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Partial Refutation of Brian Caplan on Socialism

He wrote the famous Why I Am Not an Austrian Economist. This is about the section called “Economic Calculation and the “Impossibility” of Socialism”.
He begins by quoting Mises:

Socialism is not a realizable system of society’s economic organization because it lacks any method of economic calculation… Socialism cannot be realized because it is beyond human power to establish it as a social system.
And Caplan asks:
This conclusion is amazing, for Mises repeatedly insists that economic theory gives only qualitative, not quantitative laws? 

OK, Bryan, hold it right there. That line contains your big mistake. Your thinking seems to be:
1. Economic theory gives only qualitative, not quantitative laws.
2. Socialism is an economic theory.
3. Therefore Socialism need only give qualitative, not quantitative laws.
4. Which is the same as saying it need not calculate when running a country.
5. So what’s Mises doing, saying Socialism will fail, cause it can’t calculate? No economic theory can or need calculate, according to Mises.

The error should be crystal clear by now. It’s step 4, which fails to distinguish between the theory of socialism, and the practice of socialism. In step 1. Mises was talking about economic theory, meaning a statement of the laws of economics. Stuff like the law of supply and demand, diminishing returns, theoretical things. But when he says Socialism will fail, he was not talking about Socialism as a well of knowledge that leads to economic insight. He was talking about Socialism in practice, about will happen when a country is run the way socialist theory wants .

He was saying that putting all the means of production into the hands of one man, as Socialism insists is the right way, will leave that man high and dry, unable to know what to do. All the insights of socialism and capitalism and everything else under the sun will not tell him whether to build his house from wood or brick. [To see why this is so, you have to read his one of his books].

To make the distinction very clear, let’s look at a Math book about the theory of arithmetic. A really advanced book might not have a single number in the whole thing. All X’s and Y’s, upside down A’s and backwards E’s.
Because it is a book ABOUT arithmetic; it is not a book where an accountant records his calculations, say, which would be full of numbers.

Similarly, a book of economic theory is ABOUT how people run an economy or a business. Such a book, Mises claims, need not contain a single number. But a person actually running a business had better have some books full of relevant numbers, or he will go bankrupt. What where our costs? Our profits? Etc etc. The practice of Socialism, meaning having no competitors in a bidding war for the means of production, will deprive the decision maker of these vital numbers, and he will bring to ruin whatever he is in charge of.

OK guys, I need feedback. If someone wants me to point out the other goofs in that section, let me know.


1 Comment

  1. Frank says:

    Nice blog. I enjoy your economic analyses, please keep them coming.


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