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Jul 7, 2014

G. A. Cohen and Socialist Calculation

Cohen’s moral defense of socialism seriously underestimates the information problems plaguing an economy without prices.

G. A. Cohen’s Why Not Socialism? offers a readable, concise case that society ought to be organized according to socialist principles. Specifically, Cohen wants human interactions to be based on an attitude of reciprocal caring, as opposed to the mercenary attitude he claims dominates now.

Cohen’s picture of capitalism is remarkably, almost comically, bleak. If I thought I was living in the world Cohen describes, it is safe to say I’d be rather miserable. Cohen takes his idea that capitalism is based on greed and fear to ridiculous extremes, describing most people (outside of, for example, doctors) as engaged in “noncaring occupations” (p. 59) and essentially indifferent to the fates of those around them. One wonders whether Cohen wrote his book out of fear or greed, or whether instead he is some sort of moral superman, immune to the corrupting effects of the market. He treats the fact that many people derive satisfaction from their work as an inconvenient accident, when in fact it is intimately connected with the kind of reciprocity Cohen praises. A big part of what I get out of working is the feeling that I’ve made a meaningful contribution to society—but Cohen seemingly cannot understand why anyone might enjoy working under capitalism. Or maybe enjoying work is an inborn trait, like preferring certain foods. That’s at least what it sounds like when he laments the potential “injustice” in his proposed scheme stemming from the fact that “those who love work will, ceteris paribus, relish their lives more than those who hate work do” (p. 21).

Cohen seems to think that the only thing capitalism has to recommend itself is the instrumental value of the price system in coordinating social efforts. There is no attempt to engage with philosophers who have attempted to offer a moral justification of capitalism. Locke’s homesteading theory is implicated, but Locke himself seems to be beneath mention. Cohen is fixated on eliminating any inequalities stemming from a person’s unchosen attributes, to the point that he seems hostile not just to inequality but to the idea of human difference itself. He conceives of the market as a sort of corrupt Nobel committee, “a system that [undeservedly] confers high rewards on people who happen to be unusually talented and who form highly productive cooperatives” (pp. 74-5). But defenders of the market typically focus on the morality of the process of distribution, rather than how result lines up with people’s abstract worthiness. I have Nozick’s “entitlement theory” in mind here, but Cohen doesn’t seem to think Nozick worth mentioning, either. Cohen’s tract is short, so perhaps he can be forgiven for not anticipating every possible objection. Nevertheless, when he completely ignores the possibility that there could be something morally attractive about “capitalist acts between consenting adults,” it feels like premature summary judgment.

Having concluded that socialism is clearly a more desirable system than capitalism from a moral perspective, Cohen proceeds to the second part of his argument, where he considers whether a socialist system is feasible. He admits that “we do not know how, through appropriate rules and stimuli, to make generosity turn the wheels of the economy,” (p. 55) but wonders whether new institutions could solve the problem.

Despite a few nods at the “information” function of market prices, it is eminently clear that Cohen does not begin to understand precisely what the problem is, let alone how capitalism solves it. Prices are important for understanding consumer wants, but perhaps more important for allocating capital among competing alternative uses. Should we make ceramic bowls with a kiln, or fire bricks? Use our tractors to plow fields or carry the mail? The financial markets and the markets for capital goods solve these problems. Cohen consistently either ignores the problem of capital allocation or assumes it away.

This inadequacy permeates the book from beginning to end. On page three, the first page after the preface, Cohen starts his thought experiment about the camping trip by having capital goods fall out of the sky: “We have facilities with which to carry out our enterprise: we have, for example, pots and pans, oil, coffee, fishing rods, canoes, a soccer ball, decks of cards, and so forth.”

Later, in discussing his paradigmatic examples of what economic decision making based on care looks like, Cohen demonstrates that his earlier oversight was not merely a consequence of him simplifying things for the sake of example. He writes:

Doctors, nurses, teachers and others do not, or do not comprehensively, gauge what they do in their jobs according to the amount of money they’re likely to get as a result, in the way that capitalists and workers in noncaring occupations do…And the reason for the difference is not that carers are made of morally superior clay, but, in good part, the more cognitive reason that their conception of what is to be produced is guided by a conception of human need: market signals are not necessary to decide what diseases to cure or what subjects to each, nor are they efficient means of deciding that.

Even if we concede that a great many people enter industries like medicine out of a desire to help others, why should we agree that they don’t consider money at all, even at the margin? A doctor might not get into medicine for the money, but she very well might consider it when deciding whether to work that extra hour of overtime. Cohen is already off to a bad start, but he has made a bigger, if less obvious, error.

Cohen seems to think that the difficult part of the provision of medical services is diagnosis: once the cause of the ailment has been ferreted out, applying the appropriate cure is mechanistic. Notably, he doesn’t consider the case of what to do if there are several possible treatments: markets can help us maximize our medical resources by identifying the most efficient cure. Neither does Cohen even begin to consider the questions of how the “carers” made their diagnosis in the first place. Did they have medical equipment? If so, how many x-ray machines, how many stethoscopes, how many scalpels? Did these things have to be manufactured before they could be used to relieve human suffering, or did they fall from the sky, like the canoe and the soccer ball did for the camping trip? Again, prices solve this problem. (For more on the inadequacy of mere benevolence to coordinate action, see Mao Yushi’s parable of The Land of Gentlemen.)

Far from understanding the role prices play in guiding the process of production, Cohen’s grasp of what prices do in general could at best be called tenuous. Cohen writes: 

Now, market prices serve two logically distinguishable functions: an information function and a motivation function. First, they make known how much people would be willing to sacrifice to obtain given goods and services: they show how valuable goods are to people, and thereby reveal what is worth producing. But, distinctly, market prices serve as a motivation to provide people with the goods in question: the marketeer seeks to capture, for her own gain, what people are prepared to pay. The two functions are not only logically separable: sometimes the first operates without the second, as when an official who acts, for example, on behalf of a charity, seeks to maximize the revenue from its endowment, but transparently not in order to line her own pockets… (pp. 61-62)

From this, Cohen concludes:

…it is natural to ask whether it might be practically feasible to preserve the information function of the market, to continue to get the benefits it provides of information generation and processing with respect to what should be produced while extinguishing its normal motivational presuppositions and distributive consequences.

Cohen is wrong about his endowment manager. I might as well note that gift-giving and gift-receiving are logically distinguishable, and then wonder whether we might imagine a new society in which people receive gifts but no one gives them. The information that the market makes available is information about people’s preferences—that is, information about their motivations. The satisfaction of human needs, contrary to Cohen’s presentation, is baked in to the market system at the most basic level. Cohen’s example of the charity endowment manager reveals the narrowness of his conception of market relations. Profit is first a mental phenomenon. Cohen’s implicit conception of profit is restricted to the accounting sense of the term. That the endowment manager derives psychic profit by helping the charity rather than benefitting herself materially does not show that you can separate the information and incentive functions of the market. It is entirely beside the point.

Perhaps unwittingly, though, Cohen has hit on the most damning problem with socialism. The endowment manager knows she is doing a good job for the charity because she can calculate accounting profit and loss—something only possible because of market prices. This brings us to Cohen’s single most egregious oversight.

Just as he ignored Locke and Nozick in rendering his verdict on the moral cases for socialism and capitalism, so Cohen manages to get through his entire discussion of the feasibility of socialism—a discussion which emcompasses about a third of his entire tract—without once mentioning Ludwig von Mises or the socialist calculation debate. About the closest he comes is an offhand remark in his conclusion that “many think that we now know that it is impossible” to organize economic life along socialist lines (p. 81). He makes vague gestures at the Hayekian knowledge problem, but totally ignores the Misesian calculation problem.

Here’s the short version of Mises’s argument. A socialist society might take whatever criterion for distributing consumer goods. The problem begins when it comes time to organize the means of production to produce those ends. In a market system, capital goods have prices, which can be used to reckon whether the opportunity cost of employing some capital good in a certain capacity justifies not using it in some alternative capacity. Under socialism, capital goods are not exchanged, and therefore do not have prices, and socialism does not and cannot provide any adequate substitute means of calculation. Historical attempts at socialism have coexisted with the market system and therefore have been able to dodge doing what Mises shows is impossible: to organize the use capital goods without market prices for capital goods. Without this information, socialism could only grope around in the dark. It is socialism that consists of “anarchy of production” in the pejorative sense.

Although Cohen’s argument crumbles under scrutiny, he does manage to offer several strong arguments which critics of Cohen would do well to address. One argument is especially cogent. Too often, critics of the market economy argue against inequality of income by arguing against absolute, rather than relative, poverty. Other times, they offer a critique that reduced to mere envy. Cohen avoids both pitfalls.

We cannot enjoy full community, you and I, if you make, and keep, say, ten times as much money as I do, because my life will then labor under challenges that you could help me to cope with, but do not, because you keep your money.” (p. 35)

How does this play out? Cohen gives an example.

You have to ride the crowded bus every day, whereas I pass you by in my comfortable car. One day, however, I must take the bus, because my wife needs the car. I can reasonably complain about that to a fellow car-driver, but not to you. I can’t say to you: “It’s awful that I have to take the bus today.” There is a lack of community between us of just the sort that naturally obtains between me and the fellow car-driver. (p. 36)

Is it a form of morally unacceptable cruelty for me to maintain my property holdings when relinquishing them could relieve someone’s suffering? Are gaps in wealth or income more disruptive to community than other types of interpersonal difference? Is anything that disrupts community thereby unjust? Cohen, at least, thinks so. How can he be answered?

Jason Brennan thinks he has made a powerful reply to Cohen in his new book, Why Not Capitalism?, which I will be reviewing for Libertarianism.org in just a few days. I’m excited to see whether Brennan offers an adequate rebuttal.