Knowledge And Decisions

Only through the undervaluation or overvaluation of products is it forcibly brought home to the individual commodity producers what things and what quantity of them society requires or does not require. But it is just this sole regulator that the utopia in which Rodbertus also shares would abolish. And if we then ask what guarantee we have that necessary quantity and not more of each product will be produced, that we shall not go hungry in regard to corn and meat while we are choked in beet sugar and drowned in potato spirit, that we shall not lack trousers to cover our nakedness while trouser buttons flood us in millions — Rodbertus triumphantly shows us his famous calculation, according to which the correct certificate has been handed out for every superfluous pound of sugar, for every unsold barrel of spirit, for every unusable trouser button. ...¹¹⁷

Some modern socialist theoreticians have followed up on Marx and Engels’ ideas by constructing models of price-coordinated socialist economies.¹¹⁸ This goes to the heart of the purpose of socialism or “planning” in general. If the purpose is to give better economic expression to the desires of the people at large — overcoming the externalities of capitalism, for example — then such market socialism schemes have more appeal than if the purpose is to supersede the preferences of the people by the preferences of those who believe that third parties (especially themselves) can define objective “needs” (or its converse, “waste”). The prevalence of central planning over market socialism — both in theory and in practice — suggests something about the purpose or vision being pursued. Even where some elements of market socialism have been introduced, it has usually been after first attempting central planning and finding the results intolerable. Local Soviet agricultural and dairy markets, for example, have been allowed a measure of autonomy and coordination by uncontrolled prices after food shortages and even famines followed earlier attempts at the complete “planning” of agriculture. Private agricultural plots account for about 3 percent of the total arable land of the USSR, and about one third of the agricultural output.¹¹⁹

The difficulties of understanding other people’s complex trade-offs and successfully articulating them to producers are compounded by the difficulties of knowing how to produce what is wanted. It was noted in Chapter 1 that no one really understands completely how to make even a simple lead pencil. The task facing central planners is far more complex than that, involving not only far more complex products, but far more complex trade-offs among the millions of products using the same or substitutable inputs. For example, the Soviet machine tool industry alone produces about 125,000 products, involving an estimated “15,000,000,000 possible relations.”¹²⁰ Even if the central planners were to assemble all the experts on the production of each of the products in the economy — which would amount to a stadium full of people — the trade-offs between products competing for the same inputs would still remain an unsolved problem. In short, central planners cannot know what the trade-off patterns are in production any more than in consumption. Others may know — each for his own minute segment of the economy — but the transfer of that knowledge intact to a central decision making unit is a costly and chancy matter.