[OPE] Otto Neurath and calculation in kind

wpc@dcs.gla.ac.uk

Over the last 3 days I have had the good fortune to get hold of an
English translation of Neurath's writings on socialism. I can not emphasise how interesting they are, and
how relevant they remain to the  present day. The international impact of von Mises critique of
Neurath owes a lot to the fact that Mises is available in English whereas, until recently Neurath against who he was arguing was not.
The fact that Mises's readers have not had direct access to the ideas against which Mises was arguing may have helped the plausibility of Mises's argument. It is thus worth recapitulating what Neurath meant by calculation in kind, so that one can asses to what extent Mises's criticisms were fair.

In his 1919 paper, Neurath argues that the experience of the war economy allowed one to see certain key weaknesses of past economic thought. 

"Conventional economic theory mostly stands in too rigid a connection to monetary economics and has until now almost entirely neglected the in-kind economy."(Economic Writings, p 300)

The war economy had in contrast been largely an in-kind economy. 

"As a result of the war the in-kind calcualus was applied more often and more systematically than before... It was all to apparent that war was fought with ammunition and the supply of food, not with money".( Ibid, p304)

He argues that this represents a return to the original concerns of economics in the science of household economics and the science of government. Smith had been particularly concerned with the real rather than the monetary income of society, but this had been forgotten by subsequent economists who had concentrated on monetary magnitudes. If one wanted to know whether real quality of life of the population was improving or not one had to examine their lives in material not money terms. He advocated that economics must be the study of happiness and the quality of real life. To do this economists should collect detailed statistics of the quality of life of groups in the population. These would include not only on the consumption of food, clothing and housing conditions, but also on mortality and morbidity, educational level, leisure activities, people's feelings of powerfullness versus powerlessness. 

"With some expectation of success we can attempt to assemble all conditions of life into certain larger groups and arrange them according to the pleasurableness of the qualities of life caused by them. We can, for example, state what food the individuals consume per year, what their housing conditions are, what and how much they read. what their experiences are in family life, how much they work, how often and how seriously they fall ill, how much time they spend walking, attending religious services, enjoying art, etc. We can even discover certain average biographies, deviations from which appear unimportant for rough investigations. In similar ways we can also determine the conditions of life of whole groups of people by stating which proportion of them suffer from certain ailments, which proportion dies at a certain age, which proportion lives in certain homes. etc., finally even which proportion enjoys particular types of conditions of life. It is obvious that quantities which can be measured and determined clearly find more extensive treatment than the vaguer ones like religiosity, artistic activities and the like. But one must beware of thinking that all those quantities which can be treated more easily are more important, or essentially different from the vague ones. Occupational prestige, for example, is as much a part of one's income as eating and drinking." ( page 326)

Compared to such statistics in kind, figures for national income were, he said, far less revealing. In particular he cautions against accepting the notion of 'real income' or inflation adjusted money income as a surrogate for the quality of life. Such 'real income' is just a reflection of money income and as such only takes into account things that are bought and sold as commodities.

"The current concept of consumption, [so-called] real income, is also understandable as derivative of money calculation. Given our own approach to economic efficiency, it seems appropriate to comprehend also :work and illness under the concept which covers food, clothing, housmg, theatre visits, etc. These things, however, are not part of the [current] concept of consumption and real income, which covers only what appears as a reflection of money income. Real income [in this sense] has little significance in our approach to the study of economic efficiency". (  page 336)

What Neurath was saying here looks very modern. There has been increasing recognition of the inadequacy of purely monetary national income figures for judging the quality of life of a country's population. The UN development goals are informed by such concerns and are given in qualatative terms. It is noteable that this aspect of Neurath's argument for in-kind economics has been neglected by von Mises or his followers. Indeed Neurath argues that von Mises himself ultimately has recourse to the notion of an in-kind substratum of welfare against which different monetary measures of welfare must be judged. Mises recognises that monopoly reduces welfare thus:

"He (Mises) arrives at the remarkable statement: "But these, of course, are less important goods, which would not have been produced and consumed if the more pressing demands for a larger quantity of the monopolized commodity could have been satisfied. The difference between the values of these goods and the higher value of the quantity of monopoly goods not produced represents the loss in welfare which the monopoly has inflicted on the national economy." We see that here Mises also arrives at a concept of wealth which obviously is divorced from money, since it is used to assess a money calculation, namely that of the monopolists. If, in the case of monopoly, according to Mises, there is a calculation of wealth by which one can judge money calculation, then it should always be available and allow judgement on all economic processes." ( page 429)

Paul Cockshott
Dept of Computing Science
University of Glasgow
+44 141 330 1629
www.dcs.gla.ac.uk/~wpc/reports/

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