Back in the 1990s there was a fascinating debate carried on among various Austrians, mostly in the pages of the Review of Austrian Economics (RAE), on the issue of socialism, the economic calculation problem, and the “knowledge” argument advanced by Hayek and various Hayekians.
The debate was kicked off by some provocative comments by Misesian-Rothbardian Joseph Salerno, first in his Postscript to a 1990 reprint of Mises’s great 1920 article on the socialist calculation problem, and followed by Salerno’s 1993 article kicking off the Mises-Hayek “dehomogenization” debate.
I’ve compiled below a chronological listing of these pieces, and a few other works, with links to online versions, where available, for those who feel like reading up on this interesting issue. This is basically a (skeletal) ebook.
If anyone is aware of any significant material I have omitted, please let me know.
Update: I’ve combined most of the “main debate” and “additional materials” files into a single PDF.
Background:
- Ludwig von Mises, The Equations of Mathematical Economics and The Problem of Economic Calculation in a Socialist State [1938]; Economic Calculation in the Socialist Commonwealth (1920); Human Action (1949 [1940]), esp. Ch. 16, Secs. 1, 2, and 3
- F.A. von Hayek, The Use of Knowledge in Society (1945)
Main modern debate:
- Joseph T. Salerno, Postscript [1990], to Mises, Economic Calculation in the Socialist Commonwealth [1920]
- Don Lavoie, Critique of the Standard Account of the Socialist Calculation Debate, JLS, Vol. V, No. 1 (Winter 1981)
- Israel Kirzner, The Economic Calculation Debate: Lessons for Austrians, RAE, Vol. 2 (1988)
- Salerno, Ludwig von Mises as Social Rationalist, RAE, Vol. 4 (1990)
- Murray N. Rothbard, The End of Socialism and the Calculation Debate Revisited, RAE, Vol. 5, No. 2 (1991)
- Jeffrey M. Herbener, Ludwig von Mises and the Austrian School of Economics, RAE, Vo. 5, No. 2 (1991)
- Salerno, Mises and Hayek Dehomogenized, RAE, Vol. 6, No. 2 (1993)
- Larry Eshelman, Ludwig von Mises on Principle, RAE, Vol. 6, No. 2 (1993)
- Leland B. Yeager, Mises and Hayek on Calculation and Knowledge, RAE, Vol. 7, No. 2 (1994)
- Salerno, Reply to Leland B. Yeager on Mises and Hayek on Calculation and Knowledge, RAE, Vol. 7, No. 2 (1994)
- Hans-Hermann Hoppe, Socialism: A Property or Knowledge Problem?, RAE, Vol. 9, No. 1 (1996)
- Herbener, Calculation and the Question of Arithmetic, RAE, Vol. 9, No. 1, (1996)
- Jörg Guido Hülsmann, Knowledge, Judgment, and the Use of Property, RAE, Vol. 10, No. 1 (1997)
- Yeager, Calculation and Knowledge: Let’s Write Finis, RAE, Vol. 10, No. 1 (1997)
- Peter J. Boettke, “Economic Calculation: The Austrian Contribution to Political Economy,” Advances in Austrian Economics, Vol. 5, pp. 131–58, 1998
Subsequent debate and other commentary:
For an example of an application of some of these views to legal and economic issues, see Kinsella, Knowledge, Calculation, Conflict, and Law (review essay of Randy E. Barnett, The Structure of Liberty), Winter 1999, Quarterly Journal of Austrian Economics.
Update: Re Mykola Bunyk and Leonid Krasnozhon, “State capacity and the socialist calculation debate,” Southern Economic Journal 89(2) (Dec. 2022). See also my paper “Reducing Political Risk in Developing Countries: Bilateral Investment Treaties, Stabilization Clauses, and MIGA & OPIC Investment Insurance” (1994) and Using International Law to Protect Property Rights and International Investment, and Rubins, Papanastasiou, Kinsella, International Investment, Political Risk, and Dispute Resolution, 2d ed. (Oxford University Press, 2020), and this Grok analysis:
Prompt: “Consult the attached paper by Krasnozhon, https://stephankinsella.com/2025/11/international-law-protect-property-rights/ and https://kinsellalaw.com/wp-content/uploads/publications/polrisk.pdf . summarize the paper by Krasnozhon and explain its relevance for and connections between Kinsella’s points about using international law to guararantee investor property rights and investments, e.g. via internationalized agreements and stabilization clauses and choice of neutral/third party law and obligation to arbitration. Explain how Kinsella’s work here ties in with Krasnozhon’s abstract comment: “We argue that rational economic calculation requires the state’s institutional ability to make a credible commitment to constraints inhibiting public predation.””
Summary of Krasnozhon’s Paper
The paper “State Capacity and the Socialist Calculation Debate” by Mykola Bunyk and Leonid Krasnozhon (published in the Southern Economic Journal in 2022) seeks to bridge the classic socialist calculation debate—pioneered by economists like Ludwig von Mises and Friedrich Hayek—with modern new institutional economics. The socialist calculation debate, originating in the 1920s–1940s, primarily argued that rational economic calculation (i.e., efficient allocation of scarce resources among competing uses) is impossible under Marxist socialism due to the absence of market prices, private property, and rivalry. However, the authors contend that this debate has remained narrowly focused on economic calculation while neglecting broader political and institutional factors that determine economic development.
Drawing on new institutional economics, the paper emphasizes that economic calculation is intertwined with state capacity, defined as the state’s ability to enforce contracts, provide public goods, maintain law and order, and constrain itself from public predation (e.g., arbitrary expropriation or rent-seeking). High state capacity can support markets but also risks abuse if unconstrained, while low capacity often leads to instability, conflict, or failed reforms. The core thesis is that rational economic calculation requires not just markets but a state’s institutional ability to make a credible commitment to constraints inhibiting public predation—such as rules limiting government interference in private property and contracts.
To illustrate this, the paper uses two historical case studies in Section 3:
- Gorbachev’s Perestroika (1985–1991) in the Soviet Union: This reform attempted to introduce market elements into a socialist system but failed disastrously. The authors argue it was incentive-incompatible with rational calculation, as it lacked credible institutional commitments to protect markets from state predation. Instead, it restructured patronage and rent-seeking networks, exacerbating economic chaos rather than fostering genuine reform. Low state capacity and worsening conditions amplified the failure, aligning with Mises’s critique but highlighting the need for political constraints.
- Deng Xiaoping’s Reforms (1978–1989) in China: Despite China’s low state capacity at the time, these reforms succeeded in shifting toward rational economic calculation and rapid growth. The key was the state’s credible commitment to institutional constraints (e.g., gradual market openings and protections for private initiatives), which inhibited predation and supported market-preserving mechanisms. This contrasts with the Soviet case, showing that credibility, not just capacity level, is crucial.
In Section 4, the authors conclude that the socialist calculation debate should incorporate state capacity analysis to better explain real-world outcomes like the Soviet collapse and China’s “growth miracle.” They draw on scholars like Barry Weingast, Timothy Besley, and Peter Boettke to underscore that market economies and high-capacity states are complementary, but only when predation is credibly constrained. The paper contributes to comparative economics by showing how institutional credibility enables the Misesian ideal of rational calculation in transitional economies.
Relevance and Connections to Kinsella’s Points on Using International Law to Guarantee Investor Property Rights
Stephan Kinsella, a libertarian legal scholar and patent attorney, has extensively explored how international law can protect property rights, particularly for foreign investors facing political risks in host countries (e.g., developing nations prone to expropriation, regulatory changes, or arbitrary interference). His 2025 blog post “Using International Law to Protect Property Rights and International Investment” (reprinted by the Libertarian Alliance) and his paper “Political Risk and International Investment Law” (available on his law firm site) emphasize non-coercive, contractual, and treaty-based mechanisms to safeguard investments. These works align with libertarian principles of natural law, non-aggression, and pacta sunt servanda (agreements must be kept), viewing international law as a “real” framework for peaceful dispute resolution without needing a global government.
Kinsella’s arguments directly connect to Krasnozhon’s framework by providing practical tools for states—especially those with low or unreliable capacity—to credibly commit to constraints on public predation, thereby enabling rational economic calculation for investors. In Krasnozhon’s view, without such commitments, states risk descending into rent-seeking or predation, undermining efficient resource allocation (as seen in Perestroika). Kinsella’s mechanisms internationalize these commitments, shifting enforcement from potentially biased domestic institutions to neutral international ones, which deters predation and encourages investment in risky environments. This fosters the market-preserving conditions Krasnozhon deems essential for development, similar to how Deng’s reforms succeeded through credible (if gradual) protections.
Key connections via specific mechanisms Kinsella discusses:
- Internationalized Agreements: Kinsella highlights how contracts (e.g., concessions or Bilateral Investment Treaties [BITs] like the U.S.-Russia BIT) can be “internationalized” by referencing international law, treaties (e.g., CAFTA-DR), or bodies like the International Centre for Settlement of Investment Disputes (ICSID). This elevates agreements beyond domestic jurisdiction, making them binding even if host states change laws. For instance, in the Próspera case, Honduras’s revocation of a ZEDE (Zone for Employment and Economic Development) law triggered an $11 billion ICSID claim under a Legal Stability Agreement. This relevance to Krasnozhon: Such agreements force states to commit credibly to non-predation (e.g., no arbitrary expropriation), addressing the “fundamental dilemma” of state capacity—empowering states to protect markets without allowing confiscation. In low-capacity states (like post-socialist ones in Krasnozhon’s cases), internationalization provides an external constraint, enabling rational calculation by assuring investors of property security and thus promoting efficient capital allocation.
- Stabilization Clauses: These clauses “freeze” the host state’s laws at the agreement’s signing, protecting against future regulatory predation (e.g., tax hikes or nationalization). Kinsella cites arbitral cases like Texaco v. Libya and Liamco v. Libya, where such clauses led to damages awards for breaches. Connection to Krasnozhon: Stabilization embodies the credible commitment to “ex-ante constraints” on predation, preventing the misuse of state capacity (as in high-capacity but abusive regimes). In Krasnozhon’s Chinese case, Deng’s reforms used similar gradual stabilizations to build trust; Kinsella’s tools extend this internationally, allowing investors in unstable states to calculate risks rationally, knowing predation is deterred by enforceable clauses.
- Choice of Neutral/Third-Party Law: Investors can select impartial laws (e.g., English or New York law) to govern disputes, bypassing host state biases. Kinsella notes this supplements treaties, ensuring predictability. Relevance: This neutralizes the predation risks from low legal state capacity (e.g., weak rule of law in Krasnozhon’s Soviet example), aligning with Krasnozhon’s call for institutions that constrain fiscal capacity (taxation/redistribution) while bolstering legal capacity (contract enforcement). It enables rational calculation by providing a stable informational framework akin to Mises’s market prices—investors can allocate resources based on reliable legal signals rather than fearing arbitrary changes.
- Obligations to Arbitration: Kinsella stresses mandatory arbitration under ICSID, UNCITRAL, or the New York Convention, which binds states to neutral resolution and enforceable awards (including lost profits). Examples include BITs prohibiting indirect expropriation without compensation (per the Hull Formula: prompt, adequate, effective). Tie-in: Arbitration shifts power from states to investors, deterring predation through accountability (e.g., higher damages). This mirrors Krasnozhon’s emphasis on viability of markets requiring constraints on internal violence or rent-seeking traps in low-capacity states. In Kinsella’s libertarian lens, it avoids “gunboat diplomacy” (historical force-based protections) while achieving the same end—protecting property to foster prosperity, much like how credible commitments in Deng’s China avoided the Soviet pitfalls.
Overall, Kinsella’s work operationalizes Krasnozhon’s abstract point by showing how international law creates “market-preserving federalism” (echoing Weingast, cited in both) on a global scale. Risky states can “borrow” credibility via treaties and clauses, committing to non-predation and thus enabling investors’ rational economic calculation. This is especially pertinent for transitional economies, where domestic institutions alone fail (Perestroika) but external bindings succeed (Deng). Kinsella critiques statist UN frameworks while promoting these as ethical, voluntary tools, reinforcing Krasnozhon’s view that development hinges on constraining predation to support markets.
Update:
El debate sobre la deshomogeneización de Mises y Hayek en el cálculo económico socialista.
Mises en 1920 dijo que el socialismo era imposible como sistema de asignación racional.
El argumento es que sin propiedad privada sobre los medios de producción no hay intercambio genuino…
— Miguel Hernández (@miguelhzv) February 24, 2026
