WEBVTT NOTE Theory and History 1 00:00:00.000 --> 00:00:10.000 I looked deep into my own soul and asked myself whether I wanted to listen to that myself 2 00:00:10.000 --> 00:00:19.240 and came to the conclusion I have to tone that down a little bit. Nonetheless, as the 3 00:00:19.240 --> 00:00:27.760 topic indicates, a little bit of abstractness is absolutely necessary to cover this topic. 4 00:00:27.760 --> 00:00:36.300 What I want to do is I want to give a speech that indicates the importance of theory, that 5 00:00:36.300 --> 00:00:44.580 means in particular the importance of economics, for history and for historians and for historical 6 00:00:44.580 --> 00:00:47.140 explanations. 7 00:00:47.140 --> 00:00:56.320 It is possible that you can do pure economic theory without knowing anything about history, 8 00:00:56.320 --> 00:01:09.320 But what I want to show is that under no circumstances can you engage in history without knowing something about economic theory. 9 00:01:09.320 --> 00:01:14.320 Let me just explain why that is. 10 00:01:14.320 --> 00:01:22.320 It is comparatively easy to collect all sorts of data 11 00:01:22.320 --> 00:01:32.320 And it is also comparatively easy to place these various data in historical time. 12 00:01:32.320 --> 00:01:40.320 What is difficult to do is to interpret these data, to make some sort of sense out of them. 13 00:01:40.320 --> 00:01:46.320 And let me give you some examples in order to illustrate this. 14 00:01:46.320 --> 00:01:57.820 For example, we would all be very quickly agree on the following description. 15 00:01:57.820 --> 00:02:05.580 In the United States in the 19th century, the living standards were comparatively low, 16 00:02:05.580 --> 00:02:10.020 so were taxes and so were regulations. 17 00:02:10.020 --> 00:02:22.340 In the 20th century, however, living standards were high and so were taxes and so were regulations. 18 00:02:22.340 --> 00:02:37.020 The question then is, are we in the 20th century richer because of higher taxation, because of higher regulations and so forth? 19 00:02:37.020 --> 00:02:46.700 or are we richer despite the fact of the higher taxation and the higher regulation in the 20th century? 20 00:02:46.700 --> 00:03:04.980 In other words, would we have been even richer if we would have maintained the low level of taxation that existed in the 20th, in the 19th century and the low level of regulations that existed in the 19th century? 21 00:03:04.980 --> 00:03:18.980 Now the data do not tell us this, whether it is despite of it or because of it or, as the third alternative, whether these things just have nothing to do with each other. 22 00:03:18.980 --> 00:03:32.980 I'll give you another example. Welfare payments and crime in the 1950s in the United States were comparatively low. 23 00:03:32.980 --> 00:03:43.080 In the 1980s and 1990s, welfare payments and crime were relatively high. Again, the question 24 00:03:43.080 --> 00:03:53.380 is did crime rates rise because of higher welfare payments or in spite of higher welfare 25 00:03:53.380 --> 00:03:59.340 payments or do these things simply have nothing to do with each other? Is that just a coincidental 26 00:03:59.340 --> 00:04:10.220 Relation. Take another example. In the 19th century, Germany and Italy, for most of the 27 00:04:10.220 --> 00:04:19.980 19th century, were splintered up in numerous entities. Germany consisted of some 39 independent 28 00:04:19.980 --> 00:04:26.940 political units, and similarly in Italy. But standards of living were low in the 19th century. 29 00:04:26.940 --> 00:04:33.940 In the 20th century, Italy and Germany are centralized states and standards of living are high. 30 00:04:33.940 --> 00:04:39.940 So is centralization the cause of these higher standards of living? 31 00:04:39.940 --> 00:04:49.940 Or is it the case that standards of living in Italy and Germany arose despite the fact that centralization took place? 32 00:04:49.940 --> 00:05:08.940 Or, to say it differently, wood standards of living in Italy and Germany have been conceivably even higher if they would have remained splintered in these numerous independent units that existed in the 19th century. 33 00:05:08.940 --> 00:05:19.940 As I said, the data, the sequence of events, so to speak, do not tell us anything about it. 34 00:05:19.940 --> 00:05:29.940 We can look at the same data and come up with completely incompatible interpretations and explanations for it. 35 00:05:29.940 --> 00:05:49.940 Now there are some people, some historians in particular, who believe that theory must come from data, that is, the data have to reveal, so to speak, what is caused by what and what is not caused by what. 36 00:05:49.940 --> 00:06:19.940 But as I indicated, this is an impossible task. Some mathematically inclined economists and historians, in order to get out of this predicament, have come up with a glorious solution, that is, they have said, what we have to do is, we have to adopt the post-Hoc-argo-procter-Hoc principle 37 00:06:19.940 --> 00:06:30.940 This is the idea that whatever occurs later is caused by, because something occurred later, it must be caused by what is occurring earlier. 38 00:06:30.940 --> 00:06:39.940 But as you all know, of course, the posthog ergo proptohog is not a principle, but it is a plain fallacy. 39 00:06:39.940 --> 00:06:51.440 So much of what you get presented in modern history, so to speak, is based on a fundamental fallacy. 40 00:06:51.440 --> 00:07:00.940 The only ones nowadays in the social sciences who believe that there is a way out of this predicament 41 00:07:00.940 --> 00:07:13.940 are in a way Austrian social scientists who take the opinion that there exists theory or theoretical propositions 42 00:07:13.940 --> 00:07:25.440 that allow us to make a decision between these rival and incompatible interpretations of the same sequence of data. 43 00:07:25.440 --> 00:07:38.440 But in order to be able to make a clear-cut decision, these theories have to have a special characteristics that must be theories that are not themselves also derived from historical experience. 44 00:07:38.440 --> 00:07:43.440 Otherwise, we are back in the same predicament from which we started. 45 00:07:43.440 --> 00:08:07.440 And the Austrians say, yes, there exists such propositions that are independent, so to speak, of historical experience, that we can grasp as being universally obvious, universally true, and these statements then can help us to make the decision as regards these interpretations. 46 00:08:07.440 --> 00:08:23.440 Let me just give you a number of examples of what Austrians consider to be theoretical propositions that are helpful in deciding these matters that I indicated at the outset. 47 00:08:23.440 --> 00:08:29.440 First, some that sound almost completely trivial, then gets a little bit less trivial. 48 00:08:29.440 --> 00:08:40.440 Human action is an actor's purposeful pursuit of valued ends with scared means. 49 00:08:40.440 --> 00:08:52.440 It is seemingly obvious that this is something that seems to be universally true about all actions. 50 00:08:52.440 --> 00:08:57.440 Another one, no one can purposefully not act. 51 00:08:57.440 --> 00:09:05.840 If you would try to not act obviously you have a purpose. Another example, every action is aimed 52 00:09:05.840 --> 00:09:11.200 at an improvement. If you would try to refute this statement so to speak and do something 53 00:09:12.240 --> 00:09:18.560 to refute it that would indicate that you obviously think that this will make you better off. 54 00:09:18.560 --> 00:09:25.200 There's also a universally true statement. Take something like this, a larger quantity of a good 55 00:09:25.200 --> 00:09:33.000 Good is preferred over a smaller one, that follows simply from what we know a good is. 56 00:09:33.000 --> 00:09:38.000 Of course, you can never get enough of something that is good, and you always prefer more over 57 00:09:38.000 --> 00:09:41.000 less. 58 00:09:41.000 --> 00:09:49.760 Production of goods must precede the consumption of these goods. 59 00:09:49.760 --> 00:09:58.400 What is consumed now cannot be again consumed later on. 60 00:09:58.400 --> 00:10:07.000 If the price of a good is lowered, either the same amount of the good is bought or more 61 00:10:07.000 --> 00:10:09.480 than otherwise would be bought. 62 00:10:09.480 --> 00:10:11.760 Let me just add something here. 63 00:10:11.760 --> 00:10:41.260 If we would observe, for instance, that the price of a good would be lowered, it is well possible that actually less of this good is bought in reality, but what we would say is less is bought, or we would say what we would have to add is then if the price had not been lowered, 64 00:10:41.260 --> 00:10:44.860 Then, in fact, less would have been bought than otherwise. 65 00:10:44.860 --> 00:10:54.060 Or take prices that is relevant in the California energy crisis here. 66 00:10:54.060 --> 00:11:02.660 If you fix a price below the market clearing price, then you will get a shortage. 67 00:11:02.660 --> 00:11:15.260 or another example if you have no prices for factors of production, if you have no property 68 00:11:15.260 --> 00:11:20.540 in factors of production then you have no prices for factors of production and if you 69 00:11:20.540 --> 00:11:26.540 have no prices for factors of production then you cannot engage in economic calculation, 70 00:11:26.540 --> 00:11:32.740 You cannot compare input and output prices and determine what is efficiently produced 71 00:11:32.740 --> 00:11:36.140 and what is inefficiently produced. 72 00:11:36.140 --> 00:11:45.100 Or some other examples, interpersonal conflict is possible only if things are scarce. 73 00:11:45.100 --> 00:11:50.500 We do not have conflicts, for instance, over the air that we breathe because that is not 74 00:11:50.500 --> 00:11:51.500 scarce. 75 00:11:51.500 --> 00:11:58.500 Another example, no thing can be owned exclusively by more than one person at a time. 76 00:11:58.500 --> 00:12:04.500 If more than one person at a time owns it, automatically conflict will result. 77 00:12:04.500 --> 00:12:11.500 Another example, something that I will come back to in my third lecture tomorrow, 78 00:12:11.500 --> 00:12:15.500 democracy is incompatible with private property. 79 00:12:15.500 --> 00:12:24.500 Majority vote is incompatible with exclusive control over certain goods. 80 00:12:24.500 --> 00:12:29.500 Another example, no form of taxation can be uniform. 81 00:12:29.500 --> 00:12:34.500 That is to say not all people can be equally taxed, so to speak. 82 00:12:34.500 --> 00:12:37.500 We do something with the taxes that we collect. 83 00:12:37.500 --> 00:12:42.500 In other words, there must be always some people who are taxed 84 00:12:42.500 --> 00:12:48.180 People who are taxed and other people who receive the taxes that we take away from them. 85 00:12:48.180 --> 00:12:54.220 They would not be taxpayers, but they would be tax consumers. Taxation is impossible to 86 00:12:54.220 --> 00:13:01.220 impose uniformly on everyone. Or something that is relevant when we consider the glorious 87 00:13:02.940 --> 00:13:09.940 achievements of Mr. Greenspan, property and property titles are different things. 88 00:13:12.500 --> 00:13:17.500 A car and a title to a car are different things. 89 00:13:17.500 --> 00:13:30.500 And an increase in titles without an increase in property cannot possibly make people richer, that can only lead to a redistribution of income. 90 00:13:30.500 --> 00:13:40.500 Now, what we see, what Greenspan tries to do is he tries to get us out of the recession by printing up additional pieces of paper. 91 00:13:40.500 --> 00:13:50.500 How can anybody possibly believe that by printing up additional pieces of paper, the society as a whole can possibly get any richer? 92 00:13:50.500 --> 00:14:04.500 Now, I do not want to explain these various statements in great detail, but what you can see is that we can somehow recognize 93 00:14:04.500 --> 00:14:27.500 that these statements reflect, so to speak, the nature of things, that they are necessarily true, that they are always true, that there can be no exception to it, that we cannot deny these statements without talking nonsense. 94 00:14:27.500 --> 00:14:32.500 Let me just illustrate that by giving you some other types of statements. 95 00:14:32.500 --> 00:14:38.500 which we can easily deny without talking nonsense 96 00:14:38.500 --> 00:14:48.500 for which it is necessary that we have to refer to historical experience in order to find out whether they are true 97 00:14:48.500 --> 00:14:51.500 and that can be refuted by historical experience 98 00:14:51.500 --> 00:14:59.500 statements like this, children prefer to eat McDonald's hamburgers over Burger King hamburgers 99 00:14:59.500 --> 00:15:15.500 That we can easily deny without talking nonsense. We can say children might prefer Burger King over McDonald's, or Germans prefer Spain over Greece as vacation destination. 100 00:15:15.500 --> 00:15:24.500 That might well be different. We would not automatically talk nonsense if we just deny this and assert the opposite. 101 00:15:24.500 --> 00:15:30.500 Or take consumer spending before Christmas is higher than after Christmas. 102 00:15:30.500 --> 00:15:34.500 That again is something that might be the case, might not be the case. 103 00:15:34.500 --> 00:15:39.500 I guess in an Islamic society that would not be the case. 104 00:15:39.500 --> 00:15:45.500 Catholics vote overwhelmingly democratic. 105 00:15:45.500 --> 00:15:50.500 That is true here, but who knows, it might be different at other places. 106 00:15:50.500 --> 00:16:19.500 Now, what I want to emphasize is then that theoretical propositions of the kind that I gave you before, we can only illustrate by historical events, but historical events do not either confirm these statements or do not refute these statements. 107 00:16:19.500 --> 00:16:27.500 These statements, these theoretical statements help us to order our observations. 108 00:16:27.500 --> 00:16:35.500 Let's say somebody would come from some expedition to Australia and he would say, 109 00:16:35.500 --> 00:16:45.500 I have seen there kangaroos that were red and green all over. 110 00:16:45.500 --> 00:16:57.500 What would we say to such an observation? We would say, no, that contradicts logical law. Something cannot be red and green all over at the same time. 111 00:16:57.500 --> 00:17:09.500 We would not go out and try to refute this statement by going out and maybe discovering kangaroos that are different from this sort. 112 00:17:09.500 --> 00:17:17.500 Now we would rule out this observation as a nonsense, as a nonsense observation from the outset. 113 00:17:17.500 --> 00:17:28.500 Another example, somebody would make the observation that the rich people consume more than poor people 114 00:17:28.500 --> 00:17:35.500 and would then report that because they consume more, they are richer. 115 00:17:35.500 --> 00:17:45.500 Obviously, they are not richer because they consume more. No, it's the fact that they are rich that allows them to consume more. 116 00:17:45.500 --> 00:18:01.500 Now, as I said at the beginning, theory is not sufficient to do the history, but it is necessary in order to interpret historical events correctly. 117 00:18:01.500 --> 00:18:31.500 that is to avoid nonsense interpretations of historical events or we can also say logic beats experience and the Austrian, the School of Austrian Economics has an entire reservoir of social, of theoretical statements that allow us to make sense of history and now I want to become a little bit more 118 00:18:31.500 --> 00:18:40.860 and use a few examples to show what I have what I have in mind the first the 119 00:18:40.860 --> 00:18:48.060 first subject that I want to touch upon is the relationship between state and 120 00:18:48.060 --> 00:18:55.800 war something that has come up over and over and over again now is the 121 00:18:55.800 --> 00:19:17.300 Is the relationship between states and wars accidental, or do wars take place because of states, or do wars take place in spite of the existence of states? 122 00:19:17.300 --> 00:19:31.300 So, to a certain extent, we can say wars are, of course, accidental. If there would not have been Woodrow Wilson in place, maybe the United States would not have gone to war. 123 00:19:31.300 --> 00:19:39.300 If Hitler and Stalin would not have been in place, maybe a war would not have taken place. 124 00:19:39.300 --> 00:19:45.880 That is, a historian, when he explains specific events, World War I, World War II, and so forth, 125 00:19:45.880 --> 00:19:49.080 of course has to look also at these sorts of accidental things. 126 00:19:49.080 --> 00:19:53.580 There was Stalin in place at this point, and Hitler was in place, and so forth. 127 00:19:53.580 --> 00:20:00.380 But what I want to show is there exists also a systematic relationship between state and war 128 00:20:00.380 --> 00:20:03.820 in such a way that even if Stalin and Hitler would not have been, 129 00:20:03.820 --> 00:20:08.300 and World War I would not have broken out, and World War II would not have broken out, 130 00:20:08.300 --> 00:20:14.180 Other wars would have broken out. It's just a matter of time, so to speak, until this happens. 131 00:20:14.180 --> 00:20:17.460 Now, how can we show this? 132 00:20:17.460 --> 00:20:21.340 No, just take simply the definition of what a state is. 133 00:20:21.340 --> 00:20:26.940 A state is a territorial monopolist of taxation, 134 00:20:26.940 --> 00:20:34.100 and a state is an agency that is, in all cases of conflict, the ultimate judge, 135 00:20:34.100 --> 00:20:37.740 including conflicts that involve itself. 136 00:20:37.740 --> 00:21:06.540 Now, if such an entity exists as a state and if we assume, as we can assume easily, that every person prefers, so to speak, to have more resources and then we can deduce that, of course, an agency that can tax individuals will have a tendency to tax them more and more and more. 137 00:21:06.540 --> 00:21:25.700 And we can also deduce from the fact that a state is the ultimate judge in all conflicts, that he will decide in the course of time, so to speak, all conflict cases in such a way that laws will be perverted in its own favor. 138 00:21:25.700 --> 00:21:30.860 That follows simply from the fact that he is always the ultimate judge. 139 00:21:30.860 --> 00:21:33.460 Now, what have states to do with war? 140 00:21:33.460 --> 00:21:48.460 Imagine this, if you can tax other people, then it seems to be quite clear that you will tend to be more aggressive than you would be if you could not tax other individuals. 141 00:21:48.460 --> 00:21:59.460 If I want to beat you up and I would have to pay my own expenses to beat you up, I might think twice about it. 142 00:21:59.460 --> 00:22:12.460 On the other hand, if I can tax him and him and her, then whatever inherent aggressiveness I might have will be stimulated, so to speak. 143 00:22:12.460 --> 00:22:26.460 I will more likely engage in aggressive ventures because I can externalize my cost onto others. 144 00:22:26.460 --> 00:22:36.360 So there is an inherent tendency, so to speak, of wars or states are war-like institutions. 145 00:22:36.360 --> 00:22:47.460 States are by nature more aggressive than institutions that do not have the right to tax other individuals. 146 00:22:47.460 --> 00:22:53.660 Continuing in the same, along the same vein here, 147 00:22:53.660 --> 00:23:23.660 We can also predict that if a state has a right to tax, he will very quickly also acquire other means by which he can enrich himself, that is, he will establish a central bank, that is, he will, and I will explain that in a lecture tomorrow, that is, states have a tendency to try to establish themselves as a monopolist of production 148 00:23:23.660 --> 00:23:45.660 Now, if you have a state and a state has a central bank at its disposal, then the likelihood of wars increases even further, because rather than having to tax a population in order to fund your war, you can simply print up the money to do it. 149 00:23:45.660 --> 00:24:07.660 It is not an accident, so to speak, that the United States engaged in World War I, that is the first major war, so to speak, far away in the European continent against big, mighty powers in Europe at the moment when they had successfully established a central bank in 1913. 150 00:24:07.660 --> 00:24:20.660 Another deduction we can make, we already talk in various lectures here about the fact that there seems to be a tendency towards political concentration. 151 00:24:20.660 --> 00:24:30.660 That is, a thousand years ago we had in Europe thousands of independent political units, in the meantime we just have a few dozen. 152 00:24:30.660 --> 00:24:38.660 How can we explain this type of phenomena? And again, with elementary theory, it's very easy to see. 153 00:24:38.660 --> 00:24:47.660 I already explained states are war-like machineries, so if states get into interstate conflict, 154 00:24:47.660 --> 00:24:54.660 there will be obviously an eliminative competition taking place. 155 00:24:54.660 --> 00:25:08.660 It is impossible that on the same territory you can have more than one agency that is the ultimate judge and an institution that can tax, that can be only one of this. 156 00:25:08.660 --> 00:25:22.660 So if they get into conflict, then there will be gradual elimination of political units and there is a tendency towards political concentration ultimately until you end up with one world state. 157 00:25:22.660 --> 00:25:35.660 And another thing I can explain, that is, why is it, most of the talks here were concerned with American history, why is it that America is particularly aggressive? 158 00:25:35.660 --> 00:25:49.660 For that there exists also a very simple explanation. So given that all states are aggressive and tend to go to war, the question has to be which state will win and which state will lose in these wars? 159 00:25:49.660 --> 00:26:04.060 Given that all wars require economic resources, and economic resources that are used by the state in order to conduct the war are produced by the civilian population, 160 00:26:04.060 --> 00:26:24.060 can say that a state that is relatively liberal in the European sense, that is relatively free market oriented, will of course have a more prosperous population, that is, there are parasites, so to speak, on a more prosperous population, 161 00:26:24.060 --> 00:26:41.060 and knowing that you will win a war only if you have a productive population, it is easy to see that internally more liberal states will be conducting a more aggressive foreign policy than states that are internally more oppressive. 162 00:26:41.060 --> 00:26:53.060 This is something that Randians have never grasped. They always thought, for instance, that it was the United States that was a nice country as far as foreign policy was concerned 163 00:26:53.060 --> 00:27:23.060 The Soviet Union was a terrible place. No, the Soviet Union was a terrible place internally, but precisely because it was a terrible place internally, prosperity in the Soviet Union was so low that all the leaders in the Soviet Union of course knew that they would never have a chance to win an extended war, whereas the United States of course realizes that by and large they are the biggest bully of all, and they will get away with murder. 164 00:27:23.060 --> 00:27:40.100 now the second the second example how much time do I have still okay the 165 00:27:40.100 --> 00:27:51.020 second example that I want to discuss is example of socialism we all know what 166 00:27:51.020 --> 00:28:03.340 What sort of mess socialism created? What sort of impoverishment socialism created? 167 00:28:03.340 --> 00:28:12.440 Was this, so to speak, accidental? Was this because of socialism? Was this in spite of 168 00:28:12.440 --> 00:28:14.440 of Socialism. 169 00:28:14.440 --> 00:28:25.320 Now there are certainly many reasons that contributed to the mess that was created in 170 00:28:25.320 --> 00:28:28.600 the socialist countries. 171 00:28:28.600 --> 00:28:36.520 Stalin had certainly something to do with the fact that Russians tried it first and 172 00:28:36.520 --> 00:28:46.520 and a history of a certain kind that might have contributed to it. 173 00:28:46.520 --> 00:29:05.520 Let me read you a little explanation here given about the mess of socialism by one of the leading lights of economic historians in the United States 174 00:29:05.520 --> 00:29:30.520 In order to indicate what comes or what will be the result if you have not the faintest idea about theory that is from David Landis, The Wealth and Poverty of Nations, a very popular, best-selling book. 175 00:29:30.520 --> 00:29:40.800 and in this book he has a few pages about communism and I want to show to you how this 176 00:29:40.800 --> 00:29:48.160 man has not the faintest idea why socialism failed. 177 00:29:48.160 --> 00:29:55.600 So let me give you a dose of landers, but he writes for instance, the striking feature 178 00:29:55.600 --> 00:30:04.480 of these command economies, a la Russia, was a contradiction between system and pretensions 179 00:30:04.480 --> 00:30:12.880 on the one hand, performance on the other. The logic was impeccable. Experts would plan, 180 00:30:12.880 --> 00:30:21.160 zealots would compete in zeal, technology would tame nature, labor would make free and 181 00:30:21.160 --> 00:30:25.640 and the benefits would accrue to all. 182 00:30:25.640 --> 00:30:32.200 Now I ask you, is there even a glimpse of understanding of the problem here? 183 00:30:32.200 --> 00:30:38.280 I cannot really see it, and then he goes on, then he writes something like this. 184 00:30:38.280 --> 00:30:45.440 And this is, so to speak, the most theoretical part of his entire argument. 185 00:30:45.440 --> 00:30:54.440 Although the Russian state was capable of mobilizing resources for specific projects, 186 00:30:54.440 --> 00:31:00.940 technique was generally backward and overall performance shoddy. 187 00:31:00.940 --> 00:31:09.940 Except for caviar, vodka and folkloric mementos, nothing Russia made could compete in the world market. 188 00:31:09.940 --> 00:31:11.940 And then on and on for another page. 189 00:31:11.940 --> 00:31:20.940 No, I do not deny that this is a correct description, so to speak, but why is all of this? What is the explanation for this? 190 00:31:20.940 --> 00:31:27.940 And now he describes what is the essence of communism that brings these undesirable effects about. 191 00:31:27.940 --> 00:31:30.940 And Landis sums it up in this way. 192 00:31:30.940 --> 00:31:36.940 Some see this endemic mess as a dirty secret of the system. 193 00:31:36.940 --> 00:31:48.940 Rulers nourished privation by way of rewarding favorites, building desire in the ambitious and dulling the rest in the tedium of endless cues. 194 00:31:48.940 --> 00:31:56.940 The capitalist economies stimulated labor by the prospect of reward. Communism offered singing to morals. 195 00:31:56.940 --> 00:32:06.940 The worst aspect of the system, however, was its indifference to, nay, its contempt for good housekeeping and human decency. 196 00:32:06.940 --> 00:32:19.940 Prosperity foregone was bad enough. In a world that had once created and still preserved some beautiful things, the new system mass-produced ugliness. 197 00:32:19.940 --> 00:32:42.940 So this is a theory. There were not decent housekeepers there. If Stalin would have been a nicer man and took care better of his normal housekeeping duties, then all of these things would have been somehow unnecessary. 198 00:32:42.940 --> 00:32:54.620 Now, again, if you know a little bit of economic theory, then of course it is comparatively 199 00:32:54.620 --> 00:33:02.060 easy to explain not the details of the mess that these guys created, but the general fact 200 00:33:02.060 --> 00:33:06.580 that a mess would have to result from it. 201 00:33:06.580 --> 00:33:14.580 So, Landis does not even describe what social, what so to speak, the definition of socialism is. 202 00:33:14.580 --> 00:33:20.580 What is the definition of socialism? That all factors of production, all land, all factories, 203 00:33:20.580 --> 00:33:26.580 every machinery, all capital goods are government controlled. 204 00:33:26.580 --> 00:33:31.580 There is no private ownership in factors of production. 205 00:33:31.580 --> 00:33:42.580 Now, if there exists no ownership in factors of production, then it is easy to see that certain things must necessarily result. 206 00:33:42.580 --> 00:33:55.580 The first thing is, of course, if there is no private ownership in factors of production, then the question is, will there be savings and capital accumulation? 207 00:33:55.580 --> 00:34:11.580 And it seems to be quite straightforward that if nobody owns any factory, if nobody owns any real estate, why should they save as much as people would if they would own something? 208 00:34:11.580 --> 00:34:21.580 That is easy to see that capital will be depleted, that people will not repair things as they otherwise would. 209 00:34:21.580 --> 00:34:31.580 If there is no private owner of things, then why would people produce as much as they would if they were a private owner? 210 00:34:31.580 --> 00:34:33.580 It's also very easy to see. 211 00:34:33.580 --> 00:34:41.580 And the most important argument that was developed by Mises is, of course, 212 00:34:41.580 --> 00:34:53.580 Look, if there is no private property in factors of production, then there exists by definition, so to speak, no prices for them. 213 00:34:53.580 --> 00:35:04.580 The government can shuffle around these goods from one place to another and give them to this group or that group, but no prices are ever paid for factors of production. 214 00:35:04.580 --> 00:35:10.580 I do not know what the value of this piece of land is as compared with this piece of land. 215 00:35:10.580 --> 00:35:30.580 And if I don't have any prices for factors of production, then I cannot possibly engage in cost accounting, that is, I cannot determine whether the resources that I used in order to produce something were more valuable than what the output is, or less valuable than the output is. 216 00:35:30.580 --> 00:35:36.460 These sources that are used in order to produce something were more valuable than what the 217 00:35:36.460 --> 00:35:42.160 output is or less valuable than the output is. 218 00:35:42.160 --> 00:35:47.660 In capitalism, with private ownership in factors of production, every businessman, day in and 219 00:35:47.660 --> 00:35:53.160 day out, compares, so to speak, the prices that he pays for the input with the prices 220 00:35:53.160 --> 00:35:56.660 that he gets for the output that he produces. 221 00:35:56.660 --> 00:36:02.420 And if the output prices are higher than what he paid for the input prices, then he knows, 222 00:36:02.420 --> 00:36:08.100 hey, I did not waste these resources, these scarce resources in order to produce what 223 00:36:08.100 --> 00:36:09.100 I produced. 224 00:36:09.100 --> 00:36:15.180 On the other hand, if he finds that the factors of production were more expensive than what 225 00:36:15.180 --> 00:36:20.900 he gets for the output, then he knows I'm wasting valuable resources in order to produce 226 00:36:20.900 --> 00:36:26.140 something that is less valuable than what went into it, and accordingly he will immediately 227 00:36:26.140 --> 00:36:35.140 Please stop it. None of this can be done under socialism, and Landers has not the faintest idea about it. 228 00:36:35.140 --> 00:36:44.140 That is, again, it is not an accident. It is not that Stalin was not a good housekeeper, but Trotsky might have been a far better housekeeper. 229 00:36:44.140 --> 00:36:53.140 Trotsky could not have done it any better than Stalin did it. 230 00:36:53.140 --> 00:37:15.140 The last example that I want to give has also something to do with socialism and again trying to show how theoretical propositions help us to understand certain things better than if we would not have SIS. 231 00:37:15.140 --> 00:37:26.140 In the last 20 years of socialism, communism, we observed that the life expectancy in Russia actually declined, 232 00:37:26.140 --> 00:37:32.140 that the health conditions in Russia deteriorated. 233 00:37:32.140 --> 00:37:37.140 Now, again, there exist, of course, many non-systematic reasons for this. 234 00:37:37.140 --> 00:37:42.140 The Russians drink too much vodka, and they smoke too much, and they might have lousy doctors, 235 00:37:42.140 --> 00:38:00.140 There might have been doctors and there might have been bugs that contributed to all of this, but there exists again a systematic explanation for this deterioration of health and decline in life expectancy. 236 00:38:00.140 --> 00:38:09.140 You realize, of course, that in the rest of the world, so to speak, life expectancy went up. Why did they go down in those places? 237 00:38:09.140 --> 00:38:18.140 Well, the theory that can be used to explain this is to go something like this. 238 00:38:18.140 --> 00:38:33.140 The Soviet Union and countries such as the Soviet Union were examples of what one might call public slavery. 239 00:38:33.140 --> 00:38:45.700 Slavery is characterized by the fact that the slave cannot run away, and that was the case in the former East Block countries. 240 00:38:45.700 --> 00:38:52.700 If people wanted to run away, they would be shot down, that is, they could be captured. 241 00:38:52.700 --> 00:39:06.460 And secondly, the second characteristic of slavery is, of course, that the slave owner can assign people to work, that is, they are not allowed to hang around. 242 00:39:06.460 --> 00:39:21.420 So in this sense, the Soviet Union fulfilled the qualification of slavery, but it was, of course, not slavery in the same sense as we had slavery in the United States, 243 00:39:21.420 --> 00:39:37.420 where we had privately owned slaves. If you own a slave privately, would you be able to explain that life expectancy and also things like abortions and so forth, that they would constantly increase? 244 00:39:37.420 --> 00:39:46.420 And the answer is of course no. Under private slavery, actually the tendency was for life expectancy to rise. That is in the interest of the private slave owner. 245 00:39:46.420 --> 00:39:53.420 Fertility rates, similar to regular population rates, is in the interest of the slave owner. 246 00:39:53.420 --> 00:40:00.420 Now, what is different in the Soviet system slavery is the slaves are not privately owned. 247 00:40:00.420 --> 00:40:09.420 Gorbachev and Stalin and Brezhnev and these guys, they could not sell you on the market 248 00:40:09.420 --> 00:40:15.420 and then keep the receipt or rent you out and pocket the money themselves. 249 00:40:15.420 --> 00:40:44.420 themselves. But what they could do of course was make use of you, assign you to this, assign you to that and so forth. And they had only temporary ownership, temporary caretakership of the population. Now if that is the case, if you are just a temporary caretaker without being a genuine owner of the slaves, what will you do? You will engage in capital consumption. 250 00:40:45.420 --> 00:40:54.420 That is to say, you will waste, you will waste people, you can replace them by others, you don't have to buy them in the slave market, they are already there. 251 00:40:54.420 --> 00:41:08.420 So if they die, you just take somebody else to do it. And this, again, this institution, so to speak, of publicly owned slavery, 252 00:41:08.420 --> 00:41:16.020 It's the explanation why we observe this anomaly of life expectancies going down. 253 00:41:16.020 --> 00:41:26.420 Just imagine how likely is it that a private slave owner will actually do the act of ultimate capital consumption, is kill the slave. 254 00:41:26.420 --> 00:41:35.420 The answer is that is a very unlikely event. After all, you also don't kill your cows if you are a cow owner. 255 00:41:35.420 --> 00:41:42.420 But if you are just a caretaker of the cow, you can make use of the cow but you cannot sell it in the market, 256 00:41:42.420 --> 00:41:53.420 then killing the cow might be something that is at least not as important to you as it otherwise would be. 257 00:41:53.420 --> 00:41:59.420 I think with that I'll stop and take some questions. 258 00:42:05.420 --> 00:42:07.420 Thank you very much.