clarence e. ayres and the socialist planning debate

Clarence E. Ayres and the Socialist Planning DebateAuthor(s): Pham ChungSource: Journal of Economic Issues, Vol. 12, No. 1 (Mar., 1978), pp. 115-123Published by: Association for Evolutionary EconomicsStable URL: http://www.jstor.org/stable/4224667 .

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J e JOURNAL OF ECONOMIC ISSUES Vol. XII No. I March 1978

Clarence E. Ayres and the Socialist Planning Debate

Pham Chung

In this attempt to relate Clarence Ayres's view on planning to the famous "socialist controversy" among Western economists several decades ago, I shall show that Ayres was aware of the source of confusion of major participants. Many adhered to the original intention of socialist planning, which calls for replacing market organization with hierarchical structure and the classical theory of value with the theory of planning, whereas Ayres apparently would replace the classical with another theory of value. The organizational structure of the system he visualized remains essentially polycentric. Before considering these issues, I shall discuss briefly the original intention of socialist planning and the inconsistency involved in the socialist controversy in the West. This will bring into focus Ayres's view.

Socialist Planning

According to Marx, the classification of economic systems can be based on the mode of production that predominates. There are only two general modes: commodity production and production for direct use. The former,

The author is Professor of Economics, University of New Mexico, Albuquerque. He is indebted to his colleague David Hamilton and a number of referees for many helpful comments. This is a revised version of a paper read at the Missouri Valley Economic Association Meetings, St. Louis, Missouri, 24-26 February 1977.

115



116 Pham Chung

which means the production of goods for exchange on the market, is the predominant mode of market systems. This is in contrast with production for direct use, which is the predominant mode of nonmarket systems., Marx maintains that in a system of market organization, the relations between men are expressed as relations between things, and the "process of production has mastery over man instead of being controlled by him."2 A result is the alienation of man from his own labor and consciousness.3 Since alienation is inherent in commodity production, it can be eliminated only by eliminating commodity production or market exchange.4 This is ac- complished by replacing the market with hierarchical organization, where- by "the whole of society will have become one office and one factory."5 The market and political economy will cease to exist. According to Nikolai Bukharin, "as soon as we deal with the organized national economy, all the basic problems of political economy such as price, value, profit, etc., simply disappear. Here, 'relations between men' are no longer expressed as 'relations between things,' for here the economy is regulated not by the blind forces of the market and competition, but by the consciously carried out plan.... The end of capitalist and commodity society signifies the end of political economy."6

The original intention of Marxian socialism is, then, the replacement of the market with the hierarchical organization of the whole of society, of the theory of value with the theory of planning. The new society is a centrally planned one in which the allocation of resources is directed by the aims and valuations of the bureaucracy in charge of the administration of the economic system. The central authority decides which commodities are to be produced and in what quantities, the consumer goods produced being filled by assignment.

As Paul Roberts has pointed out, it is the possibility of procedures by which a hierarchical system can generate criteria to guide the planners in the establishment of priorities or to guide the allocation of resources according to the priorities that Ludwig von Mises attempted to refute.7 At the same time, Mises defended the concept of private property. By joining his argument regarding the impossibility of socialist planning and his de- fense of private property, he so structured the problem that the possibility of socialist planning in the sense of hierarchical organization of the whole of society was transformed into the question of the possibility of economic value formation under conditions of public ownership of the means of production. That is, the controversy then focused on the question of economic efficiency in the absence of private property; the organizational structure of commodity production was taken as given. In Roberts's words,



Ayres and the Planning Debate 117

by transforming the objective of socialism into the issue of economic efficiency, economists created a socialism that no socialist ever believed in, placed hopes in, or fought for.... The famous "socialist controversy" among Western economists is not about socialism but about the logical consistency of models of market simulation, their determinancy, stability, and convergence toward equilibrium. Within the context of this socialist controversy, the possibility of socialism depends upon whether the market economy can be successfully simulated.8

This is essentially the theory of socialist planning of Oskar Lange, among others.9 It is concerned with the possibility of competitive market equilibrium under social ownership of the means of production, not with the possibility of hierarchical organization of society. In Lange's system, the Central Planning Board (CPB) (which is supposed to give orders to plant managers in regard to which commodities are to be produced and in what quantities) has the same role as the Walrasian auctioneer groping his way through the process of determining prices which would bring into equilibrium supply and demand, since the method used by Lange's CPB is the "method of trial and error based on the parametric function of prices."'0 Like the Walrasian auctioneer, what is determined by the CPB is the initial vector of prices; if these prices do not equilibrate supply and demand, they must be changed. In other words, what is done by the CPB is essentially dictated by supply and demand conditions which reflect consumers' preferences and the relative scarcity of resources.1'

Lange was aware of the organizational structure of a centrally planned system. But, apparently unable to develop a theory for the ex ante deter- mination of the structure of outputs for such a system, Lange elected to adopt the trial and error mechanism of the market. As Roberts has argued, however, "rules taken from a market economy and which reflect its structure can have no applicability to a centrally planned economy. To give such rules organizational meaning in a planned system ... is to over- ride the intended hierarchic structure."'12

The Ayres View

While there is no evidence that Ayres was aware of the original intention of socialist planning, that is, the elimination of market alienation by abolishing commodity production, he was aware of the confusion involved in the socialist controversy. The participants in the debate seem to agree that (free) market prices are the only signals for rational economic calculation and focus their attention on the possibility (or impossibility) of



118 Pham Chung

simulation of these prices in the absence of private property. Ayres con- tends that market prices are by no means the only signals that can serve as guides for rational economic decisions. To him, the classical theory of price and value provides a set, not the only set, of signals for the allocation of resources. In his words,

it is said that the price system as an administrative vehicle is indispensable to the conduct of the industrial system. Every decision with regard to the expansion or contraction of production, the adjustment of one factor of production to another, and so forth must be made in terms of prices, of various products and various factors; and since prices are valid guides to sound decisions only insofar as they are genuine prices, genuinely ar- rived at in the free higgling of the market, it follows that a free market- that is to say, the economy of free private enterprise-is the condition without which industry cannot be administered.... This argument is far from conclusive, and perhaps on that account it has done more to confuse than to resolve the issue. However extensively price data may be em- ployed in the decisions of business enterprise, prices are by no means the only data upon which rational decisions can be made.13

Ayres maintains that classical economic theory, which is based on a hedonistic concept of human nature, considers "consumption" to be the "end" of all economic activity.'4 He believes that it is the classical con- sideration of consumption as a transcendent end which has kept economic thinking in bondage to price theory. Economic value is thought to be derived from the utility or want-satisfying quality of a good. Value is thus known only as it is revealed in the wants that motivate individuals' pur- chases; these, in turn, are gathered up and synthesized in the price system. It follows that the price system is the only locus of value and guide to economic welfare.

Ayres takes issue with the hedonistic concept of human behavior which, he claims, is not supported by modern philosophy and psychology. The classical theory of value and price would hold if inward contemplation of the individual is the only way by which value can be conceived, if consumption is the end of all economic activity. But this metaphysical founda- tion of value is something that has been rejected by modern science. Ac- cording to Ayres, if value can be conceived in no other way but the inward contemplation of the individual,

if consumption stands above production in some metaphysical hierarchy in which it is the transcendent "end" to which production is but the "means," then the classical economists are right and economic planning is the outrageous proposal of callow reformers to put their schemes above the conscience of the race. But the direction in which the whole of mod-




em thought has been moving is toward science and away from meta- physics. Modern science knows nothing of transcendent "ends."'15

What it all comes down to is this. Virtually all students of economics now realize that the price theory of value is palsied in all its joints. But they are extremely loath to abandon it for this reason: it is the only theory of value we have. Or is it? This is the challenge which economic planning must be p:-epared to face.16

But economic planning does not have the same meaning to writers on socialism and the planned economy. Hence, the challenge of economic planning as perceived by Ayres is not the same as the challenge conceived by others in the socialist controversy. To those who advocate socialism in the sense of replacing commodity production with hierarchic organization (Marx, Bukharin, and Paul Sweezy, among others), the challenge of planning is the replacement of the classical theory of value with the theory of planning. To those involved in the socialist controversy (Lange, Fred M. Taylor, and Friedrich von Hayek, to name a few) economic planning consists essentially of devising a system of economic controls under social ownership of the means of production, but with the organizational structure of commodity production retained; the challenge of economic planning is then the possibility or impossibility of the classical theory of value in the absence of private property. To these economists, the classical theory of value is "the only theory of value we have."

The challenge of planning as perceived by Ayres, on the other hand, involves essentially the replacement of the classical theory of value with another, the technological or instrumental theory of value. According to Ayres and other "instrumentalists," values as reflected in market activities represent the union of two sets of values: those that are technological- instrumental and those that are ceremonial. Values in the first set are "true" or "objective"; they emanate from the technological process, which is an experimental one; they embody activities that enhance life and are conducive to further technological progress.'7 Values in the second set are "false" and are derived from vested interests and the existing power structure and status, among other things; they tend to retard the development of human well-being. Many classical political economists consider all economic activity to be oriented toward a transcendent end, consumption, from which is derived value in terms of the flow of utility or satis- faction as measured by the intensity of wants of individuals. In contrast, Ayres and other proponents of the technological-instrumental theory of value consider production and consumption as part and parcel of a continuous process. That is, "both consumption and production are aspects



120 Pham Chung

of the total effort of carrying on the industrial process and making it con- tinue to work. Both are valid and valuable by virtue of their contribution to the continuation of this uninterrupted effort in which alone we can read the meaning of human life."'18

To Ayres, economic planning represents the concerted effort on the part of individuals to contribute to the uninterrupted industrial and technological process upon which human life and well-being depend.19

It derives its meaning not from the Marxian dialectic of class struggle but from modern science and modern philosophy, logic, and ethics. It is tan- gential to traditional economic theory at that point at which the classical theory is attached to a metaphysical conception of value which the modern world has left behind. That point is the theory of consumption as "the end" to which all other experience is ancillary, a conception which makes the whole economic system depend for its meaning and justification upon "wants" and so upon the price system in which "wants" are conceived to find expression. Economic planning stems from quite another theory of value and welfare. It is a commonplace of modern social science that the welfare of the race has been achieved through the use of tools and has advanced as the use of tools, the arts, and the sciences have advanced.20

Since economic planning, as Ayres sees it, is concerned essentially with replacing the classical theory of value with the technological-instrumental theory of value, the matter of planning is not organizational in the Marxian sense. Ayres's "planned" system would retain the organizational structure of commodity production, but it would be guided by technological- instrumental values, not by the hedonistic concept of value as perceived by classical theory. It is a polycentric system which functions like the republic of science. Ayres maintains that in the republic of science, scientific value is established, not by authoritarian whim, but by the nature of science, that is, by a "continuous series of experimentation, generalization, verification in which every exercise is a verification of some earlier generalization and an experiment by which the process is continued in the direction of some further generalization and verification."'2' Likewise, economic value is established by the nature of the technological process, not by authoritarian whim. And, if economic value is not established by whim, then the organizational structure of the economic republic must be polycentric. As Ayres explained, "the technological continuum is no less impersonal than the price system. Science has no price system; yet no one supposes that scientific validity is established by authoritarian whim. It is, of course, determined by the nature of science. As a determinant of economic value, the technological process works in precisely the same way.19=




In some respects, Ayres's view on planning does not seem to differ from that of the "New School of Socialist Thought" (Lange, Abba P. Lerner, E. F. M. Durbin, and H. D. Dickinson, among others23) in that the organizational structure of commodity production is retained. This is in contrast with Marxian planning, which calls for replacing commodity production with hierarchical structure. Like Lange, Lerner, Durbin, Dick- inson, and others, Ayres sees planning as a means to improve the per- formance of the existing system. He does differ in two (related) respects. First, unlike members of this school of socialist thought, who were concerned with improving the existing system because it does not live up to the promises of the competitive equilibrium system described by Eugen von Bohm-Bawerk, Friedrich von Wieser, Alfred Marshall, and Gustav Cassel,24 Ayres sought to improve the existing system because of the prev- alence of "ceremonial values." These tend to retard economic progress, in contrast with technological-instrumental values, which enhance life and the development of human well-being. Second, Ayres was concerned with the problem of progress and thought of planning in a dynamic context, while Lange, Lerner, and others were concerned with maximization of preferences in a static framework.

Notes

1. Among the production for direct use economies are found ritual economies (primitive and feudal) and Marx's vision of the planned socialist economy. They share production for direct use and some elements of tra- dition, but differ in the exercise of conscious will over economic life.

It should be noted that an economic system in which commodity production predominates is a market system; the number of firms may be few or numerous; the size of firms may be small or large; firms may be privately or publicly owned; entry of firms into an industry may be free or blocked; prices may be "fixed" or "free." All this does not affect the basic classification of an economic system as a market system, but affects the "efficiency" of its operation.

2. Karl Marx, Capital (New York: Random House, Modern Library, 1906), vol. 1, quoted in Paul Craig Roberts, "Oskar Lange's Theory of Socialist Planning," Journal of Political Economy 29 (May/June 1971): 562-77.

3. As Paul Sweezy has put it, under commodity production, "the individual producer deals with his fellow men only through the market, where prices and amounts sold are the substantial realities and human beings merely their instruments." The Theory of Capitalist Development (New York: Monthly Review Press, 1964), p. 36.

4. For a discussion of alienation, see Paul Craig Roberts, Alienation and the Soviet Economy (Albuquerque: University of New Mexico Press, 1971); or Paul Craig Roberts and Matthew A. Stephenson, "A Note on Marxian



122 Pham Chung

Alienation," Oxford Economic Papers, n.s. 22 (November 1970): 438- 42.

5. V. I. Lenin, State and Revolution (1932), quoted in Paul Craig Roberts, "The Polycentric Soviet Economy," Journal of Law and Economics 12 (April 1969): 163-79.

6. Nikolai Bukharin, The Economics of the Transitional Period, cited from Adam Kaufman, "The Origin of the Political Economy of Socialism," Soviet Studies 4 (January 1953): 243-72, quoted in Roberts, "Oskar Lange's Theory," p. 564.

7. See Roberts, "Polycentric Soviet Economy," pp. 164-65. 8. Roberts, "Oskar Lange's Theory," p. 565. 9. See, for example, H. D. Dickinson, "Price Formation in a Socialist Econ-

omy," Economic Journal 43 (June 1933): 237-50; R. L. Hall, The Eco- nomic System in a Socialist State (London: Macmillan, 1937); and A. P. Lerner, Economics of Control (New York: Macmillan, 1944).

10. Oskar Lange, "On the Economic Theory of Socialism," in On the Eco- nomic Theory of Socialism, edited by B. E. Lippincott (Minneapolis: University of Minnesota Press, 1956), p. 86. It should be noted that the method of trial and error used by Oskar Lange was advanced by Fred M. Taylor, a leading neoclassical economist, in the late 1920s to show the possibility of rational economic calculation under socialization of the means of production. See Fred M. Taylor, "The Guidance of Production in a Socialist State," American Economic Review 19 (March 1929): 1-8, reprinted in On the Economic Theory of Socialism, pp. 41-54.

11. Lange's interpretation of socialist planning in terms of the possibility of market simulation persists in the theoretical literature. Consider, for example, this observation by Don Patinkin (Money, Interest and Prices, 2d ed. [New York: Harper & Row, 1965], p. 38): "The fact that the number of independent excess demand equations is equal to the number of un- known money prices and that the system can be formally solved might some day interest a central Planning Board duly equipped with electronic computers and charged with setting equilibrium prices by decrees." But these independent excess demand equations are those of consumers re- flecting their own preferences, not those of central planners. It is not clear why there is need for a Central Planning Board to determine equilibrium market prices when these prices can be determined by the market itself. On the other hand, the reason for a Central Planning Board under socialist planning in the sense of hierarchical economic organization is clear since under such a system the market ceases to exist.

12. Roberts, "Oskar Lange's Theory," p. 569. 13. Clarence E. Ayres, "The Significance of Economic Planning," in Devel-

opment of Collective Enterprise, edited by Seba Eldridge (Lawrence: University of Kansas Press, 1943), p. 472. Like Oskar Lange and others, Ayres's summary of Mises's position indicates that he interpreted the issue raised by Mises in terms of the possibility of value calculation in the absence of private property, not in terms of the possibility of hierarchical economic organization of the whole of society. It should also be noted that Ayres has stated that "economic planning is what must be conceived to follow the overthrow of capitalism.... The ultimate suc-




cess of any such movement eventually turns upon the possibility of economic planning in the sense of some form of economic organization alternative to that of capitalism or 'free private enterprise' " (p. 470). But the alternative economic organization here should be understood not in the sense of hierarchic organization in which all economic activity is directed by a central authority, but in the sense of a system of control of the industrial process under social ownership of the means of production as advocated by proponents of socialist reforms at the time. A centralized or hierarchical organization of the whole of society is not consistent with Ayres's thought. To him the life process and human well-being are en- hanced by technological progress. Behind that progress is the development of science, and he believes that the republic of science can be de- veloped only under conditions of freedom of inquiry. Attempts at centrally directed scientific inquiry would have serious consequences. In his words, "any infringement of freedom of inquiry is bad because it puts the whole process of inquiry and with it the technological process as a whole, in jeopardy (Toward a Reasonable Society [Austin: University of Texas Press, 1961], p. 183).

14. For an excellent discussion of human nature as perceived by the classi- cists and institutionalists, see David Hamilton, Evolutionary Economics: A Study of Change in Economic Thought (Albuquerque: University of New Mexico Press, 1970).

15. Ayres, "Significance of Economic Planning," pp. 476-77. 16. Ibid., pp. 475-76. 17. For a discussion of the instrumental theory of value, see David Hamilton,

The Consumer in Our Economy (Boston: Houghton Mifflin, 1962), pp. 76-88.

18. Ayres, "Significance of Economic Planning," p. 479. 19. It is of interest to note that in some of his earlier works (for example,

"The Principles of Economic Strategy," Southern Economic Journal 5 [April 1939]) Ayres seems to view planning essentially in terms of "mac- roplanning" designed to help the public consume what the economy can produce and maintain full utilization of labor and industrial capacity. See, for example, Pham Chung, "Clarence E. Ayres on the 'Market Sys- temn': A Note," Journal of Economic Issues 10 (September 1976): 688- 94.

20. Ayres, "Significance of Economic Planning," pp. 479-80. 21. Ibid., p.479. 22. Ibid., p.480. 23. Lange, "Economic Theory of Socialism"; A. P. Lerner. "Economic The-

ory and Socialist Economy," Review of Economic Studies 2 (October 1934): 51-56; E. F. M. Durbin, "Economic Calculus in a Planned Econ- omy," Economic Journal 46 (December 1936): 676-90; Dickinson, "Price Formation"; and H. D. Dickinson, Economics of Socialism (Lon- don: Oxford University Press, 1939).

24. For example, H. D. Dickinson states that "the beautiful system of economic equilibrium described by Bohm-Bawerk, Wieser, Marshall and Cassel are not descriptions of society as it is but prophetic visions of socialist economy of the future" ("Price Formation," p. 247).



clarence e. ayres and the socialist planning debate

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