What If There Were No Prices? 

People in the comments are complaining that they forgot to take the railroad length in consideration. It doesn't matter they forgot it because if they would have included it, the concept was the same. If the railroad through the mountain is faster, the capitalist would estimate how big the difference is and would calculate how much gas he would safe and how much more people would be able to be transferred and then he would be able to make an informed decision based on that. Nobody is saying that not a single capitalist would make bad investments, ofc there would be bad ones. But it's about them being able to make informed decisions in the first place.

Just FYI for anyone wanting to look deeper, this video is mixing the calculation problem of socialism detailed by Mises [circa 1920] with the knowledge problem of socialism detailed by Hayek. They have some similarity but really are different things.

This is the best educational video that's ever been produced covering this subject matter, and should be included in every economics 101 curriculum in the country!

One of the best video on economics I've seen in a long time

This video has over six hundred comments. Whatever else this might mean, to me it means one thing undeniably: The topic is relevant. I've tried to read through this mountain of interaction, if only because I am curious to know what the common pulse of sentiment is in response to such a simple message. A lot of things have been said, but some things seem to get repeated often, and I find the patterns interesting. One thing that gets mentioned rather commonly in response to the video is that market prices aren't perfect. While this is true, I'm afraid it's beside the point. Detractors to the video's message will need to do more than merely cast doubt on the idea of infallible market prices, because the video isn't suggesting that market prices are infallible. For the video to be taken seriously, it isn't necessary for market prices to be infallible. All that is necessary is for market prices to be MORE efficient at allocating scarce resources which are generally perceived to be of value than if those resources were directed by a central planning board. That's the argument behind the video, and so a focus on assessing the validity of that argument should become the sole focus of all would-be counter-arguments. Going on tangents about greed (common to both approaches), corruption (common to both approaches), pollution (common to both approaches) does NOT tell us which of these two approaches will leave us with more unconsumed resources (savings) after projects are completed than the other one will. That is the central question addressed by the video, and I don't see any opponents actively explaining how central planning leaves more resources available for other projects than market prices do. This is what detractors must argue if they want to directly challenge the video. Another thing I see often is one-liner swipes using crude expletives-or the “propaganda” catch-all-to denote disapproval, as if this is expected to discredit the central message of the video in one master stroke. What this communicates to me is that a counter-argument isn't at the ready; these frustrated souls may feel a strong need to respond, yet are clearly not prepared for the debate. I am quite happy to see that this video has led to such a lively ongoing discussion. I want to express my sincere thanks to its creators, and especially to Howard Baetjer, for his commitment to addressing the concerns of as many respondents as he has found the time to engage. I was particularly impressed by his grasp of the socialist calculation problem on a deep philosophical level, and I would be proud to know anyone who cares so much about understanding these ideas so deeply and clearly. I believe the fallacies will persist, especially in this new digital age, where so much is taken for granted about the power of computers. The need to confront confusion and misunderstanding may have never been greater. The counter-claim is always the same in every new age: “The laws of economics are obsolete, and no longer apply. We can safely ignore them now, as they are only shackles that hamper our supreme vision for future society. We finally have the tools to make anything possible.” This claim is not new, but it will be more difficult to counter in an age of super-computing. The challenge will be to clearly express the knowledge problem on philosophical-not on technical-grounds, where the power to calculate more figures faster can finally be seen as irrelevant to the point at issue. Ideas have power. Better ideas have more power. In the end, the better ideas-meaning the clearer and more efficacious ones-will win out.

I'm consistently astounded by the vast number of commenters who don't know the first thing about economics who seem to believe they're a subject matter expert.

Video notes: - without market prices, it is harder to determine the value of specific items and make decisions on how to properly allocate resources - price signals show the value of an item, the future demand/supply, and the amount of resources you should consume/make

I had never thought of prices like this: Prices serve to set priority. In an "ideal" society, If the price didn't exist for a finite good, it would be distributed in order of importance to serve the greatest good. So now the people that receive the goods effectively have a price associated with them. Everybody would have different prices for any given good distribution scenario making everything way more complicated than it would be in a universe with prices, but the price function basically is the optimization of this good distribution system. If your job is to determine who gets what in this ideal world, the number that would turn this arduous endeavor into a cake-walk would be the price of the good.

I read somewhere the Soviets even tried just copying prices directly from the Sears catalog which is funny because those prices were derived from the supply/ demand and available resources of a completely different society.

Trick question. All of the engineers have fled the Soviet Union. There are only mindless laborers left. Go with the long route using maximum resources.

Which route has the nicer scenery?

I've read half a dozen to a dozen books and articles about economic calculation (e.g. Hayek's Collectivist Economic Planning, Hoff's Economic Calculation in the Socialist Society, Steele's From Marx to Mises, Lavoie's NEP), and yet this is the most lucid explanation I have ever seen. Absolutely phenomenal.

I really wish that understanding of how resource allocation worked was more common.. Maybe videos like this will help!

I'm speechless. This info is awesome!

Excellent video! Thank you for the educational resource!!

The answer is easy. You go through the mountain. It is the more dangerous route and more dead workers means less mouths to feed, and, in an inefficient system, less mouths to feed is a good thing. Not to mention you would just get political dissenters to engineer and build the railroad for free under the whip of a dedicated comrade. The same thing goes for the steel that you are so concerned about. You just need to force political dissenters and the socially undesirables to extract the ore and refine the steel for free. This kills two birds with one stone; you get your railroad and you eliminate a political threat. You would also want to build the railroad through the mountain because it is the shortest, and therefore quickest, route, and when you are moving people in cattle cars you want the route to be as short as possible to avoid as many escapes or other incidents as possible. Of course, once you have worked the most prominent opposition groups to death, you then will need to start cracking down on anyone who criticizes the regime in even the slightest way to ensure that you continue to have free labor. This culture of fear ensures that even the dedicated comrades will work for minimal reward without complaint or criticism of the system. And, voila, you have a system that will work, at least until the regime leaders begin pursuing liberalisation because they recognize the moral and economic superiority of the system.

amazing how a video about capitalism and the free market gets lost on so many making stupid comments.

This is really fancy way to say “you face the economic calculation issue, comrade”

Solution; transform humans into a robotic hivemind. The Cybermen did nothing wrong.

"But muh linear programming"

Best video on this channel in ages! really usefull to share!

One thing wasn't calculated, but it doesn't really matter anyway: the shorter route means quicker transit, which can increase long term output, if the place where the transit goes worth it (industries there for example).

Sad to see Former Soviet Union has become a test case for many economics lessons.

Well in the captalist side you also have to look at what will be more profitable in the long run. What will cost less to operate and which way are people willing to pay more for.

This is an amazing explanation of how our civilization has developed through the use of currency and marketing. It really helped me to grasp the overall picture of how supply and demand shape the course of society through money.

amazing! I love this channel!

So cool!

Great Video

Great job, Tomasz! Well done.

This would be spot on if, there weren't so many people that didn't know the difference between cost and value, if there wasn't overly inflated costs assigned through propitiatory actions, if the general population possessed reasonable levels of truth from a lack of market manipulation, with larger levels of competition. This being said, it's still a far cry better then socialism.

Beautifully explained

Hayek was masters of prices I hope to read more his works on prices Prices provide us liberty

Thanks. Keep it up!

Haven't watched the video yet, but prices are the mechanism by which scarce resources are allocated to their most productive ends. No mechanism currently exists that is more effective at this, as far as I know.

excellent video

Without price an item still has value. In its utility. This does not remove the problems brought up in the video but it does hold water. The more utility a decision offers the better a decision it is. Balancing these is harder without pricing but it is possible through prolonged thoughts and considerations.

The one thing left out is artificial inflation.

Finally this channel produced a video worth anything.

Great video

Fantastic video

Superb, the best explanation of why you need money and central planning failure!

don't show this to the Zeitgeist socialist club.

very interesting

This video hints at the answer. Nice

Thank you, excellent video...

This video is genius!! So simple to understand (by rationally-thinking people)! Thank you!

That has a solution. The vast complex array of interconnected computers that allow access to mind boggling amounts of information, knows as the internet, can give access to the amount of resources available, and how much demand and supply there is, without the use of pricing

Nicely done

Excellent, simplified example! Would love to hear a 'Socialist' address this logic with a countering example.

Oh, i thought the video would be a thought experiment about what would happen if train tickets were for free xD

BRILLIANT

So, how would automation of work and deep learning (computing) affect this thought experiment?

You forgot to account for how much of the steel and engineering talent is needed for weapons production, above all else.

Yes, I would like to buy 1 engineering please.

great vid

And now we see why state meddling, minimum wage, regulation, subsidisation, and taxation absolutely destroys the economy every single time.

Definitely subscribing. Finally, a view that is unapologetic and straight to logical reference.

This is, without a doubt, the highest quality video that you've produced yet. It's accessible and covers one of the most important, yet neglected, topics in our Liberty Pantheon. Prices are a must-understand in order to realize why libertarianism isn't anti-poor or pro-self.

what if we had behavioral data like what google collects to the point where we can predict down to what t human being will do next thus predicting need rather than asking?

the price of the rail line is just one piece, cost of operating on the longer or shorter distance needs to be accounted for

Excellent video demonstrating why central planning doesn't work and why the "invisible hand" does. In a mere 6:39 minutes. Bravo!

See this seams so simple and yet I think much of the modern world does not understand it

A good example of how market forces and pricing help in decision making, albeit a little bit oversimplified. For example, as the owner of the railroad, I may not choose the least expensive route from city C to city D, at least in terms of up front cost. I need to consider not only cost of engineering and steel, but number of miles between cities via each route, and cost of fuel to run the train, both present and future. I need to look at time required to complete the project each way, and opportunity cost if I choose to take the route that costs less but perhaps takes longer to build. I need to look at the trip time between cities on each completed route, which will affect the number of trips per unit of time I can expect to run, and in turn affect the total profits I can earn. Through the mountain, while more expensive initially may pay off over time in fuel savings and shorter travel times. I also need to determine what my primary transport market is, whether freight or people, and if people, consider ergonomics and psychological factors as well. If half my passengers get ulcers from fear of derailing on a mountain pass even though they'd save 20 minutes of commute time each day, and consequently stop using the train, I may want to consider the longer route around the mountain. I also need to look at future maintenance cost of both the track and the trains and try to project total cost over expected service life, and indeed if one route will have a longer expected service life than the other. Many of these costs must be guessed at since future maintenance costs, fuel costs, even passenger reactions to the different routes can't be known in advance. Here's an idea. Let the capitalist abandon cost structure in determining something as complex as the example above. Instead, let him follow a more predictable model based on empirical and historical evidence. We know based on the fact that socialism has historically failed everywhere it's been tried, that socialist central planning will more often than not make the wrong choice. With that in mind, the capitalist need only find a socialist country wherein a similar project has already been done, determine what they chose to do, and do the opposite.

Six words: *diminishing marginal utility of purchasing power*

Perfect explanation!

Brilliant! Thank you so much for this.

Very good point, however one of the most important resources isn't taken into account at all here. Time. The obvious answer is how much time would be saved over a prolonged period, and if it was significant enough to warrant using up other resources that may be more needed at the moment but may not in the future.

I prefer the survey method. I will practice it on commune in coming years

As a beginner Econ student I struggle to see how this thought experiment accounts for externalities and other forces that shift the demand and supply curves. Can anyone help me better understand ?

That is a wise concept only if the decision maker can guarantee high quality because low quality comes with greater lost

Ah yes, that's why the USA counts with a wonderful and functional nation-wide privatized rail system... Wait.

Simple. 1) Hire engineers from countries with excess ones. Exchange the steel you use for trucks to get more of them. 2) Build the railway, going through the mountain. 3) Use the railway to transport goods to the city, the same as the truck would.

Nice video. Now imagine it in 21st century, with robots, drones, A.I.

I wish this video was a little longer to explain that where one might choose the more expensive option, they are, indeed, demanding more resources that society is in greater need of. But by paying the higher price, you are placing a bid saying that you need that resource more or can make better use of it. The higher price is a means of compensating society for their trust and acts as an insurance if it turns out your use of that resource didn't actually provide as much value as you expected.

But what about using a price system that have no *currency*, as modern money is not just an arbitrary quality/quontity measurement tool, but also an *object of trade* that is *linked to not so valuable* (if not completely obsolete in real engineering) material, gold. What if we use an equivalent of a KWatt/man-hour instead, measuring price directly in energy and human labour devoted to the creation of such product? An equivalent that is only dedicates a price and is NOT an object of trade?

And rewards for the most satisfaction of human wants. utilitarianism rewarded! Marvelous!

And this is why we're all rich today ! Oh wait...

This all focuses on allocating scarce/limited resources. People who focus on getting rid of prices/economies are (now) often focused on how to do away with the limits. I don't think these are contradictory ideas. I believe cheap robotic labor combined with artificial intelligence will drive more and more things out of the market (at the same time they destroy our jobs). But I also believe those in power will work against making anything available to us for free/without limit (even if it's available to them for free), in order to preserve their power.

this is how our 3rd world city was shaped. without an overall urban planner that will wholisticly design the city, it was up to the individual players of the market guided by their own self interest to maximize the use of their properties and at the same time decided on what was the most cost-effective methods to build their properties. Meaning, you worry about your shit and I worry about mine. The result is an incoherent city system that can't even be replicated using City Building simulation games.

Fun fact: In socialist Poland bread was cheaper than grain!! Guess what the pigs and farm animals ate instead of grain? Bread. Socialism simply is a technical impossibility. The Soviet Union literally had to buy the monthly wall street journal to establish prices.

Passionate Communists, how rich! Oh, I guess not.

And what if the 2 options end up being the same price ?

This video is incredibly easy to understand and Well-thought-out. It helped me better understand and explain economic principles. I will definitely use this to show others

This is an excellent video!

Communism is some scooby-doo ass economics

What will happen if there is a way to have multiple values to the same good. This theory exists, what is the name of that theory? And for extra points where in that theory they talk about centralized planing?

Calculating by labor time solves this issue, and the calculation problem shoots itself in the foot, you’re telling me that what’s most profitable is the best thing ? What if you save lives by not making a profit ?

With central planning the reaction to inevitable mistakes causes the problems to compound and then spiral out of control.

There was another video about why AI wouldn't help in a centrally planned economy and why we would still need prices.

The first situation is implying scarcity and no technology for better of nation and surveys. If applied today or in the future this specific problem is obsolete. Also central planning is more complex. You would have like 40 people planning the rail road who work with each other, but have smaller responsibilities because work is split up. So surveys for each one of those people are better. Although I’m sure you could find another dent or flaw in central planning, but automation makes markets obsolete. By replacing your human worker with a machine you can generate more profits for your company. This results in lower prices to fight your competitors. No new jobs get created because the jobs used to build and plan the machines are taken. If demand does go up the factories are all automated and you only need a few humans for design. But is this better for society??? Not exactly because if the company’s competitors don’t automate they go out of business and all human labor is unemployed. And if they do, they fire all human labor and get machines because to reduces cost which reduces how low you can sell your items while still making he same profit. If this happens in every sector of labor then no jobs exist and no consumers exist. Now we start looking at thing like UBI. This is a terrible idea, watch bad mouse productions video on UBI.

Pots and pans....Reminds me of Oscar Schindler.

Awesome explanation. Only Learn Liberty and take economic concepts down to a simple level and keep it interesting for everyone.

So the first part about not being able to run surveys was funny because capitalists do run surveys. You don’t need to survey every one to get a good idea of what is popular, you just need a significant sample. Not to mention that this video seems to assume that digital surveys and data mining don’t exist. You also don’t need a market to log consumer trends, you just need to track which goods are withdrawn from the economy. Also you could replace price with estimated labor hours required for a project, and probably get similar results to market price. The real problem with this video is that it assumes there are no problems with market economy. The first problem with a profit driven society is that other concerns such as health, safety, and environmental problems fall to the wayside in the pursuit of money. I also thought it was funny that the video assumed that consumers would be willing pay higher prices for things based on perceived quality difference rather than purchasing what is cheapest the same way the capitalists were assumed to. The video also assumes that consumers are regularly rational in the marketplace, and that their tastes are always good for them. The video makes the leap that healthy food will be produced because that is what consumers want. Not only do you have to assume that healthy food was already being produced for it to be consumed in order to inform the market that more healthy food is in demand, but video already assumes that healthy food is more expensive than less healthy food making it more difficult people to consume it in the first place. The next problem is that market capitalism is prone to crisis on a regular basis. The way we buy and resell goods and stock will inflate price without producing any new value. We also regularly over produce goods that there isn’t demand, for and the economy breaks down when there isn’t enough demand in the economy to keep up with production. Oddly both of these problems contributed to the recession of 2007-2009. I mean the markets completely broke down but instead of letting them die and moving on we artificially sustained them with infusions of tax dollars.

What about long term costs? The route through the mountain seems shorter, so less fuel would be needed than on the route around the mountain. I think you could just extend the calculation given in the video.

Change a couple of names, and you have a description of the California High Speed Rail project.

This is exactly what’s going on with California’s high speed rail project: NO ONE ASKED FOR IT!!

You must understand that exactly such a railroad manager has lived in the soviet union at that time. Is seems like he did his job well.

What if the cost of going through the mountain is more, but having a shorter route will make more profit, in the long run?

i like how they used the railroad example without realizing what they are doing at all ROFL

Funny how the soviets were able to achieve one of the fastest industrial and infrastructure development initiatives in the world but apparently we don't know what steel is worth to us?