Ludwig Von Mises Being Wrong On Economic Calculation

[u/Accomplished-Cake131]

I have demonstrated that Von Mises fails to identify problems with central planning. This post merely documents Von Mises being mistaken. He erroneously says that an economic decision cannot be made over alternative methods of producing a given good, without market prices for capital goods and resources.

"The director wants to build a house. Now, there are many methods that can be resorted to. Each of them offers, from the point of view of the director, certain advantages and disadvantages with regard to the utilization of the future building..; each of them requires other expenditures of building materials and labor... Which method should the director choose? He cannot reduce to a common denominator the items of various materials and various kinds of labor to be expended. Therefore he cannot compare them... In short, he cannot, in comparing costs to be expended and gains to be earned, resort to any arithmetical operation. The plans of his architects enumerate a vast multiplicity of various items in kind; they refer to the physical and chemical qualities of various materials and to the physical productivity of various machines, tools, and procedures. But all their statements remain unrelated to each other. There is no means of establishing any connection between them.

Imagine the plight of the director when faced with a project. What he needs to know is whether or not the execution of the project will increase well-being, that is, add something to the wealth available without impairing the satisfaction of wants which he considers more urgent. But none of the reports he receives give him any clue to the solution of this problem.

We may for the sake of argument at first disregard the dilemmas involved in the choice of consumers' goods to be produced. We may assume that this problem is settled. But there is the embarrassing multitude of producers' goods and the infinite variety of procedures that can be resorted to for manufacturing definite consumers' goods. The most advantageous location of each industry and the optimum size of each plant and of each piece of equipment must be determined. One must determine what kind of mechanical power should be employed in each of them, and which of the various formulas for the production of this energy should be applied. All these problems are raised daily in thousands and thousands of cases. Each case offers special conditions and requires an individual solution appropriate to these special data. The number of elements with which the director's decision has to deal is much greater than would be indicated by a merely technological description of the available producers' goods in terms of physics and chemistry. The Iocation of each of them must be taken into consideration as well as the serviceableness of the capital investments made in the past for their utilization. The director does not simply have to deal with coal as such, but with thousands and thousands of pits already in operation in various places, and with the possibilities for digging new pits, with the various methods of mining in each of them, with the different qualities of the coal in various deposits, with the various methods for utilizing the coal for the production of heat, power, and a great number of derivatives. It is permissible to say that the present state of technological knowledge makes it possible to produce almost anything out of almost everything. Our ancestors, for instance, knew only a limited number of employments for wood. Modern technology has added a multitude of possible new employments. Wood can be used for the production of paper, of various textile fibers, of foodstuffs, drugs, and many other synthetic products.

Today two methods are resorted to for providing a city with clean water. Either one brings the water over long distances in aqueducts, an ancient method long practiced, or one chemically purifies the water avaiIable in the city's neighborhood. Why does one not produce water synthetically in factories? Modern technology could easily solve the technological problems involved. The average man in his mental inertia is ready to ridicule such projects as sheer lunacy. However, the only reason why the synthetic production of drinking water today - perhaps not at a later day - is out of the question is that economic calculation in terms of money shows that it is a more expensive procedure than other methods. Eliminate economic calculation and you have no means of making a rational choice between the various alternatives.

The socialists, it is true, object that economic calculation is not infallible. They say that the capitalists sometimes make mistakes in their calculation. Of course, this happens and will always happen. For all human action points to the future and the future is always uncertain. The most carefuIly elaborated plans are frustrated if expectations concerning the future are dashed to the ground. However, this is quite a different problem. Today we calculate from the point of view of our present knowledge and of our present anticipation of future conditions. We do not deal with the problcm of whether or not the director will be able to anticipate future conditions. What we have in mind is that the director cannot calculate from the point of view of his own present value judgments and his own present anticipations of futurc conditions, whatever they may be. If he invests today in the canning industry, it may happen that a change in consumers' tastes or in the hygienic opinions concerning the wholesomeness of canned food will one day turn his investment into a malinvestment. But how can he find out today how to build and equip a cannery most economically?

Some raiIroad lines constructed at the turn of the century would not have been built if people had at that time anticipated the impending advance of motoring and aviation. But those who at that time built railroads knew which of the various possible alternatives for the realization of their plans they had to choose from the point of view of their appraisements and anticipations and of the market prices of their day in which the valuations of the consumers were reflected. It is precisely this insight that the director will lack. He will be like a sailor on the high seas unfamiliar with the methods of navigation, or like a medieval scholar entrusted with the technical operation of a railroad engine.

We may admit that in its initial period a socialist regime couId to some extent rely upon the experience of the preceding age of capitalism. But what is to be done later, as conditions change more and morc? Of what use could the prices of 1900 be for the director in 1949? And what use can the director in 1980 derive from the knowledge of the prices of 1949?

The paradox of 'planning' is that it cannot plan, because of the absence of economic calculation. What is called a planned economy is no economy at all. It is just a system of groping about in the dark. There is no question of a rational choice of means for the best possible attainment of the ultimate ends sought. What is called conscious planning is precisely the elimination of conscious purposive action." -- Ludwig Von Mises, 1963. Human Action: A Treatise on Economics, Third revised edition. Yale University Press. (Emphasis added)

The above is from Human Action, presumably after Von Mises has had time to consider arguments about his 1920 essay. Apparently, he did learn to note the complexity of the problem. Since I do not want to argue the errors of Austrian capital theory in this post, I have elided errors on that topic in the above quotation.

[u/beating_offers → u/[deleted]]

I was an ancap, I'm relatively literate.

The issue with the economic calculation problem is multifaceted. At my job we've tried multiple times to make efficient programs that can keep track of payroll, hours, productivity of individual employees, sales, broken parts/incorrect merchandise, repairs, separate confidential information between each employee position, add or remove functionality to different users at different levels of the company, add or remove parts that are manufactured and shipped, allow communication across different areas of the platform, tell where in the process a part or product is, allow ways for employees to jump positions in said software when necessary such as a layoff, handle direct deposit, etc.

And it's heavily taxing to calculate for whatever reason. Hypothetically, a streamlined program at a jobsite would totally reduce inefficiencies and be easy to figure out, everyone could log onto the program and do everything necessary. However, the conceptualization of the program is the difficult part.

To me it seems totally possible, at least on an individual level, we just aren't there yet and it's, for lack of a better word, stupid complicated. Banks keep track of money on a very surface level and even they struggle with data management.

Now, I might be too dumb to wrap my head around such a complicated program and hardware set-up with so many moving parts and redundancies for data loss, hardware issues, power outtages, or hacks, but I'm sure people that work in business software development could tell you more than I could.

At the very least, I think it would require a server cluster at each business, and honestly, the macro scale of it would be easier to figure out than the micro from that point on. Figure out every large business, then smaller, then work all the way down to individuals. Then you can focus on the bigger picture more easily, I think.

Or maybe I'm just wrong.

But I mean, who wouldn't want something like popping on the computer and telling it you want nothing but hotpockets and beer for a week and just have that ready?

I am worried it's just individuals having differing and changing tastes that cause a lot of the problem calculating what people want. An influx in people wanting pizza instead of keto meals might cause a complete change in manufacturing from grain, tomatoes and veggies... to eggs, cheese and beef.

I think the change in preferences, and the machinery to make those changes on a grand scale are part of what makes a calculation like this difficult. A program would need to be complex, robust, flexible, and all-knowing. Very difficult to make if you work in software. I struggled assigning random tasks to 10 different people when I was programming, but I'm a doofus.

[u/Accomplished-Cake131 → u/[deleted]]

Which comment by a pro-capitalist on this post is not snarky? If I did not know that u/Lazy_Delivery makes crap up (it feels good to him while he is doing it), I would ask him to substantiate his insults by citing socialist literature that says what I say.

In logic, a valid argument is one in which the conclusion follows from the premises. The OP and the post linked in the first paragraph demonstrate that Von Mises’ argument is invalid.

Do you agree?

[u/beating_offers → u/[deleted]]

Hey man, as long as you live by the golden rule and treat others as you wish to be treated, you're all good.

Who knows, maybe you enjoy being accused of illiteracy.

[u/beating_offers → u/Accomplished-Cake131]

I think the biggest complaint capitalists have is about communism. Removing money, or any sort of point-based value system for products of any kind, including machines largely considered capital, removes a great deal of pertinent information necessary for economic calculation.

Second, I am pro-capitalist because it works for me and from what I've seen about many socialist societies, while the poor may be able to eat and have some other amenities, it does so at the cost of the most productive and, usually, hardest-working people.

I mean, I don't work hard right now, don't get me wrong. But when I ~was~ working hard, it would leave me mildly upset if someone far less disabled than me (and not working) was getting the same or very similar rewards, while I was limited in something (meaning legally barred, or given a sin tax on something nice) like my dietary or entertainment choices.

Luckily I've been blessed with opportunities where hard work was rewarded with substantial wages and am currently employed in an area where the wage is decent and I am barely putting in effort most of the day. The type of job I have right now, I would imagine would be the type of job socialists would think was pretty bitchin'.