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How Don Lavoie Changed the Debate about Socialism and Central Planning

December 4, 2019

So both Rivalry and Central Planning and National Economic Planning: What Is Left? were published in 1985. So it was like a one-two punch. It wasn’t even like a delay. It was like you know a Mike Tyson combination, right? Boom Boom! For those of us coming up in the next generation it made Austrian economics a viable research program not about the past, right, but about the future direction of the way that we think about doing economics and political economy. In terms of history of thought many people viewed Ludwig von Mises and F. A. Hayek as having lost the debate about socialism. More broadly and globally you had major issues with efforts to actually impose real world communism and socialism. And so throughout the world you had various reform efforts which were trying to deal with the problems that real world socialist economies were running into. And so now all of a sudden you got lavoie making a theoretical argument about that the Austrians were right after all at the same time that across the globe all the socialist economies are in fact admitting that they can achieve the socialist goals. And Lavoie had now set that stage that the kind of Austrian criticisms could in fact be part of the literature in the mainstream discussion of economics. If you wanted to make an argument about socialism, you had to deal with the argument the way Lavoie laid it out. The carefulness of the scholarship, the thoroughness of the scholarship meant that it would be so like scholarly irresponsible to not, even if you disagreed with it, to not have to grapple with Lavoie’s book. So taken together, the two books complement each other nicely. On the one hand, there’s the knowledge problem. That is there is the inability of central planners to access the appropriate economic information that is required for coordination and economic progress. On the other hand, Lavoie also emphasizes that when you centralize economic planning, it leads to what he calls a power problem. That is that it grants those who have control over planning a significant amount of power and control over the lives of ordinary citizens. Lavoie also emphasized that this analysis of planning applied both to comprehensive economic planning – that is efforts to plan the entire economy – as well as non-comprehensive economic planning. In order to engage in planning I have to give authority to either centralized units or even decentralized units, but they have final authority. And so what happens is our lack of our knowledge means that we still have these people with power so they’re going to make their decisions based on political knowledge rather than economic knowledge. And what’s the main way in which we end up by using political knowledge is militarization. Our failure on the economic freedom side generates a militarization of the economy. Planning is militarization, right? Regimentation, allocation, all of those things is in fact militarization. And so that’s why socialism doesn’t generate a leftist dreamland; it generates instead you know like Mayday parade’s, right? When the Soviet Union demonstrates its entire you know military apparatus. We can understand that, but it’s also true in economies that have more decentralized methods. You have to go back to the 1980s, you see steel factories going down in youngstown and pittsburgh, and you see the car industry in Detroit having its problems. So one of the answers to that was, “Hey, we need to engage in industrial policy in order to fix up these firms.” Not let the new technology come in and wipe away, not creative destruction. And so Lavoie’s book National Economic Planning is directed at those kind of policy proposals that were put up, many of which came from the left but in fact would result in outcomes which the left would find deplorable. None of them want to have a militarization of the economy, but yet this is exactly what happens we have large, comprehensive planning proposals put forward. Really, as political economist what we want to focus on is thinking about what institutional arrangements are feasible in different societies but then the alternative implications of those different institutional arrangements for the well-being of people. And what Lavoie’s body of work empowers us to do is to not only analyze different institutional alternatives, but to think about what the implications are for human freedom. So where Lavoie comes down at the end of his study of real-world socialism and real-world central planning is the need for a radical agenda and a radical commitment to markets. What he argues is that in order to overcome both the knowledge problem and the power problem, what is ultimately necessary is to decentralize control and decentralized decision-making all the way down to the individual level and under a regime of private property rights. and respect for rules – a system where the rule of law exists, where no one is above the law – Lavoie argues that individuals will be able to take advantage of dispersed knowledge but also they will be shielded from concentrated power precisely because no individual or group of individuals has control over the lives of another. We treat people with dignity and respect, all human beings and that we don’t allow power to be concentrated in the hands of a few, right? We allow governance, not necessarily government power and that’s the kind of picture that Lavoie is painting for us and that vision is extremely still attractive today as it was in 1985. We believe that these books are still part of an extended conversation that’s essential for advancement in the social sciences.

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  • Reply Walter Clark November 29, 2016 at 4:25 pm

    Most people would reject outright the argument that militarization of the economy would follow government involvement in the economy. It might be easier to see that this is the case if you start with the fact that to be centralized, there must be agreement on one or both parties to every transaction, to accept less than what both would agree to without this involvement of the State.
    The cost of enforcement of this involvement maybe invisible at first but eventually it will be discovered by the State that the cost can be greatly reduced by establishing a meme; that to oppose this involvement is unthinkable.
    History has shown that the government must demonstrate its potency by never allowing disobedience no matter how passionate the objection; even when the disagreement is raised to violence. The State must show a perfect record of dominance by demonstrating its ability to legally lock people up or even legally kill. If there's no enemy (such as society around the Incas) you must demonstrate the legal ability to kill your own people from time to time. There has been no State without this reputation.

  • Reply Jj Jones December 16, 2018 at 4:43 pm

    Walter just look at Venezuela, it proves you wrong with the real world consequences of state control.

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