Calculation and Socialism | Joseph T. Salerno

today my topic is calculation and socialism and I'll be dealing with a fundamental problem of socialism and why Austrian economists believe and in what sense they believe that socialism is impossible later on in the week Tom the professor DeLorenzo will be talking about 10 things you should know about socialism which is less theoretical this is sort of the foundation for for his lecture socialism is unkillable I mean the intellectual case for socialism was destroyed by Ludwig von Mises as we'll see in the 1920s and yet it keeps rising again from from the ashes we see the movement of that Bernice and Sanders led he is an avowed socialist but despite the theory despite the history there there's something about socialism that attracts people that lures people in the word itself implies that there's sort of a unity among people but what I want to show you today is that it's really the unity or we might want to call solidarity among among human beings is really brought about by the price system it's brought about by free exchange really the sum and substance of society it is the voluntary exchange relationship or at least the fundamental element of society so what I want to do is to go through the early days of socialism and then Mises response to that and then show that the attempts of socialists to respond to the intellectual argument all failed abysmally so the article that I highly recommend is Loulou von Mises economic calculation in a socialist Commonwealth and that article appeared in 1920 and I think it's really the greatest single article in economics in the twentieth century if they destroyed the intellectual case for socialism it didn't leave one brick standing on another the whole edifice of socialism was destroyed but it was also a a breakthrough in our understanding of what the function of the price system is so we have this available this in pamphlet form here there's a notable epilogue by a modern Austrian economist so I highly recommend that you read it through to the end so initially we had what we called utopian socialists they all had their little plans about how to make humanity better off shore 4ei on reefs on Simone and Robert Owen okay the first to a French the last was British and they actually tried to put socialism into practice through various communities that they established later on Karl Marx and Friedrich Engels introduced scientific socialism and as you'll see this whole idea scientific socials was nothing but a ploy neither Marx no angles said a single word about how a future social society would would run okay where's where's the utopian socialist did this all the time and they were the laughingstock the classical economists will see destroyed their their claims for socialism so let's say Saul Fourier just as an example okay pretty intense guy he established a plan for what's called balanced air which was a self-contained city and it was modeled after a grand hotel these guys all had these grandiose ideas about about how to reconstruct human society and it was actually based on ancient Greece on the fouling of ancient Greece which is a military formation it was to have sixteen hundred residents no more no less okay all of these guys sort of were of what we might call Gnostics that is the truth came from wouldn't within there was an intuition that gave them and no one else the insight into what was best for humankind each resident would be able to purchase accommodations according to his taste and income all residents will be stockholder to be collective production all all meals would be shared in a communal kitchen okay and dirty work would be shared so you had very my new instructions about how this whole thing was to work and you drew it out that's what it was to look like he made a model of it this is a model of the fallon stair and that's near my house that is one of the fallon stairs it's in new jersey in Monmouth New Jersey that was actually built and was abandoned after a few years you know the whole thing fell apart pretty spooky place haven't been down there but it'd be a good place to go for Halloween okay just let me give you some of his ramblings because this explains why Marx responded with scientific socialism he he said 19th century France was allegedly in the fifth stage of advancement so the first was confusion savagery patriotism and barbarity then he points out that after passing through two more stages it would approach the upward slope of harmony the final stage of utter bliss which would last for 8,000 years how'd you know how'd you know this how these guys know this stuff okay well they have a special special inner source of knowledge you know that we're not party to this is extremely embarrassing to socialists like the later socialists like like Marx and then history would reverse itself and it would run backwards back to the first stage okay there'll be a number of changes that would accompany that that stage of harmony for 8,000 years back yeah six new moons replace the one in existence I mean you can read this stuff I'm not making a father a halo would circle the North Pole with shower general do the seeds would turn to kool-aid that's not my favorite yeah this is my fave Islands or repulsive beasts would be replaced by their opposites and will be commonplace and serviceable mankind there'll be ant Alliance they would offer themselves for you to ride there would be anti chickens they would be roasted already and fly into human mouths the human lifespan would stretch to 144 years I mean he knew this and 5/6 of the time and they're all they're all for free love five six at the time would be devoted to the unrestrained pursuit of sexual love okay three loves part of all these utopian schemes what are the classical economists say this thing is going to collapse today they're right I mean they all those experiments Utopia experience collapsed because we intend a problem who's going to take out the garbage okay that is who's going to do the dirty unhealthy jobs like taking out the garbage going down in coal mines and digging out the coal without the price system and profit and loss mechanism to give people incentives to do these types of jobs it would collapse the response of of utopian socialist was well a new economic may or a new socialist man would would evolve would come about and the incentive would be to work for the common good unfortunately the classical economists then implicitly accepted that if you could get a new socialist man and of course they were very doubtful about that the incentive problem if it was solved caps oceans would be as productive as capitalism that was the problem with the class we come they show that they look the incentives just aren't there and they're not likely to develop but they believe that they're there or they never challenged the argument that socialism could be if the war with proper incentives could be as productive as capitalism and that's as we'll see where where Mises comes in but before we get to Marx he realized that the whole arm that did all these crazy schemes were doing to the socialist republics of the Socialist Movement so he undertook it a brilliant ploy what he did was to devise the doctrine of what he called scientific socialism and what that meant was shut up no one can talk about socialism in the future socialism is going to come about as inevitably as the Sun rises every day so there's no reason to talk about it to speculate on it to try to figure out what it would look like it was just the next stage of evolution after capitalism capitalism had inner contradictions all the wealth for example would be eventually consolidated by a few few capitalists and there will be ten capitalists left and loans everything and then the working class would just say get out of there and just take over everything so these eggs árbol laws of history marx called it dictated that socialism would replace capitalism just as capitalism replaced feudalism and feudalism replaced the classical slave societies of ancient Greece and Rome okay so if that were true it was completely unscientific to speculate about what a future social society would look like okay or to even do anything to try to make socialism come about sooner so Marx and his fundamental writings was an anti revolutionary he didn't believe in a welfare state he thought the welfare state actually postponed socialism in some sense by making the workers more half happier and and more content with with with their situation and so on Marx is writing think about his great work well I don't think it's great but but but his magnum opus which was called what capital he wrote about capitalism and its inner contradictions he never said a word about socialism okay because it was unscientific all right now what was Mises response to this in 1990 Mises gave a paper which then was turned into his great article in 1920 and in that paper he challenged the assumption that if the proper incentives existed under socialism socialism would be as productive as capitalism so he went beyond the classical economist so basically what he said is that in a developed industrial economy okay with complicated that which had very complicated production processes and use many different types of capital goods hundreds of thousands of different types of capital goods and many different kinds of labor and so on economic calculation would be impossible without market prices so socialist economy is impossible okay because it cannot generate prices for capital goods so let's look at the argument step by step the one thing that is true of all social schemes is that there will be collective ownership of all the non human means of production okay so all capital goods and all natural resources would be owned by the state okay or the state acting in the name of the people okay so that means that since the socialist state is the sole owner of the material factors of production or the capital goods natural resources factories so on they can't be exchanged a person cannot exchange with himself or herself but if you don't have exchange number three you don't have prices and if you don't have prices how can you calculate the cost of production how can you know what the production of a bicycle costs or what the production of a ski chalet cost or what the production of an Apple iPhone course you can't know that but if you can't know that then you can't figure out which goods are more valuable that is which Goods will turn a profit in which goods will cause you to lose money which goods are the most valuable use of the scarce resources which exist under socialism as as they do under capitalism so therefore socialist economy is strictly impossible because it cannot allocate resources to their most valuable uses because there are no prices because there is one monopoly owner of all of the non-human factors of production let me give an example let me first say show you this and give an example so the essential mark of socialism isn't that that socialist planner doesn't have enough knowledge though that's true but it's something more fundamental the essential mark of socialism is that one will alone acts when there's one will there could be no exchange there can be no interaction of supply and demand there could be no prices there could be no calculation of profits he goes on and says it is immaterial whose will it is the main thing is that the employment of all factors of production is directed by one agency only it can be a very benevolent agency that wants to help human beings ok or it can be evil and malevolent it doesn't matter one will alone chooses decides acts gives orders the distinct mark of socialism is the oneness and indivisibility of the will directing all production activities within the whole social system so you can have the most humane people are in you know alive in the world as the collective owners of the factors of production and yet socialism would still fail abysmally so it's not a matter of incentives could have mother Teresa trying to run the whole thing ok right she's very altruistic she want to help humanity she wouldn't be able to so there are three preconditions of economic calculation first of all there has to be private property not just in consumer goods which is allowed what was allowed in the USSR another centrally planned economy but in all stages of production in all capital goods in factories in trucks in raw materials in computer software okay everything has to be privately owned because if everything is privately owned it can then be exchanged which is the second there must be a freedom to exchange all kinds of goods and services even if you had private property but for some reason you thought that all exchange was exploitative and tried to get rid of exchange you would under you would you would destroy the economy and finally there has to be sound money on money whose values independent of political influence such as such as gold as a gold standard okay so having Fiat paper money that is controlled by the state is one step toward socialism it's one step or towards undermining the free market economy socialism abolish is all of those three okay there is money under socialism but you can't use it to buy capital goods you can only use it in a very limited way it's basically vouchers to buy consumer goods so it's not a true general medium of exchange as Professor angle Hart was talking about the other day yesterday so socialism bosses all three of these preconditions and therefore nullifies economic calculation so let's let's take an example here that's one of my favorite cars that is a Chevy SS 565 horsepower I have a sort of a forerunner of that from 2008 which was the Pontiac g8 not as many horsepower but still a great car but let's assume you are that that you're thinking of building this car okay so you you have let's say you have all the technical knowledge you have all the engineers and scientists advising you on how the car should be built and Soviet scientists were just as competent as US scientists they had the same sorts of scientific knowledge so I was a-telling NEP tons of Steel Q hours of machine time or hours of unskilled labor s hours of engineering labor and so on factory space gallons okay so you knew how much of each thing you need is that's called the production function to combine and be transformed into this particular one don't be all that you want to build so knowledge is in the problem what is the problem well economic calculation how do we know that in using all of those different resources I just listed back there we're not giving up something that would be of greater value we're not giving up let's say the production of let's say 50,000 arm bicycles or skateboards that the consumers value more than they do that that gas guzzling car okay you don't know so in a market economy all resources at every moment there's a price for everything prices for everything being paid right now okay we don't the price of the steel is the engineering services the electric we know what those prices okay so it's easy to decide whether or not to produce that car now there's uncertainty and you can make mistakes but you can at least come up with costs of production your cost of production for this car let's say is $40,000 here's R entrepreneurship comes in you know your cost or you know them much better than you would know the product price let's say we take you two years to develop this sort of car and bring it to the dealers so what you're looking at is what the price will be two years in the future after you expend the $40,000 in producing the car if the entrepreneur speculates it'll be forty four thousand dollars then there's a pure profit we made on each of these cars you can earn four thousand dollars and he will you will produce it on the other hand if he thinks that it's worth only thirty eight thousand dollars to consumers that's all they'll pay then he will not produce it so he could be wrong he could produce it and find out that the price is really only thirty thousand dollars all right could lose a lot of money producing it but the point is he knows what happened he knows that he in fact knows that he made a mistake that he took resources that were worth forty thousand dollars to consumers remember why why is why is all of these factors of production worth forty thousand because always have to pay forty thousand for them because other entrepreneurs who are producing other goods that consumers desire are all bidding for the steel for the electricity for the engineering services so the highest bidders get the scarce supplies of these goods and they're the ones who believe that they can use make the most valuable use of those resources now again because when certainty mistakes are made some entrepreneurs are better than others some are are serial entrepreneurs they whatever they touch turns to gold because they're good at forecasting future prices but even if you lose money you still it's still a rational decision okay it was just based on inaccurate forecast under socialism if you produce that car it's totally irrational because you don't know what else you're giving up there are millions of different things and in different combinations that you could be producing but without costs of production there's there's no way to rationally allocate resources there's no way to really make that decision also arm should how should this car be produced should the car be produced very labor-intensive ly maybe using a lot more people assembling the car for example before I'm Ford introduced the assembly line into the production of cars you had six or seven craftsmen making all the parts of the car and then putting it together in a small garage or a blacksmith shop in the 1890s early 1900s or if you look up the road here we have a Kia plant which is you know roboticle I mean it's some guy pressing a button on computers and then the robot assembling the cars so should you move use more capital should you have set up a robotized assembly plant or should you have one that uses more workers under socialism you don't know okay you don't know what the cheapest technology is should you put a steel steel bumper on or should you put a fiberglass bumper on or should you put a platinum bumper on the car what did you make the bumper out of well there's no you don't know the prices for these things there's no way to determine that okay let me tell you this little story about my friend I grew up with a woman that um went on to marry a cowboy a real cowboy has a ranch in Montana there's actually oil on the land so she moved out there to Montana and so we're not a big big ranch home and about 10 years after she was out there she we talked on the phone she says oh I'm getting a new house and I said oh I said you know is it you know built yet and she said she's no she's we're not we're not we're not building it here it's being built in Indiana that's 1,250 miles away said what are you talking about she said well out here in Montana which is about 12 people labor labor is very scarce okay and the most valuable use is in ranching and using laborers to move cattle and take care of ranches and so on not to build houses okay labor is very expensive so what what did they do they ordered that that is a modular house a beautiful house it's not hers I mean she had a five so you got a five bedroom house they order the house from it from around Indiana they're all these modular home builders in Indiana they had a chip 1,250 miles she lives in Biddle Montana um and and then they assemble it on-site so so because it's less costly it's cheaper to do it that way okay now wood so just plan to figure that out that you should build this house far away in a factory then use these trucks you've seen these wide load trucks and ship it 1,250 miles of course not they there would be no way of knowing that but with economic calculation there is a way to know that okay because of prices it's the cheapest way to build the house that you are the quality and size that you want and have it shipped okay now there are there are some factories in Montana happen to look online that build modular houses it's still not worthwhile bringing a lot of workers to the construction site okay but that again that you wouldn't you would never figure that out under socialism so let me just say let me tell you what I am NOT saying I am NOT saying that you can never run an economy without prices and calculation Mises pointed out in the article he wrote in the 1920s that indeed you can figure out in a very small isolated economy either a household economy or a single person economy you can figure out the cost of production pretty directly but without calculation just by valuing so let's assume that you have Crusoe who um uses three hours to produce any of those goods so he worked 12 hours and he produces all four of those goods okay those are the highest valued uses of his labor time so there aren't they aren't really calm okay two production processes there aren't a lot of capital goods what if he finds that there are rabbits on the on the island that he's stranded on and that he would like would like to he's thinking of whether to devote six hours to catching the rabbit well he can directly know the cost to production the cost of production of satisfying his wand for a nice rabbit stew is the satisfaction and he would get from eight coconuts in one sack of berries because that's the other way of using his six hours okay so Mises didn't deny that in a very simplistic economy that that you could rationally allocate resources okay you certainly can but in a modern economy that's it's well nigh impossible so let's talk a little bit about the situation in the Soviet Union and some of the outcomes of not having a price system first of all they use a system called gross output planning and the planning board the Soviet Union was known as ghost plan goes plan and so what they did under gross output planning was they assign to each commissar of an industry a certain target okay that you need to give us let's say 1 million tons of nails this year that's what you have to produce so of course it's a mutant it's a situation mutual line they know that they there's not enough faculty to come up with with a million tons of nails the planners but they know that the manager is going to lie so the manager will say no no we can do you know we can we give you eight hundred thousand tons of nails but we don't have the capacity to give you a million and they argue back and forth now the manager wants to talk to be as low as possible so that he can just succeed it get a nice bonus okay and on the other hand they know the planners know that he's going to be lying about this they know the incentives they know that he knows that if he doesn't meet his target he's going to have a quick trip to Siberia and they don't want to pay out of a lot of bonuses by having it too low so eventually they come up with some number so there is a target but the problem is that it's very difficult to to specify the different kinds of qualities the different types of functions that you want these nails to perform in other words there's a lot of dimensions for any particular product and if you specify it by tons then you have a problem okay so in the USSR there are a lot of structures commercial/residential that were completely done but they had no roofs because there weren't enough roofing nails which are very small it's easier to make large nails to meet your target of a certain number of tons okay it's much easier and so this is a famous Soviet Court cartoon that's his output for the year so he's telling he's telling the minister of the industry the manager the pointman as well okay we met our target okay you laugh about that but during the 1950's there when when Khrushchev the Soviet dictator was giving a talk Westerners were puzzled when he referred to the chandelier industry and started bashing them it turns out to meet their quotas they were making very heavy chandeliers and a bunch of them came down and killed some of the comrades in their Dasha's on the Black Sea because again it's easier to make those types of things women always complain because all Russian Styles look like tents it was better to make huge there's a shortage of children's clothing and Oh petite sizes okay and we could go on and on with this there was a joke that was often told and that was that when Khrushchev was a very famous clip he was at the United Nations and he took a shoe off and he began banging it on the table that he was speaking at and he said we will bury you we pointed to the Western leaders he bit and he bent economically we'll bury you so when Russian economists and and you economists got together the Russian economy said yeah we'll bury you but we're going to leave Hong Kong so we can copy their prices because the Soviet Union lasted as long as it did because it was what means is called an island in the middle of a capitalist economy just like the post office even though it's terribly inefficient and it doesn't do its job well and and and it over spends on various things the post office still is an island in the middle of a calculating economy so it can use certain technologies cheaper than other technology and so on so Mises compared so when people said well look the Soviet Union lasted for 75 years Mises said socialism is impossible therefore Mises is wrong that's that's crap okay Mises pointed out in the very first article that he wrote in 1920 that in fact there that the Soviet Union was it a fully socialist economy okay because it caught the could copy prices and in fact the Soviets themselves allowed black markets so there were Beatles albums and blue jeans denims and so on were permitted on black markets know what they look the other way they want to see what the price of these consumer goods were they also allowed what was called block BL 80 was a form of bribery so they were these people that would go between different firms some firms had too much wood not enough steel other firms had big nails and needed smaller nails so they facilitated this exchange so they had they used prices the only true socialism existed between 1919 and 1920 one and that was a war it was called war communism and their Lenin tried to get rid of all prices and what he wound up doing was causing havoc so what what happened was that those shortages everywhere they couldn't figure out what to produce people began to take their furniture and burn that for firewood during the winter and then they begin to burn parts of their houses and then they just left and then they left the cities were being drained of people as they went out in small groups and tried to scavenge and hunt and grow things in the countryside so yes socialism can work socialism can work for small predatory groups of it cannot work where you have cities and skyscrapers and complicated production processes okay so let me just say something about the market very quickly so I'm going to use a fancy word appraisement the presence it means really to figure out the value of something okay in this case it's to figure out the prices of something so the process by which the market economy is driven by entrepreneurs which determines the money price of all resources to be used in economic calculation of costs of production so what I'm saying here is that entrepreneurs are central in the formation of prices I'll give you a little schema so let's look at the entrepreneurs in the middle okay here's what they do they look to the future they know what cars are priced at today they know what what I phones are priced at today they know they know that they've experienced a prices of today which are really the past they don't use those prices to make their calculations because some of them are come trying to come up with a new type of car that might take three years so they're starting with the price of cars today and then trying to figure out how people's tastes will change how technology will change in the next three years so that they can figure out what the price of the future good is so all of these entrepreneurs and different industries try to figure out prices and future markets they forecast them then based on those prices okay so they look to the future then they look to the today and they say okay given the prices I think I can get for this new electric car how much should I bid for the steel for the the special battery that has to go into the car and so on and all of them bidding together creates the demand for the different kinds of resources and then the supply of resources is supplied by the owners of labor's the the landowners the people who have steel factories and so on so you have a supply and demand and you have a price for every single thing that you can conceive of right so you have a whole structure of prices and that's what allows that's what allows calculation Mises call that the intellectual division of labor we are all involved in it okay all of us capitalist entrepreneurs Labor's and consumers we all go into the market with certain valuations with certain things that we value more than other things and then we make our choices about what the purchase and want not to purchase and we then make the exchange those exchanges then generate the prices for everything so that the price system is really a genuinely social phenomenon in some sense capitalism is socialism in this sense that we or bound together in generating a structure structure of prices that can be used to calculate no one person no one mind no one will can figure out what those prices should be okay so even though human beings all contribute a little bit to the creating the price system it transcends any single human will or human mind no matter how smart the people are no matter how large the group is if your act acting as one person or as a group and there's no exchange you cannot have calculation therefore you cannot have a rational economy there was a famous start Star Trek episode called the empath the original Star Trek I don't like the sequels so the empath was this this woman who on this planet who anytime anyone was injured one of the I think Kirk was injured she immediately felt his pain his emotion you know his values what he was feeling and so on so let's say you even had an empath like this woman who could register all the feelings of those people around her and could figure out what everyone how everyone sort of subjectively valued things she still could not figure out the price system because she still could not exchange based on those values so you need society and finally the price structure allows entrepreneurs to compute the money costs of any thing you can conceive of okay you can figure out the course of anything you can conceive of under socialism you can't figure out the cost of anything okay and therefore socialism is chaos so let me just talk a little bit about the responses of the Socialists to Mises so there were a number of naive responses these would just straight-out Marxist there were fanatical Marxists in 1922 tried to answer me to this article they were mainly German so the first one was calculation and kind there was a fanatical Marxist named Otto no rot and what he said was what's the big deal about calculation what does Mises making such a big deal about it he said we will just figure out for us the production and by adding up the natural units we will add up the natural tons of steel the kilowatts of electricity the the gallons of paint okay what's the problem with that it defies the basic law of arithmetic idiot you can't you can't add apples and oranges right that's so that's ridiculous there's no common denominator okay other Marxist said well labor hours are homogenius that's the thing they add anything up they have to have be in homogeneous units labor hours of homogeneous units and therefore we can add up the different amounts of labor hours okay how much will pay people in vouchers that say labor hours and then we'll figure out the amount of labor hours that each good took two to produce and then people will use their vouchers for labor hours to buy buy the goods and so we'll calculate that in that way okay okay so what's the first problem with that it is labor really homogeneous is omit a cashier at McDonald's really a an hour of that person's labor really equal to an hour of labor of a brain surgeon or software engineer of course not so labor hours of heterogeneous you can't add the up there's no way to add them up also even in the same profession is an hour of LeBron James's time on the basketball court really equal to that Gorky 12th man sitting on the on the bench to an hour of course not okay so that that's just a naive response it makes no sense and finally it ignores the fact that the productivity of your labor how much you can produce changes depending on how many capital goods you use and how many natural resources you use okay so it ignores capital goods and natural resources so it would waste them it would know how to allocate capital goods and natural resources the third response was well here's what we're going to do we're going to tell the managers the cap we're not going to fire the capitalist managers on the first day of socialism we're going to tell them just do what you did yesterday which is the last day of capitalism okay everything was working just do the same thing okay obviously in an economy where there is absolutely no change where people's tastes don't change with technology doesn't improve where natural resources aren't depleted or new ones found in that sort of an economy where you just have robots if nothing ever changes people just robots they they buy them and eat the same things then of course yeah that would work but that's not our economy our economy is an economy of inexorable and constant change it's continually changing we're changing the things that we'd like there are fads that come and go technology is rapidly improving okay so the bottom line is you have to produce new things you have to continually adjust the economy to changes in what we call the economic data the only way to know how to adjust production for each entrepreneur how to adjust what to produce what not to produce to stop producing something and has been producing and start producing something new he has to know profits and losses in order to know profits and losses you have to have exchange okay so we do not live in a static economy we live in a dynamic economy so all of these were simply failed responses to Mises okay let me get some more sophisticated responses these were by socialists leading neoclassical economists mainstream economists who had social sympathies during the 1930s there are mainly english-speaking so there was something called the trial and error method a market socialism and a mathematical solution let me just mention to Oscar Wanda was a Polish economist who was trained at the University of Chicago who's a neoclassical economist he knew new economics he when he looked at me his article he said uh a statue should be built to look do von Mises and placed in in the the hallway of the Polish communist planning Bureau because Mises raised a legitimate question so they took Mises challenge very seriously okay and they try to respond to it so one response by the mathematical solution was hey let's collect all the economic data that affects supply and demand let's count up all the different kinds of machines and so on let's survey consumers and find out the things that they want and that one will do is will collect all this data will put them into now this was the era of mathematical economics just coming into its own in the 1930s so we'll use a system of simultaneous equations for supply and demand of all goods we'll fill in all these data that we've collected and then we will solve that set of simultaneous equations and then the right prices and quantities will come out okay okay so one response the reply to that by Hayek and Robbins okay who were followers of Mises was that wait a minute even if you could get all this data it would take you it would take you months it's not years to get to data together but this was the pre-computer age even good you could get it all together you would then have to solve you know a million equations and do it by hand and that would take months and months and months to solve its ever equations so what they do is by the time your equations were solved the economy would have changed and so that solution would have only applied to two years ago okay but see there was a misstep there and that misstep was they kind of admitted in a way that it just was not practical theoretically if you could get all that day to put them in those equations and solve the equations right away which in a computer you're usually solve the equations right away then it might be practical but it's certainly impractical so they they focus on the practicality of socialism they didn't say it was impossible okay but it was highly impractical and also they said even if the data was collected there's some kinds of data you just can't get you have to be on the spot to know what it is the other response is market socialism and basic what they said was that well we want the market socialist is for firms to have managers and then the firm's in an industry let's say the our orange juice industry or the computer industry so those firms would then be given a set target of goods to produce however we will tell the managers to use the prices that we set for these goods to minimize the cost of production minimize the cost and to produce the last unit that it pays to produce so what they were going to do that we'll just arbitrarily set prices we'll set prices for steel for electricity and so on if those prices are wrong there'll be surpluses and shortages and so if there's too much produced if people aren't buying all the steel at that price will lower the price if there's too little produced that is if there's a shortage if there's more that people want that the managers want well then we'll raise the price eventually we'll change prices too so that we hit a consistent set of prices that allows us to have no shortages of surpluses and this would be the same as a market solution so we market socialism it's just that the the firm's will not earn any profit and we won't have any monopoly so it'll even be better they claim so again I'm Hayek responded very quickly he said well wait a minute he says you know you can't how frequently can you change all the prices in ink in an economy every two weeks every month in a market economy prices change from moment to moment day to day so you'll always be behind the curve in trying to change prices the price will always be wrong okay and you also said that you need entrepreneurs on the spot to know what's going on to really set the real prices again socialism could sort of calculate but it would be too delayed and and it would be inefficient but it wouldn't be impossible now what it means to say to all this just to sum up really quickly Mises said this is all nonsense this is all playing market okay the key thing is will these firms be able to go out of business because under capitalism capitalism is not a managerial system all these people were focusing on what the managers should do capitalism is a capitalist system a system of capless entrepreneurs who invest their capital and risk their very livelihood in trying to forecast the future and in doing that they bid for the for these resources and the prices that they use are real prices they're not fake prices all of these prices that are talked about by the people who are criticizing Mises were prices in an equilibrium economy okay and again it does not apply to the real world where the economy is dynamic things are changing and you have to make decisions from day to day to readjust your production so I could go into a little more detail about that but I'll stop here thank you you

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Keywords: Socialism, Economics, Libertarian, Joe Salerno, Mises Institute, MisesU, Mises University

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Length: 46min 21sec (2781 seconds)

Published: Thu Jul 27 2017