Hayek vs. the Neoclassicists

An important question for any researcher who wishes to revisit the socialist calculation debate is: Why beat a dead horse? With the collapse of the communism in 1991, other than for historical purposes, there seems to be little value in rehashing the debate over socialism’s feasibility. Nevertheless, we believe that there are at least two very good reasons to consider this debate again.

The first reason has to do with the fact that socialism is an intellectually and emotionally powerful idea. This is particularly so as it is articulated by Karl Marx. Socialism is thus worthy of our most serious intellectual effort in analyzing its claims. The classical political economy thought experiment that highlighted self-regulation and harmony of interests was called into direct challenge by Marx who argued that the natural workings of the market economy lead to a clash of interests among classes and to market failure in the cases of monopoly and crises.

In the wake of the collapse of real-existing socialism many intellectuals continue to find comfort in socialism’s promise of a better world, even if the particulars of how to achieve that better world are a subject of dispute and puzzlement. It is often contended that the events of 1989-1991 were the outcome of frail humanity that failed to live up to the demands of socialism. It is our contention that by revisiting the debate concerning socialism it becomes apparent that the opposite is actually true. Humanity did not fall short of the ideals of socialism; socialism fell short of the demands of humanity.

The second reason for reconsidering the socialist calculation debate is of a more parochial concern, but equally important nonetheless. This debate taught the Austrian economists how their understanding of the market system differed from the understanding of their neoclassical colleagues. In this regard, the debate was critical to the development of a unique Austrian paradigm represented in the work of thinkers like Ludwig von Mises and F.A. Hayek (see Lavoie 1985 and Kirzner 1988).