WEBVTT

NOTE A Copernican Shift

1
00:00:00.000 --> 00:00:07.000
Good morning and welcome to our fifth lecture in the seminar dealing with the lifetimes and work of Ludwig von Mises.

2
00:00:07.000 --> 00:00:18.000
This morning we are dealing with Mises' socialist calculation argument in a chapter that I call the Copernican shift.

3
00:00:18.000 --> 00:00:25.000
It's a reference to the complete reorientation in scientific thinking that arrived with Copernicus.

4
00:00:25.000 --> 00:00:30.000
As you know, Copernicus was said to be, actually he was not,

5
00:00:30.000 --> 00:00:36.000
he was said to be the first scientist who conceived that actually the Earth was turning around the Sun,

6
00:00:36.000 --> 00:00:42.000
whereas all previous people, scholars had believed, according to this account,

7
00:00:42.000 --> 00:00:47.000
that it was the other way around, that the Sun was turning around the Earth.

8
00:00:47.000 --> 00:00:54.000
Now, it's a little bit the same thing here, because Mises completely reshaped the debate about socialism

9
00:00:54.000 --> 00:01:10.000
And before Mises it was commonly taken for granted that socialism could work and could by and large use the same techniques of management and economic organization as capitalist economies

10
00:01:10.000 --> 00:01:17.000
And Mises fundamentally put this contention into question and he showed that it was not true

11
00:01:17.000 --> 00:01:24.000
So it's not true that we can use the same techniques and organizational procedures in the two systems.

12
00:01:24.000 --> 00:01:34.000
So we have here Copernican shift, and I deal with this Copernican shift in two chapters of the Mises biography.

13
00:01:34.000 --> 00:01:44.000
The first one concerning the publication of the paper in which Mises put forward this socialist calculation argument,

14
00:01:44.000 --> 00:01:50.000
a 1920 paper with the title Economic Calculation in the Socialist Commonwealth

15
00:01:50.000 --> 00:01:58.000
and then I have another chapter dealing with the Treaties on Socialism that he published two years later in 1922

16
00:01:58.000 --> 00:02:04.000
a book with the title Die Gemeindwirtschaft, the Commonwealth, translated in English as Socialism

17
00:02:04.000 --> 00:02:07.000
and it is a true Treatise on Socialism.

18
00:02:07.000 --> 00:02:19.000
Now, since our time is limited, I'll focus heavily on this first publication, the paper, the 1920 paper, and give some intellectual background.

19
00:02:19.000 --> 00:02:30.000
So, we'll talk about the emergence of the paper, what were the predecessors, what was the intellectual context,

20
00:02:30.000 --> 00:02:40.000
Then how Mises' arguments triumphed, and they had an immediate and very strong impact on economic thought in those days.

21
00:02:40.000 --> 00:02:51.000
And then also explain why their impact was finally also limited, even though it was a firestorm created at the publication.

22
00:02:51.000 --> 00:03:00.000
The longer term impact only arised as from the 1940s when Mises could present a full picture of a socialist calculation argument.

23
00:03:00.000 --> 00:03:09.000
And then at the end of my talk I'll briefly, we'll see how much time will be left, I'll briefly come to talk about his treatise on socialism

24
00:03:09.000 --> 00:03:13.000
and point out the main contributions that he makes in this book.

25
00:03:13.000 --> 00:03:33.000
1919, we have said the socialists suddenly were in power. Their success was somewhat mitigated from the February elections in Austria, but in other countries they had a very sweeping success.

26
00:03:33.000 --> 00:03:43.000
There were in fact communist dictatorships in Hungary and Bavaria and these lasted several months throughout 1919.

27
00:03:43.000 --> 00:03:50.000
So until roughly speaking the summer of 1919, anything seemed to go, anything was possible in central Europe.

28
00:03:50.000 --> 00:03:57.000
The central powers had been shaken, were bankrupt, out of funds, demoralized.

29
00:03:57.000 --> 00:04:07.000
The economic and political establishment was driven out of power and the socialists were in place

30
00:04:07.000 --> 00:04:17.000
and they could have, if they had the determination to do it, established a socialist political regime.

31
00:04:17.000 --> 00:04:26.000
Now yesterday we've seen that in the case of the Vienna socialists they didn't do it because they finally came to be convinced by Mises' argument

32
00:04:26.000 --> 00:04:33.000
This is why Mises' argument that this would be a very short-lived experience in the winter of 1918-1919

33
00:04:33.000 --> 00:04:40.000
because they could not overcome the problem of food supplies, which would have lasted only eight days.

34
00:04:40.000 --> 00:04:45.000
But this, of course, would not have been a decisive consideration in the longer run.

35
00:04:45.000 --> 00:04:48.000
You wait for the spring, you wait for the summer, the harvest comes in and so on,

36
00:04:48.000 --> 00:04:53.000
you'll be sure to survive for a couple of weeks and even months if necessary,

37
00:04:53.000 --> 00:04:56.000
will be able possibly to set up your socialist experiment.

38
00:04:56.000 --> 00:04:59.000
So, why didn't they do it?

39
00:04:59.000 --> 00:05:05.000
And the answer is that they were intellectually completely unprepared.

40
00:05:05.000 --> 00:05:10.000
And this is something that Mises first underscored, but he was not the only one.

41
00:05:10.000 --> 00:05:16.000
Later historians, be they sympathetic to Mises' cause or be they socialists,

42
00:05:16.000 --> 00:05:19.000
underlined exactly the same point.

43
00:05:19.000 --> 00:05:27.000
The socialist leadership of those days was intellectually unprepared for the challenges it was now facing because the great question was,

44
00:05:27.000 --> 00:05:35.000
okay, not only how do you socialize? Well, this might be simply a matter of the will and a technical question.

45
00:05:35.000 --> 00:05:43.000
You just abolish private property in the means of production. You say now the government is the representative of the nation as a whole,

46
00:05:43.000 --> 00:05:52.000
The nation as a whole or society as a whole is from now on the only owner of all factors of production, of all production sides and so on.

47
00:05:52.000 --> 00:06:00.000
That's one thing, but then the question is how do you manage actually the socialist economy? How do you run it?

48
00:06:00.000 --> 00:06:10.000
According to what are your criteria to make production decisions, that is setting up new plans for example or shutting down old plans,

49
00:06:10.000 --> 00:06:15.000
extending production to its extent and so on.

50
00:06:15.000 --> 00:06:31.000
Why this unpreparedness? Why did the socialists not care to address in previous writings, in previous reflections, this rather obvious question?

51
00:06:31.000 --> 00:06:39.000
The answer is that Karl Marx himself had shut down any discussion of this question as unscientific.

52
00:06:39.000 --> 00:06:47.000
You have to remember that Karl Marx proposed a thesis that socialism was not a question of the will,

53
00:06:47.000 --> 00:06:59.000
the advent of socialism was a matter of natural law. Marx thought that he had understood the laws according to which

54
00:06:59.000 --> 00:07:05.000
which the social world transformed itself in the course of time, the historical laws of change of human society,

55
00:07:05.000 --> 00:07:11.000
and according to these laws it was a matter of necessity that one day or another socialism would just arrive.

56
00:07:11.000 --> 00:07:22.000
And since this was completely independent of the human will, well it was just completely unnecessary and even small-minded

57
00:07:22.000 --> 00:07:30.000
to raise the question, how this would work, well, it would simply be there at some point and then, well, people would know how to run it.

58
00:07:30.000 --> 00:07:38.000
Okay, and the most plausible scenario that he gave was, of course, that, well, you have an increasing concentration of production,

59
00:07:38.000 --> 00:07:47.000
monopolization tendency in capitalism, creation of ever greater monopolies, until at the very end, you just have one monopoly,

60
00:07:47.000 --> 00:07:54.000
One firm running the entire country, and then you just topple the management of this firm by the government,

61
00:07:54.000 --> 00:08:00.000
representative of the proletariat, and you just do what they always did before.

62
00:08:00.000 --> 00:08:08.000
You just go on pushing on the same buttons and so on. That was about the most plausible scenario that Marx would offer.

63
00:08:08.000 --> 00:08:21.000
Now, whatever the legitimacy or pertinence of this point of view, in any case it was not at all the situation that the socialists in Central Europe confronted in 1919.

64
00:08:21.000 --> 00:08:34.000
There was no one big monopoly running all the country. There were still lots of firms, there was still a market economy, despite the centralizing tendency of the boy economy.

65
00:08:34.000 --> 00:08:46.000
Decision making was to a very large extent still decentralized, and whatever the pertinence of the Marxian precept might have been, well, it could not be directly applied.

66
00:08:46.000 --> 00:09:03.000
And the socialists did not have an answer either. Otto Bauer did not have an answer, Max Adler did not have an answer, and Karl Kautsky, the number one theoretician and prime authority in all questions Marxist,

67
00:09:03.000 --> 00:09:26.000
In this context, in the fall of 1919, Mises writes his paper on the problem of economic calculation, which was meant to be a part of his new treatise on socialism.

68
00:09:26.000 --> 00:09:36.000
He must have started working on this directly after the publication of the previous book in which he analyzed the causes of World War I

69
00:09:36.000 --> 00:09:41.000
and the further consequences of the book with the title Nation, State and Economy.

70
00:09:41.000 --> 00:09:46.000
I have in the Mises biography a chapter dedicated to this book.

71
00:09:46.000 --> 00:09:51.000
I completely neglected it in the seminar. Well, simply we cannot do everything.

72
00:09:51.000 --> 00:10:02.000
So there is, after all, a reason for those of you who find this stuff interesting to buy the book and read the chapter.

73
00:10:02.000 --> 00:10:16.000
So in any case, I might say that in this book he anticipates several of his main thesis that he develops more fully throughout the 1920s, but we'll leave it at that.

74
00:10:16.000 --> 00:10:26.000
So he publishes this book in the summer of 1919 and supposedly he must have started working on his treatise on socialism immediately thereafter.

75
00:10:26.000 --> 00:10:32.000
And the way he does this was work in the evening and night hours.

76
00:10:32.000 --> 00:10:44.000
He is after all a full-time day job at the Chamber of Commerce, teaching a seminar, his various obligations as a member of the government.

77
00:10:44.000 --> 00:10:49.000
and so the only time left to write any such thing is in the evening hours.

78
00:10:49.000 --> 00:10:56.000
So now we can in retrospect say, well, thanks be to God that Mises was not married and had children and so on

79
00:10:56.000 --> 00:10:59.000
because this would not have left him any time to do it.

80
00:10:59.000 --> 00:11:05.000
So he returns home and well, he's still full of energy and sets out to write.

81
00:11:05.000 --> 00:11:12.000
Think and write, well, whatever, four, five, six hours sometimes into the night

82
00:11:12.000 --> 00:11:17.000
and then finally creates a treatise of some 500 pages in the course of two years.

83
00:11:22.000 --> 00:11:35.000
He had a good incentive to hurry up with this work because there was another slight chance that he might obtain a chair of economics at the University of Vienna

84
00:11:35.000 --> 00:11:43.000
and the University of Vienna, because Friedrich von Wieser was up to retirement, he was up to retire in 1922,

85
00:11:43.000 --> 00:11:51.000
so if Mises by then could have published a third book, a major book, this might have greatly increased his chances,

86
00:11:51.000 --> 00:11:58.000
and in fact he managed to publish this book just at the time when Wieser retired and there was therefore this opening,

87
00:11:58.000 --> 00:12:04.000
but it didn't help him, he was another person who got the job, who had not published even a single book at this time,

88
00:12:04.000 --> 00:12:09.000
Well, this might be injustice, but that's how things are still today.

89
00:12:09.000 --> 00:12:20.000
So in a nation state and economy, Mises had laid the groundwork in a way for the argument that he would now develop more fully.

90
00:12:20.000 --> 00:12:32.000
First of all, he had discussed the traditional argument brought up against socialist experiments,

91
00:12:32.000 --> 00:12:53.000
Supplements, namely that it would greatly diminish the incentives for people to work and if you are paid according to your needs, everybody should work according to his abilities and be paid according to his needs and of course the incentive to work is not very great because you are paid according to your needs.

92
00:12:53.000 --> 00:13:00.000
The needs remain whether you have worked hard or whether you have been sloppy.

93
00:13:00.000 --> 00:13:07.000
Now the socialist responded to this, that in a socialist society things would be completely different.

94
00:13:07.000 --> 00:13:13.000
Incentives would no longer be what they were before. Suddenly there would be a joy of work.

95
00:13:13.000 --> 00:13:21.000
Work would no longer be a nuisance, no longer be bearing on the workers, but would be joyful,

96
00:13:21.000 --> 00:13:28.000
because now finally they would not work for somebody else, for the evil capitalist, but for themselves.

97
00:13:28.000 --> 00:13:35.000
They are all co-owners and now they enjoy exploiting the full potential of their work.

98
00:13:35.000 --> 00:13:46.000
Now, Mises retorted to this rather dryly that if ever there was such a society in which people had a very strong collective identity

99
00:13:46.000 --> 00:13:53.000
and were ready to sacrifice themselves for the common cause, this was Germany under Bismarck.

100
00:13:53.000 --> 00:14:01.000
and now Mises observed, well even in Germany it did not work and he had the fresh experience of the war years

101
00:14:01.000 --> 00:14:11.000
and in fact if you, I encourage those of you who are interested in these things to read good accounts, detailed accounts of the German war economy in World War I

102
00:14:11.000 --> 00:14:26.000
in World War I and it was great effort, goodwill on the side of the overwhelming majority of the population to support the government in its activities.

103
00:14:26.000 --> 00:14:39.000
Just to give you one example, the Germans contributed voluntarily and speedily to a gold collection to prop up the gold reserves of the central bank.

104
00:14:39.000 --> 00:14:46.000
Okay, so whereas in all other kind of, typically when you create a paper money which was done in Germany at the beginning of the war to finance the war,

105
00:14:46.000 --> 00:14:56.000
you thought well all people hold back with their gold, they hoard their gold coins because they know well the gold coins will now only be worth the same thing as the devalued paper.

106
00:14:56.000 --> 00:15:06.000
In Germany it was the opposite that happened, the people now readily delivered their gold to the central bank and this was not compulsory,

107
00:15:06.000 --> 00:15:10.000
was just a voluntary collection and people did this.

108
00:15:10.000 --> 00:15:17.000
There was some imposition of this legal obligation to surrender one's gold,

109
00:15:17.000 --> 00:15:20.000
but only at the very end of the war, 1917-1918.

110
00:15:20.000 --> 00:15:24.000
So in the first two or three years of the war,

111
00:15:24.000 --> 00:15:28.000
the people were happy to give their gold to the government.

112
00:15:28.000 --> 00:15:32.000
So you have, in a way from a psychological point of view,

113
00:15:32.000 --> 00:15:40.000
You have the ideal population that apparently epitomizes the socialist ideal man as a collectivist mind.

114
00:15:40.000 --> 00:15:48.000
And now Mises says, even with these people, unheard of phenomenon in the history of mankind, it did not work.

115
00:15:48.000 --> 00:15:56.000
They just ran down the economy, or as I've quoted him yesterday, they organized defeat.

116
00:15:56.000 --> 00:16:08.000
Then second, he brought up a very different consideration and it is this consideration that he would fully now develop in his new paper.

117
00:16:08.000 --> 00:16:14.000
So in Nation, State and Economy, he pointed out that monetary calculation also, as he said,

118
00:16:14.000 --> 00:16:22.000
value calculation has a very important role to play in allocating factors of production, that is allocating capital goods.

119
00:16:22.000 --> 00:16:27.000
or still, in other words, in organizing production.

120
00:16:27.000 --> 00:16:32.000
This problem, Mises pointed out, did not exist in a static society.

121
00:16:32.000 --> 00:16:38.000
That is, in a society in which all things would simply repeat themselves from one day to another.

122
00:16:38.000 --> 00:16:40.000
It's always the same routine that's going on.

123
00:16:40.000 --> 00:16:44.000
Here you would not need necessarily something like value calculation

124
00:16:44.000 --> 00:16:49.000
because you would simply repeat what you did the day before.

125
00:16:49.000 --> 00:16:55.000
But things are very different once you have a dynamic economy, that is an economy that is subject to change.

126
00:16:55.000 --> 00:17:02.000
Here, factors of production are used up, they are destroyed in the process of production,

127
00:17:02.000 --> 00:17:09.000
and the new production processes that you launch are not necessarily repetitions of what you did in the past,

128
00:17:09.000 --> 00:17:11.000
it's sometimes something new.

129
00:17:11.000 --> 00:17:17.000
So how do you know which production processes are more important than others?

130
00:17:17.000 --> 00:17:25.000
We still have the problem of scarcity. We still need to decide out of the uncountable production possibilities,

131
00:17:25.000 --> 00:17:32.000
the uncountable production projects, that we could realize which are the ones that are here and now the most important ones.

132
00:17:32.000 --> 00:17:38.000
How do we know? And here it says, well, value calculus comes into play.

133
00:17:38.000 --> 00:17:46.000
It delivers us a criterion to decide which production projects are more important than other ones.

134
00:17:46.000 --> 00:17:54.000
So we have an ordinal ranking of production projects and we can cut short within the constraints of our budget.

135
00:17:54.000 --> 00:17:57.000
We realize only the most important ones.

136
00:17:57.000 --> 00:18:13.000
Now he presented his new paper in early January 1920 in a talk at the Nationalökonomische Gesellschaft, the economics club that he himself had set up already before the war

137
00:18:13.000 --> 00:18:19.000
which now involved no longer the students that they were before but established scholars.

138
00:18:19.000 --> 00:18:26.000
And here, he first stressed this point again, economic calculus is vital for factor allocation.

139
00:18:26.000 --> 00:18:31.000
And there, by and large, there was no disagreement between him and his audience.

140
00:18:31.000 --> 00:18:37.000
Well, who was the audience? His friends, as I said, well, it was not only friends, not only buddies,

141
00:18:37.000 --> 00:18:41.000
but good acquaintances, people who would respect one another.

142
00:18:41.000 --> 00:18:48.000
And they were either interventionist or outright socialist.

143
00:18:48.000 --> 00:18:51.000
So, by and large, that was the audience.

144
00:18:51.000 --> 00:18:59.000
It was next to him, no classical liberal in this club.

145
00:18:59.000 --> 00:19:08.000
Now, but then Mises made two, proposed two central points.

146
00:19:08.000 --> 00:19:22.000
First, you know, argued that socialist societies cannot rely on economic calculation in the same way as capital societies can do this.

147
00:19:23.000 --> 00:19:32.000
Why is this so? The calculus that we perform or that a businessman performs relies on money prices.

148
00:19:32.000 --> 00:19:46.000
And what he essentially does is to compare the spending streams, that is the selling receipts that he obtains for his products

149
00:19:46.000 --> 00:19:50.000
to the cost expenditure that he makes on factors of production.

150
00:19:50.000 --> 00:19:59.000
Let's say he has two investment projects, the first one he obtains $120,000 and he spends $100,000

151
00:19:59.000 --> 00:20:05.000
In the other one he obtains $130,000 and he will have to spend $100,000.

152
00:20:05.000 --> 00:20:10.000
So the first one he obtains then 20% return on investment and in the second one 30%.

153
00:20:10.000 --> 00:20:17.000
So he has a criterion to compare these two action alternatives.

154
00:20:17.000 --> 00:20:21.000
So that's the essence of the economic calculation.

155
00:20:21.000 --> 00:20:34.000
But obviously it relies on previously existing money prices, strictly speaking not previously existing but potentially existing money prices

156
00:20:34.000 --> 00:20:42.000
because your comparison is run in terms of money prices. This is what makes heterogeneous goods comparable.

157
00:20:42.000 --> 00:20:54.000
The products resulting from the first production process may be milk and the products resulting from the second production process may be a concerto.

158
00:20:54.000 --> 00:20:59.000
These products are physically heterogeneous, you cannot compare them.

159
00:20:59.000 --> 00:21:03.000
The factors of production needed for the two of them are different too.

160
00:21:03.000 --> 00:21:08.000
In order to produce milk you need among other things cows or maybe goats.

161
00:21:08.000 --> 00:21:14.000
And in order to produce a concerto you need musicians, so training for musicians also.

162
00:21:14.000 --> 00:21:22.000
Instruments, that's not the same thing as cows, so you have heterogeneous, physically heterogeneous economic goods.

163
00:21:22.000 --> 00:21:31.000
You cannot compare them in terms of a common unit in a water economy, but you can compare them in terms of money prices.

164
00:21:31.000 --> 00:21:37.000
Now, why is such a thing not possible in the case of a socialist economy?

165
00:21:37.000 --> 00:21:46.000
Well, because in a socialist economy you have by definition only one owner of all means of production.

166
00:21:46.000 --> 00:21:51.000
All factors of production are owned by the government or by society if you wish.

167
00:21:51.000 --> 00:21:56.000
But if there is just one owner, then there can be no exchange.

168
00:21:56.000 --> 00:22:01.000
There can be no exchange. There cannot be exchange against one another.

169
00:22:01.000 --> 00:22:05.000
And if there is no exchange, then obviously there is no money price.

170
00:22:05.000 --> 00:22:15.000
So in such an economy, only consumer goods could, at the very best, have money prices, but not factors of production.

171
00:22:15.000 --> 00:22:23.000
As a consequence, you cannot compare the prices for consumer goods with the prices of factors of production because the latter do not exist.

172
00:22:23.000 --> 00:22:29.000
And as a consequence you can also not compare the profitabilities of different investment projects.

173
00:22:29.000 --> 00:22:42.000
So the thesis holds, in a socialist society one cannot rely on price accounting as one can in a capitalist society.

174
00:22:42.000 --> 00:22:52.000
Now comes thesis number two, and Mises says, well, and there is by the way no other way to perform economic calculation.

175
00:22:52.000 --> 00:23:02.000
You cannot perform economic calculation in terms of labor units, for example, because, well, first of all, there are other factors of production besides labor.

176
00:23:02.000 --> 00:23:14.000
And second, labor is heterogeneous too. You cannot compare the precious work of Richard Perry with the meager services of Matthew Mackay.

177
00:23:14.000 --> 00:23:20.000
It's not obvious how you could compare them, it's not the same thing.

178
00:23:20.000 --> 00:23:26.000
So we don't have an homogeneous unity, you cannot perform an economic calculus.

179
00:23:26.000 --> 00:23:40.000
Okay, so now Mises has proposed a fundamental challenge to all those who want to run, want to manage a socialist society.

180
00:23:40.000 --> 00:23:54.000
If his argument holds true, then we have a fundamental problem here that has nothing to do with any psychological disposition or incentive problem as it had been traditionally stressed by the 19th century classical liberals.

181
00:23:54.000 --> 00:24:04.000
Still it would hold true that people have incentive problems, or maybe they have not, or maybe it's in fact true that there would be a new socialist man,

182
00:24:04.000 --> 00:24:11.000
But even if there were a new socialist man full of the best will and ready to sacrifice himself entirely to the common cause,

183
00:24:11.000 --> 00:24:20.000
even if he were imbued with the Holy Ghost and were angel-like, moving through the economy, he could not calculate.

184
00:24:20.000 --> 00:24:37.000
So we have the fundamental criterion that is taken by both socialist and economist to be the embodiment of economic rationality does not exist in a socialist society.

185
00:24:37.000 --> 00:24:42.000
What was the intellectual context of this argument?

186
00:24:42.000 --> 00:24:52.000
What Mises' thesis amounts to is in fact a refoundation of the theory of production along completely new lines.

187
00:24:52.000 --> 00:25:02.000
If Mises is right, then at the center of the economic theory of production, how things are being produced, is the theory of economic calculation.

188
00:25:02.000 --> 00:25:12.000
And in fact, that's exactly what he will explain in Mordita in the 1940s when he publishes his treatises of economics.

189
00:25:12.000 --> 00:25:19.000
Both national economy and the English language successor, Human Action, have the same structure.

190
00:25:19.000 --> 00:25:26.000
Mises first deals with human action in a world without market prices.

191
00:25:26.000 --> 00:25:37.000
First, human action even outside of society, isolated human action, then human action in society but not yet with market prices.

192
00:25:37.000 --> 00:25:43.000
And then comes a third part in the book in which it deals with the theory of economic calculation.

193
00:25:43.000 --> 00:25:49.000
And only once we have dealt with economic calculation can we meaningfully talk about the market economy.

194
00:25:49.000 --> 00:25:55.000
Because the distinguishing characteristic of a market economy is the possibility to calculate.

195
00:25:55.000 --> 00:26:04.000
and then you can go on and discuss other forms of social cooperation like interventionism and socialism.

196
00:26:04.000 --> 00:26:18.000
But doing so, this new approach to the theory of production fundamentally contradicted the prevailing wisdom at the time

197
00:26:18.000 --> 00:26:33.000
which was embodied in John Stuart Mill's dogma that production and distribution were two completely disjointed economic problems.

198
00:26:33.000 --> 00:26:41.000
The distinction between production, distribution and consumption goes back to Jean-Baptiste Say,

199
00:26:41.000 --> 00:26:51.000
I suggest this division, but Say had not necessarily believed that you could separate these things for pedagogical exposition.

200
00:26:51.000 --> 00:27:03.000
That does not mean that they are completely disjointed phenomena. That's what Mill claimed. Mill said, in fact, we have here separate problems.

201
00:27:03.000 --> 00:27:08.000
I will quote for you from John Stuart Mill. He says,

202
00:27:08.000 --> 00:27:13.000
It is evident that of the two great departments of political economy,

203
00:27:13.000 --> 00:27:17.000
the production of wealth and its distribution,

204
00:27:17.000 --> 00:27:22.000
the consideration of value has to do with the latter alone.

205
00:27:22.000 --> 00:27:24.000
It is only with distribution.

206
00:27:24.000 --> 00:27:32.000
And with that only so far as competition and not usage or custom is the distributing agency.

207
00:27:32.000 --> 00:27:42.000
The conditions and laws of production would be the same as they are if the arrangements of society did not depend on exchange or did not admit of it.

208
00:27:43.000 --> 00:27:54.000
So, value theory, price theory also, concerns only distribution within a market economy.

209
00:27:54.000 --> 00:28:04.000
does not even concern distribution in a socialist economy or whatever other economy there might be and it has nothing at all to do with production.

210
00:28:04.000 --> 00:28:14.000
Production is a purely technological problem that would therefore be addressed in exactly the same way in a market economy as in any other type of economy.

211
00:28:14.000 --> 00:28:26.000
Now this was also the prevailing wisdom in Austria, in particular in the work of Frederic von Wieser,

212
00:28:26.000 --> 00:28:31.000
about whom we have already talked and who will still occupy his IAS tomorrow.

213
00:28:31.000 --> 00:28:38.000
Only Wieser was original in that he turned Mill's scheme upside down.

214
00:28:38.000 --> 00:28:51.000
These are agreed with Mill that the two realms of production and distribution were completely separate, but he argued that value theory concerned production,

215
00:28:51.000 --> 00:29:00.000
and that in fact it was a universal theory concerning production in any type of social organization, socialism and capitalism.

216
00:29:00.000 --> 00:29:09.000
Whereas distribution had nothing to do with value whatsoever, distribution could occur according to virtually any criterion,

217
00:29:09.000 --> 00:29:19.000
exchange of property rights in a market economy but also subsidies being paid out of a common purse in a socialist economy and so on.

218
00:29:19.000 --> 00:29:33.000
So, value theory is a truly universal theory of production and it is truly in terms of value that the economic calculus is being performed,

219
00:29:33.000 --> 00:29:46.000
not necessarily in terms of money. Money is just one particular case. Money accounting, money price accounting is just one particular case of value calculus.

220
00:29:46.000 --> 00:29:59.000
Now this prevailing wisdom had come under attack from the young Russian Marxists by the name of Nikolai Bukharin.

221
00:29:59.000 --> 00:30:10.000
Bukharin later on became the chief economist in the Soviet Union and he was in the early 1900s a member of Boehm-Bawerk seminar.

222
00:30:10.000 --> 00:30:16.000
He wanted to inform himself first hand about the doctrines of the Austrian School.

223
00:30:16.000 --> 00:30:30.000
And Bukharin then published a book in which he criticized the Austrian Value Theory.

224
00:30:30.000 --> 00:30:40.000
And the title of the book is, I believe, the economic theory of the leisure class.

225
00:30:40.000 --> 00:30:45.000
The economic theory of the leisure class, that's the English title.

226
00:30:45.000 --> 00:30:50.000
Here, Bukharian argued that value theory is not universal.

227
00:30:50.000 --> 00:30:57.000
As a matter of fact, it is not universal because the market prices being paid in a capitalist economy

228
00:30:57.000 --> 00:31:03.000
did not just depend on available quantities and human needs.

229
00:31:03.000 --> 00:31:08.000
They also depended on lots of contingent factors such as property rights and so on.

230
00:31:08.000 --> 00:31:16.000
So this value theory and obviously production did depend on the prices as they existed on the market

231
00:31:16.000 --> 00:31:20.000
because the prices would determine which products are profitable and which are not.

232
00:31:20.000 --> 00:31:42.000
Now, Mises' position created a new synthesis that included parts of the Bukharian critique, but reformulated it from the point of view of his insights about economic calculation.

233
00:31:42.000 --> 00:31:52.000
We can summarize Mises' position in three points. First, calculation is indeed historically contingent.

234
00:31:52.000 --> 00:32:02.000
So on this point he sides with Bukharin. It's true that value theory, at least in the formal, let's say the economic calculation,

235
00:32:02.000 --> 00:32:08.000
Economic calculation is not something that can be universally applied to all forms of social organization,

236
00:32:08.000 --> 00:32:16.000
but is constrained by the presence of a system of private property rights and factors of production.

237
00:32:16.000 --> 00:32:20.000
Only in such a system can we perform economic calculation.

238
00:32:20.000 --> 00:32:26.000
And of course, such systems do not exist at all times in all places, they only exist at certain times.

239
00:32:26.000 --> 00:32:35.000
In certain places, they are historically contingent as the cultural factors that come into play that make for the presence of these conditions.

240
00:32:35.000 --> 00:32:50.000
Second, and contrary to Bukharin, this does not play out against capitalism, but it plays out against socialism and the socialist theories.

241
00:32:50.000 --> 00:33:00.000
Precisely because economic calculation is historically contingent, it means that an efficient social organization depends on these contingent factors.

242
00:33:00.000 --> 00:33:04.000
It depends on the presence of private property rights for means of production.

243
00:33:04.000 --> 00:33:09.000
We cannot have economic calculation where these conditions are lacking.

244
00:33:09.000 --> 00:33:21.000
Third, Milt's dogma is wrong. Milt's doctrine of the separation between distribution and production is wrong.

245
00:33:21.000 --> 00:33:35.000
It's precisely because production decisions depend on market prices and because therefore production is higher in a capitalist society

246
00:33:35.000 --> 00:33:43.000
in a socialist society than it could be in a socialist society, that also distribution will be different, will necessarily be affected.

247
00:33:43.000 --> 00:33:56.000
And the distribution in turn cannot fail to affect production, because depending on the distribution of income, people will spend their income on different items,

248
00:33:56.000 --> 00:34:00.000
is they will affect the market prices differently.

249
00:34:04.000 --> 00:34:18.000
Mises' thesis, Mises' socialist calculation argument, relied quite essentially on a certain vision, a certain clarification of value theory

250
00:34:18.000 --> 00:34:22.000
as he had proposed it in his theory of money and credit.

251
00:34:22.000 --> 00:34:33.000
Now, this is somewhat surprising because this was supposed to be a book dealing with money and banking

252
00:34:33.000 --> 00:34:36.000
and Mises also deals there with value theory.

253
00:34:36.000 --> 00:34:40.000
Now, how is this? Well, recall what I told you yesterday.

254
00:34:40.000 --> 00:34:45.000
Mises himself tells us in his autobiographical notes and recollections

255
00:34:45.000 --> 00:34:54.000
The book was conceived to be already a treatise of the monetary economy,

256
00:34:54.000 --> 00:35:00.000
presupposing a detailed analysis of a non-monetary economy or a barter economy.

257
00:35:00.000 --> 00:35:06.000
From the outset he planned a treatise of economics, but he didn't have the time to do this,

258
00:35:06.000 --> 00:35:09.000
therefore he concentrated only on the monetary aspect.

259
00:35:09.000 --> 00:35:20.000
But still he did very briefly, very concisely in the first part of the book what was meant to be dealt with more fully if he had had the time to do it.

260
00:35:20.000 --> 00:35:31.000
So among other things he dealt with value theory. Why did he deal with value theory? Well, because he was not happy with the present state of value theory at the time.

261
00:35:31.000 --> 00:35:38.000
He could no longer fully endorse the value theory as it had been proposed by Menger and Boehm-Bawerk.

262
00:35:38.000 --> 00:35:46.000
So what was the crucial point?

263
00:35:46.000 --> 00:35:56.000
The crucial point of departure was that Mises conceived of value as a comparative phenomenon.

264
00:35:56.000 --> 00:36:14.000
phenomena. It's a relation if you wish. This point was present in Carl Menger's analysis of value and of marginal value in particular, but not in Carl Menger's definition of value.

265
00:36:14.000 --> 00:36:24.000
Carl Menger defined value somewhat in deviation from his actual analysis of value. In Menger's analysis of value, value was conceived to be a substance.

266
00:36:24.000 --> 00:36:28.000
The precise nature of which was not clarified.

267
00:36:28.000 --> 00:36:34.000
Now, Mises in The Theory of Money and Credit tells us that value is not a substance but a relationship.

268
00:36:34.000 --> 00:36:40.000
It concerns the relation of priority between different choice alternatives.

269
00:36:40.000 --> 00:36:47.000
So, value is ordinal, it is relative, a relation, it is not a quantity.

270
00:36:47.000 --> 00:36:58.000
Mises had emphasized these heterodox observations and then went on to define value as being inextricably bound up to human choices.

271
00:36:58.000 --> 00:37:01.000
Now comes a quote from The Theory of Money and Credit.

272
00:37:01.000 --> 00:37:10.000
Every economic transaction presupposes a comparison of values, but the necessity for such a comparison,

273
00:37:10.000 --> 00:37:21.000
as well as the possibility of it is due only to the circumstance that the person concerned has to choose between several commodities.

274
00:37:21.000 --> 00:37:28.000
That is, now value is bound up with choices. It does not mean that value is a matter of choice.

275
00:37:28.000 --> 00:37:38.000
We can by our choice determine what the objective value of things is, but value can only be defined in the context of a choice.

276
00:37:38.000 --> 00:37:53.000
With these lines, Mises sets the Austrian theory of value on a completely new trajectory. Carl Menger had resolutely rejected the notion that the phenomenon of value could somehow depend on human choices.

277
00:37:53.000 --> 00:38:03.000
He believed that any reference to free will in this context, quote, would deny economics altogether the status of an exact science, unquote.

278
00:38:03.000 --> 00:38:11.000
So for Menger, as soon as we bring human choice in, we are in the realm of arbitrariness.

279
00:38:11.000 --> 00:38:22.000
It can no longer be an exact law. Law for Menger was something, social law had to be something independent of choice.

280
00:38:22.000 --> 00:38:27.000
He therefore stressed the will-independent factors determining the pricing process.

281
00:38:27.000 --> 00:38:36.000
Market prices, according to Menger, resulted ultimately from individual needs that had to be satisfied with scarce means.

282
00:38:36.000 --> 00:38:45.000
He realized that human beings had to have, quote, knowledge of this causal connection, unquote, between means and ends.

283
00:38:45.000 --> 00:38:49.000
But he paid scant attention to the subjective factor.

284
00:38:49.000 --> 00:38:58.000
In Menger's account, the theory of value and prices was a subdivision of some sort of a platonic theory of goods.

285
00:38:58.000 --> 00:39:06.000
With Mises, it became part of a reality-based theory of human action.

286
00:39:06.000 --> 00:39:28.000
Now, as you can imagine, you have a young writer making these points without any in-depth discussion, just stating these points in a book supposed to be dealing with money and banking.

287
00:39:28.000 --> 00:39:37.000
Okay, and imagine what the impact of these observations had been on the profession at the time or those interested in economics.

288
00:39:37.000 --> 00:39:46.000
Well, those who respected Mises certainly respected also this point and paid attention to it,

289
00:39:46.000 --> 00:39:54.000
but for most people this must have been the idiosyncrasies of a young economist aiming to be original.

290
00:39:54.000 --> 00:40:03.000
So they were not common knowledge at the time he wrote his paper on economic calculation in the socialist economy.

291
00:40:03.000 --> 00:40:12.000
But in fact his argument quite substantively relied on this thesis which he had developed or which he had stated in The Theory of Money and Credit.

292
00:40:12.000 --> 00:40:21.000
Now this explains why the impact of his new argument proved to be limited before the war.

293
00:40:21.000 --> 00:40:24.000
I'll come back to talk about this later.

294
00:40:24.000 --> 00:40:28.000
But now let's first talk about the triumph of his thesis.

295
00:40:28.000 --> 00:40:36.000
Because Mises' thesis had a huge impact, especially once he had presented it,

296
00:40:36.000 --> 00:40:42.000
he had presented this paper within his general treatise on socialism, which was published in 1922.

297
00:40:42.000 --> 00:40:50.000
In fact, Mises was independently confirmed by three sources and unexpected sources.

298
00:40:50.000 --> 00:40:55.000
was not part of his professional network as we might say today.

299
00:40:55.000 --> 00:40:59.000
The first confirmation came from Max Weber,

300
00:40:59.000 --> 00:41:04.000
who was a great authority in social science in the Germanys in those days,

301
00:41:04.000 --> 00:41:07.000
that is in the world in those days.

302
00:41:07.000 --> 00:41:17.000
Here we have a photo of Max Weber as a young man, still in the 19th century,

303
00:41:17.000 --> 00:41:37.000
Max Weber had died at a relatively early age in 1922, and in the year of his death, presumably, his friends published his magnum opus, with the title economy and society, so Wirtschaft und Gesellschaft.

304
00:41:37.000 --> 00:41:48.000
And here Weber made exactly the same point about the impossibility of socialist calculation that Mises had made in his 1920 paper.

305
00:41:48.000 --> 00:41:57.000
And in fact his book, Economy and Society, quoted Mises' paper saying that in the meantime,

306
00:41:57.000 --> 00:42:04.000
So, apparently Weber had independently arrived at this conclusion.

307
00:42:04.000 --> 00:42:11.000
There are, however, reasons to question this. It's the following.

308
00:42:11.000 --> 00:42:17.000
Mises knew Weber, so they had met one another in the summer semester of 1918,

309
00:42:17.000 --> 00:42:25.000
when Weber had come to Vienna and gave various lectures at the University.

310
00:42:25.000 --> 00:42:32.000
and in the course of his sojourn in Vienna he met with Mises and they in fact befriended one another

311
00:42:32.000 --> 00:42:40.000
and so we must assume that they discussed various points of common interest, among them value theory.

312
00:42:40.000 --> 00:42:49.000
And so at least it's conceivable that Mises brought up his observations already on this occasion

313
00:42:49.000 --> 00:42:58.000
and then Weber simply added one point to another and came up with very similar conclusions.

314
00:42:58.000 --> 00:43:03.000
And this scenario is plausible for another reason, namely the following.

315
00:43:03.000 --> 00:43:11.000
In one of his lectures in 1918, Weber talked about the socialist state or the socialist economy.

316
00:43:11.000 --> 00:43:17.000
This lecture was later on published. It's a 50 or 60 page lecture.

317
00:43:17.000 --> 00:43:27.000
and here he talks about various aspects of the problematic nature of a socialist economy but not about this one.

318
00:43:27.000 --> 00:43:39.000
So by then Weber for one either neglected this point which is implausible or more plausibly he was just ignorant of this aspect.

319
00:43:39.000 --> 00:43:51.000
So we can plausibly argue that probably Mises had an influence on Weber on this occasion.

320
00:43:51.000 --> 00:44:01.000
But anyway, what was important for the success of Mises' argument in the early 1920s was that Weber made exactly the same point.

321
00:44:01.000 --> 00:44:09.000
was not just this young economist from Vienna, well at the time he was already 41 years old,

322
00:44:09.000 --> 00:44:19.000
but it was the great authority of the historical school, Max Weber.

323
00:44:19.000 --> 00:44:26.000
Mises was also confirmed, although this did not pertain, this did not have an impact on the German debate,

324
00:44:26.000 --> 00:44:30.000
by a Russian economist of the name of Boris Brutskos.

325
00:44:30.000 --> 00:44:41.000
Boris Brutskos also was more or less directly influenced by Mises in the following way.

326
00:44:41.000 --> 00:44:54.000
When Mises published his book Socialism, three Russian Marxists responded with critical reviews to this book in a Russian paper, in Russian.

327
00:44:54.000 --> 00:44:58.000
So Mises wasn't aware of these publications.

328
00:44:58.000 --> 00:45:04.000
And then Brotskos saw these and then went on to defend Mises' thesis.

329
00:45:04.000 --> 00:45:13.000
So Brotskos hadn't read socialism at the time, he just read the critiques of Mises' argument in socialism.

330
00:45:13.000 --> 00:45:23.000
And he would then more fully develop the argument which was not present in the critiques that had been published by these Russian Marxists.

331
00:45:23.000 --> 00:45:44.000
So we come then to a second important confirmation of Mises thesis, and this was a rather unexpected one, namely a practical one, in the form of the new economic policy introduced by Lenin in Soviet Russia as from about the same time, 1922.

332
00:45:44.000 --> 00:45:54.000
Okay, so Lenin first had pursued a radical program of socialization, abolishment of private property in the means of production,

333
00:45:54.000 --> 00:46:06.000
and then in the early 1920s he completely changed orientation and he reintroduced private property, in particular for agricultural production but also for various other things.

334
00:46:06.000 --> 00:46:15.000
So what could be more striking than this practical empirical confirmation of the thesis that Mises had made on rather theoretical grounds?

335
00:46:15.000 --> 00:46:30.000
But then third and most importantly came a confirmation from a theoretician, let's say from a scholar in a completely unsuspected camp

336
00:46:30.000 --> 00:46:40.240
Camp, namely from Heinrich Herkner, H-E-R-K-N-E-R, the successor to Gustav Schmoller. Gustav Schmoller

337
00:46:40.240 --> 00:46:49.320
had died in 1917 and Herkner was his successor, both to his chair at the University of Berlin,

338
00:46:49.320 --> 00:46:53.900
but also as a president of the Verein für Sozialpolitik, the Association for Social

339
00:46:53.900 --> 00:47:07.460
Policy. So Herkner in 1922 at the 50th anniversary meeting of the Association

340
00:47:07.460 --> 00:47:14.460
for Social Policy pointed out that there were exaggerations in the belief in

341
00:47:14.460 --> 00:47:19.500
statism, that the young economists no longer knew the case for free trade, that

342
00:47:19.500 --> 00:47:23.500
They were ignorant of theoretical economics and all this was bad.

343
00:47:24.500 --> 00:47:33.500
And he went on to praise a new literature that had emerged and that seemed to furnish a promising new point of departure.

344
00:47:37.500 --> 00:47:42.500
I will quote what he said about this new literature.

345
00:47:42.500 --> 00:47:55.500
Here is what he said. He urged his colleagues to thoroughly examine the ideas of these new theoretical economists, stating,

346
00:47:55.500 --> 00:48:09.500
We encounter by far the most important performance of this line of research in the brilliantly written and inspired work by the Vienna economist Ludwig Mises, Die Gemeinswirtschaft,

347
00:48:09.500 --> 00:48:26.500
With full command of the most recent scientific achievements and partly on the basis of new points of view, the author quite devastatingly criticizes all variants of socialism and everything that he considers to be socialism.

348
00:48:27.500 --> 00:48:36.500
Now this took Mises' book from the limited exposure of the ivory tower and made it infamous throughout the socialist movement.

349
00:48:36.500 --> 00:48:51.500
The unheard of concessions and even praise for one of the hated theorists caused outrage in the labor unions and angry reassessments of Hergner's position in official socialist circles.

350
00:48:51.500 --> 00:49:01.500
Yet Hergner's authority also forced the German mainstream economists to re-evaluate their cherished scientific and political tenets.

351
00:49:01.500 --> 00:49:09.500
The influential Heinrich Pech recognized Mises as the head of a new Manchesterism.

352
00:49:09.500 --> 00:49:15.500
He explained, because of his clever and original critique of socialism,

353
00:49:15.500 --> 00:49:21.500
Mises has met with regard and approval even among those authors who, in distinct contrast to him,

354
00:49:21.500 --> 00:49:27.500
advocate the legal protection of children and women and compulsory workers insurance.

355
00:49:31.500 --> 00:49:56.500
So, this was a sweeping success and Mises was suddenly in the limelight of the attention and as I will argue more fully this afternoon, we have here the beginning of a first Mises revolution.

356
00:49:56.500 --> 00:50:02.500
The Mises Revolution and economic thought limited in those days to the German speaking world.

357
00:50:02.500 --> 00:50:14.500
And this strong impact that Mises would have would make itself felt at an accelerating rate in the late 1920s and early 1930s.

358
00:50:14.500 --> 00:50:19.500
And it was stopped only by the ascension of Hitler to power.

359
00:50:19.500 --> 00:50:28.500
From then on, of course, Mises was on the blacklist of wanted men and his works were on the blacklist of the books to be taken out of libraries and so on.

360
00:50:28.500 --> 00:50:42.500
So this stopped it and that's how things would remain until a second Mises Revolution would set in in the 1950s, subject of our last talks on Friday.

361
00:50:42.500 --> 00:50:59.500
Now, but even in the 1920s, this Mises revolution was incomplete. He had proposed at the heart of his new approach was the distinction between value and price.

362
00:50:59.500 --> 00:51:03.500
Of course, that's the traditional Austrian distinction that Menger had made, that Boehm-Bawerk had made.

363
00:51:03.500 --> 00:51:13.500
But Mises now set out to emphasize the implications of this distinction for economic calculation.

364
00:51:13.500 --> 00:51:23.500
And the important phrase here is he set out to because it was not yet clear in the early 1920s.

365
00:51:23.500 --> 00:51:29.500
It was clear in the 1940s, so I'll quote for you so that we have a standard of reference.

366
00:51:29.500 --> 00:51:37.500
I'll quote for you what he said in 1949 in Human Action.

367
00:51:37.500 --> 00:51:41.500
He said the following,

368
00:51:41.500 --> 00:51:50.500
One can add up prices expressed in terms of money, but not scales of preference, that is, value scales.

369
00:51:50.500 --> 00:52:03.500
One cannot divide values or single out quotas of them. A value judgment never consists in anything other than preferring A to B.

370
00:52:03.500 --> 00:52:13.500
There's nothing to be added up, to be subtracted, to be multiplied with, because it's a relationship, it's a preference relationship.

371
00:52:13.500 --> 00:52:19.500
You can add up, subtract, multiply only extended units such as money prices.

372
00:52:19.500 --> 00:52:21.500
So Mises went on.

373
00:52:21.500 --> 00:52:32.500
The process of value imputation does not result in derivation of the value of the single productive agents from the value of their joint product.

374
00:52:32.500 --> 00:52:38.500
It does not bring about results which could serve as elements of economic calculation.

375
00:52:38.500 --> 00:52:49.500
It is only the market that, in establishing prices for each factor of production, creates the conditions required for economic calculation.

376
00:52:49.500 --> 00:52:56.500
Economic calculation always deals with prices, never with values.

377
00:52:56.500 --> 00:53:05.500
Okay, so we retain this last sentence. Economic calculation always deals with prices, never with values.

378
00:53:05.500 --> 00:53:16.500
This sentence sums it all up, but that's 1949, and we find a similar sentence in this 1940 German predecessor.

379
00:53:16.500 --> 00:53:24.500
But in 1920 and 1922, he did not put matters that clearly.

380
00:53:24.500 --> 00:53:34.500
So in these early works, he even uses formulas such as value calculation and calculation of value.

381
00:53:34.500 --> 00:53:44.500
Now that's very confusing, because readers must have inferred from this that he was in fundamental agreement with Wieser's position.

382
00:53:44.500 --> 00:53:50.500
There is such a thing as a universal value theory that applies to all production processes and so on.

383
00:53:50.500 --> 00:53:59.500
It's clear why his thesis could not have the smashing impact that it would have much later once it had been formulated clearly.

384
00:53:59.500 --> 00:54:08.500
So Mises' impact in the 1920s and 1930s was limited because he himself was not quite clear on these issues.

385
00:54:08.500 --> 00:54:19.500
It had a very thorough impact only as from the 1950s because by then he had formulated his mature expositions of the theory.

386
00:54:19.500 --> 00:54:35.500
Now, let's come to talk a little bit about his treatise on socialism, a book with the English title socialism, which had a great impact on the rising generation of economists.

387
00:54:35.500 --> 00:54:41.500
of Economies. You can read various luminaries of the post-World War II classical liberal movement,

388
00:54:41.500 --> 00:54:51.500
the Renaissance, who said that the book had a decisive impact on their intellectual development.

389
00:54:51.500 --> 00:54:58.500
This is of course most notably the case of Friedrich August von Hayek, about whom we will talk this afternoon,

390
00:54:58.500 --> 00:55:04.500
but also William Röpke, Lionel Robbins, Fritz Machlop, various others.

391
00:55:07.500 --> 00:55:19.500
So it's a very important book and a true treatise, Mises delivers a comprehensive systematic analysis of all aspects of socialism.

392
00:55:20.500 --> 00:55:22.500
He elaborated four general thesis.

393
00:55:22.500 --> 00:55:34.500
First, the promises of socialism were empty, because its program for a central direction of production was a theoretical and practical impossibility.

394
00:55:34.500 --> 00:55:38.500
So that's an elaboration of his 1920 paper.

395
00:55:38.500 --> 00:55:46.500
Second, there was no process of social evolution that necessarily led to socialist regimes.

396
00:55:46.500 --> 00:55:59.500
is something that he had not addressed in the 1920 paper, which confronted head on the Marxist thesis that there were laws of social evolution that by necessity of natural law led to a socialist state.

397
00:55:59.500 --> 00:56:08.500
So Mises explained that's not true either. Socialism might come, but it will not come by natural law. The future is open.

398
00:56:08.500 --> 00:56:17.500
Third, none of the major ethical justifications of socialism stood up to rational scrutiny.

399
00:56:17.500 --> 00:56:31.500
In this concern, in particular, the vindications of Christian socialism, a new intellectual movement that had arisen as from the middle of the 19th century.

400
00:56:31.500 --> 00:56:45.500
Fourth, the true character of socialism was not to improve the human condition, but to worsen it, because socialist policies destroy the capital base of society.

401
00:56:45.500 --> 00:56:50.500
So socialism is the same thing as destructionism. That's what it is.

402
00:56:50.500 --> 00:57:01.500
wartime socialism organized defeat, socialism in general destroys capital, therefore it destroys civilization.

403
00:57:01.500 --> 00:57:15.500
Now I'll present to you a short list of ten major points that he argues in socialism, ten original points.

404
00:57:15.500 --> 00:57:25.500
First, so I mean the four points that I presented before, these were the general parts of the theory, the general headings,

405
00:57:25.500 --> 00:57:38.500
the general four thesis, but there were ten original tenets or new ideas that Mises proposed in his argument.

406
00:57:38.500 --> 00:57:52.500
First, he explained that the benefits derived from means of production under capitalism do not accrue only to capitalists but to all members of society.

407
00:57:52.500 --> 00:58:07.500
That is the common presentation by socialist authors that private property in the means of production is beneficial only to the haves, not to the have-nots.

408
00:58:07.500 --> 00:58:16.500
is a misrepresentation of fact, because if you own a machine or a factory,

409
00:58:16.500 --> 00:58:20.500
well the fact is you cannot consume, you cannot eat or otherwise enjoy this machine or factory,

410
00:58:20.500 --> 00:58:28.500
you only benefit from it to the extent that you benefit from the products that are being made with these factors of production.

411
00:58:28.500 --> 00:58:33.500
Now the beneficiaries of these products are of course all members of society,

412
00:58:33.500 --> 00:58:41.500
It's not just those who own the factors of production, or quite to the contrary, we would have to say that especially in the case of mass production,

413
00:58:41.500 --> 00:58:54.500
we produce cars for example, it's not Henry Ford who was the main beneficiary of his product, it was all the consumers of cars, all the users of cars who were the beneficiaries,

414
00:58:54.500 --> 00:58:58.500
who then paid him in exchange.

415
00:58:58.500 --> 00:59:22.500
Second, Mises made a utilitarian case for democracy. He argued that one could not defend democracy in the light of moral considerations,

416
00:59:22.500 --> 00:59:33.500
For example, considerations that were based on natural law conceptions, because Mises did not believe that there could be signs of morals or signs of natural law.

417
00:59:33.500 --> 00:59:39.500
For him, these were just expressions of judgments of value, of personal preferences.

418
00:59:39.500 --> 00:59:44.500
There were no matters of fact to be established in these fields.

419
00:59:44.500 --> 00:59:48.500
Therefore, there could be no signs of natural law. There could be no signs of ethics.

420
00:59:48.500 --> 00:59:56.500
So, if ever there is to be made a case for democracy, it would have to be based on a consideration of fact.

421
00:59:56.500 --> 01:00:07.500
Now, Mises proposes the following argument. He says, well, it is in the common interest of all members of society that production be as efficient as possible.

422
01:00:07.500 --> 01:00:14.500
Now, one fundamental presupposition of production is that social relations are peaceful.

423
01:00:14.500 --> 01:00:21.500
You cannot very well cooperate with your neighbor if you are at the same time slapping yourself on your head or shooting yourself.

424
01:00:21.500 --> 01:00:23.500
That's not much of a cooperation.

425
01:00:23.500 --> 01:00:29.500
So the question is, how can we ensure that social relations remain peaceful?

426
01:00:29.500 --> 01:00:34.500
What are the main occasions for unpeaceful social relations?

427
01:00:34.500 --> 01:00:42.500
Well, there's crime, but as far as social organization is concerned, well, it concerns the choice of government,

428
01:00:42.500 --> 01:00:45.500
and the choice of a political system.

429
01:00:45.500 --> 01:00:47.500
People have different preferences.

430
01:00:47.500 --> 01:00:56.500
So how can we avoid that these different orientations or preferences lead to war, lead to conflict, lead to violent conflict?

431
01:00:56.500 --> 01:01:00.500
Well, here he says democracy comes into play.

432
01:01:00.500 --> 01:01:11.500
What democracy does is to assure a peaceful transition from one government to another and conceivably also from one political system to another.

433
01:01:11.500 --> 01:01:25.060
pacifies social relationships. Third, Mises proposed an original economic

434
01:01:25.060 --> 01:01:32.260
analysis of the family, the political economy of the family and it did so in

435
01:01:32.260 --> 01:01:40.460
order to counter the feminist claim that marriage was a vestige of power, a vestige

436
01:01:40.460 --> 01:01:53.460
of exploitation of females. There was an analogy between the argument of these radical feminists and the socialists that Mises perceived very clearly.

437
01:01:53.460 --> 01:02:04.460
The analogy is the following. Marx, for example, had praised capitalism as the system that unfettered the productive forces of society.

438
01:02:04.460 --> 01:02:12.460
But, said Marx, there is still a constraint in capitalism, namely private property.

439
01:02:12.460 --> 01:02:18.460
We can unfetter the productive forces even more if we get rid of private property.

440
01:02:18.460 --> 01:02:29.460
We can increase liberty and therefore also productivity even more by getting rid of this last vestige of domination.

441
01:02:29.460 --> 01:02:45.460
Now, the feminists argued by analogy. They said, well, the lot of females, of women has improved in the course of time, but there's still an ultimate barrier that still exists, that still hampers the full emancipation of women, which is marriage.

442
01:02:45.460 --> 01:02:50.460
Marriage enshrines male domination over females.

443
01:02:50.460 --> 01:03:00.460
And now Mises argues that that is not the case because women, after all, are free to choose whether they get married or not.

444
01:03:00.460 --> 01:03:07.460
Now it might be true that in marriage they cannot fully exploit their productive potentials and so on,

445
01:03:07.460 --> 01:03:12.460
but the question is why do they get married at all?

446
01:03:12.460 --> 01:03:17.460
And he says, well, there are positive reasons why females tend to get married.

447
01:03:17.460 --> 01:03:31.460
And that is Mises' argument, because they seek family life, they seek to be mothers, and they seek sexual union with men.

448
01:03:31.460 --> 01:03:35.460
Now, he might be wrong on this, that's not our subject.

449
01:03:35.460 --> 01:03:41.460
So the point is, he raises the fundamental fact, is that women are free to get married.

450
01:03:41.460 --> 01:03:50.460
Especially today, if we all know, clearly nowadays, women are free to get married, there is no obligation to get married, so why do they do this anyway?

451
01:03:50.460 --> 01:03:58.460
So there must be a reason, there must be some benefits that can be derived from marriage, and Mises simply points out, delivers an explanation of what these benefits might be.

452
01:03:58.460 --> 01:04:12.460
In any case, it's not true that we should come with the government, that is with the law, and prevent females from getting married as it was proposed by the feminists.

453
01:04:12.460 --> 01:04:26.460
There is no justification of this. Fourth, Mises points out several further implications of the socialist calculation problem.

454
01:04:26.460 --> 01:04:45.460
For example, the concentration of the ownership of means of production makes for tyranny, government tyranny within society necessarily leads to totalitarian government.

455
01:04:45.460 --> 01:04:54.460
And secondly, he also points out that the incentive problem that necessarily results from distribution according to one's needs,

456
01:04:54.460 --> 01:05:02.460
not only concerns labor, but it also concerns capital, because just as there is no longer an incentive to work,

457
01:05:02.460 --> 01:05:08.460
or a diminished incentive to work, there is now also a diminished incentive to save.

458
01:05:08.460 --> 01:05:17.460
In a capitalist society I have an incentive to save because I'm rewarded in the form of interest payments or possibly profit.

459
01:05:17.460 --> 01:05:26.460
In a socialist society this no longer exists. So why should I save? Why should I not consume all economic goods that I can control?

460
01:05:26.460 --> 01:05:33.460
But if this incentive exists then of course the capital base must shrink and as a consequence real wage rates must shrink as well.

461
01:05:33.460 --> 01:05:56.460
Fifth, Mises now discusses a second basic problem of any socialist economy that he holds to be at least as equally important as the socialist calculation problem.

462
01:05:56.460 --> 01:06:03.420
problem. And this problem is the problem of moral hazard. He does not use the word moral hazard,

463
01:06:04.220 --> 01:06:13.180
but he describes the phenomenon of irresponsibility or irresponsibleization that results from common

464
01:06:13.180 --> 01:06:22.220
property. So if each plant manager were no longer the owner of the plant that he manages,

465
01:06:22.220 --> 01:06:30.220
If there were no owner at all of the plans that are being managed, well then each manager would just go ahead and do what he wishes.

466
01:06:30.220 --> 01:06:40.220
He would not bear the negative consequences, there is only a very small part of the negative consequences that would result from that choices.

467
01:06:40.220 --> 01:06:52.220
So the only way to prevent this, as Mises points out, is to impose a systematic set of rules on all those who make management decisions.

468
01:06:52.220 --> 01:06:56.220
They must be prevented from being irresponsible.

469
01:06:56.220 --> 01:07:06.220
Their actions must be channeled into certain lines that are conceived to be less hurtful to the common interest.

470
01:07:06.220 --> 01:07:13.220
In other words, socialism, common property, necessarily leads to bureaucracy.

471
01:07:13.220 --> 01:07:20.220
It almost forces the government to follow up the creation of common property,

472
01:07:20.220 --> 01:07:26.220
the abolishment of private property rights, to follow up on this with the creation of large bureaucracies.

473
01:07:26.220 --> 01:07:34.220
and the creation of large bureaucracies. Economic management can no longer be free and responsible.

474
01:07:34.220 --> 01:07:40.220
It must be unresponsible and therefore constrained by rules.

475
01:07:40.220 --> 01:07:46.220
So we have here a theory of bureaucracy, an economic theory of bureaucracy.

476
01:07:46.220 --> 01:07:55.220
Sixth, Mises delivers an in-depth critique of John Stuart Mill's analysis of wages.

477
01:07:58.220 --> 01:08:04.220
We already talked about John Stuart Mill, the gentleman in his old age.

478
01:08:16.220 --> 01:08:39.220
Ah, a little bit better, but not really. Anyway, so Stuart Mill, the most famous representative of classical liberalism in the 19th century,

479
01:08:39.220 --> 01:08:49.220
And well today it is generally acknowledged that Mill also paved the way to socialism on theoretical grounds.

480
01:08:49.220 --> 01:08:54.220
But Mises was one of the first who pointed this out. Mises was one of the first who led the reaction.

481
01:08:54.220 --> 01:09:06.220
It was a critical revision of Mill's doctrines. And one of these doctrines, well we already mentioned the dogma that production and distribution are separate realms.

482
01:09:06.220 --> 01:09:29.220
But there was also another unnecessary concession that Mises, that Mill had made to socialist theoreticians, namely the concession that wages being paid on the market do not necessarily correspond to the productivity of the employees.

483
01:09:29.220 --> 01:09:51.220
So Mises explains that this thesis is unwarranted because there can be weight classes for different weight earners

484
01:09:51.220 --> 01:09:59.220
that they would always have an incentive to work as hard as possible to get promoted to the higher paying class.

485
01:09:59.220 --> 01:10:08.220
So it was not the case, as Mill has argued, that similar incentive problems would exist in capitalism as they exist in socialism,

486
01:10:08.220 --> 01:10:18.220
because people would be paid just according to a formula that was fixed before, according to the time they work,

487
01:10:18.220 --> 01:10:24.220
But not necessarily according to the amount of work that they get done within the time for which they are paid.

488
01:10:24.220 --> 01:10:35.220
So Mises argues that there are different pay classes and you have an incentive to be promoted to the next pay class in which you receive a higher payment.

489
01:10:35.220 --> 01:10:47.220
Seventh, Mises argues that there is an economic incentive for society to emerge.

490
01:10:47.220 --> 01:11:01.220
So he proposes a theory of the emergence of society and at the heart of this theory is a law that David Ricardo had developed or discovered in the early 19th century

491
01:11:01.220 --> 01:11:05.220
and which was later called the Law of Comparative Costs.

492
01:11:05.220 --> 01:11:17.220
So Ricardo had explained why is there trade between nations of unequal abilities, unequal resources.

493
01:11:17.220 --> 01:11:23.220
So he took the example of one country that was superior to another country in all respects.

494
01:11:23.220 --> 01:11:26.220
It could produce all things more efficiently than the other country.

495
01:11:26.220 --> 01:11:30.220
And then he explained that still in this case there would be trade.

496
01:11:30.220 --> 01:11:47.220
because to the extent that the superior country was not equally superior in all respects, but that it would be much more superior in certain production processes than it was in other production processes.

497
01:11:47.220 --> 01:11:58.220
Then still there would be a scope for a fruitful division of labor. The implication is that we never have to fear, and that's the implication that Ricardo drew.

498
01:11:58.220 --> 01:12:07.220
We never have to fear superior nations, as I always explain to my students in France who might be frightened through the press,

499
01:12:07.220 --> 01:12:12.220
we get inundated by Chinese goods and very soon we won't do anything at all anymore,

500
01:12:12.220 --> 01:12:18.220
there won't be any more labor and we'll all be on the streets and playing with Chinese dolls and so on.

501
01:12:18.220 --> 01:12:23.220
Now that's not the case, it's actually quite great for us that the Chinese are so productive

502
01:12:23.220 --> 01:12:31.220
are so productive and they are doing all these things that we had to spend our time producing in the past, so now we simply do other things.

503
01:12:31.220 --> 01:12:46.220
There are certain things that even the Chinese don't have time to do and we should do these things and use our special conditions as they prevail, our knowledge and our geographical conditions and so on.

504
01:12:46.220 --> 01:12:52.220
That's the common task. If you don't want to do this, well, you're simply lazy. You're just not a born entrepreneur.

505
01:12:52.220 --> 01:12:56.220
That's not a reason to step into the way of entrepreneurs who want to do this.

506
01:12:56.220 --> 01:13:07.220
Okay. Now, so Mises, what Mises did was to point out that this law actually holds true not only to exchanges between countries,

507
01:13:07.220 --> 01:13:24.220
but to exchanges between any two individuals. Now before him there were other economists who had pointed out the same thing, most notably Wilfredo Pareto and Edgworth.

508
01:13:24.220 --> 01:13:38.220
Pareto Etchworth and Seligman in the United States. So all three of them had realized that Ricardo's argument holds true, in fact, for any exchange.

509
01:13:38.220 --> 01:13:47.220
But none of them had, as Mises did, drawn the general inference that what we have here then is an economic theory of socialization.

510
01:13:47.220 --> 01:13:51.220
An economic theory that explains why people do cooperate.

511
01:13:51.220 --> 01:14:01.220
It's the last building block in this theory that explains to us what are the economic incentives that bring people together, that incite people to cooperate.

512
01:14:01.220 --> 01:14:15.220
Even if they would be indifferent to one another for other reasons or even hate themselves, for other reasons we have here an economic factor that explains why they would still cooperate or at least have an incentive to cooperate.

513
01:14:15.220 --> 01:14:21.220
So we have here a general law of association, that's how he called it, a law of association.

514
01:14:21.220 --> 01:14:33.220
The eighth original contribution that Mises made in his argument was to develop a systematic and encompassing theory of monopoly.

515
01:14:33.220 --> 01:14:43.220
And we don't have the time now to present this, but I'll just point it out, Mises' analysis was painstaking and original

516
01:14:43.220 --> 01:14:58.220
He argued in particular that there was no tendency, empirically it was not the fact that there was a tendency for industrial production to become monopolized.

517
01:14:58.220 --> 01:15:14.220
And the only meaningful sense in which we can speak of monopoly is a situation in which it would be worthwhile for the producer to cut back production because he could receive still a higher income.

518
01:15:14.220 --> 01:15:22.220
Notably that's the case if the demand curve has a certain slope that is sufficiently steep.

519
01:15:22.220 --> 01:15:33.220
If you cut back production, then the price will sufficiently increase, so that what you lose in volume, you gain in price.

520
01:15:33.220 --> 01:15:43.220
So you can increase your revenue beyond what you would otherwise have obtained, which implies that there is some sort of a perverse incentive,

521
01:15:43.220 --> 01:16:00.220
according to Mises, for the producer in this case to cut back production, whereas the general tendency in the market economy, in a competitive market process is for everybody to increase production, to maximize its productive efforts.

522
01:16:00.220 --> 01:16:12.220
Now, Mises' analysis is very subtle, because he realizes he doesn't fall into the trap into which virtually all modern textbooks fall.

523
01:16:12.220 --> 01:16:20.220
I mean, they make the same argument. They say, okay, now this proves, therefore, that we have an overall reduction of production.

524
01:16:20.220 --> 01:16:32.220
Mises does not say this, he says, okay, the fact that this entrepreneur will now cut back production implies that factors of production are liberated for other production processes.

525
01:16:32.220 --> 01:16:41.220
He doesn't hire as many workers as he would otherwise have hired, he doesn't work himself as much as he would otherwise have done, he doesn't use as much capital as he would otherwise have used,

526
01:16:41.220 --> 01:16:51.220
all while increasing his revenue, but that only means that these workers and this capital is now available for other production processes.

527
01:16:51.220 --> 01:16:59.220
So what we lose in this market, in which the demand curve has a certain shape, we gain necessarily in other markets.

528
01:16:59.220 --> 01:17:07.220
So from a physical point of view, I cannot say whether there is an overall increase or diminishment of production.

529
01:17:07.220 --> 01:17:27.220
But Mises then says, there is still a welfare reduction because without this demand curve, the production would have been increased in this first industry.

530
01:17:27.220 --> 01:17:36.220
and only in this sense there is an overall diminution of welfare.

531
01:17:36.220 --> 01:17:47.220
That's a point that I will point out here and you can read this in detail in the biography because it's generally overlooked.

532
01:17:47.220 --> 01:17:49.220
He later said in correspondence the following.

533
01:17:49.220 --> 01:18:00.220
I deal with the extension of production that eventually must result from the liberation of nonspecific factors of production,

534
01:18:00.220 --> 01:18:03.220
formally bound up in the production of the monopoly good.

535
01:18:03.220 --> 01:18:11.220
I explain that this extension of production can only concern less important goods, of course, from the point of view of the consumers.

536
01:18:11.220 --> 01:18:24.220
of the Consumers. They are less important because they would not have been produced and consumed if the more pressing demands for a larger quantity of the monopolized commodity could have been satisfied.

537
01:18:24.220 --> 01:18:34.220
And then he goes on to say, there is no proof for the welfare reducing effect of monopoly prices other than the one I propose.

538
01:18:34.220 --> 01:18:44.220
Now, I tell you, nobody apart from Austrians in current day literature understands this point.

539
01:18:44.220 --> 01:19:00.220
Nobody understands this point. And that's not to say that Mises is right on this, but he has pushed his argument, the reasoning, his analysis to such a nuance that is unrivaled even today.

540
01:19:00.220 --> 01:19:04.220
does not say that he is right on this, it is a completely different question.

541
01:19:04.220 --> 01:19:15.220
And in particular his American disciple Murray Rothbard has later on systematically revised Mises' theory of monopoly prices and criticized this position.

542
01:19:15.220 --> 01:19:32.220
Okay, then we have two last contributions, oh well, let's say just one last contribution, namely that which he discusses the compatibility of Christian ethics with the market.

543
01:19:32.220 --> 01:19:44.220
And here I will simply point out that Mises in his original 1922 treatise is very skeptical in this respect.

544
01:19:44.220 --> 01:19:53.220
He denies in fact outright that Christ's teaching can be reconciled with the market economy.

545
01:19:53.220 --> 01:20:06.220
Now this of course raises a puzzle. If this is in fact the case, then how come that capitalism arose in Christian Occident?

546
01:20:06.220 --> 01:20:13.220
If these things are really incompatible, how is it possible? This is a mystery.

547
01:20:13.220 --> 01:20:36.220
And Mises answers the following, he says, well, that was the consequence not of Christ's teaching, not of the Gospel itself, but of the Church, of the Catholic Church, who had intermediated these and diminished these teachings where necessary.

548
01:20:36.220 --> 01:20:50.220
So the culture, cultivating force, driving force in the development of Western capitalism was the Catholic Church, not the Gospel of Christ.

549
01:20:50.220 --> 01:21:01.220
On Christ himself, so he says the following, the evidence leads to the negation of the question asked above,

550
01:21:01.220 --> 01:21:08.220
whether it might not be possible to reconcile Christianity with a free social order based on private ownership and the means of production.

551
01:21:08.220 --> 01:21:16.220
A living Christianity cannot exist side by side with and within capitalism.

552
01:21:16.220 --> 01:21:23.220
Ten years later, however, Mises had changed his mind.

553
01:21:23.220 --> 01:21:30.220
For those of you who only read English, well, that's the version that you read in the English edition of Socialism.

554
01:21:30.220 --> 01:21:38.220
Here we have the revised position. In the second edition of Socialism, which appeared in 1932,

555
01:21:38.220 --> 01:21:43.220
he added two paragraphs that gave a much milder and reconciling tone to the conclusion.

556
01:21:43.220 --> 01:21:50.220
Mises now claimed that Christianity and liberalism might not be quite as antagonistic as he at first assumed.

557
01:21:50.220 --> 01:21:55.220
They could flourish together provided there was a new synthesis.

558
01:21:55.220 --> 01:22:06.220
There might be an alternative. No one can foresee with certainty how church and Christianity may change in the future.

559
01:22:06.220 --> 01:22:16.220
Papacy and Catholicism now face problems incomparably more difficult than all those they have had to solve for over a thousand years.

560
01:22:16.220 --> 01:22:24.220
The worldwide universal church is threatened in its very being by chauvinist nationalism.

561
01:22:24.220 --> 01:22:42.220
By refinement of political art it has succeeded in maintaining the principle of Catholicism throughout all the turmoil of national wars, but it must realize more clearly every day that its continuance is incompatible with nationalist ideas.

562
01:22:42.220 --> 01:22:56.220
Unless it is prepared to succumb and make way for national churches, it must drive out nationalism by an ideology which makes it possible for nations to live and work together in peace.

563
01:22:56.220 --> 01:23:05.220
But in doing so, the Church would find itself inevitably committed to liberalism. No other doctrine would serve.

564
01:23:05.220 --> 01:23:11.220
If the Roman Church is to find any way out of the crisis into which nationalism has broadened,

565
01:23:11.220 --> 01:23:14.220
then it must be thoroughly transformed.

566
01:23:14.220 --> 01:23:19.220
It may be that this transformation and reformation will lead to its unconditional acceptance

567
01:23:19.220 --> 01:23:24.220
of the indispensability of private ownership and the means of production.

568
01:23:24.220 --> 01:23:31.220
At present, it is still far from this, as witnessed the recent encyclical,

569
01:23:31.220 --> 01:23:36.220
and the Medical Quadragesimo Anno, which was published in 1931.

570
01:23:36.220 --> 01:23:38.220
I do not know what changed his mind.

571
01:23:38.220 --> 01:23:42.220
It is possible Mises had second thoughts on Christianity and liberalism

572
01:23:42.220 --> 01:23:47.220
as a consequence of his activity as a counselor to the Austrian Chancellor,

573
01:23:47.220 --> 01:23:52.220
Monseigneur Ignat Seipel, who was a Catholic priest and politician,

574
01:23:52.220 --> 01:23:56.220
who according to many Catholic witnesses had a saintly character.

575
01:23:56.220 --> 01:24:04.220
Mises also came to realize that other scholars worked to bridge the gap that he saw between capitalism and Catholicism.

576
01:24:04.220 --> 01:24:10.220
Thus, he would eventually characterize the influential Jesuit, Oswald von Nell Breuning, as, quote,

577
01:24:10.220 --> 01:24:17.220
one of the few German economists who in the interwar period advocated economic freedom, unquote.

578
01:24:17.220 --> 01:24:22.220
We'll leave it here and I give you five minutes for questions.

579
01:24:26.220 --> 01:24:39.220
You said that in the later edition of Boehm-Bawerk he makes the point that economic calculation always deals with prices, not value.

580
01:24:39.220 --> 01:24:47.220
Why is it such an important point?

581
01:24:47.220 --> 01:25:03.220
Well, because value obviously exists in any economic system. Value as defined by Menger and clarified by Mises concerns the preference relationship that exists between different choice alternatives.

582
01:25:03.220 --> 01:25:09.220
I'm giving this talk now which means I prefer this activity giving the talk to various other things that I could have done.

583
01:25:09.220 --> 01:25:13.220
Same thing holds true for you. So this exists under any economic system.

584
01:25:13.220 --> 01:25:24.220
So if there were no difference between value and price, then Visa would be right and production could be ordered according to value calculus.

585
01:25:24.220 --> 01:25:31.220
But precisely because there is this difference and value is just a preference relationship, nothing extended that can be added up.

586
01:25:31.220 --> 01:25:39.220
You have to rely for calculation on prices and prices only exist when there is private property in economic goods.

587
01:25:39.220 --> 01:25:56.220
I suppose it's unfortunate that Mises didn't make more of the connection between liberal Christianity and socialism as an explanation for its driving force.

588
01:25:56.220 --> 01:26:12.220
There seems to be a leap of faith that would explain how socialism might work, whereas he doesn't really want the basis of reason and logic.

589
01:26:12.220 --> 01:26:15.220
I do understand the question.

590
01:26:15.220 --> 01:26:35.220
I'm fascinated with the idea that religion is what gives a lot of impetus to socialism, and I guess I'm wondering if it's not unfortunate that Mises didn't sort of lay a little more of a socialism and that religion in the doorstep.

591
01:26:45.220 --> 01:27:03.220
did in the book, and in fact those passages that I read to you in which he indicts the Gospel of Christ for incompatibility with capitalism, that remains in all later editions.

592
01:27:03.220 --> 01:27:10.220
He doesn't take this out. So it remains there, but he only adds something. He says, well, but maybe it's not quite as bad as that.

593
01:27:10.220 --> 01:27:13.220
Things could change if the following happens.

594
01:27:30.220 --> 01:27:33.220
Actually, I added Brutschko, so we have four confirmations.

595
01:27:33.220 --> 01:27:38.220
Max Weber, Brutschko, Lenin and Heinrich Hörkner.

596
01:27:40.220 --> 01:27:42.220
______?

597
01:27:42.220 --> 01:27:43.220
Yeah, yeah, yeah.

598
01:27:43.220 --> 01:27:49.220
______?

599
01:27:49.220 --> 01:27:51.220
No, it was not.

600
01:27:51.220 --> 01:27:54.220
Rouskos was a minor figure in Russia.

601
01:27:54.220 --> 01:28:00.220
Especially after he was expelled for his articles.

602
01:28:00.220 --> 01:28:02.220
______?

603
01:28:02.220 --> 01:28:04.220
Hans Maier.

604
01:28:04.220 --> 01:28:20.220
Maier was one of those experts in maneuvering the hallways of power, and he was the beloved disciple of the great Friedrich.

605
01:28:20.220 --> 01:28:24.220
We got the job.

606
01:28:24.220 --> 01:28:31.220
Yesterday somebody came to me and said, well, that's so unjust that Mises didn't get a professorship.

607
01:28:31.220 --> 01:28:34.220
I said, yeah, well, that's not strictly speaking true.

608
01:28:34.220 --> 01:28:38.220
We always have to consider, this was not Harvard.

609
01:28:38.220 --> 01:28:40.220
It was the Harvard Department of Economics today.

610
01:28:40.220 --> 01:28:47.220
There are 30 or 50 economists, probably 20 or 25 full professors I don't even know.

611
01:28:47.220 --> 01:28:51.220
In those days, there were three positions at the University of Vienna.

612
01:28:51.220 --> 01:28:57.380
and Mises was very smart and of course we think that he was the best but I mean

613
01:28:57.380 --> 01:29:02.300
there are a few other very smart people around so it's by no means scandalous

614
01:29:02.300 --> 01:29:08.940
that he didn't get the job. Well thank you for your attention, see you soon.