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References
Leland Yeager, “Mises and Hayek on Calculation and Knowledge,”Review of Austrian Economics 7, no. 2 (1994): 93–109. Also, Israel Kirzner asserts that the Mises and Hayek contributions to the calculation debate, “are simply ways of expounding the same basic, Austrian insight, viz., that only market processes are able to harness thediscovery potential of entrepreneurial competition.” Italics in the original, see Israel Kirzner, “Book Review ofHayek, Coordination and Evolution,”Southern Economic Journal 61, no. 4 (April 1995): 1244. If Kirzner is correct, it would seem that Mises and Hayek were both Kirznerians and the entire calculation debate was a debate about Kirzner's concept of entrepreneurship. On his concept of entrepreneurial discovery, see Israel Kirzner,Competition and Entrepreneurship (Chicago: University of Chicago Press, 1973) andDiscovery and the Capitalist Process (Chicago: University of Chicago Press, 1985).
Yeager, “Mises and Hayek,” p. 94. Italics in the original.
Joseph Salerno, “Reply to Leland B. Yeager on ‘Mises and Hayek on Calculation and Knowledge’,”Review of Austrian Economics 7, no. 2 (1994): 112.
Ibid. Italics in the original.
Mises discusses each of these points inHuman Action: A Treatise on Economics (Chicago: Henry Regnery, [1949] 1966).
I am not asserting that Salerno fails to understand or appreciate the arithmetic facet of Mises's concept of calculation. He mentions it twice in his “Reply to Yeager,” (pp. 112 and 120) and it is this point that Yeager himself notices in Salerno's work. My contention is only that proper recognition of this facet of Mises's argument also defeats the Yeager position.
By the phrase, “impossibility of performing the arithmetic of profit and loss computation,” we do not have in mind what Yeager seems to accuse us of meaning. As Salerno says, “the Misesian demonstration of the logical impossibility of socialism is not predicated on the central planners' incapacity to perform tasks that can conceivably be carried out by individual human minds,” including adding and subtracting. See Salerno, “Reply to Yeager,” p. 112. The arithmetic problem of calculation is not the inability to add common units together, it is the absence of such units. No “advances in supercomputers” can overcome the impossibility of adding together apples and oranges.
These two steps correspond to the two conditions Mises claimed were necessary for calculation to take place: voluntary exchange of all goods including factors of higher order and the use in these exchanges of money. The first is necessary to bring higher-order capital goods under the orbit of the entrepreneurial “intellectual division of labor”; the second is necessary because without it, “It would not be possible to reduce all exchange-relationships to a common denominator.” See Ludwig von Mises,Economic Calculation in the Socialist Commonwealth (Auburn, Ala.: Ludwig von Mises Institute, [1920] 1990), pp. 17–18.
Ludwig von Mises,Human Action, p. 703.
As Mises said, “In an exchange economy the objective exchange value of commodities enters as the unit of economic calculation. This ... renders it possible to base the calculation upon the valuations of all participants in trade. The subjective use value of each is not immediately comparable as a purely subjective phenomenon with the subjective use value of other men. It only becomes so in exchange value, which arises out of the interplay of the subjective valuations of all who take part in exchange.” Mises,Economic Calculation, p. 12.
Ibid., p. 23.
The old welfare economics and utility economics were based on the concept of cardinal utility which embodied two arithmetic mistakes: units of subjective value are possible and such units are interpersonally comparable. See Murray N. Rothbard, “Toward a Reconstruction of Utility and Welfare Economics,” inOn Freedom and Free Enterprise, Mary Sennholz, ed. (Princeton: Van Nostrand, 1956), pp. 224–62.
Yeager, “Mises and Hayek,” p. 94.
Mises,Human Action, pp. 695–98.
Mises,Economic Calculation, p. 25.
Mises,Human Action, p. 698.
Mises,Economic Calculation, pp. 23–24.
Ibid., p. 33.
Mises moves to some of these steps, in a different order than that presented here, when addressing a list of suggestions for socialist economic calculation inHuman Action, pp. 703ff.
Mises,Economic Calculation, p. 6.
Mises,Human Action, pp. 707–9.
Mises,Economic Calculation, p. 28.
One particular target Mises aimed at was the “market socialism” of Oskar Lange in his, “On the Economic Theory of Socialism,” reprinted inOn the Economic Theory of Socialism, vol. 2, Benjamin Lippincott, ed. (Minneapolis: University of Minnesota Press, 1938), pp. 57–129. Yeager, in using the debate between Mises and Lange as the text for criticizing the SRH view, reveals the source of his lack of appreciation for the arithmetic facet of Mises's calculation argument. See Yeager, “Mises and Hayek,” pp. 103ff. Mises had no need to mention the arithmetic problem in response to Lange; market socialism overcomes that problem by employing money—the common denominator necessarily absent in a pure socialist system—and money prices. Mises was, thus, required to move to more complex dimensions of his calculation argument and criticize market socialism for its inability to perform entrepreneurial appraisals based on money prices which are not established in market exchanges of private property. Because Rothbard fails to mention the arithmetic facet of calculation but does mention information in discussing the debate between Mises and Lange, Yeager attempts to construe Rothbard as once holding the Yeager position and then shifting to the SRH view. See Yeager, “Mises and Hayek,” p. 106. But Rothbard had no more reason to mention the arithmetic facet of calculation in this context than did Mises. Moreover, neither Mises, nor Salerno, nor Rothbard, nor I claim that the central planners do not face an information problem. The SRH claim is that Mises's calculation argument has more to it than the information problem. Yeager's claim that it does not is not proven by noting that Mises and SRH recognize information as a problem.
Ibid., p. 709. Italics in the original.
Mises,Economic Calculation, pp. 25–26.
Salerno, “Reply to Yeager,” pp. 120–23.
Mises,Human Action, pp. 710–11.
Ibid., p. 711.
Ibid., pp. 712–13.
Ibid., pp. 713–14.
Yeager, “Mises and Hayek,” p. 101. Italics in the original. Also, see his other statements on Mises's concessions, pp. 97–98.
Mises explicitly made these assumptions in the development of his calculation argument. In addition to the statements already quoted, see Mises,Human Action, p. 696.
Ibid., p. 199.
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Jeffrey M. Herbener is associate professor of economics at Washington and Jefferson College and wishes to thank the anonymous referees for their helpful comments.
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Herbener, J.M. Calculation and the question of arithmetic. Rev Austrian Econ 9, 151–162 (1996). https://doi.org/10.1007/BF01101889
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DOI: https://doi.org/10.1007/BF01101889