the great socialist calculation debate Flashcards
what is the great socialism calculation debate about?
marx says there is an inevitable fall in capitalism due to the contradictions and then society will transition to a socialist system with a centralised planning. however marx does not tell us how the economy is supposed to be organized after the price mechanism is gone. the great socialist calculation debate is about how the system will be organised. it is a technical limited debate that takes for granted the collapse of capitalism. there was no experience at the start of the debate about the socialist planning so it was purely theoretical. however the rise of the soviet union changed the focus of this debate.
what was the ultimate contribution of the great socialist calculation debate?
the end of the debate was to state that the original question was wrong. we know extremely little about the price mechanism.
who was enrico barone?
he was a student of pareto. he was apart of the mathematical school (marganlists and neoclassical). he published an article that started the debate by saying that suppose we take for granted that there is a socialist organisation of the economy, how will the allocation of resources be done. he was not a socialist but just argued that it was feasible for a socialist method of production
what are the two questions of enrico barone?
would it be beneficial to have a socialist method of production and how would you organise production in a socialist regime? he was much more interested in the second question.
how did enrico barone believe production under a socialist regime would be organised?
walrus described the workings of a free market economy determined this by a system of general equilibrium which is arrived at by mathematical equations which represent the demand and supply of each good. barone argued it is no different under a collectivist planner saying how it will still be a system of solving simulatenous equations. instead of a profit motive we will have to reverse the problem and aim the production for the minimisation of costs (very similar situation as in order to maximise profits you need to minimise costs). place a mandate on producers to operate at lowest cost. his conclusion basically says that the economy will behave in the same way under a collectivist planning system.
what was the effect of the russian revolution on the great socialist debate?
it put more importance on determining if the socialist system was feasible. you could not ignore the existence of the socialist system of production
who was ludwig von mises?
he was apart of the austrian school of economics. he argued that there should be economic liberty and allow the free market to operate without government intervention. he believed the socialist system would always fail and cannot be done. “ every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics
why is the interest rate so important to Austrian economics and how did this back mises arguement?
it represents the compensation for tying up capital over a period of time. the school differentiates between shorter and longer types of production. shorter ties up capital for smaller period of time so does not require as high an interest rate. as far as final goods are concerned baroni would be right. however von mises argues that the collectivist planner will never get the interest rate correct which compensates the the capital and the factors of production. if you cannot get the interest rates right then nothing is ever going to work as because the final goods are final so what you produce at the end, you previously needed to have produced the capital goods or the goods of higher order.
who was Fred M taylor?
he was the president of the american economic association. he gave a presidential address which largely was a direct response to mises argument
what was the impact of the wall street crash of 1929 and the great depression?
there was no questioning in the ability of the free market economy to become bigger and better up until the wall street crash of 1929. marx message was ignored until this point but when the crash occurred there was a fall in confidence.
what was Fred M taylors arguement?
assume there is a collectivist planner who will dictate how much of specific goods are going to be produced and record this data. they are going to originally direct production on the basis of a first guess to the price of the factors of production. each producer are dictated to minimise costs. the planning committee then review after a production period and see which factors of production were too high and economised and those with too low so they were over utilised. the planning committee will then alter these prices in order to place them at the optimal equilibrium price. it is a system of trial and error.
