Critique of Centralized Economic Planning

I first became interested in the idea of centralized economic planning while I was an undergraduate computer science major at Worcester Polytechnic Institute in the early seventies. I first went to college thinking I’d be an astronaut or something. I loved astronomy and math (you know, the moon landing and all) so I thought I would major in physics. I had this great professor in a my first computer science class and really got into computer programming. In particular I took an interest in the emerging field known as “artificial intelligence.” The combination of exposure to the natural sciences and to AI drew me to an interest in philosophy, especially the philosophy of knowledge. I studied philosophers such as Hubert L. Dreyfus, (see his [1972] 1992 What Computers Still Can’t Do: A Critique of Artificial Reason, revised. Cambridge, Mass.: MIT Press) who clarified for me what computers are not good for. In terms of creative thinking or the use of language computers are still pretty stupid and they were outrageously dumb in the 1970’s.

That was when I ran across reference to a famous Polish economist named Oskar Lange, who had remarked that had he only known of the possibilities of electronic computers he would have been able to more easily answer Ludwig von Mises’s famous critique of centralized planning. Mises had argued that the separation of ownership into the hands of different and possibly contentious agents serves a knowledge-generating function in the economy, putting information about the relative scarcities of different goods into the price system. Lange in the 1930’s responded by concocting a model of “market socialism” whereby the price system is replaced by a central planning board that replicates the welfare ideal according to the principles of neoclassical economics: marginal cost pricing. Now that we know of computers, he said, Mises’s challenge is more easily disposed of. The computers could directly calculate the solutions to the general equilibrium economists’s equations, and so we could replace the market!

This looked like weird stuff to me. The market process seems like the kind of thing that inherently involves the complex interaction of a variety of different persons, each tugging and pulling in different directions. I presume that the participants to market activities bring their full intellect to bear on their thinking. Replicating the outcome of the interaction of a multiplicity of minds sounded like AI2 . If AI seems mostly to be overambitious, this Lange guy had to be way off.

So I started looking into this original debate, and found the work of Ludwig Mises. The view of knowledge in economic processes that I picked up from Mises and some of his followers, such as Friedrich Hayek, Ludwig Lachmann, and Israel Kirzner, has been on my mind ever since. My first two books were aimed at articulating Mises’s critique of centralized planning, the “calculation argument,” and in a number of subsequent articles I have kept coming back to different aspects of this idea.


National Economic Planning: What is Left?, Cambridge, Mass.: Ballinger, 1985. ISBN: 0887300553.

Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered, first book in Cambridge series on “Historical Perspectives on Modern Economics,” New York: Cambridge University Press, 1985. ISBN: 0521264499.

Solidarnosc z Wolnoscia [Solidarity with Liberty], a collection of essays collected, edited, and introduced by Don Lavoie, translated into Polish by Ewa Rurarz, Washington, D.C.: Cato Institute, 1982.

Special issue on “An Economic Critique of Socialism”, Guest Editor, Journal of Libertarian Studies, Vol. 5, No. 1, 1981.

Articles, Book Chapters and Working Papers

“Mises, the Calculation Debate, and Market Socialism,” Wirtschaftspolitische Blätter, 4.

Between Institutionalism and Formalism: The Rise and Fall of the Austrian School’s Calculation Argument, 1920-1950.” Center for the Study of Market Processes Working Paper. #21.

“The Market as a Procedure for Discovery and Conveyance of Inarticulate Knowledge.” Comparative Economic Studies.  28, Spring.

“Computation, Incentives, and Discovery:  The Cognitive Function of Markets in Market-Socialism.” The Annals of the American Academy of Political and Social Science,  507: 72-9.

Political and Economic Illusions of Socialism.” Critical Review,  1: 1-35.

“Reply to Mueller,” Critical Review, 1, #2, (Spring), pp 78-82.

“Economic Regulation: Theory and History,” Market Process, 7, #1 (Spring 1989) pp. 22-5.

“The Development of the Misesian Theory of Interventionism,” Chapter 14 of Israel Kirzner (ed.) Method, Process and Austrian Economics:  Essays in Honor of Ludwig von Mises, Lexington, Mass. 1982: Lexington Books.

Two Varieties of Industrial Policy: A Critique, Cato Journal 4 (2 – Fall).

Economic Calculation and Monetary Stability, Cato Journal 3 (1 – Spring).

A Critique of the Standard Account of the Socialist Calculation Debate, Journal of Libertarian Studies 5 (1).

Glasnost and the Knowledge Problem: Rethinking Economic Democracy.” Cato Journal, vol. 11, # 3 Winter 1992, pp. 435-55 translated into Russian under the title: “Democracy, Openness, and the Knowledge Problem: Toward a Democratic Market Economy,”  in Larisa Piyasheva & James A. Dorn, eds., From Plan to Market: The Future of the Post-Communist Republics, Moscow: Catallaxy, 1993.

“Between Historicism and Formalism: The Rise and Fall of the Austrian School’s Calculation Argument,” 1920-1950,” Praxiology 6.

“Democracy, Markets, and the Legal Order: Notes on the Nature of Politics in a Radically Liberal Society.”  In E. Paul, F D. Miller, & J. Paul, eds. Liberalism and the Economic Order.  New York: Cambridge University Press, 1993. pp103-120; also published in Social Philosophy and Policy, 10: 2.

“The Interpretive Turn”, entry in Peter Boettke, ed. Companion of Austrian Economics.  Aldershot: Edward Elgar, 1994.

“Preface: The Meaning of Market Process” in Peter Boettke and David Prychitko, eds., The Market Process: Essays in Contemporary Austrian Economics  Aldershot: Edward Elgar.

“Preface to the Japanese Translation” of Rivalry and Central Planning Seizansha, Ltd.

“…On the Persuasive Economist” in Laurence S. Moss, ed., “Remembrance and Appreciation Roundtable, Professor Ludwig M. Lachmann (1906-1990): Scholar, Teacher, and Austrian School Critic of Late Classical Formalism in Economics” American Journal of Economics and Sociology, Vol. 59. #3: 399-404 (July 2000).

Lavoie, Don, Baetjer, Howard, & Tulloh, William  1991a.  “Coping with Complexity: OOPS and the Economist’s Critique of Central Planning.” Hotline on Object-Oriented Technology,  3: 1, Nov pp 6-8.

Lavoie, Don & Ellig, Jerome.  1996.  “Governments, Firms, and the Critique of Centralized Economic Planning,” in Paul Foss, ed., Economic Approaches to Organizations: An Introduction Aldershot, England: Dartmouth Publishing Company.