• Unit 1: Economic Calculation

    In the first unit, we discuss the economic calculation problem as first described by Mises. We discover that the real problem with socialism is that there is no economic calculation without a market for capital goods. We then discuss why capital markets play an important role in allocating resources in an economy, and the different ways socialists have attempted to get around this problem are explored. Finally, we examine the failure of modern academia to understand the economic calculation problem.

    Completing this unit should take you approximately 2 hours.

    • Upon successful completion of this unit, you will be able to:

      • This is where the unit-level learning outcomes for this unit go.
      • They should conform to the same standards as the course-level outcomes, and fit within them in a manner that provides more granular detail to the topic(s) of this unit.

    • 1.1: Lecture

      • Lecture Page

        How does a business determine which combination of resources is best to make a product? The answer is prices. Without pricing for capital goods, investment is impossible since potential future outputs cannot be measured by any current standard. Austrian economics recognizes the critical role prices play in helping people allocate limited resources efficiently, which in turn benefits society. Watch this lecture to examine the role of economic calculation in an economy. In the video, Saifedean explores the calculation problem that socialist central planners encounter and explains the important role of capital markets in allocating resources.

        Topics covered include:

        • Market for capital
        • The economic calculation problem (ECP)
        • Modern academia's failure to understand the ECP
        • Inability of central planners to rationally allocate resources
        Key points:
        • Modern academia fails to understand the economic calculation problem.
        • Lack of incentives is not the greatest problem faced by socialist regimes.
        • Allocating capital sufficiently is impossible without a market for capital goods.
        • If government owns all capital resources, there can be no market for capital goods.
        Even if central planners were able to obtain the relevant knowledge, it remains impossible to correctly allocate capital because of the impossibility of calculation

    • 1.2: Discussion

      • Discussion Page

        Spontaneous order attempts to explain how human conventions and institutions emerge as the unintended consequences of the actions of a myriad of individuals, pointing to the limits of rationalism and the conscious shaping of social life. Watch this lecture to examine how spontaneous order is achieved through distributed knowledge on the market. In the video, Saifedean explores the concept of spontaneous order, focusing on the work of Friedrich Hayek and Vernon Smith.

        Topics covered include:

        • Distributed knowledge
        • Rational constructivism and its shortcomings
        • The important role spontaneous order fulfilled in the process of selection on the market

        Key points

        • Complex goods and even language are examples of things that emerge through spontaneous order
        • Reason is good at providing variation but poor at selection, which is better left to ecological processes
        • Spontaneous Order can be understood as orders and patterns that emerge out of human action and interaction, not through human designs