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THE CALCULATION PROBLEM AND THE TRAGEDY OF THE COMMONS: TWO SIDES OF THE SAME COIN?

THE CALCULATION PROBLEM AND THE TRAGEDY OF THE COMMONS: TWO SIDES OF THE SAME COIN? Ludwig von Mises and his students in the Austrian School identified the calculation problem with centrally planned economies. It involves the inability on the part of planners to figure out just what needs to be produced, how much of it, etc., without the price system as a guide. The idea is that when central planners make decisions as to what and how much is to be produced of some generally desired goods and services, they are actually ignorant of the needed specifics and this then leads to misallocation. Plants will be built where they are not efficiently usable, too much or too little goods will be produced, there will be shortages or oversupplies of goods, etc. The reason is that only a price system communicates effectively the sort of information that producers or suppliers need to create the kind of goods and services and the amounts that people in the economy actually make good use of. The tragedy of the commons, identified by Aristotle, Thucydides, and Garrett Hardin, amounts to the likelihood that commonly owned resources shall be overused, even abused and not adequately replenished. When people believe they are co-owners of resources – such as grazing grounds, the air mass, money is the public treasury – they tend to view it as available for them provided they are prompt in making use of it and as much of it as they find useful to them. Everyone will rush to obtain the resources and because what is left will not be theirs to use, they will not concern themselves with replenishing them. This will result in depletion and even waste (when having obtained the resources and tucked them away, they are not really ready to make use of them and they spoil). I argue that these problems of economies without adequate free markets are two sides of the same coin, so to speak. In both cases the main problem is lack of proper information, information that is collectivized instead of left in quantitatively distinct portions. And without this information confusion is created. JEL: P22, Q34, F16 Keywords: calculation problem, the tragedy of the commons, free market http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics, Management, and Financial Markets Addleton Academic Publishers

THE CALCULATION PROBLEM AND THE TRAGEDY OF THE COMMONS: TWO SIDES OF THE SAME COIN?

TIBOR R. MACHAN
Economics, Management, and Financial Markets , Volume 5 (4): 54-62 – Jan 1, 2011
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Addleton Academic Publishers
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© 2009 Addleton Academic Publishers
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1842-3191
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1938-212X
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Abstract

Ludwig von Mises and his students in the Austrian School identified the calculation problem with centrally planned economies. It involves the inability on the part of planners to figure out just what needs to be produced, how much of it, etc., without the price system as a guide. The idea is that when central planners make decisions as to what and how much is to be produced of some generally desired goods and services, they are actually ignorant of the needed specifics and this then leads to misallocation. Plants will be built where they are not efficiently usable, too much or too little goods will be produced, there will be shortages or oversupplies of goods, etc. The reason is that only a price system communicates effectively the sort of information that producers or suppliers need to create the kind of goods and services and the amounts that people in the economy actually make good use of. The tragedy of the commons, identified by Aristotle, Thucydides, and Garrett Hardin, amounts to the likelihood that commonly owned resources shall be overused, even abused and not adequately replenished. When people believe they are co-owners of resources – such as grazing grounds, the air mass, money is the public treasury – they tend to view it as available for them provided they are prompt in making use of it and as much of it as they find useful to them. Everyone will rush to obtain the resources and because what is left will not be theirs to use, they will not concern themselves with replenishing them. This will result in depletion and even waste (when having obtained the resources and tucked them away, they are not really ready to make use of them and they spoil). I argue that these problems of economies without adequate free markets are two sides of the same coin, so to speak. In both cases the main problem is lack of proper information, information that is collectivized instead of left in quantitatively distinct portions. And without this information confusion is created. JEL: P22, Q34, F16 Keywords: calculation problem, the tragedy of the commons, free market

Journal

Economics, Management, and Financial Markets – Addleton Academic Publishers

Published: Jan 1, 2011

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