Monday, January 16, 2012

Markets, Socialism, and Liberty

This past weekend I attended a Liberty Fund colloquium on "Markets, Socialism, and Liberty." The first day we discussed readings of Don Lavoie, Mises, and Hayek; the second day we discussed more recent developments, including "Participatory Planning" by Michael Albert and Robin Hahnel, and "Calculaton, Complexity, and Planning: The Socialist Calculation Debate Once Again" by Alain Cottrell and W. P. Cockschott, responses by David Prychitko and Steven Horwitz, respectively, and finally excerpts from Socialism After Hayek by Theodore Burczak. The discussion was made somewhat more interesting by the actual presence of Horwitz, Prychitko, and Burczak.

The Albert and Hahnel piece was a horror story of apparent bottom-up planning through endless meetings. I say it is a horror story because I cannot think of a worse kind of personal Hell than having to participate in their kind of endless committee meetings. Worse for their argument was the fact that they had a logical fallacy -- in arguing that one thing needed was the measurement of value, they committed the logical fallacy of quantifying a quality. Of course, individual value rankings change from moment to moment, and even if they don't, they don't scale up to the group. Within an individual, it's not likely that one will value A over B, B over C, and C over A. But in a group, that is entirely possible. And those things cannot be dealt with. It was also pointed out that very often such committees just end up approving everything to avoid conflict -- and I am certain such would end up being the case with their councils, because otherwise decisions would inevitably breed resentment between councils, and before long there would be wars between neighborhoods. Their plan would inevitably lead to civil strife -- or a positive feedback loop in which everyone got everything they wanted, until all wealth was exhausted, and then nobody could get anything they wanted.

The authors argue that this is also a way to avoid the problems of top-down centralized power. However, what happens when councils come into conflict? It turns out that higher-up ones make the decision. More, the more impact a decision has on others, the higher up the council that has to decide. They argue that underwear color is local, but deodorant is global (because of the ozone layer problem). However, underwear is made of cotton (and other materials, but let's keep life easy), and one must grow cotton, and that means one needs to use fertilizer and pesticides, which have a global impact. Thus, underwear comes under the central planning council's jurisdiction. It would be easy to go through just about any product and prove global impact, meaning in the end, everything would be decided by a dictatorial central planning board, just like they are trying to avoid.

This of course points to the problem of unintended consequences. Pretty much everyone there agreed that Marx would not have been happy with the actual ways Marxism has been realized. But is it possible for Marxism to turn out any other way? Our analysis of decentralized planning led us to conclude that even that would necessarily result in central planning. It turns out Marx's dream is impossible. The only thing that can happen is for the state to take over the economy, with the same problems of alienation and exploitation (according to his definitions).

Cottrell and Cockshott propose using artificial neural nets (ANN) to plan, which they claim solves the knowledge problem. However, this does not in fact do so. There is still tacit knowledge which, by definition, is inarticulate, meaning it cannot be put in as input into the ANN. And even if one could in fact put in all the information (which we observed was impossible), there would still be problems involved in data input itself. Anyone familiar with chaos theory and complex systems knows that even the smallest variance of input can result in wildly different outcomes, whether it be a typo or a choice of where to round off.

Ultimately, both ideas fail because they are still trying to eliminate prices. Horwitz points out that money prices are similar to language in that they both stand-in for something and they both communicate information. To want to eliminate money prices is like wanting to eliminate language, but still want the full range of information communication. It's simply not possible. All one can have without either language or prices is the simplest information communication. Prices are an emergent property of the network of suppliers, producers, and demanders in the same way that meaning emerges in the process of reading or listening to someone speak. Words gain meaning in context; prices emerge too in context. Socialism wants to remove that context and the process that creates prices, and yet still have all the information. Again, this is simply impossible.

Prices allow us to express our wishes, knowledge, and desires. These are all embedded in prices. Thus, markets let us talk to one another -- often across long distances, and to people who do not know us and otherwise could not know what we want or know. If you eliminate prices, you eliminate information.

Of course, one of the reasons socialists want to get rid of money prices is that prices communicate incomplete information. Left out are various externalities, etc. They seek perfect information, but as it turns out, if you have perfect information, you mathematically have no information. Thus, perfect information under socialism would be no information. It would be like me telling you that you have on a blue shirt when you already know you have on a blue shirt. No information is communicated. According to information theory, you have to have noise to have information. If I tell you that you have something on your shirt, and you don't know that, I have communicated information. There is noise, ambiguity in the message, which increases in information with the redundancy of looking down at your shirt to see what I'm talking about. With this new information, new actions emerge. With perfect information, no actions emerge.

The bottom line is that socialists think that syntactic clarity is the same as semantic clarity -- that the logical structure itself is what creates meaning. But this is simply not true. It is like saying you understand a poem because you know it's a sonnet. There is more to it than its structure. Yet, it is also true that structure affects meaning. A sonnet has a different meaning from a ghazal, even if they both deal with the same theme(s) in the same way. So market socialists who argue that their schemes will work because there is a "formal similarity" between their models and models of the free market economy are wrong. The formal similarity among sonnets does not mean that gibberish in one sonnet creates identical meaning as the use of language in another. You still need meaningful information, and that cannot take place in socialism.

I pointed out too that if market socialists are depending on equilibrium models, they are in real trouble, because real market economies are not and cannot ever be at equilibrium. No, they are in fact far-from-equilibrium processes -- the only state in which knowledge can be created. At equilibrium, all the knowledge is available; in chaos, no knowledge is available. In between, in the critical state, knowledge is created. Socialism requires the economy be at equilibrium, because all of the information that is required would be present only in an equilibrium state. But since real markets are in a far-from-equilibrium state, the market socialists are doubly wrong: market socialism does not and cannot have even a formal similarity to the market economy.

This then gets us to Burczak. In his review of the most recent developments, he discussed problems of social justice, rights, and inalienability of labor.

The real problem with ideas of social justice involve the fact that we have to solve actual, not possible conflicts. This is how real justice emerges, making it possible for us to live together. Common law justice emerges in precisely this way, where conflict are dealt with when they take place. One does not anticipate all possible conflicts beforehand in order to create laws for possibilities.

Negative vs. positive rights were also discussed, with the claim that even negative rights are positive rights because one has to have an enforcer. However, the real issue differentiating the two is that with negative rights, you respect the rights of others, and your rights do not come into conflict; however, with positive rights, you necessarily treat others as a means to your own ends, and your rights necessarily come into conflict with the rights of others. If I say I have a positive right to health care, that means I have the right to appropriate others' money to pay for it and to appropriate the physician's time and work to get it. This latter is particularly ironic given the argument for the inalienability of labor.

The idea of the inalienability of labor is essentially that people cannot be alienated from the labor, that whenever they labor, they have ownership in what they labored upon. This idea does make some sense, now that I think about it -- but only if one thinks that all labor is like scholarship or artistic production. When I write an article, my authorship is necessarily connected to the work done. I create a series of articles that others recognize as being by me. It should not surprise anyone that academic scholars have thus come up with such a notion. However, not all work is like scholarship.

The argument was made that a finished car is not owned by anyone -- so therefore, it should be considered to be owned by the workers who made it. This seems to demonstrate more than anything a complete lack of understanding of how a car is built and of capital theory. Surely the person/corporation (which is legally considered to be a person) who puts up the money to buy all the capital goods is the owner of the finished product, since they were the one who risked their own money, own the plant the cars are manufactured in, etc. And what about the workers? The inalienability of labor argument says that it is invalid for anyone to give up ownership in anything they labored on, so the argument that one is paying for the labor won't stand up. However, one could perhaps argue that the firm is in fact buying the product from the workers in the form of wages. A little rhetorical jujitsu seems to solve the problem.

However, that's not entirely true. It doesn't solve all problems. But my outright denial of the inalienability of labor does. Consider the problem that would occur if you helped your neighbor fix his lawn mower. Does helping your neighbor fix his mower mean you now own his mower? If so, the last thing you would want to do is let anyone fix anything of yours -- every attempt to help someone fix something would be seen as an attempt to appropriate your things. Who would trust anyone? Who would try to get anything fixed? You can't alienate your mechanic's labor by bringing your car home. Of course, socialists argue against private property, so perhaps your car and your lawn mower aren't really yours, anyway. They belong to the community. But then, wouldn't the lawn mower belong to the one who can fix it? And wouldn't it be up to him to mow your lawn, since he owns the mower? And once he mowed your lawn, wouldn't he own your lawn? Thus all ownership would end up in a few hands -- again, the opposite of what socialists want.

Having read some of the more recent ideas to come out of the socialist literature, I am more convinced than ever of the impossibility of socialism. Even if you ignore the fact that it's based on a false understanding of human nature, a misunderstanding of epistemology, some strange and contradictory notions of ethics and justice, a failure to understand the purpose of money prices, the failure to understand the nature of the economy as a whole (a problem neoclassical economists also have), and unintended consequences, the fact is that you cannot control a self-organizing, scale-free network process. We are in the middle of the economy, and our actions and interactions give rise to the economy. Thus, we cannot take an outside view of it, we cannot control it, we cannot impose our wills upon it, we cannot transform it from an ateleological process to a teleological system. The best we can do is understand the nature of complex, self-organizing network processes, how our interactions create patterns, and the nature of emergence so we can understand both how we create meaning and value and, thus, money prices.

I of course am not the only one writing on this. Several of the other participants have as well, including David Henderson here, here, and here, and Pete Boettke here.
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