A simplified model of a socialist economy was used for the purpose of the simulation. This section will outline the overall model and discuss the simplifications made and how these differ from a potential more complete model. While the issue of distribution has already been discussed at length in previous chapters, other issues relating to economic expansion and long-term strategic planning will be highlighted for the first time. These are thus identified as areas requiring further research which is beyond the scope of this philosophically grounded analysis.
7.2.1 Overall Model
The model assumes a plan target that specifies the relative proportions at which various con-sumer products are to be produced. An initial plan target needs to be specified, this can be done based on best estimates of the needs of consumers or based on previous production be-fore the model is implemented. This plan target will be used for the first plan period, while successive plan periods adapt the plan target of the previous period in response to consumer behaviour.
Based on the current plan target an optimised production plan for one plan period is calculated using a linear programming solver. In the simulation a plan period is assumed to be 30 days, but the length of the plan period can be adapted to circumstances. A plan is understood to be a specification of the intensity at which various production methods ought to be used. So, the plan specifies what production methods are to be used and to what degree. From this it also follows how many resources and workers have to be deployed to the various production methods and what amount of various kinds of items that will be produced.
An optimisation always implies the maximisation of some function, called the objective func-tion. The objective function is given by the output of any one consumer product. Since the proportions of the plan target are maintained, this means that the optimised production plan produces as many of all consumer products as possible at these proportions, no matter which of the products was chosen as the objective function.
The optimisation is subject to constraints which ensure that the plan is technically feasible with available resources. The constraints also ensure that consumer products are produced at the proportions specified in the plan target and that an equivalent amount of materials and intermediate products used up in the production process is produced in the same plan period.
The optimised production plan is thus the plan with the highest value of the objective function (output of the chosen consumer product) which does not violate any of the constraints.
After calculating the optimised production plan for a plan period, the plan can be put into action which will produce a variety of consumer items. These items can now be made avail-able to consumers. Each consumer has a limited number of tokens which can be redeemed for consumer products. Initial token prices for these items should be best possible estimates of market clearing prices. As with the initial plan target it is also possible to use previous prices as indicators. The prices are then changed in response to consumer demand. Should demand for a consumer item at a given price exceed the amount produced, the price will be increased. Should demand fall short of supply, prices will be lowered. In the simulation prices are changed on a daily basis, but as with the length of the plan period this is flexible and can be adapted to circumstances. In general, prices should be regulated in such a way as to approach market clearing as soon as possible, but a key assumption of the model is that towards the end of the planning period prices will be at or close to market clearing prices.
In addition to an optimised production plan, each plan period opportunity cost valuations will have to be calculated for each product. Depending on circumstances these valuations might not see much change each plan period, in which case a less frequent calculation is possible.
The details of how such valuations can be calculated are discussed in Section 7.3.2.3.
Towards the end of the plan period market clearing prices can then be compared to valuations for each consumer product and the plan target can be adjusted in response. Should prices exceed valuations for a product, the relative proportion of that product should be increased.
Is the opposite the case, the relative proportion is decreased. Adjusting the proportions in the plan target for each consumer product yields the new plan target for the next plan period.
From this the cycle starts again and a new optimised production plan is calculated, consumer products are made available to consumers at previous market clearing prices, the prices are changed in response to demand and so on.
7.2.2 Distribution
Let us now take a look at various simplifications that are made in the simulation. In Chapter 4, I have argued that the distribution of tokens which can be redeemed for consumer prod-ucts should in general depend on labour contribution. I argued that this is the most desirable distribution under ignorance in the framework of probabilistic egalitarianism. Adjustments to this distribution might be made when the condition of strict ignorance is not met. Some items might also not be included in this token scheme and be distributed through some other mechanism, such as on the basis of an assessment of individual needs.
The agent-based model used to simulate consumers ignores all of this and assumes that each consumer gets an equal number of tokens, which is not tied to the amount of labour they contribute. In fact, individual labour contribution is not considered. Instead the model only
considers the overall amount of labour available to the economy, which is assumed to be constant. This does not consider the possibility that people might wish to forgo consumption in favour of shorter working hours.
Chapter 5 also considered that the token prices of consumer products should correspond to the market clearing prices at which supply and demand match. The simplified model does take this into account. Token prices are thus continuously adjusted so that they approach market clearing prices.
7.2.3 Economic Expansion
The simplified model assumes simple reproduction of the economy in the sense of Marx (2008, 591-604). This means that depreciated capital stock, such as machinery, has to be replaced, but capital stock is not expanded nor reduced. Moreover, no changes to the compo-sition of the capital stock are allowed. So, if there are 100 blast furnaces in the first planning period, then there will be 100 blast furnaces in the next and so on. Blast furnaces will be replaced at the rate that they are depreciated by use, but no additional blast furnaces will be built, and the stock of blast furnaces is not allowed to deplete over time.
The economy in the simplified model is still allowed to change how the existing capital stock is used and what kind of consumer products are produced. For example, in one plan period only half of the blast furnaces might actually be used, while in another they are used at full capacity. One plan period might use the existing means of production to produce more heat for homes, while another might see more production of processed food instead. In the test examples discussed in the results section, capital stock is simply ignored and labour and emission rights are the only constraining factors considered.
The simplified model also assumes that there is no technological change over the time period considered. This means that the available methods of production are the same and no new production methods are introduced in one plan period which were not already available in the previous plan period. There are also no changes to resource constraints, including constraints on the available labour power. Since expansion of capital stock, growth of the working pop-ulation and technological progress are the main drivers of economic growth, one might say that the simplified model allows for no economic growth1. Instead there are only changes in the composition of production and products within unchanging limits.
A more complete model would allow for changes in capital stock, since expansion or
con-1It is not immediately clear how one might measure economic growth in this model. A measure similar to Real GDP, which aggregates token prices of consumer products based on the price level of a fixed day might share the same advantages and disadvantages. This has, however, not been monitored in the simulation, since only simple reproduction is considered.
traction of the stock of various production goods can be important for adjusting the economy to changing needs and circumstances. Building up the overall stock of machinery can also be crucial in order to increase production or labour productivity, which can both contribute to a higher standard of living for the population. This is especially important in underdevel-oped economies. Feldman (1964) thus argued that a developing socialist economy should defer part of the potential production of consumer goods and instead dedicate resources to the expansion of capital stock in order to achieve higher consumption levels later on. This can potentially yield a net benefit to consumers over a longer period.
There are a variety of ways that the model could potentially be expanded to include this and there is a lot of potential for further research on a formal model. One way is to set targets by how much various kinds of capital stock must be expanded in each plan period. These targets would be determined as part of a long-term industrial strategy and would be factored into a linear programming problem as additional constraints. This means the production of consumer products would be maximised under the constraint that a given amount of capital goods must be produced at the same time.
Another way, that is explored byCockshott(2019), is to calculate multi-year plans which op-timise production over several planning periods. Because dedication of some resources to the capital goods sector in the first period will increase potential production of consumer goods in later periods, the optimal plan will often see substantial investment in capital stock early on, which is in line withFeldman(1964). It is necessary to ensure that this early investment does not lead to an inadequate satisfaction of consumption needs in the first years. Cockshott thus suggests an objective function that rewards overfulfilment of plan targets2less than it re-wards underfulfilment (Cockshott 2019, 9). An optimal plan will thus not allow for excessive reductions in the provision of consumer products.
7.2.4 Green Energy Transition
One part of the economy that currently requires a substantial shift in the composition of capital stock is the energy sector. This is because fossil fuel energy is a major contributor to greenhouse gas (GHG) emissions (IPCC 2014). In order to reduce GHG emissions, it thus makes sense to reduce the number of coal and gas power plants, while increasing the capacity for emission free energy, such as nuclear, hydroelectric, wind or solar. Wind and solar energy also require expanded energy storage capacity for time periods of low production (Wald 2010). A major limitation of the simplified model is that it does not allow for such changes in the composition of capital stock to take place, as only short term planning is considered. I will now explain how the simplified model can nonetheless contribute to a
2In Cockshott’s model plan targets should be seen as absolute values whose production should be met.
This is opposed to the model presented here, where plan targets merely specify proportions. Absolute values of output might be of a completely different magnitude to plan targets.
reduction of GHG emissions.
There is a significant way in which environmental policy can be implemented and thus studied within the simplified model, despite not allowing for long term change in the composition of capital stock. The model allows for the introduction of deliberate emission constraints which limit the extent to which available fossil fuel capacity will be used. The idea behind this is that of a carbon budget (Meinshausen et al. 2009). In order to limit average global temperature increases to a certain amount, there is a finite amount of GHG that can be emitted into the atmosphere. There is significant epistemic uncertainty involved in calculating such a budget, butMeinshausen et al. (2009) estimated that in 2009 a remaining carbon budget of 1440 Gt CO2 would result in 50% chance of less than 2°C warming. Similar budgets can be calculated for a variety of combinations of temperature targets and probabilities.
Assuming that such a budget has been agreed upon, it could then be divided among the world economies and each country might further disaggregate its budget into annual targets. The recent Paris Agreement on Climate Change (UNFCCC 2015) takes a different approach and instead only sets an overall temperature target of ‘well below 2°C’ (UNFCCC 2015, 3) and al-lows countries to set their own individual targets on emission reduction. Either way, a social-ist planned economy might realise such annual emission targets by calculating an optimised production plan under a corresponding emission constraint.
The function of such a constraint would be similar to an emission trading scheme for a market economy. The cited advantage of such schemes is that they use the supposed or real efficiency of the market to minimise the cost of pollution reduction, while having a perfectly predictable and controllable remaining pollution (Stavins 2001). The regulator sets the number of permits that will be issued and thus controls the level of pollution that can continue. The market will then allocate these permits to the highest bidder and thereby ensures a degree of efficiency in the use of limited emission rights. Since a marketless socialist economy can not rely on market mechanisms to lead to an efficient allocation of emission rights, an alternative mechanism is needed. The simplified model does not use the market, but instead calculates an optimised production plan that abides by the emission cap. It thus ensures the efficient use of limited emission rights, but through optimal planning instead of through a market. A thus determined production plan might see a reduction in output as a result of an emission constraint (see Section 7.4), but that reduction is minimised due to the optimisation of the plan.
In order to transition towards a low emission economy, a fundamental change in the composi-tion of capital stock is necessary. But an emission cap can play an important role in addicomposi-tion to that by ensuring that available capital stock is not used in a way that exceeds emission targets. An optimised production plan under an emission cap will put a stronger emphasis on economising on fossil fuel usage, rather than on other factors. As long as there are insuf-ficient low emission energy sources, energy-intensive production methods might be limited
in favour of alternative methods, even when these have other drawbacks. For example, the transportation industry might be instructed to economise on fuel, rather than on other inputs such as labour. A route that uses less fossil fuel but requires longer driving hours might thus be preferred.