Lesson 1 of 7
One school, two strands
Whether Mises and Hayek made the same argument is a dispute inside the tradition, and what you decide changes what the calculation debate was about.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- One strand reads the calculation argument as being about monetary appraisement by entrepreneurs who own what they risk. The other reads it as being about dispersed knowledge.
- The difference is not academic. It changes what would count as an answer to Mises, and what a price is supposed to be doing.
- Both strands are inside the same school and cite the same texts. The dispute is over what those texts say, and it has been conducted in print since the 1990s.
Readers who arrive at this tradition from outside usually meet it as one thing. It is not one thing, and the clearest internal division was named in a review essay published in the Review of Austrian Economics in 1993.
Two readings of the same argument
The Misesian reading
- The problem is calculation: comparing outlays and proceeds in money.
- Prices are made by entrepreneurs appraising future prices.
- Ownership matters because the appraiser must bear the loss.
- Knowledge is necessary but not the binding constraint.
The Hayekian reading
- The problem is the use of knowledge that exists only in fragments.
- Prices are signals that carry what others know.
- Competition is a procedure for discovering what nobody yet knows.
- Ownership matters because it decentralises the decisions.
The disagreement is about what a price is for, which is why it reaches everything else.
Where the split came from
Salerno's essay argues that the two men were not making the same argument and that treating them as interchangeable obscured both. His case is that the Misesian argument turns on monetary calculation and entrepreneurial appraisement rather than on the communication of knowledge, and that the knowledge reading, however influential, is Hayek's development rather than Mises's claim.
The essay is called a dehomogenization, and its title is a deliberate echo of an earlier article separating the three founders of marginal utility, which Salerno names. It is a review essay rather than a treatise, and it is the reference point for the split.
The other strand's reply is not a denial that the two differ. It is that the difference is a development rather than a rupture: Kirzner's account holds that the later statements of both men articulate a process view that the early statements assumed, and that the tradition learned this by arguing with its critics.
Why the distinction has consequences
Take Lange's board from the calculation course. On the knowledge reading, the objection is that the board cannot gather what it needs quickly enough or finely enough, which is a claim about information flow. On the calculation reading, the board fails even with perfect information, because nobody in it is appraising future prices with their own property at stake.
Those imply different repairs. If the problem is information, better data collection helps. If the problem is appraisement by people who bear the loss, better data does not help at all, and the objection is about who decides rather than about what they know.
The same split shows up in what each strand emphasises in cycle theory. The Misesian version leans on money and credit as the source of the distortion. The Hayekian version leans on the coordination of plans over time and on what prices fail to convey.
How to hold this as a reader
Without taking a side. The useful move is to ask, of any claim in this track, which reading it belongs to, because the objections differ.
It is also a reason to be careful with summaries. A textbook line about the Austrian view of prices is almost always the Hayekian one, since that is the version mainstream economics absorbed, and the reader who meets only that version has met half the school.
Check yourself
What does the Misesian reading say the planning problem is?
- That planners cannot collect enough statistics
- That nobody can appraise future prices with their own property at stake, so calculation has no test
- That planners have the wrong incentives politically
Show the answer
Answer: B.
Salerno's essay places monetary calculation and entrepreneurial appraisement at the centre and treats the knowledge reading as Hayek's development.What is the reply from the other strand?
- That Mises never wrote about calculation
- That the difference is a development rather than a rupture, with the later statements making explicit what the earlier ones assumed
- That Hayek retracted the knowledge argument
Show the answer
Answer: B.
Kirzner's account of the debate argues the tradition refined its own understanding through the exchange rather than changing position.Why does the split matter for evaluating a proposal?
- It changes the political conclusion
- It changes what would count as a fix: better information, or different people bearing the loss
- It changes the definition of money
Show the answer
Answer: B.
An information problem and an appraisement problem have different remedies, which is why the reading you adopt decides what an answer looks like.Sources
- Salerno, 'Mises and Hayek Dehomogenized', Review of Austrian Economics, volume 6, number 2, 1993: the argument that the calculation problem is one of monetary appraisement rather than of dispersed knowledge, and the acknowledgement of the earlier article on the founders of marginal utility from which the title is drawn.
- Kirzner, 'The Economic Calculation Debate: Lessons for Austrians', Review of Austrian Economics, volume two, 1987: the alternative reading, on which the later statements of both men articulate a process view the earlier ones left implicit.
- Hayek, 'The Use of Knowledge in Society', American Economic Review, 1945, reprinted in Individualism and Economic Order, 1948, chapter four, for the knowledge argument in its own words.
What this leaves out
- This is a heterodox tradition. The mainstream account of the same phenomenon differs, and nothing here is a forecast or a view on any security.
- Salerno's essay is a review essay in a journal belonging to the tradition, and Kirzner writes from the other side of the same dispute. Both are participants and neither is a neutral summary.
- The planning board example is a device for showing what each reading implies. It describes no institution.