Under an Institutional Regime which Attempts to Abolish Private Ownership in the Means of Production, Advanced Industrial Production Is Reduced to So Many Steps in the Dark

Acting people must mentally process the alternatives placed before them, and to do so they must have some “aid to the human mind” for comparing inputs and output. Mises’ great contribution to economic science was to establish that this decision-making ability is dependent on the institutional context of private property. Mises’ point, while not denying the importance of incentives in executing business plans, was that the necessary informational inputs into that decision process are made available to decision-makers only through the market process. The argument went as follows:

1. Without private property in the means of production, there will be no market for the means of production.
2. Without a market for a means of production, there will be no monetary prices established for the means of production.
3. Without monetary prices, reflecting the relative scarcity of capital goods, economic decision-makers will be unable to rationally calculate the alternative use of capital goods.

In short, without private property in the means of production, rational economic calculation is not possible. Under an institutional regime which attempts to abolish private ownership in the means of production, advanced industrial production is reduced to so many steps in the dark as decision-makers are denied the necessary compass. As Mises put in Socialism, economic calculation “provides a guide amid the bewildering throng of economic possibilities. It enables us to extend judgements of value which apply directly only to consumption goods – or at best to production goods of the lowest order – to all goods of higher orders. Without it, all production by lengthy and roundabout  processes would be so many steps in the dark … And then we have a socialist community which must cross the whole ocean of possible and imaginable economic permutations without the compass of economic calculation.”

--Peter J. Boettke, Calculation and Coordination: Essays on Socialism and Transitional Political Economy, Foundations of the Market Economy (London: Routledge, 2001), 31-32.