Our Two Options: A Marketplace or a Centrally Planned Economy
In the past few weeks, I have been discussing a number of points in Human Action, and today I propose to concentrate on a fundamental insight that is a main theme of the book. There are, Mises says, only two ways to organize production in a complex modern economy that produces a great many goods and services. One is by centralized decision-making and the other is through the free market.
A closer look, though, shows that only one of these alternatives is genuine. In a complex economy, producers’ goods can usually be used to make a number of different consumers’ goods. If so, the question arises: How can choices to use producers’ goods be made in a way that best satisfies the wishes of consumers?
Mises’s fundamental insight is that centralized decision-making cannot answer this question. Only an economic system with monetary calculation can do so, and monetary calculation can only take place in a free market. Without a market, socialist planners could only guess at the best way to make production decisions. Monetary calculation cannot be bypassed; there is no measure of value without money.
If this is true, it is evident that central planning must be erased from our set of options. It would, Mises says, collapse into chaos. Only the free market is left.
It might be objected that even though our options are limited in this way, that is not much of a limit. Few people today favor a completely centralized economy. But does this not leave open various mixes of a centrally directed and a market economy? Mises denies this. There is, he says, no third system intermediate between central planning and the market. So long as mos
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