Ȇȅ Partʺ: Economics
anew. Ļe suggestion that a practical solution of the problem of planning
is possible on the basis of the Paretian equations simply indicates that
those who put it forward have not begun to grasp what these equations
really mean. Ļere is no hope in this direction of discovering the relative
sacrifices of alternative kinds of investment. Ļere is no hope here of a
means of adjusting production to meet the preferences of consumers.In his article “On the Economic Ļeory of Socialism,” Oskar Lange
makes fun of Robbins and Hayek for worrying about whether socialists
propose to solve simultaneous equations (Lange and TaylorȀȈȂȇ, p.ȇȇ).
But before deciding whether Robbins and Hayek deserve this ridicule,
lets see what Carl Landauer wrote in a book published as recently asȀȈȃȃ.
Ļe following lines are, to me, among the funniest in all economics:
Price formation on the market is a search for an equilibrium through
trial and error. Ļe sellers and buyers change their charges and biddings
until a price is established which just equilibrates supply and demand.
Ļe planning board can carry this process out on paper with infinitely
less cost and loss of time than it can be carried out by sellers and buyers
in reality.
... it is possible to establish a system of simultaneous equations, in which
the combined effects, in terms of utility produced, and the physical quan-
tities of each element in each combination appear as the knowns and the
unit values of the elements as the unknowns.
Ļere is no difficulty at all in finding as many equations as we wish, since
there are almost innumerable combinations of goods and we have always
enough to calculate the unknowns.
Instead of following the rules of the mathematical text-book, we may
systematically change all the elements of the equations until we arrive at
magnitudes which will satisfy the conditions.
Ļe planning board ... applies the trial-and-error process on paper....
Ļis form of experimental variation is an immense economy in time,
effort, and material as compared with the experiments in steel and tim-
ber, copper and labor, selection of occupation and expenditure of con-
sumer dollars, which is the prevalent form of approaching an equilibrium
under thestatus quo.
... the equations will not reach a fabulous number, but it is quite possible
that a few hundred thousand combinations have to be taken into account.
Why this should exceed the power of algebraic analysis is difficult
to see. It probably does not exceed the amount of calculation work