Without market prices there is no way to compare the value of alternative uses of resources, so rational allocation becomes impossible in principle.
Mises's 1920 argument, distinct from Hayek's: this concerns valuation rather than information. Without prices for capital goods, there is no common unit in which to compare a steel mill against a railway.
In practice
- A planner allocating steel between a railway and a hospital has no common unit in which to compare them, however good the data.
- An internal transfer-pricing system that sets prices administratively finds no division can say whether a project is worth doing.
- Standing
- Distinct from Hayek's knowledge problem: this concerns valuation, Hayek's concerns information.
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money