The preeminence of the capitalist system consists in the fact that it is the only system of social cooperation and division of labor which makes it possible to apply a method of reckoning and computation in planning new projects and appraising the usefulness of the operation of those plants, farms, and workshops already working. The impracticability of all schemes of socialism and central planning is to be seen in the impossibility of any kind of economic calculation under conditions in which there is no private ownership of the means of production and consequently no market prices for these factors.
The problem to be solved in the conduct of economic affairs is this: There are countless kinds of material factors of production, and within each class they differ from one another both with regard to their physical properties and to the places at which they are available. There are millions and millions of workers and they differ widely, with regard to their ability to work. Technology provides us with information about numberless possibilities in regard to what could be achieved by using this supply of natural resources, capital goods, and manpower for the production of consumers’ goods. Which of these potential procedures and plans are the most advantageous? Which should be carried out because they are apt to contribute to the satisfaction of the most urgent needs? Which should be postponed or discarded because their execution would divert factors of production from other projects the execution of which would contribute more to the satisfaction of urgent needs?
It is obvious that these questions cannot be answered by some calculation in kind. One cannot make a variety of things enter into a calculus if there is no common denominator for them. In the capitalist system all designing and planning is based on the market prices. Without them all the projects and blueprints of the engineers would be a mere academic pastime. They would demonstrate what could be done and how. But they would not be in a position to determine whether the realization of a certain project would really increase material well-being or whether it would not, by withdrawing scarce factors of production from other lines, jeopardize the satisfaction of more urgent needs, that is, of needs considered more urgent by the consumers. The guide of economic planning is the market price. The market prices alone can answer the question whether the execution of a project P will yield more than it costs, that is, whether it will be more useful than the execution of other conceivable plans which cannot be realized because the factors of production required are used for the performance of project P.
It has been frequently objected that this orientation of economic activity according to the profit motive, i.e., according to the yardstick of a surplus of yield over costs, leaves out of consideration the interests of the nation as a whole and takes account only of the selfish interests of individuals, different from and often even contrary to the national interests. This idea lies at the bottom of all totalitarian planning. Government control of business, it is claimed by the advocates of authoritarian management, looks after the nation’s well-being, while free enterprise, driven by the sole aim of making profits, jeopardizes national interests. The case is exemplified nowadays by citing the problen1 of synthetic rubber. Germany, under the rule of Nazi socialism, has developed the production of synthetic rubber, while Great Britain and the United States, under the supren1acy of profit-seeking free enterprise, did not care about the unprofitable manufacture of such an expensive Ersatz. Thus they neglected an important item of war preparedness and exposed their independence to a serious danger.
Nothing can be more spurious than this reasoning. Nobody ever asserted that the conduct of a war and preparing a nation’s armed forces for the emergency of a war are a task that could or should be left to the activities of individual citizens. The defense of a nation’s security and civilization against aggression on the part both of foreign foes and of domestic gangsters is the first duty of any government. If all men were pleasant and virtuous, if no one coveted what belongs to another, there would be no need for a government, for armies and navies, for policemen, for courts, and prisons. It is the government’s business to make the provisions for war. No individual citizen and no group or class of citizens are to blame if the government fails in these endeavors. ‘”the guilt rests always with the government and consequently, in a democracy, with the majority of voters.
Germany armed for war. As the German General Staff knew that it would be impossible for warring Germany to import natural rubber
Article from Mises Wire