Ministry of Production
October 2, 2009
At the time of this post, Wikipedia says:
The economic calculation problem is a criticism of socialist economics, or more precisely central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek.
However, Hayek himself would tell you that Mises was not the first to make the argument. In his Collectivist Economic Planning (1935), he published an English translation of Enrico Barone’s paper, “The Ministry of Production in the Collectivist State” from the Italian Giornale degli Economisti in 1908.
Robert Vienneau posted a fun excerpt from this paper that I’m reprinting below. Of particular note is the use of the term ‘anarchist production’ to contrast with the Ministry of Production; not even Mises would go there. Also interesting is the emphasis on experiment, which has a mutualist spirit to it. You will also get a glimpse of what Enrico might have said if asked about firms classed as “too big to fail”.
25. But it is frankly inconceivable that the economic determination of the technical coefficients can be made a priori, in such a way as to satisfy the condition of the minimum cost of production which is an essential condition for obtaining that maximum to which we have referred. The economic variability of the technical coefficients is certainly neglected by the collectivists; but that it is one of the most important sides of the question Pareto has already very clearly shown in one of his many ingenious contributions to the science.
The determination of the coefficients economically most advantageous can only be done in an experimental way: and not on a small scale, as could be done in a laboratory, but with experiments on a very large scale, because often the advantage of the variation has its origin precisely in a new and greater dimension of the undertaking. Experiments may be successful in the sense that they may lead to a lower cost combination of factors; or they may be unsuccessful, in which case that particular organization may not be copied and repeated and others will be preferred, which experimentally have given a better result.
The Ministry of Production could not do without these experiments for the determination of the economically most advantageous technical if it would realize the condition of the minimum cost of production which is essential for the attainment of the maximum collective welfare.
It is on this account that the equations of the equilibrium with the maximum collective welfare are not soluble a priori, on paper.
26. Some collectivist writers, bewailing the continual destruction of firms (those with higher costs) by free competition, think that the creation of enterprises to be destroyed later can be avoided and hope that with organized production it is possible to avoid the dissipation and destruction of wealth which such experiments involve, and which they believe to be the peculiar property of ‘anarchist’ production. Thereby these writers simply show that they have no clear idea of what production really is, and that they are not even disposed to probe a little deeper into the problem which will concern the Ministry which will be established for the purpose in the Collectivist State.
We repeat, that if the Ministry will not remain bound by the traditional technical coefficients, which would produce a destruction of wealth in another sense – in the sense that the greater wealth which could have been realized will not be realized – it has no other means of determining a priori the technical coefficients most advantageous economically, and must of necessity resort to experiments on a large scale in order to decide afterwards which are the most appropriate organizations, which it is advantageous to maintain in existence and to enlarge to obtain the collective maximum more easily, and which, on the other hand, it is best to discard as failures.
27. Conclusions. From what we have seen and demonstrated hitherto, it is obvious how fantastic those doctrines are which imagine that the production in the collectivist regime would be ordered in a manner substantially different from that of ‘anarchist’ production.
If the Ministry of Production proposes to obtain the collective maximum – which it obviously must, whatever law of distribution may be adopted – all the economic categories of the old regime must reappear, though maybe with other names: prices, salaries, interest, rent, profit, saving, etc…
It is worth noting, as David A. Reisman does in Schumpeter’s Market, that “Barone…wanted market socialism. They should, Hayek believed, have gone for the free market instead.”