Conservative Socialism: On Julius Krein (Pt. II of II)

In another American Conservative publication, American Compass, Julius devoted an article to the question of economic planning within Hamiltonianism. He maintained throughout “Planning for When the Market Cannot” that there will always be a necessity for economic planning in any political-economic model of governance. America is hardly an exception, as much of the article is also spent refuting objections to the Federal government’s participation. The crux of Krein’s argument is that if America is going to seriously entertain any kind of economic planning, it needs to overcome the Economic Calculation Problem. Rather than present a viable alternative like the “Political Organization Problem” from The Work-Standard, Krein discussed about the shortcomings of the Economic Calculation Problem.

“Since the end of the Cold War, this anti-planning orthodoxy has in some ways hardened further. Not only Soviet-style efforts to ration resources and micromanage firms by centralized diktat, but also the traditional efforts of liberal democracies to ensure investment in long-term economic and social priorities are now gathered under the ‘planning’ heading and treated as indistinguishably awful. At least savvier neoliberals such as Milton Friedman were once able to admit that the U.S. government’s direction of the economy during World War II was beneficial (and that government planning for such an overriding strategic purpose generally could be). Hayek himself famously allowed for basic social insurance and specifically defended ‘planning for competition’—using the state to create or reinforce market mechanisms. How exactly ‘planning for competition’ is defined and who defines it is left rather vague, though Hayek and a number of his followers were perfectly willing to support rather autocratic and coercive ‘planning for competition’ in places like Chile. Today’s market fundamentalists, however, brook no such concessions. Ambassador Nikki Haley recently argued in The Wall Street Journal that policies like ‘more tax credits here, more subsidies there, more mandates for this, more regulations for that’ represent a ‘watered-down or hyphenated capitalism, which is the slow path to socialism.’”

Moreover, Krein sought to direct the reader’s attention to the significance of the Economic Calculation Problem having been framed along the lines of the Freedom-Security Dialectic by von Hayek (and von Mises by extension). Under the Freedom-Security Dialectic, any form of economic planning can be perceived as implying economic unfreedom, economic security – as if ‘economic unfreedom’ and ‘economic security’ are somehow compatible. It is a false dichotomy which made the Economic Calculation Problem so pervasive within the economic realm. And while this Author had arrived at similar conclusions regarding the Economic Calculation Problem, Krein provided an example that he was more familiar with:   

“The critics do not understand their critique. The theoretical basis for their objections is Hayek’s ‘knowledge problem,’ which has become widely accepted, even by many who do not share Hayek or Haley’s politics. But the knowledge problem is not generically applicable to all forms of planning, and its indiscriminate use reduces the complex issues surrounding planning to a misleading binary of planning versus liberty that sets every policy discussion on the slippery slope toward tyranny.”

Where this Author and Krein are in mutual agreement is fact that the Economic Calculation Problem’s legitimacy rests on information-gathering technologies posited by Cybernetics. The flow of information that travels throughout an entire nation, no matter how restricted or unrestricted, will always suffer from varying degrees of inaccuracy. Like the economic planner, the financial market has to also figure out which information about a given segment of a Market/Mixed Economy is more reliable than the other and vice versa. But having access to “perfect information” does not necessarily mean economic planning is always ‘efficient’, any more than having “imperfect information” that causes economic planning to become ‘inefficient’. What Krein clearly means is that information on its own is not enough for an economic planner to make the right choices in a Planned/Command Economy because they must also develop a instinctual sense of familiarity with the State Enterprises that they are assigned to.

In a Market/Mixed Economy, however, things are more complicated with the role of Price Signaling at the financial market. Price Signaling will only tell the observer how much something is priced at. It will never tell them why it should be at that price, not to mention what is going to cause that price to change. There are plenty of theoretical challenges to the Economic Calculation Problem, some of which are far more sophisticated than anything that Krein and I could possibly put forward. What can be said is that Krein is adamantly convinced that there is a need for economic planning, concluding that it is best-applied in specific areas within a Planned/Command Economy. The Work-Standard also arrived at similar conclusions upon conceiving Mission-Type Economic Planning (MTEP) to address the well-known historical fact that any economic plan, regardless of its scale or scope, has to be flexible enough to leave room for unexpected events like Operation Barbarossa (which prematurely ended the 3rd Soviet Five-Year Plan in 1941).

Of the many places in a Planned/Command Economy where economic planning is the most practical, Krein stressed its relevance in industrial manufacturing. Here, economic planning is more about setting the foundational objectives to achieve for manufacturers to not only serve the Totality, but also provide what the Totality will need for the foreseeable future. The manufacturers themselves do not need to be dictated by a party bureaucracy, as in the case of Soviet-Type Economic Planning (STEP), insofar as the goals of their economic plans are apolitical. By this, Krein meant that economic planning is more efficient and reliable when there is less available information from the national economy.   

“It certainly would not have been possible to identify any ‘comparative advantage’ in Taiwan’s semiconductor industry before the Taiwanese government essentially created it, nor in South Korea’s semiconductor, shipbuilding, or auto industries before its government undertook ambitious industrial policies. Likewise, it is possible that the Chinese Communist Party perfectly calculated ‘inter-industry spillovers’ before directing billions of dollars in state subsidies to Huawei, but even if it did, that calculation probably has little to do with the company’s present dominance of 5G components. And the same is true for Israel’s defense technology sector, America’s biotech sector, and countless other examples past and present. Whatever knowledge is necessary to conduct an effective industrial policy, ‘uniting all the answers into some coherent, communicable whole’ is simply not part of it.

If anything, government intervention—and thus planning—becomes more necessary when less market and industry knowledge is available. If a project’s commercial prospects (dependent on factors such as comparative advantage and potential commercialization across different or new industries) are easily known, then risk is low and investor capital is cheaper and easier to raise. But if a project’s commercial prospects are only dimly perceivable, then it may simply be impossible to raise capital from economically motivated investors, no matter how important the effort. Moreover, technological uncertainty is hardly the only problem that can prevent markets from funding important and ultimately profitable projects or activities. There are a number of issues related to externalities and free riding that also make it necessary for governments to fund basic research and the like. Thus governments typically must take a leading role in critical areas like basic research and the development of infant industries, among many others.”

The importance of information in economic planning takes on a dimension entirely distinct from whatever was at first posited by the Economic Calculation Problem. There may be moments where the information may be not of interest to a Market/Mixed Economy, whereas a Planned/Command Economy is more inclined to view it as priceless treasures. There may also be contexts where certain economic activities are incapable of existing without an economic plan to bring them into existence. This is understandable because there is far more to Life than Kapital Accumulation; nations have their own set of priorities and interests which are not always made apparent in a Market/Mixed Economy until an economic crisis or crises reveals them. Such priorities and interests, if one is convinced of their existence in a Market/Mixed Economy, are capable of being encountered and even realized in a Planned/Command Economy.

Furthermore, Krein is also aware of the fact that the effectiveness of economic planning is vulnerable by corruption, factionalism, and favoritism. Even though they do in fact occur within a Market/Mixed Economy, it would be naïve to assume that they do not exist in a Planned/Command Economy. These behaviors are capable of existing because they stem from non-economic factors that do not have the Totality’s interests at heart. But there is another aspect of the Economic Calculation Problem that Krein discovered and to which this Author arrived at similar conclusions:    

“In fairness to Hayek, his own critiques of government planning were more subtle than those of his epigones today. Hayek’s principal argument was not that central planners would fail to achieve their goals because they could not properly identify comparative advantage or calculate the magnitude and direction of inter-industry spillovers. He largely rejected the pretensions and presuppositions of neoclassical and marginalist economics, and recognized that a lack of perfect knowledge did not make planning impossible in either the public or private sectors. Instead, the main problem with government planning, he argued, was that it prevented the spontaneous coordination of individual plans via market competition.

The crucial function of the price system, as imagined by Hayek, is that it enables the unconscious coordination of many decentralized individual plans, despite the imperfect knowledge and intentions of each actor. Thus, market competition allows for the maximum utilization of knowledge and best allocation of resources for society as a whole. Government planning, regardless of whether any particular project succeeds or fails, undermines this unconscious coordination.”

Krein stated that the central economic plan of a Planned/Command Economy deters the multiplicity of different plans from coexisting. Every individual effort, as the idea goes, is subordinated by that of the central economic plan. This is interesting because in Mission-Type Economic Planning (MTEP), many individual plans can be accommodated by a central economic plan through issuances of National-Socialized Financial Instruments (NSFIs) from the Kontor (Financial Office). Each NSFI functions as a financial instrument and an economic plan tailored specifically to an individual’s immediate priorities. The goal of NSFIs, as it was established in The Work-Standard, is to allow the individual to integrate their own plan into the much broader central economic plan. The concept itself can only be made possible because of MTEP drawing its philosophical basis from the Prussian Auftragstaktik (Mission-Type Tactics), which, on an instinctual level, is akin to democratizing an entire armed forces whilst maintaining military cohesion and discipline.    

It is because of MTEP that I am able to understand why Krein referred to economic planning as “government planning.” He denoted it as such because he, like me, was convinced that the Economic Calculation Problem fails to account for the presences of economic rivals or economic blocs. For the Economic Calculation Problem was articulated from the presumption that whoever creates an economic plan is doing so in a borderless, nationless vacuum where Free Trade Agreements are the norm because there are no economic rivals or economic blocs to speak of.

“Hayek also fails to consider the possibility that the price of tin may have changed because a foreign government banned exports. Or, to make the example timely, what if a foreign government begins subsidizing a strategic industry, resulting in lower returns on domestic investment in that industry? Following price signals and market incentives alone will ensure that domestic investment evaporates and leadership in the industry shifts to the foreign competitor. Perhaps this doesn’t matter—consumers should just take advantage of these subsidies, according to one argument. But what if the foreign government subsequently threatens to cut off medical supplies in the midst of a global pandemic, supplies which can no longer be produced in one’s own country as a result of the failure to counter the foreign subsidies?”

That being said, I should mention that Krein ended his article by stating it would be foolish for any Conservative Socialist to readopt Soviet-Type Economic Planning (STEP) or completely abolish the nation’s internal market. In the context of the latter, he refers to the institutions, systems and social relations that makes the exchange in goods and services possible. This conclusion was acknowledged in The Work-Standard by advocating for the abolishment of the internal market in favor of a Tournament where the old institutions, systems and social relations are integrated into the Vocational Civil Service (VCS) Planned/Command Economy as part of pegging a national currency to the Work-Standard. If there is no Tournament suitable enough to replace the internal market, then there needs to be serious effort of creating one, otherwise the internal market will have to continue existing for the foreseeable future.

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