WEBVTT NOTE The Economic Case for Socialism 1 00:00:00.000 --> 00:00:02.280 I'm gonna present a paper here giving you 2 00:00:02.280 --> 00:00:04.680 an economic case for socialism. 3 00:00:04.680 --> 00:00:09.120 After hearing Lucas's talk though, 4 00:00:09.120 --> 00:00:10.560 I'm not sure I have a case. 5 00:00:10.560 --> 00:00:13.640 So, thanks for the opportunity. 6 00:00:15.720 --> 00:00:19.400 Anyway, what I'm gonna do here is talk about this paper 7 00:00:19.400 --> 00:00:21.320 that I first thought I would call 8 00:00:21.320 --> 00:00:24.360 an Austro-Marxist view of economic development, 9 00:00:24.360 --> 00:00:26.000 but I thought that might provoke someone, 10 00:00:26.000 --> 00:00:28.960 so I'm calling it the economic case for socialism instead. 11 00:00:28.960 --> 00:00:33.220 What I'm gonna do is really throw out a bunch of ideas 12 00:00:33.220 --> 00:00:37.680 and then tie them at the end together in a market process 13 00:00:37.680 --> 00:00:41.880 kind of economic development view, if you like. 14 00:00:41.880 --> 00:00:44.200 So we're gonna go through, but very, very quickly, 15 00:00:44.200 --> 00:00:48.960 very briefly, growth, development, equilibrium, 16 00:00:49.800 --> 00:00:54.800 connect those to Marx's process in economic development, 17 00:00:54.800 --> 00:00:58.800 and Economic Development, his stages through economic history, if you like. 18 00:00:58.800 --> 00:01:02.800 Then talk about what the market looks like, 19 00:01:02.800 --> 00:01:06.800 research heterogeneity, calculation and so forth, 20 00:01:06.800 --> 00:01:10.800 what I call the specialization deadlock, 21 00:01:10.800 --> 00:01:14.800 and connect those to the entrepreneur and the firm, 22 00:01:14.800 --> 00:01:18.800 and then talk about capitalism versus socialism. 23 00:01:18.800 --> 00:01:22.800 So as you can see, there are a few ideas that I'm just gonna throw out there. 24 00:01:22.800 --> 00:01:31.600 So, first of all, the market. Now, neoclassical economics, we know what that is. A lot of 25 00:01:31.600 --> 00:01:37.720 weird assumptions. We can't really get anywhere at all. We prefer the market process. So, 26 00:01:37.720 --> 00:01:45.080 we have a process towards something, right? But to where does this process lead us? Now, 27 00:01:45.080 --> 00:01:51.120 we could imagine the final state of rest, but that doesn't really tell us what is going 28 00:01:51.120 --> 00:02:08.120 What is going on in the here and the now, in the real world, it gives us something that we're aiming for, but how is this process going on, and I found these quotes here that show what is going on in the market every day. 29 00:02:08.120 --> 00:02:15.120 So the first quote, the further an exchange economy develops, the further advanced will be the specialization process. 30 00:02:15.120 --> 00:02:18.620 That shows pretty clearly what is going on in the market, we get more and more specialized, 31 00:02:18.620 --> 00:02:22.500 more and more division of labor, and we get more efficient. 32 00:02:22.500 --> 00:02:27.160 And the other quote is the same, basically, how far the productive forces of a nation 33 00:02:27.160 --> 00:02:32.500 are developed is shown most manifestly by the degree to which the division of labor 34 00:02:32.500 --> 00:02:34.860 has been carried. 35 00:02:34.860 --> 00:02:37.160 The question then is, who said what? 36 00:02:37.160 --> 00:02:41.540 Did anyone give a guess? 37 00:02:41.540 --> 00:02:42.540 Sound pretty good, right? 38 00:02:42.540 --> 00:02:46.100 Well, it's Murray Rothbard and Karl Marx. 39 00:02:46.100 --> 00:02:50.380 So obviously they have something in common, right? 40 00:02:50.380 --> 00:02:52.700 Probably not all that much, but something. 41 00:02:52.700 --> 00:02:56.660 I mean, they view the market in a process way. 42 00:02:56.660 --> 00:02:59.620 They see division of labor at the core and so forth. 43 00:02:59.620 --> 00:03:02.260 So I thought, why not give it a shot 44 00:03:02.260 --> 00:03:06.140 and try to see if I can put these two guys together, 45 00:03:06.140 --> 00:03:07.860 hand in hand. 46 00:03:07.860 --> 00:03:09.460 That's not what I'm gonna do completely, 47 00:03:09.460 --> 00:03:10.620 but I'm gonna give you an idea 48 00:03:10.620 --> 00:03:14.020 of how this might actually work and how we can use Marx 49 00:03:14.020 --> 00:03:15.780 to interpret the market. 50 00:03:17.380 --> 00:03:20.820 And I apologize, I have a pretty bad cold. 51 00:03:20.820 --> 00:03:22.340 I guess that's God's punishment 52 00:03:22.340 --> 00:03:24.100 for doing a paper like this. 53 00:03:24.100 --> 00:03:29.100 So, economic development. 54 00:03:30.900 --> 00:03:33.980 This is, there are the stages of development 55 00:03:33.980 --> 00:03:36.940 in the division of labor are just so many 56 00:03:36.940 --> 00:03:38.660 different forms of ownership. 57 00:03:38.660 --> 00:03:39.620 This is what Marx says. 58 00:03:39.620 --> 00:03:42.620 He focuses on what is the kind of type of ownership 59 00:03:42.620 --> 00:03:44.140 throughout these stages. 60 00:03:44.140 --> 00:03:45.900 But what he's talking about is really 61 00:03:45.900 --> 00:03:47.660 the division of labor is different, 62 00:03:47.660 --> 00:03:53.140 depending on these ownership structures in the market. 63 00:03:53.140 --> 00:03:57.660 And he has these, I didn't include the first steps, 64 00:03:57.660 --> 00:03:59.580 because they're not really interesting here. 65 00:03:59.580 --> 00:04:02.780 But we are now at capitalism, obviously, 66 00:04:02.780 --> 00:04:04.700 where we have private property. 67 00:04:04.700 --> 00:04:08.020 We're going to go through the dictatorship of the proletariat 68 00:04:08.020 --> 00:04:13.100 to Communism where there's common ownership of all the means of production and what does 69 00:04:13.100 --> 00:04:14.900 that mean? 70 00:04:14.900 --> 00:04:21.260 Well it means we have a market or an economy that looks like this, we have rational planning 71 00:04:21.260 --> 00:04:29.140 first of all which is kind of necessary the way Marx sees the economy, have coordinated 72 00:04:29.140 --> 00:04:35.140 investment to meet people's needs, I mean we all know that, that everything is to satisfy 73 00:04:35.140 --> 00:04:40.140 to satisfy people's needs in a communist market, or communist economy, whatever you want to call it. 74 00:04:40.140 --> 00:04:49.140 Now, what I learned also is that this is a post-commodity economy, because you produce for direct use, right? 75 00:04:49.140 --> 00:04:58.140 You produce something using the commonly owned means of production to produce something that satisfies your needs immediately, right away. 76 00:04:58.140 --> 00:05:00.640 Of course, there's a little problem there, 77 00:05:00.640 --> 00:05:03.960 who maintains the capital structure and so forth, 78 00:05:03.960 --> 00:05:08.560 but just like Lucas, I can just assume that that's there. 79 00:05:10.520 --> 00:05:14.360 Also, we have this production for use immediately, 80 00:05:14.360 --> 00:05:16.880 not for profit, so it's not this, 81 00:05:16.880 --> 00:05:19.720 what a Marxist would say, that you produce 82 00:05:19.720 --> 00:05:22.720 to exchange goods for profit, 83 00:05:22.720 --> 00:05:24.960 which then might satisfy a need somewhere, 84 00:05:24.960 --> 00:05:28.700 so it's not this roundabout kind of process. 85 00:05:29.880 --> 00:05:33.440 Now I found this quote which kind of, 86 00:05:33.440 --> 00:05:35.300 it's very interesting in describing 87 00:05:35.300 --> 00:05:36.840 what socialism is about. 88 00:05:38.520 --> 00:05:40.800 It says, planning is not equivalent 89 00:05:40.800 --> 00:05:42.760 to perfect allocation of resources 90 00:05:42.760 --> 00:05:44.600 nor scientific allocations, 91 00:05:45.440 --> 00:05:48.040 nor even more humane allocation. 92 00:05:48.040 --> 00:05:51.040 It simply means direct allocation, ex ante. 93 00:05:51.040 --> 00:05:53.920 As such, it is the opposite of market allocation 94 00:05:53.920 --> 00:05:55.320 which is exposed. 95 00:05:56.300 --> 00:06:00.120 And this might actually be a good description 96 00:06:00.120 --> 00:06:02.840 of neoclassical economics, right? 97 00:06:02.840 --> 00:06:06.320 Because you have this exposed, 98 00:06:06.320 --> 00:06:08.840 this seems to imply that what is going on 99 00:06:08.840 --> 00:06:11.240 is that you have all these capitalists producing goods, 100 00:06:11.240 --> 00:06:13.960 then afterwards you just try to allocate them 101 00:06:13.960 --> 00:06:15.240 through the price mechanism. 102 00:06:15.240 --> 00:06:17.600 There's no entrepreneur, right? 103 00:06:17.600 --> 00:06:20.680 There's no one trying to foresee what are the needs 104 00:06:20.680 --> 00:06:28.560 So people in this 39.7 quintillion years future, right? 105 00:06:28.560 --> 00:06:30.880 So the entrepreneur is not here. 106 00:06:30.880 --> 00:06:35.480 This is just a static kind of description of the market. 107 00:06:35.480 --> 00:06:42.920 It doesn't go anywhere, which is kind of strange since this is how Marxists who actually see 108 00:06:42.920 --> 00:06:50.040 a division of labor in the process describe capitalism as a non-process. 109 00:06:50.040 --> 00:06:52.640 and there seems to be a contradiction here. 110 00:06:52.640 --> 00:06:57.640 But let's move on to what is this market 111 00:06:57.700 --> 00:07:00.440 where the entrepreneur acts? 112 00:07:00.440 --> 00:07:01.840 What does it look like? 113 00:07:03.100 --> 00:07:08.100 What kind of opportunities does he see and why? 114 00:07:09.160 --> 00:07:11.280 And what are the limitations? 115 00:07:12.160 --> 00:07:15.540 So we'll look at heterogeneity and specialization 116 00:07:15.540 --> 00:07:16.800 primarily here. 117 00:07:16.800 --> 00:07:19.440 The heterogeneity, I'm using Lachmann, 118 00:07:19.440 --> 00:07:22.200 It implies complementarity in use, 119 00:07:22.200 --> 00:07:24.040 which simply means that you have a sink 120 00:07:24.040 --> 00:07:29.040 with a pipe and a drain, and those fit together, right? 121 00:07:29.780 --> 00:07:33.240 You can't use three pipes instead, or three sinks. 122 00:07:33.240 --> 00:07:35.600 It doesn't make any sense. 123 00:07:35.600 --> 00:07:37.960 So you use them together, and you have to use them together, 124 00:07:37.960 --> 00:07:39.640 and you can't use another pipe 125 00:07:39.640 --> 00:07:42.140 with a different dimension or something. 126 00:07:42.140 --> 00:07:43.440 They're pretty specific. 127 00:07:44.320 --> 00:07:47.540 And it suggests less substitutability, 128 00:07:47.540 --> 00:07:50.140 because you have more different kinds of goods 129 00:07:50.140 --> 00:07:52.840 so the substitutability in the market is limited. 130 00:07:54.700 --> 00:07:59.500 Now specialization, I see that as kind of claiming 131 00:07:59.500 --> 00:08:03.340 a specific niche in the capital structure. 132 00:08:03.340 --> 00:08:07.660 So you specialize, you start producing this specific pipe 133 00:08:07.660 --> 00:08:11.500 of a certain length and a certain diameter or whatever 134 00:08:11.500 --> 00:08:14.680 and then you claim this specific little good 135 00:08:14.680 --> 00:08:18.940 that is complementary to other goods, hopefully. 136 00:08:21.600 --> 00:08:24.680 And of course, specialization also means 137 00:08:24.680 --> 00:08:26.540 the division of labor and capital, 138 00:08:26.540 --> 00:08:29.540 and that's how you get a more efficient production 139 00:08:29.540 --> 00:08:30.380 and so forth. 140 00:08:30.380 --> 00:08:32.280 You can more efficiently satisfy people's needs 141 00:08:32.280 --> 00:08:35.420 and hopefully make a profit. 142 00:08:35.420 --> 00:08:40.420 So what does this mean then on a more macro level? 143 00:08:40.940 --> 00:08:44.560 Well, if we have this higher complementarity, 144 00:08:44.560 --> 00:08:50.040 it does mean that we have some kind of interdependence 145 00:08:50.040 --> 00:08:54.520 between the sink and the pipe and the drain. 146 00:08:54.520 --> 00:08:56.560 Those are interdependent. 147 00:08:56.560 --> 00:09:01.600 And this creates some kind of deadlock in the market, too, 148 00:09:01.600 --> 00:09:05.440 because you can't just suddenly start producing something 149 00:09:05.440 --> 00:09:07.920 that no one has produced before, because you have to use what 150 00:09:07.920 --> 00:09:10.120 is already there. 151 00:09:10.120 --> 00:09:12.220 You have to innovate the whole process. 152 00:09:12.220 --> 00:09:16.780 If you have a production process with three tasks 153 00:09:16.780 --> 00:09:18.940 that you do after each other, 154 00:09:18.940 --> 00:09:21.940 and you want to break one task into three different ones, 155 00:09:21.940 --> 00:09:25.500 you have to do all three tasks, right? 156 00:09:25.500 --> 00:09:27.280 You can't just do one of them. 157 00:09:27.280 --> 00:09:29.100 You have to find three people doing those tasks 158 00:09:29.100 --> 00:09:34.020 or do them after each other, right? 159 00:09:34.020 --> 00:09:35.420 So this would be a problem. 160 00:09:36.800 --> 00:09:41.440 So in any kind of progress in this market, 161 00:09:41.440 --> 00:09:43.900 you would have to take a leap forward, right? 162 00:09:43.900 --> 00:09:47.640 If you divide one task into three, 163 00:09:47.640 --> 00:09:49.700 you have to find someone to specialize 164 00:09:49.700 --> 00:09:51.800 in each of these tasks at the same time, 165 00:09:51.800 --> 00:09:54.020 because otherwise it doesn't make any sense at all. 166 00:09:54.020 --> 00:09:55.880 You can't get anywhere. 167 00:09:55.880 --> 00:09:58.240 You would mean bankruptcy, right? 168 00:09:59.200 --> 00:10:02.060 So what I propose, and it's another paper 169 00:10:02.060 --> 00:10:04.120 and last year's presentation, 170 00:10:04.120 --> 00:10:06.440 is that entrepreneurs can create these islands 171 00:10:06.440 --> 00:10:08.700 of specialization in a firm. 172 00:10:08.700 --> 00:10:10.680 You integrate this and you integrate 173 00:10:10.680 --> 00:10:13.200 all those three tasks into a firm 174 00:10:13.200 --> 00:10:16.760 and you coordinate them in this island of specialization 175 00:10:16.760 --> 00:10:20.760 and then you can provide this whole solution to the market. 176 00:10:21.880 --> 00:10:23.220 Now, what is the firm? 177 00:10:23.220 --> 00:10:26.280 Well, the firm is subject to the calculation problem 178 00:10:26.280 --> 00:10:29.840 if it has more than one stage, right? 179 00:10:29.840 --> 00:10:33.040 So, or you can read this quote yourselves, 180 00:10:33.040 --> 00:10:35.480 it's kind of long, but what it really says 181 00:10:35.480 --> 00:10:37.160 is that there is a calculation problem 182 00:10:37.160 --> 00:10:38.920 because there are several, 183 00:10:38.920 --> 00:10:47.920 If there are several stages inside the firm, you don't have market prices for the intermediate stage, right, or the product of the first stage. 184 00:10:47.920 --> 00:10:58.920 And this also means that in the firm, in the first stage, you actually produce for use, right, for direct use, just like Marx said that the communist economy would have worked. 185 00:10:58.920 --> 00:11:06.920 So you would use it yourself. Of course, ownership might not be communal in a firm, but that's another matter. 186 00:11:06.920 --> 00:11:09.560 And this is Murray Rothbard who talks about the firm. 187 00:11:09.560 --> 00:11:13.600 He seems to accept the Kocian view of the firm. 188 00:11:13.600 --> 00:11:15.800 And he actually has a footnote saying that too, 189 00:11:15.800 --> 00:11:17.880 so I'm not making it up. 190 00:11:17.880 --> 00:11:21.480 Now the firm then, if we see it like this, 191 00:11:21.480 --> 00:11:24.880 well we can, this is another quote from another guy. 192 00:11:24.880 --> 00:11:26.760 You can probably guess who then. 193 00:11:26.760 --> 00:11:29.680 Now here it says the division of labor in a manufacturer, 194 00:11:29.680 --> 00:11:32.280 which is a factory or a firm, 195 00:11:32.280 --> 00:11:34.680 demands that a division of labor in society at large 196 00:11:34.680 --> 00:11:35.880 should previously have attained 197 00:11:35.880 --> 00:11:37.280 and a certain degree of development. 198 00:11:37.280 --> 00:11:41.000 Inversely, the former division reacts upon and develops 199 00:11:41.000 --> 00:11:45.000 and multiplies the latter, which kind of says 200 00:11:45.000 --> 00:11:47.800 what I said before about the firm, right? 201 00:11:47.800 --> 00:11:51.560 It's an island of specialization, right? 202 00:11:51.560 --> 00:11:54.920 And you start with what the market's specialization 203 00:11:54.920 --> 00:12:00.920 as it is, and you integrate, and on that island, 204 00:12:00.920 --> 00:12:02.280 you can specialize even further. 205 00:12:02.280 --> 00:12:05.040 You can divide the tasks into more. 206 00:12:05.040 --> 00:12:09.800 And the meaning of division of labor in society, the market, 207 00:12:09.800 --> 00:12:13.180 and the firm are not only different in degree, 208 00:12:13.180 --> 00:12:15.780 but also in kind, that's what Karl Marx says. 209 00:12:15.780 --> 00:12:19.960 So he was really the inventor of My Theory of the Firm, 210 00:12:19.960 --> 00:12:20.800 I feel like. 211 00:12:22.040 --> 00:12:23.360 That's my Swedish heritage. 212 00:12:24.560 --> 00:12:29.440 So, in the firm then, what we have is that you take 213 00:12:29.440 --> 00:12:32.920 these leaps forward, they require mutual specialization 214 00:12:32.920 --> 00:12:36.280 like we talked about before, the sink, the pipe, 215 00:12:36.280 --> 00:12:39.440 and the drain, you develop all of them together. 216 00:12:39.440 --> 00:12:41.880 You can't go to the market and procure one of them 217 00:12:41.880 --> 00:12:44.260 because there's no market yet, right? 218 00:12:45.120 --> 00:12:46.240 And since there's no market yet, 219 00:12:46.240 --> 00:12:49.000 you can't really contract someone to do it either. 220 00:12:49.000 --> 00:12:54.000 Because you have to coordinate and you have to probably 221 00:12:54.400 --> 00:12:57.240 educate the guy you're contracting with. 222 00:12:57.240 --> 00:12:59.160 So there seems to be a problem here. 223 00:12:59.160 --> 00:13:00.840 You have to create the whole process first 224 00:13:00.840 --> 00:13:03.920 before you can actually procure these things 225 00:13:03.920 --> 00:13:05.560 for your process. 226 00:13:05.560 --> 00:13:07.680 It seems to be a paradox. 227 00:13:08.560 --> 00:13:11.600 So, that's what I say, basically. 228 00:13:11.600 --> 00:13:14.440 That entrepreneurs challenge the market structure as it is. 229 00:13:14.440 --> 00:13:16.640 If we see it as a specialization deadlock, 230 00:13:17.640 --> 00:13:20.360 what the firm does is really break through this 231 00:13:20.360 --> 00:13:24.000 and create a new kind of, more intense specialization. 232 00:13:24.900 --> 00:13:27.800 And this is how we might get through, 233 00:13:29.120 --> 00:13:29.960 one minute. 234 00:13:30.840 --> 00:14:00.840 Alright then. So if we do this in one firm, that creates this new production process or divides tasks into more smaller, more narrowly defined tasks, and it's profitable, well obviously we would see other entrepreneurs do the same thing, right, try to imitate what they're doing, and then we would get a market, right, market prices 235 00:14:00.840 --> 00:14:06.480 between these two firms integrating these multiple steps, right? 236 00:14:06.480 --> 00:14:10.400 So suddenly there we have this, they have the price mechanism between the firms, 237 00:14:10.400 --> 00:14:14.200 two or three or four and even more as time passes, 238 00:14:14.200 --> 00:14:18.880 and we solve the calculation problem because suddenly we have market prices 239 00:14:18.880 --> 00:14:22.680 for the intermediate stages within those integrated units, right? 240 00:14:22.680 --> 00:14:25.240 Those islands of socialism, if you like. 241 00:14:25.240 --> 00:14:30.040 So the calculation problem is solved and suddenly you can outsource parts of your business 242 00:14:30.040 --> 00:14:32.640 because there's a market suddenly. 243 00:14:32.640 --> 00:14:37.840 So, the macro level then, what does this mean? 244 00:14:37.840 --> 00:14:39.760 Well, it seems to me that we have some kind 245 00:14:39.760 --> 00:14:42.080 of Schumpeterian market structure, 246 00:14:42.080 --> 00:14:44.280 creative destruction process, right? 247 00:14:44.280 --> 00:14:46.680 We have a specialization deadlock 248 00:14:46.680 --> 00:14:51.160 that is completely destroyed through innovation 249 00:14:51.160 --> 00:14:55.440 and a new equilibrium kind of emerges. 250 00:14:55.440 --> 00:14:57.520 I see this probably as a process 251 00:14:57.520 --> 00:15:00.400 for many parallel processes at the same time. 252 00:15:00.400 --> 00:15:03.040 So it would be hard to find this deadlock 253 00:15:03.040 --> 00:15:04.280 or this equilibrium. 254 00:15:04.280 --> 00:15:05.720 But there is probably is, 255 00:15:05.720 --> 00:15:10.360 it's a spasmodic progress kind of process. 256 00:15:11.260 --> 00:15:13.640 So what we have is that markets really replace 257 00:15:13.640 --> 00:15:16.680 these islands of socialism, right? 258 00:15:16.680 --> 00:15:20.560 Which is exactly the opposite of what Marx said, isn't it? 259 00:15:20.560 --> 00:15:23.560 Because what he said was that we had capitalism and markets 260 00:15:23.560 --> 00:15:26.100 that are replaced by socialism. 261 00:15:26.100 --> 00:15:28.500 But it's really the opposite. 262 00:15:28.500 --> 00:15:31.340 So we kind of confirm what Marx is 263 00:15:31.340 --> 00:15:34.780 talking about in his stages of development. 264 00:15:34.780 --> 00:15:39.940 But what we really have here is that socialism really 265 00:15:39.940 --> 00:15:41.780 leads into capitalism. 266 00:15:41.780 --> 00:15:48.260 You need that barbaric planning kind of island 267 00:15:48.260 --> 00:15:52.060 before you can have a beautiful market. 268 00:15:52.060 --> 00:15:54.700 And that's my case for socialism, 269 00:15:54.700 --> 00:15:59.220 that in order to have markets and capitalism and beauty 270 00:15:59.220 --> 00:16:06.220 you have to have something ugly first.