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Socialism: Now with Computers!

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Tags Calculation and KnowledgeEntrepreneurshipOther Schools of Thought

The failures of socialist states are obvious and horrifying, yet there never seems to be a shortage of intellectuals eager to churn out new schemes for central planning. Malcolm Harris discusses the latest of these suggestions, which claims that the traditional economic problems of socialism can be resolved by harnessing the power of modern data collection and computing, through a kind of “cyber Stalinism.”

As it happens, this argument is not new. It was first made in the early days of computing by the market socialist Oskar Lange, whose followers revive it from time to time. In all its forms, however, it remains unconvincing.

The idea is simple enough: even though central planners face serious problems when it comes to gathering data about preferences, production plans, and technology, these problems can be overcome through computers, which make it possible to instantly collect and transmit an enormous amount of data. Relevant knowledge can thus be made available to guide the planners, who are then able to figure out what people need and how best to use scarce resources in order to produce it.

Despite its optimistic outlook, however, this blueprint for successful techno-socialism only serves to highlight the importance of Mises’s arguments about the impossibility of central planning. Sadly, although his work initially defined the economic debate over socialism, today Mises’s contributions are sometimes overlooked, or are conflated with other critiques. However, his treatment remains the most vital criticism of socialism in all its forms.

Mises argued at length that the fundamental problem under socialism is a lack of monetary calculation. Under socialism, entrepreneurs do not own the factors of production, and thus cannot exchange them. They are therefore unable to appraise the value of the factors in money terms, and thereby generate a system of market prices. Without a price system created by entrepreneurs, rationally allocating resources becomes impossible.

Mises’s approach is vital for techno-socialism, because it shows that the feasibility of central planning doesn’t depend on the amount of information available to planners, or the methods they have for collecting and interpreting data. Even if we assume that central planners possess all relevant information about consumer preferences, resource availabilities, and the current state of technology, they still can’t construct a price system in the way entrepreneurs do from moment to moment in real-world markets (Mises argues just this in one of his later papers). The bottom line is that the problems of socialism are not technological, but institutional. Consequently, attempts to fabricate prices are merely “playing market,” as Mises would say.

In fact, even if we assume away the calculation problem, socialism still has to overcome a wide range of knowledge and incentive problems as well. And even if we assume those away, it’s still debatable whether computers really have the power to plan for the economy. As Lucas Engelhardt argues, even with the most heroic assumptions about the knowledge and processing power available to planners, it would still take eons for computers to determine the optimal allocation of resources, even for simplified economies.

In any case, Mises’ critique of central planning remains definitive. For almost a century, he and other Austrians have shown that no matter how charitably we interpret socialism, it cannot imitate an entrepreneurial economy. The tens of millions of lives that have been destroyed by socialism are a sad testament to the consequences of replacing peaceful market exchange with a central plan.

Matt McCaffrey, former Mises Research Fellow, is assistant professor of enterprise at the University of Manchester.

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