Ludwig Heinrich Edler von Mises

Who he was and his times

Ludwig von Mises was born in 1881 in Lviv, then Lemberg, one of the major cities of Austria-Hungary. He studied law at the University of Vienna and received a doctorate in law in 1906. According to the Great Russian Encyclopedia, he was a follower of Carl Menger and a student of Eugen von Böhm-Bawerk; in other words, he grew up within the Austrian school, which explained prices by people’s subjective valuations rather than by labour costs. From 1913 to 1938 Mises taught at the University of Vienna but never obtained a salaried professorship there; his main employment was the Vienna Chamber of Commerce, where, according to the university archive, he rose to head its finance department.

Post-war Vienna was a place where socialism was not discussed in the abstract. In Germany and Austria in 1918–1919, projects for the “socialisation” of industry were being seriously prepared, and the philosopher and economist Otto Neurath published a book on how the wartime economy, managed through physical indicators, could be turned into a permanent system without money. Mises’s article grew out of a 1919 lecture and was a direct response to these projects. At the same time Mises ran a private seminar in Vienna, attended by many economists of the next generation, including Friedrich Hayek.

It is important to understand exactly what Mises was arguing against. In 1919–1920 the issue was not a mixed economy or framework planning but the complete replacement of exchange by centralised allocation: the means of production pass into common ownership, enterprises receive targets and resources from the centre, and money either disappears or remains only for consumer purchases. Mises saw such projects being discussed in governments and workers’ councils and considered it his duty to expose their internal difficulty before they were put into practice. Moreover, neighbouring Russia was going through the experience of “War Communism” with in-kind distribution in these very years, so the subject did not seem remote.

In 1934 Mises moved to Geneva and became a professor at the Graduate Institute of International Studies. After the Anschluss of 1938 he lost his post at the University of Vienna, and in 1940 he emigrated to the United States. From 1945 to 1969 he taught at New York University, but, according to the Mises Institute and reference works, he held only the status of a visiting professor, and his salary was paid by private foundations. He died in New York in 1973; a year later his student Hayek received the Nobel Prize, and interest in the Austrian school rose sharply.

Key ideas

The article “Economic Calculation in the Socialist Commonwealth” appeared in 1920 in the German journal Archiv für Sozialwissenschaft und Sozialpolitik (vol. 47, pp. 86–121). Its central thesis is simple. To compare two methods of production, tonnes of metal, hours of different kinds of labour, electricity, land and equipment have to be reduced to a single magnitude. In a market economy this is done by money prices, which arise in exchange. Under socialism, where the means of production belong to society and are not sold, they have no market prices, and hence there is no common denominator for comparison.

Mises stressed that the problem does not lie with consumer goods. He allowed that money could be retained under socialism for selling bread and clothing, and even acknowledged that society would easily decide that 1,000 litres of wine are better than 800. The difficulty begins at the next step: by what means to obtain that wine, when the same raw materials, machines and labour are needed in thousands of other lines of production. In Socialism he examines the example of a new railway: is it needed, and along which of many routes should it run? Without prices for rails, coal and skilled labour, the decision, in his words, will be taken by decree on the basis of vague estimates rather than calculation.

Mises also rejected two obvious workarounds. Calculation in physical terms, advocated by Neurath, was in his view suitable only for consumer goods and useless for goods of “higher orders” — machine tools, raw materials, semi-finished products. Calculation in labour hours ignores differences in skill, the scarcity of natural resources and time. He noted separately that in an unchanging, “stationary” economy one could simply repeat inherited decisions, but a real economy changes constantly, and every change requires a new comparison of costs.

Hence the harshest conclusion, which he repeated in Socialism (1922): without calculation, economic activity in the modern sense is impossible, and decisions turn into a “leap into the unknown”. It is important that Mises did not claim that a socialist economy would collapse instantly. He allowed that it could live for some time on inherited traditions and rely on the prices of the surrounding market world; that is precisely why he called the socialism he knew an “oasis” within a system of free exchange.

What became of the ideas in practice

Soviet planning developed with practically no direct dialogue with Mises: his works were not translated and were not discussed in official scholarship. Yet the questions he raised arose in Soviet practice of their own accord. The method of material balances, on which Gosplan relied, reconciled the production and consumption of the most important products in physical units; according to figures our site already cites, in 1973 it covered 1,943 items and about 70% of industrial output. The balances answered the question “will there be enough metal?” but answered poorly the question “where is metal used most advantageously?” — precisely the question Mises wrote about.

Soviet mathematical economists of the 1930s–1960s, above all Leonid Kantorovich and Viktor Novozhilov, tried to solve the problem differently: by computing “objectively determined valuations”, or shadow prices — indicators of a resource’s value obtained by solving an optimisation problem rather than from market exchange. Mises’s supporters object that such valuations depend on an objective function and input data which the centre itself cannot set correctly. Advocates of optimal planning reply that this is a question of data quality, not of logical impossibility. The dispute is still not settled.

Economic historians regard the reliance of planned economies on world prices in foreign trade, and on prices inherited from the pre-revolutionary and NEP periods, as indirect confirmation of the “oasis” Mises wrote about. In the USSR the gap between a plan item and a specific product was closed by tolkachi (expediters) and informal exchange between enterprises — that is, in part by a spontaneous, shadow market inside the plan. Researchers differ on whether this can be regarded as proof that Mises was right or simply as a consequence of the imperfections of the particular Soviet system.

The 1965 reform associated with the names of Kosygin and Liberman in a sense acknowledged the problem Mises had posed, without naming him. Enterprises began to be assessed by profit and profitability, that is, by monetary indicators in which costs and results are compared. However, resource prices were still set centrally and rarely revised, so profit reflected not so much efficiency as well or badly set prices. From Mises’s point of view such a reform could not solve the problem: a monetary indicator without a market price for the means of production remains an accounting convention.

What worked and what did not

The strength of Mises’s argument lies in its precise formulation of the question. He showed that the main problem of a plan is not counting needs or computing power but comparing alternative ways of using scarce resources. Even his opponents recognised this question: in 1936 Oskar Lange ironically proposed erecting a statue of Mises in the hall of the central planning board — in gratitude for having forced socialists to take calculation seriously. The later history of reforms in Hungary, Poland, the USSR and China was to a large extent a history of attempts to give prices back their function as signals.

The weaknesses are also well known. The first is the radical nature of the conclusion. Mises spoke of “impossibility”, whereas planned economies existed for decades, carried out industrialisation and achieved considerable results in certain sectors. Critics point out that it would be more accurate to speak of the high cost of errors and low efficiency than of logical impossibility. The second is methodology: Mises held that economic laws can be deduced from the very logic of human action rather than from empirical data, and many economists, including those sympathetic to him, do not accept this apriorism.

The third weakness emerged in the debate itself. Lange and like-minded economists showed that the equilibrium equations can formally be solved without private property if the centre adjusts prices by trial and error. Mises replied in an appendix to Socialism and in later works, insisting that without owners who risk their own capital, prices would remain an accounting convention. This reply proved deeper than the original argument: the discussion now concerned not calculation but incentives and responsibility, which Hayek and Kornai later developed.

Finally, Mises’s argument says little about what the market itself calculates badly. Market prices do not take into account pollution borne by neighbours, the benefits of public goods used by everyone, or the interests of future generations. Mises acknowledged the existence of “non-economic” values but believed they could be taken into account separately, by people’s judgement, without being built into calculation. For tasks such as climate policy or territorial development this is not enough: here market calculation itself needs corrections set outside the market, and it is here that the debate on planning continues today.

Debate and criticism

Mises’s first opponents were German-speaking authors of the 1920s, above all Karl Polanyi and Eduard Heimann, who proposed schemes of calculation through producers’ associations or through average costs. Mises examined them in an appendix to Socialism, arguing that these schemes either covertly bring back the market or remain centralised management in which calculation is still impossible. The main response, however, came in the 1930s from Fred Taylor, Abba Lerner and Oskar Lange, who created models of “market socialism”.

In 1935 Hayek included an English translation of Mises’s article in the collection Collectivist Economic Planning, together with works by Nicolaas Pierson, Georg Halm and Enrico Barone. Hayek himself gradually shifted the emphasis from logical to practical impossibility: the knowledge needed for calculation is dispersed among people and cannot be gathered at the centre. The historian of economic thought Don Lavoie, in Rivalry and Central Planning (1985), argued that participants in the 1930s debate misunderstood Mises by reducing his argument to a problem of solving equations, whereas he had been speaking of a dynamic process of competition.

Contemporary criticism comes from another direction. Paul Cockshott and Allin Cottrell, in a 1993 article in the Review of Political Economy, argued that advances in the theory of computation and in computers make it possible to return to calculation in labour time, supplemented by algorithms that take consumer choice into account. Mises’s supporters reply that the problem is not the speed of calculation but where the initial valuations come from. This line of the debate revived in the 2010s–2020s in connection with big data and machine learning, and its outcome remains a matter of discussion.

Legacy today

For the history of planning, Mises matters as the author of the most precise question to put to any planning project: what will you use to compare alternatives? After the 1990s his works also became available in Russian: Socialism was published in 1994 by the Catallaxy society, translated from the 1981 English edition and checked against the German. In economics, the calculation argument is part of standard courses on the history of economic thought and on comparative economic systems.

For the Open Planning project, Mises’s argument is not an abstract polemic but a practical requirement. If the plan sets the frame and within it resources are allocated by the market, then market prices for resources must genuinely emerge rather than be assigned. If some decision is taken outside prices — for example, by a public vote on goals — it must be honestly acknowledged that this decision is not derived from calculation but is a political choice. Mises himself did not regard “non-economic” considerations such as the beauty of a landscape or the health of the nation as irrational; he merely insisted that they must not be passed off as exact calculation.

Finally, Mises’s legacy is useful as a warning against self-deception. A planning system that copies an already existing economic structure and lives on the prices of the outside world can look workable for a long time. It can be tested only when it faces change and is forced to choose something new. Therefore any pilot that claims efficiency must show not only that the plan was fulfilled but also how much the chosen solution cost compared with the rejected ones.

An honest reading of Mises requires acknowledging the limits of his argument’s applicability to our model. He wrote about an economy in which the means of production are not exchanged. A model in which contractors compete in auctions and tenders, buy resources at market prices and risk their own collateral formally lies outside the scope of his critique. But the question he would ask first remains: will the quota prices that emerge at auctions reflect the real scarcity of a resource if the size of the quota is set by a political decision? The answer lies not in theory but in pilot data, and that data must be collected from the very start.

Links between ideas

Whom the author argued with, whose ideas they developed, whom they answered and whose fate they shared. All links are on the shared graph. Graph of ideas

• Leonid Kantorovich

  Debate and criticism →

  Mises’s followers object that shadow prices depend on an objective function and data that the centre cannot specify.

• Paul Cockshott and Allin Cottrell

  Direct response →

  Cockshott and Cottrell agree with Mises that calculation needs an objective unit, but dispute that labour is unsuitable for it.

• Friedrich Hayek

  Develops ideas →

  A member of Mises’s seminar, Hayek shifted the argument from the logical impossibility of calculation to dispersed knowledge.

• Oskar Lange

  Direct response →

  Lange builds his model of market socialism as an answer to Mises’s argument that calculation is impossible.

• János Kornai

  Develops ideas →

  Mises’s reply to Lange’s model shifted the debate to incentives and responsibility, later developed by Hayek and Kornai.

• Evsei Liberman

  Debate and criticism →

  From Mises’s standpoint, profit under centrally set resource prices remains an accounting convention.

Timeline

1. 1881

   Born in Lviv (Lemberg), Austria-Hungary

2. 1906

   Doctor of law of the University of Vienna; begins work at the Vienna Chamber of Commerce

3. 1912

   The Theory of Money and Credit

4. 1920

   The article “Economic Calculation in the Socialist Commonwealth” opens the socialist calculation debate

5. 1922

   The book Die Gemeinwirtschaft: Untersuchungen über den Sozialismus (in the English and Russian translations, Socialism)

6. 1934

   Moves to Geneva; professor at the Graduate Institute of International Studies

7. 1935

   English translation of the 1920 article in Hayek’s collection Collectivist Economic Planning

8. 1940

   Emigrates to the United States

9. 1949

   The treatise Human Action

10. 1973

    Dies in New York

Key works

• 1912The Theory of Money and Credit
• 1920Economic Calculation in the Socialist Commonwealth
• 1922Socialism: An Economic and Sociological Analysis (German: Die Gemeinwirtschaft)
• 1927Liberalism
• 1944Bureaucracy
• 1949Human Action: A Treatise on Economics

Sources

1. Большая российская энциклопедия. Мизес Людвиг фон. 2017
2. Венский университет, проект «650 plus». Ludwig von Mises, Prof. Dr. jur.. б. г.
3. Ludwig von Mises; Mises Institute. Economic Calculation in the Socialist Commonwealth. 1920 / 1990
4. Википедия. Economic Calculation in the Socialist Commonwealth. 2025
5. Людвиг фон Мизес (пер. общества «Catallaxy»). Социализм. Экономический и социологический анализ. 1994
6. Википедия. Socialism (book). 2025
7. Mises Institute. Biography of Ludwig von Mises (1881–1973). б. г.
8. F. A. Hayek (ed.). Collectivist Economic Planning. 1935
9. Don Lavoie. Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered. 1985
10. Allin Cottrell, W. Paul Cockshott. Calculation, complexity and planning: the socialist calculation debate once again. 1993
11. Online Library of Liberty. Rothbard, Lange, Mises, and Praxeology. б. г.

Prepared from open sources. Dates, titles and quotations were checked against the source list at the bottom of the page; where sources disagree, the text says so.