What was Mises’s most important contribution to economic science? My answer, which coincides with the theme of maybe the central chapter of the entire book â€“ chapter 10, A Copernican Shift, is: his analysis of the exact nature and the importance of economic calculation in a division-of-labor economic system.The substance of his contribution first appeared in a paper titled Economic Calculation in the Socialist Commonwealth. As the title of the paper suggests, Mises’s initial focus was on the specific problem of calculation under socialism. But Mises’s argument goes far beyond the analysis of production and distribution under socialism.
The substance of Mises’s calculation argument marked a truly “Copernican Shiftâ€ in economic science. Dr. Hülsmann writes: “[i]t was in fact the first and decisive step toward building the theory of production on completely different foundations from those dominant in the economic mainstream â€“ of which the Austrian School was still a part.â€ Regrettably, neither in his first piece on economic calculation nor in his later works did Mises himself realize the full significance of this shift. I believe that the logic of calculation argument has been brought to its most complete development only in the work of Mises’s student George Reisman. Prof. Reisman’s treatise Capitalism: A Treatise on Economics provides the most consistent application of Mises’s insight and promises nothing short of a complete revision of key Austrian and neoclassical theorems along the new lines first proposed by Mises.
Given the overwhelming importance of Mises’s economic calculation argument for all of economic science, I have decided to devote a whole series of these blog posts to a somewhat detailed exposition and elaboration of the argument in its main dimensions. However, to fully understand the enormous scientific value of Mises’s argument we need to break the substance of the argument into its several constituent parts, each of which will be dealt with in a separate blog post.
In the next post I will begin with an analysis of the nature and significance of the division of labor.