The Impossibility of Political Calculation

Some think of the State as an immaculate machine that permits you to put in good intentions at one end and watch dumplings pop out at the other.. It is more common to acknowledge imperfection, and attribute it to the occasional corrupt official. Sometimes such evildoers are even brought to book, convicted, and punished as a demonstration that "the system works".

If libertarianism is anything at all, it is a claim that the system does not work, and when the State abuses its citizens, it is the State's responsibility.

Still, I do not think it is clear precisely what it is about this institution that should cause it to sin so persistently, to be so often the instrument of genuinely bad intentions. I suggest as an explanation something reminiscent of original sin. The State is founded on an impossibility. It cannot do what it must in order to be the State. It (or more properly those who pretend to be it) must therefore continually manufacture or exaggerate problems, which it then claims a unique capacity to solve. When it fails, as it must, it has thereby created another problem for the resolution of which it again claims a unique competence . It is this malign circular flow, which I believe is the proximate explanation of the State's consistently bad behavior.

To find the cause of this in turn we must resort to an economic argument first presented in its definitive version by Ludwig Von Mises. Since Socialism in its most plausible form proposes to politicize the economy, it is only natural that economics in retaliation should offer to economize politics.

A version of Von Mises argument might go as follows:

1. Socialism, as a distinct economic program entails a substantial degree of planning, that is to say, a conscious determination of how much is to be produced, when this is to happen, and how the product is to be distributed.
2. Such planning must be in some broad sense rational, which means that it must proceed according to generally applicable and coherent rules tending to optimize welfare.
3. Rational economic planning requires that the value of capital goods at any given time be cardinally ranked. Otherwise, we cannot determine whether the production of this or that item at a particular time and place and in a given quantity represents a misallocation of resources compared to alternative uses of such resources. This means that we could not without such a ranking know whether a given production decision was better or at least by how much than others in the sense again of whether it occasioned greater welfare.
4. Market price is the only possible rational cardinal ranking for the value of capital goods.
5. Allowing the market to determine such ranking necessarily precludes substantial planning.

Conclulsion: Socialism as a rational economic program is impossible.

Perhaps only (4) and (5) require special notice.

How could you after all establish rational prices without the market? Surely not with labor certificates since this irrationally neglects factors of production other than labor. Bureaucrats, on the other hand will be rational enough in allocating prices but only on their own behalf.

But we need not attempt to anticipate every cockamamie substitute. Many if not all can be eliminated if we notice that the market does not search out prices, it creates them. The correct price of some commodity, if one may even speak of such a thing, is not a number written in the sky we might observe if we could only brush away the clouds. It is either what is directly decided upon by some individual or group, or it is the unanticipated vector sum of many individuals buying selling and investing in what they consider to be their best interests.

There is, indeed, nothing about market prices that suggests that they could reflect anything beyond the preferences of those involved together with the scarcity of the resources needed to satisfy these preferences. Dictated prices need not, of course, take this latter factor into account, and in any case cannot do so in an accurate or timely fashion.

And this is one reason why command by a central or even a decentralized authority will not yield rational prices. Another is that such prices could reflect only the preferences of the dictator. In fact, if such prices are to be part of what could be identified as an overall plan, they must register the no doubt benign preferences of the planners especially in those cases where they would be contrary to those expressed in the market. Otherwise, where's the plan?

As prices are created by the market process, which uniquely gauges the preferences of, all those who have money in their pocket, and the relative scarcity of inputs needed to produce the goods and services, which will satisfy those preferences, such prices indicate the order in which such demands should be met. Market prices, thus, are the only possible rational prices since the market process, which they of course reflect, is the only way to establish a cardinal ordering of values which takes into account scarcity, all the factors of production, and, we might add, the state of technology as it affects scarcity and the relative cost of alternative methods of production. Without such an ordering, we are completely at sea if asked to decide what is to be produced , and according to what priority.

Planning if it is to be planning must, as I suggested, be in some defiance of market outcomes, but the information necessary to make any rational plan must come from the market, and this information is to some indeterminate extent degraded as the plan is carried out or even made known. So, if there is to be planning we have to subvert the very market process, which must furnish the information we need for the plan. Thus, the passion for some form of "market socialism", which Anthony de Jasay sees as lusting after a round square.

It might appear that our planner could simply attempt to mimic the way in which the market generates prices, and then use these as the plan. Insofar as he has set up a successful market alias, he has among other things not intruded into it. As he does so he progressively degrades the information furnished by the mock market, but if he is to remain a planner at all, he must intrude. Back to round square one.

Suppose as an example, the planner attempts to decide when, where, how many, and what sorts of motor vehicles are to be produced in the next five year plan. How is he to make up his mind while putting his own preferences aside? He, of course, must not only determine in what combination and how many SUVs, sports cars, limousines, station wagons, pick up trucks, and sixteen wheelers are to be turned out, but also which of the many possible alternative materials are to be employed, and which of the possible methods of production are to be utilized. This must be coordinated with the quantity and mix of machine tools and other means of production available, a thing, which he and his predecessors must also have planned and be planning, taking into consideration factors analogous to those just mentioned.

The planner might be able to handle the complexity of the problem with modern information technology. That, in any case, is not the issue. As I mentioned before, there is no unique solution to any of these problems distinct from the market process, there is nothing underlying the price of an SUV as determined on the market, that this price is bound to reflect: not nature, not labor, not cost, not social need. To be sure, such factors are no doubt at play from time to time and in varying degrees in the preferences, which are revealed in demand, but there is no function, which relates any of these to price.

It is in consequence of the plan's very operation that the plan is defeated. If there is to be a plan at all, the planner must do something more than merely register the preferences of his constituency. He must indeed from time to time overrule their preferences as indicated by the market. He may for instance decide that far fewer SUVs than demanded will be produced. The few available will then command an artificially high price which may make it profitable to produce the vehicle underground, surreptitiously convert other models into SUVs, refurbish decrepit SUVs , or buy the vehicles abroad, and spirit them back into the country. Since much of this activity will be hidden, market signals as a direct function of actual planning will become increasingly distorted. Since these signals are necessary to the plan, planning has but to run long enough and it will destroy itself.

THE STATE

John Rawls, in a rather silly aside, captured just that essential aspect of the State, which I should like to emphasize, and to which I have already alluded.

"We may think of the political process as a machine which makes social decisions when the views of representatives and their constituents are fed into it." (Rawls, toj, p, 196)

"The political process" indeed includes more than the State, though perhaps not so much that we cannot recognize that the institution is intended as the principle agent in this process.

What this characterization or caricature makes plain is that the political process or State is supposed to perform a service. The machine allegedly emits "social decisions" given an injection of "views", and, we might add, revenue, from "representatives and their constituents". More important still, there must be an inflow of problems for the resolution of which the State is thought to have a unique aptitude, and whose resolution, of course, constitutes the social decisions. These might include determinations about how much money should be allocated to weapons of war rather than to farm subsidies, and the sort of tax and its incidence that should be levied to secure the revenue.

The problem, again, is not so much the complexity of such a determination as it is the unavoidable logical contradiction in the whole approach. If there is to be a political process, it is now fashionable to have, or seem to have a "democratic" input. For this to jog the machine into social decisions, the machine must have some sort of structure beyond merely one that allows it to register the inputs. The machine must not only be democratic, but also undemocratic. We thus have the need for planning, and therefore "leadership" as a virtue belonging to those who make and carry out plans especially if they are contrary to the "views" of "representatives and constituents".

Again the contradiction is found at this point. Planning and the exercise of political leadership depend on a quasi-market operating through, among other devices, elections. This quasi-market supposedly furnishes the planner with information needed for the plan, but is more and more degraded as the planning progresses.

Favoring agricultural subsidies over support for the weapons industry, puts the former in a position to help finance the campaigns of those who advocate even greater agricultural subsidies. The quasi-market thus tends to drift ever further from supplying the machine with the views of representatives and their constituents. It will rather tend to inform the machine of what the latter is increasingly programmed to receive: the views of just those constituents it has already rewarded with the resources they need to make themselves heard. Thus, the machine rattles on to self- destruction, corrupting the data which must motivate and inform the plan

Furthermore, the machine, if it is to preserve itself in the short run, must be so structured as to interpret this increasingly distorted input as problems, which are exclusively within the competence of the machine to resolve. We thus learn that the family farm is under threat, that it must be preserved, and that this can only be done by the State with an expenditure of money that would otherwise have gone toward weapons. Alternatively, we are told that there is some imminent menace, from which the State alone can protect us, but only if it spends money for this purpose which in a safer world would ot have gone to protect the family farm.

Those whom the State is already supporting, or who hope to be thus supported will furnish such problems as will assure the continuation of their subsidies or the fulfillment of their hopes. If they falter, the machine supplies the deficiency. It is seldom capable of actually solving the problems, which happily saves it the bother of manufacturing even more novelties, while supporting demands for more scope, power and revenue.

This process cannot go on eternally:

Slowly the poison the whole blood stream fills. It is not the effort nor the failure tires. The waste remains, the waste remains and kills. -- (William Empson, "Missing Dates")

While this accumulation of unsolved problems provides the State with the reassuring illusion of something to do, it also builds irritation, which eventually becomes toxic. Such familiar agitations as "affirmative action", "the war on drugs", and "the right to life" are cases in point: They are all at least in part contrived in order to furnish the political process raw material which it can then make an empty show of rendering into rational "social decisions". When the emptiness becomes apparent, the machine becomes its own raw material.

Affirmative action programs, for instance, breed resentment among those disfavored. Those favored return the sentiment, and are angered at the appearance of dependency. The State is blamed on the one hand for the very existence o f affirmative action programs, on the other for their inadequacy, and finally because they degrade members of the favored group. Thus, the State, this immaculate machine, needs the injection of alleged problems to keep running. It then produces social decisions as we have seen in the form of affirmative action programs. These together with other such social decisions set up centrifugal forces in the machine, which cannot be forever sustained. This, itself, becomes a problem for the institution, but one that can only be solved by its disappearance.

In an even more obvious example, socialist regimes pretended that capitalism was a problem that needed to be solved by the State greedily assuming the functions of civil society. It was eventually noticed that there was no such problem and that the State was no solution. Gorbechev attempted by means of the State to resolve the suddenly real difficulties which consistent State failure had posed. He failed, not least because the institution, as I have insisted, has never been about solving problems, but creating them and thus justifying its intrusions.

The self-consuming process is not confined to the more obvious pathologies. I have already mentioned affirmative action, the war on drugs and abortion as political issues in which the process is discernible. However, the most dramatic example must be modern warfare.

As I write this, the U.S. in alliance with some European countries pursues a war in Iraq, whose justification was doubtful and partially invented, which early on at least strengthened the party in power, but which has already caused the fall of one government in the alliance. As Rudolph Bourne put it, "War is the health of the State".

We have seen reasons for supposing that it is, along with countless other manufactured agitations, also its doom, not so much because of the direct violence thus occasioned, more in consequence of a certain chronic blindness introduced by the State and deepened by its operation.

The State fails for the same reason as its hyperbolic form State Socialism fails: it cannot perform its definitive function, which is to resolve the problems of society by overriding the spontaneous order created by market and quasi-market processes. That spontaneous order after all is the only source by which it could identify the problems, and in any case is their only solution.