The Socialist Calculation Debate: Theory in Action

The socialist calculation debate is firmly anchored in economics. But a look at philosophy can shed light on what insights Ludwig von Mises gave us and thus sharpen our understanding of socialism and its problems. It shows what we can know about socialism through conceptual analysis and what such analysis cannot tell us.

Philosophy makes it clear that there are analytical truths that describe something being true because of its meaning. To see what is analytically true, we must engage in conceptual analysis, that is, we must engage with the concept and explore what it entails. Having done this, we can also look for implications of the concept. P implies q if it is impossible for p to be true and not q, that is, that q is not the case. So implications also show us what is necessarily true. But why so much fuss about analytical truths? They are very important because they are irrefutable and do not depend on empirical facts.

Let’s turn to socialism, which is an economic system. An analysis of the concept of socialism shows that it is the economic system in which there is collective ownership of the means of production, which corresponds to a system in which the collective (or someone else for this collective) plans the use of these means of production, that is, one Planned economy.

With this in mind, we can turn to prices. An analysis of the concept shows that prices are exchange rate relationships (at least in the sense in which Mises understood the concept and considered it relevant). It follows that there can be no prices (for the means of production) if there is no exchange – because an exchange relationship only arises when exchange takes place. However, if there is collective ownership, this means that there can be no exchange, since exchange requires that there are at least two parties, each of whom owns means of production. It follows that there can be no prices under socialism. To put it positively, prices can only arise when people exchange, which presupposes that they have several properties.

Consequently, it is an analytical insight into socialism and prices that there can be no prices in a socialist system. There is nothing empirical or speculative about this insight. Rather, an abstract analysis shows that there can be no prices under socialism. To the extent that my analysis is correct, this is not up for debate – all that would be possible is to show that I made a mistake in my analysis of the concepts. But if my analysis is correct, it provides a nonjudgmental and irrefutable insight into what socialism and prices are and what follows from them.

For this reason, Mises blamed Karl Polanyi, among others, for not clearly seeing what socialism was and for vacillating between a socialist and a syndicalist system. “The defect in [Polanyi’s] The construction lies in the darkness with which it wants to avoid the core question: socialism or syndicalism?Mises wrote in response to Polanyi.

However, having established that there can be no prices under socialism, it is necessary to examine this Consequence such a lack of prices. This is not a question, or at least not a purely analytical one. The consequences of the necessary price freedom of the means of production in a planned economy depend on empirical conditions or factors. That much was already clear Mises in his work from 1920.

It would not be difficult for a farmer in economic isolation to distinguish between the expansion of pastoralism and the development of hunting activity. In such a case, the production processes are relatively short and the associated costs and income can be easily estimated. However, the situation is completely different if … the prerequisites for the success of the companies to be initiated are diverse, so that not only vague estimates can be made, but more precise estimates and a certain degree of assessment of the economic issues actually involved are required.

For what does his admission mean that under simple circumstances the absence of prices has no or at best negligible effects? So it is clear that we need to examine empirical circumstances to assess the consequences of the absence of prices. The analytical significance of the insight that there are no prices is not sufficient for this.

Max Molden is a doctoral student at the University of Hamburg. He has worked with European Students for Liberty and Prometheus – The Freedom Institute. He publishes regularly at Der Freydenker.