Why didn’t Keynes participate at the socialist economic calculation debate?

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The socialist economic calculation debate is an important one for everyone concerned with the transition from the capitalist to the socialist economic accounting. It represents the struggle of socialist economists against Mises’s claim that socialism is theoretically impossible and Hayek’s adjustment that it is practically unfeasible. Although being a very clear polarized clash, Keynes was antagonistic to both sides of that debate and did not take part explicitly in the controversy. Why? The paper answers this question by arguing that this would have forced him to broadly reveal his political position as the most powerful defender of capitalism through his proposals of capitalist economic planning.

Posted for comments on 5 Sep 2016, 8:54 am.

Comments (4)

  • Scott Scheall says:

    The paper is neither well-written nor, from what I can tell, well-argued. There are several ungrammatical passages, including the title. These grammatical issues place an onerous burden on the reader to suss out the authors’ meaning. The authors would be well advised to seek out the assistance of an English-language editor. Unfortunately, this lack of formal clarity contributes to a lack of dialectical clarity. The argument, especially as it proceeds forward from around page 11, is incoherent. It is difficult to criticize the argument, because I am not sure what the argument is supposed to be.

    The paper ostensibly aims to explain why Keynes did not participate in the socialist calculation debate. However, this is not in fact what the paper does. Indeed, this question is not in need of an answer. Or, more exactly, there is a simple and obvious historical explanation why Keynes didn’t participate in the socialist calculation debate. In its original iteration, the debate took place in German and Keynes didn’t understand German very well. Moreover, the initial German-language socialist calculation debate was rather “Continental” in its focus and simply not all that relevant to the British scene that most interested Keynes. By the time the debate had moved into English-speaking circles in the mid 1930s, Keynes was occupied with other concerns, especially the General Theory. None of this is news or especially interesting.

    Rather than offering a historical explanation why Keynes didn’t engage the socialist calculation debate, the authors offer a conceptual explanation of why Keynes didn’t fit comfortably in either party to the debate. Surely, this is a very different question from the one posed in the title of the paper. If this reading is right, the title of the paper should be something like, “Which side would Keynes have taken in the Socialist Calculation Debate? Neither.” In support of this interpretation of the authors’ actual intentions, see page 7, where they write:

    “In this quarrel between groups of much defined opinions, where would Keynes be? Would he be at the Austrian side, which endeavored to showed that the construction of a centrally planned economy was a wrong and impossible task, or at the socialists side, who fought to assimilate the analytical methods as a tool that helped turning the national economic planning a reality?”

    I am skeptical that the question “Which side might Keynes have adopted had he adopted a side in the socialist calculation debate?” needs an answer.

    The authors claim that the Russian Revolution created the debate, but they provide no evidence or argument for this claim. My suspicion is that they are confused by the timing of the Revolution and the publication soon thereafter of Mises’ Economic Calculation paper. I am not aware of any evidence that the Revolution was the unique cause of Mises’ paper. At least, the authors provide no evidence for this claim.

    Unfortunately, the paper is littered with bold claims unsupported by textual evidence or explicit argument. For example, see p. 2

    “The logic of the capitalist system after 1918 and, chiefly, after 1929 was one in which the unbounded price mechanism, as idealized by the liberals, did not exist. Whether by the war effort through State intervention, whether for the mechanism of sectorial protection by the developmentalist State, the allocation of resources was not free during a good part of the 20th century. And, after the Second World War, the Keynesian system of intervention prevailed in the national economies.

    However, after the 1970s and, with greater intensity, after the fall of the Berlin Wall and the end of the Soviet economy in 1989, the capitalist economies advanced in the direction of diminishing the political structure that operated on the price system. Would Hayek’s ideas be returning with all its power and substituting Keynes’s ideas, which reigned absolute in the Golden Age of capitalism? Or the late 2000s crisis assured, in Skidelsky (2009) terms, the return of the Master?”

    No evidence is provided for the several very bold claims made in these two paragraphs. Apparently, the reader is just supposed to accept without evidence or argument that “the logic of the capitalist system…did not exist…during a good part of the 20th century.” Moreover, I am at a loss as to what is being asserted in the second paragraph. After the fall of the Berlin Wall, the capitalist economies moved to diminish “the political structure that operated on the price system”… which political structure? In which countries? Every country? Keynes’ ideas “reigned in the Golden Age of capitalism”? When was this “Golden Age”?

    Again, see p.2: “Many commentators sought to synthesize the Keynesian doctrine, but this process turns into the vulgarization of ideas inside Keynesianism.” I think I understand what the authors are trying to say here, but its precise meaning is opaque. In any case, where are the citations?

    That Keynes was looking for a middle way between laissez-faire capitalism and socialism (p. 2) is not a novel suggestion.

    That Keynes “refuted” the theories of either the Austrians or the socialists, much less both, is a dubious assertion (p. 2) that is not substantiated in the paper.

    There is no need to take the debate back to Plato and Aristotle; nor is there any need for the excursion into Marxist theory (p. 3). Mises’ position and the responses to it can be understood without this tedium.

    The retelling of the history of the debate leaves much to be desired. The authors would be wise to consult what is perhaps the definitive history of the debate, Don Lavoie’s (1985) Rivalry and Central Planning.

    The claim that “central planning would be better than the market economy, because there was no theoretical difference between them” is a non-sequitur and not representative of Lange’s views.

    The authors’ analysis of Keynes’ political beliefs (pp. 7-8) is far too superficial to support the claims they want to make about the position he might have adopted in the socialist calculation debate, had he adopted a position.

    The notion, which seems to be expressed – at least, implicitly – in the last few pages of the paper, that Keynes’ position on the capabilities of the State is not subject to Austrian critiques of the epistemic limitations of policymakers is, to my mind, unsupportable. On what grounds do the authors claim that policymakers posses the knowledge required to influence “the interest rate so that the private decisions of use of resources go in the projected direction” (p. 12)? This goal, no less than full-fledged central planning, requires knowledge that policymakers may not be able to acquire. This failure to recognize that Keynes’ view of the State’s epistemic capacities is equally subject to the Austrians’ criticisms of central planning makes me think that the authors have not fully understood the significance of these criticisms. The authors mention Hayek’s “Pretence of Knowledge”-critique of Keynesianism, but it is not clear that they understand that, if sound, Hayek’s critique undermines their claim that Keynes “solved” the economic calculation problem.

    In any case, the authors need to provide an argument for the thesis that Keynes’ position avoids the epistemic difficulties for effective economic policymaking that the Austrians raised against the socialist central-planners. Assertions are made, but no such argument is offered.

    As for the claim that “Keynes solves beforehand the economic calculation problem,” I have no idea what this means…before what? A priori?

    “The owner of abstract wealth, money, absolute liquidity, the social power of conversion of value does not seek to know which level of effective demand will be effectuated. This would be an issue for the State. In this sense, we can notice that the calculation problem in Keynes does not belong to the individual, but to the instance responsible to keep the demand level” (p. 14).

    I have no idea what is being asserted here… “The instance responsible to keep the demand level”? What does this mean? Is the “instance” responsible to keep the demand level a person, or a group of persons? Are these persons omniscient? If not, then their efforts to “keep the demand level” (level with what?) are subject to Hayek’s knowledge-problem critique.

    “The contrary applies to Keynes’s view: there is no reason to collect information, the first step is the realization of the investment as pure and simple leap from liquidity to a less liquid position, whose counterpart would a return greater than the interest rate concerning the sold liquid asset (Carvalho, 1992; Ferrari, 1991). The only task would be the comparison between the interest rate and the current marginal efficiency of the capital. The effects on the investment in his concrete determination, in other words, in his expansive and resultant production in a specific supply structure, is not a role of the investor, but of the State. And it is from this point that one can build a conception of socialization of investments in Keynes: a coordinated capitalism, in which the calculation problem would necessarily disappear for the individual producer” (p. 14).

    I don’t know what is being asserted in this paragraph. “[T]he calculation problem would necessarily disappear for the individual producer” … Is the individual producer interested in making profits? If yes, then there is a calculation problem.

    “Thus, recognizing that uncertainty is inevitable, Keynes did not enter in the calculation debate because his theory seems to veneer a State responsible to avoid the frustration of the individual investments, or better, to oblige the investors to handle the wrong investment choices” (p. 15)

    I don’t know what is being asserted here, which is especially unfortunate, as it seems to be the central conclusion of the paper. Keynes did not enter the calculation debate (are we still talking about the historical socialist calculation debate?) because his theory “veneers” a State responsible for ensuring that individual investments are not frustrated? Try as I might, I can find no sensible reading here, much less one that supports the notion that Keynes did indeed “solve beforehand the economic calculation problem.”

    • Tiago Camarinha Lopes says:

      Dear Scott,

      We thank you for your time and dedication. Your extensive comment is very rich and reveals some interesting points which certainly are in the paper. It seems that we have here different methodological approaches to studying this specific episode in the history of economic thought. It is possible to summarize our positions as follows: we both agree that Keynes was neither on the austrian or on the socialist camp. But while we, in the paper, find it important to understand why and how he managed to do this, you defend that it is not relevant to relate Keynes with the Socialist Economic Calculation Debate. So it is in essence a question of how relevant is our presented theme.

      I will try to engage with your concerns in order to complement the argument presented in the paper.

      First of all, it seems that the grammatical issues did not prevent you from grasping the main idea of the paper. This is already a revised version by an English-language editor. We know it is crucial to have a direct text and we are very thankful to every contribution regarding language corrections. Precise annotations would be highly appreciated and would contribute to increase communication with researchers of non-English speaking, from underdeveloped countries, as it is our case. Our main contend is that your alleged difficulty to understand and criticise the paper’s argument is not related to language issues, but to different opinions on some points such as Keynes and his thinking, the meaning of the Socialist Economic Calculation controversy and the role of Marxist Political Economy.

      The paper indeed aims to explain why Keynes did not participate in the socialist calculation debate. We have defended the methodological importance of this question and have exposed an original perspective on this famous controversy. Keynes had his own ideas on planning and market and did not stick either to the socialist side or the austrian side. If we agree with Mises’s original perspective, then there can not be a third position in between these opposite sides. In that sense, your suggestion for a change in the title is very precise: “Which side would Keynes have taken in the Socialist Calculation Debate? Neither”. Neither? That is precisely the paradox of Keynes in this debate. In the Socialist Calculation Controversy, one has to choose a side. Our thesis is that, one of the reasons for which Keynes was formally absent from the debate is that he permanently tried to create a third way (which is impossible according to the parameters that Mises developed for organizing the problem). Keynes refused to choose a side. By doing that, he refused to take part in the debate. Why? That is the question we seek to respond: why did Keynes try to detach himself both from socialism and laissez-faire liberalism, if we know, according to Mises, that it is impossible to have a mixed solution?

      And here we see that you disagree with our approach. First you argued that the original question “Why didnt Keynes participate in the Socialist Economic Calculation Debate” does not need an answer. Then you correctly propose a more precise title, according to your own perspective on the controversy: “Which side would Keynes have taken in the Socialist Calculation Debate? Neither”. But then you argue again that this question does not need an answer either. So it is not a matter of misunderstanding. There are different perspectives on the significance of this controversy in the history of economic ideas. We defend that the answer to this question is not only necessary from the point of view of economic science and of the history of economic ideas, but also very helpful for showing that even the most celebrated economist of the 20th century (Keynes) failed to praise one of the most advanced controversies in economic theory ever.

      So, this is the main source of disagreement. While you think that the question does not need an answer, we think it is important to bring Keynes into the controversy.

      There are then some minor issues we would like to address.

      We did not claim that the Russian Revolution created the debate. There is no causality here. We mention that the Russian Revolution and the year 1920 (publication date of Mises’s paper) are close in the timeline to emphasize that socialist practice and socialist ideas were all around in that period. Socialist ideas were growing strong since the beginning of the 19th century, and so were ideas against socialism. Mises’s paper is one example of ideas against socialism which were developed in order to counteract the growing influence of socialism over the world.

      In the beginning of the paper (p. 2) we aim at presenting an overview of the difference between Keynesian perspective and the traditional liberal current. That is why we stress the period between First World War and the 1970s. This period has ended, and so has Keynesian hegemony.

      We do not claim that Keynes “refuted” both Austrians and socialists. We indicate that, according to his own methodological approach to economic science, the problem of resource allocation can be solved without engaging in the Socialist Economic Calculation Debate. Of course, Austrians and socialists (those who accept Mises’s challenge) do not agree with this. But that is the way Keynes managed to avoid debating directly with them. On this it seems we have an overall agreement: Keynes has his own theory and it does not fit in the controversy. But, according to our methodological approach to economic science, this is problematic. If economics is a science, then every controversy can be addressed by anyone who is regarded as economic scientist. There can be no barriers. Our effort is to overcome the limits of the three schools of thought at stake (socialist, Austrian, Keynesian) and promote pluralism. That is why we are “forcing” Keynes to participate in the Socialist Calculation Debate.

      We also disagree on your position regarding Plato, Aristotle and Marx. We believe that neither Mises nor socialism in general can be properly understood without mentioning these thinkers. So, for us, this is not tedium. Again this is a matter of opinion which does not indicate scientific failures in our work.

      Also, we do not pretend to give a complete history of the debate. This is a very dense and long controversy and we leave it to the reader if he intends to explore further the debate. We do not find it adequate to point some specific reference which should explain the whole debate. There are many other authors beside Don Lavoie who could be cited as having also written the definitive history of the debate. Here, we could cite Boettke’s collection of the debate (BOETTKE, P. J. (Ed.) (2000). Socialism and the Market: the socialist calculation debate revisited. London and New York: Routledge.) instead of Lavoie. It is the collection of the original contributions, where the reader can make his own judgement.

      By writing that “central planning would be better than the market economy, because there was no theoretical difference between them” we mean that due to the formal similitude between the two opposite models, one is able to choose which one fits him best according to his own economic interests. Lange was a communist, and his interests enabled him to support one of the models.
      You write that “The authors’ analysis of Keynes’ political beliefs (pp. 7-8) is far too superficial to support the claims they want to make about the position he might have adopted in the socialist calculation debate, had he adopted a position.” We agree that our treatment is insufficient, but not because our analysis is superficial, but because it would take an entire book to explore Keynes’ political view adequately. So we think the issue is adequately put in an article of 20 pages.

      There are many other topics that could be further discussed. We are very interested in your opinion, which take us deeper into to the great clash between Keynes and Hayek. We do not argue that Keynes position is superior and that he has solved the socialist calculation problem. We argue that, in his own mind, Keynes did not think that the problem had to be analyzed through the view of Mises (and followers).

      Previous versions of this work has been presented in several conferences worldwide. We had also it submitted to traditional journals. Every time we received very rich comments, but also in a very negative way. We noticed that the paper does not please any of the Schools involved (socialist, Keynesian, Austrian). Depending on the position of the reviewer, we took a specific critique that tried to defend his own School. It indicates that the paper is highly controversial and goes beyond the traditional approach to an important controversy. Our methodology is absolutely plural and we are open to every School of Thought. We know we are provoking new insights on the Socialist Economic Calculation controversy by bringing Keynes into it and hope to continue the debate formally.

  • John King says:

    There is a substantial literature on the socialist calculation controversy, which is not adequately covered by the authors in the paper. More important, there is also a substantial literature on Keynes’s political opinions, which is hardly referred to at all. The early (1951) biography by Roy Harrod has some discussion of Keynes’s attitude to socialism, on which the work of both Rod O’Donnell and Robert Skidelsky needs also to be consulted. As editor of the ECONOMIC JOURNAL, in 1933 Keynes published an article on the economics of socialism by the English economist H.D. Dickinson, and there may be some correspondence relating to this in the Keynes papers, which would be worth checking.

    The authors need to respond to the objection that the reason Keynes did not take part in this controversy was simply that first (in 1936-7) he had too much else on his plate and then (in 1938) he was too ill to become deeply involved in it.

    • Tiago Camarinha Lopes says:

      Dear John King,

      thank you for your comment. As we pointed out, the aim of the paper is not to review the literature on the socialist calculation controversy. So we believe that the contributions essential to a initial understanding of that debate were adequately covered. Regarding the literature on Keynes’s political opinions, it is important to notice also that the aim of the paper is not to explain Keynes judgement about socialism. So our intent is much less ambitious. We focused on the primary sources to reveal Keynes’s political positions. Previous versions of this paper received negative critiques because we had relied too much on secondary writtings about Keynes thought and his biography. So we looked in this version for the direct opinion that Keynes himself manifested about socialism throughout his Collected Works. However we appreciate the suggestion to incorporate his biographies. We also intend to argue that while these are valid to find simple reasons why Keynes didn’t participate, we argue that we can construct a Keynesian argument to show how economics was taking a different turn and how we can insert the Keynesian thought in the debate.