 Your next chapter is Robinson Crusoe Economics and so Robinson Crusoe is a fictional character, someone who was shipwrecked on an island and for a long period of time was completely alone on this island. Why is considering such a person like that helpful to starting out your process of economic reasoning? Well, what Mises does in human action is he, the first part of the book is devoted to just action per se. So what can we say about action in any setting, you know, the nature of purposeful behavior itself and there's certain things that flow from it and that's a lot of what we covered in Lessons for the Uncondoms in the earlier chapters and so here, you know, a lot of people historically have used Robinson Crusoe, I mean, Mises doesn't go into it himself but Bombaver does it and other people do it just to show that, look, there's a lot you can do in terms of the trade-offs involved and capital accumulation. So in that book, this is things like, okay, well, you're hungry and you see coconuts and you know with your bare hands, your raw labor power, you can collect so many coconuts per hour but then you realize that after a few days, you know, I'm literally living hand to mouth, this isn't good, in the long run, what can I do to improve my situation and so they say, oh, well, what if I went and got some sticks and some vines and assembled a long pole that I could use to knock coconuts down and so then augmented with what's now a capital good that I've created out of the raw gifts from nature, I can now augment my labor power. Now my physical productivity per hour, how many coconuts I can get per hour of my time is much higher if I'm using this capital good and so even you start going down that train of thought and you just start understanding the trade-offs involved and things like the difference between a consumer good and a capital good and saving and investment and so on, you just get those raw concepts under your belt and there's a lot you can do even just with one individual who's in a world of scarcity and has preferences and reason and chooses means to achieve ends. There's a lot of economic concepts that you can talk about even in that setting and also I've just gotten feedback from people saying that younger people for whatever reason, they really love that chapter that, you know, one guy said just because, you know, kids are kind of self-centered naturally and so they're just reading the story about, yeah, I'm alone on an island and I got, I got fish and I got coconuts and I got predators and I got to do something that for whatever reason that's and just like why was Robinson Crusoe itself a fun book and why I was so popular or the modern version people have seen that Tom Hanks movie cast away and that was a phenomenal part of the movie. It was fascinating just to see some guy by himself on an island. When you describe it, you might sound boring but no, it was fascinating and that's, so that's what I tried. That's the pedagogical reason for casting this discussion in terms of Robinson Crusoe is that it's, it's, you know, more entertaining. It's readable if you're following some fictitious guy around and trying to see what's he going to do. So in the classic book, Robinson Crusoe by Daniel Defoe, later on Robinson Crusoe does get a companion on the island, a native named Friday and, and so that is a big step in a lot of economists in terms of when they're explaining the basics of economic theory is that they then introduce the Friday character and then you get, you get the possibility of interpersonal action and you get the possibility of, of exchange and other things like violence too. But for these things that you were talking about, like just, just the basic principles of production and capital accumulation and savings that when you're introducing that Friday would kind of just be a distraction at that point, wouldn't he? Right and it's, and that's the thing too that some critics deride so called Robinson Crusoe economics and that's not the real, you know, you economists are so, you know, anti-social and you think everything's individualistic, but, but you're right. The point is, it's just going to, yeah, ultimately we as economists need to be able to explain a modern market economy with billions of people and, you know, millions and millions of different types of consumer goods and so forth, different currencies and everything, boom, bust cycles, but you can't just start on that in day one. You got to build it up from a foundation and so yeah, it, it to the extent that you can explain certain economic concepts like the notion of the trade-off between present consumption versus future consumption and how do you use physical materials to construct capital goods in order to, to employ that trade-off or implement it, those sorts of things, if you can do it with just one person, then start there because then yeah, it just makes it a lot more complicated when you introduce another person. Next, we go into part two, which is called capitalism, the market economy and chapter five, which is the first chapter of this, is called the institution of private property. The subchapters are called society requires rules, capitalism, this is private property, the market economy and free enterprise. Now, in some circles of libertarian circles, private property kind of gets short drift that, that some people think that Austrian economists and, and certain kinds of libertarians that they focus too much on private property and, but Mises said that, said something to the effect that private property is the, is the core of civilization, that the, that the essence of civilization is private property. Why, why did Mises say that? Well, I, for Mises and I've just, I've been reading human action again for working on another project and just every time I read that, it's more and more driven home for me that he, for Mises economic calculation is really essential and that's really sort of the defining moment in what allows civilization to be possible and of course Mises famously argued, you can't have economic calculation without the institutional backdrop of private ownership in the means of production and capital goods and so on and having a stock market, things like that and then the existence of money, you know, commodity that's widely used as a medium of exchange and that, that's what allows for genuine economic calculation of the, so that accountants can look at a business enterprise and say, is this profitable, that outside of private property, such terminology is at best metaphorical and that you, you know, really can't even talk about whether, you know, you had a profitable quarter or not without those institutional prerequisites and so that's, I think probably what Mises had in mind, that you, you can't efficiently allocate resources even in principle without having that, that backdrop. So you need private property. It's not just, oh yeah, that might be good there for, you know, to fix incentives or so forth, but we could have equally imagined some other structure that, no, for Mises, what we talk about as economists really only even makes sense once we move beyond the mere fact of action and we start getting into specific issues of modern economies that that kind of stuff only even makes sense with private property being the backdrop. And you have two polls. You have the idea of a completely free market where private property is 100% observed and then you have socialism where there's absolutely no private property and Mises, like you said, proved that socialism can't work, that you can't have an industrialized economy without profit and loss and you can't, you can't have profit and loss without prices and you can't have prices without exchange and you can't have exchange without property. But then in between those polls as you approach socialism, don't problems start cropping up even before you get there? Sure. And that's what Mises called the interventionist approach or the mixed economy. And so there it's, what ends up happening is if you open up, it's like we're talking about, we're talking about Obamacare before and how you can't just stop with one limited intervention. You can't just say, you know, we don't like the fact that there's millions of uninsured people. Let's just mandate that insurance companies have to give insurance to anybody who applies. The government couldn't stop there because then within the framework of a market, the health insurance companies would respond, you know, in terms of the incentives and so forth. And then it wouldn't be the outcome that the planners envisioned. And so then they would do more and more. And that's what Mises was saying that the nature of the interventionist state, it will not achieve at least what the publicly stated goals of the interventionists are. And so they'll be left, you know, they'll do one thing and then there'll be negative consequences. And then they'll have to say, okay, are we just going to do another intervention or are we going to just withdraw? And so his point was it wasn't a stable middle that it wasn't a viable third alternative because a lot of people would say, oh yeah, everyone agrees socialism, pure socialism doesn't work. We know that. But on the other hand, we just can't tolerate the excessive outcomes of pure unadulterated laissez-faire capitalism is too brutal. And so let's have a third way. And that's what one of Mises' crucial points was. This is to say, no, there is no viable third way that the logic of interventionism, it's not going to be sustainable that the public is either going to support the government moving toward full socialism or they're going to realize hopefully we educate them the error of their ways and it'll push back towards an actual pure market economy. And the definition of moving away from a free market and adding interventions, the definition of intervention is an abrogation of private property, right? Right, yeah. I mean, other people might define it different, but yeah, I think that that's the only proper way to define it is to say that what does it mean when the government intervenes in the economy? It's interfering with what you should be your private property rights. And interestingly, one time apparently Rothbard asked Mises, you know, what's the dividing line between just a mixed economy with a lot of interventions versus just an outright economy? You say that's a socialist system. And Mises said that the existence of a stock market for him was a pretty bright line. And that's, I think, you know, a lot of people might say, oh, how about government spending as a percent of GDP or something? No, Mises, you see the importance of private property there. What is the stock market that is private of individuals owning companies? And that's that really, I mean, that's the essence of capital is if you are an individual and you are in charge of a business enterprise. So, if the government doesn't allow that, then clearly the government is running the economy. If it's saying not even nominally, are you allowed to be the owner of the companies we are? And so in terms of controlling the distribution of capital, clearly the stock market for Mises was an essential element. And just to clarify for what viewers and listeners that the socialism discussion, that won't be until the third course and as well as interventionism, but just we're just talking about it so that we understand the importance of this Chapter Five that's going to be covered in this first course in terms of understanding problems of the market economy and lack of a market economy and a hampered market economy. So the next chapter is direct exchange and barter prices. And so here is where we introduce Friday onto the island. And just to keep things simple, we do have, you could conceivably just think of a situation where Crusoe is Friday's slave and then Friday just takes whatever Crusoe produces, but we're not introducing that yet. Right now we're thinking of Crusoe and Friday or just in your example, with kids with candy bars, right? Yeah. Kids with candy bars that you do have private property. You do have these kids respecting the institution of private property and you don't have a government swooping in and redistributing candy bars or anything like that. And then you go through the logic of what would happen if these kids were allowed to freely exchange and how that can result in prices. Yeah. And that's, I think that's one of the components of this particular course or book that would not be in virtually any other introductory textbook on economics is that we do from the ground up build up price theory and show just using kids' preferences over different combinations of candy bars. And I can show how walking through that this is how they could come up with market prices. In other words, how many Snickers trades for a Milky Way and things like that. And it's good to walk through that because in virtually any other setting, you're not going to get that kind of instruction. So you might not realize just the power of basic economic analysis and how we really can explain prices in the real world and that you don't need to have a PhD in economics. If you're willing just to sit there and read for 20 minutes, me walking you through kids swapping candy bars. So it's very straightforward. And what does it mean for there to be private property in that setting? It just means we assume that at the outset, it's understood this kid starts with these candy bars, that's his property, and then this, you know, his sister starts with her candy bars. And for there to say it's a market just means that any trade has to be voluntary. That it can't be that the mom or dad comes in and says, no, no, you know, you had too much give it to you or that you need to share something. What we mean in this contrived setting for the exchange to be voluntary is that each kid will only agree to an exchange if it allows them to end up at a place that's higher on their preference ranking than where they started. And so I mean, that's something kind of beautiful right there that there can be mutually advantageous trades. The trade is a win-win situation that, you know, both kids can walk away thinking they got the better end of the deal. And it's interesting to think that through because in other areas that's not true. Like both kids can't walk away with the heavier candy bar because, you know, weight is a physical objective characteristic of something. They can't, both kids can't walk away with the candy bars with the most calories. But in each kid's mind, they can walk away with the more valuable candy bar. And that's kind of an interesting aspect of trade that people need to realize and think through if no one's ever pointed out before.