Profit and loss calculation within a free market is essential to any business; without it a businessman would not know if areas of his business were being successfully profitable or not. Normally a business man keeps track of what he has spent or put into his business and what he has earned in order to evaluate what his total revenue (profit) is.
In a socialist economy (by socialist I am referring to: when the means of production, capital goods, are owned by the government) there is a socialist economic planning board that decides what needs to be produced, how it needs to be produced, and where . When a planning board owns all of the means of production it does not have to “buy” anything, there is no price (buying and selling) system to evaluate their input and output, so the board will not know what is benefitting and harming their system; they will not know what is in supply and what is demand; they will not know which things are cheaper and more beneficial to use in production processes; or where the best (cheapest) place to make something is. According to Ludwig von Mises this is a fatal flaw in a socialist system. People who run the socialist economic planning board are fairly similar to blind mice.
“Three blind mice. Three blind mice.
See how they run. See how they run.
They all ran after the farmer’s wife,
Who cut off their tails with a carving knife,
Did you ever see such a sight in your life,
As three blind mice?
Sounds pretty fatal, huh?
For more detailed information on the socialist calculation problem I highly recommend you to watch this video from time points 10:40-25:40, read Ludwig von Mises’ book, Economic Calculation in the Socialist Commonwealth, or read this article.
Photo Credit: Me. I thought that this photo complimented this essay quite well…although, it is only a baby guinea pig- not a blind mouse.