“Without economic calculation, there can be no economy. Hence, in a socialist state wherein the pursuit of economic calculation is impossible, there can be – in our sense of the term – no economy whatsoever.” – Ludwig von Mises, “Economic Calculation in the Socialist Commonwealth,” 1920
Imagine the following scenario: You are the owner of a firm that produces widgets, and you are considering expanding your production. Business has been pretty good as of late, and you’re having a hard time keeping up.
In order to successfully meet that increased demand, you need more employees and more widget production. What are the various factors you have to consider in order to ramp things up and achieve the next successful plateau of widget production?
Just some of it: (1) What will it cost to hire more employees? (2) Will those costs be more than offset by increases in production? (3) How much more inventory of materials will be needed? Are price breaks available for increased levels of stock? (5) And, should those price breaks, if significant, be applied to increase your profits per widget, or should you actually drop your prices to spur increased production even more?
These types of questions confront every business owner, and the process of engaging in these considerations is known as “economic calculation.”
“Economic calculation,” however, presumes that such information is available; what happens when it’s not? What happens when government interference in one or more of your factors of production – price controls, say, on one of your widget’s physical components – makes it impossible for you to determine what those prices will be next week or next year? What happens when you’re no longer able to assign values to the complicated structure of variables such calculations demand?
Then your ability to plan has been subverted right at the root – and, if that subversion is significant, you’ll find yourself unable to determine whether such moves will lead to any profitability or not ... causing you to hold off on your expansion plans until that information can be acquired.
Now, this might seem like elementary Economics 101 to many of us, but you’d be surprised by the number of people who are completely ignorant of such principles. Like Wyoming’s “Economically Needed Diversity Options for Wyoming” (ENDOW) bureaucrats, for instance, who, after their latest state meeting in Laramie on Dec. 11 (and with a governor’s report due on Dec. 31), are busily preparing themselves for manipulating the following sectors of the state economy:
“Broadband development, workforce training and expanding commercial air service received the most favorable votes. Improving higher educational attainment, fostering an entrepreneurial ecosystem and emphasizing computer science in K-12 education all received a significant number of favorable votes as well.” (“ENDOW final report has lots of work to go in final weeks of preparation,” WTE, Dec. 13)
Clearly, the ENDOW bureaucrats regard such sectors of the economy as manageable by government – and, when coupled with Gov. Mead’s proposed “$37.5 million appropriation for continuing ENDOW,” it’s clear our state government is setting itself up for an increased presence in all of these factors of production.
Such machinations, however, by further muddying the waters of economic calculation with more government controls, will have the exact opposite effect: They will further destroy the possibility of even engaging in such calculations at all.
Indeed, on the basis of sound economic theory that has been demonstrated both ideologically and historically for the last three centuries, such controls will simply breed demands for further regulations and controls, this time applying to the secondary factors of production that are impacting the primary areas already under regulation.
Yet the so-called “mixed” economy – the government’s “Never-Never” land of a concocted hodgepodge of freedom and controls – is not a “third” solution at all, but merely an explosive mixture of mutually contradictory principles that must inevitably either establish a complete command economy, Soviet-style, or repeal the controls.
So, while ENDOW bureaucrats couch their pending interventions in terms of “economic diversity,” what’s really happening? You, the Wyoming citizen, are being set up for economic manipulations that will merely continue to wipe out your ability to engage in economic calculation ... to say nothing of the loss of many of your other choices and freedoms.
And, in the absence of such information: Again, where will you acquire it? The Soviet Union got its “economic calculations” from the Sears catalog, but such an escape presumes that there’s an actual market economy, somewhere, capable of producing such a catalog.
When we’ve succeeded in wiping out the market economy here that made producing such catalogs possible, however, who will be producing one for U.S.?
Bradley Harrington is a computer technician and a writer who lives in Cheyenne. Email: email@example.com.