Cheer Up, Liberty Lovers, Schumpeter Was Wrong

Sometimes, when you are despairing that Joseph Schumpeter was right that capitalism is doomed because its very success inspires the Paul Krugmans and Robert Reichs of the world to spew venom against it, the universe randomly whacks you over the head with something to remind you that not all is lost. In my case, it was a 1960 quote from India’s first Prime Minister Jawaharlal Nehru, an ardent socialist waxing ardently about the wonders of the socialist economy that he had inflicted upon his country.

Enthused Nehru:

We have accepted the socialist and cooperative approach . . . the planned and scientific approach to economic development in preference to the individual enterprise of the old laissez faire school. . . Planning and development have become a sort of mathematical problem which may be worked out scientifically. . . It is extraordinary how both Soviet and American experts agree on this. If a Russian planner comes here, studies our projects and advises us, it is really extraordinary how his conclusions are in agreement with those of, say, an American expert. . . The moment the scientist or technologist comes to the scene, be he Russian or American, the conclusions are the same for the simple reason that planning and development today are almost a matter of mathematics.

 There are at least two noteworthy things about this quote:

One: No self-respecting economist of any stripe would ever string together the words “socialist” and “scientific” in one paragraph anymore. But Nehru’s economic views were formed in the 1930s while studying at Britain’s finest institutions where the fashionable Fabian view was that Frederic Hayek had lost the socialist calculation debate to University of Michigan’s Oskar Lange, Stalin’s favorite economist.

Hayek, following Ludwig von Mises, had famously argued that there was nothing rational or scientific about socialism because it lacked the necessary price signals that would allow economic actors to coordinate their activities and generate the best possible allocation of resources. Lange countered with a model of market socialism under which central planners would replicate a kind of price system through trial and error. They would arbitrarily pick a price for products manufactured in government factories and raise it or reduce it depending on whether it resulted in shortages or gluts. After this economic experiment had been run a few times, a handful of brilliant mathematicians  capable of solving complex simultaneous equations  would be able to plan the economy to deliver peace, prosperity and the good life to one and all much more effectively than silly entrepreneurs running around in their tiny factories making the same product 30 different ways in a market economy.

Just how charmingly archaic, antiquated, and antediluvian that view sounds now after have reigned supreme for four decades is a victory of no small proportions.

Two: The Cold War was supposed to be a fight between two competing ideologies. The West was allegedly defending liberty and laissez faire and the Soviet Union equality and central planning. But Nehru was not kidding when he noted that the West – and America – really dug the whole Soviet project. In fact, even though America (legitimately) berated India as a Soviet stooge during the Cold War, leading economic lights in the U.S. were cheering India’s embrace of Soviet-style planning and actually wanted to pay India to use the Soviet model.

All of this is clearly laid out in Shyam Kamath’s 1992 Cato Institute paper, Foreign Aid and India: Financing the Leviathan State (also the source of the above Nehru quote). Kamath notes that in the 1960s India began to be heralded in the West as the epitome of rational, planned economic development. John P. Lewis, the dean of American foreign aid experts who had held prominent posts with the Council of Economic Advisers, the UN Reconstruction Agency, and the U.S. Agency for International Development's mission to India, argued in his influential 1962 book, Quiet Crisis in India:

“There is much less need now for [a] defense of the very concept of comprehensive economic planning in countries like India. . . . Today [such] planning is officially viewed as an essential concomitant of any national development that merits American assistance, and the United States government is urging such planning upon Latin American, African, and Asian governments that do not yet practice it.”

Lewis argued that India's planned development was the most feasible and desirable path for a country at an early juncture in the development process and that the decentralized market system was inappropriate, destined to fail, and had only led to the development of Great Britain and the United States because of "special circumstances." His book made an impassioned plea for vastly stepped up levels of American aid to support the "rationally planned economic development" of India's Second Five-Year Plan.

The whole paper is well worth a read, not just because it does a nice job of documenting how India sacrificed billion of dollars of Western aid at the altar of Soviet socialism but also because it offers a fascinating glimpse into the mind of Western liberati during the Cold War and how far its modern version has come.

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  • ||

    ...offers a fascinating glimpse into the mind of Western liberati during the Cold War and how far its modern version has come.

    I see no change the mindset of the "Western Literati": They still believe in a massively interventionist and dirigiste state.

  • ||

    Huh. I always thought dirigisme was government by dirigible. Learn something new every day.

    Oh, and I agree. They love controlling other people too much.

  • ||

    "government by dirigible"

    Full of gas, lost in the clouds, not grounded and tending to drift in the wind.

    I think that "government by dirigible" is a useful definition.

  • ||

    That government is going down like a lead balloon.

  • RoboCain||

    But Led Zeppelin was so successful!

  • ||

    Yes, but the country they governed was very, very small.

  • Old Mexican||

    Re: Aresen,

    I see no change the mindset of the "Western Literati": They still believe in a massively interventionist and dirigiste state.


    That's because they feel have a reputation to defend, notwithstanding the futility of such effort.

  • Sam Grove||

    Some people believe in throwing good money after bad.

  • Zeb||

    That was my initial reaction too. But then I considered that maybe "liberati" was what he intended to write.

  • Zeb||

    Excuse me, "what she intended to write".

  • yy||

    My neighbor just met a bisexual man on ---datebi*cOMit’s where for men and women looking
    for bisexual and bi-curious individuals to meet in a friendly and comfortable environment.
    It’s a nice place for the people who have the same sexual orientation.

  • ||

    Is there really that big of a market for people looking for bisexual men?

    Straight or gay I could see, but specifically bisexual?

  • Eduard van Haalen||

    Good point. We should ask the spammer next time he/she shows up.

  • Gordon||

    Is "bi" a sexual orientation? I'm confused.

  • Tim||

    Maybe those experts were CIA and wanted to keep India in the economic shithole along with their Soviet masters.

  • ||

    The CIA were and continue to be socialists...so I think not.

  • Tim||

    I think so.

  • ||

    No. . .think. . .I.

  • ||

    Mission accomplished.

  • CatoTheElder||

    It had more to do with the 400+ page Constitution of India, whose Preamble begins:

    "WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a SOVEREIGN
    SOCIALIST SECULAR DEMOCRATIC REPUBLIC ..." [emphasis in the original]

    Of course the Indian bureaucrats and politicians were only interested in listening to socialist "experts".

  • CatoTheElder||

    I should note that the Indian Constitution was amended in 1976 to strike "SOCIALIST SECULAR" from its preamble.

  • ||

    But it's still 400+ pages. It isn't the label on a jar of poison that will kill you.

  • ||

    Let's see what Ruth Bader Ginsberg thinks!

  • Juice||

    I'd be happy if the US Constitution were 400+ pages of rules, regulations, and restrictions on the government.

  • ||

    also because it offers a fascinating glimpse into the mind of Western liberati during the Cold War and how far its modern version has come.

    ummm so the western academic socialists no longer call themselves socialists or their policies socialist...even though despite the name change the policies have not changed one bit.

    We have come a long way baby...

  • Zeb||

    I don't know. I think that there has been a shift from favoring full on socialism to more of Western European style socialism lite. There is a difference. People have actually learned that the government actually controlling major industries (in stead of just bailing them out and giving them special favors) does not work out well.

  • ||

    What is odd is supposedly this is one of the "huge" splits between socialism and fascism.

    Perhaps that is why i don't see a distinction between the two in that I do not see a distinction between favoring players in industries and outright owning industries.

    In fact if i was a socialist i would favor the favoring method over the owning method...when the whole thing collapses (like say Fannie and Freddy style) i can say i was not part of it....it was "greed's" fault.

    This is no different to me then a bureaucrat telling me that "its not my department"

  • ||

    Sold by the bottle or sold by the glass, poison is poison. Socialism is economic poison.

  • Monty||

    Same stuff sold as the 3rd way.

  • EDG reppin' LBC||

    But Nehru’s economic views were formed in the 1930s while studying at Britain’s finest institutions where the fashionable Fabian view was that Frederic Hayek had lost the socialist calculation debate to University of Michigan’s Oskar Lange, Stalin’s favorite economist.

    As if I needed another excuse... Fuck Michigan!

  • ||

    University of Michigan’s Oskar Lange,

    That school up north: propogating retardation from Lange to Ford.

  • Rev. Blue Moon ||

    Lest we forget Ann Coulter, "Papa Doc" Duvalier, and, worst of all....Madonna.

  • ||

    The Unabomber might disagree.

    So would Leopold and Loeb.

  • EDG reppin' LBC||

    Chris Webber would vehemently disagree.

  • Sudden||

    I knew you were a closet Kings fan.

    Oh, and Tom Brady.

  • EDG reppin' LBC||

    I knew you were a closet Kings fan.

    You'll pay for that comment. I relished the every beatdown the Lakers handed Sacto between 2000-2003.

  • ||

    And me, by the way.

  • ||

    me too!

  • ||

    At least they have Mark Perry.

  • BakedPenguin||

    What's really sad about India and China is that the idiots who point to them as models (Friedman, et.al.) refuse to acknowledge that it's because they both lifted many controls that they are both doing much better than previously.

    On the plus side, both the Nehru and Mao jackets are still out of style - until hipsters find them.

  • Montani Semper Liberi||

    WTF? When did Friedman point to China as a model?

  • Montani Semper Liberi||

    Nevermind. I realized you are talking about David Friedman, not Milton.

  • BakedPenguin||

    Tom, not Milton.

  • Montani Semper Liberi||

    Tom, not David. God, how many Friedmans are there?

  • BakedPenguin||

    A lot. Fortunately, Tom isn't related to Milton, David, or Petri

  • Rev. Blue Moon ||

    I'm pretty sure he is their retarded cousin. Every family has one.

  • Raston Bot||

    and they all have books! shitty, craptacularly awful books that idiots love to read on the subway in my face!! books with titles like That Used to be Us presumably about a transgender Sino-American and his post-op catdog.

  • Paul||

    What's really sad about India and China is that the idiots who point to them as models (Friedman, et.al.) refuse to acknowledge that it's because they both lifted many controls that they are both doing much better than previously.

    Remember, Baked, this is how it works:

    If your country is an island of socialism in a sea of capitalism, it's the socialim that makes your economy grow (ignore the decades of stagnant growth before you lifted the controls).

    If it's a sea of socialism with a tiny island of capitalism... it's the capitalism that's making you fail.

  • mad libertarian guy||

    Is that why everything bad that happens is the libertarians' fault?

  • ||

    I would like to point out that US government spending as a proportion of GDP is far higher then it was in 1960....

    Any sane person would say that we have not gotten better but in fact worse.

    Anyway Dalmia next time you try to get a building permit within a 1000 feet of an eagles nest on your own property you can tell me how the socialists have lost.

  • Zeb||

    Not everything is black and white. The type of socialism you are talking about is quite different from actual "control the means of production" socialism. In fact, I think that it is inappropriate (or at least needlessly confusing) to call what goes on in the US and most of Europe socialism. As bad as things may be, there are not a lot of people seriously suggesting that a centrally planned economy would be desirable.

    I'm not trying to excuse government overreach here. Just pointing out that there are other bad things besides socialism that governments can do. Just my opinion on the use of words. It is good to use different words to refer to different things, even things that have many similarities.

  • ||

    When i get called a right winger for being a libertarian by every left wing asshole who can put two words together then i reserve the right to call central planning socialism.

    Plus the theory is the same, the actions are the same and the results are the same...who the fuck is confused.

    And finally it tends to be the left wingers who resent being called socialists....me thinks they are simply trying to distance themselves from their own past failures...rather then adjust and reform they are changing their name.

    They took the word liberal from us and turned it into the a bizzaro definition of their tyranny...i will be damned if i will comply with such a redefinition again.

  • Sam Grove||

    Now, instead of controlling the means of production, the government is busy attacking the means of production.

  • ||

    WE HAVE A WINNER!

    Can I get a bumper sticker of this?

  • Paul||

    That's how it gets the means of production.

  • ||

    His book made an impassioned plea for vastly stepped up levels of American aid to support the "rationally planned economic development" of India's Second Five-Year Plan.

    You know, the fact that your centrally planned economic utopia needs massive amounts of foreign aid should give you a clue.

  • Joe M||

    That's just to get the ball rolling. It'll be self-sustaining in no time.

  • ||

    Kind of like solar/wind/biofuel/etc?

  • Sam Grove||

    Unfortunately, the snowball of collectivism starts at the bottom of the hill.

  • Old Mexican||

    [Oskar] Lange countered with a model of market socialism under which central planners would replicate a kind of price system through trial and error. They would arbitrarily pick a price for products manufactured in government factories and raise it or reduce it depending on whether it resulted in shortages or gluts.


    Seems like soviet economic geniuses suffered from an ailment that made them oblivious to irony.

  • ||

    But how would you do that when products are made from various raw materials and sub-components? Wouldn't you have to continually reprice everything? And of of course we know that the USSR never did avoid gluts and shortages.

    A favorite story: Economists have long known that products could be manufactured at a loss, but when the Berlin Wall fell and they could look at the records of the Trabant factory, they discovered something unique. The value of a Trabant was not just less than the raw materials and labor put into it, it was actually less than the raw materials themselves. Apparently it was the first known "value subtracted" manufactured item.

  • ||

    OK wow that makes a whole lot of sense dude.

    www.Anon-Online.tk

  • Pale Injun||

    Ahem:

    AGRIGCULUTRES IS TEH EVOLS!!!1!!!

    That is all.

  • ||

    In other news Obama and Newt have come up with their own !!!PLANS!!! on where every American will get their energy from...hell they are even talking about the price people will pay per unit.

    SOoooooo glad that socialism has lost.

  • silent v||

    Just how charmingly archaic, antiquated, and antediluvian that view sounds now

    Charming? As long as you don't think too hard about the millions of people killed by these views, maybe.

  • Slap the Enlightened!||

    Politics always ends up with lots of people getting killed, sooner or later. Maybe not charming, but not remarkable, either.

  • Jeffersonian||

    What outdated thinking. Today we just mandate that companies give shit away for free, and all's well.

  • CatoTheElder||

    Or the State compels citizens to purchase their services.

  • CatoTheElder||

    Land of the free to do what you're told.

  • ||

    Hey look the price of oil has jumped!!

    Yet demand is down and production is at all time highs and invinotries are at all time highs...

    It is almost as if the value of the dollar is dropping...

    Sooooo glad socialism has lost.

  • ||

    Hey look two American soldiers were killed in where the fuck Afghanistan.

    Soooo glad that socialism has lost.

  • ||

    Hey look GE, recipient of truck loads of money from the government is forcing its employees into Chevy, also a recipient of truck loads of government cash, volts.

    Sooooo glad that socialism has lost.

  • Paul||

    That's fascism. You know, making high speed trains that run on time...

  • ||

    So what's the system where you promise to make high speed trains and run out of money?

  • ||

    That system is called "California."
    Just another utopian fantasy.

  • ||

    Planning and development have become a sort of mathematical problem which may be worked out scientifically.

    Why do libertarians hate science?

  • A real Scientist||

    Social sciences aren't good science because they are inductive, as opposed to mathematics, computer science, and Austrian economics which are deductive.

  • Teh Scyence||

    He uses statistics as a drunken man uses lampposts - for support rather than for illumination. ~Andrew Lang

    Torture numbers, and they'll confess to anything. ~Gregg Easterbrook

    98% of all statistics are made up. ~Author Unknown

    Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital. ~Aaron Levenstein

    Say you were standing with one foot in the oven and one foot in an ice bucket. According to the percentage people, you should be perfectly comfortable. ~Bobby Bragan, 1963

    Statistics can be made to prove anything - even the truth. ~Author Unknown

    Statistics are human beings with the tears wiped off. ~Paul Brodeur, Outrageous Misconduct

    Facts are stubborn things, but statistics are more pliable. ~Author Unknown

    Lottery: A tax on people who are bad at math. ~Author Unknown

  • Brian||

    Aw, people can come up with statistics to prove anything, Kent. Forty percent of all people know that. ~Homer Simpson

  • Trespassers W||

    had only led to the development of Great Britain and the United States because of "special circumstances."

    I had always suspected the Culture was f---ing with our development.

  • ||

    Pretty sure Banks got the term from reading socialist academic papers.

  • Trespassers W||

    Andrew Jackson was really Cheradenine Zakalwe.

    Your mind = asploded all over

  • ||

    No T. E. Lawrence was Zakalwe.

    His skills were as a military tactician not a politician.

    But don't be too disappointed..you were close, Diziet Sma was Martha Washington.

  • Teh Scyence||

    Statistics are like women; mirrors of purest virtue and truth, or like whores to use as one pleases. ~Theodor Billroth

    Do not put your faith in what statistics say until you have carefully considered what they do not say. ~William W. Watt

    Then there is the man who drowned crossing a stream with an average depth of six inches. ~W.I.E. Gates

    There are two kinds of statistics, the kind you look up and the kind you make up. ~Rex Stout, Death of a Doxy

    I always find that statistics are hard to swallow and impossible to digest. The only one I can ever remember is that if all the people who go to sleep in church were laid end to end they would be a lot more comfortable. ~Mrs. Robert A. Taft

  • ||

    hey look stores are pulling Jacob Sullum's books from shelves for fear of being raided by the government.

    Sooooo glad socialism has lost.

  • Paul||

    That's not socialism, that's just plain old tyranny.

  • ||

    Drugs are bad for the health of the people...therefor drugs are under the control of the government.

    Looks like socialism to me.

  • Paul||

    I will not argue that the modern public health department is the new Ministry of Internal Affairs.

  • ||

    Socialism is an excuse for tyranny. That's why it's so popular with tyrants.

  • Teh Scyence||

    The average human has one breast and one testicle. ~Des McHale

    While the individual man is an insoluble puzzle, in the aggregate he becomes a mathematical certainty. You can, for example, never foretell what any one man will be up to, but you can say with precision what an average number will be up to. Individuals vary, but percentages remain constant. So says the statistician. ~Arthur Conan Doyle

    After all, facts are facts, and although we may quote one to another with a chuckle the words of the Wise Statesman, "Lies - damned lies - and statistics," still there are some easy figures the simplest must understand, and the astutest cannot wriggle out of. ~Leonard Courtney, speech, August 1895, New York, "To My Fellow-Disciples at Saratoga Springs," printed in The National Review (London, 1895) (Thanks, Mark)

  • Citizen Nothing||

    As bad as things may be, there are not a lot of people seriously suggesting that a centrally planned economy would be desirable.

    This. And it is no small thing.

  • Paul||

    model of market socialism under which central planners would replicate a kind of price system through trial and error. They would arbitrarily pick a price for products manufactured in government factories and raise it or reduce it depending on whether it resulted in shortages or gluts.

    This argument is still in fashion today. The entire notion of "but... healthcare isn't like a normal market" is entirely premised upon this argument.

  • ||

    "but... healthcare isn't like a normal market"

    What is even stranger is they never even get there. they never even consider how health care is different it is all assumed without question.

    Health care is a right is the argument.

    religion and speech are rights as well...the later is not payed for by the government and the former is actually against the law for the government to provide.

  • ||

    Yeah they do. Of course, they say things that are patently false, like claiming no one comparison shops for health care because you always need it RIGHT NOW OR DIE, and that the way markets function is by individuals comparison shopping.

  • Paul||

    the good life to one and all much more effectively than silly entrepreneurs running around in their tiny factories making the same product 30 different ways in a market economy.

    I posted this once before, but I once read a relatively recent critique of Austrian Economics which suggested that the kind of capitalism in the quote above represented duplication of effort, inefficiencies, etc.

  • ||

    The central planning faithful always see the mistakes that are made in capitalism. (Every moment that any market is out of equilibrium is by definition mis-allocation of resources.)
    What they can never bring themselves to believe is that the elite planners(people like them) will make the same mistakes. And then never correct their errors.
    To be pro-central planning you need to have a high opinion of yourself and a low opinion of others.

  • Paul||

    There is much less need now for [a] defense of the very concept of comprehensive economic planning in countries like India. . . . Today [such] planning is officially viewed as an essential concomitant of any national development that merits American assistance, and the United States government is urging such planning upon Latin American, African, and Asian governments that do not yet practice it.”

    This is what we call "disaster socialism".

  • NotSure||

    I need to echo the sentiments of a lot of the comments here. What the people were saying then and now does not seem to have changed a lot.

  • Old Mexican||

    Just how charmingly archaic, antiquated, and antediluvian that view sounds now after have having reigned supreme for four decades is a victory of no small proportions.


    FIFY.

  • ||

    There's just something beautiful about an ESL person correcting another ESL person's English grammar.

    Though I suppose English is closer to a second first language for Shikha than a true second language.

  • ||

    If a Russian planner comes here, studies our projects and advises us, it is really extraordinary how his conclusions are in agreement with those of, say, an American expert. . .

    I'm shocked to hear that TOP MEN from US & USSR would agree that TOP MEN should run things.

  • ||

    Nehru was stupid enough to take their advise.

  • Juice||

    I never understood why socialist/communist systems used money. Wouldn't that be something left over from the "old laissez faire school"? When I was a kid in school and they taught us that the USSR used rubles as money, I thought "wait, aren't they communist? why do they need money?"

  • ||

    I wish India's socialist past was more well known. Then I wouldn't have to hear so often about how Chinese Socialism has performed so much better than Indian capitalism in getting people out of poverty.

    I always found it revealing that a nation steeped in a caste system would find it so easy to transition to "egalitarian" socialism. I guess the formulation:
    "WE will direct THEIR labor."
    was already pretty familiar.

  • ||

    a buddy's mother-in-law makes $68 hourly on the computer. She has been out of work for six months but last month her pay check was $17175 just working on the computer for a few hours. Read more on this web site makecash16. çom

  • han||

    I appeared a few days ago on PJTV’s Front Page with Allen Barton.

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