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Economic calculation problem: Difference between revisions

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The '''Economic calculation problem''' (shortened as the '''ECP''') is a claim introduced by [[Austrian Economics|Austrian economists]] whom state that due to this 'problem', it proves the inevitable failure of socialism from an economic standpoint. It relies on the premise that [[Market Economy|market economies]] can do decentralised pricing, whilst [[Planned economy|planned economies]] have to rely on centralised pricing, meaning that they have to guess in a [[Bureaucracy|bureaucratic]] manner, leading to those economies incorrectly guessing the demand for particular areas.  A 2nd premise is that the capitalists also need to exist as they are the ones who take proper risks, seeing how they can 'truly' see what the consumers want once they get it right.<ref>{{Citation
<blockquote>ECP redirects here. For the Communist Party in Egypt, see the ''[[Egyptian Communist Party]].''</blockquote>The '''Economic calculation problem''' (shortened as the '''ECP''') is a claim introduced by [[Austrian Economics|Austrian economists]] whom state that due to this 'problem', it proves the inevitable failure of socialism from an economic standpoint. It relies on the premise that [[Market Economy|market economies]] can do decentralised pricing, whilst [[Planned economy|planned economies]] have to rely on centralised pricing, meaning that they have to guess in a [[Bureaucracy|bureaucratic]] manner, leading to those economies incorrectly guessing the demand for particular areas.  A 2nd premise is that the capitalists also need to exist as they are the ones who take proper risks, seeing how they can 'truly' see what the consumers want once they get it right.<ref>{{Citation
| author = David McMullen
| author = David McMullen
| year = 2021-01-12
| year = 2021-01-12

Revision as of 11:35, 29 October 2022

ECP redirects here. For the Communist Party in Egypt, see the Egyptian Communist Party.

The Economic calculation problem (shortened as the ECP) is a claim introduced by Austrian economists whom state that due to this 'problem', it proves the inevitable failure of socialism from an economic standpoint. It relies on the premise that market economies can do decentralised pricing, whilst planned economies have to rely on centralised pricing, meaning that they have to guess in a bureaucratic manner, leading to those economies incorrectly guessing the demand for particular areas. A 2nd premise is that the capitalists also need to exist as they are the ones who take proper risks, seeing how they can 'truly' see what the consumers want once they get it right.[1]

This 'problem' has been critiqued numerous times by Marxists and other Socialists, as it puts baseless assumptions as to what the socialist mode of production actually is. Planned economies like the Soviet Union, were able to utilise a planning system that is able to correctly decide what the consumers want, and as such there were no shortages.[2]

See Also

"Economic Calculation Problem": The Worst Argument Against Socialism - Youtube
Debunking Austrian Economics’ Socialist Calculation Problem - Medium

References

  1. “According to economists of the Austrian school, even with everyone’s best efforts, a system based on social ownership of the means of production could not effectively deploy a decentralized price system. The case is made primarily by Mises and Hayek in the 1920s and 1930s with a further contribution by Lavoie in the 1980s. Their argument can be broken down into two elements. Firstly, only the competitive market process can give prices the coordinative meaning necessary for economic calculation. Secondly, we cannot do without capitalists.”

    David McMullen (2021-01-12). A Socialist Price System: Answering the Austrians.
  2. “The only capitalist economy whose long term growth rate exceeded that of the USSR was Japan, whose own model was some way from unplanned capitalism”

    Paul Cockshott (2019-08-12). "Real Problems of Socialism and Some Answers" Socialist Economist.