 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, Professor Di Lorenzo will be talking about 10 things you should know about socialism, which is less theoretical. This is sort of the foundation 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 the ashes. We see the movement that Bernie Sanders led. He is an avowed socialist. But despite the theory, despite the history, 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 human beings, is really brought about by the price system. It's brought about by free exchange. Really, the sum and substance of society 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 Ludwig von Mises' Economic Calculation in a Socialist Common Wealth. And that article appeared in 1920. And I think it's really the greatest single article in economics in the 20th century. It 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 breakthrough in our understanding of what the function of the price system is. So we have this available 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 were called utopian socialists. They all had their little plans about how to make humanity better off. Charles Fourier, Henri Saint-Simon, and Robert Owen. The first two were 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 we'll see, this whole idea of scientific socialism was nothing but a ploy. Neither Marx nor Engels said a single word about how a future social society would run. Whereas the utopian socialists did this all the time. And they were the laughing stock. The classical economists, as we'll see, destroyed their claims for socialism. So let's say Charles Fourier, just as an example. Pretty intense guy. He established a plan for what's called a fallen stair, which was a self-contained city. And it was modeled after a grand hotel. These guys all had these grandiose ideas about how to reconstruct human society. And it was actually based on ancient Greece, on the phalanx of ancient Greece, which was a military formation. It was to have 1,600 residents, no more, no less. All of these guys sort of were what we might call nostics. That is, the truth came from 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 would be a stockholder. They'd be collective production. All meals would be shared in a communal kitchen. And dirty work would be shared. So he had very minute instructions about how this whole thing was to work. And he drew it out. That's what it was to look like. He made a model of it. This is a model of the phalanx stair. And that's near my house. That is one of the phalanx stairs. It's in New Jersey. Mom, it's in New Jersey. That was actually built and was abandoned after a few years. The whole thing fell apart. Pretty spooky place. Haven't been down there, but it'd be a good place to go for Halloween. Yeah. OK, just let me give you some of his ramblings. Because this explains why Marx, he responded with scientific socialism. He said 19th century France was allegedly in the fifth stage of advancement. So the first was confusion, savagery, patriarchism, and barbarity. Then he pointed 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 does he know this? How do these guys know this stuff? Well, they have a special inner source of knowledge that we're not party to. So this is extremely embarrassing to socialists like the later socialists like Marx. And then history would reverse itself and it would run backwards back to the first stage. There would be a number of changes that would accompany that stage of harmony for 8,000 years. We'll go back here. Six new moons would replace the one in existence. I mean, you can read this stuff. I'm not making this stuff up. A halo would circle the North Pole with shower, gentle dew. The seas would turn to Kool-Aid. That's not my favorite. This is my favorite. All violent or repulsive beasts would be replaced by their opposites and will be commonplace and serviceable to mankind. There would be anti-lions. 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 five, six of the time, and they're all for free love. Five, six of the time would be devoted to the unrestrained pursuit of sexual love. Free love's part of all these utopian schemes. What did the classical economists say? This thing is going to collapse. They were right. I mean, all of those experiments, utopian experiments, collapsed. Because the incentive problem, who's going to take out the garbage? 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 a profit and loss mechanism to give people incentives to do these types of jobs, it would collapse. The response of the utopian socialist was, well, a new economic, or a new socialist man 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, socialism would be as productive as capitalism. That was the problem with the classical economists. They showed that, look, the incentives just aren't there, and they're not likely to develop. But they believe that they never challenged the argument that socialism could be, if there were proper incentives, could be as productive as capitalism. And that's, as we'll see where Mises comes in. But before Mises, we get to Marx, he realized that the harm that all these crazy schemes were doing to the socialist movement. So he undertook 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 capitalists. And there would be 10 capitalists left and won't everything, and then the working class would just say, get out of there and just take over everything. So the inexorable 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. So if that were true, it was completely unscientific to speculate about what a future social society would look like, or to even do anything to try to make socialism come about sooner. So Marx, in 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 happier and more content with their situation and so on. Marx's writing, think about his great work. I don't think it's great, but his magnum opus, which was called what? Capital. He wrote about capitalism and its inner contradictions. He never said a word about socialism, because it was unscientific. All right, now what was Mises' response to this? In 1919, 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 economists in this. So basically what he said is that in a developed industrial economy, which had very complicated production processes and used many different types of capital goods, hundreds or millions of different types of capital goods and many different kinds of labor and so on, economic calculation would be impossible without market prices. So socialism economy is impossible 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 socialist schemes is that there will be collective ownership of all the non-human means of production. So all capital goods and all natural resources will be owned by the state, or the state acting in the name of the people. So that means that since the socialist state is the sole owner of the material factors of production, all 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 cost or what the production of a ski chalet cost or what the production of an Apple iPhone cost? 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 and which goods will cause you to lose money? Which goods are the most valuable use of the scarce resources, which exist under socialism 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 you an example. Well, let me first show you this and then give an example. So the essential mark of socialism, isn't that the socialist planet 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 could 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, okay? 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 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. You could have Mother Teresa trying to run the whole thing. Okay? Right? She's very altruistic. She wants 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 was allowed in the USSR and other century planned economies, 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 destroy the economy. And finally, there has to be a sound money. A money whose value is independent of political influence 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 toward undermining the free market economy. Socialism abolishes 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 Engelhard was talking about the other day, yesterday. So socialism abolishes all three of these preconditions and therefore nullifies economic calculation. So 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're thinking of building this car. Okay, so 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 they know that you need P tons of steel, Q hours of machine time, R hours of unskilled labor, S hours of engineering labor, and so on, factory space gowns. Okay, so you knew how much of each thing you needed. It's called the production function to combine and be transformed into this particular automobile that you wanna build. So knowledge isn't the problem. What is the problem? Well, economic calculation. How do we know that in using all of those different resources I just lifted 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 bicycles, or skateboards that the consumers value more than they do that gas-guzzling car, okay? You don't know. So in the market economy, all resources, at every moment, there's a price for everything. Prices for everything are being paid right now, okay? We know what the price of the steel is, the engineering services, the electricity. We know all 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 where entrepreneurship comes in. You know your costs, or you know them much better than you would know the product price. Let's say it would 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 $44,000, then there's a pure profit to be made. On each of these cars he can earn $4,000 and he will produce it. On the other hand, if he thinks that it's worth only $38,000 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 $30,000. He 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 $40,000 to consumers. Remember, why are all of these factors of production worth $40,000? Because, why does he have to pay $40,000 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 of uncertainty, mistakes are made. Some entrepreneurs are better than others. Some are serial entrepreneurs, whatever they touch turns to gold because they're good at forecasting future prices. But even if you lose money, it's still a rational decision. It was just based on an 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 cost of production, there's no way to rationally allocate resources. There's no way to rationally make that decision. Also, how should this car be produced? Should the car be produced very labor intensively? Maybe using a lot more people assembling the car. For example, before 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, robotical. I mean, it's some guy pressing a button on computers and then the robots assembling the cars. So should you 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 bumper on or should you put a fiberglass bumper on or should you put a platinum bumper on the car? What should 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 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 into a big ranch home. And about 10 years after she was out there, she, we were talking on the phone. She says, oh, I'm getting a new house. And I said, oh, is it built yet? And she said, no, we're not building it here. It's being built in Indiana. That's 1,250 miles away. I said, what are you talking about? She said, well, out here in Montana where there's about 12 people, labor is very scarce. And the most valuable use is in ranching and using labor to move cattle and to take care of ranches and so on. Not to build houses, okay? Labor is very expensive. So what did they do? They ordered, that is a modular house, a beautiful house. It's not hers. I mean, she had a five bedroom house. They order the house from around Indiana. There are all these modular home builders in Indiana. They have it shipped 1,250 miles. She lives in Biddle, Montana. And then they assemble it on site. So because it's less costly, it's cheaper to do it that way. Okay, now would a socialist planner 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. 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 of the quality and size that you want and have it shipped. Now 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, 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 that 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 uses three hours to produce any of those goods. So he works 12 hours and he produces all four of those goods, okay? Those are the highest valued uses of his labor time. So they aren't really complicated production processes. There aren't a lot of capital goods. What if he finds that there are rabbits on the island that he's stranded on and that he's thinking of whether to devote six hours to catching the rabbit? Well, he can directly know the cost of production. The cost of production of satisfying his wand for a nice rabbit stew is the satisfaction that he would get from eight coconuts and one sack of berries because that's the other way of using his six hours. So Mises didn't deny that in a very simplistic economy that you could rationally allocate resources. You certainly can. But in a modern economy, that'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 of the Soviet Union was known as ghost plan, ghost plan. And so what they did under gross output planning was they assigned to each commissar of an industry a certain target that you need to give us, let's say, one million tons of nails this year. That's what you have to produce. So of course, it's a situation of mutual lying. They know that there's not enough factories to come up with a million tons of nails, the planners, but they know that the manager's gonna lie. So the manager will say, no, no, no, we can't, we can give you 800,000 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 the target to be as low as possible so that he can just exceed it, get a nice bonus. And on the other hand, they know, the planners know that he's gonna be lying about this. They know the incentives. They know that he knows that if he doesn't meet his target, he's gonna have a quick trip to Siberia. And they don't wanna 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 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. 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 cartoon. That's his output for the year. So he's telling the minister of the industry, the manager of the plant, okay, we met our target. You laugh about that, but during the 1950s, 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 doshes 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 was a shortage of children's clothing and of 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 in a very famous clip, he was at the United Nations and he took his shoe off and he began banging it on the table that he was speaking at, and he said, we will bury you. We've pointed to the Western leaders, and he meant economically, we'll bury you. So when Russian economists and US economists got together, the Russian economists said, yeah, we'll bury you, but we're gonna leave Hong Kong so we can copy their prices. Because the Soviet Union lasted as long as it did because it was what Mises calls 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 it overspends on various things, the post office still is an island in the middle of a calculating economy. So it knows 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 there or Mises is wrong, that's crap, okay? Mises pointed out in the very first article that he wrote in 1920 that in fact, that the Soviet Union wasn't a fully socialist economy because it could copy prices. And in fact, the Soviets themselves allowed black markets. So there were Beatles albums and blue jeans, denim's and so on were permitted on black markets. No, they looked the other way, they didn't want to see what the price of these consumer goods were. They also allowed what was called blot, B-L-A-T, it was a form of bribery. So there 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 used prices. The only true socialism existed between 1919 and 1921. 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 happened was that there were shortages everywhere, that 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 began to burn parts of their houses and then they just left and then 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 yeah, socialism can work. Socialism can work for small predatory groups of human beings. 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 gonna use a fancy word here, appraisement. Appraisement 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. And 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 iPhones are priced at today. They've experienced the prices of today, which are really the past. They don't use those prices to make their calculations because some of them are 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 in different industries try to figure out prices in future markets. They forecast them. Then based on those prices, okay, so they look to the future. Then they look to 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 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, the laborers, 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 calculation. Mises call that the intellectual division of labor. We are all involved in it, okay? All of us, capitalists, entrepreneurs, laborers 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 to purchase and what 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 all are bound together in generating a structure, a 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 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 you're 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 Star Trek episode called The M-Path, the original Star Trek. I don't like the sequels. So The M-Path was this woman on this planet who anytime anyone was injured, one of the, I think Kirk was injured, she immediately felt his pain, his emotion, his values, what he was feeling and so on. So let's say you even had an M-Path 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 anything you can conceive of. You can figure out the cost of anything you can conceive of. Under socialism, you can't figure out the cost of anything 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 were just straight out Marxists, they were fanatical Marxists in the 1920s who tried to answer Mises' article. They were mainly German. So the first one was calculation in kind. There was a fanatical Marxist named Otto Neurath. And what he said was, what's the big deal about calculation? What is Mises making such a big deal about it? He said, we will just figure out costs of production by adding up the natural units. We will add up the natural, tons of steel, the kilowatts of electricity, the gallons of paint. Okay, what's the problem with that? It defies the basic law of arithmetic, idiot. You can't add apples and oranges, right? And that's so, that's ridiculous. There's no common denominator, okay? Other Marxists said, well, labor hours are homogeneous. That's the thing, to add anything up, they have to be in homogeneous units. Labor hours are homogeneous units. And therefore we can add up the different amounts of labor hours, okay? How much, we'll pay people in vouchers that say labor hours. And then we'll figure out the amount of labor hours that each good took to produce. And then people will use their vouchers for labor hours to buy the goods. And so we'll calculate that in that way, okay? Okay, so what's the first problem with that? Is labor really homogeneous? Is a cashier of McDonald's really, that person's labor really equal to an hour of labor of a brain surgeon or a software engineer? Of course not. So labor hours are heterogeneous. You can't add them up. There's no way to add them up. Also, even in the same profession, is an hour of LeBron James' time on the basketball court really equal to that gawky 12th man sitting on the bench to an hour, of course not, okay? So 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 wouldn't 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, we're not gonna fire the capitalist managers. On the first day of socialism, we're gonna tell them, just do what you did yesterday, which was 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, where 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 buy 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 that has been producing and to stop 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 to some more sophisticated responses. These were by socialist leading neoclassical economists, mainstream economists who had socialist sympathies during the 1930s, they were mainly English speaking. So there was something called the trial and error method, a market socialism and a mathematical solution. Let me just mention that Oskolanga was a Polish economist who was trained at the University of Chicago, so he was a neoclassical economist. He knew economics. He looked at Mises' article, he said, a statue should be built to look beyond Mises and placed in the hallway of the Polish Communist Planning Bureau because Mises raised a legitimate question. So they took Mises' challenge very seriously, okay? And they tried to respond to it. So one response, I'll talk about 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 then what we'll do is we'll collect all this data, we'll 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 the 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 who were followers of Mises was that, wait a minute, even if you could get all this data, it would take you months, if not years, to get the data together. But this was the pre-computer age. Even if you could get it all together, you would then have to solve a million equations and do it by hand and that would take months and months and months to solve that set of equations. So what they said was 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 data, put them in those equations and solve the equations right away, which in a computer era, you could at least solve the equations right away, then it might be practical but it's certainly impractical. So they focused 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 that you just can't get. You have to be on the spot to know what it is. The other response was market socialism and basically what they said was that what we want, the market socialist, is for firms to have managers and then the firms in an industry, let's say the 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 gonna do then, 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 in shortages. And so if there's too much produced, if people aren't buying all the steel at that price, we'll 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 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, just that the firms will not earn any profit and we won't have any monopoly, so it'll even be better they claim. So again, Hayek responded very quickly. He said, well, wait a minute, he said, how frequently can you change all the prices 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 prices will always be wrong. And he 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 it would be inefficient but it wouldn't be impossible. Now what did Mises 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 capitalist entrepreneurs who invest their capital and risk their very livelihoods in trying to forecast the future. And in doing that, they bid 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 were 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.