Answer each question in using the reference in attachment
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MarxtoHayekViennatoSantaFe.pptxCapitalism and Socialism
Week-14
Socialist alternatives to capitalism Marx to Hayek; Vienna to Santa Fe
Utopian and scientific socialism
An important and persistent strain in this revolutionary discourse viewed the demonstrated (though not yet fully exploited) increases in productive power unleashed by the Industrial Revolution as offering for the first time in human history the possibility of creating a human society freed from material poverty and even scarcity of basic goods. “Perfectibilists” such as William Godwin argued for a rational reconstruction of social institutions to realize these possibilities, engendering an intellectual reaction from figures such as Thomas Malthus, who proposed to demonstrate “mathematically” that population growth would doom such projects.
“Really existing” capitalism proved quite capable of achieving enormous increases in social productive powers, but fickle in the distribution of the resulting gains. Industrial entrepreneurs accumulated fortunes, a growing “middle class” representing a significant minority of the population found niches that provided a degree of security and comfort in the exploding division of labor, but by and large productive workers found themselves subject to fierce competition for jobs that sharply limited their economic gains. These disparities were dramatic enough in the few parts of the world experiencing industrialization to interest many, particularly of the middle classes, in projects for a more rational and egalitarian organization of social production and income distribution.
Karl Marx’s political thought centered on the unfinished business of the French Revolution, which had transformed the landscape of European politics, weakening the monopoly on power of ancien regime landed interests and revealing the nascent strength of the industrial and financial bourgeoisie. The democratic and egalitarian ideological impulses unleashed by the revolutionary moment pointed toward a more complete transformation of European society; in class terms the growing proletariat of industrial workers, increasingly organized and united to secure economic gains, provided the political base for such a transformational project.
Utopian and scientific socialism
Marx seems to have had the “vision” that one end of this conundrum would supply the solution to the other. Marx did see that the combination of Smithian increases in the use value productivity of labor due to the extension of the division of labor and Malthusian pressures keeping wages close to subsistence would lead to an unbounded rise in the rate of exploitation. This trajectory of capitalist accumulation does pose some purely economic problems, mainly the question of where the aggregate demand to realize the potential product will come from; but it raises the even more explosive political question of how the small minority of capitalists can repress a working class which is so productive and sharing so little in the fruits of its own productive powers.
The historical evolution of capitalist accumulation resolved the problem of the unbounded rise in the rate of exploitation in the frustratingly practical compromise of an increase in the use-value equivalent of wages at roughly the same rate as the increase in the use-value productivity of labor. This pattern, with interruptions, was sustained from the mid-nineteenth century to the nineteen-seventies; it asserted itself in a remarkably wide range of contexts for industrial capitalist accumulation, from Europe to North America to Asia. Since nineteen-eighty median real wages have ominously stopped rising at the rate of increase of labor productivity in the advanced capitalist economies; in fact, median real wages have become stagnant.
Marx as a long-period theorist
Marx spent a lot of time reading and commenting on the classical political economists. Much of his and later readers’ attention has centered on his critique of the treatment of surplus value and exploitation in the classical political economists. As a consequence, how much Marx accepted the methods and conclusions of the classical political economists in some important areas has not been fully appreciated. One of these areas is Marx’s adoption of the “long-period” method of the classical political economists, an issue which has implications for the theory of socialism.
The classical political economists’ paradigmatic question was to understand abstractly how a decentralized, competitive market process based on free economic decisions by producers could organize production with a highly developed division of labor. Their analysis of this question is remarkably subtle and insightful, and is the basis of Marx’s approach to the same problems. It is important to realize in discussing this method that it is an abstract thought-experiment, not an attempt to explain the actual workings of real-world economies directly. In reality, for example, producers are not completely free to move between different lines of production, and markets are not completely open to all producers.
The long-period method addresses both the problem of the allocation of social labor time among various productive activities and the dynamics of price determination on markets. Market prices of reproducible commodities fluctuate both in time and space, but the long-period method argues that they are regulated by the free movement of producers among lines of production to “gravitate” around “natural prices” (which Marx calls “prices of production”). The basic idea is that if market prices of one type of commodity remain high enough on average for a long time to give producers of that commodity some net perceived advantage over producers of other commodities, that producers will shift into that line of production, which will tend to reduce average market prices there. Thus the natural prices around which market prices gravitate must tend to equalize the perceived advantages to producers in each line of production.
Marx’s Socialism
There are many notable implications of the long-period analysis of commodity production. From the point of view of the problem of socialism the most salient is that the long-period method envisions commodity production as a chaotic, decentralized process of social allocation of productive resources which never reaches a stable equilibrium. In the language of modern complex systems theory the long-period method of the classical political economists regards the production of commodities as an adaptive, self-organizing “bottom up” system. Marx understood this view very thoroughly, and in fact used it to critique commodity-producing capitalism on the grounds of its “anarchic” character. Did Marx have a vision of socialism or communism as methods of organizing production? If so, was it based on what we would now call a top-down or a bottom-up dynamic?
The most complete discussion of the problems of organizing production in a socialist society we have from Marx is the Critique of the Gotha Programme, a commentary Marx wrote in 1875 on a draft program for a revived unified workers’ movement in the form of a German Social Democratic Party.
In the Critique of the Gotha Programme Marx envisions two “stages” to the construction of communism. In “the first phase of communist society as it is when it has just emerged after prolonged birth pangs from capitalist society” Marx describes a situation strikingly like his analysis of capitalist society: workers receive only a part of the value they produce (the rest being reserved for social purposes like investment, education, and administration that are financed out of surplus value in capitalist society). What seems to be the crucial difference is that in capitalist society the surplus product is appropriated by the capitalist (and landowning) classes in the form of surplus value, while in the first stage of socialist society the surplus product is appropriated through some political mechanism, perhaps the “dictatorship of the proletariat”. Marx does not explicitly discuss the social organization of production, but we might infer that workers go to jobs in enterprises, get paid in the form of money, and buy products with these money revenues.
Marx’s Socialism
This lacuna in the discussion of first stage of transition from capitalism to communism is underlined by the language in the Critique of the Gotha Programme Marx produces to discuss communism:
In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and there with also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life’s prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly – only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!
Any thoughts that Marx might have had some version of decentralized spontaneous organization of production in mind as a basis for socialism run into his unambiguous negative comments on commodity production and money as backward “anarchic”, “irrational”, or “contradictory”.
Ludwig von Mises was moved to argue (von Mises, 1990) that centrally planned socialism was an impossibility. Mises’ case was that economic rationality required determining market-clearing prices for the millions of specific goods and services offered. This task, he argued, was beyond the capacity of any central planning mechanism on purely computational grounds. (An irony of history is that at the same time Mises was formulating this argument, Alan Turing and others were laying the theoretical groundwork for the creation of electronic computers which could practically tackle problems of this magnitude.) Oskar Lange and Abba Lerner (Lange, 1948; Lerner, 1970) cleverly (perhaps overly cleverly) proposed to turn this argument on its head: why couldn’t a socialist society mimic a capitalist commodity society by instructing the socialist managers of enterprises to compete on markets like capitalism firms? In this way the sacred equalities of efficient allocation (between marginal costs and prices) could be discovered by a socialist economy
Marx’s Socialism
The larger fallacy in the whole socialist calculation debate, lies in its complacent acceptance of the idea that the only thing that matters in a society is the production and distribution of material goods and services. In Marx’s language this is roughly the position that it is possible to understand the development of “forces of production” independently of “social relations of production”. At this very abstract level, reducing the comparison of capitalism and socialism to points in an Edgeworth-Bowley box is just another way of asserting the existence of “universal” economic “laws” independent of the form of social organization of production. Marx hammers away at this fallacy repeatedly: means of production become “capital” only when they are appropriated as private property; the natural productive powers of the natural environment become “land” only when they are appropriated; “labor” is quite a different category depending on whether we are talking about slave labor, “free” wage labor, or the “labor of freely associated producers”. The real import of the historical social choice between socialism and capitalism is precisely what is left out of the socialist calculation debate: the social relations through which people organize themselves to produce.
Hayek changes the ground
It would be impossible for the managers of socialist enterprises, Hayek argues, to mimic capitalist competition because the socialist manager would not be putting his or her own personal interests in play in making production and investment decisions. The implications of Hayek’s critique, however, go far beyond the tired dialectics of market vs state. In Hayek’s more radical view, commodity production expresses the existential content of human social existence. Each of us inevitably understands a different aspect of the world: as a result there can be no centralized representation of human knowledge in the large sense. Only through somehow reassembling the bits of knowledge scattered through the whole population can social production take place. But, in Hayek’s way of thinking, people will surrender their individual knowledge to society only as part of a deal that touches their self-interest. Marx’s story of social production without commodities and money is doomed to remain a fantasy, because properly understood social production is commodity production. It is only through commodity exchange that the information flows required to sustain social production can be elicited and recombined.
The blind spot in Hayek’s thinking is the complete neglect of distributional issues. This is no accident: in fact, it is a principled and consistent implication of his social theory, in which process is privileged over outcomes. The important thing about markets (or in the broader sense commodity exchange) for Hayek is the process of revelation of information. This process may have as a by-product the production and consumption of material goods and services, but that is not its main purpose. Humanity is defined by information revelation as much as by language or sociality, both of which can, of course, be viewed from an information perspective.
Top-down
In the nineteen-twenties and thirties a group of mathematicians, statisticians, and economists, including notably Abraham Wald, John von Neumann and Oskar Morgenstern coalesced around Karl Menger’s “Vienna Circle”. Their discussions laid the groundwork for the mathematical approach to economics that dominated economic theory in the second half of the twentieth century. One result of this line of thinking was to situate the problem of economic allocation of resources in the broader context of optimal control theory. The mathematical theory of optimal control concerns the design of feedback mechanisms that can stabilize complex dynamical systems to achieve particular goals. A paradigmatic example is the problem of anti-aircraft gunnery, which became a key aspect of military combat in the Second World War. The duel between the anti-aircraft gunner (who tries to aim at the point where he thinks the bomber will be when the shell reaches the aircraft’s altitude) and the bomber pilot (who tries to evade the shell through maneuvering the plane) inspired von Neumann and Morgenstern’s zero-sum game theory and the “cybernetics” of Norbert Wiener. (It is also the root of modern financial theory, where the problem appears as the task of predicting where asset prices will be when a trader’s transactions are actually consummated.)
One continuing tradition of thought takes the technocratic view that the task of socialism is to identify and implement a socially optimal allocation of resources and distribution of products. This is a “top-down” vision of socialism, in which the participants in the division of labor surrender their autonomy to a (presumably) benevolent centralized mechanism of social control. The development of sophisticated optimal control theory supports this top-down vision by revealing mathematically precise characterizations of the conditions for optimal allocation that are in principle generalizable to an arbitrary number of produced goods and capable in theory of dealing with problems of time and uncertainty. In this perspective, establishing socialism amounts to putting in place social institutions that can implement the solutions of optimal control problems.
Bottom-up
The last half of the twentieth century saw an upsurge in interest in bottom-up self-organized systems, such as ant-hills and bees’ nests, bird flocks, computer networks, unsupervised learning algorithms such as neural nets, the capitalist economy, possibly the human brain and a host of other similar examples. Several features of these bottom-up systems draw the attention of systems thinkers. For one thing, compared to top-down optimal control systems, bottom-up self-organized systems tend to be more “resilient” or “robust”. Self organized systems often (though not invariably) continue to function (possibly in a degraded mode) despite the disruption or even destruction of important subsystems, and in important cases can recover from such damage spontaneously. Top-down systems can be built with considerably “redundancy”, but tend to be more vulnerable to disruption of key elements, particularly the feedbacks that implement their optimal control properties.
Another intriguing property of bottom-up self-organized systems is that although they are not designed to achieve optimal performance, they often do perform surprisingly well. Ant-hills, for example, are remarkably efficient in locating and exploiting food sources. Bottom-up self-organized systems also exhibit a high degree of adaptability to new situations. Optimal control systems tend to be optimized for some particular context in which they are designed to operate. Self-organized systems can adapt to a wide range of environmental changes (though there are typically limits to the magnitude of shocks any such system can survive). Capitalism itself is a good example of all these features of spontaneously organized bottom-up systems: historically capitalist institutions tend to reproduce themselves even after the destruction wrought by wars, revolutions and financial meltdowns; capitalist allocation of resources approximates efficiency to some degree; and capitalism has proven to be highly adaptable in the face of massive environmental changes (many of which, such as world population growth and technical innovations, arise from the dynamics of capital accumulation itself)
Bottom-up
One idea which flowers perennially on the Left as an alternative to capitalism is workers’ control. In its simplest form this vision accepts the commodity-money framework of the organization of the division of labor, but proposes to replace capitalists as the organizers of production at the point of production by workers. Enterprises would be owned by collectives or cooperatives of workers, who rent or borrow capital and constitute what economists call the “residual claimants” of commodity production. Workers’ control has features of spontaneity, adaptability, and resiliency, partly as a result of inheriting them from capitalist-commodity production itself.
Another noteworthy bottom-up alternative model to capitalist firms as organizers of production is the “open source” or “peer production” movement that has been highly successful in developing computer software and generalized to some other similar fields such as pharmaceutical drug development and gene technology. Peer production is a decentralized, spontaneous form of organization of productive resources, through which a group of interested and participants contribute time, energy, and capital to the production of socially useful products.
What do we talk about when we talk about socialism?
Commodity production and inequality
Even if it were possible hypothetically to equalize ownership of productive resources completely at one moment of time, there are powerful equilibrium tendencies of commodity exchange that would tend to reproduce a highly unequal distribution of income and wealth.
Private ownership of the means of production
The relevance of private property in the means of production is closely related to the distributional questions just discussed. If the distribution of ownership of productive resources were equal, the system of private ownership of means of production in itself would not pose so many social drawbacks. From the point of view of bottom-up, decentralized visions of socialism, private ownership, or at any rate some type of private control over means of production could be a means of relatively free access of new or ongoing productive enterprises to means of production
Wage labor and exploitation
The problem for socialism is how to get rid of the exploitation inherent in the wage-labor form without also losing the enormous social advantages of labor discipline and motivation the wage-labor form carries with it. In the Soviet era this dilemma was discussed under the rubric of “moral and material incentives”. It seems to me reasonable to imagine that a deep transformation of social relations of production would lead to parallel deep transformations in the behavior and feelings of human beings. Capitalists themselves, of course, highly prize workers who internalize high standards of productivity and cooperation without the stick of threats of dismissal. It is a bit too easy, however, to wish away the principal-agent problem of bourgeois economics as irrelevant to a socialist society. The conflicts of interest, or moral hazards, a socialist organization of production would face might be very different from those of capitalist-commodity production, but they are unlikely to disappear altogether.
