Calculation in kind

Calculation in kind or calculation in-natura is a way of valuating resources and a system of accounting that uses disaggregated physical magnitudes as opposed to a common unit of calculation. As the basis for a socialist economy it was proposed to replace money and financial calculation.[1] Calculation in kind would value each commodity based only on its use value, for purposes of economic accounting. By contrast, in money-based economies, a commodity's value includes an exchange value.

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Calculation in kind would quantify the utility of an object directly without recourse to a general unit of calculation. This differs from other proposed methods of socialist calculation, such as simultaneous equations, Taylor-Lange accounting prices, and the use of labor time as a measure of cost.[1]

Calculation in kind was strongly advocated by the positivist philosopher and political economist Otto Neurath when employed by the Bavarian Soviet Republic. This led to a discussion in the early 1920s, in which much of the discussion about socialism centered on whether economic planning should be based on physical quantities or monetary accounting. Neurath was the most forceful advocate of physical planning (economic planning using calculation-in-kind) in contrast to market socialist neoclassical economists who advocated use of notional prices computed by solving simultaneous equations.[2] Austrian school critics of socialism, particularly Ludwig von Mises, based his critique of socialism on the calculation problem.[3]

Proponents of in-kind calculation argue that the use of a common medium like money distorts information about the utility of an object. Socialists in favor of calculation in kind argued that, in a system of in-kind calculation, waste associated with the monetary system would be eliminated, and in particular objects would no longer be desired for functionally useless purposes like resale and speculation – they would only be desired for their use-value.[4]

See also

References
  1. Steele, David (1992). From Marx to Mises: Post-Capitalist Society and the Challenge of Economic Calculation. Open Court Publishing Company. p. 123. ISBN 978-0875484495. The term ‘calculation in kind’ is normally reserved for attempts to dispense with any general unit of calculation. It is usually not taken to include cases where a general unit of calculation is arrived at without reference to money or markets. Thus it is not applied to Taylor-Lange accounting prices, nor to notional ‘prices’ ascribed to all commodities in an attempt to replace the market by solving a large number of simultaneous equations, nor to the use of labor time as a measure of cost.
  2. Feinstein, C.H. (September 1969). Socialism, Capitalism and Economic Growth: Essays Presented to Maurice Dobb. Cambridge University Press. p. 168. ISBN 978-0521049870. In the years between 1917 and 1925 Viennese socialists were heavily engaged in disputes about these themes. Among the main contributors were O. Neurath, K. Polanyi, O. Baur, O. Leichter and W. Schiff... Much of this early discussion turned round the question whether planning should be in physical quantities or whether monetary accounting should be used. Otto Neurath, a remarkable personality, was a forceful advocate of physical planning.
  3. Otto Neurath's concepts of socialization and economic calculation and his socialist critics. Retrieved July 05, 2010: http://www.chaloupek.eu/work/NeurathFin.pdf Archived 2011-09-12 at the Wayback Machine
  4. The Alternative to Capitalism. Retrieved July 05, 2010, from wspus.org "The disappearance of economic value would mean the end of economic calculation in the sense of calculation in units of value whether measured by money or directly in some unit of labour-time. It would mean that there was no longer any common unit of calculation for making decisions regarding the production of goods...Calculation in kind is an essential aspect of the production of goods in any society, including capitalism. A commodity is, as we saw, a good which by virtue of being produced for sale has acquired in addition to its physical use value a socially-determined exchange value. Correspondingly, the process of production under capitalism is both a process of production of exchange values and a process of production of use values, involving two different kinds of calculation. For the former, the unit of calculation is money, but for the latter there is no single unit but a whole series of different units for measuring the quantity and quality of specific goods used in the process of producing other specific goods (tonnes of steel, kilowatt-hours of electricity, person-hours of work and so on). The disappearance of economic or value calculation in socialism would by no means involve the disappearance of all rational calculation, since the calculations in kind connected with producing specific quantities of goods as physical use values would continue."

Further reading
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