The Knowledge Socialists (Still) Can’t Calculate

On almost every page of The Socialist Calculation Debate and the Relevance of Economic Knowledge, I found myself thinking, “I can’t believe a monograph like this still needs to be written in the year 2025,” but here we are. 

A self-described “democratic socialist” has just been elected mayor of arguably the world’s most important city. The Trump administration is buying ownership stakes in large corporations, which leaves me wondering what Republicans who ran against socialism believe “socialism” is. But maybe I shouldn’t be surprised: the right has long embraced border socialism. Why not take increasing control over the material and intellectual means of production?

Peter J. Boettke, Rosolino A. Candela, and Tegan L. Truitt explain in a welcome and important contribution to the Cambridge “Elements” series, launched by Cambridge University Press to disseminate focused scholarly works that are a little too long to be journal articles and a little too short to be books (I reviewed Austrian Perspectives on Entrepreneurship, Strategy, and Organization for AIER in 2021). 

The authors emphasize a point that Austrian economists have reiterated for decades, but that does not seem to have made its way into the mainstream literature. The “calculation problem” is not a computational problem. It’s an epistemic problem. It isn’t that it was too hard to gather the necessary data and do the required calculations in 1920 (when Ludwig von Mises published “Economic Calculation in the Socialist Commonwealth”) or 1945 (when F.A. Hayek wrote “The Use of Knowledge in Society”) or 1985 (when Don Lavoie published Rivalry and Central Planning: The socialist calculation debate reconsidered). Nor was it difficult in December 2022, when generative AI was in its infancy and I introduced a Southern Economic Journal symposium on the 100th anniversary of “Economic Calculation in the Socialist Commonwealth” and the 75th anniversary edition of “The Use of Knowledge in Society” with an article titled “Economic planning must be polycentric, not monocentric.” The problem is that the data don’t exist unless the means of production are bought and sold in free markets – which means that modern technosocialists enamored with generative AI as the technology that will finally solve the calculation problem are missing the point. Oskar Lange called the market a “computing device of the pre-electronic age,” but he is making a category mistake. The market is much more than this.

How do we know? Prices aren’t just what we get when we crunch numbers correctly. They embody the judgments people make in real time in response to real tradeoffs and genuine uncertainty. To borrow a phrase from Deirdre McCloskey, prices are conjective: they represent a social consensus emerging from shared bets on what something is worth given Hayek’s “particular circumstances of time and place.” And yet they confront us as immutable and seemingly objective facts about the social world. Collard greens were $3.99, and ham hocks were $6.06 at Publix earlier this afternoon, representing not an objective fact about the universe but our best guess at a social consensus about all the ways people could use those collard greens and ham hocks a few days before Thanksgiving. With market prices, the people who run Publix can ex ante estimate whether they can buy collard greens and ham hocks and then sell them at a markup sufficient to turn a profit. They can also ex post evaluate their ex ante estimates and learn whether they have wasted resources. 

Importantly, prices are not just “data.” They are conjectures about value that resolve the problem of economic rivalry, which Lavoie defined in Rivalry and Central Planning as “the clash of human purposes.” Those human purposes “clash” because people have fundamentally different ideas about what it means to live well, and they converse about it by “higgling and bargaining” in the marketplace. The process itself generates knowledge that cannot otherwise exist. Economic knowledge cannot be stored in spreadsheets and processed by supercomputers. Entrepreneurial judgment has no algorithmic substitute. Economic knowledge, to borrow from James M. Buchanan’s classic essay, is defined in the process of its emergence.

Their analysis, though brief, is historically rich, as they describe how liberal politics and classical and neoclassical economics emerged side by side. Thinkers from Smith through Mill (and beyond) understood that markets are embedded in a social, cultural, and legal milieu of property, contract, and consent that makes voluntary exchange – and meaningful economic knowledge – possible. It is rooted in the most fundamental of liberal rights: the right to say “no, thank you.”

The Socialist Calculation Debate and the Relevance of Economic Knowledge gives added depth to the history of economic thought over the last century by exploring how the themes in the calculation debate appear in Ronald Coase’s work on transaction costs originating in his classic article “The Nature of the Firm,” the UCLA property rights school, and public choice. Drawing on the economists Ennio Piano and Louis Rouanet, they explain that the choice between managerial hierarchies and spot markets is a kind of economic calculation that entrepreneurs and managers cannot do without private property and the possibility of exchange.

So why does socialism still attract enthusiastic adherents, especially among educated elites one might think would know better? As Boettke et al. argue, socialism survives in part because these educated elites have not actually grappled with Mises’s economic calculation argument and mistakenly believe that it is a computational problem. However, knowledge does not just exist “out there” waiting to be found and analyzed. It emerges in exchange itself.

It also survives because people have redefined it — not as “common ownership and control of the means of production,” but as “a set of egalitarian, redistributive normative commitments.” For the true believer, socialism’s desirability isn’t a hypothesis we can test with theoretical or empirical inquiry. It’s an axiom that produces a series of “if only” statements that commit what the philosopher, Adam Smith scholar, and The End of Socialism author James R. Otteson calls the “nice if” fallacy. If only people were better. It would be nice if everyone had better, cheaper health care. If only they weren’t so rich. And so on. Boettke, Candela, and Truitt remind us that these hopes and ifs, no matter how nice, keep running aground on the fact that central planning creates Planned Chaos.