From Ludwig von Mises in his book “Bureaucracy:
1.: The Impracticability of Government All-round Control
Socialism, that is, full government control of all economic activities, is impracticable because a socialist community would lack the indispensable intellectual instrument of economic planning and designing: economic calculation. The very idea of central planning by the state is self-contradictory. A socialist central board of production management will be helpless in the face of the problems to be solved. It will never know whether the projects considered are advantageous or whether their performance would not bring about a waste of the means available. Socialism must result in complete chaos.
The recognition of this truth has for many years been prevented by the taboos of Marxism. One of Marxism’s main contributions to the success of pro-socialist propaganda was to outlaw the study of the economic problems of a socialist commonwealth. Such studies were in the opinion of Karl Marx and his sect the mark of an illusory “utopianism.” “Scientific” socialism, as Marx and Engels called their own brand, must not indulge in such useless investigations. The “scientific” socialists have to satisfy themselves with the insight that socialism is bound to come and that it will transform the earth into a paradise. They must not be so preposterous as to ask how the socialist system will work.
One of the most remarkable facts of the intellectual history of the nineteenth and early twentieth centuries is that this Marxian Verboten was strictly obeyed. The few economists who dared to defy it were disregarded and soon fell into oblivion. Only about twenty-five years ago the spell was broken. The impossibility of economic calculation under socialism was demonstrated in an irrefutable way.
Of course, some stubborn Marxians raised objections. They could not help admitting that the problem of economic calculation was the most serious issue of socialism and that it was a scandal that the socialists in eighty years of fanatical propaganda wasted their time on trifles without divining in what the main problem consisted. But they assured their alarmed partisans that it would be easy to find a satisfactory solution. Indeed, various socialist professors and writers both in Russia and in the Western countries suggested schemes for an economic calculation under socialism. These schemes proved utterly spurious. It was not difficult for the economists to unmask their fallacies and contradictions. The socialists failed completely in their desperate attempts to reject the demonstration that no economic calculation is feasible in any system of socialism.1
It is obvious that a socialist management also would aim at supplying the community with as many and as good commodities as can be produced under the existing conditions of the supply of factors of production and of technological knowledge. A socialist government too would be eager to use the available factors of production for producing those goods that, according to its opinion, are most urgently needed, and to forego the production of those goods which it considers less urgently needed. But the unfeasibility of economic calculation will make it impossible to find out which methods for the production of the goods needed are the most economical ones.
The socialist governments of Russia and Germany are operating in a world the greater part of which still clings to a market economy. They thus are in a position to use for their economic calculation the prices established abroad. Only because they can refer to these prices are they able to calculate, to keep books, and to make plans. It would be quite different if every nation were to adopt socialism. Then there would be no more prices for factors of production and economic calculation would be impossible.2