Ȉȅ Partʺ: Economicsabstentions and bids and offers of current and would-be owners of the
things exchanged lie these traders’ purposes and their knowledge and
estimates of and entrepreneurial conjectures about resource availabili-
ties, technical possibilities, including complementarities and substitutabil-
ities in production, and their own and other persons’ tastes. Money
prices embody or reflectknowledge, knowledge brought through them
to bear on production and consumption decisions without being central-
ized and, for much of it, without even being articulated in words and
numbers.
I won’t repeat myȀȈȈȃdescription of the economic-calculation prob-
lem, but I’ll add a bit to what I have already said here. Accurate calculation
would assign productive resources to their most highly valued uses, taking
account of people’s diverse tastes (as consumers, workers, and investors),
as well as of production technologies, resource availabilities, and the prin-
ciples of diminishing marginal utility and marginal productivity. Ideally,
each consumer is informed how much worth of other things must be for-
gone to supply him with an increment of each particular product. Ļus
informed about alternatives, each consumer ideally leaves no opportunity
unexploited to increase his expected total satisfaction by diverting any dol-
lar from one purchase to another. In this sense consumers choose the pat-
tern of production and resource use that they prefer. Ideally, their bidding
keeps any unit of a resource from going to satisfy a less intense effective
demand to the denial of a more intense one.
Ļe result of fully successful economic calculation is a state of affairs in
which—apart from changes in wants, technology, and resource availabil-
ities—no further rearrangement of patterns of production and resource
allocation could achieve an increase of value to consumers from any par-
ticular good at the mere cost of a lesser sacrifice of value from some other
good. (Even if a dictatorial central planner totally disregarded consumers’
tastes and was concerned only with gratifying his own, he would still need
vast amounts of other information.)
In a competitive market economy, patterns of resource allocation, pro-
duction, and consumption get established on a decentralized basis. Of
course, the market does not work with all imaginable perfection; nor does
any other human institution. But entrepreneurs have incentives to ferret
out price discrepancies and unexploited opportunities.
Ļings are different under socialism. When Mises first wrote about
the calculation problem inȀȈȁǿandȀȈȁȁ, socialism was generally under-
stood as a centrally directed (or “planned”) economy, with government