Ludwig von Mises on the impossibility of rational economic planning under Socialism (1922)

Ludwig von Mises

Found in Socialism: An Economic and Sociological Analysis

The Austrian economist Ludwig von Mises (1881-1973) as early as 1922 (a mere 5 years after the Bolshevik Revolution in Russia) showed that a centrally planned economy (a key platform of the socialists) was both morally wrong because it violated property rights as well as utterly impractical because it prevented the rational allocation of resources. In his view, the socialist experiment could only lead to dictatorship and chaos:

The fundamental objection advanced against the practicability of socialism refers to the impossibility of economic calculation. It has been demonstrated in an irrefutable way that a socialist commonwealth would not be in a position to apply economic calculation. Where there are no market prices for the factors of production because they are neither bought nor sold, it is impossible to resort to calculation in planning future action and in determining the result of past action. A socialist management of production would simply not know whether or not what it plans and executes is the most appropriate means to attain the ends sought. It will operate in the dark, as it were. It will squander the scarce factors of production both material and human (labour). Chaos and poverty for all will unavoidably result.

This quote was posted online on the 20th anniversary of the coming down of the Berlin Wall - a symbol of both the Cold War as well as the communist system of eastern Europe. The wall was built to prevent East Berliners fleeing in huge numbers to the West and, as the communist economic system steadily stagnated and began to collapse under its own weight of inefficiency and absurdity, the forces of opposition built to such a point that even a concrete wall could not contain those eager for change.

What is amazing is that the most systematic critique of socialist central planning of the economy was penned by Ludwig von Mises only 5 years after the coming to power of the Bolshevik Party in late 1917. The first serious and disastrous attempt to collectivise the Russian economy began under the rule of Lenin and this was followed soon afterwards by Stalin’s First Five Year plan of 1928. Mises was writing during this period and his prescient analysis was as correct then as well as 67 years later when the Berlin Wall was breached by angry demonstrators.