
| Edited and written by David Gordon, senior fellow of the Mises Institute and author of four books and thousands of essays. |
Can Equations Save Socialism?
Spring 1998
THE COLLECTED WORKS OF F.A. HAYEK, VOLUME 10
Edited by Bruce Caldwell
University of Chicago Press, 1997,x + 270 pgs.
Socialism and War gathers together F.A. Hayek's most important papers on the
socialist calculation debate. Although
Hayek played a key role in this debate, his criticism of socialism was by no means confined to it.
In the section
"Planning, Freedom, and the Politics of Socialism," Professor Caldwell presents several articles
and pamphlets that
allow us to see how The Road to Serfdom took shape in Hayek's mind.
You will no doubt have noticed that the book is entitled Socialism and War;
but by far the greater part of the volume
covers the former topic, although some interesting papers on war finance repay careful
study.
A great deal of discussion among Austrian economists in recent years about the calculation
argument has centered on a
question of interpretation, on which I propose to concentrate: To what extent did Mises and
Hayek differ in their
understanding of the argument? Reading the papers in Part I of this volume brings to the fore a
basic fact. Hayek
believed that Mises had won the argument as he had originally presented it. Socialists conversant
with economic thought,
Hayek maintained, fully recognized this point.
Thus, Hayek states: "although the discussion on this point dragged on for several years . . . it
became more and more
clear that in so far as a strictly centrally directed planned system of the type originally proposed
by most socialists
was concerned, his central thesis could not be refuted . . . he meant that socialism made rational
calculation
impossible" (p. 76).
But this at once raises a problem. If everyone who mattered agreed with Mises, what was the
further debate about? A new
type of socialist responded to Mises by attempting to storm the citadel of neoclassical economics.
The equations of
general equilibrium, socialists like Oskar Lange argued, could be turned to the advantage of
socialism. How might this
task be achieved? In two ways: some proposed that by the use of computers, these equations
could be solved by a central
planning board. Others sought to mimic the market by schemes of "market socialism."
Hayek endeavored to meet both these lines of reply to Mises; and it is here, I suggest, that
the issue of "calculation"
or "knowledge" arises. Did Hayek use a different version of the argument from Mises, in which
the "knowledge problem"
replaces Mises's emphasis on calculation? Or was Mises himself a proponent of a knowledge
argument?
Mises's original argument, it seems clear, had as its principal target socialists who saw no
need at all for a price
system. Without even the simulacrum of a price system, obviously no calculation can take place.
To raise the issue of
whether the real function of prices is to transmit information is not here to the point. At this stage
of the debate,
socialists lacked the sophistication required for this to be a relevant concern.
Hayek's "knowledge" argument arises only when socialists concede that a rational economic
order requires a price system.
Here, Hayek's response is that absent a free-market economy, the data required to determine
prices cannot be gathered.
Thus, reference to the equations of Walrasian equilibrium misses the mark. Of what value
are these equations if one
lacks the information to solve them?
Hayek states what he deems the central issue as regards the mathematical solution in this
way: "But to argue that a
determination of prices by such a mathematical procedure being logically conceivable in any way
invalidates the
contention that it is not a possible solution only proves that the real nature of the problem has not
been perceived. .
. . What is practically relevant here is not the formal structure of this system, but the nature and
amount of concrete
information required if a numerical solution is to be attempted and the magnitude of the task
which this numerical
solution must involve in any modern community" (p. 93-94).
In like fashion, Hayek endeavored to show that the competitive solution advanced, in
different forms, by Lange and H.D.
Dickinson, rested on unrealistically high estimates of the ability of the planners to gather
data.
In support of his critical view of socialism, Hayek paid close attention to the weaknesses of
the Soviet economy; here
he relied heavily on the work of the Russian economist, Boris Brutzkus. Readers will enjoy
Hayek's devastating review of
Sidney and Beatrice Webb's Soviet Communism: A New Civilization. Although
Hayek writes suaviter in modo, he really
succeeds in putting the knife into the fatuous pair of authors. As a long time student of negative
reviews, I am struck
with admiration for Hayek's technique.
I have concentrated on only one strand in this important collection, owing to the centrality of
the calculation argument
in recent years. In sum, Hayek intended his knowledge argument only as a supplement to Mises's
calculation argument.
Mises's argument was aimed at socialists who deny the need for a price system: thus the
mathematical and competitive
"solutions" leave his argument untouched.
Mises, by the way, thought the equations of equilibrium completely irrelevant to the
calculation debate. "It was a
serious mistake to believe that the state of equilibrium could be computed by means of
mathematical operations on the
basis of the knowledge of conditions in a non-equilibrium state. It was no less erroneous to
believe that such a
knowledge of the conditions under a hypothetical state of equilibrium could be of any use for
acting man in his search
for the best possible solution of the problems with which he is faced in his daily choices and
activities" (Mises, Human
Action, 1966, pp. 714-15). Since equilibrium equations are irrelevant, Mises found "no
need to stress" the practical
problems involved in trying to solve them.
Professor Bruce Caldwell has on the whole ably edited and introduced this volume. I am
surprised, though, at his roseate
picture of Walter Rathenau. His social planning scheme was far more radical than a mere
emphasis on economies under
socialism from producing more standardized goods (p. 10). He held murky mystical beliefs about
the need to merge people
into one unified body, as well. Further, Rathenau was hardly "a hero to the German-speaking
world" (p. 10). His
willingness to accept the Versailles settlement and his bitter criticism of his one-time friend
Kaiser Wilhelm made him
unpopular in conservative circles.
Finally, the quotation from Holderlin that the editor could not trace (p.
175) is from one of his best known works,
Hyperion.
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