Welcome to Keith's night, don't tread on anyone.
This is an excerpt from basic economics by Thomas Soul.
The contrast between the Soviet economy and the economies of
Japan and Germany is just one of the many that can be made
between economic systems, which use prices to allocate resources
and Mills, which have relied on political or bureaucratic
control in other regions of the world as well.
And in other political systems, there have been similar
contrasts between places that used prices to ration goods and
allocate resources versus places that have relied on hereditary
rulers elected officials or appointed planning commission's.
While many African colonies achieve National Independence in
the 1960s, a famous bet was made between the president of Ghana.
And the president of the neighbouring Ivory Coast as to,
which country would be more prosperous in the years ahead.
At that time. Ghana was not only more
prosperous than the Ivory Coast, it had more natural resources.
So the BET might have seemed Reckless on the part of the
president of the Ivory Coast. However, he knew that Ghana was
committed to a government-run economy and the Ivory Coast to a
free market by 1982. The Ivory Coast had so surpassed
gonna economically that the poorest 20% of its people at a
higher real income. Or capita than most of the
people in Ghana. This could not be attributed to
any superiority of the country or its people.
In fact, in later years when the government of the Ivory Coast,
eventually succumbed to the temptation to control more of
their country's economy while Ghana finally learn from its
mistakes and began to loosen government controls on the
market, these two countries roles reversed and now Ghana's
economy began to grow So, while that of the Ivory Coast
declined, similar comparisons could be made between Burma and
Thailand. The former having had the higher
standard of living before instituting socialism and the
latter Thailand, a much higher standard of living afterwards,
other countries, India, Germany, China, New Zealand, South Korea,
Sri Lanka have experienced sharp up turns in their economies.
They freed those condom. He's from many government
controls and relied, more on prices to allocate resources as
of 1960. India and South Korea were at
comparable economic levels. But by the late 1980s, South
Korea's per capita income was 10 times that of India, India
remain remains committed to a government controlled economy
for many years after achieving independence in 1947, however,
in the 1990s, India jettisoned, for decades of economic
isolation, and planning and freed the country's
entrepreneurs, for the first time since Independence, in the
words of the distinguished London magazine, The Economist
there, followed a net growth of 6% a year, making it one of
World's fastest-growing big condom.
He's from 1950 to 1990 India's average growth rate had been 2%
the cumulative effect of growing three times as fast as before,
was that millions of Indians rose out of poverty in China,
the transition to a market economy, began earlier in the
1980s. Government controls were at
first relaxed on an Mira mental basis in particular, economic
sectors. And in particular, geographical
regions earlier than others, this led to stunning economic
contrast within the same country as well as rapid economic
growth. Overall back in 1978 less than
10 percent of China's. Agricultural output was sold in
open markets instead of being turned over to the government
for distribution but by 1990 80%, Was sold directly into the
market. The net result was more food and
a greater variety of food available to City dwellers, in
China and arise and Farmers income by more than 50 percent.
Within a few years in contrast to China's severe economic
problems. When there was heavy-handed
government control under Mao who died in 1976, the subsequent
freeing up of prices in The Market Place LED To an
astonishing economic growth of 9% per year, between 1978 and
1995. While history can tell us that
such things happened. Economics helps explain why they
happened. Whatever is about prices that
allows them to accomplish what political control of an economy.
Can seldom match, there was more to economics than prices but
understanding how prices function is the foundation for
understanding, much of the rest of Economics, a rationally
planned economy, sounds more plausible than an economy
coordinated, only by prices linking millions of separate
Decisions by individuals and organizations.
Yet, Soviet economists who saw the actual consequences of a
centrally planned economy which very different conclusions.
Namely quote, there are far too many economic relationships and
it is impossible to take them all into account and coordinate
them sensibly. Knowledge is one of the most
scarce of all resources and a pricing system economizes on its
use by forcing those with the most knowledge of their own
particular situation to make bids for goods and resources,
based on that knowledge, rather than on their ability to
influence other people. In planning commission's,
legislators or Royal palaces however, much articulation I may
be valued by intellectuals. It is not nearly as efficient, a
way of conveying accurate information, as confronting
people with a need to quote, put your money, where your mouth is
that forces them to summon up their most accurate information
rather than their most plausible words.
Human beings are going to make mistakes in any kind of economic
system. The question is, what kinds of
incentives and constraints will force them to correct their own
mistakes in a price coordinated economy.
Any producer who uses ingredients, which are more
valuable elsewhere in the economy is likely to discover
that the cost of those ingredients cannot be repaid
from what the customers are willing to pay for the product
after On the producer, has had to bid those resources away from
alternative users, paying more than the resources are worth.
Just some of those alternative users.
If it turns out that, these resources are not more valuable
in the uses to which this producer puts them, then he is
going to lose money, there will be no choice but to discontinue
making that product with those ingredients.
For those producers who are too blind or too stubborn to change.
Continuing losses will force their business into bankruptcy.
So that the waste of the resources available to the
society will be stopped that way.
This is why losses are just as important as profits from the
standpoint of the economy, even though losses are not nearly as
popular with businesses. In a price coordinated, economy,
employees and creditors insist on being paid regardless of
whether the managers and owners have made mistakes.
This means that capitalist businesses can make only so many
mistakes for so long before they have to either stop or get
stopped. Whether by an inability, to get
labor and supplies. They need or by bankruptcy in a
feudal economy or a. So, socialist economy leaders
can continue to make the same mistakes that definitely the
consequences are paid by others in the form of a standard of
living lower than it would have been if there were greater
efficiency in the use of scarce resources, in the absence of
compelling price signals and the threat of financial losses to
the producers that they convey inefficiency and waste in the
Soviet Union could continue until such time as Each
particular instance of waste reached proportions, big enough
and blatant enough to attract the attention of central
planners and Moscow who were preoccupied with thousands of
others of decisions. Ironically the problems caused
by trying to run an economy by direct orders or by arbitrarily
imposed in post-crisis, created by government Fiat or forcing in
the 19th century by Karl, Marx, and Angles, whose ideas the
Soviet Union claimed to be following angles pointed out
that price fluctuations have quote forcibly, brought home,
the individual commodity producers what things and what
quantity of them Society requires or does not require and
quote, without such a mechanism, he demanded to know quote, what
guarantee do we have that necessary, quantity and not much
more of each. I liked will be produced that we
shall not go hungry in regard to corn and meat while we are,
choked in beet sugar. And drowned in potato spirit
that we shall not lack trousers, to cover our nakedness.
Well trouser buttons, flood Us in the millions, in quote marks
and angles, apparently, understood economics much better
than their Latter-Day followers or perhaps, Marx and Engels were
more concerned with Economic efficiency than with maintaining
political control from the top. There were also Soviet
economists who understood the role of price fluctuations in
coordinating. Any economy near the end of the
Soviet Union, two of these economists shall live and pop of
whom we have already. Quoted said quote everything is
interconnected in the world of prices so that the smallest
change in one element is passed along to the chain.
Of millions of others. These Soviet economists, were
especially aware of the role of prices from having seen what
happened when prices were not allowed to perform that role but
economists were not in charge of the Soviet economy.
Political leaders were under Stalin, a number of economists
were shot for saying things. He did not want to hear next
section supply and demand there is perhaps no more basic or more
obvious principle. Of Economics than the fact that
people tend to buy more at a lower price and less at a higher
price. By the same token people who
produce Goods or Supply Services tend to supply more at a higher
price and less at a lower price. Yet the implications of these
two simple principles Singly or in combination, cover a
remarkable range of economic activities and issues and
contradict and equally remarkable range of
misconceptions. And fallacies, thank you for
watching Keith Knight don't tread on anyone and the
libertarian Institute.