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Mises’ Argument Against Marketless Socialism

Let’s now turn to what many consider Mises’ master argument against socialism.[1] Here we must first note the specificity of its target. It was Neurath’s conception of marketless socialism that Mises targeted in passages like these.

Calculation in natura, in an economy without exchange, can embrace consumption-goods only; it completely fails when it comes to deal with goods of a higher order. And as soon as one gives up the conception of freely established monetary price for goods of a higher order, rational production becomes completely impossible. Every step that takes us away from private ownership of the means of production and from the use of money also takes us away from rational economics.[2]

To be sure, Mises conceded (as did Weber around the same time)[3]:

In the narrow confines of a closed household economy, it is possible throughout to review the process of production from beginning to end, and to judge all the time whether one or another mode of procedure yields more consumable goods. This, however, is no longer possible in the incomparably more involved circumstances of our own social economy.[4]

What Mises stressed was that the rational allocation of resources in complex economies requires the value of production goods to be calculated—which presupposes a market with commensurate monetary exchange values.

Without economic calculation there can be no economy. Hence in a socialist state wherein the pursuit of economic calculation is impossible, there can be—in our sense of the term— no economy whatever. In trivial and secondary matters rational conduct might still be possible, but in general it would be impossible to speak of rational production any more. There would be no means of determining what was rational, and hence it is obvious that production could never be directed by economic considerations.[5]

In sum: “any economic system of calculation would become absolutely impossible ... There is only groping in the dark. Socialism is the abolition of rational economy.”[6] A socialist economy is a rationalist impossibility.

  • [1] This was first published in Mises (1920) and then greatly expanded into Mises (1922).
  • [2] Mises (1920/1935, 104).
  • [3] See Weber (1921/1978, 103)
  • [4] Mises (1920/1935, 103).
  • [5] Ibid., 105.
  • [6] Ibid., 109-110.
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