The Socialist Calculation Debate

Abstract

A review of the socialist calculation debate presents an opportunity to set Hayek’s economics within the broad context of economic thought. Hayek is the most prolific, most influential and most successful twentieth-century propagandist for the Austrian School of economics; and he is an unswerving defender of the individual against the collective. The socialist calculation debate permits a clear illustration of each of these fundamentals. On one side the case is presented that a competitive price system is the only means by which the dispersed particular knowledge of all its many participants can be effectively utilised; and on the other side is the idea that a planning board can master that same knowledge, but to a greater advantage.

On the moral side, socialism cannot but destroy the basis of all morals, personal freedom and responsibility. On the political side, it leads sooner or later to totalitarian government. On the material side it will greatly impede the production of wealth, if it does not cause actual impoverishment.

(Hayek, 1978b, p. 304)