Some thoughts on the Nature of Human Beings and the Importance of Competition

     

I would like to thank each of the three scholars for their responses to my essay. All three agree that Mises’s Socialism is a book worth reading. All three, I think, raise critical points about Mises’s discussions of the economic and sociological consequences of eliminating markets in favor of collective ownership and central planning.  

I wanted to share a couple of reactions that I had to their responses. 

Chernyak chides Mises for making too big a deal about prices and calculation, and for not making a big enough deal about competition. As she writes, “we must be careful not to overstate the centrality of the price mechanism and economic calculation to the operation of a well-functioning economy.” And, “Mises obscures the importance of contestability and overstates the importance of prices as a feedback loop in his analysis.” According to Chernyak, economic calculation can’t be the “keystone” of the market system because (a) prices never precisely capture the underlying economic reality, (b) much that matters in the economy is unpriced and unpriceable, and, so, (c) economic calculation can never be precise. 

Chernyak is, of course, correct that prices are not unambiguous signals that give economic actors anything like clear marching orders. Prices must be interpreted. Mises did not think that prices had to be perfect or exact, nor did he think the results of economic calculation needed to be precise for prices and economic calculation to maintain their significance in understanding economic life. Don Lavoie made this point quite persuasively in several places. See, for instance, his Rivalry and Central Planning as well as his work on the role of interpretation in economic life and economic analysis. Steve Horwitz has, similarly, made this point when discussing prices as knowledge surrogates. I also tried to make this point in my Understanding the Culture of Markets where I try to highlight the role of culture in helping economic actors to decipher the never-unambiguous price signals that they must make sense of as they engage in economic activity. 

Additionally, Chernyak is right to point out that contestability in particular and competition in general are surely important. Indeed, Mises’s calculation argument begins with competition. Recall, socialism fails on Mises’s account because, in the first instance, it cuts off rivalry between the owners of the means of production. Mises is, thus, not ignoring competition but is actually centering it. There is no calculation without prices. And, there are no prices without rivalry. That Lavoie titled his fantastic work on the socialist calculation debate Rivalry and Central Planning highlights the centrality that rivalry is to the Austrian critique of central planning.

That firms can easily enter into markets to compete with existing firms, that competition exists, is important primarily because it is how we get prices. Absent firms competing with each other for machinery, supplies, inputs, workers, and customers--absent rivalry, there are no meaningful prices. Absent prices we cannot know whether our enterprises are socially beneficial. Prices are essential for figuring out if our outputs are worth the inputs that we used to produce them. Rivalry is primarily important because it makes economic calculation possible. 

Mark Granovetter in his famous article “Economic Action and SocialStructure: The Problem of Embeddedness” argued that the social sciences often modeled humans as under-socialized or over-socialized. By under-socialized, Granovetter meant that we sometimes began our analysis by positing an individual motivated entirely by pecuniary gain and operating as if unaffected by social relations and unencumbered for social structures. By over-socialized, Granovetter meant that we sometimes began our analysis by positing social actors who follow social norms automatically. 

Mises, however, avoided both pitfalls. He neither treated human beings as isolated atoms nor as social automatons. Instead, for Mises (in Human Action), 

Human beings for Mises were, as I argued with Peter Boettke elsewhere, “affected by, influenced by, even directed by social structures and relations but not determined by them.” Schneider is right to highlight how consistently Mises characterized human beings in all their social richness. 

Mingardi helpfully puts the question of what is behind the recent appeals to socialism back on the table. I’ll confess to not being at all certain as to what is driving it. As a colleague of mine constantly repeats, there are too many dead bodies attributable to socialism to make it a socially appealing system. Over the years, I’ve become convinced that what people find appealing in socialism is the critique of capitalism, a critique that seems more plausible and convincing as capitalism has seemed to morph into cronyism. Think of what gave rise to the energy behind the Occupy Wall Street Movement (i.e., corporate bailouts). I do wonder if the cries for socialism are not really laments over cronyism.