National Economic Planning: What Is Left?

by Don Lavoie

by Don Lavoie; George Mason University. Ballinger Publishing Company, Cambridge, Massachusetts, A Subsidiary of Harper & Row, Publishers, Inc.

Genres: Economics, Politics, Nonfiction, Philosophy

291 pages, Paperback

First published June 1, 1985

Reviews

[Otto Lehto · Rating 4 out of 5]

1985 was a watershed year in Austrian economics. Two momentous books were published in that year. Incredibly enough, both of them came from the same author - Don Lavoie. The first of these books, Rivalry And Central Planning: The Socialist Calculation Debate Reconsidered, was a modern restatement of the Austrian contribution to the Socialist Calculation debate. It reformulated the Mises-Hayek-Kirzner critique of the feasibility of calculation under socialism and famously rebranded it the "Knowledge Problem." This is the name by which the Austrian critique is commonly known today. The latter of these two books, the one I am currently reviewing, applied the Austrian critique of socialist calculation to critically examine contemporary (circa 1985) politics. It examines whether the same arguments that apply to "comprehensive planning" (full blown socialism) also apply to "noncomprehensive planning" (progressive politics) - and what does this mean for the future of the Left?

Both of Lavoie's 1985 books are brilliant and they complement each other: while "Rivalry" is backward looking, "N.E.P." is forward looking. I slightly prefer the latter since it not only summarizes an existing body of literature but projects it out into new territories. It is somewhat held back by its outdated discussion of the movements and ideologies of the 80s. Nonetheless, the same criticism of national planning can be easily extended to today. Many of the same fallacies still dominate progressive politics (as well as much of liberal and conservative politics) today.

In National Economic Planning, Lavoie argues that the contemporary "progressivism" (or left wing politics) has been led astray by the mistaken assumption of the feasibility of socialist calculation. In order to regain its ground in robust social scientific understanding of the economy, progressivism needs to provide an adequate response to the Austrian economists' "knowledge problem", according to which markets are needed to allocate resources efficiently and to produce a level of social intelligence under complexity. So, far from being a contingent set of institutions that can be willy-nilly abandoned, "the social function performed by a particular complex of legal and market institutions makes them indispensable tools for the solution of certain unavoidable economic problems involved in the day-to-day production and allocation of scarce resources." This means that national economic planning is likely to run into unavoidable government failures.

The best part of the book by far, in my humble opinion, is the beginning, Chapters 1-3. In them, Lavoie showcases his polymathic and interdisciplinary reach - a trait he shares with Hayek and Polanyi - by bringing in insights of contemporary complexity theory, sociobiology, evolutionary economics, cybernetics, and other disciplines. He explains how the Austrian knowledge problem belongs to and resonates with the insights of all of these different disciplines. After all, the study of the processing of knowledge in complex systems is the subject matter of economics, biology, cybernetics, information theory, and various other disciplines that should speak to each other. Lavoie's discussion, although largely derivative of Polanyi, Hayek, and others, is one of the most fruitful and insightful examples of an interdisciplinary research into the limits of human knowledge and controllability. Similar to people like Mandeville and Hayek, Lavoie borrows liberally from the natural sciences to explain the cogent links between the biological and the economic domains: "The human analogue of the insects' pheromone is the expenditure of money in market exchanges. Human mass communication takes place when an individual engages in the dual process of actively influencing others by secreting "money pheromones" in particular directions, thereby bidding up prices in those avenues, and of passively responding to the prices resulting from the money issuing from other individuals." Excessive? Perhaps. On your nose? Quite literally! Insightful? Indeed.

Now onto my criticisms of the book. Firstly, a lot of the book deals with authors and topics that are forgotten or outdated. Today, the biggest challenges to National Economic Planning come from directions like "Nordic Social Democracy", "The Green New Deal", or "The Job Guarantee". These topics were not current in the 1980s. Instead, the book devotes a lot of time discussing people like Leontief, Bluestone and Harrison, Alperovitz and Faux, and Robert Reich. Many of these thinkers, although not entirely forgotten, have become marginalized in many ways. However, although the ideologies and people have changed, the principles have not. It would be foolish to think that just because "national planning" goes by a different name every decade that the same epistemic criticism does not continue to apply to it. So, I think most of the book is still very relevant. Austrian insights remain underappreciated today.

My second criticism of the book is that the arguments, especially in the later chapters, are somewhat doctrinaire Austrian, with the important caveat that Lavoie himself shaped what the Austrian doctrine would become - so obviously he resembles himself! To be clear, I am not saying that Lavoie is not an "open minded" thinker. Far from it. His thinking is very open minded. He makes copious references to other sciences, including the philosophy of science, the science of semiotics, complexity theory, etc... But for some reason, WITHIN ECONOMICS, he seems to think that not much of value has been produced outside of the Mises-Hayek-Kirzner lineage. Being narrowly Austrian is valuable to the extent that Austrian arguments are underappreciated in economics. But it can turn into a problem to the extent that Austrian economics is both a) internally RICHER than Lavoie proposes (a problem of oversimplification) and yet b) internally POORER to the extent that it does not have all the answers regarding what works and what does not work in institutional design (a problem of overconfidence). And it seems to me that Lavoie's presentation, while excellent, fails to properly take into account of these possibilities.

As an example of his tendency to oversimplify the Austrian canon, Lavoie largely overlooks the argument for noncomprehensive planning that was already found in Hayek. We should remember that Hayek himself was sympathetic to the existence of the knowledge problem and indeed contributed to its formulation. Nonetheless, he believed that the market order is compatible with a broad range of government interventions that do not fatally undermine the price mechanism. These may include social insurance policies, basic income provisions, the setting of educational standards, health and safety regulations, public park constructions, etc... Lavoie seems to suggest, although he does not say so explicitly, that the knowledge problem makes such government interventions undesirable. This may have been the view of Mises. But the position of Hayek, the German Ordoliberals, and Michael Polanyi was more tolerant of certain government interventions that stood outside the spontaneous order of the market. Now, it may be true that the knowledge problem also directly undermines the Hayekian-Polanyi interpretation of liberalism; but this would require a stronger exposition than the one found in the book.

Relatedly, as an example of his overconfidence in the Austrian methods, Lavoie does not take full stock of many interesting developments in economics that were already present or incipient in the 80s. Some of the most relevant ones for the "knowledge problem" include the informational asymmetry arguments of George Akerlof or Joseph E. Stiglitz. They would seem to undermine some of the assumptions of the efficient functioning of the price mechanism as an information transmission mechanism. A second set of interesting developments of economics that Lavoie should have examined includes the insights of behavioural economics as instigated by Tversky and Kahneman. However, to Lavoie's credit, a lot of the behavioural ideas reached economics only later. Nonetheless, there are several aspects of "social epistemology" as examined in contemporary human and social sciences, including economics, that complicate the Austrian picture and ought to be incorporated into it. If there are problems with how prices convey information, what is the best response? Etc...

Overall, the book is an excellent, prescient, and polymathic application and extension of the Austrian critique of socialist calculation into the contemporary field of progressive politics. It is also a plea for the left to regain its standing as a progressive force that demands power back to the people themselves and away from central planners! As I have said, however, the book is not without its share of problems: a) It is somewhat outdated in its discussion of some authors and ideologies that are no longer in vogue. I have also argued that b) Lavoie somewhat oversimplifies the Austrian insight into the National Economic Planning debate into a rather hardcore libertarian reading of the knowledge problem that ignores some of the Hayek-Polanyi-Ordo flexibility that is compatible with it. Lastly, I have argued that c) Lavoie neglects to acknowledge some important developments in the social sciences that complicate the Austrian interpretation of the informational capacities of markets. Nonetheless, these are not fatal flaws, and the book remains essential reading. It brings the Austrian insights to bear on contemporary topics of considerable interest with lateral readings of contemporary developments in the human and social sciences. In Austrian economics, and for a good reason, there is a time before 1985 and a time after 1985. All thanks to Lavoie.

[Katie Nissen · Rating 2 out of 5]

This book is written in the tone of an author who was in a romantic relationship with Karl Marx, but it ended badly and this is their break up outlet. Seriously, most of the book was borderline ad hominem attacks against various authors disguised as actual criticism. Furthermore, for all the time Lavoie spends criticizing Marx for critiquing capitalism instead of designing a plan for communism, Lavoie does the exact same in this book. The last chapter promises to lay out Lavoie’a vision of a “new radicalism,” but still just spends most of the time making weird claims about other authors. The last maybe 10 pages start to get at Lavoie’s own ideas, but mostly just to say “markets are good and also nonintervention in foreign affairs.”

Intellectually unconvincing, even if you forgive the fact that much of it is now woefully dated.

[Michael Wu · Rating 5 out of 5]

Avoiding the usual pitfalls of right and left, Don Lavoie persuasively dismantles Progressive’s enthusiasm for planning of society and explains why traditional leftists policies have failed. Sensitive to the Progressives’ social concerns, Lavoie challenges the radicals (and their critics) to rethink their conception of progressive economic and social change without reliance on government intervention.

A rare classic in economics that offers deep economic wisdom in accessible, common sense style.

[Jonathan Madison · Rating 4 out of 5]

A text that remains incredibly relevant with age even if it occasionally gets lost in the weeds.

[Arjun Pathy · Rating 1 out of 5]

Although I agree that outright economic planning will probably always fail miserably, I feel that Lavoie's analysis of the topic is lacking in many ways. Firstly, as with many of his peers who were heavily influenced by Hayek, Lavoie paints the issue of planning in black and white, arguing that markets must be completely free and devoid of human planning. Secondly, as an economist, Lavoie, unsurprisingly, often argues not by proving his thesis but by saying "the alternative is worse." A glaring example is his claim that government regulation of monopolies is misled, because by ruling over an industry, regulators make the same mistake as monopolists, exerting undue control. Furthermore, he claims that regulatory capture and special interest failures always trump the benefit of anti-trust regulation, while conveniently not mentioning the extremely successful era of trust-busting in the wake of the Clayton and Sherman anti-trust acts. This book is a testament to the fact that it is extraordinarily easy to spew inconsistent and unsubstantiated arguments when you exist in an echo chamber (in this case the world of Austrian economists.)

[Kyle Macleod · Rating 3 out of 5]

This was quite dry, even for a book about the history of economic thought and systems of economic organisation. Read it for the Don Lavoie scholarship that I am currently participating in. I have read stronger refutations of top-down economic planning, although this book did have the advantage of remaining apolitical in its arguments.

[Gerry · Rating 4 out of 5]

Read in conjunction with materials about the planning xebate

[Chelsey Price · Rating 5 out of 5]

Interesting perspectives on knowledge and political economy as part of the Don Lavoie fellowship program.

[Brian Mandeville · Rating 5 out of 5]

Banger