Debating the Rationality of Socialist Economic Planning: Mises, Hayek and the Market Socialists

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The discussion starting with Mises’s critique about whether it is possible to direct the economy in a rational way or not in a socialist society is, in a sense, equivalent to a discussion on markets versus planning. This paper compares a state centric versus market centric administration of the economy in order to evaluate socialist planning especially with regards to production and distribution: while some assert that socialist planning would be rational, others believe that this argument is neither theoretically nor practically possible. The knowledge/information problem has an important role to play in this discussion: Can those who prepare and implement the plan acquire the required knowledge and information necessary to use resources effectively? This study analyzes the arguments presented in the stated discussion and concludes that the ‘market socialists’ have not been able to give a complete response to Hayek’s knowledge-based critique of socialist planning.

Keywords: Mises, Hayek, Planning, Market, Market Socialists.