In order to explain how a socialist society would fail on the calculation issue, Mises used the example of a central planner trying to decide how to build a railroad between A and B.
Mises supposed that a mountain interrupted the path between A and B, “The railroad can be made to run over the mountain, around the mountain, or, by way of a tunnel, through the mountain. In a capitalist society, it is a very easy matter to compute which line will prove the most profitable. One ascertains the cost involved in constructing each of the three lines and the differences in operating costs necessarily incurred by the anticipated traffic on each. From these quantities it is not difficult to determine which stretch of road will be the most profitable. A socialist society could not make such calculations.”
In Ohio, US Rep. Kaptur skipped the lesson from Mises. Instead, she sees a body of water (Lake Erie) and envisions a high-speed rail tunnel going under it. A tunnel that would “increase commerce and give an economic lift to the heartland.”
For Kaptur, the only calculation is political: how will she profit by boondoggling a piece of Obama’s proposed $53 billion nationwide high-speed rail network for her district?
See, when it’s not your money, the socialist calculation issue simply goes away.
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This is what happens when the causal connection between expenditures and revenue is severed.
Which is the very reason the State exists — to sever it.
“A socialist society could not make such calculations.”
However, a Keynesian socialist would see that one solution, the tunnel, involves digging a hole in the ground, and would choose that solution. Note that Rep. Kaptur is calling for a tunnel, and not calling for a bridge – sound Keynesian economics!
I disagree with von Mises that such a calculation is an easy one. It requrires a huge amount of analysis of both the topography and geology of the region to determine if those options are feasible, engineering to determine how each would be implemented, and accurate forecasts of construction costs, future traffic needs, and future cost and technical capabilities of the equipment. (Do we reduce the grade 1% to save fuel? Well, that depends on what kind of locomotive we use, what fuel will cost, and what construction will cost)
Infrastucture-intensive businesses are truly heroic in their future orientation. Much like the hand-made toaster posted a few weeks ago, to think about these things that are just parts of our everyday life reminds us that we are surrounded by invisible miracles.
Sadly, these miracles are so common that the political class thing that they can just throw them around like toys.
The trouble with Mises’ thought is that he takes the most extreme examples of centrally planned economies, and calls that socialism, and then takes the most slight and ubiquitious examples of regulation or social welfare, and calls those “socialism” as well. Confronted with the vast difference between one and the other, he seeks refuge in a slippery slope fallacy; the latter will inevitably end in the former. There is no evidence that this is so, and it is even less credible at the present time than it was when Mises wrote.
Nor is socialism fundmentally about central planning — about how we direct resource allocation. “From each according to their ability, to each according to their need” may have seemed to some people to imply central planning, but the two concepts are not logically related. And again, despite Mises assertions to the contrary, there are many reasons for governments to act other than socialism.
If you lay down the burden of Misesian absolutism, an obvious fact about the real world becomes apparent: the government’s actions in the market may blur or distort price signals, but they do not destroy them. This may reduce efficiency, but even if it does, some efficiency can be sacrificed without the entire market system coming crashing down. We know this is so, because we have been living in an imperfect market with an activist government for three centuries now, and both the market and the activism persist.
The real challenge to free market absolutism is not the Soviet model, which has vanished from the world and survives only as an economic straw man. It is the Scandanavian model, in which a thriving free market is allowed to allocate scarce resources efficiently, inventors and investors, thrive, and a portion of that thriving economy is diverted to provide basic necessities to all and various public goods.
That system, which is usually labelled “social democracy,” is the real counterpoint to free-market extremism.
Free-market extremism is like 1+1=2 extremism; there’s nothing extreme about it.
Any thoughts on why you continue to post here when you hold Austrian economics in such low regard?
Ludwig von Mises: “Even a manifestly erroneous doctrine should be refuted by careful analysis and the unmasking of the fallacies implied. A sound doctrine can win only by exploding the delusions of its adversaries.” – The Theory of Money and Credit.
Perhaps Robert takes this advice seriously and wishes to learn Austrian concepts so he can explode the Austrian delusions?
Have you read Mises? Regulated markets are hampered markets, not “socialism.”
What they aren’t is free. Now maybe that’s the source of your confusion, that you want to hamper the market with regulations and still call it free so that it suits your ideology.
And the Scandinavian paradise is a fantasy. It’s not nearly so great as you imagine.
The fact that I keep this link in my favorites and regularly use it proof of the sorry state of of economic understanding of the so-called Scandinavian miracle:
http://www.timbro.se/bokhandel/pdf/9175665646.pdf
By US standards, 40% of Sweden lives in poverty. And this is after calculating in the benefit of “free” health care and other public benefit schemes. The poorest members of America could classify themselves as the middle class in most of Western and Northern Europe.
This is, of course, on top of the amazingly obvious manipulations of statistics and refusal to use any form of international base line of comparison by socialistic nations to compare against. The only reason socialism looks good on paper is because they essentially eliminate all points of comparison and engage in apples to oranges comparison schemes.
Woah, thanks for the link, that’s incredible.
One caveat, though – it’s a 2004 study, and it uses the 1995-2000 growth rates of the US as “standard” – this seems slightly disingenuous, as we know that from ’98 there was a “dotcom” boom, which busted after 2000. Nonetheless, the “dotcom” mania did affect Europe as well to some extent, so I suppose it is the best comparison to make, even if it is slightly flawed. The huge discrepancies in growth rates and poverty rates are astounding. Cross Finland off the list of possible places to live.
The US political system is based on theft of goods and services. The incumbent who can steal enough out of the public trough for his district is reelected.
What’s that idiot Kaptur talking about? Everyone knows that the dirty Canadian government already has “plans” for high-speed rail between Windsor and Montreal, so American’s could hook up easily with a much shorter tunnel/bridge situated under/over the Detroit River.
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