ECON104: Principles of Austrian Economics II

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