2 - General Equilibrium and the Balanced Plan

Summary

This chapter explores why the promises of allocative efficiency in neoliberal and Soviet economics - neoclassical ‘general equilibrium’ and the Soviet's ‘balanced plan’ - cannot be fulfilled. Early Soviet conceptions of planning had aspired to be based on an evolving social reality, in contrast to the highly abstract, competition-based, and hence de-historicized neoclassical arguments for general equilibrium. The Stalinist shift to synoptic planning had nevertheless confronted Soviet economists with the same challenges their neoclassical colleagues faced in the west: that of how to produce essentially machine-like models of allocative efficiency in social reality. These challenges would drive later generations of Soviet and neoclassical economists to fixate on, and fail to solve, the problem of how to account for the information that was evidently ‘lost’ both in planning and in market mechanisms. Innes explains why both concepts of allocative efficiency had proved even theoretically incoherent by the 1970s, and demonstrates that it was at this, the lowest point of intellectual credibility for the theory of general equilibrium, that it became a foundation of neoliberal orthodoxy.