Economic Calculation in the Socialist Commonwealth   Leave a comment

This is part of an series featuring an essay by Ludwig von Mises called “Economic Calculation.” For a deeper look, I suggest to Google it.


Image result for image of labor theory of valueAre we really dealing with the necessary consequences of common ownership of the means of production? Is there no way in which some kind of economic calculation might be tied up with a socialist system?

Most businesses use some form of accounting that allows it to reckon labor and material costs against each other to to strike a balance to approach the economic results of its activities from an accounting viewpoint, but that becomes more difficult when the calculation must rely on data that is not ascertainable.  And this is the problem with the production groups within a socialist state.  Because socialism refuses to allow a free-floating pricing mechanism, there can be no economic calculation.

Without private ownership of the means of production, individual labor groups are considered authoritative judges of their own worth. Socialist theorists rely on the labor theory of value.

Of course, this only works in limited circumstances. If demand for an items increase, the average socially necessary labor time required to produce it increases. If more favorable resources are discovered, the amount of socially necessary labor diminishes. The problem is that the cost of material is left out of the calculation.

Skilled labour counts only as intensified, or rather multiplied, simple labour, so that a smaller quantity of skilled labour is equal to a larger quantity of simple labour. Experience shows that skilled labour can always be reduced in this way to the terms of simple labour. No matter that a commodity be the product of the most highly skilled labour, its value can be equated with that of the product of simple labour, so that it represents merely a definite amount of simple labour.

Calculation in terms of labor would have to set up an arbitrary proportion for the substitution of complex by simple labor, which excludes its employment for purposes of economic administration.

Tthe labor theory of value has been considered indispensable to socialism as a means of giving an ethical basis to the nationalization of the means of production, but even when Mises wrote the essay, they knew the theory was wrong.

Although the majority of socialist supporters have thus employed this misconception, and although Marx, however much he fundamentally took another point of view, was not altogether free from it, it is clear that the political call for the introduction of socialized production neither requires nor can obtain the support of the labor theory of value on the one hand, and that on the other those people holding different views on the nature and origin of economic value can be socialist according to their sentiments. Yet the labor theory of value is inherently necessary for the supporters of socialist production in a sense other than that usually intended. In the main socialist production might only appear rationally realizable, if it provided an objectively recognizable unit of value, which would permit of economic calculation in an economy where neither money nor exchange were present. And only labor can conceivably be considered as such.


Posted July 14, 2017 by aurorawatcherak in Uncategorized

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