Economic calculation problem
The economic calculation problem is a criticism of central economic planning. It was first proposed by Ludwig von Mises in 1920 and later expounded by Friedrich Hayek.[1][2] The problem referred to is that of how to distribute resources rationally in an economy. The free market solution is the price mechanism, wherein people individually have the ability to decide how a good or service should be distributed based on their willingness to give money for it. The price conveys embedded information about the abundance of resources as well as their desirability which in turn allows, on the basis of individual consensual decisions, corrections that prevent shortages and surpluses; Mises and Hayek argued that this is the only possible solution, and without the information provided by market prices socialism lacks a method to rationally allocate resources. Those who agree with this criticism argue it is a refutation of socialism and that it shows that a socialist planned economy could never work. The debate raged in the 1920s and 1930s, and that specific period of the debate has come to be known by economic historians as The Socialist Calculation Debate.
Ludwig von Mises argued in a famous 1920 article "Economic Calculation in the Socialist Commonwealth" that the pricing systems in socialist economies were necessarily deficient because if government owned or controlled the means of production, then no rational prices could be obtained for capital goods as they were merely internal transfers of goods in a socialist system and not "objects of exchange," unlike final goods. Therefore, they were unpriced and hence the system would be necessarily inefficient since the central planners would not know how to allocate the available resources efficiently.[1] This led him to declare "...that rational economic activity is impossible in a socialist commonwealth."[1] Mises developed his critique of socialism more completely in his 1922 book Socialism, an Economic and Sociological Analysis.
References
- ↑ 1.0 1.1 1.2 Von Mises, Ludwig (1990) (pdf). Economic calculation in the Socialist Commonwealth. Ludwig von Mises Institute. http://mises.org/pdf/econcalc.pdf. Retrieved 2008-09-08.
- ↑ F. A. Hayek, (1935), "The Nature and History of the Problem" and "The Present State of the Debate," om in F. A. Hayek, ed. Collectivist Economic Planning, pp. 1-40, 201-43.
External links
- The Impossibility of Economic Calculation Under Socialism by Ludwig von Mises
- The Use of Knowledge in Society by Friedrich Hayek
- The End of Socialism and the Calculation Debate Revisited by Murray N. Rothbard
- Oskar Lange and the Impossibility of Economic Calculation by D.W. MacKenzie
- Socialism: Still Impossible After All These Years by Peter J. Boettke and Peter T. Leeson
- Must Economies Be Rational? by David Gordon
- Socialism: A Property or Knowledge Problem? by Hans-Hermann Hoppe
- Calculation and Socialism by Joseph T. Salerno, Recorded July 27, 2010 in Auburn, Alabama. Includes an introduction by Mark Thornton (1:00:38).