See discussion question below from Professor Guinevere Liberty Nell.


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Show 1 Answer (Ryan Heerwagen's answer approved by Guinevere Liberty Nell)
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The real world outcome of war communism may not have any implications for an analysis of capitalism, except of the relative quality of the capitalist system. Capitalism being a failed system is compatible with war communism being a failure.

The supply mechanism of the Soviet economy was problematic as didn't handle the information it received in a good way to allocate resources. The dislike of a price system was very likely a major point of failure, in that prices help prioritize on both the side of supply but also very critically demand. It also seems very likely too top-down, as approaches to determine industry needs without substantial use of domain knowledge are doomed to failure, and so calculating the number of boots purely by the population level may fail to anticipate real variances.

Market chaos is generally less bad than planning chaos in running the entire economy. There are still clear inefficacies in markets, but planned economies are found to generally fail. Individual businesses and individual government organizations however are somewhat different: government bureaucracies are often orderly(even if covered in too much red-tape) and tend to be better behaved and longer lasting, while private businesses are more likely disruptive, more likely to offend, and frequently fail through the life of the system.(Note: entire books could be and have been written on the differences of the two institutions, and I don't take my summary as definitive) But the difference suggests that planning chaos and market chaos function in ways that are not clearly intuitive, making a planned economy seem reasonable but likely to end up disastrous.

Economists can take the Soviet planning failures partially as a lesson on how micro-behavior and macro-behavior can diverge somewhat, so government agencies existed long-before the USSR, but the failure was still often unanticipated. Another aspect of the failure is that market processes represent a standard of success that is hard to beat using clumsy institutional designs. A third lesson *might be* that domain knowledge is important for understanding a particular market, as part of the failure seemed to stem from simplistic plans placed onto a more complicated reality, as well as a flood of information that planners did not seem able to sort through.(Note: when I bring up the point of domain knowledge, I am not claiming necessarily that Hayek's point on the use of information in an economy is wrong, but rather the point is largely in agreement)

Economic history in this case largely supports the Austrian critique, and this case may be taken as a good example for somebody seeking to defend Austrian views on economics.

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All very well said, and I think the best way to know which of these cases can reasonably be made (about individual businesses, institutional design, and so forth) is to explore the case study more closely, and try to make them -- perhaps the Soviet failures are important lessons about markets, perhaps not, and we need to try to know, we need models and theories. It is to this end that I wrote my books. :)

Guinevere Liberty Nell approved 3 years 5 months ago.
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