Economic Calculation in the Socialist Commonwealth

by Ludwig von Mises

The Calculation Argument (1) Mises’s pathbreaking and central insight is that monetary calculation is the indispensable mental tool for choosing the optimum among the vast array of intricately-related production plans that are available for employing the factors of production within the framework of the social division of labor. Without recourse to calculating and comparing the benefits and costs of production using the structure of monetary prices determined at each moment on the market, the human mind is only capable of surveying, evaluating, and directing production processes whose scope is drastically restricted to the compass of the primitive household economy. The practically unlimited number of alternative plans for allocating the factors of production and the overwhelming complexities of their interrelationships stem from two related facts about our world. First, our world is endowed with a wide variety of relatively “nonspecific” resources, which to a greater or lesser degree are substitutable for one another over a broad range of production processes. Second, since human action itself implies the ineradicable scarcity of time as well as of resources, there always exists an almost inexhaustible opportunity to accumulate capital and lengthen the economy’s structure of production, thus multiplying beyond number the technical possibilities for combining the factors of production.