The socialist calculation debate
Here is one of my (very short) essays that nobody ever read; it is now on my home page. We all know that communism and socialism fail because planners do not have access to market price signals. They therefore cannot calculate the best means of producing goods and services. But is the argument so simple? I start with a few questions:
1. How does rational calculation take place within the firm? Keep in mind that some corporate giants are larger in economic terms than the smaller socialist economies.
2. If one person owned (privately) all the firms in the economy, would rational calculation be possible?
3. If one dictator controlled all the firms in the economy, would rational calculation be possible?
4. If institutional investors or a diversified citizenry all owned the so-called "market portfolio" in equal proportions, like the Capital Asset Pricing Model suggests, would rational calculation be possible? [TC: Or is this scenario of "perfect capitalism" not much different from pure communism?]
When is competition "for real," and when is it just play? If I were dictator but still believed in markets, could I not simulate a sufficiently effective form of competition? Does the socialist calculation debate simply collapse into the problem of incentives? No, socialism does not work, but we have not heard the last words on the calculation debate.