Don Lavoie on the Socialist Calculation Debate
By David Henderson
The late Don Lavoie was one of the most informed and insightful modern economists on the ins and outs of the famous “socialist calculation debate.” One socialist economist who thought he had solved the problem was Fred M. Taylor, who spoke about it in his December 1928 presidential address to the American Economic Association. Here’s what Lavoie writes about Taylor’s purported solution:
In the first part of Taylor’s discussion, he poses the problem, How should socialist decision makers allocate resources? Under the assumption that they are able to make rational judgments of the “effective importance” (or the producer and consumer evaluations) of the resources in question. The effective importance of any factor is to be “derived from and determined by the importance of the innumerable commodities which emerge” from “the vast complex of productive processes in which it participates” and is to be “embodied . . . in arithmetic tables” that Taylor calls “factor-valuation tables.” (p. 46). These tables are supposed to take the place of money prices under capitalism in supplying quantitative information concerning the relative “effective importances” of the various factors of production. For the first two-thirds of his paper, Taylor explicitly assumes “that the authorities of our socialist state will have proved able to ascertain with a sufficient degree of accuracy these effective importances or values of all the different kinds of primary factors (p. 46), but the (dynamic) question of how to ascertain these values–that is, of how to fill in the factor-valuation tables with the right numbers–is taken up in fewer than five pages at the end of his paper.
It should be evident, in the light of the preceding chapter, that Taylor’s first problem begs the question of the calculation difficulty that had been raised by Mises, whose argument was that money prices are the only workable indicators of the relative “effective importances” that Taylor assumes are already embodied in factor-valuation tables. It surely would not have surprised Mises that if one assumes that these tables contain the same knowledge that competitive bidding imparts to prices under capitalism, the calculation problem is easily solved.[italics added]
I would have loved for the next sentence to be, “But factor-valuation tables without actual market prices are like Hamlet without the Danish prince.”
This quote is from Don Lavoie, Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered, Cambridge University Press, 1985, p. 87.