Computers and the economic calculation debate

1. Computers and the economic calculation debate Paul Cockshott

2. Introduction • I will be looking at the extent to which computing technology has improved the possibilities for planned economies. • Web site discussing these issues http://reality.gn.apc.org Paul Cockshott

3. Topics of Discussion • Plans and computers • Value and prices under Socialism • Payment Paul Cockshott

4. Historical Background • Immediate - the work of Prof Nove of Glasgow University and its impact in Britain • Long term - the work of the Austrian school of economics, particularly von Mises and Hayek • Current relevance - application of Hayekian economics to formerly planned economies • Collapse of of production • Drastic fall in living standards and life expectancy Paul Cockshott

5. Free market deaths • 7.7 millionExcess Russian deaths 1991-2001 Paul Cockshott

6. Plans and computers Starting with Von Mises, conservative economists argued that effective socialist planning was impossible for 3 reasons: • No effective cost metric in absence of market • Complexity too great – millions of equations argument. • Impossibility of capturing tacit knowledge Paul Cockshott

7. No Cost Metric • Von Mises argued that without a market one could not cost things and thus had no rational basis for deciding between production alternatives. • One exception he allowed was the use of Labour Values – we will return to this Paul Cockshott

8. Lack of Metric continued • Suppose you have to select one of two techniques of producing for example polyethelene – each is technically feasible but which would be the best one to chose from the standpoint of the economy as a whole. • In a market economy you cost the two techniques in money terms and select the cheapest. • If money and prices did not exist how could you do it? Paul Cockshott

9. Marxian response – use labour time as the metric • The Labour theory of value provides us with an immediate response here – you select the technique which minimises the total expenditure of labour. • Von Mises replies that the use of labour values is impractical for two reasons • The computational complexity of estimating labour values is simply to great • Reduction problem – how to reduce complex to simple labour Paul Cockshott

10. Millions of equations • Von Mises asserted that one would need to solve millions of equations to come up with the answer. • Computers obviously change this as they can solve millions of equations • Need to be quite precise about how many million equations and just how hard they are to solve • This is a branch of complexity theory Paul Cockshott

11. Complexity • The complexity of an algorithm is measured by the number of instructions used to compute it as the size of a problem grows. • We will look at a simple example before going on to economic planning Paul Cockshott

12. Searching • Suppose that I have a telephone directory for Berlin and a phone number. • It is clearly possible in principle to look at every number in the directory until I find who the number belonged to. • The task would probably take several days. Paul Cockshott

13. Example • Suppose I have 2 directories • Has 1000 entries • Has 1,000,000 entries To look up a name will take 1000 times as long in the second directory, but to look up a number – given the name will only take twice as long. Paul Cockshott

14. Indexing • If I have a name on the other hand, I can probably look up the phone number in less than 60 seconds. • The complexity of looking up by name is proportional to the logarithm of the number of people in the town. • The complexity of lookup by number is proportional to the number of people in the town. • The key is to select methods of low complexity. Paul Cockshott

15. Use of Input Output table • From the I/O table one can compute how much of each intermediate product required to produce each final product. • In particular we can compute the labour content of each output. Paul Cockshott

16. Part of the USA Input Output table Paul Cockshott

17. Computability of labour content • Suppose we have 10,000,000 different types of goods produced in an economy (Nove quotes this) • Labour content given by a simple equation • l=Al+l • wherel is a vector of labour contents,l a vector of direct labour inputs and A an input output matrix • Clearly too big to invert, matrix is even too big to store in a computer containing : 1014 cells. Paul Cockshott

18. Exact solution impossible Paul Cockshott

19. Simplification • Matrix is sparse, most elements are zero • Replace by linked list representation, we estimate the number of inputs directly used in a product is logarithmic in the size of the economy. • Solve iteratively - use about 10 iterations, • Complexity of order nLogn in number of products. We estimate that it takes a few minutes on a modern machine. Paul Cockshott

20. Solution • We only need to know labour values to about 3 significant figures. • Initially just include direct labour inputs. • The produce second estimate taking into account indirect inputs. Repeat this step about 10 times. • You end up with a figure accurate to about 3 digits. • This is accurate as our knowledge of prices – which are rarely accurate to more than 3 figures. Paul Cockshott

21. Approximate solution is feasible Paul Cockshott

22. Feedback mechanism • We assume a real time feedback mechanism which uses sales of products along with democratically determined general goals to set net output targets for all goods. The planning computers must derive the gross outputs required to meed these net outputs. Paul Cockshott

23. Model we propose Drawn on the principles of Robert Owen (of New Lanark), and Karl Marx New Lanark Robert Owen Paul Cockshott

24. Payment in labour • Workers paid in labour tokens, 1 per hour. Goods priced in labour tokens proportional to the labour required to make them. (some discounting possible ) • Industry publicly owned and planned in physical units. Paul Cockshott

25. Owenite Labour Note Paul Cockshott

26. Labour notes not money • Marx points out that labour notes are no more money than a ‘theatre ticket’ is. • They presuppose not commodity exchange but the direct socialisation of production Paul Cockshott

27. Market clearing prices used for finished goods • If stocks of unsold goods grow – then reduce selling price • If stocks fall – then increase selling price • If price above labour value - then increase output • If price below labour value – then reduce output Paul Cockshott

28. How close are prices to labour values? Paul Cockshott

29. International correlations of prices to labour values Paul Cockshott

30. Comparison with today • Today market prices are an imprecise estimate of the labour cost of producing a commodity. • True labour values more accurate estimate of costs • Capitalism only accounts for the paid portion of the working day. As a result it systematically underestimates the costs of labour as compared to machinery – whose cost it pays in full. • This encourages the wasteful use of labour and the under-use of machinery in capitalist economies. Paul Cockshott

31. The reduction problem • How do we reduce complex labour to simple labour – the work of an airline pilot to the work of a cook? • In principle it is simple – we add up the labour cost of training a person and divide it by the number of hours they will work during their life. Paul Cockshott

32. Why the fuss? • Behind this ‘technical’ objection by Mises hides class prejudice. • How, the upper class intellectual thinks, can my work possibly be compared to that of an ordinary worker. Paul Cockshott

33. Why computers better than markets • The market can be viewed as computing engine - this is explicit in Hayek. • Cycle time is slow, measured in months or years. • Arrives at answer by physically adjusting production up or down. • Constantly tends to overshoot in an unstable way. • Human costs to these adjustments Paul Cockshott

34. Computers are faster • Computers can predict where an ideal market economy would get to if it ever had the chance. • Production can then be adjusted directly to this target. • Cycle time for computation is in the order of hours not years or months. Paul Cockshott

35. Tacit Knowledge • Hayek argued that socialism could never handle the tacit dispersed knowledge that enables an economy to function. The price mechanism was a cybernetic control system that transmitted private information to where it was needed. • Example he gave was of a shipping clerk who has private expert knowledge of the sailings and arrivals at various ports. Paul Cockshott

36. Boadicea • Paradoxically transport – air transport at least was the first industry to be subjected to comprehensive computerised planning. The Boadicea airline booking system opened in the 1960s • Now all airline booking is computerised and shipping clerks are a thing of the past. Boadicea – early anti-imperialist Paul Cockshott

37. Boadicea computer of 1960s I have an affection for Boadicea, this B5700 buffer processor was my first personal computer in the 1970s, when Greg Michaelson and I salvaged it from scrap. Paul Cockshott

38. Objectivist tacit knowledge • Clearly it is the Airbus factories that have the information about what parts are used to make an A340. This information corresponds to what Hayek called tacit knowledge---but it is of course no longer human knowledge. • Literally nobody knows what parts go into an A340. The information, too vast for a human to handle, is stored in a relational database. Paul Cockshott

39. Industrial records • At an earlier stage of industrial development it would have been dealt with by a complex system of paper records. • Again the knowledge would have been objective, residing in objects rather than in human brains. • The very possibility of large scale, coordinated industrial activity rests upon the existence of such objectivised information. • Hayeks subjectivism makes him misunderstand the objectivity of industrial information. Paul Cockshott

40. Computers and democratic control • We propose system of online electronic voting on key issues like the proportion of national income to be allocated to health, eduction, research etc. • This done in terms of the fraction of the working week in labour units that is to go on it. • Taxes automatically adjusted to the democratic vote on social labour allocation. Paul Cockshott

41. Payment • Payment assumed to be 1 hour per hour worked minus taxes. • No differentials for different grades of labour. • Enterprises charged more by the state for skilled labour since this costs more to educate. • Prevent accumulation of human capital but ensures efficient use of scarce labour. Paul Cockshott

42. Incentives • Would there still be an incentive to aquire skills • Yes – because skilled work is more interesting and enjoyable than unskilled work even aside from payment questions. • Equal pay is fundamentally democratic. Paul Cockshott

43. References • “Alternativen aus dem Rechner” Cockshott and Cottrell, • A number of related papers from web pages. • http://reality.gn.apc.org • http://www.dcs.gla.ac.uk/~wpc/reports/ • http://ricardo.ecn.wfu.edu/~cottrell/socialism_book/ • Book now available in English, Swedish, German, Czech. Bengali and Spanish translations in progress Paul Cockshott

44. Paul Cockshott