Socialist alternatives to capitalism II: Vienna to Santa Fe

Barone and Pareto tackled the problem of socialist allocation using simple methods of the analysis of static economic equilibrium, centering on the idea that competition will force an equality between marginal cost and price. In the nineteen-twenties and thirties a group of mathematicians, statisticians, and economists, including notably Abraham Wald, John von Neumann and Oskar Morgenstern coalesced around Karl Menger’s “Vienna Circle”. Their discussions laid the groundwork for the mathematical approach to economics that dominated economic theory in the second half of the twentieth century. In particular this work clarified the problem of how to keep prices from becoming negative through the application of “complementary slackness” conditions which allow for non-zero prices only when resources are fully utilized. One result of this line of thinking was to situate the problem of economic allocation of resources in the broader context of optimal control theory. The mathematical theory of optimal control concerns the design of feedback mechanisms that can stabilize complex dynamical systems to achieve particular goals. A paradigmatic example is the problem of anti-aircraft gunnery, which became a key aspect of military combat in the Second World War. As Philip Mirowski observes (Mirowski, 2002), the duel between the anti-aircraft gunner (who tries to aim at the point where he thinks the bomber will be when the shell reaches the aircraft’s altitude) and the bomber pilot (who tries