The great Austrian economist Ludwig von Mises insisted that economic analysis can only give qualitative, not quantitative laws. By implication, any Austrian economic analysis of socialism’s failures would have to focus on socialism’s differences in kind and not in degree from functional market economies. For Mises, one such difference in kind is manifested in the socialist calculation problem; unlike actors in market economies, socialist central managers are inherently unable to decide how to allocate resources efficiently because they do not have the market price mechanism to indicate to them the relative values of various goods.  

            Bryan Caplan, however, considers Mises’s view of economics as solely qualitative and his analysis of the socialist calculation problem to be in contradiction. Mises himself wrote that Robinson Crusoe on a small island is easily able to efficiently allocate resources toward his needs. Crusoe would only be using “calculation-in-kind” by mentally comparing the various alternatives open to him and selecting the most desirable. Mises denies the functionality of this method for a larger economy, however. Calculation-in-kind, at best, can only extend to the most basic consumption goods; it cannot cover advanced factors of production.

            In “Why I am not an Austrian Economist,” Caplan argues that Mises makes a distinction of degree, not of kind, between Crusoe’s “one-man socialism” and the impossibility of centrally planning an economy with millions of participants. Yet Mises himself denied the possibility of economics making such distinctions of degree; this means that pure economic theory did not give Mises a full understanding of the calculation problem. According to Caplan, the calculation problem ceases to be a unique and outstanding objection to socialism because of this; it assumes coequal standing with other valid insights as to why socialist systems fail.

            How can this apparent contradiction be resolved? In “When Does Economic Calculation Become Necessary?”, Gene Callahan counters Caplan’s objection by alleging that a difference in kind indeed exists between Crusoe’s one-man economy and any economic system in recorded history: the existence of writing. Writing allows economic actors to record and employ more information than any one of them can effectively keep in his head. In an economy that requires writing to be sustainable, no single individual can plan the actions of others more efficiently than they can themselves; he would be simply incapable of keeping track of all the information required to do so. Any economy that has become so advanced as to require written records to be kept cannot be competently overseen by a central agency.

            But a much more fundamental rebuttal of Caplan’s objection can be employed. Caplan’s very reference to Crusoe’s economy as a “one-man socialism” is inappropriate. Mises never denied that an individual would be able to calculate his own economic needs efficiently under any circumstances. An individual has direct access to his own preferences and his value-scale—which no external entity can ever possess. He can always efficiently act to maximize his own subjective utility, irrespective of his social environment or lack thereof. Robinson Crusoe would be able to engage in personally relevant calculation on a desert island with the same efficacy that he would display in an advanced market economy. Both situations are identical from the praxeological point of view, and neither of them constitutes “socialism.” Socialism by definition requires some agents in a society of many individuals to be doing the economic planning for others.

            The socialist calculation problem would apply to any instance where some people plan for others without those others’ consent, for it is impossible for one person to fully comprehend and fulfill the valuations of even a single other. In order to know the valuations of another fully, one would have to observe how that other person acts every single second. Every second spent in such observation would severely limit, if not altogether prevent, the observer’s fulfillment of his own preferences other than the observation itself during that second. If we assume that the observer must have some other needs fulfilled (such as food, shelter, clothing, and bodily maintenance) in order to live long enough to be able to plan the long-term activities of the other, then he by definition cannot accurately observe and plan the entire needs of the other. All of his planning would be far less adequate than the planning that could have been performed by the other individual himself—for the other has the direct access to his own value-scale that the observer could never get.

            Thus, there is indeed a qualitative economic law inherent in Mises’s formulation of the socialist calculation problem: Every individual can efficaciously plan for himself to maximize his individual subjective utility, but no individual can efficaciously do so for others.

G. Stolyarov II is a science fiction novelist, independent filosofical essayist, poet, amateur mathematician, composer, contributor to Enter Stage Right, The Autonomist, Le Quebecois Libre, and the Ludwig von Mises Institute, Senior Writer for The Liberal Institute, and Editor-in-Chief of The Rational Argumentator, a magazine championing the principles of reason, rights, and progress. His newest science fiction novel is Eden against the Colossus. His latest non-fiction treatise is A Rational Cosmology. Mr. Stolyarov can be contacted at gennadystolyarovii@yahoo.com.