The economic calculation problem nails communism

The economic calculation problem is the nail in the coffin of communist theory, and ultimately all statism.

The Problem

The economic calculation problem is not to do with incentives. We can assume a society where everyone is motivated to work for the collective (“Communist Man”), a society where there are no problems of abuse-of-power, and a completely reliable system of democratic decision-making.

We can grant all that, and communism is still doomed.

The economic calculation problem is practical: we have all different kinds of land, labor and capital, all communally owned, and now what are we going to do with it? What is the best way to employ our scarce resources, our means of production? Should we do Project A or Project B? Should we use Method C or Method D? Should we do it in Location E or Location F? There are zillions of such production decisions that need to be made, right down to the micro level within the structure of production.

Market v Communist Planning

These production questions are answered very easily in a free market system, because entrepreneurs can use prices, and then use the means of production in whatever way maximises profits, i.e. delivers the most benefits for the least cost.

These questions are unanswerable in a communist system, because there are no prices. Costs and benefits are unknown. The planners operate in the dark. Higher-order production activities become uncoordinated first. Resources are misused and squandered, not intentionally, but due to a lack of information. Opportunities are missed, risks are inaccurately assessed, adaptability to changing conditions reduces. Before long, unguided by price signals, basic needs go unmet because of failures in production lines to coordinate and adapt.


Any full implementation of communism in a society above primitive level will quickly collapse in calculational chaos. Communism completely fails in theory. Calculational chaos is a key reason why it always fails in practice too.

Mises delivered the final nail in the coffin of communist theory in 1920 with his economic calculation argument. The rest of the 20th century demonstrated his theory repeatedly wherever partial-communism was tried.

The coordination and adaptation functions of markets are essential for using resources wisely and achieving the best possible standard of living. In the marketplace of ideas, communism has been on life-support for a century and deserves to die.


Mises, Ludwig von – Economic Calculation in the Socialist Commonwealth (1920, original paper)

Mises, Ludwig von – Human Action, Part 5, Chapter XXVI. The Impossibility of Economic Calculation Under Socialism (1949, response to critics)

Rothbard, Murray – The End of Socialism and the Calculation Debate Revisited (1991, summary of debate)

Salerno, Joseph – Calculation and Socialism (LvMI lecture, 2019)