Re: violence, dictatorship and markets

Randy Groves:

>Marx was very clear that he thought a dictatorship of the proletariat was
>necessary to keep markets from being reinstated. It is also clear that
>dictatorship requires violence. So this is the big question: How does one
>eliminate markets without resorting to an unacceptable level of violence
and
>dictatorship?

The elimination of markets may require violence, but it would also raise
other problems, especially those arising out of the increasing complexity of
supply and demand as an economy expands, and the inability of large
bureaucracies to function as if they were markets.  In 1995 I participated
in an intensive one month course on the Russian economy, politics, etc., at
a post-secondary institution in Moscow.  The following is an excerpt from
the notes I took at a lecture given by Dr. V. Semenkov ("Slava"), an
economist.

[Begin excerpt:]

Some of the things Slava said about the central planning system indicated
why it was inevitable that the Soviet economy simply had to fail.  I had
always thought that the failure occurred because of a wrongness of emphasis
in the allocation of resources and large-scale political interference in
production decision-making.   But there was an even more fundamental
problem.  The planning system could be described as a huge input-output
table.  (Indeed, it was said that Vassily Leontiev,  the founder of
input-output analysis, had been one of the designers of the Soviet planning
system.)  Anyone who knows anything about such tables and how they are
constructed is aware that they are never up to date (the information that
fills their various cells and the coefficients which relate the cells to
each other are always historic).  Many of the cells and coefficients are
arbitrarily estimated values.  The tables are thus always more or less
hypothetical.  They are illustrative or analytical models, not really meant
to be practical operational or planning tools, and certainly never meant to
provide the basis for running a complex industrial system.

Slava also told us that his girl friend of some years ago, a nineteen year
old with a high school education, was in charge of supplying a certain range
of electrical motors to industry.  She was, in other words, one of the input
cells, one of many, many thousands.  Even if all of these cells were doing
their jobs with the utmost of dedication, not all of them would have had the
latest information and many would not have properly understood the
information if they had it.  In many thousands of small increments, errors
would have been made and would have compounded, and the overall magnitude of
the errors could never really be known.

Nor, if individual errors were discovered, could they be easily corrected.
The problem was not so much the absence of the price mechanism, but the
absence of direct contact between supplier and user and the lack of
alternative suppliers.  Both the supplier and user responded to the planner,
who was, in effect, the middleman.  If the user got the wrong kind of good -
e.g. the wrong kind of electric motor - he could not simply pick up the
phone and correct the error or find another source of supply, he had to tell
the planner about it, and the planner then had to take corrective action,
but he could probably not do so until the next planning round.

The problem became compounded by the fact that, as the complexity of the
system grew, more and more planners (or input and output cells) were needed.
As more and more were needed, more and more resources, and more and more
planning, had to be devoted to providing the infrastructure which supported
the planners.  The complexity of the purposive aspects of the system drove
the complexity of the system itself.

The population of Moscow grew from approximately one to two million at the
time of WW1 to more than 10 million today.  How much of this would have been
due to the growth of the central planning system?  Probably a lot.  How many
people are now economically stranded because of the fraying and
fragmentation of the planning system?  Probably a great number.

The problem was hugely compounded by the absence of a market price system
which would have imposed discipline at all levels of the economy from the
grandest of plans to the smallest of purchases.  If a price system had
existed (a market price system, not an artificial one), it might have been
obvious that the state could not afford another power dam or new weapons for
the army, and it might also have been learned that supplies could have been
purchased more cheaply from supplier B rather than supplier A.  But the
absence or misuse of a price system was probably not the most important
thing in getting the system thoroughly gummed up.  Complexity - the sheer
inability of keeping current and processing that much information - was
probably far more instrumental.  And most fundamental of all was the use of
an analytical tool as an operational system, something it was never intended
to be.

[End excerpt]

Someone will undoubtedly point out that with powerful computers and modern
management methods, inputs and outputs could be handled much better now.
But the core problem of anticipating demand and somehow making supply match
it would remain.  That problem cannot be solved unless you ask people what
goods and services they require and what sacrifices they are willing to make
to obtain them.  The best way to do this is not to ask, but to allow
decisions to be made via an efficient and competitive market.  The Russians
recognized this in the 1980s, but they did so far too late.  By that time,
the central planning system and Cold War paranoia had so distorted the
economy that it was incapable of producing anything that people really
wanted.  Large volumes of consumers goods had to be imported.  On one of my
last days in Moscow, I hunted high and low for a T-shirt with "MOCKBA" on
it, but all I could find was NY Yankees and LA Dodgers.

Ed Weick