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A Lesson from Don Lavoie’s Critique of the Socialist Calculation Debate
The socialist calculation debate of the 20th century is considered one of the foundational exchanges in the history of economic thought. The literature that came out of it was influential in shaping several economies across the globe. However, the struggles of planning exercises through the Cold War revealed several disjunctures between economic analyses and actual results. It was in this context that Donald C. Lavoie published two books— Rivalry and Central Planning and National Economic Planning: What Is Left?— in 1985. Peter Boettke describes this as a “one-two punch” because of the timing and impact it had. It brought to light the fundamental challenge posed to planning efforts by Ludwig von Mises and F. A. Hayek, vis-à-vis the crucial role of knowledge in an economy. This idea, however, is still far from being a mainstream, organizing principle for economic thinking. I argue that goal-based comparison must overtake value-based analyses as a strategy of consensus-building today, so that we may incorporate these oft-overlooked insights better in our view of economic problems.
If the Austrian theses were so intuitive on human action (praxeology), emergent order (catallactics) and markets, why were so many renowned economists in the socialist calculation debate in disagreement with them? Don Lavoie described how, initially, the market socialists surmised that Mises and Hayek had withdrawn from their original stance in the face of theories of noncomprehensive planning. He dismantled this notion and showed how this was actually based on a distortion of the Austrian fundamentals. Rather than retreating, Hayek had felt compelled to clarify these arguments in a more nuanced manner. Building upon these nuances, Lavoie re-problematized the desirability of planning (even if non-comprehensive) as a mode of economic organization. However, the question of persuading others of the right way of economic thinking still remained.
Prior to his books, Lavoie had expressed in a paper that the standard account of the socialist calculation debate did not fully capture the epistemological distinction of the Austrian challenge. He set out to offer a rigorous rebuttal to several scholars in this 1981 paper called A Critique of the Standard Account of the Socialist Calculation Debate. Aside from the theoretical intervention itself, he deployed another intellectual strategy to weigh up his contenders. He opened this article with a reference to the Marxist thinker Louis Althusser, to make the point that “no reading is innocent.” This instantly gave him the access to prop up his arguments against the context of the other side’s framework. His reading of Althusser helped him explain why the Austrians had become outliers – because others’ interpretations of this school of thought were inevitably colored by their own divergent priors.
Later, in his books, Lavoie elaborated how the contention between the Marxists, the market socialists, and the Austrians arose from using similar terminology but with different meanings: it was an epistemological conflict. For instance, the core Austrian understanding of competition and the discovery of prices in the market were completely missed by the pro-planning economists. Different schools of thought thus ended up speaking over, not to, each other. But in Lavoie’s work, we find a patient engagement with the theoretical frameworks of different degrees of pro-planning views. He did not expose the opposite views to value judgments as much as he pointed problems in their priors and methodology, and for their flawed understanding of Menger, Mises, and Hayek.
It can be said that anyone willing to start from the praxeological premises of the Austrian school would arrive sooner or later at the same arguments on economic calculation. However, it is precisely in the realm of premises that philosophical contentions emerge. The Marxist view, for example, saw rivalry as undesirable per se, while the Austrians pointed out the dangers of replacing it. Therefore, we ought to enter the frameworks of our intellectual opponents to identify their contradictions. Instead of trying to align our premises, in the realm of practice and economic policy, we ought to search for common goals. Premises are never derived from hard, objective facts. It is improbable that we objectively absolute evidence on whether individual freedom and private property are beneficial for humanity during an epoch. But we do know enough to underline their significance.
Praxeology comes from discerning patterns for human action based on our socio-historical experience. But socio-historical experience is no one’s monopoly and is broad and deep enough for numerous strands of thought to procure from selectively. Nevertheless, as Lavoie said, the distortion within a paradigm occurs through value-laden interpretations. This means that interventionist views of all kinds are selective deviations from the same praxeological system of thought, incentivized by certain short-run (political) gains. ‘Deviations’ suggest certain overlaps and certain differences, not downright departures. So we can use the rhetorical move that Lavoie did, and quote our opponents to our advantage to clarify all the principles on which we may concur. The underlying idea here is that theoretically distinct schools might still have synonymous goals (or goals that can be posited as commensurate). This is because even though we may differ in our understandings of human action, the fact that we all share our socio-historical experience remains.
Therefore, the alignment of economic analyses can be facilitated by moving along goal-based premises, formulated for the short and long term. To give an example – generally, all schools of thought will support the goal-oriented premise that ‘the objective of economic policy is to eradicate poverty’. The next step might be to acknowledge that the state (a body of planning institutions) exists, and there won’t be any overnight transitions from it. Such a change would require considerable institutional restructuring to enable the (Austrian-style) market system. Thus, the long-term goal may be conceptualized as forming an innovative market-based polity (post-democracy) and the short-run may comprise building polycentric state capacity. In my view, both these goals are sufficient to make the ideological tiger economically toothless, so that it may not threaten the sensitive process of consensus. Political ideologies may come and go, but peace and prosperity ought to be maintained on economic grounds.
This piece solely expresses the opinion of the author and not necessarily the organization as a whole. Students For Liberty is committed to facilitating a broad dialogue for liberty, representing a variety of opinions.
