The Economic Calculation Problem

The Economic Calculation Problem, identified by economist Ludwig von Mises, suggests that in a system where resources are owned and coordinated by central planners rather than markets, it becomes impossible to accurately determine the true value and cost of goods and services. Without the price signals created by free market interactions, planners lack the information needed to efficiently allocate resources, leading to inefficiency and shortages or surpluses. Essentially, markets with competition and voluntary exchange generate vital information through prices, which central planning cannot replicate effectively.