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Understanding the Socialist Calculation Debate - Leonard P. Liggio, Literature of Liberty, Spring 1982, vol. 5, No. 1 [1982]

Edition used:

Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.

Part of: Literature of Liberty: A Review of Contemporary Liberal Thought, 20 vols. 19781-982

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.


Understanding the Socialist Calculation Debate

Don Lavoie

  • Department of Economics, George Mason University

“A Critique of the Standard Account of the Socialist Calculation Debate.” The Journal of Libertarian Studies 5 (Winter 1981): 41–87.

A value-laden set of neo-classical presuppositions distorts the standard recital and understanding of the famous socialist calculation debate. We need to reconstruct the true issues by surveying the origins and development of the conventional account of the socialist debate, and to explain why this standard interpretation misreads some of the arguments.

In the socialist calculation debate, the “Austrians” or anti-socialists—Ludwig von Mises, Friedrich Hayek, and Lionel Robbins—confronted the “neoclassicals” or market socialists—Oskar Lange, H.D. Dickinson, Fred M. Taylor, Abba P. Lerner, E.F.M. Durbin, and Maurice Dobb. Both sides addressed Mises' anti-socialist challenge, namely that without private ownership of the means of production (hence no market-formed price information by which to allocate the scarce means of production) the rational central planning of a complex economy would be impossible. Without the guide of market prices, socialist central planners could not know the relative scarcity of different elements of the capital structure and thus would fail to combine them with economic efficiency.

According to the standard account of the debate, Lange's market-socialist response refuted Mises by arguing that public ownership of the means of production could employ “markets” and “prices.” But Lange's arguments (against both Mises' assertion that efficient socialism was theoretically impossible and the Hayek-Robbins thesis that socialism, though theoretically possible, was impracticable) fundamentally misunderstand the Austrian terms of the debate. Captives of a distorting neoclassical paradigm, the “market socialists” distorted Mises' and Hayek's concepts of “efficiency,” “market,” “ownership,” “competition,” the formation of “prices,” and the dynamic Austrian approach to economic processes in general through the filter of a static neoclassical theory of equilibrium and Pareto optimality.

To explain how such a systematic misunderstanding occurred, Lavoie outlines (1) the major elements of the standard account of the socialist calculation debate, documenting in copious footnotes that this misinterpretation permeates contemporary (neoclassical) economics, and (2) the contrasting elements of an alternative (Austrian or dynamic) interpretation. A critique of the standard account follows through seven representative chroniclers of the debate: Schumpeter, A. Bergson, B. Ward, Lippincott, A. Sweezy, Dobb, and Knight. A superior “revisionist” account of the debate is provided by Trygve Hoff's Economic Calculation in the Socialist Society (1949) and others. The neoclassical side of the debate has yet to appreciate the radically distinct way in which the Austrian tradition approaches economic theory and reality. A better understanding would bolster the case against central planning. Extensive bibliography to improve the understanding of both sides in the debate is supplied in the footnotes and detailed text.