On a Particularly Important Flaw in the Orthodox or Textbook Version of the Economic Calculation Debate

 But a particularly important flaw in the orthodox story is, as Hayek tried to make clear during the debate, the curious disjunction between the “theoretical” and the “practical.” It is not simply that Barone and his mentor Pareto scoffed at the workability of the theoretical equations under Socialist planning. More important is the point that Mises and Hayek were implicitly attacking the relevance of the entire concept of Walrasian general equilibrium from which these equations flowed. For Mises and Hayek there was no disjunction between the “theoretical” and the “practical”; following the Austrian tradition, a theory that necessarily violated practical reality was an unsound theory. The fact that in a changeless world of perfect knowledge and general equilibrium a Socialist Planning Board could “solve” equations of prices and production was for Mises a worse than useless demonstration. Clearly, as Hayek would later develop at length, if complete knowledge of economic reality is assumed to be “given” to all, including a Planning Board, there is no problem of calculation or, indeed, any economic problem at all, whatever the economic system. The Mises demonstration of the impossibility of economic calculation under socialism and of the superiority of private markets in the means of production applied only to the real world of uncertainty, continuing change, and scattered knowledge.

—Murray N. Rothbard, “Ludwig von Mises and Economic Calculation Under Socialism,” in The Economics of Ludwig von Mises: Toward a Critical Reappraisal, ed. Laurence S. Moss (Kansas City: Sheed and Ward, 1976), 68.

Mises Identified a Source of Perennial Confusion Concerning the ROLE OF TIME in the Austrian Theory

Mises, while paying tribute to the “imperishable merits” of Böhm-Bawerk’s seminal role in the development of the time-preference theory, sharply criticized the epistemological perspective from which Böhm-Bawerk viewed time as entering the analysis. For Böhm-Bawerk time preference is an empirical regularity observed through casual psychological observation. Instead, Mises saw time preference as a “definite categorial element . . . operative in every instance of action.” In Mises’ view, Böhm-Bawerk’s theory failed to do justice to the universality and inevitability of the phenomenon of time preference. In addition, Mises took Böhm-Bawerk to task for not recognizing that time should enter analysis only in the ex ante sense [forward-looking sense]. The role that time “plays in action consists entirely in the choices acting man makes between periods of production of different length. The length of time expended in the past for the production of capital goods available today does not count at all. . . . The ‘average period of production’ is an empty concept.” It may be remarked that here Mises identified a source of perennial confusion concerning the role of time in the Austrian theory. Many of the criticisms leveled by Knight and others against the Austrian theory are irrelevant when the theory is cast explicitly in terms of the time-conscious, forward-looking decisions made by producers and consumers.

—Israel M. Kirzner, “Ludwig von Mises and the Theory of Capital and Interest,” in The Economics of Ludwig von Mises: Toward a Critical Reappraisal, ed. Laurence S. Moss (Kansas City: Sheed and Ward, 1976), 55-56.

Israel M. Kirzner Reduces Mises's Views on Capital and Interest to Six Major Theses

Mises’s views on capital and on interest may be conveniently summarized as follows:

1. Interest is not the specific income derived from using capital goods; nor is it “the price paid for the services of capital.” Instead, interest expresses the universal (“categorical”) phenomenon of time preference and will therefore inevitably emerge also in a pure exchange economy without production.
2. Since production takes time, the market prices of factors of production (which tend to reflect the market prices of the consumer goods they produce) are themselves subject to considerations of time preference. Thus the market in a production economy generates interest as the excess value of produced goods over the appropriately discounted values of the relevant factors of production. 
3. The concept of capital (as well as of its correlative income) is strictly a tool for economic calculation and hence has meaning only in the context of a market in which monetary calculation is meaningful. Thus, capital is properly defined as the (subjectively perceived) monetary value of the owner's equity in the assets of a particular business unit. Capital is therefore to be sharply distinguished from capital goods.
4. Capital goods are produced factors of production; they are “intermediary stations on the way leading from the very beginning of production to its final goal, the turning out of consumers’ goods.”
5. It is decidedly not useful to define capital as the totality of capital goods. Nor does the concept of a totality of capital goods provide any insight into the productive process. 
6. Capital goods are the results of earlier (i.e., higher) stages of production and therefore are not factors of production in their own right apart from the factors employed in their production. Capital goods have no productive power of their own that cannot be attributed to these earlier productive factors. 

—Israel M. Kirzner, “Ludwig von Mises and the Theory of Capital and Interest,” in The Economics of Ludwig von Mises: Toward a Critical Reappraisal, ed. Laurence S. Moss (Kansas City: Sheed and Ward, 1976), 52-53.