In this article, I’ll discuss Marton Konya’s paper “Planned Economy and Economic Planning: What The People’s Republic of Walmart Got Wrong about the Nature of Economic Planning | Mises Institute” in the Quarterly Journal of Austrian Economics. First of all, I’d like to state that I fundamentally ideologically disagree with the Mises Institute. However, I always try to minimize my biases and approach ideologies with the assumption that the people who believe in them are truly genuine about their beliefs. This is also not an academic-grade discussion, because I am not an economist – I just believe that economists could use outside views, and I’m willing to start a conversation.
My main critique of this article, and what my main disagreement with the Austrian school stems from, is the fundamental issue of how modern economics and technology are viewed through a strict scarcity mindset and that the actions of humans within the market is different from their actions outside of it. I’ll start off with a list of claims that the article makes (with relevant quotes) and then I’ll write a technical perspective on these problems.
Every individual holds unique information about their own preferences and circumstances that is logical to them, but no external authority can ever know or process the entirety of this local, dynamic, and highly unique data.
- Quote: “What if, it might be asked, more tractors are made instead of the railroad, as they might be more beneficial? How can this be known? … In the end, what the consumers think about these alternative uses … would need to be known.”
- Quote: “…in order to make just one economic decision we need to know all the latest thoughts of every consumer about every existing and potential consumer good.”
Individuals are solely driven by their self-interest and are seeking to maximize their profit, thereby intuiting what the maximum profit of the market is, thereby maximizing the profit of the market. Through this distributed maximization, the system reaches its maximum profit.
- Quote: “If a railway company is in the hands of a private entrepreneur, he has every incentive to choose the method of construction with the lowest monetary costs, assuming the same utility to the consumers … in order to achieve the highest degree of profit.”
- Quote: “The price system, based on the maximization of profit and utility, seemingly coordinates economic participants without any planning.”
The price/market system is used as an aggregation of opinions and values. This, in turn, allows for the market to coordinate decisions without them having to go through a central authority.
- Quote: “The Austrian thinkers, such as Hayek (1945), were right in calling the price system a system of information sharing. The price system does nothing more than divide a kind of mental labor between several miniature ‘planned economies,’ mental labor that could not be carried out by a single, publicly owned planned economy.”
- Quote: “Money provides the common denominator which the socialist thinkers were unable to invent. It is the tool which enables market participants to use accounting methods to compare the incomes and costs of their activities, and plan their future steps accordingly.”
Central planning is inherently authoritarian, because no planner can know the motivations and wishes of every person. Therefore, all plans are inherently tyrannical, because each plan suppresses all of the other plans.
- Quote: “A complex whole where all the parts must be most carefully adjusted to each other, cannot be achieved through a compromise between conflicting views. To draw up an economic plan in this fashion is even less possible than, for example, successfully to plan a military campaign by democratic procedure.”
- Quote: “…the making of an economic plan involves the choice between conflicting or competing ends—different needs of different people. But which ends … can only be known to those who know all the facts; and only they, the experts, are in a position to decide which of the different ends are to be given preference.”
In summation, each of these assumptions stems from the fundamental assumption that humans are completely unique and self-interested – only they know their own needs and values, which are distinct enough from others’, that them being unable to realize their plans is inherently tyrannical. With these assumptions, central planning is the ultimate evil, since through the given examples, not only is it unable to know everyone’s wishes, but even if it did, it would likely not choose to grant them.
First, I’ve been around computers my entire life, and even I am consistently shocked by the rapid advances in computer science, particularly in the matrix/data-oriented fields, such as big data, machine learning, image processing, LLMs (large language models like ChatGPT), and more. One theme from The People’s Republic of Walmart that is mentioned a few times is how in many cases, economic planning doesn’t work in theory, but does in practice. I believe that the author of the paper fundamentally exaggerates humans’ uniqueness and unpredictability. Platforms like Amazon, Facebook, and Spotify are particularly notable because predicting people’s desires is their main business, and they’ve shown that they can predict people very well. In fact, going from examples like Facebook’s proven excellent track record in influencing elections, or Amazon’s excellent track record in knowing what you want before even you know that you want it, or Spotify’s excellent track record in showing you songs that you like before you’ve ever heard of them, there is trillions of dollars worth of proof that we can do just that.
You’re free to look up Cambridge Analytica’s talks on this – even a decade ago, they were able to know what people wanted, then nudge them and influence their beliefs to make them choose political parties that are radically against their own self-interest. Individual humans may be difficult to predict, but on a larger scale, big data can notice trends in populations that make its predictions essentially perfect. In fact, I’d go as far as to claim that in a short time, we’ll see even individual humans being perfected – big data and neural networks attempt to simulate the human brain, so they’re just a simplified version of you. They can guess your preferences, because they can (in an abstract way) simulate you and then run through your decision making process. One thing that data-oriented computer science techniques are really good at is finding patterns – and we’re just unlocking the potential of this technology. Iin 2018, AI was barely getting started – 3 Things AI Can Already Do for Your Company – and now look at where it is, and where it’ll go.
Even without the future technology, I’d argue that the example of “frying pans and tractors” is not a good example of things you can’t predict – if you surveyed a few hundred households, you’d easily know how many frying pans you need for a whole population. You can plan the number of frying pans you need to make by hand – making millions of frying pans is cheap. Then, extrapolate based on how many frying pans get destroyed, then make some more as a buffer, and you’ve got a whole frying pan plan. The situation is even more fixed with tractors: most farmers need a very small number of tractors. Based on what they’re growing and where they’re growing, you can easily predict the number of tractors they need. Even better – you could just go and ask them. These examples are part of another assumption that was somewhat more valid in von Mises’ time than now – we are very much not resource constrained for basic necessities. If you took Toyota and told them to make tractors for a year, you’d have enough tractors to cover the needs of a whole continent – even without accounting for the simplifications you can make when building tractors (which are simpler than cars mechanically) and the fact that there’s less variety with tractors. If you use modern automation techniques and optimize the production process, you could likely make double that number of tractors in a year.
I believe that here and in general, economists show themselves stuck in a strong mindset of scarcity – that you need to sacrifice the creation of frying pans to make a tractor, or a railroad. That you can’t have information about people, and you can’t transport it easily, and can’t predict them. From a higher-level view, it all seems so zero-sum – everyone seeks to screw over someone else for their nefarious goals, and there has to be a loser for there to be a winner.
Fundamentally, I disagree with the final goal of the market, as posed by Austrian economics. In general, the one thing that capitalism is really good at is making money. With money as the ultimate – and only – goal, there is no ambivalence about where the system needs to go towards. What makes money is good, what doesn’t make money is bad. Slavery makes money. Causing a climate catastrophe from burning fossil fuels makes money. Theft makes money. Inventing more money makes money. The difficulty with any other system – regardless of whether it’s socialist or not – is the choice of what to optimize for. When doing mathematical optimization, you generally have a goal and a penalty. You want to reach the highest goal with the lowest penalty. With capitalism, you have money as a goal and lack of money as a penalty. It’s the simplest form of economy you can imagine. However, under any alternative system, you have to consider more complex goals and penalties. One of the biggest difficulties of any such system is that sometimes short-term penalties can help you with long-term goals, and vice versa.
This is the biggest issue with modern capitalism – we burned the furniture in the house to keep warm and now we have nowhere to sit. I don’t have an immediate solution to this problem, but I believe that the immense recent advances in renewable energy have made energy essentially free (or even if you believe markets, negatively priced), and thus we can afford to try out optimizing for things like “maximum access to basic goods”, “eliminating hunger, poverty, and homelessness”, or “improving healthcare, arts, and sports”. China seems to be doing amazingly well in these areas recently, particularly with how insanely fast they are ramping up solar panel production. In capitalism, energy prices are almost directly correlated with wealth. If we have free energy, we have unlimited wealth – we just have to distribute it with better goals in mind.
I believe that we have to start looking for these alternatives right now, in parallel with current technological developments. The fact that energy prices are dropping rapidly and computation is increasing exponentially are quickly making obsolete traditional scarcity- and selfishness-oriented economic systems. Economists keep going in circles about what centuries-old texts were trying to say, while missing the seismic shifts in what the world looks like and what it wants now. We’re at the edge of a post-scarcity world – now we have to choose whether we want to live in it, or go back. Unfortunately, many in our world currently seem to want to go back.
