Why the Post Office and Non-Profits Struggle Without Market Prices

Free market economists have demonstrated why socialism fails: without true market prices, economic calculation becomes impossible. Some, however, fail to realize that this limitation also applies to other institutions, like nonprofits, that typically don’t face market prices either.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

Public debate usually treats Mises’s Economic Calculation in the Socialist Commonwealth as a Cold War claim that “government is inefficient.” That is too shallow. Mises’s deeper point—first made in 1920—was that an economy without genuine market prices for the means of production cannot calculate which uses of resources are more or less valuable. In his later language, monetary calculation is the “guiding star” of production because it lets decision-makers compare unlike options through a common denominator shaped by exchange.

Put plainly, the Misesian problem appears whenever an organization must choose among many technically feasible uses of scarce, heterogeneous resources, but lacks a reliable way to measure the opportunity cost of those alternatives. That is why the issue is broader than full socialism. Socialism is the universal case. Smaller, local versions appear anywhere control over resources is severed from real market valuation.