Samuelson on Prices

by Don Boudreaux on May 1, 2006

in The Economy

Commenting on this post, Jaroslav Borovicka says:

Well, Samuelson simply uncritically took over data which were cooked up
by the Soviet statistical office (or, better, by the political
leadership). This data was of course dreamt up to the extreme, but you
see some pressures to "polish" GDP data in the western economies as
well – even today.

Of course, Samuelson himself now understands just how kooky were the data that he used to estimate Soviet growth rates.  Here’s Samuelson writing in the February 2005 issue of the Economic Journal; it’s an obituary for Abram Bergson:

Abram Bergson was a realist par excellence.  He applied generous reasoned discounts to the statistical growth claims of the Stalinist and post-Stalinist statisticians.  And yet, after the dozen post-Gorbachev years of communist dissolution, the emerging evidence suggests to me — and I think to ‘Honest Abe’ as he was known at Harvard — that the Soviet system was even less productive in most sectors than the international almanacs had estimated.  Why?  Plain Machiavellian lying?  No doubt there was some of that as all our experts did recognize.

More important, I suggest after much reflection, is the fact that what are called ‘prices’ in a controlled society have little true relationship to relative scarcities and technical trade-off costs.  From copious non-meaningful statistical inputs will have to come quite non-meaningful statistical estimates. [P. F132]

Indeed.  That’s pretty much what Mises and Hayek argued in the 1920s, ’30s, and ’40s: prices that don’t emerge from voluntary exchange of property rights aren’t really prices; they don’t incorporate and convey the information that must be acted upon by economic agents in order for lasting prosperity to be created.  But not only will elimination of market pricing make statistical estimates of the performance of that economy meaningless, it will inevitably bring an economy to ruin.  It’s not clear to me from Samuelson’s recent concession that socialist ‘prices’ make for poor statistics that he grasps the deeper point that real, market prices are necessary for economic prosperity.


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