Chapter Ƕ: Ļe Debate about the Efficiency of a Socialist Economy ȇȀmentioned the idea of setting the interest rate by trial and error in his
essay ofȀȈǿȇ(pp.ȁȅȇ–ȁȅȈ).
Ļe main feature of the Competitive Solution, then, is that some
Board, rather than the market, adjusts prices to bring supply and demand
into line.
Several questions about this Lange-Taylor “solution” are obvious:
Ș.How would the Board force managers to obey the “rules”? For
instance, enterprises that were large in relation to their market might
profit by taking into account the effects of their actions on the Board’s
price-setting decisions. Ļe managers might restrict output in much the
same way as monopolists do under capitalism. Even assuming away all
questions of monopolistic motives, there still remains the problem of
whether managers should be allowed to act upon theiranticipationsof
price changes by the Board.
ș.How would the Board judge the efficiency of managers?
Of course, in coping with those two difficulties, the Board might look
into the books of the individual production units. But if carried to any
length, this practice would conflict with the essential aim of decentralizing
decisionmaking.
Ț.How would the Lange-Taylor solution apply to the prices of com-
modities that cannot be standardized, such as large units of capital equip-
ment which must be made to order? In all such cases there would be no
basis for centralized fixing of prices so as “to equalize demand and supply.”
Socialist writers simply ignore the various complications that would
arise.
ț.If the price-setting authority perceives, for example, that the de-
mand for rubber exceeds the supply, how is it to know whether this indi-
cates too low a price for rubber or too high a price for tires? If the demand
for sheet aluminum is less than the supply, is the price of aluminum too
high, or is the price of plywood too low? If the demand for gasoline falls
short of the supply, is this due to too high a price for gasoline or too high
a price for automobiles? Ļe point is that the central authority would have
to work with Walrasian, and not merely Marshallian supply and demand
functions. Ļe authority could not change a single price without chang-
ing the equilibrium prices of other goods. Trial-and-error would not be
simply a matter of making particular prices higher or lower; it would be
a problem involving at least many millions of possible patterns of price
increases or decreases. And for each increase or decrease there would be
the problem of how much.