Irrational Economy

In 1920 Ludwig von Mises published an article criticizing the use of economic planning as a substitute for market-based allocation in socialist economies. This article, "Economic Calculation in the Socialist Commonwealth" sparked a decades long debate about what has become known as the "economic calculation problem," or ECP.

According to Von Mises and defenders of free-market capitalism, rational economic decision-making is not possible without the price signals provided by genuinely competitive markets based on private ownership of the means of production and investment on the basis of profit-maximization. As far as I'm concerned though, this is wrong on multiple levels. First, note how this assertion is based on ideological, rather than factual premises. It's easy to see how "rational" is very different from "beneficial" when that rationality is solely used for "profit-maximization." Obvious example: it's not profitable to research and develop cures for very rare diseases, but it would be rational to do so anyway. The bottom line here is, well, the bottom line.

Price signals come about through the free trade of goods and services, the forces of supply and demand in a market economy. Note that this doesn't necessarily includes the private ownership of the means of production though. And that if we eliminate that private ownership, profit-maximization seizes to be a primary concern. Or it could at least. If the means of production are collectively owned and democratically self-managed, the well being of its owners naturally becomes the primary concern, as opposed to the well being of a single owner, board of directors or majority shareholders.

Which brings us to the next flaw in Von Mises' theory; externalities. The climate, the environment, education, housing, food security, healthcare and so on, the stuff we as a society care about very much, play no role whatsoever in this price signalling scheme. All these vital factors of any functional society are left to the government to secure. Government can, for example, make it expensive for corporations to pollute, raise taxes to finance education and a social safety net, but that's seen as government interference by free-market purists. They will say that there's too much regulation and that if we would just let market forces take their course, most if not all problems would be solved. The market would be far more efficient, so they claim, at allocating resources.

This is not born out in practicality however; markets are highly inefficient, largely because of the private ownership of the means of production and the need for profit-maximization. Efficient is a pig-farm, with a pig-processing facility and a meat-packaging plant right next to each other. Our reality is that, and I know this from personal experience of some of my closest friends, that there's a pig-farm in country A, pigs are killed in country and cut in half A, transported to country B to be cut up in smaller pieces, then to country C to be packaged in the parcels we buy in the grocery stores located in country A, B, C and many others. This is not efficient by any means, except for the profit-motive of all these production facilities and the GDP of all countries involved. To hell with the environment being destroyed by all the unnecessary transportation!

You'll often hear that competition is being destroyed by monopolies, and that if only governments would stop help creating monopolies, the free markets would finally be able to fulfill their promise. This argument baffles me every time I hear it. What is the goal of competition? It's to win of course. Competition is what kills competition! How can one be against monopolies while simultaneously supporting and defending the very system that creates them? Ah, but then governments should enforce antitrust laws more rigorously... But if that's the case, where are the free markets? Free markets have never been and can never be, not if we want at least the fiction of a civilized society.

And that's not the extent of the inefficiencies of capitalist free market economies. Competing firms research and develop the same products in parallel, which in itself is a giant waste of resources and knowledge, the same wheel is invented many times over. And in the end, through competition and elimination only one or two wheel-makers will remain, so why go through that wasteful process in the first place. And all researchers and scientists pooling their knowledge could make a better wheel to begin with. In any case; research in our current economy isn't aimed at making a better wheel, but a more profitable one.

There's a lot more to say about all this, and much is covered in the below linked video, so please watch it. The economic calculation problem is a relic from a time when computers and A.I. didn't exist, and it has become a meme, a memorized phrase used by defenders of capitalism. And, as I stated in the beginning, markets and price signals aren't the sole territory of an economic system in which the means of production are privately owned; market socialism exists. Capitalism and its inherent profit-motive have brought us to the irrational world we live in now, where hunger exists despite the fact that we produce enough food for twice the world's population, and where we keep on destroying the environment that is our life's blood.

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