Ruminations on Central Planning

Since the semester ended, I have had some more free time on my hands to read for pleasure, not just for work.  One of the books I picked up was Don Lavoie’s 1985 book Rivalry & Central Planning: The Socialist Calculation Debate Reconsidered.  While I have only just started reading it, it’s an interesting reexamination on the age-old central planning question.  What follows are two thoughts of mine on the same matter.

Writing at Intellectual Takeout, Michael De Sapio discusses Soviet efforts to eliminate Christmas from the USSR:

Following the Russian Revolution, the new atheist government began an anti-religious campaign. All symbols deemed religious and/or “bourgeois” were eradicated and replaced with new, secular versions. Thus Christmas (which in the Russian Orthodox calendar occurs on January 7) was abolished in favor of New Year’s, and several traditional Christmas traditions and characters received new identities.  St. Nicholas/Santa Claus gave way to Ded Moroz or “Old Man Frost” (a popular figure originating in pagan times), and the new “nativity scene” featured him and his granddaughter the Snow Maiden in place of Joseph and Mary, sometimes with the “New Year Boy” added in place of Jesus. Christmas cards often featured Ded Moroz riding alongside a Soviet cosmonaut in a spacecraft emblazoned with a hammer and sickle.

He also points to similar efforts by Puritans and French Revolutionaries (to eliminate the traditional Christian calendar) .  Judging by the fact Christmas is still celebrated in Russia, America, and the French still use the Christian calendar, these efforts were failures.  It in through this lens we see the difference between law (the customs, institutions, and norms that arise in a society) and legislation (formalized rules).  While the legislation may become most “seen”, the law it is trying to eradicate becomes “unseen” but no less real (to borrow phrases from Bastiat).  And, eventually, the law triumphs (this is true even in the face of Stalinist or Maoist purges!).

The reason I say with confidence that the triumph of law over legislation is a virtual certainty is that law, unlike legislation, arises naturally; it arises from a need for law.  Legislation may arise in a similar manner (say, to codify or clarify some aspect of law), but is also developed arbitrarily, often to cement the rule of those in power (such as the Soviet and Puritan anti-Christmas thing).  As such, legislation begins on shaky ground, and does not contain popular support (for lack of a better phrase) since it is trying to replace law already established by people.

What does this have to do with central planning an economy?  Central economic planning is using legislation en masse to control the economy.  The socialist planners of the 30’s, 40’s, and beyond who engaged in debate with Hayek and Mises, often misunderstood the Hayekian knowledge problem.  They assumed they just needed bigger computers, more calculation power.  Enrico Barone, in 1908, demonstrated that a central planner board could arrive at prices by solving a system of equations, similar to how the market operates (pg 14).  Oskar Lange and Abba Lerner further argued (directly with Hayek and Mises) that such planning boards were possible since the planners would get the same information the market participants would (pg 13).  Indeed, in 1980 Martin Cave proclaimed:

The potential impact of computers on economic planning is enormous.  To appreciate this one has only to recall one of the arguments made in the debate in the 1930’s on the feasibility of central planning [between Lange-Lerner and Hayek-Mises].  It was asserted then that an efficient allocation of resources in a centrally planned economy was inconceivable because such an allocation would require the solution of “millions of equations.”  At that time, of course, no electronic computers were available.  Today the situation is quite different  and the computational objection would have much less force  (pg 15).

I submit that the above arguments are a misinterpretation of Hayek-Mises because Hayek-Mises did not argue solely about “seen” data collection, but also “unseen” information necessary, unseen information like the law.  And that, along with the particular knowledge of time and place Hayek discussed, would be impossible for a computer to “solve.”  Law is a unique force best understood by those who are involved in it.  From the outside looking in, it is difficult for a wealthy American to understand the law of a poor African.  Or, for that matter a Virginian to understand the law of a Massachusetts-ite.  Or even for a Washingtonian to understand the law of a Bostonian.  It cannot be programmed into a computer simply because the knowledge doesn’t exist in a programmable way.  And even if it did, I submit that the outcomes the computer spits out would be virtually identical to those already generated, thus removing the need for any central planner.

The role of the central planner is unenviable.  He must attempt to take all the information available, and magnitudes more not available, and plan an allocation of resources at the speed of information (which, as Douglas Adams might say, is faster than the speed of light) that achieves Pareto Optimality (that is, no one is made better off without making someone else worse off).  This is not a calculation problem but rather an information problem.  The planner is battling not only the forces of time, but the cultural forces of his civilization, too.  Human history has shown time and time again that it is impossible to repress culture, and the central planner will have no more luck doing so.