‘The economy is dynamic and composed of trillions of needs and decisions that often change complexion. The basis of knowledge needed for economic calculation comes from the market in the form of relative prices. These prices are relative to all other prices at the current moment.
The freer the market is the quicker the information can flow and the greater the ability is for it to correct errors. Desires, needs, and resources converge in the market and find full expression in the form of relative prices. Economic calculation involves comparing and contrasting and speculating about the relative prices expressed through the market.
Any attempt to calculate economically using fictional non-market values — values arbitrarily assigned by someone removed from the market — ignores the dynamic nature of the knowledge within the market; which is tantamount to denying the human spirit. Use of non-market values is the reason why vertical production in an excessively large firm results in bureaucracy and calculation error.
This is also the reason why socialism fails, since it is an ‘error-based institution.’ What is meant by ‘error-based’ is the fact that the prices used for decision-making are arbitrary and imagined, not derived from the market process. These prices are erroneous and all decisions based on them are error-based.’
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