Was Mises right? The socialist calculation debate after 100 years

In 1920, Ludwig von Mises published his paper “Economic Calculation in the Socialist Commonwealth” (in German). In it, he denied the possibility of an efficient or rational socialist economic system, arguing that the lack of accounting for the use of factors of production (especially capital) in an economy without private property in productive inputs prevented the establishment of an efficient allocation. The resulting controversy, the so-called Socialist Calculation Debate, centered around this Mises thesis and was regarded as settled against it with the appearance of Oscar Lange’s contribution “On the Economic Theory of Socialism”. The difficulties the Soviet Union was confronted with in the late 1980s and the following dissolution of the Eastern Bloc and the Soviet Union cast doubts on this after-Lange consensus. Theoretical contributions, especially by Don Lavoie and other authors from the Austrian School of Economics, strengthened the revision of the mainstream view about Mises’s thesis. Another round of discussion was opened with the Great Recession, which again led to intensified critique of capitalist market economies and the allocation they bring about. In this paper, we outline the varying views about the Mises thesis and the challenges this development creates for the evaluation economic discourse and the scientific foundations of economics in general. We stress that the theoretical basis of normative assessments of alternative economic systems strongly depends on underlying positive views about both capitalist and socialist economies. Specifically, that the neoclassical general equilibrium model is inadequate for a capitalist economy as is the optimal public purpose model for a socialist economy, and that comparative evaluations of different politicoeconomic systems must start from theories and models that do not abstract from essential features of the information, the motivation and the decision structure of these systems. We conclude that under these aspects, the empirical and theoretical evidence points towards a preliminary verification of the (appropriately interpreted) Mises thesis.