Author Topic: Economic Calculation  (Read 2466 times)

INEM

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Economic Calculation
« on: October 22, 2014, 02:17:41 PM »
I am glad to take up your suggestion to comment on your paper since I do have some difficulty in understanding it. You start out by referring to what you call the “Vienna Problem.” As I understand it this is the problem of whether rational economic planning is possible when there is no market and a central planning agency is charged with determining prices, output levels and modes of production for various industries. The Austrian answer came in two parts. Von Mises argued  that it is not and that such a system would simply collapse. Hayek was much more sophisticated. He conceded that economic planning per se would be feasible, but that efficient planning would not. Subsequently Lange and Lerner showed that a central planning agency could – in principle – solve the problem by using markets (though I think that in practice due to political pressures this would not work.) Hayek then developed further the idea that the required information is decentralized. Nobody argued that prices could not be generated, but just that they would not correspond to their efficient values (equality of marginal rates of substitution).
 
I therefore don’t see how the tables in your SFEcon algorism relate to the Vienna problem. They seem to show that stability and uniqueness are possible for an economic system. But nobody involved in the Vienna debate denied that, and certainly modern orthodox economists don‘t deny it. In fact, those paragons of modern orthodoxy, general equilibrium theorists, have spent much time and effort trying to prove stability and uniqueness rigorously. Rather, the issue for the Vienna debate was whether a central planning agency can know what the equilibrium prices and other parameters are. So I don’t see what this table contributes. One of your attachments states that: “the algorism controls the continuum of all chaotic … states … by which a system might efficiently guide itself …” But the question is whether a central planning agency would have the information required to ensure that it does. Also, since an economic system is not a conscious, living organism what does it mean to say that it would guide itself? In other words, I can’t figure out what the problem that you are trying to solve is, and I suspect that other readers would be in the same position.
 
There is also a problem regarding the posting of your contribution. Posting is not automatic at the author’s initiative, but as discussed in the description of the forum, has to be vetted by the editors.
 
With best wishes,
 
Thomas Mayer
Professor of Economics, Emeritus
University of California, Davis

Chris

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Re: Economic Calculation
« Reply #1 on: October 23, 2014, 06:08:22 AM »
We have not yet been able to quite discern what INEM wishes to accomplish with this post. Perhaps it was directed to SFEcon’s forum by mistake. We have nonetheless read your transmission with interest, and are curious as to what underlies your conclusions.

Specifically, you have found that the prices developed by SFEcon’s “algorism” are not efficient when our engineering dynamic models settle into equilibrium. This is disturbing in that the whole point of our initiative is to demonstrate that dynamic stability requires equilibrium prices also be ‘efficient’ in the exact sense that you express.

All of our demonstrations feature continuously-updating matrices of the values of marginal product that each commodity has for each sector in each economy. At physical and financial stasis, all values of marginal product for a given commodity equal that commodity’s marginal cost of production, which is also equal to its market-clearing price. This is, of course, algebraically equivalent your “equality of marginal rates of substitution”.

We have occasionally had to track-down and stop people who are using the internet to represent themselves as SFEcon. So perhaps you are examining someone else’s bastardization of our algorithm. The prototype we will be presenting at next summer’s EcoMod conference in Boston can be downloaded at:

www.sfecon.com/M0.3.2.3.xls

This VBasic program is open-sourced and embedded in an ordinary Excel workbook. (It will alert anti-virus software, but we have no interest in damaging anyone’s computer). Instructions for operating this educational videogame are found in section II, pages 9-14 of this .pdf:

www.sfecon.com/Economic%20Calculation.pdf

If you are examining some counterfeit ‘SFEcon-like’ demonstration, I hope you might be so kind as to send it to me so we can contact its source. If INEM’s conclusions are indeed based on our materials, then I can only suggest that their continued propagation will prove to be an embarrassment. We are open to online debates, which might be of mutual benefit. EcoMod would likely offer us a forum for a public exchange of views, or we might meet at another public forum in which you would be more comfortable.

I also note that INEM forecloses the possibility of useful analogies between the economic system and a “conscious, living organism”. We are genuinely curious as what body of work supports this conclusion, and hope you might direct us to it.

I note that biologists have developed their notion of “superorganism” to describe the vast macro economies created by eusocial insects such as bees, ants, and termites – creatures that do have not the brains with which to compute a value of marginal product. Consciousness must therefore be attributed to the superorganism itself in order to account for its precise control over individuals regarding who is to accomplish what tasks and when they are to do them.

I further note that insect colonies present extraordinary capital development per unit of GDP, somehow manage to coordinate complicated systems of interlocking vocational specialties, and have been doing so without waste or rancor for 500 million years.

Organisms are kept in order by reference to a homeostatic state, and their consciousness transacts information-carrying particles that tell them where they are relative to that state. If we accept general economic optimality as a form of homeostasis, and money prices as information-carrying particles analogous to insects’ pheromones, then why would an organic view of macroeconomic control be rejected?


Regis

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Re: Economic Calculation
« Reply #2 on: October 29, 2014, 07:47:39 AM »
Do you people not realize that there have been many, many iterations of the Vienna Problem? What is so special about the one you say you have solved?

Also, you did not really respond to Professor Mayer’s point that everyone agrees that ‘stability and uniqueness are possible for an economic system’. So I, too, ask: what is it that you think you have accomplished?

Chris

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Re: Economic Calculation
« Reply #3 on: October 29, 2014, 09:15:59 AM »
We agree that they are many statements of the Vienna Problem, and that we have not even catalogued, let alone addressed, them all. We see no point in doing so: 1) these catalogues are available elsewhere; and 2) the scientific initiative we seek to engender can proceed from a single solved Vienna problem. Stating problems such that they cannot be solved is, in our view, a pointless exercise.

We can also agree that the Vienna debates explained the stability of economic systems to the satisfaction of many participants. But there remain those who are not satisfied, e.g., Hugo Sonnenschein at Chicago:
 
Quote
neoclassicism cannot demonstrate that equilibrium would emerge as a natural consequence of agents’ instrumentally rational choices.

For a further sampling of such opinion, go to Joining the Issues from our Discussions outline.

In our opinion, the only worthwhile proof that individualism and instrumentalism are sufficient to bring about a stable and unique equilibrium is an through instructional videogames enabling anyone to create demonstrations of an economic system’s efficient progress from chaos to optimality.

Our problem with the Vienna School is that their debates concluded that such demonstrations are beyond the capacity of human intellect. Having done what is necessary to create these demonstrations, we agree with the heterodox position that the Vienna debates were insufficient to prove what Professor Mayer accepts as sufficiently proved on the basis of verbal wrangling.