Ludwig von Mises once said “All rational action is in the first place individual action. Only the individual thinks. Only the individual reasons. Only the individual acts.” This refers to the power individuals have on the free market.
Unlike socialism- which destroys the intellectual foundation for economic growth- the free market makes up a collaboration of individuals who determine the market costs.
Mises often debated socialism. Arguing the projections for solid monetary calculation do not exist under a centrally planned economy because determining the outcome of finished products is practically impossible.
This isn’t to deny the fact that a society can have a large facet of people controlling the means of productions, but with central planning, economically, there is no way to scale and determine if a product is producing an optimal pattern of output. Even if the entrepreneur is scaling the prices. Meaning central planning is unable to economically allocate resources to the highest valued uses. Even if they themselves determine the scale of value for society.
Without a price system, one cannot calculate the cost of various goods that have output. Without a price system, there is no way of determining how much production for any particular good cost and without knowing the cost of various goods you can never determine the most profitable line of production.
Abolishing capitalism and market costs disconnects real economic solutions. The 3 “real world” institutional preconditions for economic calculation that Mises theorized are as follow:
First: private property in all orders and goods. Both consumer goods need to be privately owned and traded as well as capital goods and natural resources. This determines the price.
Second: freedom to exchange. Free exchanged is abolished under socialism and replaced with a system where people own property but are unable to exchange it.
Third: there needs to be sound money. All prices in the real world market economy need to be market prices.
Socialism abolishes all three. Capital goods are owned by the states. The state monopolizes all of the goods, so it restricts the freedom to exchange. With no exchange possible there are no prices of these goods. And with no prices, there is no way to determine the cost of production.
Let’s take an automobile for example. When gathering the resources to designing a car, entrepreneurs take into consideration the price of steel, machine time, labor, factory space, kilowatt hours of electricity, etc. All of these resources are put into the creation of just one automobile.
Under a centrally planned economy, calculating these cost would be practically impossible; therefore socialism destroys the market and the ability to create wealth and grow an economy.
The philosophy or idea of socialism taste so sweet, but when you sprinkle in real-world economics, you learn it’s an unstable recipe for disaster. Mises theory stands true today with a prime example being the collapse of the Venezuela economy. Devaluing their currency by mass inflation and poor allocation of resources, which has turned the country of Venezuela into one of the worlds worse humanitarian crises in modern times.
