[From Mises Blog, July 11, 2006, archived version with comments (below).

For more on this issue see also The Great Mises-Hayek Dehomogenization/Economic Calculation Debate]

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

@miguelhzv Tweet:

The debate on the dehomogenization of Mises and Hayek in socialist economic calculation.

Mises said in 1920 that socialism was impossible as a system of rational allocation.

The argument is that without private ownership of the means of production there is no genuine exchange of factors, without genuine exchange of factors there are no real monetary prices, without prices there is no cardinal calculation, without calculation there is no way to compare alternative uses of scarce resources.

It’s not a problem of the amount of information or computing power. It’s that the very data you need to calculate (the monetary price resulting from competitive bids between owners who risk their own assets) doesn’t exist without the institution of private property.

Eliminate property and you eliminate the possibility of economic rationality. Period.

Hayek shifted the focus. Instead of ownership and calculation, he emphasized dispersed knowledge and coordination.

Prices, in their own way, are signals that transmit fragmented information that no planner could centralize. It’s a valuable observation about how the market works, I don’t deny it. But as an argument against socialism, it’s weak.

Because if the problem is that the planner doesn’t have enough information, then in principle, they could have it. With better computers, with artificial intelligence, with preference-revealing mechanisms.

The door was left ajar, and through it entered Lange, Taylor, and all the market socialists of the 20th century with their solutions that Mises had already refuted at their root before Hayek published a single line on the subject.

Salerno traced the intellectual genealogy, and what he found is revealing. Hayek does not inherit from Menger and Böhm-Bawerk on this point; he inherits from Wieser, who believed that an omniscient dictator could indeed calculate by imputing subjective values ​​without the need for actual exchange. Mises broke with Wieser explicitly. Hayek did not.

Hoppe formulated it logically: “Socialism is a problem of property, not of knowledge.”

Think of it this way: a family centralizes knowledge, a company centralizes knowledge, a CEO makes decisions with incomplete information. No one would say that a family or a corporation is socialist because of that.

They work because they operate within a framework of private property where external prices exist and allow for economic calculation.

What distinguishes socialism is not the centralization of information but the abolition of private ownership of the factors of production.

Give the Soviet planner all the information in the universe (every consumer’s preference, every technical data from every factory, every climatological variable) and he still cannot calculate, because the problem is not that he lacks data but that he lacks the institution that generates the only economically significant data.

Hoppe also dismantles Hayek’s most famous tin metaphor. Hayek says that when the price of tin rises, consumers don’t need to know why: the price communicates scarcity.

And this sounds elegant, but it reverses causality. Price doesn’t communicate anything as if it were a coded message. Price is the result of prior exchanges between owners. Without ownership, there is no exchange. Without exchange, there is no price. Without price, there is nothing to communicate.

The knowledge that prices supposedly convey does not exist outside the institutional framework that generates them. Confusing cause with effect is precisely what makes Hayek’s argument vulnerable.

Hülsmann delved into another aspect that the Hayekian version neglects: business judgment. Knowledge without judgment is sterile.

The entrepreneur is not a passive recipient of price signals; he is an actor who estimates, takes risks, and transforms.

It values ​​the future value of productive factors under radical uncertainty, and that value only makes sense when it risks its own property.

Profit and loss are not mere indicators; they are the disciplinary mechanism that filters correct judgments from incorrect ones.

A bureaucrat who manages other people’s resources may know everything you want, but without skin in the game his judgment lacks the discipline that only personal loss imposes.

Hülsmann insists that business valuation presupposes ownership, not information. And without valuation, no calculation is possible, no matter how much data you accumulate.

Kinsella connected this to law, an angle that is usually ignored. Economic calculation presupposes the peaceful resolution of conflicts over scarce resources. Private property is not only a condition of calculation; it is the condition of social peace that makes exchange possible.

Abolishing private property not only destroys prices; it generates endemic conflict over who uses which resources and how. And in a regime of permanent conflict, the very notion of knowledge coordination is an academic fantasy.

Herbener placed Mises where he belongs, in the direct Menger-Böhm-Bawerk line, deductive, praxeological, centered on human action and property.

Hayek veers toward a more empiricist, more sociological evolutionism, where institutions emerge through blind selection and knowledge takes precedence over property. There is descriptive merit in that, but as an argument against socialism, it is a degradation.

Rothbard wrote as the Berlin Wall was falling, and his tone is one of historical vindication. The USSR did not collapse because it lacked computers or because knowledge was poorly coordinated.

It collapsed because it could never calculate. It survived for decades by parasitizing the prices of the capitalist world for its own internal decisions and using the black market as an escape valve.

When those external supports weakened, the building collapsed. Those who said Hayek had won the debate were wrong. Mises won, because his argument was correct: it’s not a practical problem that can be solved with better technology or better management. It’s a logical problem inherent in the abolition of property.

Yeager tried to salvage the homogenization by reducing the calculation to arithmetic; once you have the data, calculating is trivial. Salerno destroyed this in the rebuttal.

The problem of calculation in Mises is not one of mathematical manipulation of given data. It is one of the origin and significance of that data.

Where do prices come from? From voluntary exchanges between owners who risk their capital. Without ownership, data simply isn’t generated.

It’s not that the planner has the data but doesn’t know how to add it up; it’s that the data doesn’t exist. By equating calculation with knowledge, Yeager unwittingly ends up on Lange’s side.

Huerta de Soto offers the most comprehensive synthesis. He acknowledges differences and appreciates Hayek’s contributions to the analysis of the market process, but he takes a hard line: socialism is institutional aggression against the entrepreneurial function.

Without private property, entrepreneurship cannot generate the information that enables calculation. Everything Hayek describes—discovery, coordination, learning—presupposes an institutional framework of property that socialism destroys.

Hayekian dynamism is real, but it’s a derivative phenomenon. The cause is ownership. And Huerta de Soto also shuts the door on contemporary fantasies: neither artificial intelligence, nor big data, nor shadow prices solve anything, because the problem was never computational. It was and continues to be institutional.

Every advance in computing revives socialist hopes, fueled by the belief that we can finally centralize information. (I have an article on this topic.)

If Mises’ original formulation had been maintained (without property there is no calculation, and there is no technology to replace it), those answers would have been recognized as absurd from day one.

And today the argument returns in new guises. They tell you that artificial intelligence can be used to plan an economy.

Leigh Phillips and Michal Rozworski argue that Amazon’s or Walmart’s algorithms are already central planning that works. But they ignore the fact that Amazon operates within a free-market system with private ownership, competition, and entrepreneurial risk.

What Amazon achieves internally is calculation within a capitalist framework, using external prices as a reference. Remove that framework and Amazon becomes another Gosplan. Technology does not replace ownership. It never has and it never will, because the problem is not technical. It is praxeological.

Private property is not a complement to the market. It is its condition of existence. Without property there is no exchange. Without exchange there are no prices. Without prices there is no calculation. Without calculation there is no economic rationality. Without economic rationality there is no complex civilization.

The chain is logical, not empirical, and no technological advance alters it because it does not attack the correct link.

Mises resolved the debate on socialist calculation in 1920. Salerno, Hoppe, Rothbard, Hülsmann, and Kinsella deepened it, reinforced it, and connected it with the theory of property and law.

Hayek made useful observations about how the market works, but his reframing of the problem as a question of knowledge was a misdirection.

Socialism is not difficult. It is not inefficient. It is not a problem of management, information, or technology. It is impossible as a rational system of organization.

And it is for a reason that no technical progress can overcome: it destroys private property, and with it, all possibility of economic calculation.

Knowledge vs. Calculation

July 11, 2006 9:24 PM

On occasion I’ll see someone try to smooth over the Mises-Hayek “dehomogenization” debate which argued whether and to what extent Mises’s and Hayek’s approaches to the impossibility of socialism differed. One side–what I’ll call the Rothbardian or praxeological-Misesian view–sees Mises’s insight as having to do with the use of money prices to serve as a cardinal unit for purposes of economic calculation. This approach is championed by Rothbard, Hoppe, Herbener, Salerno, Huelsmann, and others, and arguably Mises. This view also sees Hayek’s contribution as different, and as possibly confused or flawed: that prices help to spread otherwise localized information through the economy, thus enabling efficient use of resources. The Hayekians tend to emphasize the knowledge or informational aspects of money, but also maintain that this is just “the other side of the coin” of Mises’s insights.

See, e.g., Yeager, in Mises and Hayek on Calculation and Knowledge, “question[ing] the supposed distinction between calculation and knowledge problems.” See also: Pete Boettke, Hayek and Market Socialism: Science, Ideology, and Public Policy (Don Lavoie [in Rivalry and Central Planning, 1985] argued that one must read Mises and Hayek’s arguments as two sides of the same coin, and I follow him in this regard and will not dehomogenize their different contributions to the analysis of socialism”); also his Economic Calculation: The Austrian Contribution to Political Economy (“the essential argument that Mises and Hayek rose against socialist proposals–the problem of economic calculation–and their understanding of how the private property system affords monetary calculation are complementary contributions to economic theory”).

Also see Steve Horwitz, Monetary Calculation and the Unintended Extended Order: The Misesian Microfoundations of the Hayekian Great Society (“An Austrian economics for the 21st century is going to have to rediscover those Misesian insights and more fully integrate them with Hayek’s work on knowledge and coordination. … a “praxeological” social scientist has both a Hayekian and a Misesian task: The Hayekian task is to recognize and describe the nature of the unplanned order that is to be explained, while the Misesian task is to describe the process by which intentional human action is guided such that it can produce that Hayekian order. … The “de-homogenizers” have … correctly identified microfoundations [including] the importance of monetary calculation and Mises’s concept of “appraisement,” but … they ignore what seems to be the obvious relationship between those microfoundations and Hayek’s vision of the social order. That is, they ignore that the outcome of the use of economic calculation by individual entrepreneurial actors and by firms and households is precisely the “use of knowledge in society” that characterizes the Hayekian spontaneous market order.”).

Also: Bob Murphy in a recent post wondered: “I don’t understand why Salerno (and Kinsella and perhaps others too on their side of this) think it so crucial to hammer home the point that market prices don’t convey knowledge.” Murphy and I had some back-and-forth on this in the comments to this post, as well.

(Some more information is available on the Wikipedia entry on the economic calculation debate.)

So the Rothbardians/praxeologists view the Mises and Hayek approaches as different (and the latter as a weaker point, at best, or confused and distracting, at worst); while the Hayekians claim the approaches are complementary and intertwined.

On occasion I have corralled and summarized some of the resources but do this often enough that I thought it might be useful to put some of the links and references in one place. It is my view that the (primarily Rothbardian/praxeological) sources below, at the very least, make it difficult to argue that the two approaches are “two sides of the same coin”. Below is a brief discussion and summary of and some links to some of these arguments.

***

What I take to be the Rothbardian or praxeological-Misesian approach to the socialism-knowledge-calculation debate is found in the writings of: Salerno (Economic Calculation in the Socialist Commonwealth: Postscript: Why a Socialist Economy is “Impossible”, Reply to Leland B. Yeager on “Mises and Hayek on Calculation and Knowledge”, Ludwig von Mises as Social Rationalist), Hoppe (Socialism: A Property or Knowledge Problem?), Hülsmann (Knowledge, Judgment, and the Use of Property), Herbener (Calculation and the Question of Arithmetic; Ludwig von Mises and the Austrian School of Economics), Rothbard (The End of Socialism and the Calculation Debate Revisited), and, of course, Mises (The Equations Of Mathematical Economics And The Problem Of Economic Calculation In A Socialist State; Economic Calculation in the Socialist Commonwealth; Human Action, esp. Ch. 16, Secs. 1, 2, and 3).

A summary of some of these views is found in my essay Knowledge, Calculation, Conflict, and Law. See. e.g. p. 53 and n. 8 [of the original; see text at n.27 of the LFFS version], discussing Hülsmann‘s discussion of Hayek’s tin example:

In this example, what information, exactly, is supposed to be conveyed by prices? Let us explore the possibilities. Can the original cause of the price increase (i.e., the change in demand or supply) itself be conveyed via prices? Well, no. Prices are the result of action. Thus, action that changes the prices must already be informed by knowledge.8

8 In other words, the prices generated on the market are past prices, which are always the outcome of action, not its cause. Hülsmann (p. 26) explains that “all information that this action was based upon had to be acquired beforehand. The price itself could not have communicated the knowledge that brought it [the price] about.” With regard to the tin example, “tin does not become scarcer and then this fact can come to be known to someone and lead to adaptations. Rather it is the other way around. The very fact that demand increases means that someone already knows of a more value-productive employment of tin” (p. 28).

Note that even Hayek says that mere users of tin do not know “anything at all about the original cause of these changes.” So prices might rise for a number of reasons: 1. because some people correctly assess that supply is reduced and therefore bid prices up; 2. because some people mistakenly believe supply is reduced and therefore bid prices up; 3. because some people correctly assess that demand will increase; 4. because some people mistakenly forecast that demand will increase. Etc. So if price goes up does it give you any information? All you know is it went up for some reason. You don’t know why. The people who bid it up know why they bid it up, based on their own assessment and knowledge–which is of necessity information they have that they did not get from prices; it is their knowledge and opinions that they use to form the price, not the other way around.

In fact it’s important to realize, in my view, that it is not a bad thing that information is “dispersed.” In fact, as Salerno points out,

dispersed knowledge is not a bane but a boon to the human race; without it, there would be no scope for the intellectual division of labor, and social cooperation under division of labor would consequently, prove impossible.

Joseph T. Salerno, “Reply to Leland B. Yeager on Mises and Hayek on Calculation and Knowledge,” Review of Austrian Economics 7(2) (1994): 111–126, pp. 114–15.

Prices are important because they serve as an “accessory of appraisement.” “Current” (immediate past) prices tell only what the current price structure is, and thus serve as a basis for forecasting what the future array of prices will be, given the current starting point. For this reason, Hülsmann argues (p. 47) that present prices “can have no communicative function because they are only the, if indispensable, starting point for our understanding of the future.”

Some of Mises’s writing is extremely useful here, on the formation of prices and the distinction between future and past prices. See, e.g., Human Action, ch. 16 sec 3, pp. 336-37:

In drafting their plans the entrepreneurs look first at the prices of the immediate past which are mistakenly called present prices. Of course, the entrepreneurs never make these prices enter into their calculations without paying regard to anticipated changes. The prices of the immediate past are for them only the starting point of deliberations leading to forecasts of future prices. The prices of the past do not influence the determination of future prices. It is, on the contrary, the anticipation of future prices of the products that determines the state of prices of the complementary factors of production. The determination of prices has, as far as the mutual exchange ratios between various commodities are concerned, no direct causal relation whatever with the prices of the past. The allocation of the nonconvertible factors of production among the various branches of production and the amount of capital goods available for future production are historical magnitudes; in this regard the past is instrumental in shaping the course of future production and in affecting the prices of the future. But directly the prices of the factors of production are determined exclusively by the anticipation of future prices of the products. The fact that yesterday people valued and appraised commodities in a different way is irrelevant. The consumers do not care about the investments made with regard to past market conditions and do not bother about the vested interests of entrepreneurs, capitalists, landowners, and workers, who may be hurt by changes in the structure of prices. Such sentiments play no role in the formation of prices. (It is precisely the fact that the market does not respect vested interests that makes the people concerned ask for government interference.) The prices of the past are for the entrepreneur, the shaper of future production, merely a mental tool. The entrepreneurs do not construct afresh every day a radically new structure of prices or allocate anew the factors of production to the various branches of industry. They merely transform what the past has transmitted in better adapting it to the altered conditions. How much of the previous conditions they preserve and how much they change depends on the extent to which the data have changed.

The economic process is a continuous interplay of production and consumption. Today’s activities are linked with those of the past through the technological knowledge at hand, the amount and the quality of the capital goods among various individuals. They are linked with the future through the very essence of human action; action is always directed toward the improvement of future conditions. In order to see his way in the unknown and uncertain future man has within his reach only two aids: experience of past events and his faculty of understanding. Knowledge about past prices is a part of this experience and at the same time the starting point of understanding the future.

If the memory of all prices of the past were to fade away, the pricing process would become more troublesome, but not impossible as far as the mutual exchange ratios between various commodities are concerned. It would be harder for the entrepreneurs to adjust production to the demand of the public, but it could be done nonetheless. It would be necessary for them to assemble anew all the data they need as the basis of their operations. They would not avoid mistakes which they now evade on account of experience at their disposal. Price fluctuations would be more violent at the beginning, factors of production would be wasted, want-satisfaction would be impaired. But finally, having paid dearly, people would again have acquired the experience needed for a smooth working of the market process.

“As has been mentioned already, the obliteration of the memory of all prices of the past would not prevent the formation of new exchange ratios between the various vendible things. But if knowledge about money’s purchasing power were to fade away, the process of developing indirect exchange and media of exchange would have to start anew. It would become necessary to begin again with employing some goods, more marketable than the rest, as media of exchange. The demand for these goods would increase and would add to the amount of exchange value derived from their industrial (nonmonetary) employment a specific component due to their new use as a medium of exchange. A value judgment is, with reference to money, only possible if it can be based on appraisement. The acceptance of a new kind of money presupposes that the thing in question already has previous exchange value on account of the services it can render directly to consumption or production. Neither a buyer nor a seller could judge the value of a monetary unit if he had no information about its exchange value–its purchasing power–in the immediate past.” XVIII §4

[Update: See also, on this, Salerno, Ludwig von Mises as Social Rationalist, RAE, Vol. 4 (1990), p. 44.

But see Rothbard, in MES, ch. 4, §5.B, who seems to have a different take than Mises here, though he is not discussed or cited:

“In such a [barter] society, if all previous markets and knowledge of previous prices were somehow wiped out, there would, of course, be an initial period of confusion while each individual consulted his value scales and tried to estimate those of others, but there would be no great difficulty in speedily re-establishing the exchange markets. The case is different in a monetary economy. Since the marginal utility of the money commodity depends on previously existing money prices, a wiping out of existing markets and knowledge of money prices would render impossible the direct re-establishment of a money economy. The economy would be wrecked and thrown back into a highly primitive state of barter, after which a money economy could only slowly be re-established as it had been before.”]

For some other interesting views on this:

• Murray N. Rothbard, “The End of Socialism and the Calculation Debate Revisited,” Economic Controversies (Auburn, Ala: Mises Institute, 2011), p. 846 (“the entire Hayekian emphasis on ‘knowledge’ is misplaced and misconceived”)
• Jörg Guido Hülsmann, “Knowledge, Judgment, and the Use of Property.” Rev. Austrian Econ. 10, no. 1 (1997): 23–48, p. 39 (discussing “the irrelevance of knowledge problems”)
• Joseph T. Salerno, “Ludwig von Mises as a Social Rationalist,” Rev. Austrian Econ. 4 (1990): 26–54, p. 44 (“[t]he price system is not–and praxeologically cannot be–a mechanism for economizing and communicating the knowledge relevant to production plans. The realized prices of history are an accessory of appraisement”)
• Hoppe, “Socialism: A Property or Knowledge Problem?”, in The Economics and Ethics of Private Property, p. 146 (“Hayek’s contribution to the socialism debate must be thrown out as false, confusing, and irrelevant.”)
• Kinsella, “Knowledge, Calculation, Conflict, and Law,” in Legal Foundations of a Free Society, p. 509 n.25: “The encoding metaphor seems to be a pseudoscientific and scientistic attempt to give this kind of economic theorizing a patina of scientific respectability by borrowing engineering terminology. It is scientistic because, in vainly trying to borrow natural science terminology, there is an assumption that only the “hard” or natural sciences have true validity. It is akin to using such inapt phrases as the “momentum” of the leading team in a basketball game, the “energy” of crystals and astral forms, or, even worse, “revving the engine” of the economy. Both economics and ethics can be sciences, but not in the same way as the causal, natural sciences.”

Update: See also these comments from Matt Machaj:

The above analysis brings us to the conclusion that socialism is (contrary to the thesis of many modern Austrians) neither a calculation, nor a knowledge problem. It has nothing to do with numbers (calculation is based on them), and it has nothing to do with the states of mind and gathered data of any kind (knowledge). It has to do with actions of private property owners and the results of the entrepreneurial process of imputation.
…
Prices certainly are “signals.” But they are not the signals transmitting knowledge—they are the signals of exclusion by other property owners. When some factor is priced, it means that one is excluded from using it, unless he is able to meet the condition of paying the asking price. In socialism, the central planner setting the price sets the exclusion or price for himself by himself. From this stems the absurdity of market socialism.
Prices also are not information signals about the immediate past. When an entrepreneur buys the factors today, looking at current prices, it is not the case that prices manifest only the past conditions. Today’s prices manifest current conditions—present expectations of the private property owners—and they include current anticipations of future conditions. Therefore, when an entrepreneur looks at today’s prices, he sees not only the immediate past, but conflicting visions about the future between different private property owners. So the prices do inform us about important conditions, and their function is not just to register the past.

—Mateusz Machaj, Market Socialism and the Property Problem: Different Perspective of the Socialist Calculation Debate, QJAE, Vol. 10, No. 4 (2007)

Update: See Per Bylund, “The Impotence of Knowledge in Economics,” Mises Wire (02/04/2025). This is a fascinating article. I agree that technical knowledge, though useful, is not enough to enable economic calculation. As he writes (quoting Mises):

But the practical man, eager to improve human conditions by removing uneasiness as far as possible, must know whether, under given conditions, what he is planning is the best method, or even a method, to make people less uneasy. He must know whether what he wants to achieve will be an improvement when compared with the present state of affairs and with the advantages to be expected from the execution of other technically realizable projects which cannot be put into execution if the project he has in mind absorbs the available means. Such comparisons can only be made by the use of money prices.

What Mises points to here is that technology—indeed, the knowledge thereof—is not actually helpful in deciding what projects to undergo, what products to produce, or how to best use scarce resources. In fact, more knowledge of what is possible only increases the number of possible ways one can act. But it does not provide any indication of which one is (will be) of greater value.

I quite agree. A couple (possible) quibbles, however (which I have discussed with Per on Twitter). First, Bylund writes:

Knowledge is certainly important for all kinds of things. The lack of knowledge, after all, is ignorance—and ignorance is not an appropriate means for anything.

I would not refer to knowledge as means for action. Rather, it is one of two essential components of successful action: the availability of (causally efficacious) scarce means of action, and knowledge to guide one’s action (specifically: knowledge of causal laws and what technical means work, knowledge of facts about the world, and knowledge about what future ends one expects to satisfy one’s felt uneasiness). I discuss this in “Law and Intellectual Property in a Stateless Society,” in Legal Foundations of a Free Society [LFFS] (Houston, Texas: Papinian Press, 2023), Part III.D:

Another way to understand the error in treating information, ideas, recipes, and patterns as ownable property is to consider IP in the context of human action. Mises explains that “[t]o act means: to strive after ends, that is, to choose a goal and to resort to means in order to attain the goal sought.”^[87] Knowledge and information of course play a key role in action as well. As Mises puts it, “Action … is not simply behavior, but behavior begot by judgments of value, aiming at a definite end and guided by ideas concerning the suitability or unsuitability of definite means.”^[88]

Rothbard further elaborates on the importance of knowledge to guide actions:

There is another unique type of factor of production that is indispensable in every stage of every production process. This is the “technological idea” of how to proceed from one stage to another and finally to arrive at the desired consumers’ good. This is but an application of the analysis above, namely, that for any action, there must be some plan or idea of the actor about how to use things as means, as definite pathways, to desired ends. Without such plans or ideas, there would be no action. These plans may be called recipes; they are ideas of recipes that the actor uses to arrive at his goal. A recipe must be present at each stage of each production process from which the actor proceeds to a later stage. The actor must have a recipe for transforming iron into steel, wheat into flour, bread and ham into sandwiches, etc.^[89]

Moreover, “[m]eans are necessarily always limited, i.e. scarce, with regard to the services for which man wants to use them.”^[90] This is why property rights emerged. Use of a resource by one person excludes use by another. Property rights are assigned to scarce resources to permit them to be used productively and cooperatively, and to permit conflict to be avoided. In contrast, ownership of the information that guides action is not necessary. For example, two people who each own the ingredients (scarce goods) can simultaneously make a cake with the same recipe.

Material progress is made over time because information is not scarce. It can be infinitely multiplied, learned, taught, and built on. The more patterns, recipes, and causal laws that are known, the greater the wealth multiplier as individuals engage in ever-more efficient and productive actions. It is good that ideas are infinitely reproducible. There is no need to impose artificial scarcity on ideas to make them more like physical resources, which—unfortunately—are scarce.^[91]

^[87] Ludwig von Mises, The Ultimate Foundation of Economic Science: An Essay on Method (Princeton, N.J.: D. Van Nostrand Company, Inc., 1962; https://mises.org/library/ultimate-foundation-economic-science), p. 4.

^[88] Mises, Human Action, 93.

^[89] Murray N. Rothbard, Man, Economy, and State, with Power and Market, Scholars ed., second ed. (Auburn, Ala.: Mises Institute, 2009; https://mises.org/library/man-economy-and-state-power-and-market), p. 11. See also See also Guido Hülsmann, “Knowledge, Judgment, and the Use of Property,” Rev. Austrian Econ. 10, no. 1 (1997; https://perma.cc/DKQ8-JX45): 23–48, p. 44 (“The quantities of means we can dispose of—our property—are always limited. Thus, choice implies that some of our ends must remain unfulfilled. We steadily run the danger of pursuing ends that are less important than the ends that could have been pursued. We have to choose the supposedly most important action, though what we choose is how we use our property Action means to employ our property in the pursuit of what appears to be the most important ends.… In choosing the most important action we implicitly select some parts of our technological knowledge for application.”; emphasis added). See also the related discussion in “Goods, Scarce and Nonscarce” (ch. 18), text at n.32.

^[90] Ibid.

^[91] For elaboration on the ideas discussed in this section, see Kinsella, “Intellectual Freedom and Learning Versus Patent and Copyright” and “Against Intellectual Property After Twenty Years: Looking Back and Looking Forward” (ch. 15), the section “The Separate Roles of Knowledge and Means in Action.”

Thus, because it is important to distinguish between scarce means employed by actors and knowledge that guides actors in employing the means, I would be careful not to refer to knowledge (or the lack thereof, i.e. ignorance) as an important “means” for human action. They are both crucially important, and distinct. (And this is why property rights are necessary, and possible, in the former, but not in the latter.)

I would also be careful not to elevate the importance of one over the other. Both are equally important and essential to successful human action and thus to human progress. And while it is true that knowledge (knowledge about causal laws, scientific and technical knowledge (“recipes,” knowhow), knowledge about contingent facts of the world, knowledge of one’s own preferences and what ends would satisfy one’s felt uneasiness) is not itself sufficient to enable one to engage in rational economic calculation—for this, knowledge of meaningful prices is also necessary—I think we should be careful not to cavalierly trivialize or minimize the importance of human knowledge for human prosperity and progress. Which I think Bylund gets close to doing when he writes:

Mises discusses both scientific and technological knowledge in Human Action. They are certainly important both for the economy and society. In retrospect, it seems society’s prosperity correlates with (or perhaps was caused by) the accumulation of knowledge, especially as “embodied in capital” (as it is commonly expressed). However, correlation, we are often reminded, does not imply causation. This is the case here, which economists should be the first to recognize.

Society (civilization) benefits from—but ultimately does not rest on—knowledge. Whereas there is more knowledge in the world today, and we are overall more civilized than previously, this is mere correlation. What makes society prosperous and civilized is, as Mises reminds us, a matter of production under the division of labor.

I would be careful here. Yes, we need property rights, division of labor, and market prices to enable calculation. But the critical importance of knowledge should not be minimized. When we emphasize the importance of property rights for a working human order and for capitalist production, we to not downplay the crucial rule of prices. Likewise, recognizing the importance of knowledge also does not downplay the role of market prices. All three are different and important. The first two are crucial ingredients of any successful human action (even action of Crusoe in a Robinsonade; or of actors in a non-money barter society); the third, money prices, is crucial for rational economic calculation and production in any society more advanced than the barter stage.

So in my view, it is not mere correlation that we are wealthier today in large part because of the accumulated technical knowledge we have our disposal (knowledge the development of which patent law hinders, hampers, and distorts, which is one reason I oppose it). We need all three—(1) scarce means (property rights) and (2) technical/causal knowledge (recipes) and (3) market prices—to have successful action and rational economic calculation generates widespread human prosperity.

There can be little doubt that we are wealthier than the Romans largely because of the increase in factor 2. Why is this? After all, we are not smarter than the Romans. If anything it is the opposite (see: Idiocracy). It is because we have for centuries, for millennia even, private property rights, and well as money and thus economic calculation. The very reason for debate about the causes of the tremendous growth during the industrial revolution is that nothing significantly and obviously improved in terms of factors 1 and 3 (property rights and money prices) in the last 200–300 years, and in fact one could argue that property rights are less secure in the last 200 years, since the advent of modern democracy, ¹ and monetary calculation has been hampered and distorted by fiat money since the gold standard was abandoned in 1971. ²

But factor 2, technical-causal knowledge, has continued to increase over time (even though impeded and distorted by state patent law). The human race thus can and obviously has accumulated a “fund of experience,” as Hayek calls it, that contributes to human progress and the creation of wealth. ³ It is not conflating correlation with causation, nor minimizing the crucial role of money prices in rational economic calculation, to explain today’s immense prosperity as the result primarily of the accumulation of knowledge, since there has been no obvious and significant improvement in property rights and money price calculation. (My own view is that the industrial revolution happened when the accumulated technical and related knowledge reached a certain tipping point; I agree with Hoppe that other explanations for the IR are wanting but am not persuaded by Hoppe’s theory either; but I am not sure, and this is neither here not there.) [See also Hoppe: “From the Malthusian Trap to the Industrial Revolution. Reflections on Social Evolution” (Property and Freedom Society 2009)]

This is why I wrote

Nonscarce goods do not need the assistance of prices to ration their availability. They are free gifts that can be shared the world over. How important are these goods? Given that they are inclusive of all information, art, know-how, and anything else that can be possessed and copied without displacement, they are hugely important. Without these gifts, the whole of learning, imitation, and world culture would come crashing down.

We are not truly human without being part of human civilization; and there can be no civilization and progress without the spread, dissemination, and accumulation of knowledge. To be human is to be part of a learning society, a communicating society, an information-sharing society. Society is emulation-based.

As it stands, the existence of the nonscarce good is the basis of all intellectual progress, the foundation of technological and artistic progress, and thereby a boon to civilization. It is also at the core of enterprise. Entrepreneurs succeed by imitating others who have succeeded. Their nonscarce experience and ideas are first copied and then improved, with the goal of profit. The example of success that entrepreneurs follow is itself a nonscarce good. Anyone with the means to do so is free to copy the successful idea and replicate it. The nonscarce good is the fuel of the competitive process. ⁴

and

It is obscene to undermine the glorious operation of the market in producing wealth and abundance by imposing artificial scarcity on human knowledge and learning…. Learning, emulation, and information are good. It is good that information can be reproduced, retained, spread, and taught and learned and communicated so easily. Granted, we cannot say that it is bad that the world of physical resources is one of scarcity—this is the way reality is, after all—but it is certainly a challenge, and it makes life a struggle. It is suicidal and foolish to try to hamper one of our most important tools—learning, emulation, knowledge—by imposing scarcity on it. Intellectual property is theft. Intellectual property is statism. Intellectual property is death. Give us intellectual freedom instead! ⁵

***

Archived version with comments:

• Person

  Stupid question: what about the supplement of the prices in futures markets? Combining those with spot prices does seem to convey the information about whether the cause of the price shifts are transient or more fundamental and long-term. This is useful information for the entrepreneur. And if he buys a futures contract, he can’t “guess wrong” because he gets paid damages if those goods aren’t delivered. This fact coincides with the emphasis in Hayek’s work on, not action coordination, but pattern coordination. While these prices can’t tell one the optimum action given the values of other agents, they can specify, in general terms, what must be done to better coordinate with the plans of other agents.

  Bonus point to the first person call this question stupid.

  Published: July 12, 2006 12:15 AM

• Paul Edwards

  Person,

  You’re the first person to call your question stupid. 🙂

  Published: July 12, 2006 12:33 AM

• cynical

  Person,

  I would say that, too, is an interesting tangent, ala the Hayekian tradition. I don’t, however, think that it takes away from the correctness of the Rothbard/Salerno/Hoppe position on what Mises meant by “the calculation problem”.

  Published: July 12, 2006 2:02 AM

• zuzu

  Although I could say this about myself as much as anyone else, I think Mises requires significantly multiple readings of his voluminous output before lumping him and Rothbard together so quickly.

  (Yes, Rothbard was Mises protege or whatever, but Rothbard took a much more modernish social-science flavor to his descriptions and analysis. I do agree with lumping Rothbard and Hoppe together for this reason.)

  From an interdisciplinary perspective, Mises’ “human action” methodology derives from what many would now, with the gift of hindsight, call a branch of cognitive science.

  Likewise from that same perspective, Hayek’s analysis follows more of a graph and information theory methodology.

  Much of the same ground has been tread in swarms, complexity, combinatorial optimization, network theory, immunological computation, biosemiotics, and other such sub-disciplines studied at the Santa Fe Institute.

  Although both Mises and Hayek concerned themselves with epistemology, the distinction I would make between Mises and Hayek has to do with scope… as in, beware the fallacies of composition and division. Mises addressed how the individual gathers information and acts on that information. Whereas Hayek addressed how the distributed computation between actors provides more useful information faster to each node than a centralized computation network could.

  Published: July 12, 2006 7:17 PM

• Dennis Sperduto

  Below are a few observations regarding this informative posting, which is a good summary of an important issue.

  Despite the views of some others, I believe it is clear from reading pages 695-715 (1966 edition) of Human Action that Mises himself considered the calculation problem, and not the knowledge issue, to be socialism’s fundamental (and insurmountable) obstacle. In this discussion, Mises went to considerable length to differentiate the two issues, even conceding for argument purposes only, that the socialist planners did have full knowledge of all relevant data.

  The differences Mises and Hayek regarding economic calculation in a socialist state may arise from a more fundamental difference: Specifically, the epistemological status of the general equilibrium framework. Mises firmly and consistently rejected the general equilibrium construct except as a mental tool for understanding the incessant change of the real world, while some have argued that Hayek can be viewed as a “proximal equilibrium�? theorist. Interestingly, Hayek’s emphasis on the knowledge issue in the socialist calculation debate was a response to the proposals of the mathematical, general equilibrium socialists.

  Finally, I believe that Professor Herbener’s article “Calculation and the Question of Arithmetic�? [RAE Vol. 9, No. 1 (1996)] should also be considered a significant contribution to the literature. In particular, he discusses an important aspect of Mises’s argument, specifically, that the cardinal numbers that constitute money prices enable entrepreneurs to appraise, using a common denominator, disparate factors of production. Without the common denominator of money prices, appraisement and calculation are not possible. While some may consider this a trivial insight, it is nonetheless powerful and critical to Mises’s argument that denies the possibility of economic calculation in a socialist state.

  Published: July 12, 2006 8:01 PM

• Stephan Kinsella

  Dennis: quite right about Herbener’s seminal piece; I have added it to the main entry.

  Zuzu: I confess to not being quite clear as to what you are trying to say. In any event, you have no basis for concluding that I lumped in Mises and Rothbard “quickly”.

  Published: July 12, 2006 8:30 PM

• Dennis Sperduto

  One other point, related to the following quote of Steve Horowitz: “The ‘de-homogenizers’ have … correctly identified microfoundations [including] the importance of monetary calculation and Mises’s concept of ‘appraisement,’ but … they ignore what seems to be the obvious relationship between those microfoundations and Hayek’s vision of the social order. That is, they ignore that the outcome of the use of economic calculation by individual entrepreneurial actors and by firms and households is precisely the ‘use of knowledge in society’ that characterizes the Hayekian spontaneous market order.”

  The reason I believe that Misesians “ignore” the Hayekian concept of the spontaneous market order is that for Mises the key societal concept is human cooperation under the division of labor. Society, the “social order”, is most accurately characterized, if not defined, as interpersonal cooperation under the division of labor. In Mises view, material economic progress and the advancement of civilization are the result of expanding and deepening the division of labor.

  Published: July 13, 2006 10:58 AM

• Curt Howland

  Person, it may be true that the buyer of a futures contract cannot be making an “error”, but the seller certainly can. The futures contract does communicate information, but it is the information of the educated guess.

  Peoples preferences can still fluctuate in the ensuing time period, which is why “futures” were created in the first place, to dampen such changes’ effects on prices.

   

  Published: July 14, 2006 9:27 AM

1. See Hoppe’s “Introduction” to Democracy: The God That Failed (Transaction, 2001). [↩]
2. Hans-Hermann Hoppe, “From the Malthusian Trap to the Industrial Revolution: An Explanation of Social Evolution,” in The Great Fiction: Property, Economy, Society, and the Politics of Decline, Second Expanded Edition (Auburn, Ala.: Mises Institute, 2021); see also idem, “PFP041 | Hans-Hermann Hoppe, From the Malthusian Trap to the Industrial Revolution: An Explanation of Social Evolution (PFS 2009),” Property and Freedom Podcast (Jan. 20, 2022). [↩]
3. See Kinsella, “Hayek’s Views on Intellectual Property,” C4SIF Blog (Aug. 2, 2013); idem, “Intellectual Property and the Structure of Human Action,” StephanKinsella.com (Jan. 6, 2010). See also Kinsella, “Tucker, ‘Knowledge Is as Valuable as Physical Capital,’” C4SIF Blog (March 27, 2017) and George Reisman, “Progress In a Free Economy,” The Freeman (July 1, 1980). See also Julio H. Cole, “Patents and Copyrights: Do the Benefits Exceed the Costs?”, J. Libertarian Stud. 15, no. 4 (Fall 2001): 79–105, p. 84 et seq., discussing the importance of technical progress (not to be confused with patents) to economic growth. Cole cites several studies in n.12. [↩]
4. Kinsella, “Goods, Scarce and Nonscarce,” LFFS, text at n.24, footnote omitted. [↩]
5. Kinsella, “Against Intellectual Property After Twenty Years: Looking Back and Looking Forward,” in LFFS, at n.59. [↩]