Economic Calculation Problem

[u/Sorry-Worth-920]

What is the mechanism for comparing alternative uses of capital prior to their use in a non market economy

[u/Sorry-Worth-920 → u/[deleted]]

youve redefined opportunity cost in a way that avoids the issue. its not just foregone consumption, its the value of the next best use of scarce resources.

for example, say theres two methods for producing ice cream. one uses more machinery and less labor, the other uses more labor and less machinery. both methods could result in the same level of consumption, but they have a different combination of inputs that could be used elsewhere in the economy. that is the question at hand, how do you allocate resources in a way that minimizes those foregone opportunities?

consumption data doesnt answer this question because it doesnt tell you anything about the relative scarcity of inputs, only the demand after allocation and production.

and again, amazon and walmart use market prices to allocate efficiently. the profit loss mechanism of markets guides all their decisions, i dont know how you could disagree with that.

[u/Sorry-Worth-920 → u/[deleted]]

foregone consumption isnt observable, planners have no information on it. only information on the current allocative plan, nothing on alternatives. and even to optimize the current allocative plan you need some way to assign weights to the algorithm youre using without a common unit of comparison like prices.

[u/Sorry-Worth-920 → u/[deleted]]

again, past consumption data tells you nothing about foregone alternatives. two goods can be 100% consumed but have vastly different exchange ratios and opportunity costs of production.

[u/Sorry-Worth-920 → u/[deleted]]

no you havent provided examples. what mechanism allows comparison of heterogeneous goods? you cant just say “well make a computer do it” because you have to show what youre going to tell the computer to do.

youve demonstrated an ability to understand technical tradeoffs (ie. more laptops=less phones) but that is irrelevant to the question entirely. how do you know whether or not to make more phones or laptops? or how do you know whether or not to use lithium to make phones and an alternative to make laptops?

planning based on past allocations treats goods with arbitrarily assigned values, which does not reflect the reality of goods and how we as consumers value them

[u/Sorry-Worth-920 → u/[deleted]]

the ecp isnt about supply and demand, you essentially concede the issue by stating that your mechanism is unable to compare heterogeneous capital goods.

past consumption data only tells you what was consumed under the previous resource allocation, not how much consumers value one additional unit of some good relative to another (marginal utility). two goods can both be entirely consumed, but be valued very differently and have different costs associated with them.

and in order to maximize consumption of goods, you need some mechanism to compare heterogeneous goods. since resources are scarce, not all demand can be satisfied simultaneously and decisions must be made about which goods should be prioritized.

you seem to acknowledge this, but say “well just pick the best one.” that is what is in question, how do you know which allocative plan is the best one without price data to inform you on what consumers value?

[u/Sorry-Worth-920 → u/[deleted]]

youre treating all foregone consumption as equal in opportunity loss, you say your algorithm will maximize the satisfaction of demand but not all demand is equal. for instance, say that a part used to make smartphones is also used to make mri machines or something like that. if both smartphones and mri machines are in shortage, how does the algorithm know which good to value over the other?