Covid-19 and the Socialist Calculation Problem
One hundred years ago Ludwig von Mises wrote the definitive exposure of the impossibility of socialism: “Economic Calculation in the Socialist Commonwealth.” In a recent Mises Wire essay—”Socialist Robert Heilbroner’s Confession in 1990: ‘Mises Was Right.’“—Gary North sums up the socialist problem succinctly (his emphasis).
But Heilbroner failed to present the central argument that Mises had offered. Mises was not talking about the technical difficulty of setting prices. He was making a far more fundamental point. He argued that no central planning bureau could know the economic value of any scarce resource. Why not? Because there is no price system under socialism that is based on the private ownership of the means of production. There is therefore no way for central planners to know which goods and services are most important for the state to produce. There is no hierarchical scale of value that is based on supply and demand—a world in which property-owning individuals place their monetary bids to buy and sell. The problem of socialism is not the technical problem of allocation facing a planning board. It is also not that planners lack sufficient technical data. Rather, the central problem is this: assessing economic value through prices. The planners do not know what anything is worth.
Notice North’s point. Socialism is impossible, not just technically difficult. Knowing what to produce requires a price system. A price system requires private ownership of the means of production. Why? Because the price system rests on individually held hierarchical scales of values. And the hierarchical scale of values require private ownership of the means of production. In other words, if you don’t own something, you cannot know its worth. This doesn’t mean that everyone has the same hierarchical scale of values. But all these individual scales of value do meet in the marketplace to determine marginal prices at given poin
Article from Mises Wire