The Socialist Calculation Debate Social Sciences Essay (Essay Sample)
the task was to present the contrasting views of the socialist calculation debate and use evidence from literature to determine the winner of the debatesource..
Who won the Socialist Calculation Debate?
Who won the Socialist Calculation Debate?
The socialist calculation debate emerged towards the end of the 19th to become the central economic discussion. The discussion emanated from the evidence of the industrial revolution, defined by a widening gap between the rich and the poor. Two groups of economists advanced academic views concerning the plausibility capitalism and socialism to ensure efficient allocation of resources in the economy. The right-wing composed the pioneers of capitalism whose primary feature of the free-market system. On the other hand, the left-wing composed the socialist arguing for the efficiency of a centrally-planned government in the allocation of resources in the economy. The primary contention between the two groups was whether socialism could achieve economic efficiency without the application of economic calculations. The right-wing group in support of the free-market system won the debate their acknowledgment of several premises including the law of value, view of money as capital in the production process, and labor-time calculation.
Context is important to understand the origin of the socialist calculation debate. Between the mid-17th and mid-18th century, the industrial revolution on Europe and the United States had delivered high productivity and economic growth. However, economic growth was accompanied by adverse consequences such as exploitation of natural resources, pollution, and exploitation of labor providers defined by a regime of low wages and salaries (Candela, 2018). Consequently, the left-wing proponents of capitalism argued that capitalism, despite its economic calculation capabilities, failed to deliver holistic economic solutions geared towards maximizing welfare for all households in the economy.
The law of value is a major premise in the socialist calculation debate. The law of value argues for efficient pricing of products of human labor-time, such that the price of finished products should be equal to the amount of human labor-time optimal in their production. Setting the stage of the socialist calculation debate, Ludwig Von Mises argued that the centrally planned governments inherent with socialism could not efficiently allocate the resources in an economy (Devereaux, 2017). The primary reason advanced by Mises was the lack of economic calculation premised on socialism’s refute of the law of value. The rationale is that by pricing factors of production and finished products arbitrarily without mathematical or economic computations, the socialist system is inherently inefficient because it eliminates the economic incentives for improved productivity of the factors of production (Devereaux, 2017). In this case, it is plausible to contend that the proponents of capitalism and the free-market won the socialist calculation debate.
The Lange model proposed by Oskar Lange of the left-wing of the debate failed to overcome the numerous shortcomings of socialism and its lack of economic calculations. The Lange model primarily argues for a trial and error method to determine a Pareto efficient level of output in the economy. Further, the model contends that the government controls and owns all factors of production except labor factors, and the allocation of goods and services in the market is a reserve of the market (Devereaux, 2017). The argument is contradictory and defeating the left-wing side of the debate for several reasons. First, it is flawed to argue that the market can efficiently allocate goods and services but would be insufficient in the allocation of factors of production. Secondly, the application of trial and error method in devising equilibrium in the outputs targets cannot be sustainable in the long term, because it lacks a solid mathematical framework. Economic theory argues that the value of finished products is contingent on the pricing of the factors of production (Devereaux, 2017). Consequently, it is prudent for a uniform economic system to determine the allocation of inputs in the production process as well as the finished products. The deficiencies of the Lange model proposed by the proponents of socialism confirm that the right-wing won the debate.
The role of money in the economy is another topical issue in the socialist calculation debate. The proponents of centrally planned government argue that the government owns all the non-labor factors of production. Additionally, money circulating in the economy is not necessarily a factor of production. Instead, it is purely a medium of exchange and should not accrue economic benefits (Candela, 2018). These two factors contradict socialism’s argument of a centrally planned government’s ability to efficiently allocate resources. In contrast, the promoters of capitalism and its application of mathematical and economic calculation contend that money is a factor of production. Additionally, just like other factors of production in the economy, capital (money) is privately owned and is priced using capital markets. The deduction from the definition of money is that in capitalism, money (capital) is a factor of production and pricing mechanism, whereas it is a medium of exchange in socialism (Candela, 2018). The gradual evolution of the Soviet Union and other economies such as China from socialism to capitalism confirm that the right-wing won the debate.
One of the major contradictions of the arguments fronted by Lange and other left-wing economists is concerning the calculation of labor-time. Socialists argue that unlike other factors of production, labor is privately owned. However, the valuation of finished goods and products in the economy does not incorporate the cost of
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