Editing Economic calculation problem (section)

=== Relating utility to capital and consumption goods ===
The common basis for comparison of capital goods must also be connected to [[consumer welfare]]. It must also be able to compare the desired trade-off between present consumption and delayed consumption (for greater returns later on) via investment in capital goods. The use of money as a medium of exchange and unit of account is necessary to solve the first two problems of economic calculation. Mises (1912) applied the [[marginal utility theory]] developed by [[Carl Menger]] to money.

Marginal consumer expenditures represent the marginal utility or additional consumer satisfaction expected by consumers as they spend money. This is similar to the equi-marginal principle developed by [[Alfred Marshall]]. Consumers equalize the marginal utility (amount of satisfaction) to the last dollar spent on each good. Thus, the exchange of consumer goods establishes prices that represent the marginal utility of consumers and money is representative of consumer satisfaction.

If money is also spent on capital goods and labor, then it is possible to make comparisons between capital goods and consumer goods. The exchange of consumer and capital/labor goods does not imply that capital goods are valued accurately, only that it is possible for the valuations of capital goods to be made. These are foundational elements of economic calculation, namely that it requires the use of money across all goods. This is a necessary, but not a sufficient condition for successful economic calculation. Without a price mechanism, Mises argues, socialism lacks the means to [[Supply and demand|relate]] consumer satisfaction to economic activity. The incentive function of prices allows diffuse interests, like the interests of every household in cheap, high-quality shoes to compete, among buyers, with the concentrated interests of the cobblers in expensive, poor-quality shoes. Without it, a panel of experts set up to "rationalise production", likely closely linked to the cobblers for expertise, would tend to support the cobblers' interests in a "conspiracy against the public". However, if this happens to all industries, everyone would be worse off than if they had been subject to the rigors of [[market competition]]. The latter forces producers to produce superior products at appropriate prices to please their consumers. 

The Mises theory of money and calculation conflicts directly with Marxist [[labour theory of value]]. Marxist theory allows for the possibility that labour content can serve as a common means of valuing capital goods, a position now out of favour with economists following the success of the theory of [[marginal utility]].