Thursday, 6 October 2011

Solow on Mises

In this book review Robert Solow writes,
Hayek’s mentor, the even more far-right economist Ludwig von Mises, undertook to argue that efficient centralized economic planning was an impossibility in an advanced economy. The main reason was that no central planning bureau could conceivably have all the knowledge needed to allocate resources to alternative uses effectively. That knowledge—technological possibilities, local conditions, consumer preferences, likely futures for all these—is necessarily scattered around the economy. A system of (competitive) markets is a uniquely suitable way for this knowledge to be expressed and converted into decentralized decisions about production and consumption. No central organization could conceivably access and analyze this information and calculate the appropriate allocations.
First what can we make of this "far-right" comment. I mean von Mises is after all the author of the book "Liberalism: In the Classical Tradition" and a great defender of classical liberalism, so I don't get where the "far-right' bit comes from.

But more importantly Solow's description of Mises's argument on why central planning can not work is, I would argue, at best somewhat inaccurate, if not misleading. I would take Mises's point to be that the rational economic use of resources is only possible if market pricing is applied not only to final goods but also to all intermediate products and factors of production. Without markets, and prices, for the factors of production, rational allocation of said factors is impossible. Markets for the factors of production are, of course, impossible, by definition, under socialism.

3 comments:

Richard Meinhard said...

A distinction of two kinds of history from developmental epistemology points out that one is concerned with facts, events, people. In contrast the other takes history as a kind of epistemologic laboratory by using it to investigate how scientific knowledge develops from simpler, primitive notion up through the most advanced scientific explanations so far achieved.
Particularly given the opening statement of the problem suggested by Nasar of the development of economic ideas, Solow seems to expect the second kind of economic investigation of economic epistemology from Nasar and is disappointed.
Solow mentions Agnar Sandmo, the author of Economics Evolving, as an excellent recent history apparently from the second epistemologic perspective.
I wonder what other scholars notably work in the genre of the history of economics that might be considered exemplary analyses from this epistemologic perspective?

Tribeless said...

I class libertarian thinking outside the left/right spectrum.

And for me, right wing connotes conservatism, connotes Christianity.

Xerographica said...

Let's pretend that donations to government organizations (GOs) were 100% tax deductible (aka pragmatarianism). This would mean that the invisible hand, rather than planners, would determine the allocation of public resources.

Would the scope of government narrow or broaden?