von Mises' Economic Calculation Problem….. Debunked

Economic Calculation Problem….. Debunked

[historic.ly, 19 Jun 2026]

According to libertarians, the Economic Calculation Problem is the ultimate kryptonite against socialism — a decisive argument that no one has ever refuted. Austrian economist Ludwig von Mises presented it as a logical proof that socialism is inherently irrational….

Mises maintained that the information necessary for economic calculation cannot be directly derived from physical quantities alone. Steel, labor, coal, machinery, and land are qualitatively different inputs that cannot be compared through simple measurement. Market exchange generates prices that reduce these heterogeneous goods to a common monetary denominator, allowing alternative production plans to be compared. Millions of exchanges produce prices that summarize dispersed information about relative scarcity and demand. In his view, the market functions as a mechanism for coordinating information that no individual planner could assemble independently.(Mises 1949, 92–97; 1920; 1922).

Without price-based calculation, Mises concluded, socialist planning must be arbitrary, leading to waste, inefficiency, and eventual collapse….

A central assumption in Mises’s argument is that profitability indicates that resources are being used more effectively. If a producer cannot compete profitably, Mises argues that others have found a better use for the resources involved (Mises 1949, pp. 300–302, 334–336; see also 1920)

Yet profitability in this system often comes not from genuine improvements or feeding more people, but from engineered scarcity and the quiet destruction of life….

Prices embed existing inequalities and power relations rather than revealing objective scarcity or true societal value.For example, in order to mine cobalt (a critical input for electric vehicle batteries and other high-tech goods), children between the ages of 3–17 in the mining communities of the copper-cobalt belt in the Democratic Republic of Congo are heavily involved in the labor. According to a 2017 UC Berkeley CEGA white paper, 11% of children aged 3–17 work outside the household in these artisanal mining areas, while an additional 57% perform domestic household tasks that support the mining economy.Even when prices exist, they reflect the current structure of power and property relations, not moral value or labor input…."

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From your humble blogger: 

This debunk is yet another example of applying what classical economics calls the "law of declining profits." In a perfectly free market without barriers to entry, firms compete for business on (lower) price and (higher and higher-priced) quality.  This inevitably leads profits to decline.

Firm managers and investors know this inside out. Champion stock-picker Warren Buffett said he always looked for firms with "moats," to discourage competition, when he invested. Other strategies to avoid the law of declining profits include predatory labor practices (to lower costs), buying out other firms to make monopolies and oligopolies control markets, "dumping" - selling goods at lower-than-production costs to drive less capitalized competitors out of the market, and unproductive activities. 

The best example of unproductive activities is military expenditure. Nothing is less productive than a product literally designed to blow up. On top of that military acquisitions are often done with cost plus contracts. The "plus" is the profit, and is figured as a percentage of costs. So the more expensive the weapon, the better, at least from a profit perspective. Whether it works or not is secondary. Iran's drones are cheap, and the US/Israel countermeasures are easily hundreds of times more expensive...and they're not always reliable.

Of course seekers of profit are not shy about using warfare, too. Von Clausewitz said "War is politics by other means." One might add that "Economics is war by other means," too. 

The US used to manage it's "free" market very closely with measures like the Wright-Patman act that forbade price discrimination between big and little buyers. So when Walmart gets its soda at a difference price than mom-and-pop stores that's forbidden under Wright-Patman. Matt Stoller reports the FTC stopped enforcing that law, which would be very damaging to Walmart's business model.

 It also used to be illegal to buy back stock, or to pay executives with stock or options. A bipartisan effort rolled back these regulations. The political class has succumbed to the influence of the plutocrats, and public policy is the foundation of the current level of income inequality.