[Saeko]

It does not work perfectly, no. That's not the point.

It just works better than everything else we have come up with.

It certainly doesn't work better than a centrally planned economy.

[lucky]

In terms of a pricing mechanism I have favored using a physical value of energy (such as the joule) since pretty much everything can be calculated relative to this in a transparent manner.

That's a choice of unit, not a pricing mechanism. Of course the British are already doing this: they use units of mass (pounds), and as we know from general relativity, mass=energy.

[Saeko]

That's a choice of unit, not a pricing mechanism. Of course the British are already doing this: they use units of mass (pounds), and as we know from general relativity, mass=energy.

Pounds are a unit of force, and forces have no place in general relativity.

[lucky]

Pound is a unit of mass, defined as 1 lb = 0.45359237 kg exactly by an international standard. Google it. There is also a pound as a unit of force, defined as 1 lbf = 1 lb * g. Similarly, 1 kgf = 1kg * g.

[Saeko]

You learn something new everyday.

[SolarCross]

The British "pound" originally referred to a weight of silver, now it just means an empty promise.

An energy based money would be practically equivalent to a commodity money like gold or silver. Mass = Energy indeed.

[lucky]

1 lb of silver = 1 lb of potatoes = 4.08e16 joules

[Typhoon]

That's a choice of unit, not a pricing mechanism. Of course the British are already doing this: they use units of mass (pounds), and as we know from general relativity, mass=energy.

OK but could it not also act as a pricing mechanism? For example if I want to smelt 1 kg of aluminium that would require say 26 kWh so that's that it would be the worth, operations that are more energy intensive are more expensive. The economy overall has only a finite amount of energy in the system which can be calculated with some assumptions on workforce but realistically would limit what can be achieved overall. An energy based system should also be efficient since it should try to minimize energy expenditure to maximize output of whatever goals were set.

[Pants-of-dog]

It does not work perfectly, no. That's not the point.

It just works better than everything else we have come up with.

Not really, no.

We have come up with other systems that work just as well, and even better than capitalism for certain things. A public, single-payer health care system has been shown to work better than a private one.

[lucky]

OK but could it not also act as a pricing mechanism? For example if I want to smelt 1 kg of aluminium that would require say 26 kWh so that's that it would be the worth, operations that are more energy intensive are more expensive. The economy overall has only a finite amount of energy in the system which can be calculated with some assumptions on workforce but realistically would limit what can be achieved overall. An energy based system should also be efficient since it should try to minimize energy expenditure to maximize output of whatever goals were set.

Let me try to understand this idea. I get the part where electricity is priced at 1 kWh per kWh. What about other things?

• Would labor be priced based on energy usage of human bodies? A human body typically uses 100 watts or so, so that means labor is priced at 0.1 kWh / hour.
• What about land and raw resources in general? These were created in high-energy processes inside the stars - would we be basing the prices on our estimates of those energies?
• What about any other goods, like cars? I will assume that you're proposing pricing everything at production cost.
• If so, these prices don't help in resource allocation at all.
  Say, we're deciding what to do next with 1000 kWh that we have spare. Well, we could build a table. Or we could make a suicide kit. Or we could just store the energy. Let's see here... The table would be worth how much? Oh yeah, 1000 kWh. How about the suicide kit? A value of 1000 kWh as well. Perhaps just keep the energy? 1000 kWh. What to do? Roll a die?
  
• It doesn't look like this price system balances supply with demand, which is sort of the whole point of having a price system. People could be lining up each with a 1000 kWh bill in hand to buy tables, but no tables in sight.
  
• I don't get the part where you're "setting goals". How do those goals translate into prices and resource allocation? Sounds like things are priced based only on energy used in producing them, not on any other valuation criteria.
  
• I don't get the part about how this price system minimizes energy expenditure. Where's the incentive to minimize energy expenditure? No matter how much energy you choose to use, the profit from production is going to be same (zero). The more energy you apply, the more valuable the output in terms of the official prices. This seems to guide the system neither to minimize nor maximize energy usage.

[Typhoon]

Would labor be priced based on energy usage of human bodies? A human body typically uses 100 watts or so, so that means labor is priced at 0.1 kWh / hour.

I think this kind of relationship could be easily established. However I would think of it more as the amount of energy required to provide a living wage (food, shelter, welfare etc.) as a bare minimum rather than the bare minimum energy required for sustaining a worker.

What about land and raw resources in general? These were created in high-energy processes inside the stars - would we be basing the prices on our estimates of those energies?

As a socialist system I imagine land and well most things would be collectively owned. For assigning value I would say go for the current cost of exploitation for resources but yes I can imagine some things would be quite tricky to assign an energy based value to, measuring the value of assets beyond recycling costs for example.

What about any other goods, like cars? I will assume that you're proposing pricing everything at production cost. If so, these prices don't help in resource allocation at all. Say, we're deciding what to do next with 1000 kWh that we have spare. Well, we could build a table. Or we could make a suicide kit. Or we could just store the energy. Let's see here... The table would be worth how much? Oh yeah, 1000 kWh. How about the suicide kit? A value of 1000 kWh as well. Perhaps just keep the energy? 1000 kWh. What to do? Roll a die?

Certainly as with all systems there would have to be economic planning and broader motivations in place. A system of measured costs would I think help in the allocation of finite resources. Its a sort of material balance planning really, the question is are there any merits of using such a system in the manner described over say the system used by the Soviet Union?

It doesn't look like this price system balances supply with demand, which is sort of the whole point of having a price system. People could be lining up each with a 1000 kWh bill in hand to buy tables, but no tables in sight.

Yes this would have to be handled by a system of feed-back on energy spent on a given commodity to measure demand, if appropriate greater resources could then be allocated to meet demand.

I don't get the part about how this price system minimizes energy expenditure. Where's the incentive to minimize energy expenditure? No matter how much energy you choose to use, the profit from production is going to be same (zero). The more energy you apply, the more valuable the output in terms of the official prices. This seems to guide the system neither to minimize nor maximize energy usage.

The incentive for efficiency would be the energy saved from the finite budget which could be utilized for additional work.

[SueDeNîmes]

Let the 'price' be merely an expression of consumer's wants based on some kind of market voting system, but not the means of distributing wealth to persons.

Prices of consumer goods is one thing, prices of factors of production is another. You need both to align the whole production process, it's not enough to assign values to consumer goods.

Really? How does capitalism assign value or prices to capital goods except via demand for consumer goods?

It's the prices of factors of production that determine incomes in a capitalist economy ("distributing wealth to persons").

I don't know the specifics of the proposed "market voting system" to determine demand for consumer goods, but the name sounds like a reasonable description of the marketplace bidding that actually happens in a capitalist economy.

It does but capitalism isn't a necessary component. We could, by now, use something like internet shopping to set production quotas. No capitalist or central planner. Or we could have democratic workplaces producing competing goods. Consumers choosing among goods was never really capitalism anyway. Capitalism happens in the labour and financial markets, where most of us are powerless.

[lucky]

How does capitalism assign value or prices to capital goods?

Rental prices of capital goods are arrived at through an equilibrium between demand by firms and supply from capital owners.

Prices of capital goods themselves are arrived at through an equilibrium between demand by investors and supply from firms producing capital goods.

Consumers choosing among goods was never really capitalism anyway.

Indeed. Capitalism is primarily characterized by private firms operating for profit, which results in private markets for capital goods.

I don't understand the idea of determining capital allocations (as well as allocation of other factors of production: labor, raw resources) "via demand for consumer goods" coming from internet shopping requests. You'd have to elaborate on the specifics of the system to enable me to meaningfully comment on the idea. You only said it's done with "no capitalist or central planner", so you must have some sort of automatic planning algorithm in mind, but I don't know what the algorithm is.

[SueDeNîmes]

How does capitalism assign value or prices to capital goods?

Rental prices of capital goods are arrived at through an equilibrium between demand by firms and supply from capital owners.

Prices of capital goods themselves are arrived at through an equilibrium between demand by investors and supply from firms producing capital goods.

Which isn't what I asked, is it? Half my question's been mysteriously edited out.

But never mind. Since the consumer demand bit is evidently too inconsequential in capitalism to warrant a mention, we have the basis for a more rational allocation in socialism, right there. Producers would look at what consumers actually want and allocate capital accordingly, while capitalist manufacturers of buggy whips and chocolate fireguards are doing the equilibrium thing.

Consumers choosing among goods was never really capitalism anyway.

Indeed. Capitalism is primarily characterized by private firms operating for profit, which results in private markets for capital goods.

which isn't a necessary part of a pricing mechanism.

I don't understand the idea of determining capital allocations (as well as allocation of other factors of production: labor, raw resources) "via demand for consumer goods" coming from internet shopping requests. You'd have to elaborate on the specifics of the system to enable me to meaningfully comment on the idea. You only said it's done with "no capitalist or central planner", so you must have some sort of automatic planning algorithm in mind, but I don't know what the algorithm is.

It'd go something like this : having ascertained what consumers actually want/are willing to buy (as opposed to a central planner's best guess or preference), the manufacturer/s get the technical guys in and say "How do we make a load of these?" or "what do we need to make more of these?" This creates demand for the stuff necessary to make the stuff i.e for capital and labour. Etc. The manufacturers might be employee-owned firms, nationalised industries, or some combination.

I might say pretty much how capitalist firms in the real world do it, except without the labour/capital antagonism. But then I'd be forgetting that demand for consumer goods apparently doesn't feature in that model.

[Nunt]

Not really, no.

We have come up with other systems that work just as well, and even better than capitalism for certain things. A public, single-payer health care system has been shown to work better than a private one.

That has nothing to do with "Overcoming the Information Problem". Single payer health care is not an alternative system for capitalism. It is way of organizing one sector within the capitalist system, taking information from prices and wages that are being generated by the capitalist system.

[Nunt]

OK but could it not also act as a pricing mechanism? For example if I want to smelt 1 kg of aluminium that would require say 26 kWh so that's that it would be the worth, operations that are more energy intensive are more expensive. The economy overall has only a finite amount of energy in the system which can be calculated with some assumptions on workforce but realistically would limit what can be achieved overall. An energy based system should also be efficient since it should try to minimize energy expenditure to maximize output of whatever goals were set.

What you are proposing here is some sort of input-based pricing: the value of the good depends on the amount of recources we are inputting (be it labor or energy). While this may be a good approximation in some cases, in reality it is really the value of output that matters. For example, say a brilliant mind finds a very easy way to stop people getting infected with malaria. He doesn't really commit much resources to obtain this solution, he is just walking down the street and suddenly the solution comes to him. So if we would just look at the resources used (at the inputs) then we would not be able to say anything about its value. No time, no labor, no energy was used.

But his idea may save millions of lives yearly. So in this hypothetical case, we would agree that his solution was really valuable despite its lack of inputs.

The only true way to look at the value of something is to look at its end result and how it is perceived by the people benefitting from that end result.

Also, I would disagree with your assumption that energy is finite. This isn't the case. We could produce more or less energy. If we wanted to produce more energy, we would need to produce less of something else. There is a tradeoff, but no hard cap.

[Pants-of-dog]

That has nothing to do with "Overcoming the Information Problem". Single payer health care is not an alternative system for capitalism. It is way of organizing one sector within the capitalist system, taking information from prices and wages that are being generated by the capitalist system.

In terms of information for allocating resources, the prices and wages of the medical care are disconnected from the individual who receives the care, thus the consumer is not sending any information back to the producer through price information. Instead a central authority (i.e. the gov't) is allocating resources based on other information feedback mechanisms.

Price as an information feedback system does not even exist between the gov't (the consumer) and the private suppliers, because price control systems are in effect. Thus, even though the consumer is paying a price, the information coming from that price is not as accurate because of the price controls.

These are all things that advocates of capitalism agree on. In fact, they cite them as criticisms of single payer health care systems.

Of course, health care is not the only thing. There are people who are suffering significant amounts of malnutrition all over the developing world. Obviously, they need and want nutritious food. Why are there no capitalists who are servicing this need? Why is the information of this need not being received by capitalist food producers?

[Nunt]

In terms of information for allocating resources, the prices and wages of the medical care are disconnected from the individual who receives the care, thus the consumer is not sending any information back to the producer through price information. Instead a central authority (i.e. the gov't) is allocating resources based on other information feedback mechanisms.

While this is true, the information problem really concerns the problem when your whole economy is centralized. Centralization of small parts of the economy while maintaining a market between those parts is not the issue.

So while its obvious that you like to steer this discussion towards pro/cons of single payer health care rather then the information problem in a centralized economy, I'd rather stay with the issues raised by the thread starter.

In fact I'll even admit that a single payer health care system may perform better on several important criteria than the pre-obama health care system (although I wouldn't call the latter a 'free market' system).

[Pants-of-dog]

While this is true, the information problem really concerns the problem when your whole economy is centralized. Centralization of small parts of the economy while maintaining a market between those parts is not the issue.

So as long as socialists do not centralise the entire economy, the information problem is not really a problem.

So while its obvious that you like to steer this discussion towards pro/cons of single payer health care rather then the information problem in a centralized economy, I'd rather stay with the issues raised by the thread starter.

In fact I'll even admit that a single payer health care system may perform better on several important criteria than the pre-obama health care system (although I wouldn't call the latter a 'free market' system).

I think things like public health care, or free lunch programs to combat malnutrition, are put together by gov'ts (or central economy planners, if you prefer) because capitalism only responds to price information and can not access other information feedback mechanisms.

[Typhoon]

What you are proposing here is some sort of input-based pricing: the value of the good depends on the amount of resources we are inputting (be it labor or energy).

I would not view the relationship between input work and output as a positive one, otherwise there is the problem mentioned by Lucky of workers expending energy into things just to make them more valuable. Perhaps it is better viewed as 'cost' based pricing?

The only true way to look at the value of something is to look at its end result and how it is perceived by the people benefiting from that end result.

I think the example relates to a different problem, predicting the benefit of future innovations as worthy of demand and investment. Correct me if I am wrong but I think Capitalism finds this process very difficult as well, investment in unproven ideas can often be considered as high risk? Similarly to the argument of Pants-of-dog, we might view the level of investment in third world diseases like Ebola as a sign that Capitalism cannot correctly assess the value of some goods (a vaccine) to society, a Socialist central planner may very well do much better here (e.g. Cuban health workers). Both would need mechanisms to get the idea off the street and into development.

But yes there is no direct measure other than demand of the value of the good or service to society in this system, though it would avoid price distortion from demand maintaining the goods real 'cost' to society in terms of spent labor and resources.

Also, I would disagree with your assumption that energy is finite.

What I mean to say is that at any time there's a limited amount of work that's possible to do at any given time, this will fluctuate as things happen.