Capital Makes sense Only in a Monetary Economy Since Capital Is Computed Only by Adding and Subtracting Money Prices of Assets and Liabilities

Remember that Mises thought it was important to integrate the crucial role of money in a market economy from the ground floor, as it were. Money is not neutral, and it is misleading to conceive of the market economy as if it were a giant network of barter exchanges. The crucial concept of capital makes sense only in a monetary economy since capital could be computed only by resort to adding and subtracting the money prices of various assets and liabilities. It’s true, the indispensable tool of economic calculation refers to physical things and how they are deployed; such considerations are necessary for Robinson Crusoe, as well as a socialist state. But the point is that a complex society requires a market and its attendant money prices for the various means of production and consumer goods, if there is to be any hope of efficient use of resources; the socialist dictator wouldn’t be able to objectively tell whether he were increasing or decreasing the amount of wealth at his disposal. In Mises’s succinct statement: “In a socialist economy there are capital goods, but no capital.”

—Robert P. Murphy, Choice: Cooperation, Enterprise, and Human Action (Oakland, CA: Independent Institute, 2015), e-book.