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Computers and the economic calculation debate. 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. Topics of Discussion. Plans and computers - PowerPoint PPT Presentation
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04/22/23 Paul Cockshott 1
Computers and the economic calculation debate
04/22/23 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
04/22/23 Paul Cockshott 3
Topics of Discussion
Plans and computers Value and prices under Socialism Payment
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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
04/22/23 Paul Cockshott 5
Free market deaths 7.7 million Excess Russian deaths 1991-
2001
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
1985 1990 1995 2000
deaths
04/22/23 Paul Cockshott 6
Plans and computers
Starting with Von Mises, conservative economists argued that effective socialist planning was impossible for 3 reasons:
1. No effective cost metric in absence of market
2. Complexity too great – millions of equations argument.
3. Impossibility of capturing tacit knowledge
04/22/23 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
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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?
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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
1. The computational complexity of estimating labour values is simply to great
2. Reduction problem – how to reduce complex to simple labour
04/22/23 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
04/22/23 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
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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.
04/22/23 Paul Cockshott 13
Example
Suppose I have 2 directories1. Has 1000 entries 2. Has 1,000,000 entriesTo 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.
04/22/23 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.
04/22/23 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.
04/22/23 Paul Cockshott 16
Part of the USA Input Output table
Table 2.--The Use of Commodities by Industries, 1987 BenchmarkAgricultural,
Livestock Other Forestry forestry,
and agri- and and Metalic
livestock cultural fishery fishery ores
products products products services mining
Commodity \ Industry ( 1) ( 2) ( 3) ( 4) ( 5+6)0 1 2 3 4
1 Livestock and livestock products 0 16817.9 1583.6 26.5 1250.5 0.0 2 Other agricultural products 1 23777.7 3855.2 0.0 2088.9 0.0 3 Forestry and fishery products 2 0.0 0.0 167.8 32.0 0.0 4 Agricultural, forestry, and fishery services 3 4003.2 6541.7 1288.5 8.2 0.4 5+6 Metallic ores mining 4 0.0 0.0 0.0 0.0 518.8 7 Coal mining 5 0.0 0.0 0.0 0.0 10.5 8 Crude petroleum and natural gas 6 0.0 0.0 0.0 0.0 0.0 9+10 Nonmetallic minerals mining 7 6.4 253.5 0.0 2.3 7.211+12 Construction 8 458.4 710.1 82.8 288.4 87.5 13 Ordnance and accessories 9 0.0 0.0 29.4 0.0 0.0 14 Food and kindred products 10 11565.6 0.0 305.0 33.4 1.2 15 Tobacco products 11 0.0 0.0 0.0 0.0 0.0 16 Broad and narrow fabrics, yarn and thread mills 12 0.0 44.1 0.0 0.0 0.6 17 Miscellaneous textile goods and floor coverings 13 25.4 25.7 71.6 114.4 0.0
04/22/23 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 =A+l where 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.
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Exact solution impossible
ProductsIn economy
multiplications Seconds taken
uniprocessor multiprocessor
1000 1,000,000,000 10 0.1
100,000 1015 107 100,000
10,000,000 1021 1013 1011=3150 years
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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.
04/22/23 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.
04/22/23 Paul Cockshott 21
Approximate solution is feasible
products multiplications Seconds taken
uniprocessor multiprocessor
1000 150,000 0.0016 0.000016
100,000 100,000,000 1 0.01
10,000,000 6x1010 600 6 seconds
04/22/23 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.
04/22/23 Paul Cockshott 23
Model we propose
Drawn on the principles of Robert Owen (of New Lanark), and Karl Marx
New Lanark Robert Owen
04/22/23 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.
04/22/23 Paul Cockshott 25
Owenite Labour Note
04/22/23 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
04/22/23 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
04/22/23 Paul Cockshott 28
How close are prices to labour values?
04/22/23 Paul Cockshott 29
International correlations of prices to labour values
04/22/23 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.
04/22/23 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.
04/22/23 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.
04/22/23 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
04/22/23 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.
04/22/23 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.
04/22/23 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
04/22/23 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.
04/22/23 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.
04/22/23 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.
04/22/23 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.
04/22/23 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.
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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.
04/22/23 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
04/22/23 Paul Cockshott 44