 All right, welcome everyone back from that tremendous lunch and Today we're going to talk a little bit about how to that lunch make it to our plate we're going to talk about the division of labor and the social order and to get things started like to set before you sort of to contrasting and conflicting views about the nature of the Mark division of labor and one comes to us from Herb Thompson Who is a professor of economics at Murdoch University in Perth, Australia? At least he was when this was Written he writes rather than seeing conflict as an anomaly. It is concluded that conflict is essential Is an essential and inherent? component of the social relations found in capitalism, so capitalism equals conflict Mises on the other hand in his great work Socialism writes the greater productivity of work under the division of labor is a unifying Influence it leads men to regard each other as comrades in a joint struggle for welfare Rather than as competitors in a struggle for existence. It makes friends out of enemies peace out of war society out of individuals Now to understand how the division of labor contributes to society And to the social order we need to understand the nature of production You have already been discussed This has already been discussed a Little bit in earlier lectures production We know is an action and all laws of human action then apply to the act of production Well, why do people act as you heard from dr. Herbner they act to attain an end What do producers produce? Why do producers produce they? produce to attain their end Economic profit and to do so Producers seek to economize just as consumers do they don't just Produce willy-nilly they make decisions about how to most effectively attain their end of reaping profits by producing goods in the most economically wise way and this helps us understand the relative Productivities of Two main modes of production and there are two the first mode of production. We could call Direct use that is where people are producing So that they can use the products themselves it none of the production is directed towards the market It's a production of self-sufficiency. I don't know if you've ever seen the old British TV show called good neighbors the focusing family in that TV show it was all about being self-sufficient and They seem to be happy, but it didn't really work out that well That was not the goal of the show, but it didn't work out that well in a direct use production It's simpler in that there is a direct correspondence between what people want and what they produce People grow a garden so that they can eat their own vegetables People build a hut so that they can live in the hut people raise a cow to milk and they raise a steer to eat People make a few pieces of clothing to wear themselves. They're not making these things to trade. They're making them to use and This mode of production is found primarily in poorer less developed countries The other mode of production is what we call production for exchange Production for exchange it is a mode of production where production is oriented toward what can be sold in the market People produce goods not because they want to consume them But because they think that they can trade their Products for something that they want more and of course in a in a monetary economy they produce and trade it for money and then they use their money to Spend on other things that they want what they really really want right the zig a zig ah so to speak production for exchange is production in the market division of labor the market division of labor and this is the mode that's found Primarily in more developed wealthier societies, so there is a Empirical relationship between the mode of production and societal prosperity and We find that the more Well-developed the division of labor is the more prosperous society is as well So let's talk about what we mean by the division of labor The division of labor's can be defined as the specialization of production according to efficiency the specialization of production according to efficiency and There are two important words in that definition one specialization and the other efficiency and we're going to take them in turn specialization simply means that each person produces a particular good or a set of goods in excess of his personal consumption So you're producing more than you want to consume yourself even if you do consume a little yourself My favorite example of this is mr. James Jim Snee Jim Snee or James P Snee to be exact He is the CEO of Hormel Corporation I don't know if you know what Hormel is Hormel is a food processing company My uncle worked for Hormel retired from Hormel after probably 25 years of service and They're probably I would say well, they've got a number of Poster products, you know, they're big on bacon and who isn't You can look at me. I enjoy my bacon from time to time They're also big on spam. Their flagship product is spam and James P. Sneed Produces a lot of spam. In fact, it's estimated that over the last year They produce at least 94 million cans of spam 94 million cans of spam now I submit to you that mr. Sneed did not produce all of that spam so he could consume it himself Which is probably good for him because if he did he would no longer be with us He would have died of a stroke or something else No, he he did this he produced this spam because he could sell it for money. He could exchange it so without exchange it with other people for things that he could use then to buy He could use to buy the products that he wants to buy He exchanges his product for money in the market economy and at the same time then his Consumptive ends His consumptive ends are satisfied are met by others Who exchange their excess supply of whatever goods that they have produced and? In that way both he and the people that he trades with benefit one another So that's specialization Specialization is each person producing a particular good or set of goods in excess of their personal consumption Now what who produces what in this market division of labor who specializes in what within the division of labor will be determined by efficiency Of the different tasks are taken up by the efficient producers Well, who are the efficient producers the efficient producers are those producers who? Enjoy the lowest opportunity cost of production for a particular item While economists call this principle the division of labor it actually applies to all factors of production There is a division of capital goods according to efficiency as well as a division of land according to efficiency So that's what we mean by the division of labor now Mises in discussing this Social phenomena in human action on page 157 identifies The division of labor as the fundamental social phenomena. It's the fundamental social phenomena is the division of labor and human cooperation and The division of labor is socially Fundamental in two senses in the first sense we could say it's fundamental that it seems to have been here As long as humans have been here It's been here since the beginning of human history As far back as we have written history. We find evidence of at least some division of labor It shows up in the ancient Near East in Mesopotamia We find evidence of it in the history of ancient Greece ancient Rome The early chapters of Genesis the earliest people mentioned in the book were identified According to what they did right Abel was a keeper of sheep Cain was a tiller of the ground the descendants of Cain Of which there were several were all enumerated interestingly Enumerated by different things that they did right Jable had cattle Jubal was a musician to ball Cain was a metalsmith I thought if you had a heavy metal band to ball Cain would be to ball came You know would be an excellent name for a heavy metal band I'm not really into that thing, but just you know those ideas are you're getting that for free So so it's socially fundamental in that way. It's always been with us It seems it's also fundamental in that the division of labor is the great impetus for the formation of society The reason people come together in society Beyond their own families is so that they can move and integrate with that region's division of labor Society is in other words people you know I moved to Grove City because I wanted to participate in its division of labor I wanted to be part of Grove City College and do and do my thing there People moved to different communities so that they can integrate into that region's division of labor and so it's the impetus for coming together and forming society and Mises notes that society is only possible society is only possible because of the fact of the greater productivity of the division of labor and People's recognition of that fact so people recognize that the division of labor Specialized in according to efficiency is more productive and therefore they begin to participate in it and as they do so They become dependent on other people to produce other things for themselves Just as people become to depend on them for the thing in which they are specializing Now people Find it in their interest to specialize in making those goods as we said is what they're most efficient At which they are the low opportunity cost a producer And they do so because the division of labor is more productive than production for direct use and We can find this in in the standard Quantitative relationship we can first look at a what are the relative efficiencies of two different people and we can look at Groucho and Harpo Groucho and Harpo could produce either mangoes or beef and If we look at Groucho He can if he spends all this time and resources producing mangoes He can produce 300 mangoes if he produced spends all this time and resources producing beef He can produce 600 pounds of beef Right, so those are his relative production possibilities Harpo on the other hand if he produced if he spends all this time and resources and energy producing mangoes He can produce a hundred mangoes on the other hand if he Spends all of his time and effort and energy and resources producing beef He can produce 400 pounds of beef and so if we look it's able who's better at which good well from an Opportunity or from an absolute advantage perspective we could find that in terms of proficiency Groucho is better Than Harpo at producing both mangoes and beef Groucho can produce 300 Harpo if he specialized only produces 100 in terms of beef Groucho produces can produce 600 The best Harpo can do is 400 right, so Groucho has what we call an absolute advantage in both goods right and Of course and Smith identified there will two different people have absolute advantages and different goods It's beneficial for them to specialize and what they have an absolute advantage of but what if Somebody like Groucho has an absolute advantage in both goods what then well, that's where it pays to specialize according to efficiency and It turns out right that Efficiency here is what we call some some people call comparative advantage Who is the efficient producer of mangoes who is the efficient producer of beef? How do we know we'll determine by the opportunity cost of production? So we look at mangoes and we look at the situation of Groucho if Groucho produces mangoes he can specialize in producing 300 mangoes in a period of time on the other hand To do that to specialize in mango production. What does he have to do? He has to give up the opportunity of specializing in producing beef So it gives up 600 pounds of beef to produce 300 mangoes And so his cost of producing mangoes is two pounds of beef The opportunity cost for Groucho producing mangoes is two pounds of beef Harpo on the other hand If he specializes in mango production, he can produce a hundred but he gives up the opportunity of producing 400 pounds of beef and so for every mango that Harpo produces he gives up four Pounds of beef So the opportunity cost of producing mangoes for Groucho is two pounds of beef for Harpo. It's four pounds of beef Now if we look at the other way What about beef production? Well, if Groucho produces specializes in beef production He produces 600 pounds of beef If he does that then he gives up the opportunity of producing 300 mangoes And so it costs him a half a mango for every pound of beef that he produces on the other hand if he If Harpo produces four pounds of beef, he gives up the opportunity of producing a hundred Mangoes so it costs him a fourth of a mango to produce a pound of beef So now we have different opportunity costs and we find that if we if we take a look at the opportunity cost We find that Groucho I'm sorry the Harpo is the low-cost producer of beef Groucho is a low-cost producer of mangoes It only costs Groucho two pounds of beef for every mango he produces where it costs Harpo four pounds of beef for every Free for every Mango he produces so Groucho has a lower opportunity cost producing mangoes Well, what about beef? Who has a comparative advantage producing beef? Well, how much does it cost Groucho to produce one pound of beef? It costs him a half a mango How much does it cost Harpo to produce one pound of beef? It costs him a fourth of a mango and Even in the new math, I think one fourth is less than a half Outcomes based education doesn't change right one fourth is less than a half And so Harpo is the low cost the low opportunity cost producer of beef and Once we identify who is the opportunity cost of what then we can say okay Then what happens when people specialize what happens if people specialize according to efficiency? They specialize in those items at which they are the low-cost producer and Let's suppose that we do this and we can look to see the benefits of The productive the benefits the production benefits of the division of labor by looking at the case Okay, let's suppose that they produce for direct use and then compare that where they are specialized in according to efficiency and We can say okay Let's suppose that they are producing for direct use and they divide their time evenly So Groucho divides half his time and resource of producing mangoes And then he spends half his time and resource of producing beef and Harpo does the same thing And if Groucho does this if Groucho does this then he can produce 150 mangoes and 300 pounds of beef And Harpo does the same thing he produced 50 mangoes and 200 pounds of beef so total output Total output becomes 200 mangoes in 500 pounds of beef now let us suppose that Harpo and Groucho specialize and produce according to efficiency and in this case We're gonna say Harpo completely specializes. It's a not as it in his interest to produce any Mangoes at all and he completely specializes in beef production Groucho partially specializes Spending three quarters of his time in resource of producing mangoes and one fourth of his time and resource of producing beef He does this Groucho can produce 225 mangoes and 150 pounds of beef Harpo remember completely specialized so he produces zero mangoes and 400 pounds of beef And if they do this that they produce in this pattern note their total productivity of both goods increase The total number of mangoes include it goes up to 225 and beef increased to 550 and so both are able as a Society specializing both together are able to produce more right now of course Producing more is good But people don't produce just for fun right they're not producing for production's sake The great benefit comes they get to consume more right they get to use more of these goods They are producing and so that's the key benefit both parties not only benefit benefit in terms of total production They benefit in terms of consumption both are able to consume more of each Given the total Quantity of mangoes and beef that they are producing Groucho and Harpo can come to an agreement On an exchange ratio, and if they come to an agreement and exchange beef And mangoes at a ratio of one mango for three pounds of beef They can arrange exchange so that they can both consume more Harpo can trade a hundred and eighty pounds of beef to Groucho for sixty mangoes Harpo can trade a hundred and eighty pounds of beef to Groucho for For sixty mangoes in return so Harpo so Groucho Groucho who produced 225 mangoes trades away sixty of them to Harpo So Groucho is able to consume a hundred and sixty five Mangoes that's that's a lot of mangoes. I know but he likes mangoes. He's a he's sort of a simple carbohydrate kind of guy and And at the same time Harpo can also consume sixty Mangoes right he was producing zero, but he received sixty in exchange in terms of beef Groucho was producing a hundred and fifty pounds of beef and then he can receive an exchange a hundred and eighty pounds So he can consume a total of 130 Harpo specialized in beef production he produced four hundred pounds of beef, but he traded away a hundred and eighty So that leaves him at a total of 220 Pay no attention to that total column to the side I don't know what happened there, but in any event in terms of the gain Let's look at the bottom the bottom column of the gain right Groucho gained in consumption 15 mangoes and 30 pounds of beef Harpo gained in consumption 10 mangoes and 20 pounds of beef Important point here an important point here both parties benefited right in neither case Do we have Groucho benefiting at the expense of Harpo or Harpo benefiting at the expense of Groucho? right there's no you know Strong powerful capitalist, you know grinding poor Harpo Into the ground both parties benefited and this improved productivity This proved this improved productivity Benefitted not only the party that was better at both goods But importantly it benefited Harpo who was less proficient at producing both goods right and so note that the Market division of labor the phenomenon division of labor benefits not only the very productive But it also benefits the relatively less productive right it's one of the great It's one of the great blessings that we get from society also It's important to note That improved productivity is not the result of specialization per se It's not just as if we have something the wheel of specialization And I don't know what I want to specialize in when it spin it Do-do-do-do-do-do-do-do-do and then Harpo it comes out you know Shazam beef right no Harpo You know or or mangoes if it comes up mangoes, I'm going to specialize in mangoes You imagine what would happen if they did it in the opposite what happened if Groucho specialized in beef production? Harpo specialized in mango production if they did that total productivity would fall right compared to even direct use production and so It's not just specialization per se that leads to increased productivity Well that makes the question that what accounts for the differences in the relative costs of production for different people What what accounts for that? Why why is that the case? Well we find That there it's differences. It's the varieties the diversity in the world that opens the door to the benefits of the division of labor The differences in the suitability of natural resources matters You don't find for instance a lot of King crab harvesting going on in the sandhills of Western Nebraska and I Haven't done extensive research on this, but I suspect it's because there are no king crabs in the Sandhills of Western Nebraska right there's no salt water. There's no habitat for them. What you do find is Miles and square miles of open space open grassland upon which a lot of cattle graze There's a lot of cattle that is raised in Western Nebraska Why because the natural resources are very suitable for that, right? likewise in you know in the Alaskan coastline not a lot of cattle being raised there And so differences in the suitability of natural resources helps explain why certain people in different regions specialize in certain things Also the differences in the given cattle are different capital endowments Differences in given capital endowments helps explain the pattern of who specializes in what? You know if if you know in the old days right can imagine people's names Like Cooper and Smith There were family names because there were people in that family that did the same business generation after generation, right? You know, it's not uncommon to hear people in the old days talking like you know Looking at something maybe looking at their business or taking out and looking at the back 40 and say someday son This will all be yours, right? In other words, you're going to inherit this right if I'm a blacksmith and I Or I'm the son of a blacksmith and I inherit my father's shop. I inherit a lot of Equipment a lot of capital goods that are suitable for blacksmithing Not so suitable for harvesting king crabs or engaging in cattle ranching, right? And so that is going to make it relatively less costly for me to Become a blacksmith also, especially if I have the skills to be a decent blacksmith, right? especially if my save my father apprenticed me as a blacksmith and so the differences in given capital endowments will have an impact on What people are relatively? Efficient at producing now, of course if we have an active capital market The capital endowments are somewhat less fixed right now I mean if you inherit certain capital goods if you can trade them away because you just don't you just don't like blacksmithing You know, it's I said you're not a you're not a two-ball cane kind of guy You don't like the clang clang It doesn't remind you the trolley Then you're you know, you'd be more likely to sell I'm gonna sell this and I'm going to do what I want to do I'm gonna be a painter. I'm going to be engaged in watercoloring or something You know you're gonna do something else something different And so, you know having an active capital market actually helps facilitate The moving of capital from people that don't want to use it to people that do want to use it because it's more valuable in their hands but in any event capital endowments do have an impact on The pattern of the division of labor Thirdly the differences in the skill and desirability of labor right the differences in the skill and desirability of labor Some people it's simply just better at something if you know Groucho may have had sort of a green thumb and made him good and at raising mangoes Whereas Harpo, you know, he touched a plan and just it died, right? it was it was like the he was like the grim reaper of You heard a culturalist, but he was great at animal husbandry, right? And so he was an excellent excellent rancher or something and that also will have an impact It's somewhat interesting. You think of the basketball player Michael Jordan There's a period in time where Michael Jordan sort of retired and then he turned to something else Remember what he turned to? Yeah, baseball right turned to baseball because his dad sort of always wanted to be a baseball player and And And most people know I know what he was horrible or he never made to the major is horrible. Well, he was Wasn't major league quality wasn't horrible. I mean the vast majority of people can't even make it to the Myers, right? So he's not horrible He's just a whole lot better at being a basketball player. He's a whole lot. He was not dominant playing baseball He's dominant playing a playing basketball. So the differences in skill and desirability of labor also then will affect how these patterns play out Also, we could say too that it's not just the Sort of the differences in the quantity of capital or the differences in the quantity of resources But it's the it's the quality and the diversity of resources that that sort of help determine Or or a show you say open the door to specialization according to efficiency Now the example we went through It was what we could call an example or an illustration of what Mises calls the law of association Love association says each factor of production is efficient in some line of production Essentially it says each factor production is efficient in some line of production If this is a development and universalization of the law of comparative advantage by Mises As I said before sort of imply before it doesn't apply only to labor but the law of association also applies to land and capital goods and The point is simply that as each factor is utilized according to its efficiency People will reap the most output for the resources utilized And so as people specialize according to efficiency according to the low opportunity cost together People will reap the most output that is possible for the given resources utilized in any society and One implication of this is that employment can expand indefinitely There's always some place Where labor can be employed in a low opportunity cost situation as long as land is relatively abundant There are things that can be produced upon that land with labor as labor specializes The only limitation then and what we could call Technical limitations right if if in other words, there's no economic Limitation per se but but if for instance the population would increase so much so that every inch of land Is taken up by production with people left over Then it would be hard for people to find a way to participate in the market division of labor But as long as we don't have that as long as we have not used up every square inch in Production and then have people left over there is still a place for people to find their way in the market division of labor Producing something at which they are the low opportunity cost producer now one of the Contributions of the Austrian school through Mises is his Identifying of a number of social effects and emphasizing some of the social effects on the division of labor As People specialize in production according to efficiency The initial differences that contributed to the pattern of specialization Become even more pronounced That in other words as people specialize because of relative differences those differences can become even more pronounced Specialization think of specialization within the division of labor according to geography given the natural resources we talked about as People specialize in say cattle ranching in Nebraska or king crab harvesting in Alaska as that happens The The investment in capital goods they make the the alterations to the geography that they make um Intensifies the differences right so if you We're gonna do cattle ranching you do need a fence you put up a fence You put up a fence with certain types of gates that make it more even more efficient to produce cattle than than than it was before or if you you know Alter the geography some way in Alaska that makes it more easier to get King crabs from the water on to the land and to market You know the development of even sort of infrastructure those things those alterations of the geography will intensify the relative efficiencies that lead to the pattern of the division of labor a Specialization also increases the inequality of skills over time as more people spend more of their time doing the same task They become more skillful in that task I've told the story before my dad who worked at a meatpacking plant for the first 20 years of his life And when he moved from a beef plant that they got sold to somebody else to a pork plant You know you go in and then he went in the new guys on the lowest rung of the I've run the ladder in terms of you know time of time you spent working there and And those people tend to get the jobs that are least attractive and so for the first. I don't know a couple years he was a tongue trimmer and It is What it sounds like he was trimming pork tongues. He did that eight hours a day so that I could you know someday go to college and not have to be a tongue trimmer and He the whole operation was on a timed chain Production chain so he was standing he'd stand at a table and every four and a half seconds He would get a pork tongue sliding down the chute landing on his table And he would have to trim the spit glands off of the pork tongues And when he first started he told me that he was not that good at it He was okay, but there would be a pork tongue backup. Shall we say not as bad as sewer backup, but still backup and So when it when the bell rang or the whistle blew time for break dad couldn't go to break He had to continue to work through the backup and so he would go to break and maybe two minutes later than everybody else But as he did that job He got better and better knowing how to just how to work the knife How to turn the turn the tongue and the flight white right way to make the right cut He became so proficient that he never had a backup unless it was desired He when that he wouldn't have a backup the whistle for his break would hit he would go off and to break no whistle Sounds for everybody to go back to work He could stay for another couple minutes and enjoy a little bit longer cup of coffee Then he would go back Seeing that there is of course two minutes worth of tongue backup But he came so proficient at this task through specialization that he could work through the Backup and there to the point where there would be no backlog of tongues by the end of the day All right, and so that's just a simple example of how specialization Increases one's labor and skill as you continue to do it again and again Now of course you can't just say all I want to specialize and I want to specialize in being a major league baseball player And you'll click your heels and you know, there's no place like Cooper's town No place like Cooper's town, right? You can't do that. You have to have skills and abilities to begin with But an interesting point that Rupka makes along these lines, too Is that it's the division of labor that allows for the development of the professional? It allows for people to so specialize their talents Specialize their time in in practice in rehearsal etc that it can elevate the level of skill Beyond that of the amateur, right? We would not have Professionals if we did not have or to that extent if we did not have the division of labor And so that that matters another important social effect that Mises likes to emphasize is that this increased productivity that results from the market division of labor is a the key factor that allowed mankind to escape the Darwinian struggle for survival this idea that there's limited resources and I want some and you want some I think it was I think it was Van Halen says everybody wants some I want some too and And how are we gonna settle this? Well, we're gonna fight right? We're gonna duke it out and the fittest wins, right? The market division of labor allows us to get past that to move away from that type of thinking why? Because in the market division of labor each participant Groucho Harpo you and I Both serves one another and is served by one another each participant both serves and is served by other people and So contrary to what the enemies of the market want you and everybody else to believe a Market economy does not promote atomistic individualism. It does not And understanding of the market economy does not lead one to think that I'm the only person that matters No, it promotes community because the market division of labor means that I rely on everybody else specializing in other things that I want to consume Like they specialize in what I do if they happen to want to consume economics lectures, right? And so the greater productivity of work under the division of labor is a unifying influence It's a unifying influence It leads men to regard each other as comrades in the joint struggle for welfare Mises uses this term in socialism. I think it's kind of you know, sort of like a nice little ha ha ha ha comrades In the struggle for welfare, right? You're not you're not comrades in the sense that you're struggling to get more of whatever the government gets to give you, right? You're you're comrades in arms Helping the other people you sort of you're not comrades of arms even you sort of comrades of production helping other people and So as Mises says it leads men to regard each other as comrades in the joint struggle for welfare Rather than competitors in a struggle for existence It makes friends out of enemies peace out of war society out of individuals Even if you don't even know the people really, right? it puts you in a situation to help each other through production and exchange and so it opens the eyes for us to see that the market division of labor in the market division of labor the Fundamental relationship is a cooperative relationship. It's not fundamentally competitive. It's fundamentally cooperative Now there are limits to the division of labor, right? There are limits to the division of labor Probably the best single statement written by Adam Smith was the division of labor is limited by the extent of the market What that means is it only it it's only beneficial to Specialize in the production of something for which there is a market, right? again specialization per se Doesn't help you, right? You have to specialize if you can't trade What you are producing you're not going to be able to benefit and participate in the market division of labor let's suppose that that Chico comes along you have Groucho and Harpo specializing in mango and beef production and Chico comes along and he is always like science and He particularly loves rocket science. So that's what he wants to specialize in There's an island with Groucho and Harpo and they're specializing in beef and mangoes and And they've had to make their own makeshift lean twos rocket science Given the primitive nature of the island not probably the most highly-demand skill or good in that society and So Chico decides well, I can't do that. Maybe I can make huts or butter He can do those things too those things are in demand and so it benefits him to specialize in those things Right, so the division of labor is limited by the extent of the market Now what that means is then to extend the division of labor to allow for more it's more development It's expansion. It's extension and they're there by benefit by increased productivity We need only to bring others into the market. We need to allow people to participate in the market That's the number one thing that We can do in a more developed country if we want to see less developed countries become more prosperous the number one thing that they can do is to plug themselves into the global division of labor to help them to To encourage them and allow them to be participants in the the the market division of labor because as the extent of the market increases that allows for more specialization and according to efficiency and So that allows for an expansion of the division of labor as that happens Everybody becomes more productive right groucho and harpo no longer. You need to even spend any time building a hut now Chico can do it. So Chico builds the huts groucho and harpo specialize even more in mango and beef production So they become even more productive and so Chico Can make his huts and then he gets more mangoes and beef as well And then that then sows the seed for even we should say even more purchasing power They can trade even more huts and more mangoes and beef to somebody else. It comes along Maybe gummo comes along producing shoes zeppo comes along producing. I don't know Broadway shows or what have you you know little bits of entertainment or what have you And so production increases the extent of the market expands even more allows even more division of labor Which allows for even more production which expands the extent of the market even more Which encourages even more division of labor etc etc and see we have this sort of germ of a seed of a theory of economic progress Now this whole ball of wax the whole ball of wax Related to the market division of labor Is dependent upon the ability to exchange right we must be able to exchange what we produce without the ability to trade We have to produce everything we consume ourselves Now we can only engage in exchange in an environment of private property People have to have the right the ability and the right to trade what they produce To others For there to be specialization and production according to efficiency hence in order to take advantage of the division of labor And all the blessings that come from it society must embrace private property People have to have the right to property and it needs to be recognized and Defended in society And as we have then the proper social institutions That allows for the development of this market division of labor. We find that the division of labor integrates The society into an economic order. This is not an anarchy. It's an economic order That requires coordination Coordination dare I say that requires entrepreneurship that dr. Klein mentioned earlier today Production in the market division of labor is more challenging than production for direct use in a particular way Producers do not know exactly what other people want right if if I'm producing for myself I know well, I want to I want to I want to grow some lettuce I want to go some retishes. Why because I like lettuce. I like retishes and I know that because I am me Uh, I don't necessarily know what other people like Even if you ask them right they could change their minds And suddenly you can't just sort of look in your eyes and sort of intuit. Ooh She's a lettuce person He's more of a radish person Ooh, rutabaga. No, I mean We don't have that ability right and so how does all this production all the production in the market division of labor How is it all coordinated? Well, the producers the entrepreneurs Need to make objective production productive decisions about the future subjective preferences of other people um and uh even more uh, should we say even uh Even what makes it even more complicated is that the specialized production of high-order capital goods Requires a corresponding quantity of complementary factors That allows all of these high-order goods to be used together to produce whatever it is we want to produce So there's a whole lot of coordination going on to quote, uh, jerry lee louis and um Coordination does not just happen It requires economic calculation as you will see Later on as well or have seen It requires monetary prices market monetary prices Economic calculation then requires a medium of exchange So the prices of goods that entrepreneurs use to produce this good or that good in the market division of labor Are all enumerated in the same unit right the monetary unit And for the calculation to be meaningful in other words So that people will use calculation produced goods that are profitable And for the profitable goods to actually be the goods that society prefers more than other goods Those prices must be arrived at through voluntary exchange. The prices must be manifestations of people's subjective preferences Voluntary exchange there we're back at private property. We're back at private property So private property is a key Social institution that allows this unifying process of the market division of labor to flourish And sound money also and we'll be lectures shortly on money sound and unsound perhaps um sound money is important because you need prices that are not You know ridiculously volatile because of manipulation by the state Because if the entrepreneur is going to use prices to calculate profit and loss to plan for the future If the government is manipulating the money system hither and yawn those prices become less meaningful and therefore the decisions made based on those prices will be More or less an error and the whole system can get snarled up and what could have been A very prosperous market division of labor could get snarled up and become An economic disaster and with that I will stop and uh Time for break