Who Won the Socialist Calculation Debate (with Peter Boettke)

[Music] Welcome to Econ Talk, Conversations for the Curious, part of the Library of Economics and Liberty. I'm your host, Russ Roberts of Shalem College in Jerusalem and Stanford University's Hoover Institution. Go to econtalk.org where you can subscribe, comment on this episode and find links down the information related to today's conversation. You'll also find our archives, but every episode we've done going back to 2006. Our email address is mail at econtalk.org We'd love to hear from you. [Music] Today is January 20th, 2025 and I guess is economist Peter Betke of George Mason University. Our topic for today is socialism and what is known as the socialist calculation debate. We're going to base the conversation on Pete's book of the same title, the socialist calculation debate that he has written with Rosalino Candela and Tekken Truett. This is Pete's ninth appearance on the program. He was last year in May of 2018 discussing public administration, liberty and the proper role for government. Pete, welcome back to econtalk. Thank you very much for having me. I'm thrilled to be here with you. So what is the socialist calculation debate? I just want to say for listeners who might think this is some ancient, weird, archaic, academic dispute, it is that, but it turns out it's not so archaic and it's not so academic and it's much broader than it comes to appear at first glance as what I learned from your book. But let's start with the archaic academic debate of early, mid-early third of the 20th century I guess. Well, I guess the easiest way to put it is that Karl Marx, who was the most systematic socialist, not the only socialist. There was a variety of socialism. All right, that came about. In fact, if you go back in the history of socialism to the first international, it's not like Marx was the only socialist there and you have Bacoonin, you have other kinds of people who all want to envision this possible future that would rid the world of the social ills that the old regime had generated. It's a little misnomer to talk about it always in capitalism versus socialism because capitalism really wasn't fully developed then either, right? It was kind of a different idea, mercantilism, all kinds of other things. But they were going to step inside of the future and see a better world. World that would eliminate the injustices of the 19th century as they saw it and the instability of the 19th century as they saw it. And in order to do that, they were going to bring the invisible hand forward to be a visible hand. So nothing going on in the backs of the people. And in doing so, they hope to achieve a movement from what Marx called the kingdom of necessity, the world of scarcity, to this kingdom of freedom, which is a post-scare city world because of a burst of productivity. So there's an economics claim that by moving the invisible hand and the energy of production to in front of us and orchestrating it, we can increase the yields, the productive yields of society. And as we increase the productive yields of society, we'll be able to eradicate the conflict between the classes and we'll be managing the cyclical variation. So we won't have business cycles anymore. We won't have monopoly power, privilege, these kind of things. So we won't have exploitation. And so there's a very specific claim. I'm going to increase productivity and do it by rationalizing production. And I'm going to rationalize production by having collective ownership over the means of production rather than private ownership over the means of production. And so that was the plan. And by rationalizing, you don't mean it in the everyday sense of the word, which is to justify or excuse, you mean make it more rational, make it more scientific, more purposeful. Right. And to produce more with less, this is a key issue. From an economist point of view, when you translate it, it's like I'm going to produce more with less. And I'm going to do it now with collective ownership rather than private property ownership with planning rather than prices. And so this was the original claim. And then in 1920, actually, I should point out that Max Bavar in 1919 originally writes a critique of this sort of project as well. And he draws on some nuggets of comments that Mises has in his first book, "Theory of Money and Credit." But the nuggets are how markets actually work. So Theory of Money and Credit is not a critique of socialism. It's how the monetary system under, you know, markets work. And Bavar understood that what that entailed was monetary calculation. This goes back to the Moors preferred to less. And the role that private property and prices play in enabling us to engage in monetary calculation of profit and loss and, you know, this stuff. And so Bavar, you know, highlights this, but draws on Mises. And then Mises in a book about World War One called Nation State and with the nation's state and economy, he also sort of highlights this problem with war planning. But he fully develops the argument in an article called Economic Calculation of the Socialist Commonwealth. And in that article, he takes directly on this claim that I'm going to rationalize production by having collective ownership and planning versus prices. And what he tries to argue there is logical criticism, which is that when you abolish private property in the means of production, you're going to abolish markets in the means of production. And when you abolish markets in the means production, you're going to abolish the relative prices. And without the relative prices, indicating the relative scarcities, right, then economic actors are going to be unable to engage in monetary economic calculation of whether or not to invest in project A or project B. And so we're going to end up by basically being so many steps in the dark, which will mean that we end up by not having rationalization of production. But we'll end up rather than producing more or less, we'll produce less with more. And so we get systematically not the, and if you can't engage in rationalization of production, you're not going to be able to move from the kingdom of necessity to the kingdom of freedom. And that article was written when, what year? 1920. So this is while I think roughly the first five year plans are coming out of the Soviet Union. And there's an immense intellectual excitement about the Soviet communist experiment as a potential replacement for market capitalism and the American system, which is the most dramatic example of it. You could argue at the time. And what Mises' critique is, which is hard to remember because you have to remember what year it is, it's not now. It's 1920. Is that that's just not going to work. It's not, it's not, I don't like communism. It's not, I don't like what communists are trying to do. He's simply saying, and you stress this in the book, he's making what an economics would call a positive analysis, not meaning, not meaning, meaning not encouraging, but rather just seeing what the facts are and where does the science, so-called science lead. And he's saying, I'm not going to work very well. The incentives aren't there. People don't have these sources of information about relative scarcity. So inevitably they're going to waste resources both in how they produce things and in what they produce because they won't be able to produce things according to what people necessarily want. Right? The price and profit and lost signals that business people are constantly reacting to won't be there. And there's no way that a government said, really planning it can do nearly as well. That's the claim, right? Yeah. I think that the way to think about maybe the debate as a whole is to think in terms of the different stages in which economists had to bring sense to these very romantic claims about what was going to be achieved. And so at first, as I said, the movement from the kingdom of necessity to the kingdom of freedom is a denial of scarcity. Right? And so you have to remember in the late 19th century, early 20th century, it was very common for social activists to argue that we had solved the problem of scarcity and that what we had was poverty amidst plenty. And so the question wasn't whether or not the system yielded output, but whether or not politics decided how to distribute the output. So as an economist, you first have to come along and argue, hey, we live in a world of scarcity. Scarsity implies trade-offs. Trade-offs need to be negotiated. We need tools for the human mind to help us negotiate the trade-offs. And those negotiating trade-offs are both the question of incentives and information, right? The way we weigh the different marginal benefits and marginal costs of our different activities. And so the first stage of the debate is to to insist on the importance of private property rights. This is one of the oldest arguments in intellectual history, it goes all the way back to Aristotle's critique of Plato. But it had to be resurrected, the idea that property rights matter. And then the second thing is property rights not only produce incentives, but they are the generator of the prices that we use to negotiate the trade-offs to help us. So prices guide us, profits, property incentivizes us, prices guide us, profits lure us to new changes, and losses discipline us. And so in understanding the role that these three P's play basically, property, prices, and profits in the system, it ends up being a challenge to the idea that the socialist system, which was trying to abolish property prices and profits, we're not going to produce for profit, we're going to produce for direct use. Those are all the slogans of the socialist project at the time. And so as you pointed out correctly, Mises is not choosing to argue with the socialist on their ends. So he's not going to do that. He's going to argue. He's going to say, OK, you want these laudable ends? Move from the kingdom of necessity to the kingdom of freedom. I'm all with you. How are you going to do it? That's the question. And your means, the abolition of property, prices, and profit, is not going to be able to achieve your end of increasing the yield. So that's why it's the problem of rational economic calculation. It's not, again, going back before. It's not a justification. And it's also not hyperrational. Like, I'm going to make no mistake. I'm homoeconomic. It's I'm a lightning calculator or pleasure in paying. It's literally the words the socialist used. They are going to rationalize production by getting rid of the anarchy of production, which was taking place under liberal markets. What they understood to be liberalism. And so Mises is adopting their language, adopting their ends, and showing that their means cannot obtain their ends. So he writes the article in 1920, and then he writes a book called Socialism in 1922. Is that right? 22. And that book is still in print. And I would just remind listeners that you and I have-- I think we've done an episode on Mises. And readers, listeners can go back and find those references and get an introduction to Ludwig von Mises, the Austrian economist. So that book comes out in '22. The other side doesn't go, oh, well, I guess we've made a mistake. We're barking up the wrong career, heading down the wrong path. They fight back. And so the most prominent response to Mises come from laying in learner, from not mistaken. And what did they say? How did they answer them? So I think just to put things in someone context first, is that this book comes out in '22 and has a sea change, sort of a mind-quake effect on two very important thinkers, Friedrich Hayek, who is young and in Vienna at the time in part of Mises' seminar, and then Lionel Roberts, who it turns out is fluent in German. And so when he floats in and out as a young economist, he's a student of Edwin Tannen. But he's a young economist who actually ends up having to go to Germany and come back. And he gets exposed to Mises' book. And this plays a major role in the 1930s, because by shock of sheer accident, a very young Lionel Robbins, because Alwin Young dies from the flu, becomes department chairman at the London School of Economics at the ripe age of 29. And then eventually he recruits Hayek to come and be part of this program at the London School of Economics. And they are trying to communicate Mises' ideas to the English language-speaking community. Mises' book and article don't get translated until 1935 and 1936. So Mises himself, the original response to Mises, are all in German. And those are all not yet the effective longer. They're more like people like Karl Polonia, sort of these social scientists in the German language world. Jacob Morseck actually has a criticism. But what happens is Mises, Hayek and Robbins translate Mises' ideas and it creates an English language debate. And so the shocking thing-- sorry for that detour-- but I think it sets this up-- is that when Hayek gives his inaugural lecture at the London School of Economics, called the Trend of Economic Thinking, he argues that if you're a neoclassical what year is this? 1931. OK, go ahead. So he says if you're a neoclassical economist, by that, he met a marginalist. And they didn't see themselves as Austrians being different. There was Martialians, there were Valrazians, there's Mangerians. But they're all basically sort of the same thing with different points of emphasis. One is more what we would today call partial equilibrium. Other people are generally equilibrium and the other ones are more the market process that produces the equilibrium. And so but they see themselves as all linked as marginalists. And so Hayek says if you are a neoclassical economist, you can't be for interventionism and socialism, because economics teaches you property prices and profits. So you can't be one of these other things. And so he says the problem is that the older critics of markets against classical economics is still in our head, the institutionalists and the historical school, even though we've now defeated them. And so this is what he's laying out. Well, what happens is around that time in the 1930s, you have two things going on. One of them is the great depression. So people's faith in the market is really shaken. The second thing is that people start using the tools of neoclassical reasoning to defend interventionism. And so a learner who is actually Hayek's student, his dissertation is called the economics of control, which is how can I use the tools of marginalist economics to optimally plan when in the real world, they end up because of monopoly and business cycles unable to achieve the results of the model. So we can make the model. Because again, remember, we're going to move from the backs of people. In the classical economics, the optimality theorems emerge from the activity of individuals, many of whom don't even know that they're doing anything like marginal calculations. But if I'm going to do rationalize, I'm going to move it to the front. I'm actually now going to scientifically do that. So what Longa and Learner argue is that what's the problem? We just tell the central planning board to set price equal to marginal cost and produce output at the minimum point in the average cost curve. We have a diagram that tells us that that way you'll be optimal. And precisely because they can now do that, the planning bureaucracy can do that. And we're going to work at that optimal, also going to get rid of the business cycle. So not only can we show that socialism can perform in theory identical to capitalism, just set the same optimality conditions. Socialism will outperform capitalism in practice because we'll get rid of all the bad stuff that's associated that we're looking when we look out the window we see. Which, because remember that at the same time that you have canes, you also have burly and means. So it's at the same time, there's a separation of ownership and control and the problem of the modern corporation creates all these dysfunctions on the micro level. At the same time that the breakage between savings and investment is going to cause all the problems on the macro level. So the faith of economists, that is standard mainstream economists in the power of markets to coordinate economic activity through time, is at a real low at this time. And that's when you have these really bright young genius level economists like Langa and Learner coming up with this solution that they want to do. And then, you know, Hayek and Robbins are kind of taken by surprise. That's fantastic. Summer, for listeners who are on economists, marginal doesn't mean like unimportant the way it does in everyday language. It's a methodological statement that just to make it simple, it means that all supply and demand is a useful way to think about how prices get determined rather than some other theory. I'll leave it at that. And statements like price equal marginal cost to produce it at the minimum point of the average cost curve. These are ideals that economists use as descriptive under certain conditions and that lead to certain good results under certain conditions. But the counterpoint is, oh, but those certain conditions don't hold. So we don't get there. But we can get there instead of just hoping through a merge and order and bottom up activity will get there, we'll get there with intention. And this, by the way, It's a 90 year old, 95 year old debate, but it keeps coming up in our profession. This is an aside because it drives me insane. People say, "Well, markets are good in theory, but in practice they've got these flaws." Because yeah, correct. These so-called assumptions, underlying conditions, don't hold. They're right. But that doesn't imply, therefore, that a non-market solution is going to do better. So that's fundamentally what's fascinating about this is that fundamental argument. We see as economists that markets can do things and achieve things that are surprising given that they're not planned, that they're not intentional. The other side, the interventionist side says, "Yeah, but think about better. It could be if you tried to do it on purpose." In fact, this is the subtle point you're making, Peter. I want to reemphasize for listeners. We're going to use the tools that you use to justify bottom-up market activity to make top-down centralized activity even more effective. That's the debate. What year are we in now, mid-30s? Well, they're writing your article in '36, '37, Hayek eventually, and Robyn's response in the late '30s, early '40s. But then Robyn's, of course, goes to work in the war effort. He gets out of being active in the academic literature by the late 1930s, early '40s, because he's involved in the war effort. Hayek, on the other hand, ends up by writing not only the wrote the Serfdom, but then also the use of knowledge in society, but also essays like the competitive solution where he's trying to counter these different positions. But I wanted to say something. You're a master teacher of economics and communicator of micro-economics, basically good price theory. But I wanted to mention your colleague, Ed Hoover, who I think Thomas Sol, who I think actually is brilliant on this. So first, in the meta issue, this is his book on the conflict of visions, basically. Right? The one is the idea that you see things bottom-up. The other ones that you have to sort of stand outside and plan from the top down. At the very end of his book, Knowledge and Decisions, which I think doesn't get talked enough about. He has one of the best paragraphs I've ever read. Basically, what he says is that ordinary people can do extraordinary things if given the freedom from their others, right, that I try to impose on them. Whereas I think the opposite side believes extraordinary people can achieve extraordinary things if you just give them the power. And so this conflict of visions is played out in this debate all the way through. Whether or not, so imagine if I had the best and the brightest to plan the economy. Or now, I hope we'll talk about this, the best and the brightest computers to plan the economy, then we can give them extraordinary powers and they can rid us of all our social ills. Where, you know, the other side is basically like, "I got to worry about that power problem, right?" So instead, what I want to rely on is ordinary individuals, as McCloskey puts it, giving it a go, right, are going to end up by generating this information and this incentives within the process itself, which will enable us to achieve, you know, productive specialization and peaceful social cooperation. And you know, that's the key idea going all the way back to Adam Smith to Vernon Smith is, you know, how is it that we achieve productive specialization and peaceful social cooperation without a commander, right? And we do that through the Higley and Bargaining of the Market, as you've talked about. Yeah. Yeah. So, and thanks for the kind of words. But the, the, in my mind, and I was surprised to hear you say this because it seems opposite to what I would have thought, you suggest that in the debate between Oskar Lang and learner on the one hand and Hayek-Mises and Robbins on the other, by the 1950s, most academics would have said that the socialist calculators, the people who defended the central planning solution had won. Is that, is that correct? In your view? Yeah. I think, I think you have to understand that two things about that. One is the utter, and this is really quite well captured in Jennifer Burns's book on Milton Friedman because it captures that time because again, Friedman is educated. And then 1930s and comes to the forefront of profession. He starts at University of Chicago in 1946, right? In '47, Friedman writes a wonderful critique of learner's book that anticipates his long and variable lag and all kinds of things like that. But here's the dilemma that he points out in that book. There's nothing logically wrong with learner's book. It's just that learner doesn't pay attention to the administrative side of things, right? That is like the actual way in which politics would make these decisions or the way in which even if we assumed, you know, well-intended bureaucrats, how would they go about achieving this kind of idea? So the reason why they have this immense faith is because the Great Depression destroyed the faith in the invisible hand. But then the Western allies defeated the Nazis, and they did it through war planning. So can't we use war planning in peacetime to plan and solve all of our problems? And so these economists like Samuelson, who are brilliant and recruited into the field of economics due to the Great Depression, you know, if it would have been more than years earlier, he might have become an engineer, right? Because of his math skills and things like that. But he ends up by becoming an economist, and his idea is, again, think about his major innovations, you know, linear programming, all these kind of things. I got, they're all associated with the economics of planning and fixing the economy. And as Samuelson puts in his economics book, not his foundations, but actual textbook, he says, "Men of goodwill will be called upon to use the power of government, right, to solve our problems of all the social ills. Poverty, ignorance, squalor, right? And we, as economists, are entrusted with these tools and with this now power to be able to achieve that." And that was a heyday of them doing it. I know you've had Applebaum on your show about the economist hour, you know, and I think he always got it wrong. The economist hour was the Keynesians, not the, not, not, you know, Friedman and what he calls the neoliberals. But the economist hour, Samuelson and Solo and, you know, later on, you know, you know, all the way up to people like Larry Summers and others, you know, that are, that believe they can control the levers of the economy and fine-tune the economy. And that's what's been called in the question by the failure of the regime. But that's a different debate for a different time. But at this time, in 1950, and now it's a little hard not to do it somewhat technical and I don't mean to derail us. But what they believe was that they could prove a social welfare function that could tangently kiss at the out-of-front year of the Pareto crisis. Right? Okay. So I'm going to cut you off there, Pete. But can I try to put that in English for, for, for, yes, sorry. No, it's a very, it's actually extremely important because I think the intellectual effort that economists have gone into and what you just described is remarkably seductive and dangerous. And I'm going to put it, no, I'm going to, I'm going to cut through the gordian nod of the technicalities and say the following. A large portion of the economics profession came to believe and Spenny still do that there is a set of production decisions that are best for quote, the economy is a whole, for not for the economy, for the people that a benevolent dictator, which doesn't exist, but we're going to imagine it. A benevolent dictator would, would do this and maximize the well-being of the people, ignoring the fact that people have different goals, different desires, ignoring the fact that inevitably there will still be trade-offs, ignoring the fact that we can't say whether it's better if someone so gets this apple rather than someone else. And the idea that that's reality is unbearable. And it really goes back to this one of the few things I understand about economic history of economics. I'm sure it goes back further than this, but it goes back to, at least as far as Bentham. Bentham wanted to use the word we've been using rationalize the weighing of relative well-being of different people. And that cannot be done in my view. But he found that frustrating and economists don't like that. So I need a way to figure out, since almost every policy benefits some and hurts others, I need a way to figure out what the net impact is. And the social welfare function that phrase you used is an intellectual abstract concept to try to compare different world, different outcomes in different worlds, under different rules, under different levels of output and who gets it. And I think that's a fool's game, worse, I think it's dangerous. But that is part of what's happening in this post-war war two period, this confidence that we can say things that are decisive about what, well being not just of a person, but of groups of people, and especially diverse groups of people. And let's be honest, economists like to apply the power of incentives to everyone except themselves. The idea that we, as economists, to quote George Schigler, there's only one social science and we are its practitioners. But more than that, we are the kings. We are the king-makers. We are the engineers who will engineer an outcome for society that is the best of all that it could possibly be. And I think that is intellectually bankrupt. But it was, and the point I'm making about incentives is that if you think economists can do that, you should give them a lot of power and reward because they know how to make not just someone better off, but everyone, and not just everyone better off. But in some sense, the society better off, even though there might be many people who are worse off, and they purported to be able to wait those trade-offs and they still do. A very seductive aspect of what is called welfare economics, which is not about payments to poor people, but rather about how the well-being of people. Well, I think that you hit the nail on the head. And I think that between 1950 and 1980, this was actually the dominant version of economics. There's a reason why there was challengers to that from Chicago, from UCLA, from Rochester, Virginia, these other things, which we maybe can talk about. But the dominant MIT Harvard, Princeton, Yale, way of teaching, Oxford teaching, and it had a huge impact also, not only on domestic policy, but international policy that was taking place after the war. So the way that you export it, how to advice to underdeveloped countries, how they should, like India. How should you do your economics? And Nehru was very influenced, for example, by the sort of Fabian as well as Soviet planning. It was kind of a mix, right? Some version of Fabian socialism and Soviet hardcore industrialization. And that all had to play out, and then eventually it crashed and burned, and the economies had to go through different reforms in the 1990s. But this heyday that we're talking about right now, 1950, that is a heyday of market failure theory, market spail to achieve any kind of optimal output or even desirable output. They're going to be plagued by monopoly power, externalities, public goods problems, right? Business cycles, as you mentioned earlier. Yeah, and then macroeofalier, which is the business cycles. And so again, we have a very strong argument that says economic system left to its own devices is going to give us not a betterment, but in fact human suffering. We're going to suffer from an idleness, right? Unemployment will suffer from poverty, will suffer from squalor, will suffer from ignorance, okay? And so all of those social ills need to be eradicated by conscious government activity, and economics is giving us the tools by which to do that. So let's move. Yeah, obviously we can talk about a lot of different things, but I want to move to high x particular critique of the socialist planning idea and the role that knowledge plays, because I think that is a rather extraordinary intellectual achievement, but just to foreshadow, and I want to spend a decent amount of time on some of the intellectual things that came out of this, we'll talk about Ronald Kose's theory, the firm and Michael Plannie's insights into philosophy of science. But obviously, just like the Great Depression caused people to lose faith in markets, rather that was right or it doesn't matter, when the depression caused a lot of people to come to a decision about the reliability of markets, the collapse of the Soviet Union, which is the 40 years into the heyday that we've been talking about on the part of planners, that shakes people's faith in the ability of markets to be superseded by planning. And in particular, the realization, which took quite a while, that the Soviet Union was an utter failure as a productive cornucopia. It did not produce the cornucopia of goods that planners promised the less from the more for less. It was the opposite. It was very unproductive, and it took a long time for people in the West to realize that Soviet data was not reliable. And that actually the Soviet Union wasn't outperforming the United States in the 50s, 60s and 70s. It was woefully inferior. So with that, when that became a realization, and when the Soviet Union collapsed, Hayek and Mises eventually, in many ways, won the calculation of a, but it's not going to end because there's a 21st century variant we're going to get to, which is computers. But I want to talk about Hayek's insight. So we have Mises who argues that you don't have the right incentives. You don't have the power of profits and loss that private property induce to give people these have to make the right choices. They don't have the prices. Therefore, they can't make choices between a relative value of one good over another or one input over another in the production process. But Hayek has a deeper and more, to me, deeply satisfying insight about how knowledge actually works in the real world and how it works in an economic system and talk about that. So it is a great question and in the evolution of the debate. I did just want to say something for the listeners. So they might put this in context because they might have heard this when they were in school or whatever. But when Krushchev picks up his shoe and at the UN and says, we will bury you, he doesn't mean militarily. He actually means in productive goods. They are going to out produce us. The space race, the fact that they put Sputnik up before us, suggested to everyone that they were technologically superior to us. The fact that Stalin was able to move a peasant economy to an industrial economy strong enough to produce a military apparatus that could take on Hitler, that proved to people that it was all working. So everyone had tremendous faith in the technological achievements of what socialism could have. And they didn't realize that it was all crumbling on the inside. We didn't have access to the information and all of that as a scientist. They didn't let Westerners in. They did just Ptinkin villages that is made up, you know, visitors. And so that's important to keep in mind. The second thing that I want to go back to just very quickly before I'll dive into the knowledge issue is that as I said before, the argument went from property to prices to profit and loss. And then what you have to, so that property gives us incentives, prices gives us, you know, information, profits and losses. And the lure and the discipline there gives us innovation. But then when you have to realize what Hayek said is that, you know what, all of economic life takes place within law, politics and society. So politics gives us the institutional infrastructure. So institutions matter. And so he goes through this debate and he hits the different points. Now, why doesn't he just stop at the old economist argument that collective ownership, if everyone owns everything, no one owns anything. Therefore, they don't have the incentives, right? It's because that debate was ruled out of court by two forces. It's so weird to read 1930s economics. You know, Hayek's colleague, HD Dickinson at LSE, when he teaches his course on economics of planning, his first statement is, we will truck with no incentive talk here. Okay. Longa in his famous paper on socialism says that incentives are psychological problems. And therefore, not actually economic theory. All right? And so if Hayek responds back and just hammeres home the incentive argument, he's, they're not even listening, right? Yeah, that's it. So then what he sort of asked people is he says, okay, so what is the functional significance of a price? What does a price do? And at the time, a lot of economists thought prices were a summary of past costs, right? So you know, and what Hayek's brilliant insight was, no, no, no, prices are guides for us to engage in future activity. They're the things that guide us. And this is, this knowledge that is embedded in the price system is only revealed within the act of engaging in the exchange. If you don't engage in that exchange, that knowledge doesn't exist. So it wasn't a computational problem. Oh, there's just so many equations that we have to solve. It's complicated or whatever. It's literally a generative problem without the price system and without the competitive bidding and asking the prices, the knowledge that's necessary to coordinate just simply doesn't exist. It's not there. And so Hayek tries to communicate this. So he uses his famous example. I mean, you've dealt with this tremendously in various, you know, of your books that we've talked about. So I'm sure you could summarize it better than me. But think about his famous 10 example, right? It's not that the knowledge of understanding the relative scarcity of 10 exists somehow out in the abstract. It only comes about because I see the prices moving. If the prices don't move, I don't know that that's the case. And I have no way of accessing that that's the case. And so the, the, it's this generative nature of the knowledge, the contextual name, what Hayek calls knowledge of time and place. That is so vital to our coordination of our activities. It's just one of my favorite things in economics because it's, it's not obvious and it's really cool, which is the way I think about it sometimes is, where can I look up how scarce tin is? Where's the book that the annual survey of tin supply? And of course that book doesn't exist. And then the other book you would want, once you found out it was scarce, you'd want to get the book of alternatives to tin. And that seems like a reasonable thing to be able to find through some armchair theorizing and maybe some research. So if I use tin in a process of production and tin's got more expensive, I need to think about some, an alternative perhaps as a way to cope with this higher price because now tin is more scarce. And the idea that I can't look that up, that I can't just make a list of what the alternative ways I could avoid using tin. What I have to do is be under pressure. I have to realize that oh my gosh, tin's got an artwork offensive. My business might disappear. I better find an alternative way to produce what I produce that uses less tin. And under that stick, that thread, I might come up with something new. And that something new might be worth it. That's the profit lure. But it might be a mistake. It might cost me money and that's the discipline of loss that you talked about so well. And that idea that the things that we observe out in the marketplace are response and not just a compendium of knowledge is extremely, extremely deep. And I think a first rate economics course helps a person appreciate that. And of course, it's what you and I talk about all the time when we're teaching is that that is a very subtle idea. And if you haven't, if you're listening and you haven't heard that before, I hope it makes some sense. Right? It's the idea that the knowledge that I have only emerges when I'm encouraged to go find it. And that's why it has an exploratory element, a discovery element. And sometimes I'm the only person who thinks of it. And for a while, I get an edge. And if other people discover it or see what I've done and copy it, my edge starts to decrease. And that's the magnificent aspect of price, profit and competition. So all of a sudden, my insight would save me a lot of money and allow me to profit. Suddenly, I've got to share those profits with consumers often because competition forces, I don't want to. Doesn't matter whether they're a nice person or not, competition is going to make that happen. And that's the power of the decentralized system when it works correctly. Yeah, so this is Hayek's idea of competition as a discovery procedure, which he, you know, so this debate that he was involved in forced him analytically to keep peeling the slices, the pieces of the onion back, as he kept on trying to understand more and more of the nuggets of the foundation. You and I both think the world of Adam Smith. I think one of the things that's underappreciated is Adam Smith's capturing of what science is all about because what he says is it moves from a wonder to surprise to appreciation. So wonder is, you know, when I look up in the stars, I wonder when I see a common woolen coat on the back of a day labor, I wonder how the hell it got there, right? The surprise is that I find out that it got there because of individuals pursuing their own interest, you know, and they're like that guided by the sort of market trade offs that they face and appreciation is then an understanding of the power of the price system, and division of labor and all these things like that. If we could in economics still teach wonder, surprise, and appreciation, we would, you know, that would be the best thing we could do as economics. And just as an ad to you, I mean, I, you know, I think you have this book on the price system called Price of Everything and you have a wonderful book called, you know, Wild Problems, which is actually the, it's, you know, it's easy to have, not easy, but it's, it's the world that the people that were building the model of perfect competition and thus the model of market socialism we're dealing with was a world absent of wild problems. It was a world that didn't necessarily need innovation and all these other, and didn't have to cope with change and all that stuff. So that's why I when you start and everything was measurable, everything could be computed. Yes, yes. And they saw, they saw the problem as a computational complexity problem, right? So all you need to do is have really smart people figure out how to do the math and then you could get it, you know, and solve the issue, which will come back to when we talk about the current computational discussions. But what Hayek was trying to get at is this constant and ceaseless change adaptation and adjustment that was required. And going back to what you just said, novelty, the reason why we progress is because of novelty because of imagination. So again, to your listeners, you know, there were, there were economists other than, than, than Hayek and whatnot that emphasizes things like Julian Simon telling us all about, you know, the ultimate resources, the human imagination because, you know, necessity is the mother of invention. Or I'm sure you know, Matt Ridley, one of my favorite books since the last time we talked is how innovation works. And Ridley has this fantastic phrase. He says, innovation is the child of freedom and the parent of prosperity, right? Because exactly to your issue. And one of the problems that, you know, all the way from meces to Hayek on this issue with socialism was not only, as meces put it, how are you going to comrades? How are you going to have the chickens fly into the mouse of the comrades, right? Just deliver the goods. It was also, how is it that you end up by getting constant improvement and revolutionizing the process of production in the same way that we saw the move from 1750 to 1850? How are you going to see from 1850 to 1950 from 1950 to 2050? Where are you going to get all this sort of, you know, spur of innovation? It's not just technology. And it's not just a technological and engineering issue. And it's really important to emphasize this. It's not, well, I mean, it seems obvious. People just think of new things. That's why we make progress. They get creative. But the inside of this debate that we're treating as this sort of, again, as I said earlier, some kind of arcane, academic dispute, it's really a difference in fundamental difference in how we look at the world. Right. If you look at the world and you say, well, people think of new things. But the question is, a lot of the new things they think of aren't worthwhile. So you can't fund everything and you shouldn't fund everything. So then you said, you're faced with the choice. How do you decide what to fund? And you know, market system, no one decides it. It's decided by people throwing things against the wall and seeing what sticks. Most of them don't. Thank goodness. We don't keep investing in them. So in a private decentralized system, the market test is what determines what leads to a better world. Now, I'm not going to romanticize it. I do because I think it doesn't get enough romance. But obviously many things stick for the wrong reasons, stick because they have an edge, stick because the corny is, I don't want to overstate how the perfection is, and you do that, you're very similar. We don't overstate the perfection of the market system. It's remarkable that it works at all. Yeah. Given that no one's guiding it, at least in the obvious sense that you would normally think of. So one more. of things that we really try to stress in the monograph is actually what is actually the function of economic calculation. And the function of economic calculation is sort from the array of technologically feasible projects, those which are economically viable. So there's many different ways, for example, to have transportation. But not every way of transportation do the costs, the benefits outweigh the costs. And unless you have this mechanism of the price system, you're not going to be able to do it. I'll tell you a funny story when I first started teaching economics back when I was a graduate student. So at that time, George Mason, when I went to graduate school there, you know, I went there from 84 to 88, and then I was away for 10 years. And then I came back. But in the late 80s, George Mason went from a school of 10,000 students to 15,000 to 20,000 in a very short period of time. So we had a parking problem. Right? There was a huge problem of parking. And so I'm teaching this giant principles class, you know, 500 kids. And I say, listen, I want you to solve the parking problem at George Mason with the price system and only with the price system. Okay? Now, what's struck, what sticks out in my head all these years later, is the students all came up with solutions, none of which were price related solutions, but all technical solutions that were in the technical feasibility set, but actually economically ridiculous. So one of them was, let's just divide all of the slots on campus in half and ban all four wheel vehicles. And you can only get the campus on a two wheel vehicle. So everyone had to drive motorcycles or bicycles and then we could double the parking space. The best one which you'll laugh about is that down Braddock Road, you hit in the 495. So you have a major thorough right there, build a giant building that has a helicopter on top of it. And the helicopter students park there and then the helicopter can take them to the main center of the campus and drop them off there. Again, these are all possible. It's not like, you know, Captain Kirk, be me up Scottie. They didn't come up with that, but what they didn't do is they didn't use the prices. I just want to have the price to spots closer to the campus at a very high price, out by Braddock Road, price of a low price and then Brad, because at the time, everything was price the same. So the students would circle and circle and circle before, you know, and they'd be late to class and all this stuff like that. So, but you know, it's that little story tells a kind of a funny thing just about the way in which we sort from the technologically feasible, which is an engineering problem to an economically viable, which is an economic problem. And the only way we get that knowledge is actually through the competitive bidding and asking process and the failure. It's, you know, it's like as you pointed out in gambling with other people's money, right? Failure of the market is a major part of the way the market actually operates. It's not just the profits, it's the losses have to be there. That's a bit of a freedom. He looked to say, it's not a profit system, it's a profit and loss system. And the losses are of course, I like the way you say it's discipline. And I like, lower versus discipline. You a minute ago said something along those lines that I just wanted remind people not every innovation, like we said, not every innovation is worthwhile. And some of them are too innovative because they cause losses. They might be brilliant, but they might be before their time and so on. That's the other thing is they might not, they might not be brilliant now, but they might be brilliant 20 years from now when the conditions change. The market, you know, by having all these hands, you know, like one of my mentors was a guy named Dick Cornell. And he used to, he got talked a lot about the nonprofit sector. But one of the things he always used to say to me is his Peter, remember, there's many hands that make up the invisible hand, right? And if you just think about it, this is one of the things, you were mentioning before, Hayek points out that the cost of what it takes to produce something in the factory have to be discovered a new every day, right? And they're either going to be discovered by the existing entrepreneur or another entrepreneur that has what, the freedom to enter and then challenge. Right. So yeah, I want to let's talk about coast for a minute. Coast is theory of the firm, summarize it briefly and talk about its relationship to the calculation of how that was extremely interesting. So Ronald Coast was a student at the London School of Economics. He was a student of our Arnold plant who was a colleague of a very close colleague of Hayek and Robbins. And a plant would teach about the socialist calculation debate. And Coast is a young student thought to himself, well, you know, this is kind of weird because if markets are so much superior to planning, why can't we just have spot markets for everything? Why would we ever have, you know, affirms? Why wouldn't we just, you know, bid every day for the different resources? Well, he came up with the idea that transaction costs, the transaction costs of bidding every day for the resources that you utilize is too high. Meaning the cost of engaging in those exchanges. That's the transaction cost. Meaning that a firm doesn't use prices internally. It makes decisions about whether they invested a new thing or not, whether to hire people or not. It doesn't have, there's no markets for, for half of the things they do. They just make top-down decisions. It's what a firm is. And in theory, that should be a disaster if Hayek and me sister write. Yeah, but Coast also has the opposite side, which gets further developed by people like Alchon and Demsetset, which is that if firms are so good, why can't we have just one giant firm? And there, it's because of metering and monitoring costs. So yeah, transaction costs, costs associated with the next exchange that I have to engage in. And then you have these metering and monitoring costs, which is the cost of both overseeing what's going on in decision making and measuring whether or not it's profitable or unprofitable for us if I get rid of the market system. So Coast found this idea of the firm to be in between these two sort of extremes of USA Inc. or everyone is their own firm or whatever, right? Their own enterprise. And so we have this notion of firms. And he thought that that explained the contractual basis of modern market society, that why you have some hierarchies. And so then transaction costs become a tool for him in conceptualizing what happens when we lower transaction costs, we get more exchange, what happens when transaction costs are higher, we have more hierarchies. And so there's firmness that's associated with all this. And so that's how I would summarize Coast very quickly. And you alluded to it briefly about wonder, surprise and appreciation. But in the book, you make some very beautiful connection between the calculation debate and Michael Plannie's insights into the philosophy of science. We tend to think of sciences. Well, you just go out and you test this theory. And if it's confirmed by the data, then you've learned that it might have gotten confirmation for it or you've increased your confidence that it's true. But the Plannie insight is that how do you know what to test? And it's very very, very, it was beautiful to see that that's similar to the calculation debate. So explain that. Well, Plannie wrote a wonderful essay that you can find called the Growth of Knowledge in Society. And he explains how it is. And science is a central metaphor for Plannie and all of this stuff. And just a little background, Plannie was a leading physical chemist. And he's a Hungarian, you know, Austro-Hungarian, but Hungarian by birth. But he was the head of physical chemistry at the Kaiser Wilhelm Institute in Berlin when Einstein was the head of theoretical physics. So they were quite close, okay? But what happened, of course, is the 1930s. And so you have to leave, right? And so they get out of there as fast as possible. But some of his friends didn't get out. And they might have gone out from the Nazis, but they didn't get out from the Soviets. And both the Nazis and the Soviets wanted to control science for the purpose of the state, okay? And so Plannie started to reflect on the nature of science and a free society. Like why is science and scientific inquiry so essential for what we understand to be a free society? And how does it contrast with what happens in a plan society? And so that's why he shifts when he moves to Manchester from physical chemistry, eventually in the philosophy, and has these reflections as you're talking about. One of my sort of things I show my students every semester, videos of different, you know, sort of scientists and scientific philosophers. One of them is Jacob Bernowski's, the Ascent of Man, and the episode on the Holocaust, in which he links the search for finality and truth, like in like certainty, not truth, certainty. as leading to Auschwitz, basically. And it's a very emotional, it's a brilliant sort of discussion of this and the relationship of what scientific inquiry really is, which is at the edge of error. And it's basically this idea that the more we know, the more we know we don't know. And so we just constantly are growing like that. Pallani was trying to get us to think in those terms at that time. - And the part I like to what you said there is the analogy for me, and you can correct me or expand on it if I have it right, I don't know the alternative way to make something that I used to use tin for and now tin's more expensive. So there's a bunch of people who use tin. And they're all trying to figure out now that tin is more scarce because they see that it's more expensive. They're encouraged as if by an invisible hand to find alternative ways to produce what they produce, using something else. And some people come up with something and that, we can't explain that, we don't have, like where's the book to figure out? Now they don't have the book of what are the alternatives to tin. I want the book that says, how do I figure out what the alternatives to tin are? And that requires a certain leap of imagination as you talked about innovation, creativity, but that's happening in science. We like to think about science as this sort of orderly process. And I've spoken about it before, but I encourage people, I'll try to put a link up to it. Watch Andrew Wiles, who proved for Mazlas Thierrym, talk about what it was like when his first proof failed, he was the most lionized mathematician in the world. His proof turns out to be false. He's falls off the front page of the New York Times and he's got nothing. And watch him describe how he figured out a way to solve that challenge. He can't describe it. And it's just fun to watch him try and what his face does. And that's, there's something ineffable, intangible, inexplicable, and very unorderedly, and unrational about how we make rational progress. Yeah, what Ploron Yipouls is commitment. Commitment, the individual scientist has to have a commitment. But that commitment is always weighed against other things. So Ploron Yipouls has these forces working in science. So you have tradition, right, the way that other scientists, so basically what he says is that you have to have a hypothesis that you bring forth a theory or whatever that is plausible to other thinkers, that is of interest to other thinkers, and is novel to other thinkers. And so you might have times just like you were talking about before where you have a novelty of your insight, but it doesn't get accepted by the community at the time. But it might in the future, Ploron Yipouls own history of his own theories with physical chemistry prove this out, okay? That's one of the things. So one of the things that, you know, is it's an interesting contrast between Ploron Yipouls understanding of Einstein and Popper's understanding of Einstein, because Popper tries to force Einstein more into the three by five card of methodology, right? A hypothesis of test, fail to refute. Whereas, to Ploron Yip, Einstein is, you know, this committed scientist who's obsessed exactly with puzzling about these issues in the world, and he's never afraid to ask a question that he can't answer. Well, he's always worried about is answers that can't be questioned, right? So that would be science in a non-free society, right? And so, Ploron Yipoulon is trying to get us to think about the, and then you know, this growth of knowledge and he wants to draw a metaphor to the market. So the market is also about growing knowledge, right? This is the link between Ploron Yipoulon and Hayek on these issues is that science is a growth of knowledge. The market is a growth of knowledge. The knowledge that we have tomorrow is not easily guessed from the knowledge that we have today. It's a shift. It's a total change in perspective. It's opening up of us thinking in new ways. It's a new window for us to see the world through. And that novelty and creativity is at the core. And just to mention again, you know, when you talk to Matt Ridley, go back to the, think about Ridley's distinction between invention and innovation. Because the invention is input into the innovation, but it's not the same thing, right? And so you're tinkering and everything like that. That's still at this, you know, we're at this innovate and invention sort of stage. But how does that then become innovation? That's what Juan is talking about and pushing that knowledge out. And I don't want to overstate the wild imaginative leap that entrepreneurs or business people are assigned to smake. Oh, sure. When the price of 10 goes up, if 10's a big part of your production, a successful person in business has a plan for what to do if that happens, they might stockpile 10. They're going to look for alternatives beforehand. They're not going to just wait for this incredible pressure of a higher enormously higher price all of a sudden. So I just want to make that clear. And that's the particular knowledge of time and place that, that, let me use a quick example that your readers might want to look, listeners might want to look up. You and I are weird because we find economic, very minutia in economics fascinating. But the history of the Garbein. So the Garbein was an input into fracking, all right? But it's grown in only certain places. So now as fracking demand went up like about a decade ago, all of a sudden the price of Garbeins went way up, OK? And so farmers that substituted out of other agricultural products started growing more Garbeins, things like that. And then what happened was, because the price was high, fracking people started thinking of innovative ways to not use Garbeins and come up with the same kind of idea as substitutes. And so this is the Julian Simon, the ultimate resource is the human imagination and why it is he won the bet against Arthur Early. Yes. Isaac. Isaac, you mean? No, not Isaac. No, no, no, no, no, Paul. Paul or like, sorry. Paul. Because it's because, you know, as the price of things go up, people have an incentive to think about ways to lower those costs. And they do substitutes as well as innovations, you know? And so to me, I think that, you know, the mundane, that one of the fascinating things about economics is the mystery of the mundane. Like the very things that we take for granted are in many ways the thing we should be most surprised about. So Adam Smith, butcher baker and brewer giving us our dinner or the common woolen coat or the eye pencil or the loaf of bread. And she pointed out, these are the, you know, the mysteries that if we could get people to go through the wonder, surprise, and appreciation aspects of on those, we would do a tremendous job. And I think this socialist calculation debate really highlights that because it highlights the power of the price system and the poverty of planning. And in a very stark way, sadly, for people in large, you know, for populations, huge populations that had to suffer under the yoke of these things. Not only the inefficiencies, but then also the tyranny that comes from that. But this debate, which was really about the, you know, the inefficiencies that are generated by and malfunctions that are generated by planning, that really highlights on the opposite side the power of the price system. Now, I could leave it to our listeners for homework to explain why the rise of the supercomputer and artificial intelligence will not solve this problem with the new technologies that we have now compared to the 1930s. And I could also leave it as an assignment to the listener to wonder and explain why socialism, despite its seeming failures in its practice, has had a return. But I would like to hear Pete, I would like to hear you comment on it briefly. Why is it that socialism has had a revival in, I'd say in the last, five, six, maybe 10 years? And why is it that technology has reopened the potential for prices to be determined by a top-down plan or rather, and then used to assign outputs and inputs and run the economy? So the easy, the easy answer is just that we are in a period of the great forget. So when I was a freshman in college in 1979, what was in the back of my head before I even took an economic course? Right? The, you know, welfare warfare state of that culminated in water gate, and then in the stagflation of the 1970s. As a result, no one would have said, I'm from the government, I'm here to help you. And you would have thought, like, oh yeah, let me sign up for that, right? Because we understood and we put blame on the government. I remember, you know, Jimmy Carter, God rest his soul just passed away, and there's some kind of revisionism going on about, you know, Jimmy Carter, that was all put in there. But I can remember being a high school kid and Jimmy Carter going on TV with his cardigan sweater and saying he was going to use the boy scouts to check your thermostats at home to make sure that you didn't go about 58 degrees because of the natural gas shortage that was going on? Kind of like buying a helicopter and flying people in from their distant parking lot. I can remember sitting in gas lines, you know, forever to get the gas. So enough of that. But so, you know, we have this great forget, but that's too simple of an a versus a kid today. A kid today that's a freshman college wasn't even born when 9/11 took place. So all they've known is the US was involved in a permanent war economy, right? They knew the financial global financial crisis. And then probably when they were like a freshman in high school, they got hit with COVID. And so in all three of those, you have to turn and say, oh, I need the government to help me, right? I'm under assault. I'm, you know, the financial interests are collapsing. And then this horrible pandemic. So to me, these kids have a different tacit presupposition of what's going on. And I think that, you know, the, the, the, from, from 1980 to 2010, we did experience a period of tremendous economic development and growth. Less than 10% of the world's population is living in extreme poverty today. When I was a graduate, an undergraduate student, it was 40%. This is a miracle that that's happened as the population is also expanded. But at the same time, we also have what you've talked about, you know, people have put the thumb on the scale, right? And so we have cronism. We have, you know, what was the cause of the great, the global financial crisis? It wasn't un, unregulated markets. It was actually people, you know, I kid around this, you'll bust up with this maybe, but, you know, I say to my kids in class, I say, hey, we're going to go to Vegas this weekend. And you get to keep all the profits, but I'll cover all your losses. Are you going to go to the roulette wheel or where you're going to go, right? And they all like, oh, I'm going to highly leverage. I go, I didn't know your name was Goldman Sachs. Right. It's not like Goldman Sachs was woke up one day and was stupid. They responded to the way the regulatory regime was set up in order for them to do this stuff. And so kids see a blame, you know, the young and see a blame on that. And they see disruption and they see some people benefiting other people, you know, losing out. And so they feel this sense of injustice. And I think that we who are consistent, true radical liberals have to give them a vision about how a, the government's not an answer to that question, but neither is marketellism and answer to that question. And instead we have to offer them something else. So that's, that's the first aspect. And I think we can talk about the sort of excitement, excitement of the entrepreneurial economy, the sort of the freeing up of individuals to pursue a variety of different social organizations and plans and everything like that. And they can, you know, see the vibrancy of a free society. I think we need to defend the vibrancy of freedom. On the other hand, on technology. Let me just point something out, which is that in your book, wild problems. You hit the nail on the head in an issue having to do with social social, what's called social epistemology. That is how do we learn in different social settings. And there's a difference between what's called kind learning problems and wicked learning problems. And it relates to the whether or not the parameters are relatively fixed or relatively free. The game of chess, which is a complicated game, takes years of study and everything like that, but it's actually a kind learning environment that there's only so many spots on the board. There's very strict rules that the places could move. Okay. That means that it's just a matter of churning through all the possible combinatorials, right, under the rules that you're given. That's not the economic problem that we face. The economic problem that we face is relatively free parameters. Right. That is a wicked learning environment in which what we're trying to deal with and cope with is constant adaptation and change to the circumstances. And the individuals that are on the chess board is as you know, Adam Smith pointed out they talk back to us. Right. They don't listen. You tell the bishop. You got to move this way. I want to move that way. Right. And that creates a whole different kind of situation. And so what we need to do is we need to have an economics that's able to cope with that wicked problem. Not try to take economics and fit it into a simple, a kind learning environment. And so if I could just make one last advertisement in the, in the monograph is I think one of the things that that I really liked about what we tried to do in there was to show that there was a counter revolution to the 1950s hegemonic neoclassical synthesis which normally gets focused only on Milton Friedman is critique of Keynesian macro economics. Okay. But there was this alternative evolution that happened in the development of property rights economics with Alchim in them sets with law and economics with coast with public choice with Buchanan and telek and entrepreneurial economics with me says hiick and that these are all other origin to the socials calculation debate, but they all branched in different directions to pursue modern economics. And I know you've had Jennifer Burns on in her book. She has this fantastic discussion of what you called room seven economics. And if you go back and listen to what she says about room seven economics, it's all of those ideas in the 1930s in their genesis now starting to be like emerge afterwards right so they all come out afterwards, but it all started with people thinking about the power of the price system and the tyranny of controls right and and and what alls entailed in all of that. And so to me, I think this is you know one of the really important ideas that we need at economics that's able to deal with ceaseless change and the necessity for constant adaptation and adjustment and the computer gives us very good algorithms that can be assistance in our doing it, but it can't be substitutes. So I use AI all the time I'm trying to lose weight I use my fitness pal and I track and it tells me and I get you know suggestions on how to do this or that right it's a fantastic aid but it doesn't substitute for the human desire imagination and all the rest of it. And so I think that you know we really have to pay attention to these the limits as well as the potentiality of advanced AI and like I said one last thing to your readers listeners, Russ that you'll that doesn't get talked about in the book but should be. Is that Palania after he switched from being a physical chemist to a philosopher in 1949 he has a symposium with touring and it's on the mind and machine and it's quite fascinating because first of all people overstate with touring said about AI it's actually imitation as opposed to actually being a substitute and it traces back to this old question of whether or not behind a screen if you could tell whether or not it was a male or. You know what by the sentence that they wrote okay but it's all you have to do is have the machine kind of mimic and say oh I can see a human doing that and then he wins it that's different from thinking you know whatever but that that. But that aside let's take the extreme version what Palania does is he points out why a machine can never be a mind and it's it's a technical argument about go to the room and in completeness but it's also more like subtle argument about the difference between semantics and syntax and market economies are about as you pointed out people reading the price signal they have to understand the meaning that's involved in that it's not just a price. Price has to be interpreted it doesn't just sit there and tell us exactly what to do price change tin as you said tin rises or falls it doesn't automatically tell us oh use lesser more of it that's how we summarize it class but it also might say hey we need to find an alternative. We need to come up with a different production process we need to find an alternative and we have to do that and we get tested against the market whether or not interpretation is worthwhile or not and we fail a lot of times therefore doing what forcing us to adjust and adapt again. So to me rather than testing the computer again a deep blue against Casper off we should test the computer against Ronaldo playing soccer or Federer playing tennis or you know or you know a these kind of things or for that matter you know Larry bird you know playing basketball back in the days one of things that you know when you watch old YouTube clips right of Larry bird one of things people should be shocked about is man this big slow like I. Did amazingly creative things would have asked you ball didn't you know bounce the ball between you know playing you know players and you know legs and Kevin McCale can throw a dump you know faking a guy out that's you can jump higher than in move faster than him by throwing the ball in his face and you know push it up I mean Larry bird is an active creator. creativity the entire time he's playing and it's just amazing and that is not like a piece on a chessboard That is him adapting and adjusting and all of that stuff on the fly and that's more like what an entrepreneur does Right, that's you know and and to me then that sort of says okay, I.i. Is a good good Assistant Walmart can use it right we we can use it every day life, but it doesn't substitute For our for our inner Ingenuity cleverness and creativity My guess today has been Pete Betkey. Pete. Thanks for being part of e-con talk. I love talking to you. Russ is great This is e-con talk part of the Library of Economics and Liberty for more e-con talk Go to e-con talk or or you can also comment on today's podcast and find links and readings related to today's conversation The sound engineer free con talk is rich go yet. I'm your host Russ Roberts. Thanks for listening talk to you on Monday