ANDREW: From earlier discussions it is clear that the
decentralised self-regulating model of socialism -
calculation-in-kind and the law of the minimum - has
no way of ascertaining opportunity costs.
It therefore has no way deciding between between
projects (cf RS's question). For example, if a bridge
is desired - What materials should be used? What
design should be used? etc etc. With no cost
information to inform these decisions, no rational
attempt at efficiency is possible. It's just hit and
miss (bureaucratic whim).
All it has is ways of economising on single projects.
Once you have already decided on which design of
bridge, which materials, etc, you can keep your costs
to a minimum. But whether the project should be
undertaken at all - in preference to other uses of the
resources - is impossible to determine.
In short, decentralised socialism addresses technical
efficiency, but not economic efficiency. For this
reason alone it cannot possibly work.

ROBIN: This is quite incorrect. Andrew refers to some of the features of
what he calls decentralised socialism but for some strange reason seems
reluctant to consider their theoretical significance in relation to the point
he raises. Which is perhaps why his response reads somewhat like a tract
regurgitated from some students' economic textbook. In short he is not at all
engaging with the model of decentralised socialism (DS) he purports to
critique.

Does he understand the significance of the law of the minimum for example
which he blandly cites but does not deal with? He asserts that DS address
technical efficiency but not economic efficiency. But the "law of the
minimum" precisely addresses the later! It basically requires that
production units economise most on those factors that are scarcest - that
constitute the limiting factor on the production on any given good - and this
basic imperative would operate willy nilly across the board throughout the DS
production system and at every point in the production chain

Its operation is made possible by the very fact that such a system would be a
decentralised one where the co-ordination of decisions is arrived at through
- in the main - a self regulating system of stock control. This would permit
production units to ascertain the available supplies of stocks of inputs
required for the production of any given output and if necessary to modify
the technical composition of inputs in line with this by for example opting
for more abundant substitutes in place of factors that are difficult to
obtain i.e. relatively scarce. Since most factors of production have
multiple end uses, it is quite ludicrous to suggest as Andrew does that "all
it (DS) has is ways of economising on single projects". On the contrary,
since the same factor may be shared many different kinds of projects, its
relative scarcity will trigger the search for more abundant substitutes
across the board while its actual allocation between these different end uses
can be determined by their relative position within a broad hierarchy of
socially agreed priorities. This is admittedly not an exact science - it
does not need to be - but the basic imperative of economising resources
relative to their comparative scarcity would nevertheless be in place and
fully operative at a systemic level thus refuting Andrew's unsubstantiated
allegations about socialism's inability to address economic efficiency


ANDREW: It has the same underlying problem that centrally
planned socialism has - a lack of an accounting unit,
without which rational economic calulation becomes
impossibly complex. Money solves this problem
virtually costlessly, by providing a common measure of
different things, thereby obviating the need for
millions of further calculations (ie all the decisions
that go into making products).

ROBIN: Andrew shows here that he understands little about the process of
production under capitalism if he imagines "money solves this problem (of
rational economic calculation) virtually costlessly". Not only is there no
need for a common measure of accounting to organise production as such - in
fact the "need" for such a common measure arises purely out of the exigencies
of economic exchange and hence a property based society - but in fact the
existence of money, or more acccurately, a social system requiring money to
mediate supply and demand, imposess a MASSIVE and steadily growing structural
cost on the production system. Andrew could not be further than the truth
when he contends that money solves the problem of economic calculation
"virtually costlessly". Well over half of all the formal economic activity -
some would put the figure much higher - in an advanced capitalist economy
such as Britain or the USA is socially unproductive or useless. That is, it
does not contribute one iota to people's real needs; it is neccessitated by
the functional or systemic requirements of capitalism qua capitalism. Think
of the entire banking sector, retailing, insurance, most advertising,
armaments producers , ticket collectors and so on and so forth. All this
would disappear in a socialist society and the labour and resources
inefficiently tied up in these useless activities would be redirected
towards socially useful ends



ROBIN
we know that an opportunity cost is the best
Aternative that you forego but how exactly does money
enable you to decide that.
ANDREW: By showing you what else you could have instead.
If a pen is twice as expensive to produce as a pencil,
I know that if I choose a pen I forgo (amoungst other
things) two pencils. With money there is this one
simple decision. Without money there would be
thousands if not millions of calculations and
comparisons to make before I can rationally decide
(what materials are used, etc etc ad infinitum). It
just isn't practical.

ROBIN: But this is plainly nonsense. If a given factor of production is
scarce and is potentially usable amongst 3 end uses, it is not that difficult
to calculate how much of that factor would be left over to allocate to the 2
other uses if you allocated most of it to the first one. You would
presumably allocate it first to the most desirable end use, then to the next
and finally to the the third one in that order. The opportunity cost of
allocating factor x to end use 1 is that you have less of it to allocate to
end use 2 which may constrain the output of 2 unless you can find a
substitute for x in the meantime . And so on


ROBIN
How would you evaluate in monetary the terms the
opportunity cost of painting a picture or spending the
afternoon playing golf. To pretend that you can arrive
at some objective evaluation of this is mumbo jumbo
ANDREW: If we make the simplifying assumption that that your
leisure activities don't involve any market
transactions, then this has nothing to do with
economic calculation is the wider society. We can
however speak of the forgone production that would
habe taken place if you had gone to work instead, and
your forgone wages. The opportunity cost of your
leisure is forgone production.

ROBIN: This still doesnt get round the problem - HOW MUCH leisure and HOW
MUCH foregone production? You are imputing to money some mystical power to
ascertain the precise ratio of one to the other which the above example shows
simply cannot be done

ANDREW: And since value is subjective, to speak of objective
evaluation of value is itself meaningless.

ROBIN: Exactly. And this is precisely why the whole economic calculation
argument is itself meaningless


ROBIN
how would you be able to guage if there was any
corresondence between these costs in real terms and in
terms of their monetary expression.
ANDREW: If prices are not accurate for any reason, there is by
definition an opportunity for arbitrage. Someone can
make money simply buying and selling; and in so doing
they unavoidably correct the price discrepancy. And
since professional speculators are doing this all the
time, we can be reasonably sure that prices are mostly
not out of whack.

ROBIN: But this is not answering my question at all! You are talking about
prices in relation to the model of perfect competition ( a fictional
abstraction which can never be realised for umpteen reasons not the least of
which is demonstrated by the "theory of the second best"); even if prices
were to behave in that manner, what I would still want to know from you is
how you can be sure that they corresponded to costs in some real or
substantive sense. Saying that the monetary system is the only way you can
guage monetary costs tells us exactly nothing - it is a pure tautology

ROBIN
The market or monetrary mechanism is a pretty poor
indicator of costs when it comes to third party
transactions. Competition continually gives rise to
the need to externalise costs e.g. pollution costs.
ANDREW: Externalities are a symptom of inadequately defined
property rights - only property that noone has an
interest in gets polluted. If I tipped my garbage
into your back yard for instance, there would be a
quick resolution of the matter. Externalities have
nothing to do with whether or not a
monetary system is used.
And how, without money, could socialism calculate how
much pollution to tolerate for how much more
production? A moneyless system has no means of
determining any costs at all - internal as well as
external.

ROBIN: This is reminiscent of the argument employed by Garrett Hardin in his
essay "The tragedy of the commons" which has in fact been shown to be
emprically and theoretically flawed. Historically, CPRs (Common property
resources) do not lead to the destructive consequences Hardins model
predicted and there are also sound theoretical reasons (Game theory) why this
should be so. It was the pernicious impact of capitalist commercialisation
that in fact was the triggering factor leading to environmental destruction

But let us look as this utopian hypothesis of yours that properly defined
property rights is the answer. Firstly how far are you prepared to go down
this line? Are you going to privatise the atmosphere and the oceans? Are
you going to set up tolls outside on the pavement. Talk about statist
bureacracy now - your free enterprise system will generate a statist
bureaucracy - yes a STATIST bureaucracy because in the end you will require a
state to enforce your properly defined property rights - will frankly dwarf
that which existed in the state capitalist empires of Red China and the USSR
combined. Secondly what's to stop some private individual buying up a
massive chunk of the land and dumping his of her pollutants on this land?
Thirdly, what about surreptitious dumping of pollutants in other peoples
property. You claim that if I dumped my rubbish in your backyard there would
be a quick resolution of the matter. But you might not be able to prove it is
mine and I would still have an economic incentive to dump this pollutant
illegally on your land without you knowing it. Dont say this doesnt happen.
It happens all the time even with clearly defined property rights. I could
go on ...


ROBIN
Andrew talks about "consumer preferences" as if we
were all operating on a level playing field.
ANDREW: I do not. I never mentioned unequal incomes because
they have nothing to do with opportunity costs.

ROBIN: This is clearly bunkum. If a wealthy individual A and poor individual
B both lose £100 betting on the horses, the opportunity costs (what they
forego) must differ if only because the value that £100 represents to A is
much less than to B. As you yourself admitted all valuation is subjective
and for which reason oppurtinity costs must be relative or else have no real
world application whatsoever


Regards

Robin
www.worldincommon.org