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starbucks4ever (94.36)

What's wrong with Mises's critique of socialism

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July 14, 2009 – Comments (65)

A major misconception by the free-market fundamentalists is that central planning is mathematically impossible. So they consider the Soviet example, and imagine that if only they look at Gosplan's "source code" hard enough, they will inevitably discover some bug. So they write esays like this (http://www.mises.org/pdf/econcalc.pdf), failing to point to any real bugs, but making general claims that the source code must be full of them. Theis basic argument is this: programming is hard, and they are trying to write programs, so their code must be buggy and therefore their system must crash. And when the system does crash, they are quick to claim victory, and the fact that the crash can actualy be attributed to a fire in the server room never bothers them.

However, if you look for bugs in the right place, you will quickly see that actually it is Mises's paper that needs debugging. Because in its current form, it just can't withstand any serious criticism. Let us see, for example, how Mises' analysis falls short already in the very beginning of his "proof".

In Part 1, Mises makes a series of pretty obvious observations, pointing out, correctly, the importance of money in a socialist economy. (It bears mentioning that, for some reason, many Americans imagine that a Soviet-like system rejects the use money - this is patently untrue, even if you listen to Mises). Here, however, Mises takes his first shot at finding some fatal error in Socialism. While grudgingly admitting the possibility of assigning value to consumption goods, he chooses to attack the idea of appraising the value of production goods. To quote Mises, "Money could never fill in a socialist state the role it fills in a competitive society in determining the value of production goods. Calculation in terms of money will here be impossible."

Let us pose here and think about this argument. On a first glance it looks that Mises actually has a point. If there is no free market for production goods, then how do you value, say, a tractor vs. a combine? In a capitalist economy companies will decide how much they are willing to pay for either item, but how will government bureauctats arrive at the correct valuation? Mission impossible, huh?

Well, not so simple. First of all, note that even under capitalism, there is no such thing as "objective valuation" of production goods. Upon a little thought we can immediately identify two possible prices for any piece of equipment. One price is determined by the labor theory of value: it is the number of man-hours required to produce the tractor or the combine. A capitalist would call it "self-cost" or "operating expence". Provided the market is highly competitive and there are no major production bottlenecks, the market price of the production good will approximate its self-cost. The other price is determined by the "marginal utility". For example, the extra amount of grain that can be harvested by the most efficient farmer if he purchases an extra tractor, will give you the tractor's marginal utility. If the market is monopolized by John Deere or if there are some production bottlenecks (e.g. shortage of iron), then the market price will approach the marginal utility of the production good. In a real economy the price will fluctuate between these two extremes.

The United States economy is a mixture of government-created monopolies and competing private businesses. As a result, the price of one and the same production good can vary enormously depending on the degree of government involvement. By and large, however, whenever the market is allowed to operate more or less freely, the price of a tractor is much closer to the self-cost than to the maximum price the highest bidder would pay. But this immediately destroys Mises' argument against socialism. For if the "correct" price of a tractor is equal to its self-cost plus a few percent profit, then a central planner who assigns prices based on the labor theory of value, will never be very far off the mark. Using different processes, the capitalist and the socialist have arrived to rougly the same valuation. 

Mises's argument will still be valid if the productivity of labor in a given country is too low to produce the tractor as cheaply as John Deere does in America. Let's say, the country lacks automated production lines, and as a result each tractor produced locally costs a million dollars. This, presumably, is but a temporary condition. Eventually technological bottlenecks will be removed, but while resources are still limited, it is essential that the country makes the best use of what's currently available. So maybe we can say that Mises' objection is valid at least for undeveloped countries where every tractor is as valuable as gold?

Alas, here again Mises misses his target. Any honest Marxist would explain to Mises that the necessity of achieving high productivity of labor is recognized by Marxism as an essential prerequisite for Socialism. One cannot start building Socialism in a feudal economy. That's why Marx, who was well aware of this difficulty, has always insisted that capitalism must be allowed to run its course before one even begins to think of socializing production. The Marxist theory was intended for modern, technologically advanced economies; it is dishonest to critisize it for its failures outside its realm of applicability.

However, Mises still has one objection. If capital goods are not really in such short supply that they couldn't be efficiently distributed without the help of some marginal utility mechanism, then maybe some shortage of natural resources will still save the "proof"? Here is the way he puts it: "For, over and above the actual labor, the production of all economic goods entails also the cost of materials. An article in which more raw material is used can never be reckoned of equal value with one in which less is used." 

This point merits a separate discussion. Above all, we must here must a clear distinction between an objective shortage and poor availability of row materials. Needless to say, to the ultra-capitalist Mises, it appears that the market price of a commodity is sacred and beyond dispute. But the reality is not very Mises-friendly. In most cases, what free-market fundamentalists describe as "scarcity" is just another word for a high self-cost. There is no physical shortage of oil on Earth. There is enough oil to last us a thousand years, but some of that oil will require many man-hours to extract. A $100 oil simply means it takes too many workers to assemble the rig and to drill the well. In these cases, the labor theory of value will work every bit as well as it works for any consumption good. Thus the iron ore that is needed to produce a tractor, and the oil that is needed to produce the iron ore will all be assigned a value in terms of man-hours, which will then appear in the socialist price of the tractor. Again, this method of valuation will work as well as any capitalist one. 

If, on the other hand, the nature of the constraint is a physical one (a river that only has so much water, for instance), then a socialist planner will have to decide on its optimal use without the labor theory or the marginal utility theory to guide him. Actually, the latter point is not really true. A planner can still estimate the marginal utility by running a calculation along these lines: "if I give the resource to factory A, they can produce this quantity of consumption goods, and factory B could only produce half that much, but factory C could produce 20% more than factory A. So factory C gets the resource". No calculation is perfect. The planner will not find the best solution, but he can at least take a shot at finding the second-best one. 

It looks like Mises has finally got something to chew on. Maybe if we zero in on this (admittedly unlikely) scenario, we can "prove" the inefficiency of socialism at least on that one count?

Alas, it will be like the pot calling the kettle black. When you ask a free-market fundamentalist how his beloved capitalism will handle this situation, you wind up with a solution that is much worse than any inefficiencies in the socialist model. Turns out that under capitalism, the water right will belong to a private monopoly which will then be selling its water to the highest bidder - here you got your marginal utility theory in action. Eventually one company will outbid every competitor and obtain the resource. The diference is that where a socialist company could use the resource right away, its successful capitalist counterpart has emerged from the bidding process totally exhaused and saddled with a huge debt which will then have to be passed to the consumers. The socialist company that won the contest may have been 5% less efficient; in contrast, under capitalism you've got a company that is fully efficient and is squezed dry by the private owner of the limited resource. What a sure way to outpace a centrally planned economy!

I couldn't take apart the whole essay, but I hope this already illustrates my point that one should always take it with a grain of salt when he hears that this or that essayist has "proved" some economic theory. More often than not it just means that the guy has tried to bring up some point or raise some objection to promote his chosen point of view. Then, under close scrutiny, it will all turn out to be very subjective... 

 

65 Comments – Post Your Own

#1) On July 14, 2009 at 4:52 AM, saunafool (98.74) wrote:

whereishenow?

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#2) On July 14, 2009 at 6:21 AM, whereaminow (< 20) wrote:

I'm right here :)

It's an excellent effort zloj, but let's walk through it.  One day, you may solve this riddle, but you haven't done it yet.

Let's get the little stuff out the way quickly, so we can focus on the important issues.

A major misconception by the free-market fundamentalists is that central planning is mathematically impossible.

It has nothing to do with math.  It has everything to do with human action as I will explain further in our discussion.

Theis basic argument is this: programming is hard, and they are trying to write programs, so their code must be buggy and therefore their system must crash. And when the system does crash, they are quick to claim victory, and the fact that the crash can actualy be attributed to a fire in the server room never bothers them.

What is your source for this?  Neither Mises nor Rothbard attributed the failure of Gosplan to fires or bad source code or any of that nonsenes. 

Rothbard on Golspan planning  (p.19-20)

Since I am a computer engineer and I've worked for the government, I can see major problems with any attempt to write a programming plan of production. (Where do the inputs come from? What are the costs of computer equipment, personnel? How are they recruited them away from the private sector? How can the bureaucracy keep up with the innovation in the market?) But none of these even compare to the problem of economic calculation, which I will detail in a moment.  I doubt anyone here is familiar with Gosplan, but here is the background.

It bears mentioning that, for some reason, many Americans imagine that a Soviet-like system rejects the use money - this is patently untrue, even if you listen to Mises

Are you not aware of Lenin's attempts to destroy money in the Soviet Union?  While no one knows for sure what Lenin actually said on inflation, his actions (the complete destruction of the Russian currency via massive monetary expansion in the first years of Bolshevism) and Keynes' analysis of Lenin's monetary policy speak volumes:

"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity (or fairness) of the existing distribution of wealth.

As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of Society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." - JM Keynes, Economic Consequences of the Peace.[also quoted in Essays in Persuasion]

But these are not material to our discussion.  Your analysis falls short simply because you have everything backwards.  Let me see if I can help you straighten it out.  If you're going to fix the economic calculation problem, you first have to diagnose exaclty what it is. 

I'm going to go through this one step at a time, just between me and you.  I'm not posting here for anyone else.  We're on different time zones, so I won't expect you to answer right away and please don't expect the same from me.

First question: 

Does the consumer have a role in the pricing process? 

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#3) On July 14, 2009 at 8:07 AM, devoish (96.56) wrote:

Sauna, David, no rec?

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#4) On July 14, 2009 at 8:16 AM, whereaminow (< 20) wrote:

But this immediately destroys Mises' argument against socialism. For if the "correct" price of a tractor is equal to its self-cost plus a few percent profit, then a central planner who assigns prices based on the labor theory of value, will never be very far off the mark. Using different processes, the capitalist and the socialist have arrived to rougly the same valuation. 

This is a rough approximation of the Walrasian general equilibrium model, used as the backdrop for the Lange-Bergson Orthodox Line. 

Second question:

What happens when the State is both the buyer and the seller of higher order goods? For, if all of the resources, both tractors and combines (or silicon for microchips vs. silicon for microwaves, etc etc) are owned by the State, then the entire framework of capital goods is intruded upon.  How will the State rationally intrude into the immense number of decisions on the allocation of prices and factors of production in this structure?

Third Question 

What else is wrong with the general equilibrium concept?  Let's say that the State solves the problem of competing against itself (hardly a simple task), and finds the perfect equilibrium price for all factors of production across all markets (again, that is quite a stretch!)  What happens upon the discovery of new processes, innovations, raw materials, increases and decreases in materials due to natural disasters, war, etc?  What about drastic shifts in consumer prefernces and demographics?  Just one change in the production of a higher order good can drastically alter the market for hundreds of intermediate and lower order goods.  How will the State, always in competition to itself, reorder al of the factors of production to arrive at the new equilibrium prices? 

How can the planning board anticipate and then react to changes in factors of production to return to general equilibrium in any society that is more complex than the simplest Robinson Crusoe model?

I'll stop here for now.

David in Qatar 

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#5) On July 14, 2009 at 9:21 AM, cthomas1017 (98.71) wrote:

When the underlying assumptions are flawed, the foundation can be built upon, but the first wind will blow down the entire house.  Wait!  Part of the chimney is left standing.  Success!

Of course, the central planning beauracrat can still appraise the home from his office because he can calculate the value of the building from the labor that went into the construction.  But first, the beauracrat must value the labor.  And in order to value the labor, an accurate time must be placed on the labor.  First assign a junior beauracrat to track all time spent laboring.  (We can't have the laborers accounting for their own time.)  But now we must place a value on time and determine what is labor and what is idle.  Now we must either fund a study (quick! more beauracrats!) or allow the central planning beauracrat to subjectively determine those values.  But how can he subjectively do that without experience?  Well, the only real solution is for the beauracrat to become a laborer.  Now the beauracrat gets to place value on their own value and their own time.  Does the beauracrat place a greater value upon his own time as opposed to the value of the laborer?  (He, or she, is a beauracrat, you know.)  Or does the beauracrat "discount" the common man's labor value?  Should not a committee determine such a decision?  Should the potential that corruption at some point in this process be factored in?  Another committee!

Ah yes, the "math" can certainly work.  (It's just going to take a little bit longer.)

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#6) On July 14, 2009 at 10:02 AM, BMFPitt (70.32) wrote:

What force allows for (or replaces the benefit of) creative derstruction in a pure socialist society?

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#7) On July 14, 2009 at 10:50 AM, cthomas1017 (98.71) wrote:

BMFPitt,

A high wall, barbed wire, and gun turrents?

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#8) On July 14, 2009 at 12:22 PM, whereaminow (< 20) wrote:

I've got a little bit more time right now before I call it a night, so I want to expand on a couple of points.

Allow me to more clearly identify the problem with any computer driven mathematical model for socialist planning.  As I said, I'm a computer geek by trade, and the simple reason complex models for Socialist programming don't work is because humans have to assemble the data.  It's not the code or the act of inputting the data, it's the data itself that is the problem.  Where does it come from?  Who determines the parameters for the programs?  Etc.  Everything comes from the planning board, and where do they get the data?  We are right back at the Economic Calculation problem.  If we don't solve it, an army of the best programmers in the world won't help.  For a real life example of this, check out the BCS College Bowl system.  Sure, it's sports but read legendary statistician Bill James' critique and you can see exactly the problem I am talking about.  The planning board doesn't know what they want because they can not anticipate consumer preferences (what the sports fan thinks about various factors of competition.)

Next I want to expand on the Labor Theory Of Value.  I don't have a problem debating it, but I do want to point out that every academic Socialist economist in America discarded LTV by the mid 1930's.  That doesn't mean the theory doesn't work, but you are fighting a very uphill battle.

First of all, note that even under capitalism, there is no such thing as "objective valuation" of production goods. Upon a little thought we can immediately identify two possible prices for any piece of equipment. One price is determined by the labor theory of value: it is the number of man-hours required to produce the tractor or the combine. A capitalist would call it "self-cost" or "operating expence". Provided the market is highly competitive and there are no major production bottlenecks, the market price of the production good will approximate its self-cost.

The value of the labor is determined by the worker's marginal productivity.  The market price takes into account other factors, such as materials and transportation costs.

For if the "correct" price of a tractor is equal to its self-cost plus a few percent profit, then a central planner who assigns prices based on the labor theory of value, will never be very far off the mark.

The "correct" price of the tractor is whatever the market will bear, i.e. whatever someone is willing to offer in exchange for the tractor.  If all that could be had for the tractor was the labor put into making it plus a few percent, the tractor would likely not be made as this fails to cover the costs of capital and its upkeep, management costs, the risk taken by anticipating future demands, etc.

In most cases, what free-market fundamentalists describe as "scarcity" is just another word for a high self-cost. There is no physical shortage of oil on Earth. There is enough oil to last us a thousand years, but some of that oil will require many man-hours to extract. A $100 oil simply means it takes too many workers to assemble the rig and to drill the well.

I don't think you understand the concept of scarcity as used by economists.  A good that is available in high quantity is still scarce, i.e. it can't all be produced right now, nor will it last forever.  In addition, oil rigs are not created equal.  More expensive, technologically advanced oil rigs and refineries are often needed in addition to the labor.

If, on the other hand, the nature of the constraint is a physical one (a river that only has so much water, for instance), then a socialist planner will have to decide on its optimal use without the labor theory or the marginal utility theory to guide him. Actually, the latter point is not really true. A planner can still estimate the marginal utility by running a calculation along these lines: "if I give the resource to factory A, they can produce this quantity of consumption goods, and factory B could only produce half that much, but factory C could produce 20% more than factory A. So factory C gets the resource". No calculation is perfect. The planner will not find the best solution, but he can at least take a shot at finding the second-best one. 

It looks like Mises has finally got something to chew on. Maybe if we zero in on this (admittedly unlikely) scenario, we can "prove" the inefficiency of socialism at least on that one count?

Why is it unlikely for a good to have several uses, some more efficient than others?  Also, this might work if the central planner is dealing with factories that are all producing a single product, but how is the planner supposed to decide which use is most efficient for making different products?  This cannot be done efficiently without knowing the desires of the intended consumers--knowledge that the market provides.

Alas, it will be like the pot calling the kettle black. When you ask a free-market fundamentalist how his beloved capitalism will handle this situation, you wind up with a solution that is much worse than any inefficiencies in the socialist model. Turns out that under capitalism, the water right will belong to a private monopoly which will then be selling its water to the highest bidder - here you got your marginal utility theory in action. Eventually one company will outbid every competitor and obtain the resource. The diference is that where a socialist company could use the resource right away, its successful capitalist counterpart has emerged from the bidding process totally exhaused and saddled with a huge debt which will then have to be passed to the consumers. The socialist company that won the contest may have been 5% less efficient; in contrast, under capitalism you've got a company that is fully efficient and is squezed dry by the private owner of the limited resource. What a sure way to outpace a centrally planned economy!

Assuming property rights could be construed as to give a single company rights to all the water flowing through a certain river, there are still other rivers so this would not be a monopoly.  The water rights need not be sold entirely to a single company either.  I could quite easily sell x gallons per day to one buyer, y gallons a day to another, etc.  Even if somebody obtains a monopoly on river water, the high prices fetched by water would provide an incentive to use alternative sources of water (purification of rainwater, desalinization of ocean water, etc) which would drive prices back down.  The assertion that somebody who outbids another is too exhausted to immediately use the resource is not correct.  When I buy something off of E-bay, I am capable of using it as soon as I can get my hands on it.  There's nothing about price negotiations that prevents this.  The "huge debt" that must be passed on to consumers reflects the costs of providing any good, regardless of the method of allocating resources.  The need to produce wealth in order to receive wealth is not a uniquely capitalist invention. 

Ok, now I have to get some sleep.  Hell, we haven't even looked at capital allocation in bond and stock markets, the relationship of interest rate and time, or discussed differences between business clerks and entrepreneurial risk taking.  Long way to go.

David in Qatar

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#9) On July 14, 2009 at 2:38 PM, starbucks4ever (94.36) wrote:

cthomas1017,

I did not have the time to expose EVERY conceptual error in Mises's paper (this post was way too long already), so please don't hold me responsible if I didn't address this or that objection. Why don't we leave the valuation of labor for another post?

BMFPitt,

see above

whereaminow,

Speaking of Lenin, you have to realize that the history of the USSR is not one uniform thing. The "War Communism" was an aberration, which was quickly abandoned, never to be restored again. My own experience was that money had plenty of value in the USSR, and its purchasing power was far from negligible. I still have a few Soviet rubles as a proof that money had not been abandoned by Lenin :)

The availability (or lack of) of input data is, I believe, the next item on Mises's list of complaints, and I have more to say on this. But it would be a mistake to mix everything together. When one argument in the proof is invalid, it's pointless to wonder if the author may have been right on other points.

"that every academic Socialist economist in America discarded LTV by the mid 1930's"

Well, I think they were wrong. Then again, I wonder what economists you have in mind. You know that many people have been labeled "Socialist" in America for all kinds of wrong reasons.

"The value of the labor is determined by the worker's marginal productivity."

I agree. But when a central planner compares several different projects in terms of man-hours required as the input, and then looks at the consumption value of the output, isn't he making exactly the same choice? Unless the planner is engaged in sabotage, he will most definitely choose the project that needs the fewer workers to produce the greater amount of consumer goods, hence marginal utility of labor is very much alive!

"The market price takes into account other factors, such as materials and transportation costs."

It does, as far as a capitalist is concerned. But to a planner this again boils down to man-hours of labor. So the whole process of manufacturing the pair of shoes gets evaluated in terms of labor, and this includes production of leather, transportation, and so on.

"The "correct" price of the tractor is whatever the market will bear, i.e. whatever someone is willing to offer in exchange for the tractor."

I don't agree with that point. Why should we in America value the tractor at $1M when enough capitalists are perfectly willing to produce it for $100K? Sure enough, a farmer will pay 1M if he has no better choice, but shouldn't he have the right to look for a cheaper manufacturer? Why do want to deny the farmer the same shopping rights that you enjoy as a consumer? That's precisely my point: the marginal utility for the farmer (say, $1M) is very different from the marginal utility for John Deere (say, $100K). As the real price can be anything between the two, I feel confident making the statement that American capitalism does not know how to value things "objectively".

"If all that could be had for the tractor was the labor put into making it plus a few percent, the tractor would likely not be made as this fails to cover the costs of capital and its upkeep, management costs, the risk taken by anticipating future demands, etc." 

Practice shows that in a really free market, competition between capitalists becomes very Darwinian. Few people have net profit margin greater than 5%, and operating profits over 20%. Look at the restaurant business. Why do you think they can't raise prices so that at least 2/3 of them would stay in business over the long run? Because there is always some Chinese guy ready to serve you excellent Wanton soup for $1.80 or so. Never underestimate the power of competition, it's the greatest invention ever.

"A good that is available in high quantity is still scarce, i.e. it can't all be produced right now"

I feel that capitalist economists have got it all wrong as far as scarcity is concerned. Let's say the factory can only make 100 square meters of leather at this time, and let's say it has cost the factory 100 units of labor to manufacture. Overall, you can produce 1000 pairs of shoes, which are assigned the value of 1000 units by the consumers. One guy can produce these shoes employing 10 workers, and another guy, whose machine just broke down, will have to hire one more worker to fix it. Under a market system, these two producers will compete for the leather until the second guy is priced out of the leather market while the first one is still able to squeeze a tiny profit. Under socialism, the central planner will just give the order to the first factory on the grounds that it requires smaller expenditure of the labor force. Where was the need to squeeze the good factory dry? 

"Why is it unlikely for a good to have several uses, some more efficient than others?"

I meant that it's unlikely for any resource (land, water, oil, etc.) to be so limited as to justify the situation when the resource owner retains most of the profit. 

"More expensive, technologically advanced oil rigs and refineries are often needed in addition to the labor."

Yes, but you are forgetting that those too are valued in terms of labor of the workers, excavators, engineers, and managers employed to build them.  

"Also, this might work if the central planner is dealing with factories that are all producing a single product, but how is the planner supposed to decide which use is most efficient for making different products?"

The price of consumer goods is known (even Mises admits that much). The consumer goods can also be valued in terms of man-hours which includes the operating labor costs and the labor costs involved in the production of equipment that will be used in the production of consumer goods. So it's not that hard to weigh the competing bids from a car factory and a cellulose factory and decide which one of them gets to use the river. 

"This cannot be done efficiently without knowing the desires of the intended consumers--knowledge that the market provides."

Under socialism, an unsold inventory of product A and a shortage of product B provides a clear signal that A is overpriced and B is underpriced, so the prices will need to be adjusted until equilibrium is reached. Thus the desires of consumers are very well known. 

"there are still other rivers so this would not be a monopoly"

Then the resource is not really limited. 

"The water rights need not be sold entirely to a single company either."

Of course not, but then these different companies will begin to consolidate because of all investments, the investment in monopolization of the scarce resource will promise the highest marginal utility. The consolidator will easily raise capital, the banks will be willing to finance this can't-miss project, and soon enough you will find a single company instead of 10 small companies you sold water rights to. Antimonopoly laws? Unlibertarian.

"The "huge debt" that must be passed on to consumers reflects the costs of providing any good, regardless of the method of allocating resources. " 

When a monopoly is just sitting on a resource selling it at whatever price the market will bear, the huge cost just reflects the appetites of the monopoly and not the cost of providing the resource (which, like in the case of land or rivers is "provided" by nature for free).

"The need to produce wealth in order to receive wealth is not a uniquely capitalist invention. "

That is absolutely true. Socialist planning always included capex expences in the final price. Nothing can come out of nothing even if you're 100% Socialist. 

I hope it helps clear some misconceptions. 

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#10) On July 14, 2009 at 4:29 PM, whereaminow (< 20) wrote:

Speaking of Lenin, you have to realize that the history of the USSR is not one uniform thing.

I understand that all Socialist theory is not uniform.  But you can't blame Americans for thinking that Socialism strives for a money-less society.  The early utopians like Saint-Simon and Fourier, who hoped to build a community where laborers would place their goods in a pile to be picked apart by the commune, and Lenin's attempt to destroy the currency, were not the fault of Americans.  Furthermore, it wasn't Socialist critiques of LTV or money-less Socialism that caused abandonment of these positions.  The critiques from classical economists, notably Mises, Menger, Bohm-Bawerk, and Weiser were the impetus for the movement to Lange-Bergson (also called Lange-Lerner and Lange-Lerner-Taylor.)

And War Communism was not a one time occurence, not even in Russia.  Besides Stalin's planning society we also have Mao, Pol Pot, Che, and several other South American and African variants of War Communism throughout the 20th century. 

Now back to the important discussion:

"The value of the labor is determined by the worker's marginal productivity."

I agree. But when a central planner compares several different projects in terms of man-hours required as the input, and then looks at the consumption value of the output, isn't he making exactly the same choice? Unless the planner is engaged in sabotage, he will most definitely choose the project that needs the fewer workers to produce the greater amount of consumer goods, hence marginal utility of labor is very much alive!

No, marginal utility of labor is not alive, because it can not exist unless there is competition for labor.  Even with the existence of a monopoly, should there be one in a free market, what is to stop the wage earner from taking employment in another sector of the economy or another business across the street?  In other words, labor still has competitive pricing even with monopolies present.  

Should we remove marginal utility from the equation, as we have to since there is no competition for labor, how will State planners determine the price of labor?  They could, as you indicate, attempt to place a value on the amount of man-hours required to produce Product X.  But what is Product X valued at?  There is no capital market for higher order goods.  We don't even have to consider the dilemna of trying to assign the portion of production that is human labor and machine labor, or trying to determine the different effects of human labor on a higher order good at different stages of production.  These tasks would be monumental to say the least, and I could only imagine with a certain bitter humor the fate of central planners in determining the labor value for the production of say... micron machine tools that make polymer microchip platforms.  It is humorous, but not relevant.  What is important to understand is that the central planning board couldn't even calculate the value of the finished machine tools because the only buyers would be the State itself.  These tools are used in many different technologies, which can each lead to dozens of finished products before any consumer feedback is received.  How then will the planning board go back and determine what the man-hours were worth?

Still many subjects left to cover, but now I'm going to be really tired for work and it's all your fault!  (Not really, but I don't want to take responsibilty :)

David in Qatar

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#11) On July 14, 2009 at 10:12 PM, DaretothREdux (36.59) wrote:

Zloj,

If you could would you please show me how you would "value" the labor of two people. You can pick the people, their skills, their intelligence level, their work ethic, etc..

And tell me the value of those two people's labor.

What is the price of Human Action?

Dare

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#12) On July 14, 2009 at 10:37 PM, starbucks4ever (94.36) wrote:

Dare,

In the Soviet Union the value was determined locally in a process similar to the hiring by any unionized American corporation. Job vacancies were advertized which carried a predetermined salary. When a student graduated from college, he was assigned to some factory, research institute, etc. Then if he felt he deserved a better job, he would seek a company that had a higher-paying position, and apply for it. If he didn't perform well on the job, he could forfeit his bonus and/or get fired. In practice, firing was very uncommon because the Party Commettee would approve it only in exceptional circumstances, so discipline would be maintained through some combination of bonuses/fines, moral pressure, and promotions/demotions to a more/less challenging position. On the "Gosplan" level, people dealt with aggregates ("on the average, 2 million coal miners can produce 300 million tons of coal, so one miner is worth 150 tons a year"). 

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#13) On July 15, 2009 at 2:28 AM, DaretothREdux (36.59) wrote:

zloj,

But in reality each miner didn't mine 150 tons a year. Some mined 160 and some mined 125...should these two miners be paid the same amount because of the average amount mined from 2 million people?

If one is more efficient than the other, is his labor not worth more?

Also, one can put a number on a "coal miner's" production, but how does one calculate the efficiency of say...a firefighter? Or brain surgeon v. a plastic surgeon? What value do you put on art and theatre?

And finally, say I want to be a filmmaker...does the state control what films I make? Must art and creativity die?

What is the value of the Mona Lisa?

What if someone would have been a great artist but the state assigns them as a coal miner?

Dare

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#14) On July 15, 2009 at 5:54 AM, anarchocapitalis (< 20) wrote:

zloj,



I think you misinterpret Mises, and do not apply your arguments consequentally.



First of all, Mises' argument was not about code, but data. The code is actually straightforward: revenue - cost = profit (or loss if negative). But without the market mechanism for determining prices, where do you get the data from?



You suggest the "cost + profit margin". In principle, I don't see a reason to object to this per se. However you apparently fail to see that it is not only the "producers" in the narrow sense (like factories) that need to figure out their output prices, but every market participant and every product requires the same. Employees need to figure out what to charge for their labour, and so do producers of capital goods. The output price of one market participant is then used as an input price of another one, creating an elaborate interconnected system.



Money is a capital good. You seem to think that it is some sort of fix unit of value. But that's not true, money is also subject to supply and demand system. How do you calculate the price and quantity of money without the market to sell it on? You can't. Many market proponents argue for example that overproduction of money (i.e. interest rates under the market equilibrium) caused by fiat money, central banking system and fractional reserve banking is the reason for the current recession. Once the market prices started to "push through", this caused a major disturbance as it turned out that many businesses would not be profitable at market prices, and went bankrupt.



Back to the calculation. Even if you apply the "cost + profit margin" formula consequentially to all market participants, you will end up with a set of equations that have too many variables. In other words, you will only be able to calculate a price of something as another formula containing other variables instead of a numeric value. In order to actually price something, you will need to start assigning arbitrary values to some variables.



Obviously, you can attempt to find the maximums and minimums of the set of formulas, for example by using derivations or the simplex algorithm. But WHAT is your target variable that needs to be maximised? The salary of postmen? The number of tractors produced? You need to make arbitrary assumptions about what the values should be like. Again, without the market system, you don't have any information about what is "desired". That is why the endeavour to replace the market mechanism with central planning will fail. It is also why historically in communist countries there was an overproduction of industrial goods and underproduction of consumer goods. You cannot "plan" the desires of people.



The reason why Mises seems to attach some sort of "sacred" value to market price is not metaphysical at all. It is the simple result of human action: at that price, the participants are voluntarily conducting trade. At other prices, participants are either forced or forbidden to trade.



Have a nice day.

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#15) On July 15, 2009 at 9:51 AM, whereaminow (< 20) wrote:

zloj,

So far you haven't (had time?) to address any of the major objections I have presented.  I'm really curious as to how you would solve the last riddle I posed to you.

The labor programs you described in the USSR reminded of my military service in America.  This doesn't surprise me, but it's worth noting that the Department of Defense is the most socialized institution in the country.  And they haven't won a war since 1945.

But this is all fun and games. My interest is only in avoiding mistakes.

Let's go over this again, and I want to bring in some subjects that we haven't even touched on yet.

======================================================

Alas, here again Mises misses his target. Any honest Marxist would explain to Mises that the necessity of achieving high productivity of labor is recognized by Marxism as an essential prerequisite for Socialism. One cannot start building Socialism in a feudal economy. That's why Marx, who was well aware of this difficulty, has always insisted that capitalism must be allowed to run its course before one even begins to think of socializing production.

Interestingly, the USSR tried to extend the structure of production and make it more capital intensive, in order to increase the productivity of the workers. Unfortunately, they over-extended the structure of production, and didn't produce enough current goods to satisfy the demand for them; the result? Millions of people starved to death. But this is the inevitable result of central-planning: without money time-preferences cannot be expressed, that is, the rate of interest, and thus, the required level of capital investment can never be known.

=======================================================

This point merits a separate discussion. Above all, we must here must a clear distinction between an objective shortage and poor availability of row materials. Needless to say, to the ultra-capitalist Mises, it appears that the market price of a commodity is sacred and beyond dispute. But the reality is not very Mises-friendly. In most cases, what free-market fundamentalists describe as "scarcity" is just another word for a high self-cost.

There is one Mona Lisa, the cost to produce this piece of art was very low, and yet it is very expensive; why? Because marginal utility is right, and the LTV is wrong. You could arbitrarily assign x labor dollars to the skill of the artist in creating this painting; but how did he determine this figure? Furthermore, how does you friend know that there is enough oil to last us for a thousand years? That's news to me! You are trying to deny scarcity, which is a dead end.

==========================================================

If you're going to have collective ownership of the means of production and use the labor-theory of value, then you need to explain how you will determine or differentiate between different skill levels of labor. What will be the distribution to a doctor, and what to that of a coalminer, computer programmer, truck driver, accountant, brain surgeon, astronaut, pilot, janitor, maid, etc? If you pay them differently than a class system is inevitable, and what then would be the point of socialism? Who gets to be the doctor, and who gets to be the coalminer? What if no one wants to be the coalminer?

If you're going to have markets, and competition, while applying marginal utility as the measure of value (STV), then you don't have socialism; you have Sweden, the United States, the United Kingdom, ect, ect. So far you haven't addressed any of Mises' points.

============================================================

Now I can criticize LTV all day long, but the biggest is that LTV doesn't even really matter.  You can't assign a value to the Labor of Worker A on Product X if you don't know what the value of Product X is.  See comment #10.

Let's take a look at some other problems we run into with collectivist planning.  The following is an excerpt from Rothbard's End of Socialism:

Mises began his rebuttal [to Lange] in Human Action by discussing the "trial-and-error" method, and pointing out that this process only works in the capitalist market. There the entrepreneurs are strongly motivated to make greater profits and to avoid losses, and further, such a criterion does not apply to the capital goods or land market under socialism where all resources are controlled by one entity, the government.

Continuing his reply, Mises pressed on to a brilliant critique, not only of socialism, but of the entire Walrasian general equilibrium model. The major fallacy of the "market socialists," Mises pointed out, is that they look at the economic problem from the point of view of the manager of the individual firm, who seeks to make profits or avoid losses within a rigid framework of a given, external allocation of capital to each of the various branches of industry and indeed to the firm itself. In other words, the "market socialist" manager is akin, not to the real driving force of the capitalist market, the capitalist entrepreneur, but rather to the relatively economically insignificant manager of the corporate firm under capitalism. As Mises brilliantly puts it:

"the cardinal fallacy implied in [market socialist] proposals is that they look at the economic problem from the perspective of the subaltern clerk whose intellectual horizon does not extend beyond subordinate tasks. They consider the structure of industrial production and the allocation of capital to the various branches and production aggregates as rigid, and do not take into account the necessity of altering this structure in order to adjust it to changes in conditions…. They fail to realize that the operations of the corporate officers consist merely in the loyal execution of the tasks entrusted to them by their bosses, the shareholders…. The operations of the managers, their buying and selling, are only a small segment of the totality of market operations. The market of the capitalist society also performs those operations which allocate the capital goods to the various branches of industry. The entrepreneurs and capitalists establish corporations and other firms, enlarge or reduce their size, dissolve them or merge them with other enterprises; they buy and sell the shares and bonds of already existing and of new corporations; they grant, withdraw, and recover credits; in short they perform all those acts the totality of which is called the capital and money market. It is these financial transactions of promoters and speculators that direct production into those channels in which it satisfies the most urgent wants of the consumers in the best possible way."[11] 

 

Mises goes on to remind the reader that the corporate manager performs only a "managerial function," a subsidiary service that "can never become a substitute for the entrepreneurial function." Who are the capitalist-entrepreneurs? They are "the speculators, promoters, investors and moneylenders, [who] in determining the structure of the stock and commodity exchanges and of the money market, circumscribe the orbit within which definite tasks can be entrusted to the manager's discretion." The crucial question, Mises continues, is not managerial activities, but: "In which branches should production be increased or restricted, in which branches should the objective of production be altered, what new branches should be inaugurated?" In short, the crucial decisions in the capitalist economy are the allocation of capital to firms and industries. "With regard to these issues," Mises adds, "it is vain to cite the honest corporation manager and his well-tried efficiency. Those who confuse entrepreneurship and management close their eyes to the economic problem … The capitalist system is not a managerial system; it is an entrepreneurial system."

But here, Mises triumphantly concludes, no "market socialist" has ever suggested preserving or carrying over, much less understood the importance of, the specifically entrepreneurial functions of capitalism:

"Nobody has ever suggested that the socialist commonwealth could invite the promoters and speculators to continue their speculations and then deliver their profits to the common chest. Those suggesting a quasi-market for the socialist system have never wanted to preserve the stock and commodity exchanges, the trading in futures, and the bankers and money-lenders as quasi-institutions."[12] 

Mises has been cited as stating, in Human Action, that it is absurd for the socialist planning board to tell their managers to "play market," to act as if they are owners of their firms in trying to maximize profits and avoid losses. But it is important to stress that Mises was focusing, not so much on the individual managers of socialist "firms," but on the speculators and investors who decide the crucial allocations of capital throughout the structure of industry. It is at least conceivable that one can order a manager to play market and act as if he were enjoying the profits and suffering losses; but it is clearly ludicrous to ask investors and capital speculators to act as if their fortunes were at stake. As Mises adds:

"one cannot play speculation and investment. The speculators and investors expose their own wealth, their own destiny. This fact makes them responsible to the consumers, the ultimate bosses of the capitalist economy. If one relieves them of this responsibility, one deprives them of their very character."[13] 

One time, during Mises's seminar at New York University, I asked him whether, considering the broad spectrum of economies from a purely free market economy to pure totalitarianism, he could single out one criterion according to which he could say that an economy was essentially "socialist" or whether it was a market economy. Somewhat to my surprise, he replied readily: "Yes, the key is whether the economy has a stock market." That is, if the economy has a full-scale market in titles to land and capital goods. In short: Is the allocation of capital basically determined by government or by private owners? At the time, I did not fully understand the vital importance of Mises's answer, which I realized recently when poring over the great merits of the Misesian, as compared to the Hayekian, analysis of the socialist calculation problem.

End of excerpt.

So I think we can see that the problem is much more difficult that you initially hoped or assumed it would be.  

David in Qatar

 

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#16) On July 15, 2009 at 11:43 AM, anarchocapitalis (< 20) wrote:

Apologies for not reading the posts in entirety, it looks like some of my interpretations of your claims have been incorrect. But I think I understand your claims better now and am able to take a stronger position, so let me amend my previous post.


For the calculation argument, it does not matter whether you use the nominal value of money or labour hours as a unit of accounting. They are both just variables in a set of equations, they have no intrinsic value. Their only value is in the opportunity cost of other goods. Opportunity cost requires choice. If there is no choice, there is no value.


An excellent example of choice is markets. There relative values of goods fluctuate in order to respond to the changes in supply and demand. This behaviour reflects the choices of the participants and ensures that goods flow there where they are desired.


A central planner has no way of determining what is desired. As I mentioned in the earlier post, (s)he is faced with a set of equations and needs to make decisions about some of the underlying variables. (S)he as no solid data to make those decisions. (S)he may use historical data or "borrow" this information from countries that have markets, but there is no way of telling to what extent these relations are correct with respect to the specific situation. I would consider the planner to be very lucky if the information was merely outdated and caused a slowdown. More likely the information would be a gross misrepresentation of the relations and would cause mass misallocation of resources.


This still assumes of course that the variables in the model properly correspond to real world data.


Let us make a somewhat weaker proposition, that some markets may in theory be replaced by central planning. Even in this case, using labour hours instead of money doesn't provide an advantage. If you read wikipedia article on money you will understand that money, even if produced by a monopoly like now, can fullfill functions that labour hours cannot.

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#17) On July 15, 2009 at 12:08 PM, Liberty2009 (< 20) wrote:

"For if the 'correct' price of a tractor is equal to its self-cost plus a few percent profit...."

Right here we have a fundamental problem.  What is "self-cost"?  Where do "costs" come from?  Are they a magical "given"?  You are thinking of cost in terms of a single firm assessing how much its input prices are.  But we can't be so superficial.

Where do the input prices come from?  From their "cost"? Where do all these magical figures derive from?  Any idea?

And regardless of what someone's "cost" is, how could that possibly influence the price, except to the extent that the cost may influence how much of a good is produced?  No consumer cares what it "cost" to produce a good.

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#18) On July 15, 2009 at 12:57 PM, filcorama (< 20) wrote:

 



I find ironic that the motto below the sites name states

"To Educate, amuse and enrich." Note Educate is first. Educate is different from propaganda or blatant lieing which is what this post is.

 "A major misconception by the free-market fundamentalists is that central planning is mathematically impossible."

It's not a misconception. It's a fact. Read an econ book before you spew intellectually dishonest posts. You sound like the village idiot.

 

"One price is determined by the labor theory of value:" 

 This isn't true. First off you can't state a theory as fact. Your whole post was basically nullified from this stupid statement alone. Secondly, current prices AND historical prices on the market are a 100% visual, factual, empirical, refutation of your LTV. Thirdly, this hasn't been true and never will be true. I can refute the stupid theory in less then 10 seconds. Read below

 

If I spend 10 hours to make a statue of shit how much is it worth?

Nothing. No one wants a statue of shit.

 

Consumers determine the price of goods. The price system is based on Supply and Demand. You learned this in highschool. It's amazing to me that the labor theory of value can be considered a theory at all. Not even common sensical logic can support it. Arbitrarily creating a widget doesn't give that widget value. Consumers who issue a demand for that widget does. 

Further more, who decides what individuals labor time is worth? The free market decides which types of skills are more scarce or in demand and assign a value to that.

 

If your going to promote communism at least create a real intellectual argument. If you really want to refute mises org your going to have to use some real brain power. This post is child splay. They're laughing at you on their forums right now.

 

 


 

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#19) On July 15, 2009 at 1:19 PM, whereaminow (< 20) wrote:

Listen up people. If you want to help zloj understand where he is wrong, that's one thing.  But to degrade him when he made an honest effort to investigate a topic that most would never touch, is very disrespectful.

I was thrilled that he took this task on.  It gave me an opportunity to discuss issues that no one else will touch.  If I can show him where it all falls flat, maybe he might see things differently.  And if I'm wrong, then I've learned something.

He didn't personally insult any of you, and in fact, never has.  I've been debating him for 7 months and he's never once taken a cheap shot at me.  For those of you that don't know me, I love getting into mudfights, but I won't start them with someone who is respectful, even if i disagree with him.

David in Qatar

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#20) On July 15, 2009 at 2:20 PM, DaretothREdux (36.59) wrote:

He didn't personally insult any of you, and in fact, never has.  I've been debating him for 7 months and he's never once taken a cheap shot at me.  For those of you that don't know me, I love getting into mudfights, but I won't start them with someone who is respectful, even if i disagree with him.

Agreed. I rec and read all of zloj posts because I like to know the argument of the other side. Zlog is very intelligent and very respectful of the opinions of others. Just because I think he is wrong doesn't mean that I can't learn from him.

Dare

P.S. Zloj, David and I know you are very capable of defending yourself on your own, but one should stick up for good people nevertheless.

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#21) On July 15, 2009 at 3:03 PM, starbucks4ever (94.36) wrote:

Thanks, whereaminow and DaretothREdux,

The personal attack was more of an aberration than the norm in the Capdom, I think. So let's stay positive and focus on the ideas, ignoring occasional emotional outbursts that do happen every once in a while. BRB. 

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#22) On July 15, 2009 at 3:12 PM, soundmoneyfan (< 20) wrote:

Poor zloj, he spent all this time learning about Austrian Economics in his attempt to debunk it and claim Keynesian theories such as the labor theory of value is the proper way to valuate goods.  I can tell by your 5th paragraph that you did not even bother to read the FIRST chapter of Mises' Human Action.  You 100% missed Mises' theory of pricing with the following:

First of all, note that even under capitalism, there is no such thing as "objective valuation" of production goods.

If you had done your homework, you would know that Mises argues that prices are objective in the over all market place BECAUSE prices are set SUBJECTIVELY by the individual consumers.  If a consumer is willing to pay a certain amount for a product, it is a subjective choice that is made from the considerations of the value of the good to that individual.  So the price is set subjectively by the individuals that make up the market place, which in its aggregate view, is truly an objective valuation because the price was set organically.  A producer could say he spent $5 making a good so he should price it at $6 to make a $1 profit, but if the consumer will only pay $4 for the product, what is the price??  $4!  Regardless what it cost to make, prices can only be set by the market place.

One price is determined by the labor theory of value: it is the number of man-hours required to produce the tractor or the combine. A capitalist would call it "self-cost" or "operating expence".

The cost of PRODUCTION is determined by the labor cost, not the price that is charged to the consumer.  It cost well under one cent to produce a bottle of water, but I am happy fork out $1.10 for it once a day because I see the price as reasonable compared to my need for tasty water (my tap water here is awful).  The cost of production when compared to the price that has been set on the free market is only used by the producer to determine the profitability of the production.  So if it cost you a lot more to make the same good as a competitor, you will still have to sale your product at a price comparable to the competitor regardless of how much you spend on labor.  If you valuate your product or asset at a level that is profitable for you but the market does not agree with they your valuation and thinks it should be less than go belly up, unless you are a politically connected then you get a bailout even though your balance sheet is full of garbage.

And to one of your comments:

When one argument in the proof is invalid, it's pointless to wonder if the author may have been right on other points.

Is this how you felt about Keynesian economics when the Phillip’s curve was blow up by the stagflation of the 70’s (oh don’t bring that up, we already said sorry about that one, haha)?  How about the cut in government spending in 1945-46 after WWII (I refer you to the works of Dr. Robert Higgs for the proof that Keynesian economics is a joke, I can never explain it as perfect as he does)?

P.S. It is operating expense, not operating expence, proof read your nonsense please.

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#23) On July 15, 2009 at 3:16 PM, brocksamson (28.11) wrote:

This post is so bad it does not deserve a respectful or thoughtful response. 

 

"By and large, however, whenever the market is allowed to operate more or less freely, the price of a tractor is much closer to the self-cost than to the maximum price the highest bidder would pay. But this immediately destroys Mises' argument against socialism. For if the "correct" price of a tractor is equal to its self-cost plus a few percent profit, then a central planner who assigns prices based on the labor theory of value, will never be very far off the mark. Using different processes, the capitalist and the socialist have arrived to rougly the same valuation. " 

 

And, pray tell, how would the central planner determine which goods are produced with that labor?

 

The answer to this single question reveals what a complete bozo you truly are.

 

In a free-market economy, prices determine what is produced and the information (prices) is decentralized; this allows for the maximum amount of information to determine a variegated price and production structure which is sustainable.  The price mechanism determines trade-offs in production.

In a planned economy,  the bureaucrat needs the exact same information to perform these trade-offs; however he does not have the entire population performing information reconnaissance (price calculations) for him.

The fact that Motley Fool CAPS rankings consistently outperform the centralized investment brokers' predictions--despite their massive credit subsidy advantage--is evidential proof that distributed information beats centralized information.

 

 

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#24) On July 15, 2009 at 3:23 PM, soundmoneyfan (< 20) wrote:

zloj, 

I would like to side with whereaminow and DaretothREdux about the name calling.  I really enjoy your debunking attempt and I think you do so respectfully and very thoughtfully.  This is one of the best debunking attempts I have found out there.  You did a great job.  I did throw up in my mouth a little bit when you were backing Marxism, but hey, to each his own.  My defense of the Austrian School is not the best because I am a CPA and not an economist, but I hope I shed a little light on how you missed the point of Mises in regards to prices.

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#25) On July 15, 2009 at 3:44 PM, starbucks4ever (94.36) wrote:

soundmoneyfan,

It's a mistake to think that I am backing Marxism just because I like LTV. Marx is guilty of many other conceptual errors, even more so than Mises. 

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#26) On July 15, 2009 at 8:47 PM, starbucks4ever (94.36) wrote:

#13) "But in reality each miner didn't mine 150 tons a year. Some mined 160 and some mined 125..."

But in reality each American miner didn't produce 150 tons either. The CEO of the mining company has no idea who produced what. He just sets an hourly rate and hopes his supervisors do a good job of enforcing discipline. 

"If one is more efficient than the other, is his labor not worth more?"

That's why we had bonuses, fines, and wage differences accross industries. When a worker received a promotion, his salary also increased. 

"Also, one can put a number on a "coal miner's" production, but how does one calculate the efficiency of say...a firefighter? Or brain surgeon v. a plastic surgeon?"

You keep hiring firefighters until statistics shows that for every fire there will be someone to respond. If you don't have enough applicants, you raise the salary of a firefighter vs. the other professions until you can fill all the vacancies. It's not different here. 

"What value do you put on art and theatre?"

Valuations are tricky here, but not altogether impossible. For example, a writer could get paid based on the number of copies sold, a theatrical troupe could get a bonus if the performance was popular, and so on. I personally would conduct a poll among the art specialists, curve the grades, and apportion the compensation accordingly.

"And finally, say I want to be a filmmaker...does the state control what films I make? Must art and creativity die?"

No, certainly not, if the state is not totalitarian. Political censorship is very counterproductive. Sadly, the Soviet government was as far from the enlightened ideal as it could possibly be. There can be no justification for its cultural policies.

"What is the value of the Mona Lisa?"

An excellent question, and here is my answer to this: as we all know, the LTV-based compansation did not stop Leonardo from painting the Mona Lisa.

"What if someone would have been a great artist but the state assigns them as a coal miner?"

This would be a foolish thing to do. The right to choose a profession was guaranteed by the Constitution even under Stalin. Actually, it was a common situation when some coal-miner, physician, army officer, etc. would begin to write novels or plays. You could even write a scientific paper and send it for publication. Why not, as long as your science is right? 


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#27) On July 15, 2009 at 9:02 PM, starbucks4ever (94.36) wrote:

# 14) " It is also why historically in communist countries there was an overproduction of industrial goods and underproduction of consumer goods."

That's a common misconception. In the 1980s the monetary system broke down because the idiotic Government was printing money like Bernanke does now, while keeping the prices fixed. So of course there was a gut feeling that too little goods were produced. When they introduced market economy, production immediately fell off a cliff, and I don't mean production of pig iron. No, I mean production of the same consumer staples that were perceived to be in short supply. Production of coal, iron, etc. recovered quickly (no wonder Andrei still likes MTL :), but I am still waiting for the production of beef to catch up with the pre-market levels. But hope springs eternal. Who knows, maybe Post-Soviet capitalism will figure that one out before I turn 90 :)

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#28) On July 15, 2009 at 10:10 PM, starbucks4ever (94.36) wrote:

#15) "You could arbitrarily assign x labor dollars to the skill of the artist in creating this painting; but how did he determine this figure?"

But admit it, Capitalism has underpriced Leonardo at the time. Read the biography of essentially every great painter except Picasso, and the life of a Soviet artist under Stalin will all of a sudden seem luxurious. 

"If you pay them differently than a class system is inevitable, and what then would be the point of socialism? Who gets to be the doctor, and who gets to be the coalminer? What if no one wants to be the coalminer?" 

The way it was handled is very simple. When there was a shortage of engineers, doctors, etc., the colleges would be instructed to inrease the quata and accept more students. If quality was deemed important, the government would raise salaries to attract more talent. If it was not so important, they would keep the salary low but accept pretty much everybody with a pulse. But there was one interesting thing about it. Teachers, doctors, etc. were often paid less than ordinary workers, and yet somehow there was never a lack of good applicants. I am not 100% sure how to explain it; if you aks me, it just proves that monetary incentives are not nearly as important as Dick Fulds of the world would have you believe. 

"You can't assign a value to the Labor of Worker A on Product X if you don't know what the value of Product X is"

I am not sure you got my point. The value of consumption goods is KNOWN, and Mises has no problem with that. He only has a problem with the valuation of production goods:

"It follows that the socialist state will thus also afford room for the use of a universal medium of exchange--that is, of money. Its role will be fundamentally the same in a socialist as in a competitive society; in both it serves as the universal medium of exchange. Yet the significance of money in a society where the means of production are State controlled will be different from that which attaches to it in one where they are privately owned. It will be, in fact, incomparably narrower, since the material available for exchange will be narrower, inasmuch as it will be confined to consumption goods. Moreover, just because no production good will ever become the object of exchange, it will be impossible to determine its monetary value."

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#29) On July 15, 2009 at 10:47 PM, NOTvuffett (< 20) wrote:

Sounds like someone needs to read more Adam Smith and less Karl Marx, lol.

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#30) On July 16, 2009 at 4:18 AM, anarchocapitalis (< 20) wrote:

#27)

It is also why historically in communist countries there was an overproduction of industrial goods and underproduction of consumer goods.

> That's a common misconception.

I am sorry, I'm not sure I understand. What is supposed to be a misconception. That there WAS an imbalance in production or that it was caused by the planners?

> In the 1980s the monetary system broke down ...

Unlike most of you, I actually used to live in a communist country so I have a first hand experience. While I agree that anecdotal evidence hardly represents a generic trend, at least it supports my arguments rather than zloj's. As far as remember, the monetary system breakdown happened AFTER the collapse of communism (early 90s).

One thing that you find in a communist countries are QUEUES. If you want to buy something, you need to wait in a queue. It could take several hours to get what you wanted. If you wanted to buy a car, you had to wait in queue (fortunately, not a physical one) for like 10 years. In addition to that, the choice of consumer goods was very poor. There were waves of shortages of trivial consumer goods, such as fruits, toilet paper or sanitary pads. So, the queues for those were longer and the black market more extensive.

After the communism collapsed, two things happened almost immediately: the heavy industry went bankrupt (most of it forever) and retail blossomed. Shortages and queues vanished and the choice of products was suddenly present. And at the same time, the consumer price index rose sharply.

This anecdotal evidence shows that what the planners couldn't solve in decades, market solved in weeks/months. Obviously, we can argue whether this is a systematic feature or just the specific people were incompetent. However, if I had to draw any conclusion from this, it is that the calculations didn't work. If your claims were correct, it wouldn't explain why the waves of shortages were not consistent for the whole economy but just for certain goods at a time. It wouldn't explain why suddenly noone was complaining about shortages while the prices rose dramatically. And the claim about heavy industry recovering quickly is plainly false. Maybe you can say that for Russia, but that's also just anecdotal evidence. Plus I think that Russia is still kind of communist. I'm going there for a vacation next week so I'll see :-).

If I was to take central planning seriously, I would expect at least an example where it actually works for trivial goods. If it doesn't work for toilet paper, how can it work for anything more complicated? I mean producing toilet paper is not a rocket science.

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#31) On July 16, 2009 at 9:47 AM, anarchocapitalis (< 20) wrote:

#28:

> The way it was handled is very simple.

The whole description that follows this sentence is basically explaining that the way to solve this problem is for the government to emulate market behaviour. That invalidates the whole argument for central planning.

> Teachers, doctors, etc. were often paid

> less than ordinary workers, and yet

> somehow there was never a lack of good

> applicants.

The reasons for this is that people were forbidden to leave the country. If they managed to leave without being killed, their families and friends that staid paid the price.

> The value of consumption goods is

> KNOWN ...

Here lies another problem in the argument. Whether the good is a consumption good or a production good is not an internal property of the good, rather the result of how it is used. So you would end up with a dual pricing mechanism, one price in nominal money value and one in labour hours. I fail to see how that is advantageous, on the contrary, it only introduces more variables.

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#32) On July 16, 2009 at 11:18 AM, whereaminow (< 20) wrote:

"You can't assign a value to the Labor of Worker A on Product X if you don't know what the value of Product X is"

I am not sure you got my point. The value of consumption goods is KNOWN, and Mises has no problem with that. He only has a problem with the valuation of production goods:

I wasn't referring to a consumption good. I was referring to an intermediate good.  In fact, I explicitly pointed out in the argument that for even an intermediate good such as a certain type of machine tool used in microchip manufacturing, you could never know the LTV, since tracing back the final value is impossible since its use can vary tremendously before any consumption product is created.

Snce the usefulness of a consumption product is always and constantly changing, the future value of a consumption good is never known.  That is why a functioning economy requires risk.  That is why it requires entrepreneurship, a stock and bond market, and an active lending community (permutations of such things by government decree - such as a central planning Federal Reserve that distorts credit markets not withstanding.)

The main focus of your argument is that the functions of bookkeeping can be replaced by bureaucrats.  Mises never countered this claim.  He agreed.  What can not be replaced, as Rothbard pointed out in the quote I put in comment #15, is the entrepreneurial function.  It is not the managerial function which creates a market, but the entrepreneurial function.  Someone has to stake their own personal fortune on the expected future value of a good before any market economy can develop.  

Also, thanks to anarchocapitalis for pointint out something I was forgetting - the value is derived from its use, not its method of creation.  It's such an obvious idea that I tend to gloss over it, but here it deserves special merit.

David in Qatar Report this comment
#33) On July 16, 2009 at 11:35 AM, starbucks4ever (94.36) wrote:

Marginal Utility Theory still has enough supporters here, as evidenced by this amazing statement: 

"The cost of PRODUCTION is determined by the labor cost, not the price that is charged to the consumer.  It cost well under one cent to produce a bottle of water, but I am happy fork out $1.10 for it once a day because I see the price as reasonable compared to my need for tasty water (my tap water here is awful).  "

The only way you can produce water for a cent and sell it for a dollar is by a hiring a guy in a black suit whose name is Capone to explain to other producers why underselling would be a bad idea. Or, which is how things are done in practive, by lobbying for a regulation that requires mandatory licensing of water sellers with the licence costing 99 cents for everyone but yourself. If your lobbying effort fails, 2 cents is the maximum you will get.

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#34) On July 16, 2009 at 12:37 PM, soundmoneyfan (< 20) wrote:

zloj,

Can you please explain why if the greatest central planners in this country, the Federal Reserve, can not get the price of credit right, why should I trust central planners to calculate the price of other goods??  Interest rates need to be set on a free market based on the supply and demand of money that is put into banks by people who earned it from some sort of contribution to the economy.

Keynesians want to separate the micro and macro economic spheres and it only ends in destruction every time.  This holds true for any price, if it is set by central planner that uses macro economic data to set prices, you are going to have unintended consequences from that.  When you make economics only about the math and leave out the Human Action, you are never going to get it right.  If you let the market do the work and a lot of people get burned, no wrong has been done because there was no miscalculation or governance that caused the problem!!  You can just say life is not fair!

the impersonal process of the market... can be neither just nor unjust, because the results are not intended or foreseen ~F.A. Hayek

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#35) On July 16, 2009 at 1:29 PM, starbucks4ever (94.36) wrote:

"Can you please explain why if the greatest central planners in this country, the Federal Reserve, can not get the price of credit right"

An excellent question, soundmoneyfan. The answer is you should distinguish between "cannot get the price of credit right" and "do not want to get the price of credit right". But you are now getting closer to the REAL issue with central planning. THIS is the right way to attack socialism. 

 

 

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#36) On July 16, 2009 at 2:53 PM, anarchocapitalis (< 20) wrote:

#35

The answer is you should distinguish between "cannot get the price of credit right" and "do not want to get the price of credit right".

I find it very brave of you to venture into the area of motivation, which I tried to avoid so far, because I wanted to stick to problems that are connected to math. You see, in central planning, the planners have no motivation to "get it right". In markets, profit takes care of motivation. Case closed.

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#37) On July 16, 2009 at 3:04 PM, theHedgehog (< 20) wrote:

What happens upon the discovery of new processes, innovations, raw materials, increases and decreases in materials due to natural disasters, war, etc?

Wow, David!  Finally something we can agree on.  :)

You're much more prepared on this subject than I am, but the thing I've noticed about most of the isms (especially Marxism, Socialism, Communism) is that they depend on time stopping.  Sure, there is little reward for someone stuck in a Communist state to innovate, but then again, there is little reward for Linux programmers to innovate - yet we know they do.  So, we can see that innovation happens, regardless, and time does move on.

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#38) On July 16, 2009 at 3:14 PM, theHedgehog (< 20) wrote:

The only way you can produce water for a cent and sell it for a dollar is by a hiring a guy in a black suit whose name is Capone to explain to other producers why underselling would be a bad idea.

zloj, I think you are making a serious mistake by eliminating the effect of brand affiliation.  Let's take the example case of Castrol and Agip (first two oils I could think of, insert your own generic and premium brands).  Both are perfectly good oils, and realistically both perform the same function, given that the oil will be changed in 3000 miles or so.  But there are plenty of people willing to spend the extra money to get that Agip sticker.

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#39) On July 16, 2009 at 3:40 PM, starbucks4ever (94.36) wrote:

Yes, brands are important in the luxury segment. Once you cross the $1M mark, the elasticity of demand begins to work in reverse, and you actually have to raise prices to generate sales.

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#40) On July 16, 2009 at 3:58 PM, whereaminow (< 20) wrote:

theHedgehog,

but then again, there is little reward for Linux programmers to innovate - yet we know they do.  So, we can see that innovation happens, regardless, and time does move on.

Good point. And timely too (pun intended).  I just downloaded Presto! on my backup laptop. I'm going to fool around with it, and see if it might make my older computers worthwhile.  Alas, it costs $19.99, so at least Xandros isn't giving it away for free :)

Linus Torvald is a great story. I think he's the only individual ever to develop an entire (functional and desired) operating system without significant group input.  That he gave it for free is wonderful.  A man with that kind of talent will never be wanting for money anyway, you would think.  But it was still pretty cool.

I've always wondered if he was protesting against the strict intellectual property laws which dominate the software industry or possibly to protest Microsoft.  Anyone know if that has any validity?  Many IT folks are pretty hardcore in their stance against intellectual property and Microsoft.

David in Qatar Report this comment
#41) On July 16, 2009 at 4:01 PM, theHedgehog (< 20) wrote:

Linus Torvald is a great story. I think he's the only individual ever to develop an entire (functional and desired) operating system without significant group input.

I don't want to steal this thread, but I can't let this go unremarked.  Linux didn't do all the Linux stuff by himself.  Linux is more properly named GNU/Linux, as most of the contents of Linux was already available under the GNU copyleft.  Linux put the kernel together (not sure how much of that was original) and collected the GNU content into a single whole that was usable by itself; thus Linux.

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#42) On July 16, 2009 at 4:08 PM, theHedgehog (< 20) wrote:

Linux didn't do all the Linux stuff by himself.

err, Linus didn't do al the Linux stuff by himself.

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#43) On July 16, 2009 at 4:11 PM, whereaminow (< 20) wrote:

theHedgehog,

Thanks for the reply. Obviously I don't study my IT history as closely as my economic history.  That's probably something I should rectify considering the industry I work in :)

David in Qatar

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#44) On July 16, 2009 at 4:35 PM, starbucks4ever (94.36) wrote:

Hi guys,

Hope you enjoy the ride. In a nutshell, I believe the marginal utility theory is invalid because competition between producers should eventually take the price below the level suggested by that theory. Objections?

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#45) On July 16, 2009 at 8:07 PM, soundmoneyfan (< 20) wrote:

Thanks zloj!  I don't know if they can't or don't want to get it right, but it sure as hell worked out for Goldman Sachs!  I'll be checking some of you later post, I enjoyed this one.

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#46) On July 16, 2009 at 10:09 PM, Misesian (< 20) wrote:

"The only way you can produce water for a cent and sell it for a dollar is by a hiring a guy in a black suit whose name is Capone to explain to other producers why underselling would be a bad idea. Or, which is how things are done in practive, by lobbying for a regulation that requires mandatory licensing of water sellers with the licence costing 99 cents for everyone but yourself. If your lobbying effort fails, 2 cents is the maximum you will get."

 

Ahhh...this is precisely why YOU should favor free markets like a true Anarcho-Capitalist then, your above paragraph dissects the main problem when markets are tampered with, through regulations by politically connected folks.  Since REGULATION is by it’s definition created to REGULATE competition.  The things you mentioned above can only occur in socialist or fascist style corporatist influenced economy.  In an Anarcho-captialist economy a business, with "ZERO" entry costs or regulation would step in and undercut your example business above.

 

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#47) On July 16, 2009 at 11:24 PM, starbucks4ever (94.36) wrote:

Hi Misesian,

You just presented a Marxist point of view without knowing it. I understand that Marxism being the flawed theory that it is, there is always a natural temptation to exaggerate its flaws.  May I point out that Marxism was never intended as a revolt again what I call "romantic capitalism" where, as you put it, "a business, with "ZERO" entry costs or regulation would step in and undercut your example business". Instead, Marx's idea was that as productivity of labor increases so much that we are ready to enjoy there perfect competitive prices of 1 cents per bottle, capitalists, who are eager to preserve fat profit margins, respond by MONOPOLIZING entire industries, either through natural moats, or via regulation by bribed bureaucrats. As a result, the economy stagnates, and then a socialist revolution arrives as a way to break up those monopolies. In a naive "back to the nature" mindset, one might think of going back to the past when capitalism was in its prime. However, Marx was a Hegelian and he believed that history never repeats itself. So in his mind, an uprising against monopolies should lead not a return to the pre-monopolistic past, but to a socialized system which would prevent the return of plutocracy once and for all. In terms of prices, his socialist utopia would then SEEM to bring back good old capitalism with water bottles selling for 1 cent. But of course it would not be the exact same thing: it would be the next coil of the spiral. The bottle of water would be as cheap as you might expect from capitalism at its best, but it would be sold to you by a government-owned factory. I'm just giving you this short primer so that you understand what it is exactly that you want to criticize and what was the rationale behind Marx's theory and where Marx went wrong. Note that this is not an apology of Marx because he WAS wrong, though not in his premises. He did draw the wrong CONCLUSIONS from them, and he SHOULD have been refured. Now, there was the right way to refute him, and the wrong way. The right way would be to question the motivation of the people who will be administrating the whole thing. But Mises missed this excellent opportunity and chose instead to attack the good part of the theory: the Labor Theory of Value, and in doing so he himself made quite a number of mistakes. Hope this makes it more clear.

On a less serious note, capitalism scored another victory today. 14000 call still on track.

 

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#48) On July 17, 2009 at 10:26 AM, Misesian (< 20) wrote:

I'll try to use lay terms, to help clarify and move along the disscussion.

 

"Instead, Marx's idea was that as productivity of labor increases so much that we are ready to enjoy there perfect competitive prices of 1 cents per bottle"

How can labor increase its competition in a socialist/marxist economy?  When there is no market to reward hard work.

 You miss a very important point, about what capitalism does and the function of subjective prices.  In a purely capitalist economy "prices"...given all information TO all participants informs them of ranking preferences and thus resources are allocated efficiently through this mechanism.  For example, you correctly mention the fact that the earth has vast deposits of oil.  Yet you failed to realize that the COSTS (labor, materials, technology investment) to extract those deposits currently outweigh the benefits.  There is no profit incentive for business to get this oil and bring it to market.  When and if PRICES of oil rises, like they did last year, it provided MARKET signals for businesses to take on the investment and resources to undertake new ways of extracting these deposits.  You have NONE of these mechanisms in a command economy.  How would a beaurocrat, know when to invest time and resources into undertaking new ways of extracting oil, or new ventures.  He would not.  He would continue to maintain the price of oil in a static and arbitrary price since there would be no MARKET to swing the correct prices of oil to UP. (or speculative prices as marxist like to coin the term)  Speculators, market makers, and risk takers are what's necessary in a market, and help to create and give market signals to business and investors on what they should invest and business ventures they should partake in.  This is what drives investment.  Investment in a command economy is politically motivated by beaurocrat, and will LEAD to waste because there is no ranking order that a MARKET would otherwise impose on them.

In a command economy you have waste of resources to their maximum.  One more thing by the tone of your article I can perceive that your political/social beliefs perhaps lean towards the left.  If this is the case, and you are an environmentalist, I hope you realize that in a command economy/marxist/communist there would be vast amount of pollution and waste of resources.  Let's go back to the subject of water.  Did you know in fact, water is under priced?  How do I know?  Because people are willing to pay $1 for this precious clean good  (see the above statement made above) in the open market.  I'm not saying that the good that comes out of your facet should be priced  at $5 dollars a gallon; however it is definitely wrong when you pay $.01 a gallon to your local water district.  Go tell this to the people of California, currently they are having a water shortage problem.  Don't you think their little problem over there, might have to do with prices being STATIC and being determined by marxist/beaurocrats instead of markets correctly changing instantly to reflect supply and demand?

I have to hand it to you for trying to refute one of the greatest minds…you have guts.  You are a bit naïve, and this will be a failed venture, but you have guts.  If one thing is for certain, YOU taking on this critiquing of Mises will only open your eyes to the beauty of the free market.  Perhaps even one day after further reading you will see and be troubled by the continued folly of man, foolishly still pursuing socialism.

 

Anyway I'll leave it at that, for now.

 

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#49) On July 17, 2009 at 12:43 PM, Misesian (< 20) wrote:

zloj',

 

 

Mises argument partly boils down to this, hopefully it will clear up for you what he's talking about:

 

Prices are derived through markets.  Prices are determined by the demand and supply for thing.  The demand is you, me, everyone.  WE in other words dictate the demand as a collective body if you excuse the phrase, and ultimately the item’s price.  For example, I may want to pay $100 dollars for a Rembrandt, you may only value it at $10 and so on, but society as a WHOLE through the market system, and those that can bid it up the highest price maybe 10 million will thus price the Rembrandt at 10 million.  So the millionaire will correctly, price the item, because of what he values it, you see…so prices are SUBJECTIVE.  The labor and material that went into producing the painting did not determine its cost.  This applies to everything in life.  Your ipod, shoes, haircut…demand drives the prices.

 

But how is a beaurocratic body going to determine how much to produce of anything without a market system which will provide him with the correct price in order to know much of the good he should create…and at what price, so he doesn’t squander resources.  How will he know how many trees to cut down, to make paper, houses, or how will he know how many types of screws to make of which kind for what vehicle, what color ipods, air jordans….etc.  This task is IMPOSSIBLE to calculate as you can see.  The determined and foolish Marxist undaunted may try it, though he MAY….but eventually it will lead to a collapse in this system because he will have squandered resources, due to his use of inefficiently allocating resources and ultimately have reduced everyone’s standard of living.

 

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#50) On July 17, 2009 at 1:19 PM, theHedgehog (< 20) wrote:

Prices are derived through markets.  Prices are determined by the demand and supply for thing.  The demand is you, me, everyone.  WE in other words dictate the demand as a collective body if you excuse the phrase, and ultimately the item’s price.

Larry Niven (sci fi writer) wrote a very interesting booked named "Destiny's Road".  It's all about a Hydraulic Monopoly.

I realize that it's tempting to belive that capitalism works perfectly.  Unfortunately, it doesn't.  We have everything from moats to dynastic influences to corporate bureaucracies to just plain stupidity.  The idea that a company will be an efficient and fair dealer is naive at best and predatory at worst.  I'm no socialist.  I prefer capitalism, but with a loaded gun to its head.

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#51) On July 17, 2009 at 1:33 PM, Misesian (< 20) wrote:

"capitalism works perfectly."

 No one says capitalism is perfect, however it is the best way and most efficient way to allocate resources so we don't squander things, it has raised everyone's standard of living.  We are not living in caves or huts and having to hunt for our own food as a result of capitalism.  Trade, through capitalism works.  Just look at those nations that live in poverty and where their people face death, degradation and starvation guarantee you will not find a capitalistic society there.  Instead you will find a nation riddled with government regulation in various sectors, or corporatism.

 

So if you simply accept the premise that capitalism has given society all of these things, then why try to hamper it?  And if you do, hamper it..then don’t be surprised at the negative outcomes you get.

 

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#52) On July 17, 2009 at 1:38 PM, Misesian (< 20) wrote:

I may take your advice and entertain myself with the book by Larry Niven.  But it must be remembered that he as you put it yourself is a "sci fi writer"...definitely someone I would not take economic advice from...at least far less so than Marx.

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#53) On July 17, 2009 at 2:05 PM, theHedgehog (< 20) wrote:

So if you simply accept the premise that capitalism has given society all of these things, then why try to hamper it?  And if you do, hamper it..then don’t be surprised at the negative outcomes you get.

Is it possible that you're drawing the wrong conclusion from the results?  Capitalism works.  Unrestrained capitalism?  Not so much.  It is the competitive part of capitalism that has given us the advantages you list.  Without competition, or when the competition is a cheat, everyone suffers.

Here's an example that affected me from the California Vehicle Code.  Until just a few years ago, it was illegal to use earplugs, while riding a motorcycle, unless they were made by a licensed audiologist.  Almost every rider I knew ignored this stupid law, but a few got tickets for violating it.  On the surface it sounded like a good law.  The problem was that the audiologists' product was expensive and no more effective than foam ear plugs.  I never checked, but it's a cinch that the law came about due to lobbying by some audiologist group. 

So, who do we blame for this self-serving law?  The audiologists?  They were just trying to increase their trade.  The legislators?  They were just (naively) responding to lobbyists while to trying to protect the public.

Everybody lies when their self-interest is involved. 

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#54) On July 17, 2009 at 3:30 PM, starbucks4ever (94.36) wrote:

Misesian,

You cannot say that capitalism "works" or "doesn't work" before you decide what exactly you want to accomplish. If your goal is to have us consume water that costs $100 a bottle because some "marginal utility analysis" suggests this price point, then it's very easy to do. Just auction off the water supply to one company and recall your laissurez-faire playbook, and the "market" will do all the rest. Speaking of California, that happened once to their deregulated electricity prices, and when the monthly bills started to arrive for $400, even the staunchest republicans instantly switched to the "socialist" camp.  

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#55) On July 17, 2009 at 7:38 PM, Misesian (< 20) wrote:

"Unrestrained capitalism?  Not so much. "

  How do you know?  We've never had unrestrained capitalism.  Do you honestly think the United States is a nation that practices unfettered Capitalism?

 I'm basing my logic on what little capitalism we've had or previously have had in this country.  The rapid modernization and growth of industry was due to the PARTIAL capitalism we've had despite the rapid growth of corporatism and socialism.  And look at the great success we've had...

 If you see failure and abuse, blame that on corporatism, limiting competition.

ple that affected me from the California Vehicle Code.  Until just a few years ago, it was illegal to use earplugs, while riding a motorcycle, unless they were made by a licensed audiologist.  Almost every rider I knew ignored this stupid law, but a few got tickets for violating it.  On the surface it sounded like a good law.  The problem was that the audiologists' product was expensive and no more effective than foam ear plugs.  I never checked, but it's a cinch that the law came about due to lobbying by some audiologist group.

 

I don't understand your post?  Is this not the result of corporatism?  Capitalism and corporatism are two completely different things.  Please see definition, I believe you maybe confused here.  If we had unfettered Capitalism there would be NO regulation as to what you do or what products you choose to purchase.

 

 

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#56) On July 17, 2009 at 8:20 PM, Misesian (< 20) wrote:

"You cannot say that capitalism "works" or "doesn't work" before you decide what exactly you want to accomplish."

                                      

 Yes you can, all you have to do is look at the alternative.  Do you want to purchase and have the freedom to choose what you want to do, live, eat, wear, or think?   Or would you prefer the alternative and would like all of these things dictate to you…if so…then you are FAR too gone for me to try to discuss reason with you.

 

If your goal is to have us consume water that costs $100 a bottle because some "marginal utility analysis" suggests this price point, then it's very easy to do.

My goal…let me restate that…it SHOULD BE EVERYONE’S GOAL to have ALL resources priced accordingly so we don't waste them.  You want to decrease pollution, save the natural resources, have full employment?  Then get government out of the way, and let the market price all those things accordingly.  Believe it or not even pollution can be calculated if the free market and property rights were enforced.  If you want to continue to waste, increase pollution, and have higher unemployment rates, then keep speaking about the virtues of a command economy.

 

"Just auction off the water supply to one company and recall your laissurez-faire playbook, and the "market" will do all the rest. "

Well, just look at what a fine job the state of California is doing.  You honestly think pricing water below market rates will get people to conserve?  I'd rather water be priced accordingly, so we don't have shortages, so that the resource is used to its optimum, wouldn’t you? 

 

Or would you prefer to wake up one day and realize that you can't do this or that, because FINALLY the inefficient government or the beaurocrats in charge have decided that they must have authorities arrest or prosecute individuals who use too much simply because they finally see hardly any water left in their reservoirs.  In a free market NONE of that would occur...prices would adjust instantaneously...people would cut their consumption and rank preferences as to what is important and what is not, therefore you would never have to deal with a central authority threatening to arrest you for your use of a limited resource, instead you would be limited or constrained in what you did based on the MARKET price.

 

 "Speaking of California, that happened once to their deregulated electricity prices, and when the monthly bills started to arrive for $400, even the staunchest republicans instantly switched to the "socialist" camp. "

What part of PUBLIC UTILITY do you equate with FREE MARKET?  Is the energy markets really that FREE or are they not the most heavily regulated?  Can an energy company from NY enter the California Market to compete for customers?  Is not the government heavily involved in subsidizing ethanol, natural gas, and nuclear power?  I'm afraid you are confusing the removal of a few laws and equating that as therefore BEING free market.  Prices of energy were bid up because a few parties were heavily involved in distorting markets.  Why ONLY A select few parties, well...for that answer talk to those in charge...GOVERNMENT, who were setting regulations limiting competition.

 

 

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#57) On July 17, 2009 at 9:57 PM, starbucks4ever (94.36) wrote:

"Do you want to purchase and have the freedom to choose what you want to do, live, eat, wear, or think? '

What a strange alternative...How is a cheap bottle of water affecting my ability to choose what to eat or wear, let alone think? Contrarywise, by saving 99 cents on that bottle, I now have a pleasant choice between a 65 cent candy, a 35 cent pack of Wrigley, and a 90 cent bagel. Higher purchasing power increases my freedom, lower purchasing power decreases it. It's true that money doesn't buy you freedom, but it at least removes some things standing in the way.

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#58) On July 17, 2009 at 10:17 PM, Misesian (< 20) wrote:

"What a strange alternative...How is a cheap bottle of water affecting my ability to choose what to eat or wear, let alone think? Contrarywise, by saving 99 cents on that bottle, I now have a pleasant choice between a 65 cent candy, a 35 cent pack of Wrigley, and a 90 cent bagel."

Well then if you want your cake and eat it too, then why not encourage the government to nationalize petroleum, so you could put all the gas you want in your car, for $.25 a gallon, maybe they should nationalize the alcohol industry, so that you can buy a six pack for a buck, so and so forth?  Why stop at water?  And this is where the problem lies...YOU waste resources because a beaurocrat doesn’t know what price to set for the goods and how much to produce of said good.  No MARKET EQUALS no clue what to do and how much to produce of it.

 And this is what you fail to grasp. You dislike markets, but markets allow you to categorize or prioritize what you wish to purchase with your income.  Yes, I would love for everyone to drive and afford porches at $1,000 bucks because some beaurocrat nationalizes the sports car industry and thus miss-prices it, but what will be the COSTS to society be due to this error in pricing and misallocation of resources?  It is not easily seen…but these errors eventually rear their ugly heads.

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#59) On July 17, 2009 at 10:37 PM, theHedgehog (< 20) wrote:

If we had unfettered Capitalism there would be NO regulation as to what you do or what products you choose to purchase.

This is just deja vu all over again (Libertarianism thread), so I'll ask you the same thing I asked over there: Has there ever been an example, in the wild, of unfettered capitalism?  I mean, the lack of regulation seems like a dead end, when it's part of the definition of a thing. IOW, wouldn't you need brutal enforcement of The Unfetteredness Regulation(TM) to ensure an environment that didn't have regulations?

I'm obviously not a student of economics, so, if you like, just consign me to the "don't bother" bin.  But, this sounds just like libertarianism, in that you need a benevolent dictatorship to keep it propped up.

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#60) On July 17, 2009 at 11:04 PM, Misesian (< 20) wrote:

"This is just deja vu all over again (Libertarianism thread), so I'll ask you the same thing I asked over there: Has there ever been an example, in the wild, of unfettered capitalism?  I mean, the lack of regulation seems like a dead end, when it's part of the definition of a thing. IOW, wouldn't you need brutal enforcement of The Unfetteredness Regulation(TM) to ensure an environment that didn't have regulations?"

No, all you need is enforcement of property rights and contracts.  Any violation of which can be determined through courts, or if need be in a Anarcho-capitalist/ 100% libertarian society where NO government existed for example....arbitration or private courts, could be used.    Of which we currently have a bit of in this country.

 And no...there has never really been a true 100% unfettered capitalist society.  The nearest example I could think of that would come close is probably the U.S.  in the 18th century during the industrial revolution.  But even then, government was creeping in, in certain sectors.

"this sounds just like libertarianism, in that you need a benevolent dictatorship to keep it propped up. "

 

Well if you are talking about 100% libertarian maybe even anarchist society where there is NO government...then there really is no need for a dictator.  People would only need private police to enforce rights and private courts to settle disputes.  Personally, I'm more of a constitutionalist, and I have a great love for the original "Articles of Confederation" to be precise...so I do believe government has its place.  And as a constitutionalist...I see that nowhere is it written that government will nationalize any industry or bail-out a business that is in dire straits, nor a Central Bank will dictate interest rates to society.  I would say, in fact that the Constitution itself…is pretty libertarian if you think about it.

 

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#61) On July 17, 2009 at 11:08 PM, starbucks4ever (94.36) wrote:

Hi Misesian,

Your mistake is that you assume that every resourse - land, labor, and capital - has to be in short supply. This is an uncritical application of 18-th century economics to the 21 century world. We have just poured something like 10 trillion dollars into the derivatives bubble - that's how "limited" capital was. Go to the Hamptons, interview every resident there, and you'll hear the same complaint: what to do with all this capital? Treasuries are a joke, stocks are too risky, Madoff was a liar...Where is that scarcity? Everywhere I look, I only see idle capital, unused land, and unemployed labor... 

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#62) On July 17, 2009 at 11:45 PM, Misesian (< 20) wrote:

"Your mistake is that you assume that every resourse - land, labor, and capital - has to be in short supply."

Zloj, Everything is in short supply, we do not have endless trees, we do not have endless earth where we can grow irragble crops, we do not have endless supply of oil, nor endless suplly of drinkable water.  Yes I'm well aware that you can extract, drinkable water from the sea, where we can grow crops through the use of ferilizers and diffrent methods of tilling the soil to conserve proper balance, and trees can grow back...all of these things take time and require OPORTUNITY costs. The main problem is not really supply here...the main problem is man's insatiable WANTS, or DEMAND.  Nothing wrong with man wanting these things, its just how to best put ranking order to fill these demands through some mechanism.  And the best mechanism to use is Markets to dictate the price.

"Go to the Hamptons, interview every resident there, and you'll hear the same complaint: what to do with all this capital?"

They may have capital, but capital needs to be best allocated the most efficient way otherwise it is destroyed.  People precicely don't want to place capital right now in the stock market because of fear or uncertainty.  Fear that this capital will be squandered in business that will not produce a profit as in the case of GM, or that Government will try to force this capital into uncertain and unknown new regulations.  (Think cap-and-trade or the new regulations of financial, auto, energy, health industry..and so on...this administration with its new regulations is making things difficult for capital to be directed to its best use.  They are not making things easy for investors to forsee what to do with their capital.)

Treasuries are a joke, stocks are too risky, Madoff was a liar...Where is that scarcity? Everywhere I look, I only see idle capital, unused land, and unemployed labor... 

I agree there is currently land, capital, and labor sitting idle.  There are reasons for this.  There WERE HUGE errors made recently by investors.  These ERRORS were made because of GOVERNMENT meddling in MARKETS and pricing interest rates below the market.  The Fed under Greenspan kept interest rates at 1% in 2004 creating a HUGE bubble. (This is what happens when GOVERNMENTS meddle and miss-prices resources, in this case they miss-priced interest rates.  This is another example of errors that are made in a command economy.)

Now that the GOVERNMENT induced bubble has burst.  Investors are seeing CAPITAL diminished.  How many trillions have peopled lost in the stock market…how many trillions have been wiped out on people's home equity…or derivatives etc.?  Capital has been destroyed...and with it now comes the destruction of jobs...and the use of land.  These resources would have not been misallocated had interest rates reflected the correct price dictated by supply and demand.  Wouldn’t interest rates have immediately increased due to the demand when people started up buying homes like there was no tomorrow?  But NO, this was not allowed to happen, because of the Head beaurocrat at the FED Greenspan had now way of knowing WHAT THE PRICE SHOULD BE.  Remember, capital is the essential ingredient for investment, and ultimately jobs.  

What better way to bring back and instill confidence in investors by reducing or eliminating regulation to how they use their capital or reducing the taxes on this capital.  This will bring back investment create jobs, and use up idle land.  Unfortunately, the opposite is occurring.  The new administration is not settling fears; they are creating it and instilling uncertainty in investment by these newly created regulations, and bail-outs, and subsidies.  Also notice, there are winners and losers with these newly created regulation.  Do not kid yourself; these regulations are set at the behest of the largest players to turn the game in their favor.  Once again "regulations" have no place in a Capitalist economy, and business are allowed to fail.  Those that fail, free up idle capital, labor, and land to be used up by those that have not been reckless and know how to best use these resources.

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#63) On July 18, 2009 at 12:20 AM, starbucks4ever (94.36) wrote:

Misesian, I assure you that if only we set up a free market for oxygen that goes into your lungs, it will instantly become a scarce commodity like oil. And we'll have 20 new skyscrapers in the center of Manhattan to house the air distributing company, air investment company, air trading company, air consultant company, air title company, air insurance company, air futures exchange company, and so on. And all these companies will be making their best effort your maximize your marginal utility, and they are through with it, you will be paying $1000 a day in the full confidence that it's a scarce resource that can't be provided for free. And considering the cost of running all these companies and feeding the hoarde of air executives, this resource will indeed become very expensive.

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#64) On July 18, 2009 at 1:01 AM, Misesian (< 20) wrote:

"Misesian, I assure you that if only we set up a free market for oxygen that goes into your lungs, it will instantly become a scarce commodity like oil."

Funny you mention "air"...Well there are "oxygen" bars.  There is a market or demand for it, the market in other words, dictated that it should be created.  I personally have never been into an oxygen bar, I have no utility for it, but other people seem to enjoy it.  I choose not to go because I perceive the air that I breathe normally to be as good and is a good that is not scarce.  In order for a good to be of perceived value and thus a natural market to develop two things must occur. 

1)      Scarce good

2)      People demand it

 

Also, here I think you make an error, in thinking that Industry dictates what should be created or the price we should pay for the goods they make.  Everything created is created by our demand.  If no demand, no industry.  Yes industry tries new and various products to entice us with, but it is ultimately WE (THE MARKET) that decide whether this business will continue to exist and at what price the product will be.  If the Price is too high then the demand for it will decrease...price it too low and you have shortages (no more resource to meet the demand)...price it up to the point where you maximize your profit to meet the demand and you also accomplish the task of not squandering the resource.  That is why we will NEVER run out of OIL.  The price of Oil will just keep going up as supplies diminish and it will create incentives to extract the oil from other currently difficult to extract places.  At the same time the high price will encourage people to consider using other alternatives sources of energy.  Prices is here is giving signals to investors and consumers what to do.

"And considering the cost of running all these companies and feeding the hoarde of air executives, this resource will indeed become very expensive."

Oh oh....I thought we already went over this.  Here again, I think you make an error, in thinking that Industry dictates what should be created or the price we should pay for the goods they make.  Everything created is created by our demand.  If no demand, no industry.  Yes industry tries new and various products to entice us with, but it is ultimately WE (THE MARKET) that decide whether this business will continue to exist and at what price the product will be.  If the Price is too high then the demand for it will decrease...price it too low and you have shortages (no more resource to meet the demand)...price it up to the point where you maximize your profit to meet the demand and you also accomplish the task of not squandering the resource.  That is why we will NEVER run out of OIL.  The price of Oil will just keep going up as supplies diminish and it will create incentives to extract the oil from other currently difficult to extract places.  At the same time the high price will encourage people to consider using other alternatives sources of energy.  Prices is here is giving signals to investors and consumers what to do.

 

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#65) On July 18, 2009 at 1:08 AM, Misesian (< 20) wrote:

I think I may have reposted the same paragraph.  Sorry.

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