Why do planning economies fail? The economic calculation problem and how markets solve it...

Posted by Libertarianism Published on November 10, 2017

Last Tuesday (11/07/2017) was the “Day for Victims of Communism”. Communism caused more than 100 million deaths through famines and by executing people that dissented from the party line. Communism was not just a humanitarian failure it also was an economic failure: time to have a look why communism failed on an economic level.

The economic calculation problem shows why using economic planning as a substitute for market-based allocation of the factors of production leads to inefficiency. The economic calculation problem was first proposed by Ludwig von Mises in his 1920 article “Economic Calculation in the Socialist Commonwealth” and later expanded upon by Friedrich Hayek. The above explains the economic calculation problem using the example of railroad construction.

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