← The Human Action Podcast
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This is the Human Action Podcast, where
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we debunk the economic, political, and even cultural myths of the days.
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Here's your host, Dr. Bob Murphy.
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Jonathan, welcome back to the Human Action Podcast.
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Hey, Bob, thanks for having me back.
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B
Sure thing. So today we're going to be talking about socialism, folks, and we are against it. Spoiler alert. But I wanted to. It's going to be in the context of the course you did tied to my book, the Lessons for the Young Economist. So can you just. For folks that wasn't on their radar, particularly homeschooling parents, can you just explain what that is?
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Yeah. So the Mises Institute has a ton of stuff online. We've got articles that go up every day. We've got this huge library of PDFs that you can read online. You can look at old videos from past Mises universities and other events. So we have just tons of stuff online. But one, a great section of our website that maybe doesn't have as much attention is the Mises Academy, where we actually have courses that are available for people to take. And there's courses from people like Peter Klein, Joe Salerno, David Gordon, Patrick Newman as well. And one of our more recent courses that we've added is one that I did for the high school level. The idea was to provide something for homeschooling families, and it's based on your textbook, Lessons for the Young Economist. And it's a great. It goes chapter by chapter. I just gave some lectures based on each chapter in your textbook, and the goal was again, to provide something that homeschool families could adopt to teach economics to their students. One reason why it's good to keep promoting this is because we actually have a few more courses in the works. Dr. Larson Plyler has recently recorded some lectures for an early US History course that's also at the high school level. And also we're talking with Joshua Mohorder about doing a. A US Government course. And so once we get all three of those, we'll have like a complete package of courses on the Mises Academy for Economics, government and. And US History for homeschooling families.
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B
Yeah, so thanks again for doing that, Jonathan. So, folks, remember, lessons for the younger comps, as with everything that Misenhu publishes, you can just get the PDF version if you want, or you can get a physical one as well. And also, don't miss, I wrote a teacher's manual for that same volume that has things like quizzes and games you can play with the kids or whatever, tailored to each topic, of course. So make sure you check all that stuff out there. A lot of free material up there to help homeschooling parents. Okay, so back to the discussion at hand. Jonathan, we're talking about socialism, so maybe I'll turn the floor over to you that when you're. When you were preparing to do your lecture on this topic for the late junior high, high school audience, how did you proceed?
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Well, in your textbook, you've got two chapters dedicated to socialism and command economies. And so the first chapter is on the theoretical issues with socialism, and the second one was on the history of socialism. What actually happened when people tried to put socialism into practice. And I really like the way that you did it in your textbook. So I stayed pretty close to the text. And what you did in your textbook is first you talked about the incentive problem. That that's the most common critique of socialism that people talk about. I mean, they might like, you know, free markets and somebody proposes socialism. And so, like, the common retort is, well, who would take out the trash? Who would do the dirty and dangerous jobs? Who would be incentivized to go to extra years to learn how to do brain surgery or something? If everybody's going to get paid the same, if we're all going to consume the same set of consumption goods, no matter what job we do, no matter what sort of training we get, then how would people be incentive to do the things that other people might not want to do? Which is a good critique of socialism, as far as it goes. That is. That is a problem. However, the way that the socialists respond to this is they say, well, once we implement socialism, there will be a new socialist man. Human nature itself will change, such that everybody would be willing to do what's best for the community, that people won't be motivated by these selfish desires to do the least amount of work, to get the most amount of consumption, to have the highest standard of living. And so.
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Can I stop you, Jonathan? Really?
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Oh, sure, yeah, go ahead.
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Yeah, on that point, just that I looked historically and Mises quotes people, you know, too. That's what's so great about him, is that he can give you examples of stuff that was relevant, you know, back when he was writing. And sometimes the way they frame it is that, oh, growing up in the capitalist cutthroat system, like, it forces you to sort of be rapacious and whatever, because you have to, you know, be money grubbing and whatever, and just look out for numero uno because otherwise you starve to death or your kids do. And so, yeah, that's the idea that it's what people think of as, quote, human nature. No, no, no, that's a product of this vicious private property capitalist system run by the guys in the top hats.
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Yeah, yeah. They say that capitalism has sort of conditioned human nature to be such that it is selfish, which is what you were just explaining, so that once they implement socialism, then all of the, all of the, I don't know, the way that the capitalism has burdened and hampered human nature will be lifted. And so, like,
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one great illustration of that mentality is for people who watch Star Trek. You know, they partly did it in the original series with Kirk and Spock, but they really did it in the Next Generation. There's even a famous one where they bring, I think it's like Mark Twain, like, they recreate him with the computer simulation, and I think it's the Captain Picard's talking to him and saying, oh, yeah, we now humans, we don't worry about money and things like, and the idea is, oh yeah, once technology solves it and nobody's worried about starving, then we can just be free to paint and be scientists and do this and that. And you're not worried about, well, gee, how come that guy down the street is getting more than me, even though I worked harder? Because as long as your basic needs are met, you're fine to share and blah, blah, blah. That's the idea, that's the vision.
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I don't mean to contradict, but I think the episode that you're thinking about, it wasn't Mark Twain that was resurrected, but it was just some rich guy on Earth who had paid a lot of money that he would be cryogenically frozen. And they, then they bring him back and he's, he's like wondering, how are, how are all my stocks doing? How's my portfolio doing? Anyway?
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Okay, I'll look that up. Okay.
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I, I, what's interesting is that in that, in that episode, man, we're going off on a tangent, aren't we?
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I think we're probably describing two different episodes, but go ahead. Oh, it could be.
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Yeah, yeah, I have, I probably haven't seen every single episode of the Next Generation. But what's interesting is that in that episode, the, the crew of the Enterprise, they're trying to convince this guy. It's like, we don't really, we don't use money. We don't think about this. We, we've, we've solved all of these scarcity problems now. We're, we're just trying to do the things that, that humans want to do, like explore space and, and the. But the guy just, like, can't wrap his head around it because he just wants to. He just wants to see, like, how well his stocks have performed. And what's interesting is that he gets so angry and he goes onto the bridge and Picard tells him to get off my bridge. So I wrote this article about how, like, private property still exists even. Even in the Star Trek universe. So it's like there's still. There's still scarcity, even though they have.
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Yes, he's very hierarchical. He's a captain. It's his bridge. What the heck.
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Yeah, back to the theoretical failures of socialism. So, yeah, there's this incentive problem and they've got this retort. And what Ludwig von Mises did is he said, okay, fine, you can have that claim. I'm dubious that there will be a new socialist man and people's incentives will be fixed so that they'll just do whatever is good for the community. But then Mises said, you still have this problem of economizing production. And so the argument goes this way. He says that under socialism, all the different flavors, all the different varieties of socialism, the. The private ownership of the means of production is abolished. So there's no ownership of factories, tools, capital, equipment. And all of this has to be under the control of some central planning board. Or maybe it's democratically managed. All the different flavors of socialism have different answers for this. Ask one socialist, they'll have one answer, and a different socialist will have a different answer. But the point is that there's no private ownership of those means of production. And Misa says that if there's no private ownership, then there's no exchange. And if there's no exchange, then we don't have market prices for those things. If there's no market prices of the factors of production, then you can't calculate the cost of production and can't compare them to anticipated revenues. Mises points out that in some versions of socialism there could be money that's only spent on consumption goods. And so in certain versions, it could be that you could think about anticipated revenues from producing consumable output. So the argument is against the cost side of this economic calculation problem. So they can't calculate the cost of production, can't compare it to anticipated revenues, which means they don't know exactly how to arrange production. Like, how many workers should we put in this factory? How should we be producing red shoes or blue shoes or shoes in what sizes? What sort of capital equipment should we be producing? How long of a time horizon should we have to produce these things? So all of these questions are very easily answered in a market economy where entrepreneurs can use economic calculation where they just choose what's the cheapest way to produce the things that they think consumers will want. And in so doing when they do that, it means that resources are going to where entrepreneurs think consumers will value them most highly. And so we're minimizing the opportunity cost because if you use a resources produce one thing, it means that you can't use it to produce something else. And so all of that is sort of automatically done in the market economy. But without the use of economic calculation, a social essential planning board, for example, wouldn't be able to minimize those opportunity costs. And so the result is you produce the wrong things. Usually you, what happens is they, they fail at food first, or at least that's the most visible thing. Um, so I mean there's mass deprivation, deprivation on all levels, but they can't produce enough food. And so there's long lines for, for bread and for soup and, and people go hungry and it's, it's quite a tragedy.
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Yeah, great, great stuff. And just to elaborate on some of those points that what's really brilliant about how Mises does it is when he, if he first just presents what we can call the calculation problem and he stresses folks that it's, it's not merely that they're saying on the front end they don't have good guidance and then afterwards they're slapping their head. He's saying there is a sense in which even ex post they really don't know. The central planners have no idea of saying did we make good use of size resources? Like just because some people are hungry and some people are still homeless or whatever, that by itself doesn't prove the five year plan coming down from, you know, the central authorities was wrong because hey, maybe it's just there was a bad harvest or something or you know, maybe there's just not a lot of wood to go around and what are you gonna do? And, and so the, that's, that was one of his main points is that like a lot of the socials were talking about trial and error and things like that. Yeah, yeah, you could just go ahead and do it and if the people aren't happy, they, they can just elect new le. If it's a person who believes in democratic social, elect new officials and they can shit tweak things until the, and his point was no, there's not even any objective fact of the matter afterward, if you don't have market prices for the means of production. And so that there's that element. And then where I was going with this, Jonathan, is if you sit there and dwell on, on the, the problem and just see them, him going through all the different things and yeah, like let's say they want to build a railroad. And it's not just a question of does it make sense to connect a railroad, you know, connect cities A and B with the railroad, but there's different routes it could take. Let's say there's a mountain and should you go around the mountain or dynamite a hole through it, a passageway through it? Because there's pros and cons, right? If you go around it, then you have to lay more track, but if you go through it, then you don't have to lay as much track. Oh, but you got to, you know, dynamite, they got to worry about there's a chance of a cave in. So there's all kinds of things and it's not obvious. Even if you kind of stipulate, you know, some things like, oh yeah, we're going to have food distribution. Okay, well, should you build, you know, one giant center that's, you know, in the city square and everyone has to travel from around to that one place to get the food or should you have 10 smaller place, you know, we might call them grocery stores spread around so people don't travel as much. And it's again, there's pros and cons of people's travel. Time matters not just for their own personal leisure, but also that's taking them away from the factories if they're supposed to be in the factories and they got anyway. And the point is when you start walking through just how complicated a modern industrial or post industrial economy is and the billions of trade offs and pros and cons of various decisions, it almost looks like how can anything get done? And then Mises follows up with, ah, but in the market economy, this is how the problem's broken down. And the no. 1 person or group is in charge of everything. You're, you know, the shareholders are ultimately in charge of this one company and how does that company know if its little activities in the grand scheme are helping or hurting? Well, is it profitable or not? And yeah, that's not a perfect metric, but. And he goes through and explains why there's a sense in which that's, that's as good as we can do. All right, so it's really masterful and Israel Kirstner used to say. So I don't know if Mises ever wrote it down somewhere, but this is clearly what Kner's taught at NYU is that Mises used to think earlier in his career that all the economists were basically on board. And, you know, they, you know, they quibbled about certain things, but he thought they all kind of had the same view. And it was only in the socialist calculation debate. Because partly what he realized is, oh, the way I, Mises, know how capitalism works and why you can't just translate that to us, you know, a centrally planned economy. My colleagues, especially with the mathematically trained economists, they don't understand that that's how capitalism works. They actually do think the mathematical description of an economy kind of approximates what happened. In which case, yeah, you could. Socialism would work. If, you know, if the mainstream mathematical models were, what is the adequate way to explain the market economy, then, yeah, there's no reason that you couldn't do that with publicly owned property. So anyway, that. And so Kurzner said that Mises, after that realized, oh, yeah, we. The way, you know, Hayek and I are thinking about this is not just the way other economists think about it.
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Yeah, you're talking about the mathematical treatment and thinking of the economy as like a system of equations. And this comes up a lot, and I know you've addressed this recently on this podcast, is the idea that we could use AI to solve the socialist calculation problem. That now we have these supercomputers that are really, really good at running simulations and taking in a huge amount of inputs and turning it into intelligible, meaningful output. And I, I don't think I watched your episode, but I'm pretty familiar with the Austrian response to this. But the problem with that is that you, the, what you would feed into such a computer algorithm that's supposed to spit out, you know, quantities of, of output of consumption goods that people would consume and where people need to work and what resources need to go where. The issue, the issue with that is that the, the data that you would plug into that is just, you know, technological relationships. It's like, here's. If you, if you have this much wood and this much of some chemical, then that will result that will yield a certain amount of, of paper. Or you might, you might actually get, you know, survey responses. Like, if you actually want to bring in consumer preferences. Like, people fill out a survey every day and they say, well, I'd like this many apples and this many burritos, and I'd like to drive this Car, blah, blah, blah. So, like, that's all the sort of information that you would feed into it. But what you're missing is, like, what people would actually do in terms of, like, their preferences. I don't know if you've ever run into this issue, but have you ever walked into a grocery store with a list of things that you're supposed to buy and then you actually walk out of the grocery store with a different set of things?
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Right.
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So like, when you were actually faced with the, like you had some sort of plan, like if you had filled out a survey of what, what groceries do I want to consume, you would have said a certain list of things. But then when you actually were faced with a choice, you actually left with a different set of things. And that's the same sort of issue that you would run in with the surveys is people don't know exactly what they're going to do, what they're going to want in the future. And what really matters is at that moment of choice, when I've got this state of affairs in front of me and this state of affairs in front of me, which one would I choose? But also with all the technological relationships that you would feed into this AI computing system is the issue with that is it doesn't know the opportunity costs. Like, it might, it might, it might be able to know that all of these different combinations, all these different recipes, but that doesn't tell you anything about, like, what people want to be produced and what people would. What people would rather be produced as opposed to other things. Right. So that's, that's the issue with that. I mean, it might, I wonder if people will try it. It'd be interesting to see people try it. I don't think it'll work.
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But yeah, just to elaborate on that, it's like you're saying, Jonathan, just for the people at home to kind of get, to make sure they're getting. What is the specific, specifically economic problem involved here? I'm using that term. I don't just mean, oh, things about the economy. I mean, no, there's really a sense in which kind of like the is ought distinction, you know, that, oh, you can't just take a bunch of positive statements about how the world is and then conclude, you know, a normative one like that. Likewise, you can't just list a bunch of facts about chemistry or technological relationships and say, yeah, if you want to build a house with wood, you would do it this way. And you need this many things. If it has to be three stories, you would do this, blah, blah, blah. Like, you can list all that stuff out. It doesn't mean, should you build a house like that, you know, that that's not. And you could, you can ask people and say, do you like shelter? And I say, yes, we do. Would you rather have a house that has, you know, three bedrooms or a house that has one bedroom? I'd rather have a house that has three bedrooms. Oh, okay. Write that down. And would you rather have a car, you know, that is conceit four or can seat six? Right. Okay. Do you want it to look like a, you know, a luxury vehicle or not? Yep. And you can write all that stuff down. And the problem is that's physically impossible. You can't give everybody, you know, what they filled out. And so then to make it more realistic in terms of giving guidance to the planners, you would need to, you know, have some kind of scoring system, but it's not just a ranking, you know, and ultimately you can say, oh, we're going to allocate everyone a thousand points and here's the list of stuff you could want and then allocate. And then. And Mises does this demonstration in his book socialism, where he's going through. And then, you know, and then from the, the manager's point of view, like the factory managers, you could say, okay, your job is to get as many of these points as possible. Oh, but you need inputs. And so we got to take that into account. Right? Like, in other words, if one factory manager is making real, you know, a lot of cars and whatever, but he's using up more iron and glass and rubber than the other factory manager, you got to take that into account. And so, oh, the point system, we applies to the factory managers too. And you got to be earning more points than you are given to the other, to the suppliers. And. And Mises just goes through step by step and then says, oh, and look, we just recreated capitalism. Yeah, like, he just keeps pushing and keeps coming up with, you know, other, like, oh, but there's risk involved. Like, what if one. One, you know, promoter goes to the planners and says, I have this great idea, you know, to make something in a new way that we haven't been doing before. And, but I need these resource. And you have to watch out that the guy. You can't just give the. The resources to the person who promises the most consumer goods, because what if the guy's nuts? Or what if it's really risky? And like, yeah, if it works, okay, but we're not sure. And so then you could say, oh, well, why don't we contain for that and just say a smaller group of people, they're on the hook and their points are, you know, at stake. And if it doesn't work out, then they lose their. And again, that's like, oh, private investors. And so anyway, Mises just goes through and dealing with all these objections and just step by step transforms what was originally a completely planned economy. We don't need money at all. That's just a relic, a barbarous relic of, you know, accounting that means nothing. And then step by step, like the market socialists said, yeah, you could, you could do it. They could announce a vector of prices, but they're not really prices, they're just exchange rates. You did it. And again, the point was you kind of get painted into a corner and by the time you're done dealing with all the objections, you've just recreated private property capitalism. So it was kind of a neat rhetorical demonstration they went through. But going back to the AI, so if you think about really what you would have to do is again, not just like have consumer surveys and things like that, but if you wanted to really try to do it, you could say, well, how about we have the computers do a simulation of the economy and we'll have money in the simulation and people go and they have jobs and they work and they can. And I suppose the more accurate that simulation was, and you, and you saw in the model where everyone is trying to maximize profits and blah, you know what I mean? The consumers, whatever you give them utility or preferences they're trying to, then maybe the thing that, that spits out might be a better approximation than what the socialists in 1950 with no AI could do. But even if you stipulated all that, the point is, yes, but in the market economy, instead of having all these supercomputers just trying to model a simpler economy, right, because it, in that model, they can't have the supercomputers also working for the big companies developing new products. Right? Because you can't, like, you know, the, the model can't have something more sophisticated than itself. And so the point is, rather than having all these supercomputers designed just to recreate capitalism, why don't you have capitalism and then the supercomputers are freed up to go find, you know, cures for cancer or figure out how to put a base on Mars and blah, blah, blah. So even again, on its own terms, to the extent that you thought AI might help with what like, you know, Hayek would have called the Knowledge problem in the 40s or something. That doesn't mean right now.
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Oh, yeah.
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So that way, that's why basically socialism can work now. Because. No, then you would be again, be missing out on all the stuff those supercomputers and AI could do to augment the production of goods and services in a market economy.
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Yeah. So to get back to the, the course and the target audience, I think it's, it's really helpful to go through this, this exercise Mises calculate economic calculation argument against socialism. And while, you know, it's good to, to help convince young students that socialism is a bad idea, what one thing that's really great about his argument against socialism is that it shows the importance of market prices. It shows that market prices are not just these arbitrary numbers. Because I remember when I was a kid, I would, you know, walking down the grocery store aisle or in some retail store, and you'd see these price tags, and it's like, okay, that just shows how much something costs, but there's really no deeper understanding of what the price is, why it is that price. And so once, once you, you know, you read Hayek and you read Mises, then. Then you have such a deeper understanding of, of what market prices are doing for us. Like, they're doing all of those functions that we're, we're trying to think about whether an AI can do. It's like it's, it just does it on its own. Well, you know, Mises probably wouldn't like the way I just phrased that. He would say it's people acting purposefully. It's people exchanging with one another. They had these different value scales and understandings of how much they own and what other people own, and then they can trade with one another and specialize in the division of labor. And so all of this is purposeful. It's not like the market economy is like this sort of automatic engine that's just running on its own. But once you see purposeful human action interaction in a division of labor and what prices are doing to help us economize the use of resources so that we're producing what people want and we're not wasting resources, then you have a much, you know, greater appreciation of what market prices are and what they do.
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B
Yeah, exactly. Why don't we take a minute, since this is the human action podcast with a bunch of hardcore misses watching that. One of the things that come up that's related to what you're saying there, Jonathan, is like the distinction between the Mises calculation problem and Hayek's knowledge problem. And I, this is how I usually handle that when people ask like, you know, Bob, do you think there's a difference between the two? Or, you know, I know there's a controversy. Some people think they're basically saying the same thing. Other people get really huffy. So I'll give you my take, Jonathan. I'm curious to see, you know, if in practice you distinguish between the two. So just like we said at the outset folks, that yes, there is an incentive problem with socialism, right. That you, if you didn't know anything else about this, you didn't get into the weeds with the economic issues that Jonathan, I have been talking about, just big picture, yeah, some jobs are dirty, other, you know, whatever. And yeah, who wants to pick up garbage for a living? Wouldn't it be nicer to be a librarian? Most people would prefer. And so if, if the way you're compensated is not tailored in any way to your effort or the distastefulness of your job, that's going to be a problem. There's another element called like I guess the, the corruption problem where if certain people are in, you have the power to tell other people where to work that could be abused, right? That if you're political enemies, if you're the government officials, you could just have them go work in Siberia and whatever, get rid of them. Or if you run the newspapers and you can determine what articles get published, probably articles critical of the government aren't going to get space. And you say, hey, no, we just, sorry, we don't have room for this issue. Right. So there's a lot of ways you can see if you give a group of people command over the economy, that's a lot of power that could be abused. And that's a separate thing. And so again, what Mises focused on was he said, yep, we're stipulating, let's assume the, the planners are well intentioned. Let's assume there's no incentive problem. The workers just do whatever they're told to do, like to, you know, to the extent of their abilities that their attitude shirking isn't an issue. But then he also stipulated, and let's say that all the technical know how and all the specifics about knowing what goods are located in which warehouses and how many forklifts are in this way assume that the central planners have all of that raw information. And still he's saying they would have no way of knowing even ex post did we make an efficient use of society's resources. And so to me it seems like that third thing that I had him stipulate was what you could call the Hayekian knowledge problem, where Hayek pointed out, in practice, you can't get all of this dispersed knowledge in the, you know, at the fingertips or in the minds of a group of planners that that knowledge is dispersed among various people across society. And he thought one of the actual functions of a price system in a decentralized market is that it communicates relevant information very efficiently. And that, you know, if a mine collapses and 10 or something is not as available next week as it was last week, then the price shoots up. Speculators see that and they bid the price up. And that gives information to everybody on planet Earth who uses tiny. And you just know, if you have an operation that uses 10 up now, it's more expensive. If I can shift out of that and getting something else, I will. If it's an operation that no, we need 10, then you just suck it up and pay the higher price. And high explain was everyone takes the right adjustment. And the critical thing is they don't need to know why they're doing it. They just needed, oh, now it's more expensive, doesn't matter why. Right. And so it economizes on, giving everybody what they need to tinker with their plans and to keep, you know, things more coordinated. So that's cool, and I'm glad Hayek wrote about that. But I think that technically is a distinct issue and a problem with socialism than what Mises, you know, what we call the calculation problem. How do you feel about that?
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A
Yeah, yeah, I totally agree. I think Hayek's like, the knowledge problem, central planning, it's a great critique of socialism. The one issue that I've seen is that some people read that and they interpret it as, and they might be correct. They interpret it as, this is why socialism is impractical. This is why it would be extremely difficult for us to implement central planning. It's because there's all this decentralized knowledge, and it's really, really hard to bring all of that and act on it with, like, a central planning board. And so then that's where people come up with these ideas, like having an AI supercomputer manage the economy. It's like, oh, well, now we actually have the ability bring all of this dispersed knowledge, and now we have the ability to, you know, to put all this knowledge into, into one computer and actually, you know, solve the problem. Well, I, I think they're, I, I do think that they're misreading misinterpreting Hayek. Like if, if you read Hayek charitably. But, but that's one thing that like if you just focus on Hayek's knowledge problem, it leaves that door open where socialists will try to squeeze in and say hey, well we've got the super supercomputer idea where we actually can do all that. Like I've seen people talk about things like neural link, like chips in the brain and so that sends information to a supercomputer that makes all those decisions. But and Mises point Mises argument about socialism is, is not just that socialism is impractical, be really, really difficult. It's that it's impossible. It's like you cannot economize you. The way Mises phrases. There's no rational way, there's no way to rationally arrange production or make rational production decisions under socialism. And the reason why is because you need market prices for the factors of production. So yeah, I'm on board with you.
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B
Great. Yes, just two follow ups on that folks. Then we'll end with one of the tweet that someone recently put out that Jonathan thought was funny and we should focus on. So. Right. I definitely agree with you even in the debate and I've stressed this before folks, that I actually think that Lange, who is one of the market socialists, you know, a PhD trained economist that was, you know, saying oh look at these equations from Walrusian economics and you know, those players could just use that and blah blah, blah that he. So originally what happens is Mises comes out with his. Was it, I think 1920 was when his original article comes out, a critique of socialism where he lays out what we now call this calculation, speculation argument and saying that yes, in principle it is impossible for planners to rationally allocate society's scarce resources, you know, in pursuit of consumer ends or whatever, however he phrased it and that socialists are arguing with him. And then Hayek joins the fight and he brings up what we now can call the knowledge problem. And Hayek has a line in his thing saying something, referring to the mathematical solution, something like yes, you could, you could do it. It's not like there's a logical contradiction in that approach. But the problem is when you get serious about a modern economy and how many equations you'd have to list and blah blah, the kind of information, discrete knowledge you would need. You see how ridiculous, you know, non starter the suggestion. And he's totally right. But Lange then pounced on that and said ah, see, Hayek is retreating that Mises said it is impossible. And now Hayek's just saying, come on, in practice you couldn't do that. Right. So anyway, there's that element. I don't think Lange was, was being unfair for sing. I think he earnestly believed that because, yeah, prima facie, it did look like Hayek was retreating from the very dogmatic position of Mises on that point. Okay, so there was another thing I wanted to say, but I forgot now what it was.
- [32:20]
A
So I can, I can fill in the gap here. So I just want to make a plug. Since we're talking to the hardcore Mrs. IANS right now and not the high schoolers. There's a great article by Caris Lambert and Tate Fegley that was in the Journal of I can't remember the name of the Jibo J E B O
- [32:38]
B
Journal of Economic Behavioral Organization. Something like that.
- [32:43]
A
Some, something like that. Anyway, it's a paper that's on this topic where they go through the Mosesian calculation problem of socialism and this question as to whether AI and supercomputers can solve it. And Tate Fegley has given a presentation on this at previous Mises universities and you can find those lectures online.
- [33:01]
B
Oh, I remember what it was, this notion of impossible. So we'll do this, I'll give if you want to chime in, John, and then we'll go to the tweet and close out with that. In my never ending quest to just be completely anal on this stuff and always. I, I, I don't think you didn't say this, Jonathan. I'm just, I'm just saying in general, a lot of people sometimes when they're summarizing and said yes, Mises wrote, you know, in the 20s, and then later on in Human Action it came out that, that socialism is impossible. And for a while the, you know, other economists thought he was being too strident and blah, blah. But with the collapse of the Soviet Union, everyone agreed. Yep, Mises is right. Socialism possible. And to me, just prima facie, that doesn't make any sense. Like if something is impossible, it's not that. Yes, someone built a perpetual emotion. Well, it wouldn't be a perpetual if it ended after 70 years. But you get that if something is impossible, it doesn't mean you can do it for a few decades. Right. Like it means no if it's impossible. So I think what's more accurate is that what Mises showed is rational, irrational allocation of resources or the economic use of resources or economical behavior under socialism isn't possible. And the fact that The Soviet Union survived as a political organization, a regime for several decades was not a contradiction of that. Now the two are related. You could say, yeah, ultimately it was going to collapse just because of, you know, the problems and because they couldn't engage in rational economic calculations from day one. But anyway, that's. To me, that's. I think socialist economy is impossible. Whereas, yeah, you can. There can be a revolution. You can say genuine socialism existed, and it was awful anyway.
- [34:40]
A
Yeah, yeah. Mises would say that a socialist economy is a contradiction in terms. That what. What's happening when socialism is put into practice? What's happening is that they're not economizing the. The use of resources, which means it's not an economy. Like, they're not. They're not. They're not economizing. So it's not an economy. But that, that. So that's. A lot of times people say that. He was saying a socialist economy is impossible. No, he's saying it's a contradiction in terms. So that when socialism does last for a while, as you were talking about, what's actually going on is a bunch of capital consumption. They're just consumed. They're eating into their. Their seed corn, so to speak. And eventually they run out of resources and revolt, fail, starve to death, all those bad things.
- [35:24]
B
Yes, we're against starving to death here. Okay. Last thing we'll end on is back in what May 2nd. I had an exchange with this guy, and Jonathan thought it would be relevant for this. And we'll end on this. This is more for the kids. Okay, so this guy, he calls himself. I think he calls himself a communist too, but he's also a socialist. Right. All. All poodles are dogs. And so he says. We're flashing up on the screen if you're watching the video, folks, he says, so this one guy, Captain in Capistan, you can tell by his name, he's a fan of Rothbard. And he had tweeted out, Marx was motivated by grievance, Keynes was motivated by control, Mises was motivated by truth. All right, so this guy who's a commie, didn't like that. So he retweeted that and said Mises wasn't an economist, he was a priest. Marx was a rigorous materialist who ruthlessly interrogated all dogmas. Mises believed in an idealist, fantasy version of capitalism with zero state intervention and upheld the dogmatic belief that this unregulated system, which has never actually existed historically, would somehow function in perfect harmony with humanity's development. And needs. Marx, on the other hand, analyzed the capitalist mode of production and the modes of production which birthed it as they actually existed in reality. This is why he was able to predict the rise of central banking and its increasing control over the economy, while Mises simply whined about central banks not being, quote, real capitalism as he imagined it in his head. Marxism is the scientific method applied to political economy. Austrian economics is a religious dogma that believes in the benevolence of the unregulated market. There can be no real comparison between the two when it comes to intellectual rigor. So real quick one on that. Yeah, it would, it would be nice if Mises had written anything about central banks like that would have been. That's the one, you know, glaring omission in his work. He just kind of whined about it that it wasn't real capitalism. So just, you know, the ludicrous nature of his description of Mises. But anyway, do you want to take a shot at that? Because it, you, you get. The reason we're reading that, folks, is because you get versions of that all the time that, oh yeah, yeah, Rothbard's good, you know, in his little fantasy land or whatever, but, you know, we. Or more generally, hard money economists. Yeah. Back in the days of the gold standard. Maybe what you said is relevant. That's all out the window now. And so that's why, you know, you need to go look at Stephanie Keltic because it'll tell you how the world works. So what do you think that Mises is outmoded because all he did was study this fantasy land economy of pure laissez faire capitalism?
- [37:52]
A
No, I don't think that that was a fair characterization of Mises. If you read Mises, if you read his. But even if you just read the economic calculation in the Socialist Commonwealth where he originally. Yeah, that's the 1920 article you referred to. It's like, it's very, it's very logical. He's not appealing to some like, mythical, oh, the free market is great. Everything will be wonderful. Under, under the free market we'll achieve this utopia. So he's, he's not, he's not appealing to these sorts of like, magical things that will occurred simply because there's no government or because there's very limited government. He's making. It's a very clear, logical, easy to follow argument. Like I summarized it before, it's like if you don't have ownership of the means of production, you don't have exchange, you don't have prices, which means you can't calculate, which means you can't figure out how to produce what to produce, all of those sorts of production decisions. So it's like, it's, it's like a step by step sort of logical thing. It's not, it's not religious dogma. It's. Although, like, I, I've seen people who are fans of Austrian economics who, who definitely give that appearance, right? They, like, they don't, they don't always share the, the logic. They don't share the economic theory that we're talking about. So I mean, maybe he's just, you know, picking on those sorts of people. But like, if you read Mises, if you read Rothbard, it's, it's clearly spelled out. It's not, it's done. It's not an appeal to some like, magical free market, right?
- [39:20]
B
And here I'll give what. The response I gave to the guy in the heat of the moment, and then I'll elaborate here, folks, for you guys. So I answered him and I said Mises specifically anticipated your objection before you were born. He explained that even interventionists and socialists have to know how a market economy would function, if only to explain why their proposal would be better. Right. That was one of the most amazing rhetorical moves Mises ever made. When I was like, oh, yeah, that again, it's, you know, I, and I think, Jonathan, you too, we are fans of the, quote, pure unregulated market economy. If that means not by a course of state, but. And you can get in the weeds and talk about in reality, as was better North Korea or South Korea or East Germany or West Germany, and you know, we're not talking about in Capistan there. So I'm happy to do a, quote, real world comparison head to head of socialism versus real world market economies. But the point Mises was making that I alluded to there is, he said this common objection that, you know, modern economics just focuses on the unrealistic laissez faire capitalism. He said it's silly because we, we need to know how such a system would operate. And then as having that as a baseline. And so then, yeah, if you, if you're a proponent of a mixed economy, you know, what's called that, that we're gonna have some social insurance and, you know, food assistance and things like that, or unemployment, things like, you know, not a full blown socialism, but just a mixed thing where the state comes in and provides some guardrail, some regulation of financial market. If you want to propose that, as you think the best of all worlds. In order for you to make the case, you have to know, what are you comparing it to? So you don't like socialism. Okay. But then you need to know what would happen if we had unregulated laissez faire capitalism. And maybe you were going to come down and say, yep, the interventionist mixed economy approach, this is the best. Okay, but you couldn't get mad at economists for explaining, here's how an unregulated market economy would work. Like, you need to know that. And so the whole thing is just ludicrous when you think it through for five seconds.
- [41:20]
A
Yeah, I totally agree. It sort of reminds me of the way Mises talked about the gold standard. So a lot of people say that Austrians are these gold bugs. We think that there's something magical about gold, like this particular metal that's shiny. There's just something intrinsically valuable or intrinsically amazing about it, and that's why we're in favor of it. But if you read Mises talking about the gold standard, he says it's just a historical fact that people chose gold over other possible commodities that they could have chosen to be money. So he's talking about the mingarian evolution of money and development of money. And he says it wasn't inevitable. It wasn't. There's nothing about economic theory, even Austrian economic theory, that prescribes or says that people had to choose gold as money. He just says, I just take it as a fact that they did. And then he goes on to say, all right, so what are the characteristics of gold? And like, if, if we have gold, if we have a. Like, under the classical gold standard, it means that countries are subject to gold inflows and outflows. It means that banks can't over expand fiduciary media. And so, like, there's this constraint that it imposes on governments in the banking system. And that's what Mises was talking about. That's one of the benefits of gold, is that it does that. But it wasn't like just some sort of like, magical thinking. It's like, oh, gold is special and wonderful, and that's why it should be money. It's like he just sort of like takes. Takes the world as it is, analyzes it, and says, here's what happens that most people would consider as good. Here's what happens that most people would consider as bad. So he applies that to money, just like he does to talking about the differences between free markets and socialism.
- [42:58]
B
Yeah, exactly. And I'm just thinking through Just how silly that objection is. Like, let's say you encountered somebody who was like, yeah, I don't like capitalism. Back, you know, in the medieval period when, when people were just working the land or whatever, that was just a better period. And can you imagine? So you or I, John, if we wanted to argue that we would go, you know, probably look and see. Well, no, it was back breaking. Look at the life expectancy and all this stuff and how much population they could support back then. But we wouldn't just say, oh, you're just talking about, you know, fantasy land. The fact is we have capitalism now and there was the enclosure movement. So suck it up, dude. You know what I mean? Like, what a goofy argument that would be. Like, that isn't an argument. They'd be confessing that, yeah, we can't beat you. You're right. And so, because part of it is if they were true, then maybe we should roll back capitalism and not have private property in the land and whatever. But anyway, you get the point I'm making. Okay, well, we have to wrap it up there, folks. Jonathan, thanks so much for your time.
- [43:52]
A
Yeah, thanks for having me. Live long and prosper.
- [43:54]
B
And folks, go to academy.mises.org if you want to see Jonathan's course and the other ones that we have available, the ones coming out soon. And thank you as always for your attention. We'll see you next time. Check back next week for a new
- [44:09]
A
episode of the Human Action Podcast. In the meantime, you can find more
- [44:13]
B
content like this on Mises.org Sam.