 He has written in the fields of Marxian economics, comparative systems and monetary theory and is currently an assistant professor at George Mason University, an assistant professor of economics at George Mason University and a member of the Center for the Study of Market Processes here at George Mason University. As a matter of fact, Don wrote this introduction for me and presumably out of modesty omitted some of his most noteworthy and exotic exploits and areas of expertise out of prudence I will do likewise. I found that one of the big mistakes you can make when you're a conference director is to pick yourself as one of the speakers. You have no, you have so many other things to worry about that having to speak also is just an incredible burden, but I'll try to bear up under it. And the topic for our panel today is failure of central planning. Notice there's no attempt to be value free here and to this extent we are quite willing at this conference to come right out and say that central planning has been a total failure, but failure can be viewed from many different perspectives as the point was raised in one of the questions earlier. From the point of view of perhaps of the ruling parties in the communist countries, they haven't been failures. They've been able to hold power quite effectively, but that perspective on failure is not particularly interesting to me or to the main purposes of this conference, rather we would consider failure from the perspectives that are normally gauged by economists. Probably the two senses of failure that will be touched on here will be, in my session, failure from the perspective of the original aspirations of socialism. And then in Mrs. Greenslade's section discussing more or less the failures from the standard point of view of efficiency considerations, in other words just straight out and out waste that occurs, however I think it's important to keep in mind that the whole socialist movement was only born because it had inspired millions of people. It was a brilliant message that came down from socialist theorists who were systematic writers who inspired people very intensely, and this entire socialist movement was guided by the writings of Karl Marx and some of his followers. And so I think it is important even if all of these original aspirations have been so thoroughly abandoned that they're not even remembered by anyone anymore, I think it is important to try to recall what those aspirations were and to judge what the Soviet economy or those types of economies have done with respect to that kind of standard. My thesis will be that the original goal of the socialist movement was to entirely replace all exchange relations in the economy with administrative central planning by which is meant the abandonment of prices, of money, of markets of any form, of any kind of standard market kinds of relationships in any form. Now that is an extreme interpretation of what Marx meant and I think I have to spend at least a good part of my presentation trying to defend the point that this is in fact what Marx really meant. In fact, I really have to step back even further because many Marxists will deny that in a sense Marx advocated anything. They will say what Marx did was contribute a critique of capitalism but he didn't say anything about what socialism would be like. So we don't have a theory of socialism from Marx and therefore perhaps we can invent our own theories of socialism and graph them on to Marx's critique of capitalism or if we do find that there is some vague theory of socialism within Marx, well then if this is the extreme version that I've just articulated it's obviously so unworkable that we can abandon it quickly and move on to some other sorts of formulation of what socialism should be like and then work from there. But in either case still maintaining the original critique of capitalism that Marx articulated and that motivated the entire socialist movement and made socialism the main issue of this century in economics. Now then is there a goal to Marxism? The difficulty with that in the case of Marx is that he was what is sometimes called a systemic theorist which meant that he didn't focus much on what most economists consider to be policy issues like what the government should do that sorts of issues that was not of any concern to Marx. He was trying to totally restructure society and so certainly he wouldn't have involved himself in that kind of goal but also probably more crucially Marx had an intense hatred for utopian socialists the main form of socialism before he came on the scene. Marx's interpretation of utopian socialism or I should say the interpretation of Marx's critique of utopian socialism has generally been that any formulation of what socialism would be like is idle speculation as there's no point to doing it to talking about what socialism would be like or how it would work or what problems it would have because that's just speculation about the future and we don't have any idea how it would work. And in fact in many many Marxian quotations can be culled from the vast works of Marx that would suggest that interpretation. However I do think that's a misinterpretation of the essential message of Marx. I think when Marx focused on his critique of capitalism his point wasn't that one can never look at the issue of what socialism would be like in any sense and that one should only focus on what capitalism is like. Rather I think he was seeing the proper approach to studying socialism as doing it through a critique of capitalism that is to say the critique of capitalism and the positive theory of socialism are two aspects of the same endeavor. When one criticizes capitalism one is doing that from the standpoint of what this socialist utopia would be like and I use the word utopia in a considered way. I think Marx was a utopian in at least the minimal sense that he had a future ideal of what society would look like and that his entire critique of capitalism is built up from that image of what socialism would look like. We can't treat the critique of capitalism independently from the positive theory of socialism and so if we turn out if we conclude that whatever Marx's positive theory of socialism is is totally unworkable this is not going to be the end of the story. We're gonna also have to ask the questions of how that damages Marx's critique of capitalism. If there's any one aspect of Marxism that I think any critic has to grant to that point of view it's that it's an overall systematic approach that covers virtually all issues that involves itself even in some of Engel's work in the philosophy of science for physics and virtually every aspect of life is filled in by the Marxian ideology. Something about Marxism tells us how to do virtually everything and everything is all fit together and Marx throughout all his many volumes of work doesn't contradict himself very often for someone who wrote so much. He's pretty consistent. Now I think this applies to this case that Marx was consistent about what's wrong with capitalism from his point of view and looking at the other side of the coin what would then be right about socialism if that kind of system could be made to work. And so then I would say Marx is particularly the kind of person that you can't excise one part of his theory and expect the rest of it to stand intact. So then my conclusion would be if I can make this point that this is what Marx believed then it will follow that a great deal if not almost the entire bulk of Marx's critique of capitalism will also fall away as soon as we admit to the impossibility of the image of socialism that he had in mind. Now to buttress the argument that this is his image of socialism would take some time I can only illustrate it with a few examples. One of Marx's main themes in the volumes of capital for example is the waste of competition or what he calls the anarchy of capitalist production. And one of the ways he illustrates this is by the contrasting notions between production time, time that is spent in actually producing goods and services as opposed to circulation time, the time spent selling, buying, finding markets and so on. I think this is an example of the sort of analysis of capitalism which without coming out and saying it is really talking about how socialism should work. When he's talking about the circulation time under capitalism being a waste what he's getting at of course is that there's a way to have a modern technologically advanced economy without having circulation time, without wasting time going around trying to find markets, middlemen trying to sell your product and so on. And that therefore a socialist economy could spend all of its productive efforts in this other category in production time and directly producing goods and services. Marx's little schema to illustrate this thing would be maybe I can use the board for this. Holding of mine, buying a good going through a production process, turning it into a more assailable good and then ending up with a greater amount of money. This is the way, this is the sort of schema that he used to talk about the production process under capitalism. All of this amount of time then is counted as production time and the things on the end are totally wasted. It's time that you have to spend purely because you're in the capitalist mode of production, you have to spend that time buying and selling goods. In other words involved in exchange relations. His entire early writings were concentrating on the notion of alienation. As Paul Craig Roberts has shown conclusively, alienation is not a psychological attitude that people have because they feel bad about being a worker or being ordered around the workplace by their boss or anything like that. There may well be psychological effects of what Marx meant by alienation but what he meant was the mode of production itself essentially exchanged relations. He meant the fact that people have to buy and sell goods. They can't just directly produce for use. They can't produce a good and actually see it come out as a useful product but instead they produce in what he calls commodity production which to him means you produce for an impersonal market, a market where you don't even know where it's going to end up or who's going to use it or why and that sort of division between the producer and his product or between the producer and the production process itself between some producers and other producers. All those sorts of divisions are what he called alienation and it should be clear that if this is the main thing he's focusing on when he criticizes capitalism then certainly if we can say anything about socialism certainly it must avoid this feature. It must not have alienation. It must have production for direct use, not production for markets. Exchange relations themselves as such are the culprit in Marx's theory. Planning for Marx then means really administrative planning and well it used to be the old sense of the term now it seems to be forgotten quite a bit by most economists. Planning isn't just having a central office that issues decrees every now and then about what they think they're doing or what in fact has already happened but it really meant controlling the details of production processes. It meant doing so as a replacement for the kinds of mechanisms that occur under a capitalist system for allocating resources that is mechanisms like prices and profit and loss and capital markets, advertising institutions, speculation, buying and selling as such. All those sorts of things would not be necessary. Angles in a famous quote even says that value, the whole theory of value is not even applicable to a socialist society but certainly prices and the ways that value manifest themselves in a capitalist society are all going to go by the board as soon as we achieve a socialist society. Another part of Marx's writing that illustrates this whole interpretation would be his distinction between two forms of the division of labor. Marx distinguishes between division of labor in the economy as a whole versus division of labor within the factory. Now oddly enough for a socialist you might think the way the division of labor was planned within a factory was an ideal for Marx. He liked the way it was, the plant was organized, the way from the start every department's activities would be prearranged and so that different departments would work together in a precoordinated way so to bring about a coherent coordinated result. And this is to be contrasted then with the kind of division of labor that occurs in society as a whole where of course nobody plans exactly where resources are being allocated but in fact it occurs spontaneously. It occurs as a result of clashes of different interests in a market environment, different competitors fighting each other for markets and the end result of this is a relative degree of order, a degree of coordination that's in Marx's theories manifested through his labor theory of value but it's the same sort of ordering mechanism that the classical economists that Marx learned from had talked about. There's a tendency to equilibrium as Marx might have put it and there's this coordination which occurs for Marx rather crudely, it occurs ex-post, it occurs only after the fact when people find that they're making losses in the kinds of production methods they had chosen but nonetheless there is an ordering mechanism that works and Marx saw it as incumbent upon the socialist movement that they find a replacement for this ordering mechanism. They must at least make the socialist society as well-ordered as a capitalist society is which he's continually disparaging as anarchic so at least it has to achieve that degree of order and in fact of course Marx felt that the socialist society would achieve a much greater degree of order. It would achieve it in Marx's theory through a system of administrative planning where everything is arranged ex ante, everything is arranged in advance, coordination occurs before production processes are launched and so only those production processes that are going to jive with each other they're going to be fully coordinated in Hayekian terms. Only those sorts of production projects are going to be engaged in. There's no need then for the waste of competition. Well in my view this is the most consistent theory of central planning that has ever been devised by a socialist. If you're going to plan an economy what you need to do is get rid of all the unplanned elements that are in the economy as we know it. It's not real planning if you have a government sitting there and you also have capital markets a wall street out there that will react to every government action that will try to buy off the politicians in fact succeed in most cases. There's nothing to the notion of scientific planning that Marx always trumpeted certainly doesn't fit in with this other entirely different notion that has now come to control the socialist mind of planning as simply intervening into a market environment. Isolated acts of government interference of course are going to have reactions on the part of the market so long as you allow private ownership. Private owners are going to reallocate in response to every government action. A new tax of course will bring about new sorts of activity that will try to work around the tax. Any kind of government plan is going to find reactions on the part of private owners. In other words there's sort of a rivalry that goes on in any economy where markets are there. You can't wipe out the rivalry just by making one of the rivalist institutions have particularly strong power. Giving it power to tax and other sorts of powers doesn't take away the rivalist element or the competitive element of the environment. It simply imposes all sorts of constraints on the sorts of activities that are going to be undertaken. In fact I would liken what is really done and called planning in all countries of the world. I would liken that more to arbitrary interference in a mechanism that's working on its own rather than scientific planning that's actually guiding the resources of the economy. In fact I would say this sort of thing in government interference is no more scientific planning than applying an electric jolt to a computer what could be called electrical engineering. I mean you're not really controlling things. You're throwing monkey wrenches into the operation. You're screwing up the works of what's going on as a mechanism but certainly you're not planning. I think Marx understood unlike most modern socialists that the market achieves whatever imperfect order it does achieve as a spontaneous outcome of more or less anarchic forces. These rival plans that compete with each other. I'm not sure whether Marx understood all the beneficiary results of these rivalist plans that some of which have been elucidated quite well by Professor Kersner in his talk this morning. The fact that this kind of rivalry between entrepreneurs is what generates the competitive discovery process which in turn is what gives us the knowledge to know what sorts of avenues to invest in. But although Marx didn't understand that perhaps too well he did recognize that markets and planning are incompatible concepts. If we look then at the way the real socialist economies work and then ask according to this original aspiration of abandoning all exchange relations and instead imposing a central plan how does the real Stalinist mode of five-year plans actually work in comparison to the ideal. Well I think the socialists have really admitted the whole case when they use the terminology that Stalin coined of socialist commodity production. For Marx the idea of commodity production is by definition the opposite of socialism. There can be no such thing as socialist commodity production and so certainly those socialists in the Soviet Union have used that phrase. They've kind of given up the whole case. They've admitted that they are allowing commodity production which in Marx's language then means that you have alienation. It means you have all the kinds of problems that capitalism has. All you have that's different is you have a special particularly powerful central body there that can exert all sorts of pressure in the economy and of course redistribute wealth in its own direction. But that's certainly not anything like the goal of the original Marxian system. Now there are many Marxists that I've run across who agree with just about everything I've said up till now and then would conclude somewhat differently than I would that Marxism is quite innocent of all the failures that we've been talking about today so far. That in other words since as I admit the way the Soviet economy really works is not central planning. That they haven't come anywhere close to the sorts of aspirations of Marx. Therefore perhaps Marxians can defend themselves by saying well its socialism hasn't been tried. Whatever is failing over there can't be blamed on Marx's ideas or on socialism but it's just simply the failure of some aberration that occurred in a particular backward country in Europe. One example of this sort of Marxist would be Tony Cliff who wrote a book called State Capitalism in Russia and blames all the failures that we would blame on socialism or many of us anyway would blame them all on the institutions of capitalism that are still there in the Soviet economy. He would draw a reference to the fact that interest is paid on many loans and that there's profit incentives and there's differential wages paid and all those sorts of things which to us or to me I should perhaps say are simply reflections of the fact that this is the only way the Soviets can make the economy work at all is to allow all these things to happen but from the Marxist point of view this seems to pose as an excuse. However I don't think this this thesis can be maintained and I think again it's Paul Craig Robert's work that should be called upon to answer this point that is that the Soviet type system indeed is not Marxian planning but the original attempts to implement planning under Lenin were honest attempts to achieve what Marx had in mind that is destroy money, deliberate attempts were made to destroy money and market institutions to replace them all with planning and so I think here we have in what's now called the war communism period in the Soviet Union we have a clear case of an attempt being made to implement what Marx had in mind and a fairly obvious result that is it was so bad that even the dedicated leaders like Lenin himself and Buchan became quite convinced after a couple of years of this chaos having reduced the productivity of the economy down to about 10% of what it was before they gained power and of course they gained power already when they were embedded in a terrible war and had lost all sorts of resources in that direction so you could hardly imagine a more catastrophic failure of any kind of system and I do think that Marx's ideas can be blamed for this sort of failure so then I think you can really raise two kinds of arguments against the Marxian system the first one was the one that again I should refer to Kersner on the Mises's calculation argument seems to me on a theoretical level showed that no there is no way that the central planning office could have the relevant knowledge that it would need in order to plan an entire economy in this truly centralized planning manner that wouldn't just wouldn't have the kind of information and so there has to be a reliance on prices that alone is a sufficient critique of Marx's own system even without getting involved in the whole longer kinds of variants of socialism I think that alone has buried the original Marxian vision and all the goals that went with it to all and all the critique of alienation that went with it and then besides this theoretical argument of course the other argument the one I just mentioned the other catastrophe that fell or the fatal blow we might say that fell upon the Marxian doctrine is the fact that it was tried the fact that it was tried and and failed so badly was enough to to make all the Marxists who ever talked about how socialism works quite thoroughly abandoned the original ideas and in fact try to bury them in all sorts of obscure rhetoric about a transition period which was of course never talked about by Marx or any of the original Marxists and some sort of transition period is invented which is now supposed to have features of both capitalism and socialism which is an abomination from any kind of Marxian point of view and of course many Marxists don't bother to read Marx so they wouldn't know that thus in conclusion I think I could say that the the Marxists despite the difference between the real Soviet Union and their ideals cannot take much comfort in the fact that the Stalinist type system is not pure Marxian socialism I think that the only reason the real Soviet system is not pure Marxian socialism is because that it doesn't work at all that Marxian socialism is so bad that it can't last even a couple of years without totally destroying the economy and thus had to be completely abandoned and although the five-year plan type of system is extremely inefficient and that's the sort of topic I think that the next speaker will will go into but despite all those inefficiencies compared to the original goals of Marxism that kind of system works quite well thank you