The issue of economic planning has been a major component of Austrian theorizing since Mises’s 1920 article on the impossibility of calculating in a socialist commonwealth. But as both Mises and Hayek noted, the position is not one against planning per se but about who does the planning. Ronald Coase made a similar point, though from the very opposite perspective, saying that there is a large degree of planning even in market economies – but it is decentralized (through firms).

Whatever we may think of the concept in economic or political terms, planning is a core part of human endeavor. In fact, it is the reason we are vulnerable to changes in nature and that we spend vast sums on trying to stop more or less natural processes. The reason is that we develop capital, and the capital structure (a path-dependent, cumulative development of the prerequisites for production) is productive only by being specific – and therefore lacking in flexibility. This is the reason natural changes are so very costly.

Consider as an example a city harbor in the delta of a large river, which supplies a great service to people in the city as well as upstream the river and, likely, peoples in other lands across oceans. The harbor establishes fixed piers of rigid materials that can shelter ships from storms while making the shifting of goods from land to sea (and vice versa) easy and cheap. But while the harbor, which is non-permanent economic capital, contributes to our productivity and thus economic prosperity, it is also fully dependent on the specificity of the location: the depth and flow of the river, access to the ocean, etc. It is the natural dynamic of a river delta that the river brings sediment from upstream, which makes the delta more shallow and eventually diverts the flow of the river. Meanwhile, islands are created in the delta as the sediments make up banks and make it almost impossible for ships to reach the shore. Consequently, man’s productivity increase through establishing and running a harbor leads to a constant struggle against nature: by dredging, fixing the river’s flow, and so on.

Our ability to produce non-permanent goods that permanently increases our productivity is one of man’s great abilities. But this requires continuous investment in order to keep capital productive. This can be done by reinvesting to renew capability, maintenance and upkeep to extend capability, or mending and rejuvenating machinery and other capital to be able to keep producing. As the example of the river delta harbor shows, the upkeep of capital may need investment in and innovation of new capital (dredging equipment, etc). Capital is costly to create, and without being able to plan for its usage and imagine how to use it and in what way, we wouldn’t be able to produce such an intricate capital structure. We plan in order to increase productivity and, subsequently, generate permanent increases in wealth.

Planning is in this sense both possible and necessary. Yet there is a major difference between planning an enterprise or planning productive capital and planning a society. Some reasons for this difference are obvious: capital has a specific use and value, and is therefore used toward this end; society does not. Anything that has a certain and specific purpose can be fixed and commandeered toward it. And the market even offers a dynamic by establishing a market for the means of production, which allows us to reconfigure, regroup, and redirect produced means of production toward new ends when needed. Yet in each usage there is a specific purpose, which makes it possible to make plans for the future – and thereby we also aim to control as many variables as possible in order to make planning feasible. Planning implies control, which implies restricting outcomes. But this in turn implies purpose.

What is the purpose of society? Some, or perhaps even many, may claim there is a purpose for society. Yet since we cannot agree on what purpose this is, it is impossible to identify. Instead, this purpose – if any – is subject to debate and is ultimately a value judgment. And people differ in their value judgments. This is part of the reason why the classical liberals would not abstract from the individual; it is the individual who values and exercises judgment. It is therefore prudent to treat the individual as the end, not the means toward some higher purpose to which we cannot agree. This is a major difference between capital, a firm, economic resources – and society.

I was reminded by Peter Boettke of an Adam Smith quote on the Coordination Problem blog that summarizes this beautifully:

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. (From Adam Smith, Theory of Moral Sentiments)

Whereas any planning may be a struggle against the forces of mother nature, planning society means using people as capital – and can only effectively be done if society has a stated purpose. This is the reason Mises (as well as others) states that the socialist economy acts “as one” and has only one mind. It is planned top-down and is given a purpose by its Leader. Whether or not you agree with this purpose is immaterial, you are but a means toward this stated end.

This points to the very core of the problem of planning – that planning implies control as well as a purpose. With a shared purpose, capital (perhaps even society) can be planned and directed toward the common goal. But with divergent purposes, as in a society of individuals, where the purposes are of equal import, there is no possibility for being successful. While it is obvious that one cannot successfully reach a goal that is fundamentally disputed, the implications are not as obvious. It suggests a necessity to control, which is the case also in the market: the owner controls and decides, but is fundamentally subject to the laws of demand and supply lest he or she has access to an infinite supply of value and doesn’t mind wasting it. In this sense, consumers are king.

But control evaporates if there is not a stated purpose, as is the case with society at large and with commonly owned property. Unless there is prior agreement, and there is enforcement of this expressed will, planning is impossible and control no longer implies low-cost decision-making. It implies oppression and coercion.