Economic Calculation Problem

To economize something means to use it efficiently, reducing waste and maximizing value. It’s about cutting unnecessary costs, saving resources, or making something last longer.

Without price signals to determine which is the better use of scarce resources, central planners are unable to economize properly since they cannot assess the performance and efficiency of their proposed solutions.

Mises' Argument

1. Socialism abolishes private property in capital goods and natural resources.
2. Since the socialist State is sole owner of the material factors of production, they can no longer be exchanged.
3. Without exchange there can be no market prices.
4. Under socialism, therefore, the State cannot calculate the costs of production for the goods its produces — i.e. It is groping in the dark
5. In the absence of economic calculation of profit and loss, socialist planners cannot know the most valuable uses of scarce resources and therefore a socialist economy is strictly impossible.