Calculation and Socialism | Joseph T. Salerno

good morning everyone um my topic for the this morning's lecture is calculation and socialism and to start off with i want to at least point to the article that's probably one of the most important articles written in the 20th century um and that was the article by by love duvan mises economic calculation in a socialist commonwealth okay so it basically destroyed the intellectual foundations for socialism and i'll get into the background um in a moment but it not only did that it was also sort of a revolutionary breakthrough in understanding the nature and function of the price system um it is in the form of a little booklet with an epilogue by a notable modern austrian economist so i highly recommend that you purchase it in the um in the bookstore so socialism started off uh in the 19th century and the initial group of socialists the ones who got the most notoriety were known as utopian socialists and some of them were french and one was british charles fourier henry sasimone and um robert owen now the they had a certain way of approaching the um the the publicity or or the publicizing of socialism right and we'll we'll get to that but there was another group later on who reacted against utopian socialists and in fact gave them their name and that was karl marx and and his ally and friend um and collaborator friedrich engels okay and they called themselves a scientific socialist so they were the ones who who bestowed that the name of utopian on uh which was really negative and derogatory on the earlier socialists because the earlier socialists as we'll see were sort of embarrassing to the socialist cause uh we'll take charles fourier the french utopian socialist okay clearly something's wrong here take a look at him um fourier came up with an idea for how human beings and and human life and economic activity should be should be organized and they call it the fallen stare or the phalanx in english which is the roman phalanx of 144 soldiers in a certain formation so right away you can see he's sort of a socialist he wants to mold human beings according to a certain vision this vision that he has of of ancient rome and and and sort of a military formation and as we go along you'll see also that that all of these socialists believe that they have some sort of they have access to um a secret intuition that that none of a secret source of knowledge that none of us have have access to or possess they're the ones who who go who are going to give us the truth and establish how human beings should interact um in economic activity and in social activity so um in in fourier's vision there would be garden cities they'd be modeled after kind of a grand hotel and there'd be 1500 to 1600 um people in in in this um uh hotel uh again according to the sort of a greek and roman military formation each resident will be able to purchase accommodations according to their income um all residents would be stockholding the city they'll be collective production everything would be produced collectively there'd be no exchange okay all would share meals in a communal kitchen so why is this the right way to organize human beings well i mean he never really tells us okay in fact he goes on and and his vision gets crazier um and the dirty work will all be shared but the key here is that there's one there's really one controlling mind all right and there's no exchange there's no people um acting according to their own value scales and this is he actually drew a picture of it this is what it would look like okay so all human communities would be organized in this way and people would live in in these type of structures he also built a model of it all right and here is one fallen stair which is near my home in in new jersey um uh in monmouth new jersey it's now abandoned and spooky and you know it's just it's ugly okay it doesn't look like it's fit for human habitation but let's go on here were some of his ramblings he told us that 19th century france was allegedly in the fifth stage of advancement okay so they passed through different stages confusion savagery patriarchism uh the fourth stage was barbarity so after so they were in the fifth stage according to him france was in the mid-18th century a 19th century and after passing through two more stages it would approach the upward slope of harmony which is the final stage of utter bliss so all socialists have this idea that we're moving towards a stage of utter happiness and bliss in which everything will be perfect which we'd have a heaven on earth um and that would last for eight thousand years i mean how do you know that how do you know it lasts for eight thousand years and not six thousand or ten thousand okay but that doesn't matter because eventually history would reverse itself after that eight thousand years and society would regress back to the beginning okay again there's this secret what we call gnosis or or secret source of information that no one else is really privy to only the socialist planner or the socialist visionary um there were some other things they said they're just too funny to pass up so he um in this stage it'd be six new moons to replace the one in existence a halo okay would be would appear around the north pole above it the seas would turn to kool-aid i don't think he used some of the word you know some kind of word for for kind of a fruit juice kool-aid um we'll say all violent repulsive beasts would be replaced by their opposite so you'd have an anti-lion and you'd have uh an anti-chicken the anti-chickens would would roast themselves and immediately pop into your mouth when you're hungry okay anticipate that you're hungry you could ride the lions and so on the human lifespan the harmonic stage would stretch 144 years okay and five-fifths of everyone's time would be devoted to free love this is another thing that almost all socialists or in all socialist visions okay okay and back in the 19th century they all for the most part we're males so you know this whole idea of free love okay so now the classical economists even even though the economic theory hadn't been perfected by then they still knew about supply and demand and they crushed the these plans that were put forth by these utopian socialists and this is what was embarrassing to to marx and angles later on and we'll talk about but but for the for example the the basic question was you know the incentives i mean uh if everybody gets this you know is is given income and um and and and and goods and so on according to their needs okay if there's no exchange and and everyone pretty much gets the same thing or everyone gets things according to uh to how how productive the planner judges that they are then um you know who will take out the garbage under socialism this was the the question the classical economist posed who's going to take out the garbage and the socialism who'll do the dirty work who'll go down in the coal mines and do the unhealthy work and the dangerous work okay we'll get up early in the morning and literally you know take out the garbage okay um this was solved under capitalism as a classical economist realized by supply and demand okay by way by differentials and wage rates the dirtier jobs all other things equal tended to get paid higher okay um but the social stands well there'll be a new socialist new socialist man and new sources woman okay um they were in fact feminists okay even in the 19th century um and they they would work for the honor for being honored by the community for their contribution to the welfare of the community all right now the on economic grounds the classical economist won the debate hands down um they embarrass the socialists but both groups both the classical economist and the socialists did take for granted that socialism could be as productive as capitalism if not for the incentive problem okay now that so so that that that's sort of what was in the background there and as we'll see that's what mies is addressed right the classical economist did see the incentive problem but that's sort of a practical problem and the socialists always said there's there's different ways of solving it we could give instead of coins we could give these these special metals instead of you know money and and that'll be an incentive to work for the community and so on all right so it was lurking there in the background uh marx had a brilliant polemical ploy okay basically he said anyone who talked about socialism was stupid and unscientific and should shut up and they were just utopians so he was the one who coined that term um and he said look socialism is going to come with the um inevitability or of of of the laws of nature or the inevitable laws of nature will bring socialism about okay socialism will replace capitalism this is capitalism replace feudalism just as feudalism replace the slave societies of greece and rome um it's an ever an ever upward movement towards the final stage of communism okay which some people claim that was sort of another state with marx that we had to pass through socialism before we got to communism okay so he said this is a scientific doctrine to understand that inevitably communism will come and it will be the final stage and that therefore if that is the case it's like arguing about you know whether it's going to snow tomorrow or not okay if it's those it snows i mean it it's it's it's a poor you know it's dictated by the laws of nature you can't argue about the laws of nature so everyone should just shut up okay he didn't want anybody talking anybody who tried to discuss what socialism may look like was considered unscientific and utopian and crazy like fourier okay and he said that in fact there's nothing we can do to speed it up okay this is there's nothing that we can do to make rain come sooner okay if there's a drought well the laws of nature will dictate when that drought comes to an end same thing is true uh of of socialism so um mises always pointed out that that karl marx um always focused on capitalism and the contradictions of capitalism i mean he never really wrote about socialism what it would look like okay and and that was deliberate so he called his his work his magnum opus dos capital capital okay not socialism he didn't talk about that at all so that was kind of brilliant then everybody you know trying to escape this label of being unscientific uh kind of became marxist okay now they didn't all agree with everything that mark was saying about capitalism but they stopped talking about you see people stop talking about what socialism would look like in the future so that's where mises comes in now mises claimed that apart from the incentive problem there was another deeper more profound problem with socialism and that was that without a price system socialism was impossible so he stated his thesis as follows he focused on a developed industrial economy with very complicated processes of production and many varied capital goods and he said that a rational allocation of resources that is using the resources and their most highly valued uses to consumers or even for the planners themselves requires market prices but because socialism abolishes property okay and and you have only one collective or one central planning board owning all the property or or determining how it is to be used all the property productive property you could still own your own home or not even your own home really your clothes on your back your food and so on could own those types of things but you couldn't own any of the productive factors okay that was that is the definition of socialism the abolition of if you look at all socialist plans all of them want to get rid of property so it's it's the abolition of of private property in the means of production okay in land resources capital goods and and um any other material means of production okay labor was permitted to own his own labor and and get and even get paid wages so mises argument was brilliant in its simplicity okay he says number one socialism about his private property in capital goods and natural resources um since the social state is the owner of all of these material factors of production these non-human factors of production they can't be exchanged any longer okay without exchange there could be no market prices so if there's no exchange if there's this one agency that owns everything even if for example it's everybody's involved in making the decision even if somehow you have a democratic decision making okay about how to use the factors of production the fact that they're not being exchanged and not being used according to a different mon the the expectations and values of different minds means that you can really never generate any prices so under socialism because there's no market in there no prices the the state cannot calculate the cost of production it never knows whether it's using something for a particular purpose that is that that is more or less valuable than other purposes that it could be used for and i'll give you an example of this in a moment and so without the calculation of profit and loss as we have under capitalism social planners cannot know the most valuable use of resources and therefore mises you know meant this literally a socialist economy in which you economize resources you only use them for your your most highly valued uses a socialist economy is impossible okay he wasn't exaggerating um when when i looked at his arguments i mean most even many austrians would say well you know mises is exactly in fact murray rothbard wrote me when he wrote me a letter on an article i wrote about this he said well even me he says even myself deep down in my own heart he says i thought mises was a little bit you know is exaggerating slightly he says but now i see that you know know that you have shown that that me it was really impossible because it destroys the division of labor there is no more division of labor you can't determine where people and things that are productive best fit okay so the key to socialism is not a lack of incentives the fact that you you can't get people to do what you want because you're not giving them the incentives to do those things it's not a lack of knowledge that you don't know how to produce things technically or you don't know what people may like okay in general okay it's the fact that there's a single will acting so so i want to read this mises mises says the essential mark of socialism is that one will alone acts it is in material whose will it is it could be just one dictator could be a central planning board it could be everybody voting democratically about how to use things doesn't matter the main thing is that the employment of all factors of production is directed by one agency only one will alone chooses decides directs acts gives orders the distinctive mark of socialism is the oneness and indivisibility of the will directing all production activities within the whole social system now why is that so important because when you have one will you don't have different people with different values interacting on markets to form prices okay one will cannot generate a price structure a price system which is very very complicated okay one price alone means nothing you have to have a sort of an interconnected structure of prices to be meaningful okay and those prices have to be able to change relative to one another to show what goods should be produced what goods should be produced with a different technology and what goods should be produced at all all right and i'll i'll talk about this so mises pointed out that there are three preconditions of economic calculation private property in all stages of goods people have to be able to own everything all kinds of goods all kinds of capital goods factories um as well as natural resources coal mines diamond mines uh sources of oil um fisheries and so on so you have to have private ownership not only private ownership but second point you need exchange people have to be permitted to exchange these things with one another so that a market comes into existence and generates prices that can be used for economic calculation and finally there has to be a sound money that is there has to be a money that whose value is not controlled by politicians now socialism abolishes all three of these things okay and therefore it makes economic calculation impossible and therefore it makes a rational allocation of resources rational use of resources impossible okay so let me give you an idea of the calculation problem a very simple example here um mises said look planners you know they have scientists and engineers that can inform them of all the different ways of producing a given good or all all the ways of producing different goods that is they can know their production function in economics the production function is a recipe for how to produce a particular good okay and to produce any one good there are many different recipes okay as we'll see but let's take this recipe for a a detroit muscle car um a chevy ss which is no longer produced unfortunately um and let's say you need so much steel you need so much machine time unskilled labor engineering labor factory space kilowatt hours of electricity gallons of paint notice that all of the units are heterogeneous you can't add up tons of steel with gallons of paint with kilowatts of hours okay you can't know just from the technical data which the planners would have you cannot know the cost of producing this particular automobile okay now how is this problem solved under capitalism it's solved through economic calculation um all of those resources that go into the production of that automobile have prices because they're all exchanged at every moment on the market so there's always an existing price structure so if you can you can conceive of producing any good you can always know its cost of production as long as you know the production function you know how much of each each input is necessary you can calculate you can find out the price of those inputs and calculate the costs okay and because the price structure is ongoing and because entrepreneurs are always aiming their production towards the future entrepreneurs will then anticipate what the output price will be the price of that automobile and the comparison of the cost of production with the the the the price of the product itself will allow the entrepreneur to know whether this will result in profits or losses so in this case let's assume that the car um uh has a cost of production which can be easily calculated or fifty thousand dollars um and the firm forecasts that that consumers will be willing to buy the output that they're going to produce at 55 000 per car okay over and above all costs including the opportunity costs of of the capital they've invested and so on so that's a five thousand dollar pure profit and therefore that indicates one that they will themselves will benefit but it also indicates to the economist okay that society is benefiting that resources that would have been used to produce household appliances um and bicycles and other things worth for fifty thousand dollars because that fifty thousand 000 is what the entrepreneurs will bid for those resources all right and so if you can get them for 50 000 by bidding against these entrepreneurs and you can use them to produce something for that value by consumers of 55 000 you are using resources that are undervalued and putting them into a higher valued use okay on the other hand if if the entrepreneurs anticipate that you know consumers will only pay 48 000 for this automobile then they would be wasting resources and they would be losing some of their capital by investing so the incentive is tied up with the calculation okay incentive doesn't exist alone okay the calculation is the key right so so they will not produce that good not only that um you know take take the simple bumpers i mean we used to have steel bumpers and that looked like the right thing to do right to have steel bumpers on automobiles because they're stronger and they withstand um impact better but now we have fiberglass bumpers why do we have fiberglass bumpers because even though fiberglass bumpers are are you know less stand up less well under impact and crack and so on calculation the calculation is is such that it's worth paying less for the fiberglass bumper and and taking a slightly lower price for the car than it is for paying for a steel bumper that is people will would rather undergo the repair costs than pay the extra amount for the steel bumper so every it's not just that i mean every single aspect of any good that's produced is subject to calculation airlines compete on literal inches between the the seat and the the seats okay so so um an airline will will calculate that an extra inch of room will allow me to charge ten you know ten dollars more for each seat in the airplane okay but on the other hand it will remove two rows of uh of of of seats and then can cause me to have fewer consumers um you know paying prices for a particular flight so bottom line is that even even even inches of airline of of seat space for people is subject to calculation okay everything is now our entrepreneur is always right no i mean a gm lost tremendous amounts of money back back in the 1980s when the japanese cars were introduced and they didn't downsize their cars they lost billions of dollars as an example okay and had the go had the reagan administration not bailed out the automobile industry by limiting through voluntary export restraints the amount of of of japanese cars that were permitted to be exported to the u.s um you know uh chrysler would have gone out of business and and gm would have been a lot smaller and much more efficient okay um so they make mistakes but the point is they're able to calculate and they and they are able to realize the mistakes that they make and then then revise their their anticipation of the future okay whereas um the socialist planner doesn't have had the slightest idea of whether he or she is even making a mistake so let me go to an example of a mistake that no doubt is made was made in the soviet union um i i have a friend um that i grew up with uh who um actually married the cowboy out in a real cowboy out in montana and she's from new jersey and so she moved out to montana and um lived on a ranch and and ranch actually had some working oil wells they discovered oil on the ranch and so on and um they're doing very well and so one day she called me up and she said we're getting a new house i said oh you're moving out of montana she's no no she's you know we're having the house shipped in i said really she was like yeah so what a car's out there because of like 12 people in montana right so the labor force is tiny so labor is very very scarce you know uh yeah it's a million cows and uh yeah and so on cattle but but labor's very scarce very high so and transportation costs montana is a big state to get to get a construction crew to come to your your property and build you a new house very very expensive it's actually cheaper and is what she did to have the house built in nebraska so she had the house built in a factory in nebraska um in modular pieces and then shipped on these huge those huge wide trucks wide load trucks shipped um 687 miles to middle montana where she where she lives um and it was a big five or six bedroom home huge home that was uh that was not actually her home it was something like her home but it wasn't her home that's a module that was that was built in pieces that was put together okay so it's cheaper than to have it built with much more capital that is in a big factory that's where they're built in these huge factories with a lot of machinery and few laborers and then to to pay for transportation it's cheaper to do that than to actually have someone come to your property and you know construction crew and build it in the way that we build it for example in northeast or even in the southeast okay where labor is much less scarce now how did how did people figure that out how did the entrepreneurs in nebraska know that people in montana would buy houses in nebraska and have them shipped through prices okay through calculation could that ever conceivably happen where there are no prices of course not it just sounds so counterintuitive to have a house ship 700 miles okay so socialism is is is his economic chaos and her irrationality because there is there is no um compass as mises once pointed out that trying to decide how do you in an economy like we have today in the united states let's say where we have a multitude of different goods that we could produce and almost an infinite number of ways of producing these goods literally almost an infinite number of ways of producing goods um and and we have all of these different kinds of capital goods in different locations it's mises pointed out that it's like a man in the middle of a desert with no compass okay yes he can purposely go in a certain way and purposefully think that he's he he's going to achieve his goal of getting out of the desert sooner rather than later okay but he has no knowledge of of how to do it if he had a compass then then he would have something to give him direction okay and that's what the price system is in some sense okay i'm gonna jump jump over this um so now let's talk about the former soviet union some of the problems that it ran into uh production in soviet union was done through gross output planning that is that each industry was given a target of for example how many nails it had to produce how many chandeliers it had to produce how many yards of women's clothing it had to produce and these weren't given in value terms they were given in physical terms how many tons of nails had to be produced how many yards of women's clothing had to produce be produced how many how many chandeliers of a certain size had to be produced well when you when you have that kind of planning and ghost plan is the name of the agent that was the name of the agency the the central planning uh agency in in the soviet union okay it's very difficult to specify the qualities uh and varieties of the of the product and um so we had situations where where women in soviet union were constantly com petite women were constantly complaining because all the clothes were huge because that was the easiest way to fill the target of x yards of of of cloth made into women's dresses also children's clothing was in scarce supply okay you had a lot of you know big people's clothing and adults clothing being produced uh in the case of agriculture there was a famine in the 1980s in in the soviet union and yet observers saw that there were just fields of wheat that were not harvested and there were tractors in those fields of wheat that were just sitting there rusting because there were too many tractors produced and too much you know too much wheat planted but there was not enough gasoline produced and not enough laborers on the farms to produce those to use of tractors they were all they were all producing the steel and the tractors that were then rusting in in the fields okay so it was chaotic there was also you know shortage of housing but there were a lot of buildings that that that were standing empty with with no no root rooves on them and the reason was because the the firms producing nails would only produce very very large nails because nails were specified in the target for the amount of nails you had to produce was specified in terms of tons so small roofing nails were were not produced in sufficient number okay and so it's a case of mutual lying um the managers of the of the firms will will tell the uh the their industry ministers well we can only produce x tons of of of nails or whatever it might be uh and and so they they're they're they're low balling right they're saying that they can actually produce fewer because they know that the the managers or rather the ministers um will will will tell them whatever they say will increase that by 20 percent okay and the ministers know they're lying so they'll actually increase it by more which means that then they'll lie even more and and reduce even so information to the extent that it did exist flowing you know between different firms and managers and so on was all based on on lies uh and here's an interesting um part two which i looked for for a long time that's the soviet nail called famous soviet nail cartoon and and so that's the manager of the firm telling the the minister of the industry um well i uh comrade i've met my quota okay and also another famous story was that of um khrushchev the the soviet dictator um in 1956 um in in in the u.n he made a very fiery speech in which he took off his shoe and he banged it on the table and he said to the um to the west he said we will bury you and and he was talking about economics he meant that we're we're going to help produce you we're going to bury you and um so uh the the soviet economist when we were talking to the western colleagues said yes we're going to bury you economically but and and the whole world will be socialist but but not hong kong we're going to leave hong kong so we can see the prices because as i'll show in a moment how did the soviet union actually last for 75 years was mises wrong was it really possible um in fact no mises pointed out that that a a a state like the soviet union could exist one more before i get that one more example um khrushchev also once gave a um a speech to the politburo sort of the the the chiefs of of of the soviet union um and which in which he he began to berate the chandelier industry because their chandeliers were so heavy because there was state in terms of you know pounds of chandeliers you have to produce that they were coming down from the doshas they were pulling the roofs down on the comrades in the communist party and killing them okay the people actually were dying from the chandeliers crashing down on on did dinners and so on so all of these um examples went around back back in the uh in the 1980s okay so um i just want to talk just a minute or two actually before i before i do that i do want to want to mention um the topic that i was about to talk about before which um oh yeah it was uh why did the soviet union last for 75 years mises pointed out in his original article that a single socialist state in a capitalist world was no different than the post office okay the post office did not really calculate okay but they were they were able to they weren't profit making let's put it that way they didn't calculate to make profits okay the u.s post office but they were able to use the the prices of of the surrounding of the inputs that they were using because you know they were they were an island in the middle of capitalist prices in the middle of markets so we had a rough idea of how inefficient or how efficient they were there was a rough idea okay how much the taxpayer would have to bail them out by so we saw we sort of knew that and that was mises point that the same thing was true of a single socialist state in a capitalist world or several socialist states they could always use prices and in fact the soviet union did use capitalist prices in fact it engaged in trade it sold it sold you know coal electricity diamonds gold on capitalist markets so i had an idea about prices it also could copy prices that it saw in the world economy there's a story that that red china had um in the 50s ordered a lot of sears catalogs get an idea about how to how to price things um you know also in the soviet union there was a system of bribes in which um firms that maybe had too much wood or and not enough nails may be willing to bribe other firms to supply the wood by selling them nails and you sort of got a system of trade going on there and and there were sort of rough prices and also there's a black market it was a black market in which money was paid for for goods and services in the soviet union now none of these prices were were right were really the correct prices so the soviet union was still um enormously enormously inefficient okay and eventually did collapse so because the prices they were using from other places did not reflect the scarcity conditions in the soviet union um there was a period in which there was actual full communism in the soviet union in which prices were completely abolished and that was a period of war communism from 1917 to 1921. during that period nope the the plans were not permitted to use prices um and so prices were abolished but what happened was that um production just just the whole productive system more or less fell apart uh and and people i mean they didn't have enough fuel during the winter to keep people warm so people were breaking up their furniture and and actually setting it on fire to keep warm and actually then taking a part to their their home apart okay their apartments and so on and burning them and eventually people had to move out to out of the cities okay they were flowing out of the cities into the countryside to forage for food so socialism kind of threw man and back back to the primitive times i mean so social can work among small groups small household economies right but it can't work in an industrial economy and so so the whole thing fell apart the same thing was true with pol pot the cambodian dictator in the 1980s um in which he emptied out the cities and they sort of went just back to the land and millions of people died either were murdered or or died from um from starvation starvation okay so i want to talk a little bit about the social appraisement process that's a fancy word or phrase mises used it and all he meant was the process by which the price structure emerges from spontaneously from a market economy so if you look in the middle of that diagram you'll see entrepreneurs okay the entrepreneurs are the s central player in the in this appraisement process now what does it mean to be an appraisement process simply that there are prices put on the various resources where those prices come from well the entrepreneurs look forward okay so they look up towards the future price of consumer goods at the top of the diagram they estimate forecast what these prices will be and then they know how much they can bid for the factors of production for the land labor and capital goods that they need okay and all of that bidding okay in the midst of bidding for these things prices it's like a big auction okay prices emerge and then they can calculate the cost of production and compare that to the the the forecast um prices of the goods it's not enough just to have the forecast prices of the goods you have to have someone bidding for the resources and bidding intelligently based on prices that they expect and the prices of consumer goods that they expect are based on prices of of consumer goods in the past okay even someone like stephen jobs that um came up the iphone um he had some idea he knew a price there was no iphone before but there were other things like it there were telephones there were different ways of communicating and he and so he estimated what consumers would pay to have a mobile phone a phone which allowed them to you know to speak and and uh and then and then have a smartphone and so on he had an idea there were computers there were there were phones and so he came up with these estimated prices and then he he as as one entrepreneur bid for the factors that he needed and he estimated that the the the um the cost of production would be less than the iphone he was very right and he made profits okay again a planner could never really do that okay all right let me just quickly go to the um reactions to this okay so initially when mises first set forth his argument in this article in 1920 you had some naive marxist responses so first they said well you know what what's the big deal about calculating okay we'll we'll just calculate in kind and and what they meant by that uh it was one particular marxist otto neuroth who um was sort of an enemy of mises um he said well we could just calculate costs by adding up goods in their natural units we'll add tons of steel kilowatts of electricity gallons of paint i mean the proper response to that is [Laughter] that i mean that's ridiculous you can't add apples and oranges okay um the second response that and by the way it has really addressed all of these naive responses in his original article is that we can calculate with labor hours labor hours are homogeneous um and so then we just add up the labor hours producing different goods and we can see what the cost of production are well labor hours are not homogeneous genius okay in fact we know that you know the the quality of a labor hour of someone who's a cashier at mcdonald's is differs from that of someone who's a software engineer or a brain surgeon or or or even take the same profession okay the quality of labor uh that put forth by let's say lebron james is is is much higher quality much more valuable than the quality of the twelfth man sitting at the end of the bench on an mba team okay uh and also of course it leaves out the fact that capital and and natural resources are also scarce and also have to be economized and that you can't compare even the same labor same quality labor if one is working with more capital and more resources you have to know where the resources where the natural resources and the capital goods should be allocated and finally um the socials kept with another solution and that was let's just tell the managers on the last on the first day of socialism which starts tomorrow just come in and do the same thing that you're doing that you've been doing you know for the past few years okay just just do the same thing okay if they can do it on the capitalist we can do it under socialism and um of course what's the problem with that that assumes that there's no change in the world that technology never changes never improves that you never run out of resources natural resources and then find new sources of resources new sources of of natural resources or our actually discover um totally different kinds of natural resources and that consumer value scales our values and choices will ever change okay so in a dynamic world maybe the first few months socialism would operate efficiently but over time as always as capital goods wear out um they should be replaced with better and different capital goods in fact you're just doing the same thing and and and it's becoming less and less reflective of what should be produced in the economy and therefore much much more chaotic and and wasteful okay and last i'll just get because i'm running out of time here um there are much more sophisticated responses and that came forth in the 1930s which were produced by uh neoclassically trained economists mainly british and american economists okay and um hayek and uh lionel robbins responded to them and basically said uh well yes these these theoretically these solutions could work but they wouldn't really be practical uh and then but mises responded in in a much more um incisive way miso said look all of these solutions having a soldier's managers pretend that they're earning profits assumes that the market economy is a managerial economy and that the firms will just continue to exist and and try to earn profits whereas in fact we want creative destruction in sugar paters terms okay the the the actual economy is an entrepreneurial economy in which new firms are created all firms must be destroyed labor is is is moved into new new occupations and professions so it misses the whole point of a dynamic economy okay i'll stop there thank you

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Keywords: Salerno, Economics, Austrian School, Calculation, Socialism, lecture, Mises, Mises U, Mises University

Id: He57c4RcO30

Length: 45min 44sec (2744 seconds)

Published: Tue Jul 14 2020

Reddit Comments

[u/IllustriousIntern]

I really liked that talk, thanks for sharing.

[u/Mr-Zwets]

one of the best lectures of misesU 2020!