9 of 10: The Socialist Calculation Debate a Century Later

April 5, 2022

This is an extract from the conclusion to the book Democratic Economic Planning (2021, Routledge) by Robin HahneI. The socialist calculation debate was always about whether it was reasonable to expect a decider would be capable of calculating an efficient comprehensive plan for the economy. It was not about whether associated producers – that is, worker and consumer councils and federations – could decide for and among themselves what to produce and how to produce it.

The socialist calculation debate a century later

Hopefully, it is now possible to see the socialist calculation debate for what it was and, more importantly, to understand what it was not. In capitalism what happens is the result of millions of decisions made by millions of different decision makers, none of which are consciously coordinated before they are implemented. We are now so used to this, that the idea that all these decisions might be coordinated and made consciously seems farfetched. Yet this was not always so. One can argue that economics only began to be a “scientific” field of inquiry when Adam Smith had to explain to a still skeptical public that failure for someone to be coordinating all our economic decisions consciously would not lead to chaos and disaster. Prior to capitalism, humans assumed that economic decisions must be planned out in some way or another by somebody.

The most important purpose Adam Smith had in mind when he wrote The Wealth of Nations in 1776 was to reassure people that permitting decisions about who produces and who consumes what in an unconscious and uncoordinated way would not result in confusion and chaos of biblical proportions, as in the tale of the “Tower of Babel.” Above all else, Smith was at pains to relieve anxieties that in a market system even though nobody was any longer consciously coordinating economic decisions, the decisions being made would be good decisions. In fact, Smith argued, they would be precisely the decisions we would have wanted to make had we sat down to make them consciously based on full information about consequences. Moreover, Smith argued that it was fortuitous that the institutions of private enterprise and markets miraculously yielded efficient outcomes – as if guided by an invisible hand – because the amount of information required to make decisions that were mutually feasible, much less efficient, was in Smith’s view so overwhelming that no conscious decision-making process could possibly achieve results that were as desirable.

When the results of surrendering economic decision-making to markets appeared to be less favorable than Smith had promised, early socialists questioned Smith’s fundamental conclusion. They asked: Why are we surprised things have turned out so badly when we cease to make economic decisions consciously and allow the “anarchy” of markets to rule our destinies? But instead of proposing that kings, lords, and their counselors be brought back to make conscious decisions and rule over their subjects, early socialists instead proposed the revolutionary idea that the “associated producers” decide their own fates – and in the present context, the keyword is “decide.” Socialists who preceded Marx asked: Why can’t the associated producers consciously decide among and for themselves what to produce and how to produce it? In effect, these early socialists argued that (a) spreading misery proved Adam Smith be a false prophet about the wisdom of unconscious versus conscious economic decision-making, but (b) what was needed was a change in who was making decisions consciously – the “associated producers” should be the deciders, not “captains of industry,” much less kings, feudal lords, or religious elites.

As explained in our introduction, the socialist calculation debate was launched in the early 20th century when anti-socialists argued first, that the amount of information a decider would need to allocate resources efficiently made the problem so large that it could not be solved even in theory, and second, that because of the tacit knowledge problem a decider could not solve the problem in practice even if it were solvable in theory. As we explained in Chapter 3, by the 1970s, advances in mathematical programming theory and computational capacity seemed to render the first objection moot. And if we ignore incentive compatibility issues for the moment, advances in the theoretical literature on planning procedures suggested promising “mechanisms” a decider might deploy to gather the tacit knowledge in production units needed to make efficient decisions as well. But this is the key point: While early socialists championed conscious decision-making over impersonal coordination by markets, they did not propose a decider. Instead they proposed that the associated producers decide for, and among themselves. And these are not the same thing at all.

In both cases conscious decision-making is being proposed to replace impersonal coordination via markets. And in both cases the product of conscious decision-making is a comprehensive plan for the entire economy. But the socialist calculation debate was always about whether it was reasonable to expect a decider would be capable of calculating an efficient comprehensive plan for the economy. It was not about whether associated producers – that is, worker and consumer councils and federations – could decide for and among themselves what to produce and how to produce it. After explaining in chapter 3 what “a decider” might accomplish in a best-case scenario, in chapter 4 we explained why this is not what socialists should have ever proposed, not what anyone should propose in the 21st century in light of the experience with centrally planned socialism in the 20th century, and certainly not what we have proposed in this book. Instead, what should be the object of discussion and debate is this:

Concretely, how might worker and consumer councils and federations go about creating and coordinating long-term development plans, investment plans, and annual plans that are efficient, equitable, and sustainable in ways which give participants decision-making power in proportion to the degree they are affected?

And because the “socialist calculation debate” was a debate about planning by a central authority, it is largely irrelevant to this discussion.

The irony is that comprehensive economic planning has always been possible if done without a central authority. While advances in mathematical theory, computational capacity, and theoretical “mechanisms” to gather information are all relevant to the possibility, practicality, and efficiency of central planning; they are at best tangential and at worst misleading regarding whether or not what early socialist visionaries imagined, wanted, and believed was both possible and desirable. Even before advances in mathematical theory, even before advances in computer computational capacities, even before advances in clever procedures a central authority might use to gather information from production units, it was possible to do comprehensive socialist planning because it was always possible for groups of workers and consumers to plan their interrelated economic activities together themselves, efficiently and equitably, as we have explained and proposed in this book. While all these intellectual and technological advances were necessary before comprehensive central planning could even make a claim to be efficient, none of them were necessary to do the kind of economic planning early socialists envisioned and we have explained how to do.

Once things have become apparent, it is sometimes difficult to understand why they remained a mystery for so long. With the benefit of hindsight, we can now see that when early thinking about democratic planning by “associated producers” was fleshed out in the 20th century – both in theory by participants in the socialist calculation debate and in practice in the Soviet Union – there was a fateful leap in thinking. It was assumed that a comprehensive economic plan in which the activities of large numbers of workplaces are coordinated with each other and with consumers ex ante requires a central planning authority of some kind. To borrow an analogy from Michael Lebowitz, it was assumed that such a large orchestra required a conductor. However, in truth it does not, as we believe we have demonstrated in Parts III, IV, and V of this book.

Moreover, not that it matters anymore, but comprehensive socialist planning never did require a conductor. The procedures we propose do not require advanced mathematical methods for solving a large constrained optimization problem. Those mathematical tools are required to make central planning efficient, but they are not used to implement either the annual participatory planning procedure nor the participatory investment and development planning procedures we have proposed in this book. We have sometimes used these mathematical tools to explain the logic of the planning procedures we propose, and to demonstrate the efficiency of those procedures under certain assumptions. And we have used modern computational capabilities to simulate how worker and consumer councils and federations might behave to test the practicality of our proposals. But this should not be confused with mathematical calculations required of any participant in order to engage in participatory planning, nor computational capacities required to carry out the planning procedures we propose.3

While some libertarian socialists both noticed and objected to the fateful leap in thinking that assumed a central authority was required for comprehensive economic planning, for most socialists and economists who worked on comprehensive planning in the 20th century the fateful assumption that a planning agency was required to draw up the plan went unnoticed. And as soon as one assumes that detailed planning of a large economy requires a planning authority, both theorists and practitioners quite sensibly turned their attention to solving the problems of how such an authority could (a) calculate a comprehensive plan for a large economy, (b) gather the vast amounts of information necessary to calculate an efficient plan, and (c) induce work units to play the roles assigned to them. And as we recounted, at every step, some who opposed socialist planning argued that what is required is impossible, while others searched for and sometimes found solutions to these problems. But what if the implicit assumption of many early socialist visionaries was correct, and no central authority is needed?

Because their greatest fear was that authority thwarts autonomy, anarchists have long objected to importing a central authority into the socialist project. But anarchists have provided little more than rhetoric in response to a question that must be addressed:

Concretely, in absence of a central authority, how can associated producers plan among themselves sensibly, much less efficiently?

Even if we assume all want nothing more than to agree to whatever is in the social interest, how would they go about discovering what that is without a central authority to gather the vast amounts of information required to do so? If only a central authority can process all the information needed to make sensible and efficient decisions, who else but the central authority should make those decisions? And finally, if we descend from the world of “faith-based initiatives” to the real world where humans are often inclined to pursue their self-interest – even if they are sometimes inclined to promote the “general good” as well – how are we to avoid the necessity of a central authority imposing the “general will” on those tempted to pursue their self-interest instead? Anarchists have apparently not felt the need to provide serious answers to these questions. As readers now know, this book is an attempt to answer these and other questions that require answers – to move beyond generalities and platitudes with concrete proposals for how all the different kinds of decisions that must be made in any economy might be made.

But if we are correct, if participatory annual planning, investment planning, and development planning of different kinds as we have described them in considerable detail is possible, this not only provides concrete proposals to solve problems that are far from trivial where anarchists have not, it also suggests that a fateful leap of logic misguided most socialist thinking during the 20th century. If we have learned anything from the history of “real world” socialism in the 20th century, it should be to erect a warning sign in front of comprehensive economic planning for those to come: NO CENTRAL AUTHORITY REQUIRED!

It is true, and helpful, that recent advances in computer capacities and modern information technology make communicating proposals, sharing information, and adjusting plans in light of new developments far easier than it would have been in the past. Without access to “virtual meetings” and instantaneous communication of proposals and decisions that computers and the internet now make possible, the kind of planning we have proposed would be more time consuming, adjustments fewer and slower, and outcomes therefore less efficient and less desirable. Nonetheless, while it no longer matters, everything we have proposed could have been implemented in Venezuela in 1999, in Vietnam in 1975, in Cuba in 1961, in China in 1949, in Spain in 1936, in Russia in 1917, and even by communards in the Paris Commune in 1871.

Whatever has prevented something like a “participatory economy” from already being tried, it is not because it required some advance in mathematical theory or computational capacities yet to come. Instead, we must search among a host of historical, political, ideological, and intellectual obstacles to understand why libertarian socialism has yet to have an opportunity to prove its merits. This book made no attempt to contribute to a historical analysis of the real-world failures of libertarian socialists to prevail over political obstacles. But hopefully it will help overcome some intellectual and ideological obstacles, so when historical and political forces evolve to the point where it is possible to launch efforts to build a more participatory, equitable, and sustainable economy, those involved will have better ideas for how to go about it. In the remainder of this conclusion, we summarize what we regard as our most important contributions, before closing with some whimsical thoughts about history and surprises.

Start the discussion at forum.participatoryeconomy.org