chalked up to bad incentives.
So what do my critics have to say? Boettke and Leeson stand their ground, and claim that I just don’t understand Mises’ proof. Gordon, Gonzalez, and Stringham admit that Mises doesn’t have a proof, but argue that the Austrian position should be interpreted as an empirical claim, anyway.
My favorite part of the debate: Gonzalez and Stringham argue that the Soviets didn’t know how to improve incentives, so the root of their economy’s distress was a knowledge problem. I respond:
Hedrick Smith (1974, 281-84) reviews a number of Soviet agricultural experiments that sharply increased output with better incentives alone. The most notable was the “link” system, which made the pay of small teams of farmers proportional to their harvest. “The theory was simple: If pay depended on results and the work force was organized in small enough units, each individual could see the benefit of producing well, just as on a private plot” (ibid., 281). Productivity skyrocketed without any help from economic calculation. In one experiment, a “10-man link could triple the yield of tract normally worked at various times by 80 people.” In another, “labor productivity . . . was 20 times higher than on neighboring farms.” (ibid, 281-2)
If GS and Olson were right, the Soviet system would have eagerly adopted the link system. They could have raised lump-sum taxes substantially without even starving anyone. Instead, the experiments were closed down. Ivan Khudenko, the brains behind the biggest experiment, was sent to die in prison. As a Soviet journalist explained, “The experiment lasted only for one harvest and then it became clear that if Khudenko was right, the entire agricultural leadership was wrong” (ibid., 283). Once again, the bad incentives of socialist leaders were the foundation for the bad incentives of socialist workers.
This exchange confirms my suspicion that a sure-fire cure for loneliness is to attack Austrian economics. As Harold Demsetz knows, once you argue with the Austrians, you’ll never be ignored again!