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.