Editing Economic calculation problem (section)

== Limitations and criticism ==
=== Efficiency of markets ===
Some academics and economists argue that the claim a [[free market]] is an efficient, or even the most efficient, method of resource allocation is incorrect. [[Alexander Nove]] argued that Mises "tends to spoil his case by the implicit assumption that capitalism and optimum resource allocation go together" in Mises' "Economic Calculation in the Socialist Commonwealth". [[Joan Robinson]] argued that many prices in modern capitalism are effectively "administered prices" created by "quasi monopolies", thus challenging the connection between capital markets and rational resource allocation.<ref>{{cite book|first=Alec|last=Nove|author-link=Alexander Nove|editor=Noce, Alec |editor2=Nuti, D. M.|title=Socialist Economics: Selected Readings|year=1972|publisher=Penguin Books|location=Harmondsworth, Middlesex}}</ref>

Socialist [[market abolitionists]] argue that whilst advocates of [[capitalism]] and the [[Austrian School]] in particular recognize [[equilibrium price]]s do not exist in real life, they nonetheless claim that these prices can be used as a rational basis when this is not the case, hence markets are not efficient.<ref>{{cite book|editor-last=McKay|editor-first=Iain|title=An Anarchist FAQ|section=Is libertarian communism impossible?|publisher=[[AK Press]]|location=Stirling|year=2008|isbn=978-1-902593-90-6|oclc=182529204}}</ref><ref>{{cite book|editor-last=McKay|editor-first=Iain|title=An Anarchist FAQ|section=Does capitalism efficiently allocate resources?|publisher=[[AK Press]]|location=Stirling|year=2008|isbn=978-1-902593-90-6|oclc=182529204}}</ref> [[Robin Hahnel]] further argued that market inefficiencies, such as externalities and excess supply and demand, arise from buyers and sellers thoughtlessly maximizing their rational interests, which free markets inherently do not deter. Nonetheless, Hahnel commended current policies pursued by free market capitalist societies against these inefficiencies (e.g. [[Pigouvian tax]]es, antitrust laws etc.), as long as they are properly calculated and consistently enforced.<ref>[[Robin Hahnel|Hahnel, Robin]] (2007). "The Case Against Markets". ''Journal of Economic Issues''. '''41''' (4): 1139–1159.</ref>

[[Milton Friedman]] agreed that markets with monopolistic competition are not efficient, but he argued that it is easy to force monopolies to adopt competitive behavior by [[Free trade|exposing them to foreign rivals]].<ref>Friedman, Milton (1979). ''Free to Choose''. Secker and Warburg.</ref> [[Economic liberals]] and [[libertarian capitalists]] also argue that monopolies and big business are not generally the result of a free market, or that they never arise from a free market; rather, they say that such concentration is enabled by governmental grants of franchises or privileges.<ref>Rothbard, Murray (1972). [https://mises.org/daily/3735 "Capitalism versus Statism"] {{Webarchive|url=https://web.archive.org/web/20140919041644/https://mises.org/daily/3735 |date=2014-09-19 }}. ''Outside Looking In: Critiques of American Policies and Institutions, Left and Right''. New York: Harper and Row. pp. 60–74.</ref><ref>Grinder, Walter E. (1977). [https://mises.org/journals/jls/1_1/1_1_7.pdf "Toward a Theory of State Capitalism: Ultimate Decision-making and Class Structure"]. ''Journal of Libertarian Studies''. Pergamon Press. '''1''' (1): 59–79.</ref>  That said, [[Protectionism|protectionist]] economies can theoretically still foster competition as long as there is strong [[Customer switching|consumer switching]]. [[Joseph Schumpeter]] additionally argued that economic advancement, through innovation and investment, are often driven by large monopolies.<ref>{{cite book |last=Schumpeter |first=Joseph |title=Capitalism, Socialism and Democracy |publisher=Harper and Roe Publishers |year=1942 |location=New York |page=82}}</ref>

=== Equilibrium ===
Allin Cottrell, [[Paul Cockshott]] and Greg Michaelson argued that the contention that finding a true economic equilibrium is not just hard but impossible for a central planner applies equally well to a market system. As any [[universal Turing machine]] can do what any other Turing machine can, a central calculator in principle has no advantage over a system of dispersed calculators, i.e. a market, or vice versa.<ref>{{cite book|last1=Cottrell|first1=Allin|last2=Cockshott|first2=Paul|last3=Michaelson|first3=Greg|year=2007|title=Is Economic Planning Hypercomputational? The Argument from Cantor Diagonalisation|url=http://www.macs.hw.ac.uk/~greg/publications/ccm.IJUC07.pdf|publisher=International Journal of Unconventional Computing|access-date=13 March 2008}}</ref>

In some economic models, finding an equilibrium is hard, and finding an [[Arrow–Debreu model|Arrow–Debreu equilibrium]] is [[PPAD (complexity)|PPAD-complete]]. If the market can find an equilibrium in polynomial time, then the equivalence above can be used to prove that P=PPAD. This line of argument thus attempts to show that any claim to impossibility must necessarily involve a [[local knowledge problem]], because the planning system is no less capable than the market if given full information.

[[Don Lavoie]] makes a local knowledge argument by taking this implication in reverse. The market socialists pointed out the formal similarity between the neoclassical model of [[General equilibrium theory|Walrasian general equilibrium]] and that of market socialism which simply replace the Walrasian auctioneer with a planning board. According to Lavoie, this emphasizes the shortcomings of the model. By relying on this formal similarity, the market socialists must adopt the simplifying assumptions of the model. The model assumes that various sorts of information are given to the auctioneer or planning board. However, if not coordinated by a capital market, this information exists in a fundamentally [[Distributed knowledge|distributed]] form, which would be difficult to utilize on the planners' part. If the planners decided to utilize the information, it would immediately become stale and relatively useless, unless reality somehow imitated the changeless monotony of the equilibrium model. The existence and usability of this information depends on its creation and situation within a [[Price discovery|distributed discovery procedure]].<ref>{{cite book|last=Lavoie|first=Don|title=Rivalry and central planning: the socialist calculation debate reconsidered|date=1985|publisher=Cambridge University Press|isbn=0-521-26449-9|location=Cambridge, UK|oclc=11113886}}</ref>

=== Exaggerated claims ===
One criticism is that proponents of the theory overstate the strength of their case by describing socialism as impossible rather than inefficient.<ref>Caplan, Bryan (January 2004). "Is socialism really "impossible"?" ''Critical Review''. '''16''' (10): 33–52.</ref><ref>Gordon, David (10 January 2004). [https://mises.org/library/socialism-really-%E2%80%98impossible%E2%80%99-bryan-caplan "Must Economies Be Rational?"] ''Mises Review''. Mises Institute. '''10''' (3). Retrieved 17 June 2020.</ref><ref>Boettke, Peter J.; Leeson, Peter T. (2004). [https://web.archive.org/web/20200220034701/https://pdfs.semanticscholar.org/94b2/457500a38ed35c60cb35f1f25ae1bbf08118.pdf "Socialism: Still Impossible After All These Years"]. Mises Institute. Retrieved 17 June 2020.</ref> In explaining why he is not an [[Austrian School]] economist, [[anarcho-capitalist]] economist [[Bryan Caplan]] argues that while the economic calculation problem is a problem for socialism, he denies that Mises has shown it to be fatal or that it is this particular problem that led to the collapse of authoritarian socialist states. Caplan also states the exaggeration of the problem; in his view, Mises did not manage to prove why economic calculation made the socialist economy 'impossible', and even if there were serious doubts about the efficiency of cost benefit analysis, other arguments are plentiful (Caplan gives the example of the incentive problem).<ref name=":0">Caplan, Bryan (2003). [https://econfaculty.gmu.edu/bcaplan/whyaust.htm "Why I Am Not an Austrian Economist"]. George Mason University. "Austrians have overused the economic calculation argument. In the absence of detailed empirical evidence showing that this particular problem is the most important one, it is just another argument out of hundreds on the list of arguments against socialism. How do we know that the problem of work effort, or innovation, or the underground economy, or any number of other problems were not more important than the calculation problem?" Retrieved 21 April 2020.</ref>

=== Steady-state economy ===
[[Joan Robinson]] argued that in a [[steady-state economy]] there would be an effective abundance of means of production and so markets would not be needed.<ref>{{cite book|first=Joan|last=Robinson|author-link=Joan Robinson|title=An Essay on Marxism|publisher=Macmillan|location=London|year=1966|isbn=0-333-02081-2}}</ref> Mises acknowledged such a theoretical possibility in his original tract when he said the following: "The static state can dispense with economic calculation. For here the same events in economic life are ever recurring; and if we assume that the first disposition of the static socialist economy follows on the basis of the final state of the competitive economy, we might at all events conceive of a socialist production system which is rationally controlled from an economic point of view."<ref name="Mises"/> However, he contended that stationary conditions never prevail in the real world. Changes in economic conditions are inevitable; and even if they were not, the transition to socialism would be so chaotic as to preclude the existence of such a steady-state from the start.<ref name="Mises"/>

The purpose of the price mechanism is to allow individuals to recognise the [[opportunity cost]] of decisions. In a state of abundance, there is no such cost, which is to say that in situations where one need not economize, economics does not apply, e.g. areas with abundant fresh air and water. [[Otto Neurath]] and [[Hillel Ticktin]] argued that with detailed use of real unit accounting and demand surveys a planned economy could operate without a capital market in a situation of [[Abundance (economics)|abundance]].<ref>{{cite book|last=Ticktin|first=Hillel|editor=Bertell Ollman|editor-link=Bertell Ollman|title=Market Socialism: The Debate Among Socialists|year=1997|publisher=Routledge|location=New York; London|isbn=0-415-91967-3|url-access=registration|url=https://archive.org/details/marketsocialismd0000unse}}</ref><ref>{{cite book|last=Neurath|first=Otto|title=Economic Writings: Selections 1904–1945|year=2004|publisher=Kluwer Academic|location=Dordrecht; London|isbn=1-4020-2273-5}}</ref>

=== Use of technology ===
In ''[[Towards a New Socialism]]'''s "Information and Economics: A Critique of Hayek" and "Against Mises", [[Paul Cockshott]] and Allin Cottrell argued that the use of computational technology now simplifies economic calculation and allows planning to be implemented and sustained. Len Brewster replied to this by arguing that ''Towards a New Socialism'' establishes what is essentially another form of a market economy, making the following point:<ref>{{cite book|last1=Cottrell|first1=Allin|last2=Cockshott|first2=Paul|year=1993|title=Towards a New Socialism|url=http://ricardo.ecn.wfu.edu/~cottrell/socialism_book/new_socialism.pdf|publisher=Coronet Books Inc.|access-date=2012-03-16|archive-date=2014-11-17|archive-url=https://web.archive.org/web/20141117115309/http://ricardo.ecn.wfu.edu/~cottrell/socialism_book/new_socialism.pdf|url-status=dead}}</ref>
{{quote|[A]n examination of C&C's New Socialism confirms Mises's conclusion that rational socialist planning is impossible. It appears that in order for economic planners to have any useful data by which they might be guided, a market must be hauled in, and with it analogues of private property, inequality and exploitation.<ref>{{cite journal|url=https://cdn.mises.org/qjae7_1_6.pdf|title=Len Brewster on "Towards a new Socialism? by W. Paul Cockshott and Allin F. Cottrell|last=Brewster|first=Len|journal=The Quarterly Journal of Austrian Economics|volume=7|number=1|date=Spring 2004|pages=65–77|doi=10.1007/s12113-004-1036-4|s2cid=155826332 |access-date=1 May 2020}}</ref>}}

In response, Cockshott argued that the economic system is sufficiently far removed from a capitalist free-market economy to not count as one, saying:
{{quote|Those that Hayek was arguing against like Lange and Dickinson allowed for markets in consumer goods, this did not lead Hayek to say : Oh you are not really arguing for socialism since you have conceded a market in consumer goods, he did not, because there remained huge policy differences between him and Lange even if Lange accepted consumer goods markets. It is thus a very weak argument by Brewster to say that what we advocate is not really socialist calculation because it is contaminated in some way by market influences.<ref>{{cite web|last=Cockshott|first=Paul|year=2009|url=https://www.researchgate.net/publication/257983036|title=Notes for a critique of Brewster}}</ref>}}

Leigh Phillips' and Michal Rozworski's 2019 book ''[[The People's Republic of Walmart]]'' argues that multinational corporations like [[Walmart]] and [[Amazon (company)|Amazon]] already operate centrally planned economies in a more technologically sophisticated manner than the Soviet Union, proving that the economic calculation problem is surmountable.<ref>Phillips, Leigh; Rozworski, Michal (2019). [https://www.versobooks.com/books/2822-people-s-republic-of-walmart ''The Peoples Republic of Walmart: How the Biggest Corporations are Laying the Foundations for Socialism''] {{Webarchive|url=https://web.archive.org/web/20180810072631/https://www.versobooks.com/books/2822-people-s-republic-of-walmart |date=2018-08-10 }}. Verso Books.</ref> There are some contentions to this view however, namely how economic planning and planned economy ought to be distinguished. Both entail formulating data-driven economic objectives but the latter precludes it from occurring within a free-market context and delegates the task to centralized bodies.<ref>{{Cite web |last=Kónya |first=Márton |date=2020-05-21 |title=Planned Economy and Economic Planning: What The People's Republic of Walmart Got Wrong about the Nature of Economic Planning |url=https://mises.org/library/planned-economy-and-economic-planning-what-peoples-republic-walmart-got-wrong-about-nature |access-date=2023-06-23 |website=[[Mises Institute]] |publisher=[[Quarterly Journal of Austrian Economics]] |language=en}}</ref> 

Karras J. Lambert and Tate Fegley argue that artificial intelligence systems, no matter how advanced, cannot assume the role of central planners because they do not fulfill the prerequisites of effective economic calculation. This includes the ability to convert the [[ordinal preferences]] of producers and consumers into commensurate [[cardinal utility]] values, which are available and agreed upon, and forecast future market interactions. 

One reason includes how they are dependent on [[Big data|Big Data]], which in turn is entirely based on past information. Hence, the system cannot make any meaningful conclusions about future consumer preferences, which are required for optimal pricing. This necessitates the intervention of the programmer, who is highly likely to be biased in their judgments. Even the manner by which a system can "predict" consumer preferences is also based on a programmer's creative bias. They further argue that even if artificial intelligence is able to ordinally rank items like humans, they would still suffer from the same issues of [[Dispersed knowledge|not being able to conceive]] of a [[Marginalism|pricing structure]] where meaningful pricing calculations, using a common cardinal utility unit, can be formed. Nonetheless, Lambert and Fegley acknowledge that entrepreneurs can benefit from Big Data's predictive value, provided that the data is based on past market prices and that it is used in tandem with free market-styled [[bidding]].<ref name=":1">{{Cite journal |last1=J. Lamber |first1=Karras |last2=Fegley |first2=Tate |date=2023 |title=Economic Calculation in Light of Advances in Big Data and Artificial Intelligence |url=https://doi.org/10.1016/j.jebo.2022.12.009 |journal=  Journal of Economic Behavior & Organization|volume=206 |pages=243–250 |doi=10.1016/j.jebo.2022.12.009 |s2cid=255170322 |via=Elsevier Science Direct}}</ref>