Tuesday, 28 February 2006

A socialist calculator anyone?

A joke was told before the fall of the Soviet Union: A Marxist economist says "We wish Communism to triumph over all the world - except for New Zealand."

"Why New Zealand?" a Western economist asks? "Because prices have to be set somewhere!" The Marxist replies.

It took nearly a century, but the argument by Ludwig von Mises that price-setting and economic calculation is impossible under socialism -- that establishing the economic value of anything in a command economy was just not possible -- was eventually so widely recognised by the Soviets themselves they made a joke about it.

Economic value is not determined primary by the amount of labour consumed in production, but by the price people are willing to pay for something when their choice is free and uncoerced. Without a free and uncoerced market, establishing economic value is just so much guesswork.

Now, to make the point to your socialist friends, the jokers at the Mises Institute are offering a calculator for them. One commenter suggests, "Maybe there ought to be three different settings: (1) total socialism where the calculator is off; (2) socialistic economy where the results somehow come out distorted; and (3) the free-market where the calculator is on the normal setting."

LINKS: What do you think of this? - Mises Economics Blog
The impossibility of economic calculation under socialism (excerpt from Human Action) - Ludwig von Mises

TAGS: Economics, Politics

1 comment:

  1. Its well worth reading the book Socialism by Ludwig von Mises, it gives quite an insight into the irrationality of what the Soviet Union was attemting.


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