October 7, 2004 2:10 PM
by Mises Institute Publications
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Volume 7, no. 2 (Summer 2004)
- PUBLIC GOODS AND PRIVATE SOLUTIONS IN MARITIME HISTORY, by Larry J. Sechrest
Among all those goods which have been offered as examples of public goods, national defense and lighthouses have been among the most frequently cited. In both cases, it is typically claimed that only a government can effectively provide the good. This paper will present historical evidence which demonstrates that such a claim is false. For instance, the 700-year history of privateering—the use of private armed ships during time of war—will show that national defense in the form of warfare on the seas was not, and need not, be monopolized by government. It will also be shown that lighthouses were frequently built and operated by private entrepreneurs, rather than by governments. . . .
- THE FAILURE OF OCA ANALYSIS, by Bogdan Glavan
The theory of optimum currency areas (OCA) is widely used by professional economists to defend a system of independent fiat currencies. Mainstream economists maintain that there are benefits to be derived from a system of fiat fluctuating currencies, although not necessarily from the present international monetary order. The OCA theory is supposed to provide the basis for the preservation of flexible exchange rates between regions using criteria proposed by the theory. This paper attempts to prove: (1) that the OCA theory is nonoperational and irrelevant in dealing with the present international monetary situation, and (2) the basic postulates of OCA theory are internally inconsistent and incompatible with economic theory. . . .
- INTERPRETING CARITAS: DID FRANK KNIGHT AND LUDWIG VON MISES GET IT WRONG? By W. Duncan Reekie
Knight and Mises claimed Christianity, both in its early history and in its modern political role, was incompatible with market economics. Competition to satisfy partners in voluntary exchange, investment, and the achievement of property and wealth received little or no sanction from a religion that preached “no thought for the morrow” and commanded “love of one’s neighbor.” Prompted by their disagreement with the anti-capitalist policies promoted by some contemporary church leaders, they adopted faulty interpretations of early church history and caricatured Christian doctrine, in particular the implications of divine love, caritas. Later writers from both Catholic and Protestant traditions argue there is no incompatibility. Indeed Adam Smith’s concepts of self-command, Propriety and the Spectator can be used to help better approach a proper understanding of caritas. The antagonism of Knight and Mises may have had deeper roots than simply intellectual dissent from socialism. . . .
- THE FORGOTTEN CONTRIBUTION: MURRAY ROTHBARD AND SOCIALISM IN THEORY AND IN PRACTICE, by Peter J. Boettke and Christopher J. Coyne
This paper documents and articulates Murray N. Rothbard’s contribution to our understanding of the theory and practice of socialism. We summarize his theoretical contributions and then turn to his explanation of the operation of socialism in the Soviet Union. Moreover, we make and support the conjecture that Rothbard, writing in the 1950s and 60s, anticipated all the major subsequent developments in the economic analysis regarding the problems of the Soviet economy and all the major works in comparative political economy for real-existing socialism in the Soviet Union. . . .
Comments (1)
Peter J. Boettke and Christopher J. Coyne merit strong congratulations for their excellent Quarterly Journal of Austrian Economics article “The Forgotten Contribution: Murray Rothbard on Socialism in Theory and in Practice.� The article is a much needed and long overdue acknowledgement and appreciation of Rothbard’s contribution to the theory and practice of socialism and to the socialist calculation debate. Rothbard ranks as one of the foremost Austrian School economists of the twentieth century, and his contributions clearly deserve to be better recognized and understood. However, I believe that from a doctrinal perspective it would be helpful to comment on, and hopefully clarify, one critical point regarding the socialist calculation debate. Specifically, there should have been no need for the “reinterpretation� of the debate by Rothbard, Karen Vaughn, Peter Murrell, and Don Lavoie if the economics profession had fully acknowledged and comprehended Ludwig von Mises’s path-breaking thesis. Mises effectively won the “debate� in 1920 with the publication of his seminal article “Economic Calculation in the Socialist Commonwealth.� His thesis was restated and his critics specifically addressed and refuted in 1949 with the publication of the first edition of Human Action. (Joseph T. Salerno, in his “Postscript� to Mises’s 1920 article as published by the Mises Institute in 1990, has provided an outstanding summary and elaboration of Mises’s thesis.)
The socialist calculation debate occurred because the large majority of economists (mainstream and otherwise) were unable and/or unwilling to fully grasp the nature and scope of Mises’s thesis. I believe that Rothbard’s significant contribution to the debate was to resurrect and restate Mises’s analysis, and for this achievement Rothbard, of course, deserves to be highly commended. The standard interpretation of the debate is that certain economists had shown that the socialist planner could utilize the equations of general equilibrium analysis to calculate, and thus, Mises’s thesis, at least in theory, had been refuted. However, in response to his critics who maintained that the central planner could utilize the equations of general equilibrium analysis to solve the socialist calculation problem, Mises emphasized that the state of general equilibrium does not and cannot exist in the real world. It is only a mental construct of economists. Furthermore, in order to utilize the equations of general equilibrium analysis, the socialist planner would first need to move the economy from its existing non-equilibrium state to the state of general equilibrium, but this would be impossible because the socialist planner lacks any means of economic calculation to rationally guide his actions. As Mises stated on pages 713 and 714-715 of the third edition (1966) of Human Action (an outline of this discussion appeared on pages 25-26 of the Mises Institute edition of his 1920 article):
"This hypothetical future state of equilibrium will appear when all methods of production have been adjusted to the valuations of the actors and to the state of technological knowledge. Then one will work in the most appropriate locations with the most adequate technological methods. Today’s economy is different. It operates with other means which do not correspond to the equilibrium state and cannot be taken into account in a system of equations describing this state in mathematical symbols. The knowledge of conditions which will prevail under equilibrium is useless for the director whose task it is to act today under present conditions. What he must learn is how to proceed in the most economical way with the means available today which are the inheritance of an age with different valuations, a different technological knowledge, and different information about problems of location. He must know which step is the next he must make. In this dilemma the equations provide no help."
"It was a serious mistake to believe that the state of equilibrium could be computed, by means of mathematical operations, on the basis of the knowledge of conditions in a nonequilibrium state. It was no less erroneous to believe that such a knowledge of the conditions under a hypothetical state of equilibrium could be of any use for acting man in his search for the best possible solution of the problems with which he is faced in his daily choices and activities."
In addition, Mises noted in his 1920 article that the establishment of the socialist state would, by definition, require the reallocation of the ownership of the factors of production from the previous private owners to the State. This reallocation would undoubtedly significantly alter the economic data, including incomes and preferences, so that any reference by the newly established socialist state to the economic data that existed in the final state of the market economy would be worthless. As Mises stated in his 1920 article (1990 Mises Institute edition, page 26):
"Even so we must assume that the transition to socialism must, as a consequence of the leveling out of the differences in income and the resultant readjustments in consumption, and therefore production, change all economic data in such a way that a connecting link with the final state of affairs in the previously existing competitive economy becomes impossible. But then we have the spectacle of a socialist economic order floundering in the ocean of possible and conceivable economic combinations without the compass of economic calculation."
I hope the above discussion has helped to clarify a crucial and apparently largely neglected aspect of the socialist calculation debate and its reinterpretation.
Published: October 11, 2004 9:07 AM