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3: Recent Socialist Doctrines and the Problems of Economic Calculation - Ludwig von Mises, Socialism: An Economic and Sociological Analysis [1922]

Edition used:

Socialism: An Economic and Sociological Analysis, trans. J. Kahane, Foreword by F.A. Hayek (Indianapolis: Liberty Fund, 1981).

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


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Recent Socialist Doctrines and the Problems of Economic Calculation

The problem of economic calculation is the fundamental problem of Socialism. That for decades people could write and talk about Socialism without touching this problem only shows how devastating were the effects of the Marxian prohibition on scientific scrutiny of the nature and working of a socialist economy.20

To prove that economic calculation would be impossible in the socialist community is to prove also that Socialism is impracticable. Everything brought forward in favour of Socialism during the last hundred years, in thousands of writings and speeches, all the blood which has been spilt by the supporters of Socialism, cannot make socialism workable. The masses may long for it ever so ardently, innumerable revolutions and wars may be fought for it, still it will never be realised. Every attempt to carry it out will lead to syndicalism or, by some other route, to chaos, which will quickly dissolve the society, based upon the division of labour, into tiny autarkous groups.

The discovery of this fact is clearly most inconvenient for the socialist parties, and socialists of all kinds have poured out attempts to refute my arguments and to invent a system of economic calculation for Socialism. They have not been successful. They have not produced a single new argument which I have not already taken account of.21 Nothing has shaken the proof that under Socialism economic calculation is impossible.22

The attempt of the Russian Bolsheviks to transfer Socialism from a party programme into real life has not encountered the problem of economic calculation under Socialism, for the Soviet Republics exist within a world which forms money prices for all means of production. The rulers of the Soviet Republics base the calculations on which they make their decisions on these prices. Without the help of these prices their actions would be aimless and planless. Only so far as they refer to this price system, are they able to calculate and keep books and prepare their plans. Their position is the same as the position of the state and municipal Socialism of other countries: the problem of socialist economic calculation has not yet arisen for them. State and municipal enterprises calculate with those prices of the means of production and of consumption goods which are formed on the market. Therefore it would be precipitate to conclude from the fact that municipal and state enterprises exist, that socialist economic calculation is possible.

We know indeed that socialist enterprises in single branches of production are practicable only because of the help they get from their non-socialist environment. State and municipality can carry on their own enterprises because the taxes which capitalist enterprises pay, cover their losses. In a similar manner Russia, which left to herself would long ago have collapsed, has been supported by finance from capitalist countries. But incomparably more important than this material assistance, which the capitalist economy gives to socialist enterprises, is the mental assistance. Without the basis for calculation which Capitalism places at the disposal of Socialism, in the shape of market prices, socialist enterprises would never be carried on, even within single branches of production or individual countries.

Socialist writers may continue to publish books about the decay of Capitalism and the coming of the socialist millennium: they may paint the evils of Capitalism in lurid colours and contrast with them an enticing picture of the blessings of a socialist society; their writings may continue to impress the thoughtless—but all this cannot alter the fate of the socialist idea.23 The attempt to reform the world socialistically might destroy civilization. It would never set up a successful socialist community.

[20. ]We may point out here that as early as 1854 Gossen knew “that only through private property is the measure found for determining the quantity of each commodity which it would be best to produce under given conditions. Therefore, the central authority, proposed by the communists, for the distribution of the various tasks and their reward, would very soon find that it had taken on a job the solution of which far surpasses the abilities of individual men.” (Gossen, Entwicklung der Gesetze des menschlichen Verkehrs, new ed., [Berlin, 1889] p. 231.) Pareto (Cours d’Économie Politique, Vol. II, Lausanne, 1897, pp. 364 ff.) and Barone (“Il Ministro della Produzione nello Stato Coletivista” in Giornale degli Economisti, Vol. XXXVII, 1908, pp. 409 ff.) did not penetrate to the core of the problem. Pierson clearly and completely recognized the problem in 1902. See his Das Wertproblem in der sozialistischen Gesellschaft (German translation by Hayek, Zeitschrift für Volkswirtschaft, New Series, Vol. IV, 1925, pp. 607 ff.) Publisher’s Note: Both the Barone article (“The Ministry of Production in the Collectivist State,” pp. 245-290) and the Pierson article (“The Problem of Value in the Socialist Society,” pp. 41-85) are included in the Hayek edited Collectivist Economic Planning.

[21. ]I have briefly discussed the most important of these replies in two short essays—”Neue Beiträge zurn Problem der sozialistischen Wirtschaftsrechnung” (Archiv für Sozialwissenschaft, Vol. LI, pp. 488-500) and “Neue Schriften zum Problem der sozialistischen Wirtschaftsrechnung” (Ibid., Vol. LX, pp. 187-90. Publisher’s Note: “Neue Beiträge zum Problem der sozialistischen Wirtschaftsrechnung” appears in part as the Appendix of this book on p. 473. The second essay mentioned by Mises in this footnote was published in 1928 and has not been translated into English. The essay was a review of recent literature on economic calculations under socialism.

[22. ]In scientific literature there is no more doubt about this. See Max Weber, “Wirtschaft und Gesellschaft” (Grundriss der Sozialökonomik, Vol. III), Tübingen, 1922, pp. 45-59; Adolf Weber, Allgemeine Volkswirtschaftslehre, 4th ed., Munich and Leipzig, 1932, Vol. II, pp. 369 ff.; Brutzkus, Die Lehren des Marxismus im Lichte der russischen Revolution, Berlin, 1928, pp. 21 ff.; C. A. Verrijn Stuart, “Winstbejag versus behoeftenbevrediging” (Overdruk Economist, Vol, 76 No. 1), pp. 28 ff.; Pohle-Halm, Kapitalismus und Sozialismus, 4th ed., Berlin, 1931, pp. 237 ff.

[23. ]Characteristic of this branch of literature is the recently published work of C. Landauer, Planwirtschaft und Verkehrswirtschaft (Munich and Leipzig, 1931). Here the writer deals with the problem of economic calculation quite naively, at first by asserting that in a socialist society “the individual enterprises...could buy from each other, just as capitalist enterprises buy from each other” (p. 114). A few pages on he explains that “besides this” the socialist state will “have to set up a control accountancy in kind”; the state will be “the only one able to do this because in contrast to Capitalism it controls production itself” (p. 122). Landauer cannot understand that—and why—one is not permitted to add and subtract figures of different denominations. Such a case is, of course, beyond help.