[johnwinters91]

Professor,

Am I understanding the economic calculation problem theory correctly as stats below?

Supply and demand forces prices and markets into equilibrium. Since there is no excess supply, scarce resources are put to their most effective uses, putting the economy on the maximum production possibly frontier. Thus, without prices, a country’s economy cannot reach its maximum production possibilities frontier?

Is there empirical evidence of this?

Is it observable with empirical data that the laws of supply and demand hold true in all free market conditions?

Thank you

[jmherbener]

The economic calculation argument is that socialism, defined as state ownership of the means of production, does away with monetary prices for the means of production entirely. There are no money wages, no land prices, no prices of capital goods. Without such prices, there cannot be an economizing arrangement of resources.

The empirical evidence supporting this theory is overwhelming: West Germany v. East Germany; South Korea v. North Korean; Hong Kong v. mainland China before market reforms.

The freedom indexes show the correlation between freer enterprise and higher and faster growing standards of living. For example:

https://www.heritage.org/index/

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