Customer Reviews

Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered (Historical Perspectives on Modern Economics)

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This book is a very detailed study of the entire history of the socialist calculation debate. This debate began with Von Mises' claim that a socialist society (state ownership of capital goods) cannot allocate resources efficiently because of the absence of competitive market prices.

All the participants in this debat would agree with this characterization of Mises' challenge, but, as Lavoie argues, they would emphasize different points. Lavoie wants to correct these many different interpretations by drawing attention to the importance Mises attached to the concept of "competition" --- what Lavoie calls rivalry.

Lavoie uses the word rivalry because economic theory has a peculiar idea of the nature and character of competition. For economists, competition is a Pareto-optimal state of affairs in which all prices converge to equilibrium and market agents are act in the capacity of passive price takers. Dynamic, rivalrous, entrepreneurial price war behavior are generally seen by the profession as being crude representations of pure and perfect competition.

This understanding of competition is responsible, Lavoie argues in this book, for the confusion that surrounds the calculation debate. Mises and his followers (Robbins and Hayek) had a different view of the essential features of a competitive market economy than did their interlocutors. For the market socialists, there is a formal similarity between capitalism and socialism, enabling them to argue that socialism could reproduce the results of perfect competition, thus making the free and unhampered market unnecessary for the generation of efficient market prices.

That is the basic thesis of Lavoie's book. The Austrians have a dynamic idea of markets and competition while the market socialists (Lange and Taylor) had a static understanding of markets.

This book is also valuable because it discusses the role of Mises' challenge in the context of Marxian theory as well. In fact, Lavoie argues that the more interesting confrontation occurred between Mises and the Marxians rather than the subsequent debates between Hayek and the market socialists because both Marx and Mises emphasized disequilibrium. For Marx, the market was not only competitive and rivalrous, but also anarchic and chaotic. Marx believed that central planning (unity and coherence) could eliminate this independence among producers and bring order to the market. It is in this context that Mises' challenge can (and should!) be appreciated.

For Austrians who have not yet read this book, I would encourage you to do so for this chapter on Marx and the one on Mises that follows it. The rest of the book should be old hat for Austrians.

I gave this book 5 stars because it was published in 1985 and covered all of the relevant arguments up to that time from a distinctly Austrian perspective. However, Austrians cannot make these sorts of arguments forever. The market socialists are now gone and replacing them are new, well-trained and equally dynamic professional economists who have challenged the efficacy of market prices on novel grounds. People like Joseph Stiglitz, Bowles and Gintis have made challenging arguments against the market without invoking the concept of equilibrium. Austrians have erred by responding to these criticisms by resorting to the socialist calculation debate because, as Lavoie has shown, this debate is confused because both sides had different ideas of the market. The socialists were general equilibrium theorists while the new challengers are not.

This book is of historical interest (and in this respect is immensely interesting), but I think Austrians need to move on. Of course I cannot fault Professor Lavoie for this so I decided to give him 5 stars for this excellent book.