The Essential Rothbard - Ludwig von Mises Institute

16 The Essential Rothbard
has demonstrated irrefutably that a socialist economic system
cannot calculate, since it lacks a market, and hence lacks
prices for producers’ and especially for capital goods. Now
we see that, paradoxically, the reason why a socialist economy
cannot calculate is not specifically because it is socialist!
Socialism is that system in which the state forcibly seizes control
of all the means of production in the economy. The reason
for the impossibility of calculation under socialism is
that one agent owns or directs the use of all the resources in
the economy. It should be clear that it does not make any difference
whether that one agent is the State or one private
individual or private cartel. Whichever occurs, there is no
possibility of calculation anywhere in the production structure,
since production processes would be only internal and
without markets. There could be no calculation, and therefore
complete economic irrationality and chaos would prevail,
whether the single owner is the State or private persons.
18
Rothbard here brilliantly combined Mises’s argument with a
central contention of Ronald Coase’s “The Nature of the Firm.” 19
Coase considered individual firms, faced with the decision whether
to extend production internally or buy products on the market. He
said that in “a competitive system there is an ‘optimum’ amount of
planning.” 20 Rothbard saw that Mises and Coase were making a
similar point. As Rothbard notes,
For every capital good, there must be a definite market in which
firms buy and sell that good. It is obvious that this economic law
sets a definite maximum to the relative size of any particular firm
on the free market. . . . Because of this law, there can never be
One Big Cartel over the whole economy or mergers until
One Big Firm owns all the productive assets in the economy.
21
18 Man, Economy, and State with Power and Market, pp. 614–15.
19 Ronald Coase, “The Nature of the Firm,” Economica n.s. 386 (1937).
20 Quoted in Man, Economy, and State with Power and Market, p. 613.
21 Ibid., p. 613; emphasis in the original.