 The topic before me today is development economics the Austrian contribution now The subject of development economics Really is not has has quite a much shorter history than economics in general, right? I mean economics itself is one of the youngest of all the sciences But development economics has a field within the broader field of economics has an even shorter life It really exploded and came into life soon after the end of World War two And it's associated very deeply or with the you know the fact that lots of colonized countries in Asia and Africa Won their independence and you know there was a huge wave of decolonization that occurred I'm starting soon after the end of World War two now There were many forces and groups of people driving this Process by which you know people were getting interested in trying to understand. How would we make and in those days? It was called the underdeveloped parts of the world today. We in more politically correct language called it the developing parts of the world Whatever term you wish to use how do countries that are poorer? How do you get them to be rich right? How do you get them to develop economically now the main? Groups of people interested in these questions of the driving force, you know Making this question more and more prominent within the economics profession was of course first and foremost the economists themselves Right There's this new phenomenon that Countries who were once ruled by colonial powers are now becoming independent and economists started pondering well How what what policies should we? In recommend that these countries as espoused so that they become richer Just the way the West became rich, you know as a result of industrialization and all of those other forces at work also within the Developing countries or the the countries that had just won their independence themselves. There was a lot of interest in this question I'm largely driven by the movements the nationalistic movements that Won the independence in the first place a great example of that is my own country India The the movement to throw the British out of India led by names such as Mahatma Gandhi and Jawaharlal Nehru Individuals you might have heard about that that that movement was itself An intellectual movement. It was a movement where you know people were asking well, how do we rectify the problems with? poverty In in you know in our country, how do we get? India to become like England or the United States or in those days They thought Russia was the Ursula Soviet Union was getting really rich because they believe those GDP numbers Coming out of there. We'll we'll get to that point later and of course there was the whole wave of International organizations that were set up soon after the end of World War two you had the United Nations you had You know the WTO in an earlier format And and lots of economists who were there were also interested in these questions now It's unfortunate that these questions rose to prominence at a time when the Austrian school Was at its probably the lowest point in its intellectual history, right? I mean you had very few important or prominent economists who were Austrian and who were prominent in intellectual life, of course Mises was alive and hike or alive, but they didn't hold You know the prominence that they did before I mean as a school It was probably at its lowest point in the 40s and 50s I mean that's when these questions really started becoming important So in a way when economists started theorizing about these questions in the 50s and 60s Lots of insights that the Austrian school of thought could have offered, you know We're not incorporated into those theories. And so in a sense my lecture is sort of trying to Give a background as well as give a short exposition of those insights, right? What what what insights from the Austrian school or various Theories of the or different parts of the Austrian edifice that you've been you know imbibing through the week How could they shed some light on this question of you know, what do you do? To make countries develop or to get them to be rich, right? Now of course the key question here as you notice or the key subject being being discussed is that of economic growth Right, so economic development or development economics first and foremost has to deal with the problem of economic growth Which is how and by economic growth one I define that not just as mere increases in the levels of output But as increases in standards of living so increases in the the range the variety the quantity and the quality Of consumer goods available. So ultimately growth is about improved consumption improved living standards So for example, you might think or you can do an intellectual exercise of you know comparing the average consumption basket You know of an American average American today and compare that to say 1850 or compare that to 1900, right? That's basket looks a lot different today than it did then more goods better goods, right? The same goods with better quality And and that's what we're talking about when we're talking about economic growth, right? So the question that the central question that development economics has to answer is well How can you get countries that are poorer, right in terms of consumption to the standards of The United States and the West, right? And that's the core aspect of the subject that I will be discussing today Now I should not to be I should prefer you know before I get into the core of my lecture I should note that some aspects that ocean economists especially recently have discussed with respect to development I will not be covering so for example, there is a huge literature Some of you might be aware of it on the institutional structure Undergirding growth, especially the origin of institutions. So for example, if we will discuss Aspects of what sort of institutions are important for economic growth to take place? But of a recently led especially by a professor bedkey many economists in the Austrian tradition have been asking the question of well How do these institutions which? We know are needed for growth to take place. How do they arise right? How are they? How do they come about? Can you for example? Impose them from the outside like say the World Bank tries to do or the IMF tries to do in developing countries If not, what are the you know underlying forces that cause a private property rights and the rule of law to emerge? Now these are fascinating questions, but unfortunately, I won't get into those in this lecture I will be focused more on the core economic insights that Austrian economics can offer for growth Now to just understand the magnitude of what we're talking about and how important it is This is a quote by Robert Lucas who was the father of the rational expectations revolution in macroeconomics He's talking about in a paper. He wrote about growth and economic development He says I do not see how one can look at figures like those of GDP growth without seeing them as representing possibilities Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia's or Egypt's? If so what exactly if not, what did what is it about the nature of India that makes it so? The consequences for human welfare involved in questions like these are simply staggering once one starts to think about them It is hard to think about anything else. And of course, you know, if you start thinking about this you agree with Lucas So just think about how the standard of living even today of the average person in America is so much greater than The standards of living of the richest king or queen in Europe say three centuries ago Well, how did that happen right? What are the forces making? You know that possible? That's a fascinating question and affects so many millions of people In fact, even today there are parts of the world where if you want to get a picture of how Europe looked in the medieval era You can go to parts of India. You can go to parts of Russia You can go to parts of Africa and you will get a picture of exactly what life was like In medieval Europe or even early modern Europe, right? So it's still this this question if you know We can we can get some consensus on it and understand it affects millions and millions of lives all over the globe even today So before I get to the core of what Austrian economics or the school You know of Austrian economic thought has to offer on these subjects Let's step back a bit and let's you know engage in some an analysis of an imaginary construct, which is you know Analyzing the world of Robinson Crusoe. You might have already encountered it this week It's a neat analytical device simply because we cut out interactions between people We simplify and we get to the heart of the interaction between man and his environment and how that's relevant For economics, it's especially important in the field of economic growth as we will see Right now if you some of you might not have heard of Robinson Crusoe You might think of it more as Tom Hanks and that boring movie cast away, you know, feel free to do that I usually say that to my students in class You know, I was forced to sit through that movie. I hope you weren't So let's say Robinson Crusoe stranded on an island and he knows how to produce two goods Say fish and berries now Let's say that the met the production methods he adopts a very rudimentary So, you know, he just wades into the ocean and catches fish and climbs trees to gather berries Now, of course his productivity is really low He acquires a very small bundle of goods for the time that he devotes to production So his amount of a fish or berries per labor hour or per hour worked is going to be really low So the real question is that that kind of sums up the real heart of economic growth or the questions We try to answer there is how can Robinson acquire a larger bundle of consumption consumer goods, right? How can he become more productive? How can he get more? goods that he can consume now You might have seen this Graph here. This is the production possibilities frontier. I'm sure lots of you are familiar with it You know, you count the units of one good on the y-axis unit of the units of the other good and the x-axis And what the the graph shows you is in all the combinations of goods on the line are The ones where you're making the best and most efficient use of your resources anything that lies outside the frontier, right? It's unattainable given the underlying Production possibilities. So really the question that we're trying to answer is how can Robinson push his PPF out, right? How can he acquire points like N? You know on the left on the graph on the left How can you acquire points on like N which lie outside his PPF as of today, right? Now one Obvious way is for him to work harder. That's what maybe he was working 10 hours He should work 14 hours, right? Don't change the methods. Just work harder spend less time talking to your volleyball, right and and spend more time and dancing around Bonfire and all of that stuff and instead work harder But of course, this is still on relatively unproductive, right? Of course, he can be economy can grow this way, but and this is one engine of growth, but nevertheless He's still using the same rudimentary methods, right? So so let's ask the other question, which is How can he push his PPF out by becoming more productive, right? In other words, how can he push his PPF out not just by working more hours? But by being more efficient in what he does so that he gets more fish and more berries for our work as Compared to before now, of course the first step for this to happen is he has to have ideas He has to know of methods that actually will if adopted yield him higher, you know productivity, right? So this is where you know what economists call technology or techniques of production comes into play, right? You have to know say he might know that if I construct a raft and a net I can, you know Strike out to deeper waters. I can cast my net there and I can spend the same amount of time fishing But I will get more fish for our work, right? So he knows of a better technique or better technology than he's the one he's adopting right now Similarly, he could think that he might know that well if I just shape, you know a stick In a long enough, I can just shake the berries off the tree. I don't need to climb up. That will make me more productive, right? But when you try to adopt better technology, you have to You know, you have to actually put your ideas into action, right? And for that you need resources Right, so so when if you if Robinson for example wants to switch from producing You know fish by wading into the ocean with his bare hands and instead wants to switch over into actually producing into using a raft and a net he has to Use resources in order to produce the raft in the net and then he'll be able to fish longer, right? now These goods like the raft and the net and the stick are capital goods Again a term I'm sure you're familiar with Defined as the produced factors of production. So labor for example is not a produced factor of production It's given endowed by nature to Robinson But the the raft in the net or the stick are capital goods, right? So he's produced them and then he's going to employ them not if he's not going to consume these goods He's going to employ them in further production. So they're produced factors of production Now the key to many of the the insights that the Austrian school has to offer on economic growth is to ponder The costs and benefits and the trade-offs involved in moving from a less productive Process to a more productive process, right? So let's think a little deeper about what all are the costs and benefits involved in Robinson say Moving from fishing with his bare hands to fishing with a raft in the net, right? As we discussed he was going to have to devote Some amount of his resources to producing the raft in the net first, right? Now assuming he doesn't work longer or he doesn't decide at the same time to work longer hours So assuming he has the same number of hours as before you can see straight away that First and foremost moving from fishing with his bare hands to producing a raft in the net involves an inter-temporal choice right When he begins producing the raft in the net the fish the consumer goods lies further away in the future as Compared to when he would just wade into the ocean right and fish with his bare hands Right so in taking time away from fishing with his bare hands and devoting it to producing, you know The raft in the net he is therefore Essentially making an inter-temporal choice in other words. He is giving up consumption today Right or he's reducing his consumption below the maximum level that it could attain today and instead He is shooting for what he believes will yield him greater consumption in the future, right? So he's trading off present consumption for future consumption, right now this process of reducing consumption in the present Allocating resources towards some production process and then getting more consumption in the future right with the goal of getting more consumption in the future we Use the term saving and investing right to describe this process So saving refers to the reduction of consumption below its maximum investing or investment refers to the actual use of resources to produce or to You know Obtain the higher consumption in the more distant future, right? You will notice that there is a That adopting the more productive process is necessarily more time consuming that according to the, you know, one of the great insights of Oregon one Bombay work is one of the sort of givens in our environment, right? We always face the possibility of trading off a shorter less productive production process for a longer more productive Production process right but that involves saving and investing and in fact if you do not save then you cannot release the resources needed to Put into that longer more time-consuming process, right? So this is a different way of pushing the PPF out and it's a way that involves him being more efficient Not just working harder right at the same old methods now Carl Manger the founder of the Austrian school Came up with or devised, you know a sort of classification for Various goods that can be used to satisfy human wants again I'm sure you're familiar with this the the orders of goods that the consumer goods are the first order goods Producer goods are what he called the higher order goods, but those hired order goods themselves can be You know broken up into second third fourth and fifth order of goods and so so on so for example The labor that Robinson uses to produce the fish by wading into the ocean that labor is a second order good The fish is a first order or consumer good when he produces the raft in the net The labor used to produce the raft and net is a third order good the raft in the net itself is a second order good And the fish is a first order right so Manger's insight was to not just classify goods into consumer and producer goods, but to classify goods into first order goods and the producer goods to sort of Do the homogenize them into an array of different orders of goods what this helps us see is the Temporal connection between something we do today in the production sphere and the consumption that we expect to receive in the future Right so the higher the order of good that you are engaged in producing the longer the Period of production or the longer the time that is going to need to elapse between the time when you produce that good and The time when your first order good or the consumer good right comes to be right and so you can consume all right and In a sense this gives us a really good typology and a classificate a classificatory device to Help us understand this point that I just made which is the point of inter temporal decision-making saving investing giving up a less You know a shorter production process for a more time-consuming excuse me a longer production process, right? Manger himself I'll get to that next slide before that. Let me note that In a sense economic growth can be thought of as consistent lengthening of the production structure right consistent Or one big force making for economic growth along with the fact that you could work harder at the same methods Is the adoption of techniques that involve more time right looking forward into the future? You have to you're shooting for consumption greater consumption in the more distant future You're giving up consumption in the more near future in the present All right, and but in doing so you're lengthening the production structure of your economy in the in Robinson's case or in You know Tom Hanks's case. It's a very rudimentary economy, right? But in in a modern economy, of course, there are many many many decisions made in many different production processes that can lead to such growth Now Manger had a great has a great quote which sort of sums up How you know this this process of growth? He says the sumo people which extends its attention to goods of third fourth and higher orders Instead of confining its activity merely to the tasks of a primitive collecting economy That is to the acquisition of naturally available goods of the lowest order We shall see the hunter who initially pursues game with a club turning to hunting with bow and hunting net To stock farming of the simplest kind and in sequence to ever more intensive farms forms of stock farming We shall see men living initially on wild plants turning to ever more intensive forms of agriculture We shall see the rise of manufacturers and their improvement by means of tools and machines And in the closest connection with these developments, we shall see the welfare of this people increase So in other words a key Austrian insight is that the heart of economic growth lies in consistent Lengthening of the production structure and that involves Continuous saving and investing right sacrifice of the present in order to get more in the future Now digging a bit more into into this Let's not think not of one Robinson, but many different robins I already think of like a whatever survivor island series where you have different islands and different guys, right? You have a helicopter. You see one guy is lazy, right? He or he he's a you know He's really present-oriented. He only wants to do things for the present. He doesn't care about the future. Well, you know He will have a relatively underdeveloped economy, right? He will still be Talking to his volleyball a lot, right? He will still be dancing around the fire a lot He will still be looking at the stars a lot. He's not really going to have a house. He's not gonna have a lot of fish He's not gonna have plenty of berries Maybe he won't have any meat because he wouldn't have constructed bow and arrows, etc. On the other hand a Robinson who Is rich right is a guy who has saved and invested a lot in the past. He's already done that He's lengthened the structure of production in the past and today he the fruit of that is the capital goods that he has with him that he Can then utilize, you know, he has a raft and a net. He has a set of bow and arrows. He has a stick He has a home, right? Now, of course, you will notice that once you see that it's saving and investing and the lengthening of the structure of production that allows you to Grow and become richer in this way that there is a virtuous cycle involved The richer Robinson will now be able to save more and be able to devote a larger part of his overall Time to producing more capital goods because his flow of consumer goods is now going to be much larger because of the saving and investing He's done in the past, right? So if he so desires, of course, he could at some point just completely give it all in You know, he saved an investor a lot in the past. He puts his feet up and says that's it, you know, that I'm done Right, I'm just gonna enjoy whatever the fruit of my past labor are now, of course capital goods depreciate So soon he'll be poor again, right? But assuming he's not that kind of guy. He remains thrifty He remains future oriented. He's able to do more the richer. He is So another feature of a developed economy is that you a large share of Labor time or a large proportion of labor time or larger and larger proportions are devoted to Producing goods that will only, you know, of very high order which will only result in consumer goods well well into the future Right, so it's a virtuous process involves a growth is a sort of a virtuous process the more you produce capital goods The more you lengthen your structure production the more consumption possibilities you have therefore the more Possibility for you to reallocate resources from the present to the more distant future, right and so on and so forth. Okay Now to give you an idea and I hope most of you can see this I pulled There's a great paper written by the Indian economist Sudha Shannoi who was one of the few Development economists who you know was very very Austrian or really use the insights of the Austrian Theory of growth that I just briefly elaborated upon now in a paper Titled investment chains through history She what she did was she was primarily an economic historian So what she did was she went and she actually looked at the production structures of different economies of different Levels of development or different levels of growth and consumer welfare, right and to see well How would an economy with like a short sort of not not not very long production processes being employed How would that look and can we compare that to like a developed economy of today? Which of course is very hard to do because the production processes for any good In a developed economy like today are extremely complex. You have many capital goods and you have many You know different steps involved before consumer goods finally clear So this is for garments being produced in upper Paleolithic Europe And as you can see, you know if you look at the the sort of capital goods involved and and how time consuming the Production that their production must have been in the past as well as the number of capital goods involved the number of stages of production Of the steps involved It's it doesn't look that complex, you know, you still have you know stone tools, you know, you have Bones which have been shaped into butchering, etc. Very rudimentary right now don't really require a lot of time consuming production activity We could on the other hand look at Millet porridge production in Mali in the late 20th century, of course, this is a very You know poor economy, but it's in the late 20th century But it's richer than upper Paleolithic Europe or has more sophisticated production processes than upper Paleolithic Europe and you can see already There are more capital goods involved more stages more complex production processes, right? So you have things like coal charcoal You know you have wood many many Goods with wood you have aluminum vessels You know things which require more time consuming production processes, which is so this is like this this Robinson is a little richer than the other Robinson, right? Or of course you could come to cotton garments being produced in a developing country in the late 20th century And this is just a segment of a much longer You know All the goods are listed in the paper you can you can take a look but you can see already. I mean this is there are many more capital goods of You know kind of proving the basic point of the core inside of the Austrian theory of growth. So one big conclusion we can draw then is that the the act of saving or reducing consumption below its maximum in the present is the same one on or the absolute Necessary precondition for any economic growth to take place and All extensions to the production structure require more savings moreover the maintenance of the existing capital goods also require persistent saving so Robinson will have to You know take away time from consuming in order to maintain his raft and net in order to maintain His bow and arrow, right or even to replace them, right? Replacing capital goods as a depreciate is also a very important aspect of keeping up the levels of all the standards of well-being In any economy and and this point is summed up well in a quote by Rothbard and he's talking about and some some modern growth theorists Take place a lot of emphasis on technology To the exclusion of savings Rothbard is saying that well what is lacking in these developing countries is not knowledge of Western technological methods That is learned easily enough the service of imparting knowledge in person or in book form can be paid for readily What is lacking is the supply of saved capital needed to put the advanced methods into effect? The African peasant will gain little from looking at pictures of American tractors What he lacks is the saved capital needed to purchase them that is the important limit on his investment and on his production Right so now let's think a little bit more about the institutional structure needed I'm a what can we say about the institutional structure needed for economic growth to take place? Now you will notice that any process of growth even in a poor economy like Robinsons involves a real transformation of his capital structure right so as he lengthens his production You know his the production processes in his economy He's going to transform the capital goods that exist right some of the capital goods He might not replace anymore or he's going to add to the capital goods that existed before right so growth So if you take snap a snapshot of a poor Robinsons economy and a rich Robinsons economy you're going to see a very different what Austrian economists call us Capital structure a very different structure of capital goods in these two, you know different levels You know different economies of these rich and poor guys now and the transition from a poor to a rich state involves these sort of transformations or a series of transformations of The capital structure so for example when he decides to allocate an hour of labor time From fishing with his bare hands of production of raft and a net that's going to change his capital structure now Each step in this transformation involves Robinsons to make a decision. He has to make a choice He has to say yes the the the costs of doing so are lower than the expected benefits, right? So in other words when he for example takes an hour away from fishing with his bare hands to producing the wrap in the net He he has to make it. That's an allocative decision. He's making a decision and saying I will take less fish now But I will take X number of extra fish in the future and that makes this Decision to take resources away from this process to that process worth it, right? So in any decision to allocate producer goods you need to be able to compare costs and benefits, right? Which and the costs and benefits must always ultimately lie in consumer goods So if you're thinking about allocating an hour here or an hour there you're ultimately deciding on the basis of well How much of what consumer good am I going to lose my cost my opportunity cost and how much of my of what? Good am I going to gain my marginal benefit, right? So you have to be able to isolate these costs and benefits in order to make such a decision now and this is what we call economic calculation, right? So the the the decisions of Robinson Crusoe to Engage in this process of growth to save and invest and transform his capital structure involves Economic calculation on his part on other words. He has to calculate the costs and benefits involved in any such decision on how to allocate his resources now There are some characteristics or features of his economy which make economic calculation Easy relatively, right? So for example his production structure that the production processes in his economy are short They're not too many capital goods involved There are not too many steps that lie between a certain allocation of labor and the consumer goods that will arise right in the future So for example if he's deciding whether to sacrifice fish now in the form of you know fishing with his bare hands versus Fishing you know devoting that time to producing the raft in the net he can easily isolate the costs and benefits involved he can survey the production processes involved and he can isolate okay This is how much fish i'm going to lose in the present. This is how much fish i'm going to gain in the future Right and similarly you can think of other such decisions He might make he might make a decision say to take away an hour From fishing today and devote it instead to constructing a house right once again He can easily see or perceive in his mind the benefits and costs in terms of consumer goods Associated with this you know decision to allocate resource so then therefore he can make a rational decision He can make a meaningful decision, right? That's what we mean when we talk about economic calculation that precedes Choice or or any decision of allocation? now You even once we move away from the simple economy of robins and crucian move to a more modern Complex economy there are some things that stay the same but there are some aspects of this process that are different, right? So even in a modern economy The process of growth involves a radical transformation of the capital structure, right? So so for example a poor economy people will be you know Will be spinning cloth with the you know with some rudimentary machine that you have to use your hands with Right or in a modern economy on the other hand you'll see that being done with automated machinery in a poor economy Someone will be you know whipping his you know the ox or the cow to plow the land But in a modern economy you'll be sitting you know happily in instructor, right? So you can see again if you take a snapshot of a poor versus a rich modern complex economy You see a very different sort of capital structure. So again growth involves transformations and capital structures even in a modern economy but This process now becomes much more complex you have many many more production processes You have some of them very very long, right? Many many capital goods must be produced before your consumer good finally comes to be, right? and because of that Economic calculation is no longer possible, right? The way Robinson was engaging in it in a modern so for example And this of course cuts to the heart of something again, which I'm sure you you've learned already this week the calculation debate And Mises is argument about how calculation is not possible in a socialist economy To understand this point think of the difference between Robinson making that decision in that simple economy and say The czar of you know socialist economy who's deciding whether or not he should allocate say a ton of coal To producing more electricity, right or to say producing more steel Right now in order to do that just the way Robinson had to do he had to he in his mind He has to isolate the cost and benefits and will he has to be able to trace through and say if I devote this ton of coal to producing electricity this is the Consumer goods that I will get at the end of you know a very long process with many steps Right many interconnected production possibilities involved there, right? And on the other hand you have to do the same thing for the steel now Of course you can see that this is not going to be possible for any You know normal human being to do who's not who doesn't was not blessed with superhuman powers, right? So because of that one comes to another very important conclusion again that Austrian economics has for growth Saving and investing is very important for growth But that for that saving and investing to actually make any difference to people's lives in terms of their in their roles as Consumers in the economic system. You have to have the right institutional structure, right? Now, how do you get the answer to what the right institutional structure is simply because If you cannot engage in economic calculation in this complicated setting the way Robinson did so you you cannot just compare in kind Right, you know this consumer goods versus that consumer is what I'm gaining or losing, right? You need a common denominator to be able to engage in economic calculation And that's produced by money prices and private property in the factors of production, right? So Given these institutional conditions The growth process will actually be driven by private entrepreneurs, right? It's a private entrepreneurs guided by money prices, right engage in their economic calculation That costs will be so much money lost their benefit will be so much money gained. They do not need to Think about what the final consumer goods gained and lost are they don't need to engage in that Process which intellectual process which is our of the of a Soviet economy would have to engage in right? So they their decision is simplified, but also they get a common denominator because you know if you otherwise they wouldn't be able to compare say Atta so much electricity versus so much coal versus so much steel, right? So if you're allocating a ton of coal You can if you can somehow magically know the consumer goods that are contingent upon so much electricity versus so much steel You can make a decision But if the production processes are so complex that you can't isolate those costs and benefits Well, what do you how do you make a judgment about electricity versus steel? They're not consumer goods, right? They have no Relevance to your satisfaction. You can't say I prefer this to that But if you do have a common denominator like money, right? You can make such a judgment Right, and that's that's the key point that me this is making in his arguments about economic calculation Now of course in the in a market system You have private entrepreneurs calculating using money prices and of course the profit loss system rewards those who cater to Consumers wants and a punishes those who do not on the other hand, however I've already discussed this when you don't have these prices. You don't have the profit loss system this sort of Economic allocation becomes impossible. And so making any meaningful decisions in the growth process become impossible now, let's try to Look at some of the implications of this for You know and try to make it relevant to some of the experiences We've had in the 20th century with respect to growth, right and experiments Conducted, you know various socialist experiments construct conducted in different countries now What happens of course is that if you cannot if private entrepreneurs aren't there? You know if on the other hand these markets are suppressed these decisions are still made on some there's still some decision criteria Going into them, but it hasn't have any relationship to the preferences of consumers instead. It's just political whims and fancies, right? You have a Different interest groups you have, you know all the different machinations of power emerge in this context now What such a system is characterized by therefore is a rampant? Malinvestment of the existing capital goods, right first and foremost and also the whole saving and investing process doesn't really produce anything Right, it's like Milton Friedman once, you know when he went to India in the 50s He had a great line he looked at all the dams and all the big factories being constructed and he said yeah They're like the pyramids, you know, they're like they're like the modern monuments They they're not going to actually result in anything, right? in terms of consumer goods, right and Why because they're conducted in an environment where economic calculation is highly highly impaired if not impossible And you have the state making these decisions the same would apply to the Soviet Union and other countries now it's important to note that GDP can grow When these decisions are made due to political, you know by those in power in a highly controlled or socialist economy, right? There will be in production of capital goods in the short run, right? There will be a more that you can have increases in output Except that those increases in output will not lead to any increases in what matters which is consumables, right? It's like it just gets lost in the process Actually, you'll have factories coming up. You'll have dams coming up You'll have all this stuff, but the average consumer is still going to be dirt poor All right, simply because of the impossible because of the lack of economic calculation possible and therefore What happens is that in such an economy once you have the the onset of socialism you have an increased GDP growth But that's that's a result of the consumption of the capital goods in the past It's almost like Robinson decides, you know what I'm going to use the existing goods I have right and maybe assume that those goods can be used to produce other capital goods So, you know, he has some coal. He has some steel He has all these things that he can use to produce other capital goods but I'm just going to produce them without any care or Consideration for my consumer welfare and about my wants about my needs So I can produce a lot of stuff, but I'm not at the end of that process There's going to be nothing there for me to consume So what I've done is I've taken goods that were capital goods and that were you know Assuming that at some point the socialist era began and before that you had the market-based era You know, you had resources aligned to consumer preferences through the the the actions of private entrepreneurs, right? And then you had the socialist government coming in you Malinvested and consumed all the capital all the savings all the investment of the past and in the process you you produce a new structure of Capital which doesn't have any bearing or any sort of relationship to consumer preferences Right, so you have mal investment and you might have increased GDP growth in the short run But ultimately you will you'll not have much improvements in the way growth actually matters, which is Increased consumer welfare now a perfect example of this of course is Venezuela For example, Joseph Stiglitz went to Venezuela a few years ago and he said oh the economic growth looks pretty impressive, right? Except now you have, you know people killing Dogs and cats in the streets trying to you know make ends meet because they wanted they want to eat you don't have any You know goods on the on the grocery shelves, you know in the supermarkets people are flooding You know moving running across the border to try to get essentials Of course, we've seen this before we've seen this in the Soviet Union We've seen this in India as well when you know India engage in a huge amount of Doing the socialist era So this is the but but this intellectual structure that the Austrian school has given us helps us to understand what's going on here Right. Yes, you do have more production. Yes, you do You know a lot of that production does go in to new capital goods But that doesn't result in any improved consumer well-being Not to you know, I've done some research on India on these points And I'll have to skip through some of the slides here because I'm running out of time But I want to get through the main You know some of the data on what actually went on so India had its you know Real peak socialist phase in the 50s and 60s a lot of it Ironically guided by the development economists who you know came on the same then Who said well you have to do a lot of saving and investing if you want to rapidly grow you have to save and invest a lot But you know state has to guide everything it all has to be state-driven And that's what you know India did and what you can see here For example the difference in the production in a rate of growth of output over the decade of 55 to 65 In the capital goods and basic industries like again the capital goods really Versus the different consumer goods whether agricultural non-agriculture, right But you also see stagnation of living standards. So for example the per capita Availability of food grain or of caught did not significantly improve in the 50s or 60s But importantly didn't improve later as well in 70s or 80s or you know India was still very very poor even in the 90s It's not like India was super rich because of this investment made in the 50s and 60s. So what happens then is Something like this if you go back to your PPF now In a country like India the logic is reduce, you know take away resources from agriculture Right and invest them in longer production processes in industrial production. Let's let's make Factories to make steel and let's make factories to make heavy-duty machinery and all that stuff And the logic of it is that afterwards you should get a point outside a PPF But what happens is the PPF collapses? Right and that's what happens when you have mal-investment and capital consumption of the existing resources right and Again, we see the two main lessons you know that that come out of the work of the Austrian school is helping understand this process So my time is up now, so I will stop. Thank you