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Collectivism, authoritarianism and postmodern economies (Celsus vs. munnki)

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Collectivism, authoritarianism and postmodern economies (Celsus vs. munnki)

Post by Redshirt » Sat Aug 22, 2009 11:15 am

Welcome to an Exclusive Engagement!

Celsus and munnki will participate in a formal debate on the following resolution:

Resolved: Friedrich Hayek's warnings against collectivism and the heading towards an authoritarian command economy are irrelevant in a postmodern economy.

Celsus (going first) will affirm and munnki will oppose. The debate will have three rounds and will employ a few special rules (see the parameters for details).

All members can comment on this formal debate (except for the participants) in the Peanut Gallery set up in the Politics & World Events forum.

Enjoy the debate!

Addendum (Aug. 25):
Celsus and munnki have agreed to make a minor change to the parameters, regarding word limits and endnotes. See here for details.
Last edited by Redshirt on Tue Aug 25, 2009 8:51 pm, edited 5 times in total.

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Post by Celsus » Tue Aug 25, 2009 5:06 pm

Hayek’s The Road to Serfdom are the basis for his reputation as a free market libertarian who vigorously opposed the central planning of Soviet and Nazi economies of his day, and the general argument against state control over the allocation of resources in the economy.[1]

He did not oppose socialism for its aims, but rather its means, which he believed had a tendency towards authoritarianism and the loss of individual liberties. He defined socialism as “the abolition of private enterprise, of private ownership of the means of production, and the creation of a system of ‘planned economy’ in which the entrepreneur working for profit is replaced by a central body.”[2]

Hayek acknowledged many forms of collectivism, and while the 1930s socialism he witnessed in Germany and USSR were his main concern, he nevertheless opposed them all: “Everything which is true of collectivism as such must apply also to socialism. Nearly all the points which are disputed between socialists and liberals concern the methods common to all forms of collectivism ... and all the consequences with which we shall be concerned in this book follow from the methods of collectivism irrespective of the ends for which they are used.”[3]

This whitewashing is important to point out because it is not merely a state-planned economy that he opposed, but all the steps along the way (though this is sometimes wrongly assumed to mean that the establishment of interventionist institutions to facilitate planning in a capitalist economy inevitably leads to socialism – an argument made by his followers though one he denied in his 1956 forward).

His attack largely centred on economic planning, “the prime instrument of social reform”, in which he presented the dichotomy as a question with both philosophical and economic question: “whether for this purpose it is better that the holder of coercive power [i.e., the state] should confine himself in general to creating conditions under which the knowledge and initiative of individuals are given the best scope so that they can plan most successfully; or whether a rational utilization of our resources requires central direction and organization of all activities according to some consciously constructed ‘blueprint’.”[4]

His arguments against planning and the tendency toward authoritarianism were:[5]
  1. That a state bureaucracy could not manage all the information required and make the decisions efficiently under central planning; thus central planning is impractical from the outset[6]
  2. That in order to plan effectively, a state would have to curtail individual liberties and coerce or manipulate people[7]
  3. That intermediate forms between socialism and capitalism are untenable[8]
It is my contention that Hayek is either wrong or outmoded on all of these arguments. Crucially, the binary divide, indeed incommensurability, between socialism and free markets he espoused in the last item of the list, is a false dichotomy. The nature of postmodern economies, defined as It is thus resolved that his warnings against collectivism and the heading towards an authoritarian command economy are irrelevant in a postmodern economy.

The ‘Calculation’ Problem
Hayek and Mises argued that a socialist state would never be able to calculate all the variables in order to make important decisions on resource allocation in a fast enough manner. They were writing in the 1940s and were largely seen to have ‘lost’ this debate to Oskar Lange and were largely ignored as Keynesian policies like the Marshall Plan took hold (Lange scornfully remarked in the 1960s that it would have been simple enough to use a computer and solve the problems they fought over in the 1930s in “less than a second&#8221 ;) . Later on however, calculation arguments were revived in the 1980s, and they were seen to be vindicated with the economic collapse of the Soviet bloc.

However, recent studies have shown the explosive growth of computing power to have put this to rest. In the 1980s, it was estimated that there were about 12 million types of commodity being produced in the Soviet Union. Using an inversion matrix, Geoffrey Hodgson estimated in 1984 that analysis of a 12-million-squared matrix would take about 18 years to calculate using then-available computers. But by 1993, Paul Cockshott and Allin Cottrell demonstrated this would take about 20 minutes. Today, this sort of thing would be trivially easy to work out on PCs that everyone has in their offices.

Indeed a simple subscription to Reuters will yield thousands of times more global data than Mises envisaged taking several weeks to calculate in Socialist Calculation. The reason is simple: they, trapped in a technocratic era, envisaged a small cadre of bureaucrats and mathematicians running the entire process without the power of computers, and that is completely irrelevant to how the modern world operates. Modern attempts to revive calculation arguments against planning similarly envisage an unwieldy bureaucracy requiring consent on so many issues as to make the entire project failure from the outset.

Indeed, these are problems with their imagination or needlessly complicating informational processes more than the reality of how resource decision-making is made. Moreover, these tend to be self-defeating as computing power rapidly catches up with wherever their goalposts are set in a given decade. Information is gathered in a social, decentralised fashion in our ‘knowledge economies’ where statistics appear to be collected for everything, from information services to governments to financial institutions to academics and it represents a vastly different world from the 1940s. The rapidly expanding, highly educated workforce to work through such information reinforces the ability to manage the complexity.

Macroeconomic decisions can then be made rapidly – indeed, megacorporations like Coca-Cola and Toyota routinely do exactly these things, managing resources far in excess of small developing nations. The information required to be processed in a postmodern economy is well within the framework of existing computing power for a managing bureaucracy to handle, if they could just be as efficient at it as Coca-Cola or Toyota.

The problem would then turn to the decision-making process itself.

The Loss of Liberty
So what then to make of Hayek’s claim that “conflict arises between individual freedom and collectivism”?[9] Here he argues that socialism implies a “social goal” (which he describes as the “equality of outcomes&#8221 ;) and appeals to the diversity of people’s ideas on what that social goals may be, to deduce that in order to achieve any one goal, it must negate all others.

There are two ironies with this argument. In the first place, the proposal he suggests, with the logic of markets, is itself a constraint on human liberty – people who wish to opt out of market systems really cannot, since there is pretty much no useable unclaimed land (whether by individuals or by states) in the world – they would first have to work within the market in order to accumulate resources in which to free themselves of it. Of course this is a fantasy – it simply recognises no one is truly free to begin with.

The question is where do we find the space for freedom? Amartya Sen argued in Inequality Reexamined that all enduring social philosophies will have equality some level. But to ensure that equality, they must enforce certain aspects and it would entail some loss of liberty – the question is where. In Hayek’s case free market principles, strict rules must be placed to ensure the integrity of markets, antitrust laws must be enacted to impede unfair competition, social structures need to be created to supervise markets and agree on cross-border cooperation and the like. As Herbert Simon rightly argued, modern capitalism is dominated much more by non-market organisations and their internal relations, than by markets and their contractual haggling. Market individualism is both shortsighted for what it cannot see, and wrong for what it cannot accept.

While historically, the centrally-planned states did embark on programs that eroded individual liberties, this did not stop programs elsewhere from proceeding down this path, whether in the social democratic states of Scandinavia or the land reform processes of Korea.

The second irony is that the world no longer operates the way Hayek prescribes and a socialist model today would be far different from the socialist models of the past. Even communist parties run for elections and none call for total abolition of the markets (Cuba recognises the right to private property). Many projects in market socialism (which, as pointed above, Hayek rejects as untenable) have been tried successfully – for example the Mondragon Cooperative in Spain that do not necessitate the loss of liberty or the descent into totalitarianism. Nor are market economies, no matter how economically open, necessarily freer, as seen in examples of one-party states such as Singapore or any oil state in the Middle East.

Between Free Markets and Totalitarianism
Finally we come to the question of the possibility of the intermediary between the extreme free market model and the totalitarian extreme of the Soviet and Nazi economies. Hayek argued that as competition “cannot be combined with planning to any extent we like without ceasing to operate as an effective guide to production. Nor is ‘planning’ a medicine which, taken in small doses, can produce the effects for which one might hope form its thoroughgoing application.”[10]

The history of the twentieth century has been that of compromises. In Europe, state-run sectors such as healthcare, education and public works continue to be models of the good roles governments can play, using centralised planning – with a good deal of devolvement. Government control of a sector does not necessitate it be run by a small cadre of bureaucrats as envisaged by Hayek. Indeed, local regions can decide their syllabus, identify their healthcare needs, manage their local public works – none of which necessitates micromanagement on a government’s part.

As Keynes wrote to Hayek in 1944:
You greatly under-estimate the practicality of the middle course. But as soon as you admit that the extreme is not possible, and that a line has to be drawn, you are, on your own argument, done for, since you are trying to persuade us that as soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice.
And as history has shown, every experiment since has been some road through the middle, with neither extreme possible, yet many of the in-betweens far better than Hayek could ever give credit for. While he may have been right in arguing against the examples set by the Nazi and Soviet economies in historically specific ways, he failed to ever show why these were universal arguments (or if indeed such a thing is possible in economics), and this marks their irrelevance today. It is thus my proposition that Friedrich Hayek's warnings against collectivism and the heading towards an authoritarian command economy are irrelevant in a postmodern economy.

[1] Friedrich Hayek is a much-cited (or criticised) but less-read economic theorist, and the danger in this debate of having a negative proposition is that of creating a straw man from the outset, especially given the reputation of Hayek and a history of the last 50 years of taking conclusions where they did not lead and opposing arguments that he did not make. I hope I have not done so, and munnki (or the Peanut Gallery) is free
[2] P. 83. All page references refer to Bruce Caldwell’s annotated The Road to Serfdom: Texts and Documents: The Definitive Edition, University of Chicago Press, Chicago and Routledge, London 2007
[3] P. 84.
[4] P. 84, 85. As he notes, “The socialists of all parties have appropriated the term ‘planning’ for planning of the latter type [central planning], and it is now generally accepted in this sense.”
[4] I do not consider the historically-specific claims he made, as well as the pro-socialist arguments he was responding too, which are beyond the scope of this debate, though these were contested in his day.
[5] Known as the ‘calculation’ argument, it is more fully expounded by Hayek’s Austrian school colleague, Ludwig Von Mises, but Hayek accepted the argument himself in Collectivist Economic Planning (1935) from which Mises contributed the definitive chapter “Economic Planning in the Socialist Commonwealth.”
[6] Chapters 5-9.
[7] Chapter 3.
[8] P. 100 and rest of chapter 5.
[9] P. 90.
Last edited by Redshirt on Tue Aug 25, 2009 8:18 pm, edited 2 times in total.
Reason: Removed a few non-debate related comments

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Post by munnki » Mon Aug 31, 2009 6:50 pm

The great economic battles of the 20th century were fought largely between two sides which identified themselves as either Keynesian or Hayekian. According to this dialectic those who fought on the Keynesian side believed in planned economies and a positive governmental role in the economy. Those who fought on the Hayekian side believed in individual liberty and minimizing the role of government as a positive motivating as well as saving force in economies. In historical textbooks, this played out as a study of the application of the two economic modes. A drama between the two positions could be observed with Keynesian planning dominant up to the age of the Oil crisis and then Chicago School neo-Hayekian ideas becoming dominant in the policies of Reagan, Thatcher and alongside the decline of the Eastern Bloc and Communist economies. [1]

I want to defend the notion that Hayek’s ideas are still relevant to us as we look at the economic futures of our societies. Furthermore, I want to maintain that those ideas are relevant regardless of the mode in which we are discussing economic models. They remain relevant whether we are using loaded terms like ‘late capitalism’ or ‘neoliberal economics’ and whether we are considering theories using post-Marxian terminology, Chicago School ideas or any other post-modern set of theories . Furthermore, I want to maintain that this constructed divide between Keynesian and Hayekian economics is a misleading one. Misleading not because there aren’t fundamental differences between the ideas of the two thinkers (there are) but because most postmodern economies are influenced by the ideas of both thinkers (and others besides) and this in almost contradictory modes stressing freedom from collective policy while at the same time creating bureaucratic control mechanisms. It seems to me that the term postmodern economy could almost be defined as an economy constructed in the contradictory space between the ideas of Keynes and Hayek. This has the effect of bringing the ideas of the two theorists together although they have been described to function as poles wrapping either end of a continuum. But taken to one side, many of the predictions Hayek made either stand valid as warnings about the potential dangers of centralized control or act in themselves as useful control mechanisms to be considered in the development of economic policies.

It’s important to note that Hayek did not want a total absence of government in economic planning. [2]He claims that his ideas here are Smithsonian and that collective mechanisms are needed in order to provide services which benefit the community but which do not provide measurable profit for any one individual within that society. These communal but non-profitable areas are the ‘necessary evils’ of his model. It’s also important to note that Hayek’s philosophy grew up against the background of the break-up of the Austro-Hungarian Empire, the economic devastation of war and the rise of Fascist and Communist political groups across the European continent. [3] These developments informed and structured Hayek’s views of what a planned economy could lead to. They returned him to what he believed to be his fundamental origins as a libertarian. To him, the individual was the beginning point of economic considerations and, to him, the individual operated on a complex level of choice which was not usefully predictable and could only be hampered by collective methods of control. [4]

Consider for a moment the ideas Hayek laid out in his seminal text The Road To Serfdom. His argument is interpreted to imply that methods of collectivization would ultimately decrease freedom and would lead society down the path of totalitarianism. Furthermore, this seems to generalize to include seemingly innocuous areas like health, education and other areas which have already been socialized in many postmodern economies. Taken on this level, his ideas seem laughable. Many people living in societies which provide these facilities certainly don’t feel like they have restricted liberties. Or those whom are more reflective might consider themselves to have sacrificed a small amount of liberty for a more important gain. While this doesn’t generalize completely (as the current debate about centralized health care in the US in its more intellectual dimension demonstrates) it is a useful guideline to thinking on the issue. To those people these ideas are ludicrous and extremist. Furthermore, those people will compare themselves to societies in which there were far more fundamental restrictions on liberty and scoff at the idea that they are somehow moving towards totalitarianism. They would consider Hayek to be something between an extremist and an ideologue.

I do not intend to argue that those people are wrong nor do I intend to argue that they are right. I believe that this point-of-view is irrelevant to my debate and is not required to either agree or disagree with the proposition. I maintain that for reasons which I will expand upon below it is impossible to consider Hayek’s ideas irrelevant in a postmodern economy. His ideas are always-already within postmodern economics and form an important part of the dialectic which generates modern economic policy. A distrust of bureaucracy and a fear of centralized control are ideas which are instilled firmly in the heads of those whom are responsible for regulating (and avoiding regulating) modern economies. [5] If we return briefly to the historical poles of 20th century economics – the successes and failures of both the Keynesian and the Hayekian models can be demonstrated. This implies that both thinkers have become the Scylla and Charybdis between which modern policy developers sail.

In looking at the question in this way, I am not avoiding an argument based on the policies and ideas of Hayek but I am considering those policies in the light of their influence and the tensions they created in modern economic theory. The notion of individual liberty is one which became problematized in the extreme in the 20th century. The Frankfurt School philosopher, Max Horkheimer, said that the ideas of a free and just society far from being compatible with each other actually existed in dialectic whose tensions developed modern and postmodern societies. This, he notes, was the great mistake of Marx when he formulated his economic theory. [6]Post-modern philosophy gifted us with the idea that justice – through the creation of rules and regulations – is an a priori restriction on our liberty – whereas implicit in our idea of freedom is the lack of constraint from outside agencies. Thus the two exist in contradistinction and in tension which is what informs our notion of either. And from an entirely different tradition, Isaiah Berlin further problematized the notion by attempting to place freedom into the categories of ‘freedom from’ and ‘freedom to’. [7]Thus, for the postmodern economic theorist, discussions of individual liberty and restrictions on liberty cannot assume that liberty is a ‘pure’ concept. It is a problematic concept in the extreme.

The philosophical implications of these problems and the questions that arose from them are part of the base on which postmodern economics rests. This is why when Milton Friedman produced his series ‘Free To Choose’ he was able to claim descent from the ideas of Hayek. [8] His first task was to construct a working definition of what he meant when using the concepts of freedom and control. Understanding this is the key to understanding why it was possible for a wide swath of groups to hijack these ideas and use them to further their own political, economic or corporate ends. [9] The problematic concept of freedom within the space of postmodern economics meant that freedom was a drifting notion that could be as easily translated into a jingo capable of justifying war as it could exist as a adjective for describing control mechanisms.

The historical approach to Keynes’ and Hayek’s notions of individual liberty is often to consider them as negatively constructed (i.e. created in opposition to political and historical contemporary events). From this point of view it is easy to construct a narrative of how their ideas emerged. We can then say, for example, that for Keynes, the absence of order and planning led to the depressions and wars of aggression which were occurring during the development of his theories. Keynesian freedom when considered from this position is ‘freedom from’ in the sense that wars, depressions and so forth drag individuals into situations which they would certainly prefer not to choose. However, for Hayek, the increasingly bureaucratization and corporatization of society caused an unacceptable restriction on individual liberty. Insofar as this way of considering the two thinkers is valid we can then categorize Hayekian philosophy as ‘freedom to’ and see how Friedman could position his ideas as an augmentation of the ideas of Hayek. [1] The Chicago School view which followed from this was a radical interpretation of Hayek’s ideas which became linked to everything from the development of the Chilean economy under Pinochet to the conditions imposed upon Eastern Bloc countries for loan funding after the collapses of communism. [9] Following this historical and diachronic view of expansion of Hayek’s ideas - from its beginnings as a reaction against Keynesianism, through its explanation in the publication of The Road To Serfdom, through its interpretation and development in the Chicago School and onwards into its flowering as neoliberal governmental policy – is in itself problematic and difficult. This is drawing a simple line through complex, non-linear and sometimes disconnected events.

At the present time, this straightforward method of description has fallen out of fashion and many current economics textbooks eschew discussions of global economies which don’t refer to them as indescribably complex using a mechanistic framework. The preferred model is one of approximation and is often drenched with metaphors from chaos theory or quantum physics. The postmodern economy is represented as a complex series of discrete organizations – complex in the macro structures and complex in the micro structures. [10,11,12] This mode is based on considering the conflicts between theories and ideas – the search for the ‘best fit’, the ‘least harmful’ and the ‘closest approximation’.

The debate began with the proposal that Hayek’s warnings about collectivism and the heading towards an authoritarian command economy were irrelevant in a postmodern economy. I have tried to show how far from being irrelevant in a postmodern economy that those warnings and the ideas expounded by Hayek have structured our very notion of what economics is in the postmodern world. The ideas of Hayek about the relationship between working as a collective and giving up aspects of one’s individual liberty are always-already in any modern debate about economic policy. It is possible to say this because post-modern economic theory is a result of the problematization of notions like the ‘the individual’ and ‘freedom’ and, more simply, because postmodern economic theory is a direct result of the tensions between the poles established by Keynes and Hayek.

[1] cf. Commanding Heights – The Battle for The World Economy, 2002, PBS
[2] cf. The Road To Serfdom – F V Hayek
[3] cf. F Hayek: A Biography – A Ebenstein
[4] cf. The Constitution of Liberty – F V Hayek
[5] cf. Europe In The Global Age – A Giddens (chap 4)
[6] cf. Interview on Critical Theory and Marxism – M Horkheimer
[7] cf. Four Essays on Liberty – I Berlin
[8] cf. Free To Choose – Milton Friedman, 1980, PBS
[9] cf. The Shock Doctrine – N Klein
Three examples
[10] cf. Fractal Market Analysis /Applying Chaos Theory to Investment and Economics – E Peters
[11] cf. Chaos, Management and Economics - D Parker, R Stacey
[12] cf. Discrete Dynamical Systems/Bifurcations and Chaos in Economics – W Zhang
Last edited by munnki on Mon Aug 31, 2009 7:17 pm, edited 3 times in total.
Reason: separated paragraphs/removed incorrect word

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Post by Redshirt » Tue Sep 08, 2009 10:11 am

Celsus, please note that your next statement is overdue. However, as the rules permit, you're granted a 3-day grace period.

ETA: Celsus has informed me that he must withdraw from the formal debate. Munnki may post a final statement if he wishes to.
ETA2: Munnki has declined to post a final statement. The formal debate is now complete.
Last edited by Redshirt on Thu Sep 10, 2009 2:15 pm, edited 2 times in total.