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Two Pages of Fiction

Summary:
F. A. Hayek published a wonderful short piece under that title in 1982 to explain the impossibility of socialist calculation. Hayek in this piece goes after Oskar Lange's supposed rebuttal of Mises and argues that Lange missed the point. When Hayek published Collectivist Economic Planning in 1935, he included an appendix that translated Enrico Barone's 1908 paper "The Ministry of Production in Collectivist State."  Hayek, also, often pointed to Pareto's argument about the computational complexity of the mathematical solution whereas the market "solves" the problem without any central direction everyday.  Look at these two pages from Barone and read them carefully: Now, it is important to read these two pages to off-set the claim that Barone proved Mises wrong in advance --

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F. A. Hayek published a wonderful short piece under that title in 1982 to explain the impossibility of socialist calculation. Hayek in this piece goes after Oskar Lange's supposed rebuttal of Mises and argues that Lange missed the point.

When Hayek published Collectivist Economic Planning in 1935, he included an appendix that translated Enrico Barone's 1908 paper "The Ministry of Production in Collectivist State."  Hayek, also, often pointed to Pareto's argument about the computational complexity of the mathematical solution whereas the market "solves" the problem without any central direction everyday.  Look at these two pages from Barone and read them carefully:

Barone287
Barone287

Now, it is important to read these two pages to off-set the claim that Barone proved Mises wrong in advance -- Mises publishing his original article on social calculation in 1920, and Barone publishing this piece in 1908.  Barone isn't responsible for the "fiction" as Lange was, but those reading him were -- especially Abram Bergson and Paul Samuelson.  As Hayek wrote in "The Competitive Solution" (1940), "The fact that is has never been denied by anybody, except socialists, that these formal principles ought to apply to a socialist society, and the question raised by Mises and others was not whether they ought to apply but whether they could in practice be applied in the absence of a market." (see Individualism and Economic Order, 1948, 183)

So much confusion has indeed been caused by those two pages of fiction in Lange, but also repeated and repeated by subsequent generations down to this day.

Folks get tripped up in this debate (and I should say folks get tripped up on both sides) by failing to read closely the arguments that are being made.  "Assume for the sake of argument" is introduced by both sides to make points, it doesn't mean that they don't make the argument, e.g., Mises and Hayek on incentive incompatibilities of socialist organization, or Pareto and Barone on the reality of non-omniscience and dynamic economic adjustments.  To say that an omniscient body could under static conditions write down the optimality conditions is not at all the same thing as saying that any human economic system could be so structured.  In fact, as the words say no solution on paper is possible for such a task.

Peter Boettke
Peter Joseph Boettke (January 3, 1960) is an American economist of the Austrian School. He is currently a University Professor of Economics and Philosophy at George Mason University; the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.

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