 Good morning, everyone. My topic for 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. And that was the article by Ludwig von Mises, Economic Calculation in a Socialist Common Wealth. So it basically destroyed the intellectual foundations for socialism. And I'll get into the background in a moment. But not only did that, it was also sort of a revolutionary breakthrough in understanding the nature and function of the price system. 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 bookstore. So socialism started off 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, Henri Saint-Simon, and Robert Owen. Now, they had a certain way of approaching the publicity or the publicizing of socialism. And we'll get to that. But there was another group later on who reacted against the utopian socialists, and in fact gave them their name. And that was Karl Marx and his ally and friend and collaborator Friedrich Engels. And they called themselves the scientific socialists. So they were the ones who bestowed the name of utopian, 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. We'll take Charles Fourier, the French utopian socialist. Clearly something's wrong here. Take a look at him. Fourier came up with an idea for how human beings and human life and economic activity should be organized. And he called it the fallen stair, 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 ancient Rome and sort of a military formation. And as we go along, you'll see also that all of these socialists believe that they have some sort of access to a secret intuition, that a secret source of knowledge, that none of us have access to or possess. They're the ones who are going to give us the truth and establish how human beings should interact in economic activity and in social activity. So in Fourier's vision, there will be garden cities. They'd be modeled after kind of a grand hotel. And there'd be 1,500 to 1,600 people in this hotel. Again, according to sort of a Greek and Roman military formation. Each resident will be able to purchase accommodations according to their income. All residents would be stockholders in the city. There'd be collective production. Everything would be produced collectively. There'd be no exchange. 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. In fact, he goes on and his vision gets crazier. And the dirty work will all be shared. But the key here is that there's really one controlling mind. And there's no exchange. There's no people acting according to their own value scales. And he actually drew a picture of it. This is what it would look like. So all human communities would be organized in this way. And people would live in these type of structures. He also built a model of it. And here is one fallen stair, which is near my home in New Jersey, in Mameth, New Jersey. It's now abandoned and spooky. And it's just ugly. 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. So they passed through different stages, confusion, savagery, patriarchism. The fourth stage was barbarity. So they were in the fifth stage, according to him. France was in the mid-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. And that would last for 8,000 years. I mean, how do you know that? How do you know it would last for 8,000 years and not 6,000 or 10,000? But that doesn't matter because eventually history would reverse itself after that 8,000 years and society would regress back to the beginning. Again, there's this secret, what we call, gnosis or secret source of information that no one else is really privy to, only the socialist planner or the socialist visionary. There were some other things that he said. They're just too funny to pass up. In this stage, there'd be six new moons replaced the one in existence. A halo would appear around the North Pole above it. The seas would turn to Kool-Aid. I don't think he used some kind of word for kind of fruit juice, Kool-Aid, we'll say. All violent repulsive beasts would be replaced by their opposite so you'd have an anti-Lion and you'd have an anti-chicken. The anti-chickens would roast themselves and immediately pop into your mouth when you're hungry. Anticipate that you're hungry. You could ride the lions and so on. The human lifespan on a harmonic stage would stretch to 144 years. And five-fifths of everyone's time would be devoted to free love. This is another thing that almost all socialists were in all socialist visions. And back in the 19th century, for the most part, were males, so this whole idea of free love. OK, so now the classical economists, even though economic theory hadn't been perfected by then, they still knew about supply and demand and they crushed these plans that were put forth by these utopian socialists. And this is what was embarrassing to Marx and Engels later on, and we'll talk about. But for example, the basic question was the incentives. I mean, if everybody is given income and goods and so on, according to their needs, if there's no exchange and everyone pretty much gets the same thing or everyone gets things according to how productive the planner judges that they are, then who will take out the garbage under socialism? This was the question the classical economists posed. Who's going to take out the garbage under socialism? Who will do the dirty work? Who will go down in the coal mines and do the unhealthy work and the dangerous work? Who will get up early in the morning and literally take out the garbage? This was solved under capitalism as a classical economist realized by supply and demand, by differentials and wage rates. The dirtier jobs or other things equal tended to get paid higher. But the socialist answer, well, there would be a new socialist man and a new socialist woman. They were, in fact, feminists, even in the 19th century. And they would work for being honored by the community for their contribution to the welfare of the community. Now, on economic grounds, the classical economists won the debate hands down. They embarrassed the socialists. But both groups, both the classical economists and the socialists, did take for granted that socialism could be as productive as capitalism, if not for the incentive problem. So that's sort of what was in the background there. And as we'll see, that's what Mises addressed. The classical economists did see the incentive problem, but that's sort of a practical problem. And the socialists always said, there's different ways of solving it. We could give instead of coins, we could give these special medals instead of money, and that'll be an incentive to work for the community, and so on. So it was lurking there in the background. Marx had a brilliant polemical ploy. 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. And he said, look, socialism is going to come with the inevitability of the laws of nature, or the inexorable laws of nature will bring socialism about. Socialism will replace capitalism. Just as capitalism replaced feudalism, just as feudalism replaced the slave societies of Greece and Rome, it's an ever upward movement towards the final stage of communism, some people claim that was sort of another state with Marx. We had to pass through socialism before we got to communism. 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 whether it's going to snow tomorrow or not. If it snows, it snows. It's dictated by the laws of nature. You can't argue about the laws of nature. So everyone should just shut up. 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. And he said that, in fact, there's nothing we can do to speed it up. There's nothing that we can do to make rain come sooner. If there's a drought, well, laws of nature will dictate when that drought comes to an end. Same thing is true of socialism. So Mises always pointed out that Karl Marx always focused on capitalism and the contradictions of capitalism. I mean, he never really wrote about socialism what it would look like. And that was deliberate. So he called his work, his magnum opus das Capitale, capital. Not socialism. Didn't talk about that at all. So that was kind of brilliant. And everybody trying to escape this label of being unscientific kind of became Marxist. They didn't all agree with everything that Marx was saying about capitalism. But 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 in their most highly valued uses to consumers or even for the planners themselves requires market prices. But because socialism abolishes property and you have only one collective or one central planning board owning all the property 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, you could close on your back, your food, and so on. You could own those types of things. You couldn't own any of the productive factors. That is a 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 the abolition of private property in the means of production, in land, resources, capital goods, and any other material means of production. Labor was permitted to own his own labor and even get paid wages. So Mises' argument was brilliant in its simplicity. He says, number one, socialism abolishes private property and capital goods and natural resources. Since a socialist 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. 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, everybody's involved in making the decision. Even if somehow you have a democratic decision-making about how to use the factors of production, the fact that they're not being exchanged and not being used according to the expectations and values of different minds means that you can really never generate any prices. So under socialism, because there's no market and no prices, the state cannot calculate the cost of production. It never knows whether it's using something for a particular purpose 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, socialist planners cannot know the most valuable use of resources. And therefore, Mises meant this, literally, a socialist economy in which you economize resources. You only use them for your most highly valued uses. A socialist economy is impossible. He wasn't exaggerating. When I looked at his argument, most even many Austrians would say, well, Mises is exaggerating. In fact, Murray Rothbard, when he wrote me a letter on an article I wrote about this, he said, well, even myself, deep down in my own heart, he says, I thought Mises was a little bit, was exaggerating slightly. He said, but now I see that you have shown that it was really impossible, because it destroys a division of labor. There is no more division of labor. You can't determine where people and things that are productive best fit. So the key to socialism is not a lack of incentives. The fact that you can't get people to do what you want because you're not giving them the incentive 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, in general. It's the fact that there's a single-will acting. So I want to read this. Mises says, the essential mark of socialism is that one will alone acts. It is immaterial whose will it is. It could be just one dictator. It 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 or 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. One will cannot generate a price structure, a price system, which is very, very complicated. One price alone means nothing. You have to have sort of an interconnected structure of prices to be meaningful. 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 shouldn't be produced at all. 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, as well as natural resources, coal mines, diamond mines, sources of oil, fisheries, and so on. So you have to have private ownership, not only private ownership, but the 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, a rational use of resources impossible. So let me give you an idea of the calculation problem, a very simple example here. Mises said, look, planners, they have scientists and engineers that can inform them of all the different ways of producing a given good or all the ways of producing different goods, that is, they can know their production function and economics of 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. Well, let's take this recipe for a Detroit muscle car, Chevy SS, which is no longer produced, unfortunately. 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. 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 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 input is necessary, 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 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 has a cost of production, which can be easily calculated of $50,000. And the firm forecast that consumers will be willing to buy the output that they're gonna produce at $55,000 per car, okay? Over and above all costs, including the opportunity costs of the capital they've invested and so on. So that's a $5,000 pure profit. And therefore that indicates one that the sales 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 and bicycles and other things worth $50,000 because that $50,000 is what the entrepreneurs will bid for those resources. 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 the entrepreneurs anticipate that 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? The incentive doesn't exist alone, okay? The calculation is the key, right? So they will not produce that good. Not only that, you know, 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 impact better. But now we have fiberglass bumpers. Why don't we have fiberglass bumpers? Because even though fiberglass bumpers are, you know, less, stand up less well under impact and crack and so on, calculation, the calculation is such that it's worth paying less for the fiberglass bumper and taking a slightly lower price for the car than it is for paying for a steel bumper. That is people 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 seat and the seats, okay? So an airline will calculate that. An extra inch of room will allow me to charge $10 more for each seat in the airplane, okay? But on the other hand, it will remove two rows of seats and then cause me to have fewer consumers, you know, paying prices for a particular flight. So bottom line is that even inches of airline, of seat space for people, is subject to calculation, okay? Everything is. Now, are entrepreneurs always right? No, I mean, GM lost tremendous amounts of money back in the 1980s when Japanese cars were introduced and they didn't downsize their cars. They lost billions of dollars as an example, okay? And had the Reagan administration not bailed out the automobile industry by limiting through voluntary export restraints the amount of Japanese cars that were permitted to be exported to the US, you know, Chrysler would have gone out of business and GM would have been a lot smaller and much more efficient, okay? So they make mistakes but the point is they're able to calculate and they are able to realize that the mistakes that they make and then revise their anticipations of the future, okay? Whereas the socialist planner doesn't have 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. I have a friend that I grew up with who actually married a cowboy out, a real cowboy out in Montana, she's from New Jersey and so she moved out to Montana and lived on a ranch and ranch actually had some working oil wells, they discovered oil on the ranch and so on and they were doing very well and so one day she called me up and she says, we're getting a new house. I said, oh, you're moving out of Montana? She says, no, no, no, she says, you know, we're having the house shipped in. I said, really? She said, yeah, so what occurs out there? Because it's like 12 people in Montana, right? So the labor force is tiny. So labor is very, very scarce, you know? And there's a million cows and so on cattle but labor is very scarce, very high. So and transportation costs in Montana is a big state to get a construction crew to come to your property and build you a new house, very, very expensive. It's actually cheaper and this is what she did to have the house built in Nebraska. So she had the house built in a factory in Nebraska, in modular pieces and then shipped on these huge, those huge wide trucks, wide load trucks, shipped 687 miles to Biddle, Montana where she lives. And it was a big five or six bedroom home, huge home that was not actually her home. It was something like her home but it wasn't her home. That's a modular, that was built in pieces that was put together, okay? So it's cheaper then 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 pay for transportation. It's cheaper to do that than to actually have someone come to your property and it's construction crew and build it in the way that we would build it, for example, in northeast or even in the southeast, okay? Where labor is much less scarce. Now, how did people figure that out? How did the entrepreneurs in Nebraska know that people in Montana 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 economic chaos and irrationality because there is no compass. Mises once pointed out that trying to decide how in 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 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? He actually can purposefully go in a certain way and purposefully think that he's gonna achieve his goal of getting out of the desert sooner rather than later, okay? But he has no knowledge of how to do it. If he had a compass, 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 over this. So now let's talk about the four Soviet Union, some of the problems that it ran into. Production of Soviet Union was done through gross output planning. That is that each industry was given a target 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 be produced, how many chandeliers of a certain size had to be produced. Well, when you have that kind of planning and ghost plan is the name of the agent, it was the name of the agency, the central planning agency in the Soviet Union. It's very difficult to specify the qualities and varieties of the product. And so we had situations where women in the Soviet Union were constantly, 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 cloth made into women's dresses. Also children's clothing was in scarce supply. You had a lot of big people's clothing and adult clothing being produced. In the case of agriculture, there was a famine in the 1980s 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 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 producing the steel and the tractors that were then rusting in the fields. So it was chaotic. There was also a shortage of housing but there were a lot of buildings that were standing empty with no roofs on them. And the reason was because the firms producing nails would only produce very large nails because nails were specified in the target for the amount of nails you had to produce were specified in terms of tons. So small roofing nails were not produced in sufficient number. And so it's a case of mutual lying. The managers of the firms will tell their industry ministers, well, we can only produce X tons of nails or whatever it might be. And they're low-boiling, right? They're saying they can actually produce fewer because they know that the managers or rather the ministers will tell them whatever they say will increase that by 20%, 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 reduce, so information to the extent that it did exist flowing between different firms and the managers and so on was all based on lies. And here's an interesting cartoon which I look for for a long time. That's the famous Soviet nail cartoon. And so that's the manager of the firm telling the minister of the industry, well, I've come right, I've met my quota, okay? And also another famous story was that of Khrushchev, the Soviet dictator, in 1956 in the UN, 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 West, he said, we will bury you. And he was talking about economics. He meant that we're going to out-produce you, we're going to bury you. And so the Soviet economists when we were talking to their Western colleagues said, yes, we're going to bury you economically and the whole world will be socialist, but not Hong Kong. We're going to leave Hong Kong so we can see the prices because as I was showing in a moment, how did the Soviet Union actually last for 75 years? Was Mises wrong? Was it really possible? In fact, no, Mises pointed out that a state like the Soviet Union could exist. Before I get to that, one more example. Khrushchev also once gave a speech to the Politburo, sort of the chiefs of the Soviet Union, in which he began to berate the chandelier industry because their chandeliers were so heavy because they were stated in terms of pounds of chandeliers you have to produce, that they were coming down from the Doshes, they were pulling the roofs down on the comrades in the communist party and killing them. People actually were dying from the chandeliers crashing down on dead dinners and so on. So all of these examples went around back in the 1980s. So I just want to talk, just a minute or two. Actually, before I do that, I do want to mention the topic that I was about to talk about before, which, oh yeah, 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 able to, they weren't profit making, let's put it that way, they didn't calculate to make profits, the US post office. But they were able to use the prices of the inputs that they were using because 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 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, they engaged in trade. It sold 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 in the 50s ordered a lot of Sears catalogs, get an idea about how to price things. Also in the Soviet Union, there was a system of bribes in which firms that maybe had too much wood or 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 there were sort of rough prices. And also there's a black market. There's a black market in which money was paid for goods and services in the Soviet Union. Now, none of these prices were right, were really the correct prices. So the Soviet Union was still 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. 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, no, the plans were not permitted to use prices and so prices were abolished. But what happened was that production, just the whole productive system more or less fell apart. And people, I mean, they didn't even have enough fuel during the winter to keep people warm. So people were breaking up their furniture and actually setting it on fire to keep warm and actually then taking it apart to their home apart, okay, their apartments and so on and burning them. And eventually people had to move out of the cities, okay? They were flowing out of the cities into the countryside to forge for food. So socialism kind of threw man back to the primitive times. I mean, so socialism can work among small groups, small household economies, right? But it can't work in an industrial economy. And so the whole thing fell apart. The same thing was true with Paul Pot, the Cambodian dictator in the 1980s, 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 died from starvation. Okay, so I wanna talk a little bit about the social appraisement process. That's a fancy word 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 central player 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 do 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. 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 it to the forecast 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 consumer goods in the past, okay? Even someone like Steven Jobs that came up with the iPhone, he had some idea, there was no iPhone before, but there were other things like it. There were telephones, there were different ways of communicating, so he estimated what consumers would pay to have a mobile phone, a phone which allowed them to speak and then have a smartphone and so on. He had an idea, there were computers, there were phones, and so he came up with these estimated prices. And then he, as one entrepreneur, bid for the factors that he needed. And he estimated that the cost of production would be less than the iPhone. He was right and he made profits, okay? Again, a planner could never really do that, okay? All right, let me just quickly go to the 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's the big deal about calculating? Okay, we'll just calculate in kind. And what they meant by that, it was one particular Marxist Otto Neurad who was sort of an enemy of Mises. He said, well, we can 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, ha ha ha, that's ridiculous. You can't add apples and oranges, okay? The second response, and by the way, Mises really addressed all of these naive responses in his original article, is that we can calculate with labor hours. Labor hours are homogeneous, and so then we can just add up the labor hours for producing different goods, and we can see what the costs of production are. Well, labor hours are not homogeneous. Genius, okay? In fact, we know that the quality of a labor hour of someone who's a cashier at McDonald's differs from that of someone who's a software engineer or brain surgeon, or even take the same profession. Okay, the quality of labor that put forth by, let's say, LeBron James is much higher quality, much more valuable than the quality of the 12th man sitting at the end of the bench on an MBA team, okay? And also, of course, it leaves out the fact that capital 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, the socials kept with another solution, and that was, let's just tell the managers 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 for the past few years, okay? Just do the same thing, okay? If they can do it on the capitalism, we can do it on their socialism. And 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 natural resources, or actually discover totally different kinds of natural resources, and that consumer value scales or 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 capital goods wear out, they should be replaced with better and different capital goods. In fact, you're just doing the same thing, and it's becoming less and less reflective of what should be produced in the economy, and therefore much more chaotic and wasteful, okay? And last, I'll just get, because I'm running out of time here. There were much more sophisticated responses, and that came forth in the 1930s, which were produced by neoclassically trained economists, mainly British and American economists, okay? And Hayek and Lionel Robbins responded to them and basically said, well, yes, these theoretically these solutions could work, but they wouldn't really be practical. And then, but Mises responded in a much more incisive way. Mises said, look, all of these solutions, having a socialist 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 try to earn profits, whereas in fact, we want creative destruction in Schumpeter's terms, okay? The actual economy is an entrepreneurial economy in which new firms are created, all firms must be destroyed, labor is moved into new occupations and professions, so it misses the whole point of a dynamic economy, okay? I'll stop there, thank you.