NationStates Jolt Archive

This honestly isn't one of those snarky "I have a question...how come you suck so much?" type threads - I'm genuinely interested in an answer.

I've been reading quite a bit of Austrian School theory lately, and I kept seeing references to an argument by von Mises that "disproved socialism". I thought that sounded a bit silly, but I tracked it down in Collectivist Economic Planning by von Hayek. He basically argued two things:

1. That without a market - assuming as he did that a 'market' required some form of competition, and assuming as he did that socialism eliminated competition - it is impossible to determine the value of a good. As such, basic principles of supply and demand would break down. Therefore, private ownership of the means of production is not just desirable, but actually required.

2. That such an assessment was so sweeping and so sound that it was an inherent absolute. Thus any system in which value could still be determined was by definition not socialist - and so some forms of collectivism still worked around individual capital.

I still find it a bit silly - but at the same time, he's a clever man, and I like a lot of his writing (the bits of it I understand, anyway - both my German and my economics are appalling, making for a less than ideal comprehension). It seems like the sort of playschool argument it should be really easy to dismiss - but what is in fact the standard rebuttal?

So can someone refer me to some Marx or other theory that would answer this charge? Is there a standard answer anyway?

This honestly isn't one of those snarky "I have a question...how come you suck so much?" type threads - I'm genuinely interested in an answer.

I've been reading quite a bit of Austrian School theory lately, and I kept seeing references to an argument by von Mises that "disproved socialism". I thought that sounded a bit silly, but I tracked it down in Collectivist Economic Planning by von Hayek. He basically argued two things:

1. That without a market - assuming as he did that a 'market' required some form of competition, and assuming as he did that socialism eliminated competition - it is impossible to determine the value of a good. As such, basic principles of supply and demand would break down. Therefore, private ownership of the means of production is not just desirable, but actually required.

2. That such an assessment was so sweeping and so sound that it was an inherent absolute. Thus any system in which value could still be determined was by definition not socialist - and so some forms of collectivism still worked around individual capital.

I still find it a bit silly - but at the same time, he's a clever man, and I like a lot of his writing (the bits of it I understand, anyway - both my German and my economics are appalling, making for a less than ideal comprehension). It seems like the sort of playschool argument it should be really easy to dismiss - but what is in fact the standard rebuttal?

So can someone refer me to some Marx or other theory that would answer this charge? Is there a standard answer anyway?

That is a stupid argument, because it's a begging-the-question fallacy. It presupposes that the only way to determine the value of a good is its worth in the market, and then lo and behold, they discover that absent the market, you can't determine the value of a good in the market. The problem, of course, is that market value of a good is only one kind of value, not the only value.

The answer to this is fairly simple: suppose you have one man living alone. Clearly in that circumstance, he's not in the presence of a market, because he can't really exchange any of his goods with anyone else. Nevertheless, his goods still have two different kinds of value: use value and labor value. Use value is the value of the productive use a good can be put to; even absent a market, a person can put his fishhooks to productive use (catching fish), and the use value of those fishhooks is proportionate to the usefulness of those goods in catching fish. The labor value of a good, on the other hand, is proportionate to the amount of effort that went into producing that good; a fish, for instance, will have more value to a man than an apple because its more difficult to create fishhooks and lines to catch a fish than it is to reach up and pick an apple off the tree.

some forms of collectivism still worked around individual capital.

Co-operatives and labor unions are essentially socialist organizations that operate within capitalism.

That is a stupid argument, because it's a begging-the-question fallacy. It presupposes that the only way to determine the value of a good is its worth in the market, and then lo and behold, they discover that absent the market, you can't determine the value of a good in the market. The problem, of course, is that market value of a good is only one kind of value, not the only value.


I think he is talking about the exchange value of a good. In which case you do need a market. Or north Korea. Either one.

I think he is talking about the exchange value of a good. In which case you do need a market. Or north Korea. Either one.
But he says that without some kind of exchange value, there is no use for producing the object.

But he says that without some kind of exchange value, there is no use for producing the object.

Who says that? I've had a fair amount of Pinot, so I'll concede I missed the point, but I never saw that.

Who says that? I've had a fair amount of Pinot, so I'll concede I missed the point, but I never saw that.
Well, all his first point says is "If we were socialist, there will be no market, therefore nothing would have a market value, therefore private ownership is good." It basically says that stuff not having a market value is bad. That may be the case, but he never says why.

I take the Austrian work primarily as 'proof' that centrally planned economies are doomed to not perform as well as decentralised ones.

The 'Free Market' is (in its purest form) ultimately based on the free choice of people to do what at any point in time they consider best for them. That makes it a very easy and sound form of decentralised economic system.

We haven't tried others, which is due to the fact that implementing them would be too great a change to be practical.

But I don't buy into any of the Austrian, or Objectivist, or Libertarian moral arguments.

Well, all his first point says is "If we were socialist, there will be no market, therefore nothing would have a market value, therefore private ownership is good." It basically says that stuff not having a market value is bad. That may be the case, but he never says why.

Well yeah. Things are only worth their market value. Otherwise no-one would ever go bankrupt.

It's self explanatory really.

The 'Free Market' is (in its purest form) ultimately based on the free choice of people to do what at any point in time they consider best for them. That makes it a very easy and sound form of decentralised economic system.

Except that it damages the ability to implement changes that are necessary, but not economically sound at the moment the change is needed (e.g. switching to other energy sources). A government that sets rules, regulations and rewards is needed.

Aside from which, we *have* tried others. Large parts of the world had perfectly functioning economic systems, until free market capitalism was forced on them "because they needed to develop". While with noble intentions, most of this development aid overlooked the fact that owing only tiny sums of money does not necessarily means you live in poverty. But now, since their economy was reformed, it does.

Well yeah. Things are only worth their market value.
Well..."value" is really not that easy.

I watched a show today that had an old lamp in it. Apparently it was bought for a million or so dollars.

That's not what it is worth for me. I would never buy it. The beauty of "market value" is that it's not fixed.

So strictly speaking, even in an anarcho-capitalist "society" there would be two "types of value" - one being the value you personally attach to things, and the other being the actual market price, sort of created as an aggregate of the wishes of those who demand (and can afford it) and those who supply.

Hayek, Mises and the Austrians see these market prices as a means of transmitting information, and argue that they are ultimately efficient and can't be replaced by something that is imposed from the outside.

Which is valid, but does not mean that "everything is only worth its market price", because even though the market price might incorporate my wishes, it is likely to differ from them.

A government that sets rules, regulations and rewards is needed.
I agree.

Aside from which, we *have* tried others.
Have we?
We've had feudalism, in which some owned all, and others nothing. By law.
We've had "Socialism" (ie State-Capitalism), in which the state owned all, and others nothing. By law.
We've had Capitalism, in which some more owned most, and others very little. But not by law.

And we've had little tribal societies, which is true, but ultimately these cultures also destroyed themselves as they developed into larger societies. Those who didn't remained unimportant and technologically primitive.

Large parts of the world had perfectly functioning economic systems, until free market capitalism was forced on them "because they needed to develop".
Those were feudalistic, and hardly anything close to the equality of opportunity which is ultimately desirable.

While with noble intentions, most of this development aid overlooked the fact that owing only tiny sums of money does not necessarily means you live in poverty. But now, since their economy was reformed, it does.
There are a lot of issues involved there. Suffice to say that objectively, even in Africa people live a little bit better than they did a hundred years ago.
Subjectively, of course, that is different. Perception of wealth is ultimately relative and thus subjective.

But ask any given African whether he would prefer heaps of money now, or go back to life how it was 400 years ago, and I think you know the answer.

Well..."value" is really not that easy.

I watched a show today that had an old lamp in it. Apparently it was bought for a million or so dollars.

That's not what it is worth for me. I would never buy it. The beauty of "market value" is that it's not fixed.

So strictly speaking, even in an anarcho-capitalist "society" there would be two "types of value" - one being the value you personally attach to things, and the other being the actual market price, sort of created as an aggregate of the wishes of those who demand (and can afford it) and those who supply.

Hayek, Mises and the Austrians see these market prices as a means of transmitting information, and argue that they are ultimately efficient and can't be replaced by something that is imposed from the outside.

Which is valid, but does not mean that "everything is only worth its market price", because even though the market price might incorporate my wishes, it is likely to differ from them.

I don't disagree with what you have said: But, assuming that any market transaction is voluntarty, your two criteon of value merge: i.e, the value that you personally attach to something is less than the value offered in the goods in exchange, therefore both parties will willingly participate in the bargain.

Hence the market price - at that instant - is a fair measure of worth: And is competely divorced from intrinsic value.

I don't disagree with what you have said: But, assuming that any market transaction is voluntarty, your two criteon of value merge: i.e, the value that you personally attach to something is less than the value offered in the goods in exchange, therefore both parties will willingly participate in the bargain.

Hence the market price - at that instant - is a fair measure of worth: And is competely divorced from intrinsic value.
But take that out of the micro-theoretical world and into the real world.

You go to the supermarket and you buy instant noodles. They cost a dollar.

You can decide to buy them or not. There is no negotiation.
You probably don't even know your reservation price, ie the value you put on those noodles.
And quite often, you don't choose voluntarily to enter the transaction, because associated with choosing a different place to get your noodles are additional costs of time, petrol and effort.

I don't disagree with what you have said: But, assuming that any market transaction is voluntarty, your two criteon of value merge: i.e, the value that you personally attach to something is less than the value offered in the goods in exchange, therefore both parties will willingly participate in the bargain.

But who is to say that a particular mutually-beneficial exchange is the only mutually-beneficial exchange that could have occured? Maybe if I had liked that lamp Neu Leonstein references, I would have been willing to pay even more than $1,000,000 - say, $1,500,000. Maybe the seller acquired it easily, and would have been willing to sell for anything higher than $250,000. That's a range of $250,000 to $1,500,000 for mutually beneficial exchanges - why should we assume that the price of $1,000,000 was the best or fairest one?

That's a range of $250,000 to $1,500,000 for mutually beneficial exchanges - why should we assume that the price of $1,000,000 was the best or fairest one?
True as well.

Power and information asymmetry are at least as important in determining a market price as my personal valuation of the item.

You probably don't even know your reservation price, ie the value you put on those noodles.
And quite often, you don't choose voluntarily to enter the transaction, because associated with choosing a different place to get your noodles are additional costs of time, petrol and effort.

Yah, you do know your resevation price. Otherwise you'd buy everything in the supermarket.

And the additional cost of petrol &c. are factored into the transaction.

But who is to say that a particular mutually-beneficial exchange is the only mutually-beneficial exchange that could have occured? Maybe if I had liked that lamp Neu Leonstein references, I would have been willing to pay even more than $1,000,000 - say, $1,500,000. Maybe the seller acquired it easily, and would have been willing to sell for anything higher than $250,000. That's a range of $250,000 to $1,500,000 for mutually beneficial exchanges - why should we assume that the price of $1,000,000 was the best or fairest one?

I'm not claiming that it is the optimal exchange; only that both parties are better off from having transacted it - at least from their perspective.

Edit: Far toomuch Gavi di Gavi La Scolca 2001.

Yah, you do know your resevation price. Otherwise you'd buy everything in the supermarket.
So you could tell me your reservation price for every single item in the supermarket? Exactly, to the cent?
Because that's what the mathematical models are proposing - and without those models measuring economic efficiency is pretty much impossible.

So you could tell me your reservation price for every single item in the supermarket? Exactly, to the cent?
Because that's what the mathematical models are proposing - and without those models measuring economic efficiency is pretty much impossible.

Obviously I can: If I couldn't supermarkets wouldn't work. But I can only tell you the reserve at the point of transaction - which is the key thing. Otherwise I'd buy everything which was for sale. Or I would buy nothing. Either one.

2. That such an assessment was so sweeping and so sound that it was an inherent absolute. Thus any system in which value could still be determined was by definition not socialist - and so some forms of collectivism still worked around individual capital.

I still find it a bit silly - but at the same time, he's a clever man, and I like a lot of his writing (the bits of it I understand, anyway - both my German and my economics are appalling, making for a less than ideal comprehension). It seems like the sort of playschool argument it should be really easy to dismiss - but what is in fact the standard rebuttal?

So can someone refer me to some Marx or other theory that would answer this charge? Is there a standard answer anyway?
A standard Marxian theory would be, "A four-year old child could understand this report! Run out and find me a four-year old child! I can't make head or tails out of it!"

Quickly followed by: "One morning I shot an elephant in my pajamas. How he got in my pajamas, I don't know."

I think he is talking about the exchange value of a good. In which case you do need a market. Or north Korea. Either one.Of course, this begs the question of whether exchanges between individuals are necessary, and also does not take into account other forms, such as a system of free distribution.