Christian Ethics - Lesson 9

Dr. Ronald Nash

Christian Ethics

et501-09

Major Economic Systems

Lesson Transcript

This chart will enable you to to identify the major differences between capitalism and socialism. It will enable you to explain to people some of the major events in world history over the last two or three. Let's just get started. I can't wait to hear this chart. All right. This is a chart that is going to explain the major differences among the three major economic systems in the world. Next thing we do is we write the names of three economic systems on the board over here. We're going to write the name socialism over here. We're going to write the word capitalism. And then in the middle, we're going to write the name of the third economic system. Now, this third economic system goes by two names, depending upon whether you're a friend of it or an enemy of it. The friendly name for this third system is the mixed economy. The crazy reason why this is called a mixed economy is because it is supposed to be a combination of the best elements of capitalism and socialism. Of course, that's impossible because there are no elements of socialism that are worth preserving. All right. There are no better elements of socialism. Now, the other name, which is usually used by the enemies or the critics of this third system is interventionism. The reason that is called interventionism is this There is supposed to be an economic system, people say, in which the government, the state. Remember, the word state again is authorized to intervene with free market activities whenever politicians deem it prudent or advantageous in an interventionist system. The government, the state is authorized to intervene with the free economic exchanges of people whenever though that intervention is deemed to be advantageous to the politicians in view. And usually most of that intervention is advantageous to the particular politician. The the intervention is justified on the grounds that it is advantageous for poor people, needy people, or today middle class people. The fact is that the interventionism seldom, if ever, helps those people. Notice now something very important. I am telling you that there are not just two economic systems fighting in the world. There are three economic systems in the world. That's very important. Most people think that it's either socialism or capitalism, right? It's very important to recognize that there is a third system bogging the works up. Now, let me tell you something else that's interesting. Many people confuse capitalism and interventionism. They confuse them to the degree that capitalism gets the blame for crises produced by interventionism. Capitalism gets blamed for crises created by interventionism. What are examples of interventionist crises that capitalism gets blamed for unemployment, inflation, high interest rates, recession, depression. Two of the chapters in your book deal with the Great Depression of the 1930s. A horrible time in the history of America and in the history of the world for which capitalism always gets the blame. Well, if you read those two chapters carefully, you will clearly understand that it wasn't capitalism that produced the Depression in the first place. It wasn't capitalism that prolonged the Depression in the second place. That whole economic mess was created by governmental intervention with the banking system. The money supply, with tariffs, with free trade had nothing to do with capitalism when capitalism is understood properly. I've drawn three overlapping brackets here to correspond to our three economic systems. Now, here's what that part of our little chart shows. It shows, for one thing, that our words capitalism, socialism and interventionism are umbrella words. That is, they cover a variety of options along our continuum. There is not one single kind of socialism. There are many examples of socialism. There isn't one kind of interventionism. There are degrees of interventionism. There are degrees of capitalism. So that's one thing that our little brackets indicate. The second thing our brackets indicate is that there is a gray area that appears on the chart where an economic system might be regarded as socialism by some people and treated as a form of interventionism by other people. You see, as you move from right to left, you cross into a gray area where you might be dealing with a national economy that could look socialist, could look interventionist. The economy of Sweden, for example, is very hard to very hard to place. Actually, there there are strong elements of of old fashioned fascism in the Swedish economy as it has existed. But that's all right, because never forget that fascism was a form of socialism. Nazi was a the word Nazi was simply a telescoping of national socialism. The real differences between the statist economic policies of the old Soviet Union of communism and the statist economic measures of fascism are can be very difficult to to distinguish sometimes. All right. Now, next point, what is the major thing that determines where a nation's economy sits on this scale? And here's the answer. Speaking generally, the more economic freedom a government gives its people, the more you move away from socialism, past interventionism towards capitalism. The major element that determines whether a nation's economy is socialist, interventionist or capitalist is the degree of economic freedom that nation gives its people. So as a socialist state gives its citizens more and more economic freedom, it moves in the direction of interventionism and as an interventionist state gives its citizens more and more freedom. It moves more in the direction of capitalism. Okay, now let's take a couple of examples from recent history. Let's take, first of all, the example of communist China, the People's Republic of China. Let's contrast the economic situation in communist China in 1975 and then in 1985. In 1975, Communist China could not feed its own people. Remember, there was no there there was no market system for agricultural products in the People's Republic of China. You had communal farms. There were no incentives to produce goods. Communist China, 1975. I was very close to being to the number 100 on our chart. It was a heavily statist, tightly controlled economic system that viewed any form of markets as anathema to the communist system. In 1975, Communist China could not feed its own people. It had to import food from other countries. So what happened in the late seventies and early eighties was that the Chinese mafia and let me explain that term, All right? The people who controlled socialist countries, the people who controlled totalitarian countries are really gangsters. Sort of refer to them as the Russian mafia or the Cuban mafia or the Chinese mafia is very appropriate, with all due respect to Americans of Italian descent. All right. You're really in the Chinese mafia said, why don't we give people incentives? Capitalist incentives to produce more food. And so they did. They began they began to allocate plots of land that Chinese peasants, farmers could use to produce food that they would then sell for market prices and keep the profit for themselves. That's called capitalist incentives. It worked wonders in China. By 1985, it had so changed the agricultural situation in China that China was able to export food to other country. Now what accounts for that miracle? A little economic thing called free markets and incentives. All right. But then what happened in China? China began to move in this direction economically, but then people in China began to get a taste of freedom. And freedom is contagious, you see. And what the Chinese mafia failed to recognize is that once people get a taste of freedom, in this case economic freedom, they want more freedom. They want political freedom. And then came the student demonstration. And you all recall what happened in Tiananmen Square, where those brave Chinese students and other young people believed that they were on the verge of a democratic revolution in China that would finally free China from its tyranny and its totalitarian rulers. And that was when the Chinese mafia made a decision. They said, if this is the cost of economic progress, we are going to stop that progress right here. We'll kill those kids. We'll throw them into prisons, and we will go backwards before we give up our special privileges. Now, while I'm kicking around the Chinese mafia for a while, don't forget the love affair that the American left has with people like this. Don't forget that the American left thinks that the future of the world depends upon a controlled economy. Right. Don't ever forget that. Well, Russia is a little different story. Russia under Gorbachev. And let's set the record straight about Gorbachev. Gorbachev was not some prescient, all knowing savior of the motherland who saw the beginning from the end. Gorbachev was a communist who was simply stumbling along trying to save a system that was collapsing around him. And Gorbachev thought that he would institute a number of half way measures that would introduce measures of economic freedom and measures of political freedom. All right. Thinking you see all the time that they could cut it off any time they wanted. That was that was Gorbachev's great mistake. He said, we'll just keep pushing and pushing. We'll never go so far that we give up our privilege power position, but we'll just see how far because they recognized, unlike the religious left, that the only way you can save a country economically is to give people some measure of freedom and some measure of incentive. Well, you know the story, Gorbachev. Still trying to see communism in Russia finally got to the place where he realized he had to sacrifice the captive nations of Eastern Europe. That was small enough price to pay. He thought he at least would retain his own power base. But then, of course, the coup came and faster than anybody would have dreamed. The collapse of the coup forced Russia to make those decisions that resulted on Christmas Day or Christmas Eve of the communist flag coming down from or from over the Kremlin. Now, once again, what do we mean by a socialist economic system? Another word for that would be a command system. A command system. Socialism is an economic system in which all economic power is invested in a few people at the top of the pyramid, and then they issue commands for profit, agriculture, clothing and everything else. Not only the production of those goods, but the distribution of those goods. This is a command economy. There are no markets in a command economy. All of the economic decisions are made by elitists at the top of the pyramid who, remember must have access to the right information if they do not have the right information or they cannot have the right information, everything is going to be messed up, which is exactly what happens. And the reason everything gets messed up is because in a socialist system you cannot have access to the to the information you need to make decisions. Let me tell you about capitalism. The first step that must be taken, if you to understand capitalism, is to understand a distinction made by a friend of mine named Walter. William Walter Williams is an American black who grew up in the ghettos of Philadelphia. As I understand it, he was a high school dropout, but during a term of service in the Army, he got a G.E.D. degree and then went to Temple University and began to demonstrate his brilliance. Majored in economics, finally got a Ph.D. in economics, is now and is now one of the most respected economists in the country. What drives liberals crazy when it comes to Walter Williams is that he is not only a black economist, he is a conservative black economist. He recognizes the enormous harm and injury that the state and its welfare programs have done to injure black people in America. Walter Williams distinguishes the two ways and the only two ways in which anything can be exchanged the peaceful means of exchange and the violent means of exchange. The peaceful means of exchange can be summed up in this expression If you do something good for me, then I'll do something good for you. But to repeat that, if you do something good for me, then I'll do something good for you. Now, Williams said, whenever two people enter into any exchange, unforced and Uncle Worst, that's the principle on which they chain, they exchange. The next time you go into McDonald's. What you can say to the clerk behind the desk is maybe you better be careful. She might slap your face. I don't know. But you could say if you do something good for me, I'll do something good for you. All right. You might preface that by saying I'm a seminary student, but that's what happens in a McDonald's. Why do I go into a McDonald's? Because that thing that I'm going to end up buying is at the top of my value scale. In fact, I want that Quarter Pounder and that Diet Coke more than I want the $2.98. Right. Marginal utility. What's the. Which ranks highest in my scale of values, the $2.98 or the Quarter Pounder and the Diet Coke. But the blue. That's why I go in there. So I, in effect, say to the people, if you do something good for me, give me the Quarter Pounder in the Coke, I'll do something good for you. I'll give you the $2.98. It's a free exchange. Now, when you rent an apartment, it's the same thing. If you do something good for me, give me a place to live. I'll do something nice for you. I'll give you some money. When you buy a car, it's the same thing. Now, I suggest that anybody who thinks correctly about capitalism will realize that capitalism epitomizes the peaceful means of exchange. The problem is, of course, thinking about capitalism correctly. All of these other guys misrepresent capitalism. In fact, all of these guys who slander capitalism and who attack it are really talking about interventionism. But I'll get I'll say more about that in a moment. Okay. Now, what is the violent means of exchange? You can summarize that in these words. Unless you do something good for me, I'll do something bad to you. That's the way thieves operate. When a man says, Give me your money or your life. He's really saying, Unless you do something good for me, give me your wallet. I'm going to do something bad to you. So that's the way thieves operate. That's also the way the Internal Revenue Service operates. Friends, in case you don't know, that really is. Now the violent. Some people aren't going to like this next sentence. And I don't care if they don't like it. It's the truth. All right. Violent means of exchange epitomizes socialism. That's really what socialism is all about, force and coercion. Now, here's where some of my socialist friends object. They say, No, you don't understand that. When we talk about socialism, we mean something different than what you're talking about. We're talking about voluntary socialism. That's an oxymoron. Voluntary socialism is a contradiction in terms. You cannot have socialism without force, without theft, without coercion. But you don't understand. We're all going to start out equal or how you're going to get equal force and theft and coercion and how you're going to keep everybody equal force and theft and coercion. The violent means of exchange is inseparable from a command economy. Now, let me say this, though, on behalf of my socialist friends, as you have suspected, I am a capitalist. I know that the light has broken through to some of you. You have sense that? All right. But let me tell you that within the kind of capitalism that I defend, there is plenty of room for voluntary communities that own everything in common. Now, notice how I put that within. Within a capitalist system, there is plenty of room for voluntary communities. That is, communities that do not coerce or threaten or force or rob people, but people who, for religious or moral reasons, band together and agree to hold everything in common. Let's take some of the Mennonites, the Amish people, even though they don't have a true collectivist society. Even they recognize that various farmers own their homes at least. But there's an enormous amount of cooperation. But suppose a group of hippies operating under the wider, wider framework of a capitalist system says we want to voluntarily form a commune, farm together, own everything to go to it. Be my guest. See, there's going to be no coercion or poor theft theft in a capitalist system. And so if you want to do that without forcing people, go ahead and do it. The only catch is this To the extent that you want to trade your products outside the frame, the boundaries of your commune, you're going to have to operate according to market principles. You're going to have to recognize that when you put eggs up for sale or reader bread up for sale or jellies up for sale, that it will be a question of supply and demand. It will be market forces that determine what people pay for that. It will not be the coercive pricing system of a of a socialist system. Now, let me give you a definition of capitalism that sums up what I've been saying here. Capitalism is a system, a voluntary relation within which people exchange freely in a system of laws that prohibit acts or laws that prohibit acts of force, fraud and violations of contract. Now, let's look at this definition. First of all, capitalism is really nothing more than a kind of framework framework within which people can then make their own choices. In chapter five of your book, I explain a market system as similar to the kind of the kind of system that springs up by evolution within an organized people, that that permits traffic patterns, for example. I mean, if you want to go from here to Apopka, there are many ways you can go about five or six equally acceptable ways. But no matter which way you go, there are going to be some rules. You have to drive on the right side of the road. You have to stop at stop signs and red lights. You mustn't try to run over the car in front of you. You know, you better wear your seatbelts. There are lots of constraints. But within those constraints which are really designed for the good of all, the particular way you choose to drive to Apopka is up to you. You can go one way or another way. You can go around, but you can't crash a red light. You can't exceed the speed limit. You're not supposed to drive without seat, without seatbelts on. So that's really what capitalism is. It's a framework within people within which people can choose freely, that they choose freely within a framework of laws. Now, what do those laws do? The laws tell us what you can't do in a traffic pattern. The laws say that you can't drive on the left side of the road. You can't go through an intersection. Right. In capitalism, the laws say you must not force people to make exchanges. You must not steal from people, you must not defraud people, and you must not violate your contracts. Now, look, there is a moral system built into these capitalist restraints. Capitalism is not a system that says do anything you want. It is not economic anarchy. It is not economic madness. There are rules. And those rules have a moral character to them. One of the rules of capitalism says Thou shalt not lie. Another rule of capitalist exchange says, Thou shalt not steal. Now, why are those rules in there? Because when you steal from people, you're depriving them of their freedom. When you lie to people, you're depriving them of their freedom. When you coerce people, you're depriving them of their liberty. So if you're going to have economic freedom, obviously there must be things that people are forbidden to do because they are incompatible with freedom. They. All right. Now, lots of people raise all kinds of objections to capitalism in chapter seven. I look at a whole lot of them. I'm going to just talk about two of the major objections to capitalism. Objection. Number one, capitalism is immoral. Why is it immoral? Because it creates situations in which some people win at the expense of other people who capitalism is immoral because it creates situations in which some people win at the expense of others who lose. This is the big line of argument that leads to the charge that capitalism exploits people. Capitalist nations exploit poorer nations. Rich capitalists exploit poorer people. Now, here's the problem with this argument. And let's put it to rest once and for all. This argument presupposes this is my argument now. This line of thinking presupposes that free economic exchange is a zero sum game. Now, here's here's what a zero sum game is. A zero sum game as a game in which only one side can win. If a wins, then B loses. If B wins, then it loses. Now, lots of games in life are zero sum games. Baseball is a zero sum game. If the Cleveland Indians lose as they normally do, then whoever they're playing wins. All right. Basketball is a zero sum game. Football checkers are zeroes. If one person wins, the other person loses. That's why it's so easy for people to get deceived about economic exchanges. They look at all of these other games and they say, Aha! When I go into a business and leave some money there, the other guy has one. Therefore, I must have lost. When I go into McDonald's and leave five books on the counter, the other guy has one. He got what he wanted. Therefore, I must be the loser. All right. The proper answer to this is that economic free economic exchanges, that is economic exchanges where people are not coerced, defrauded or stolen from free economic exchanges are an example of a positive sum game. Positive sum game is a game in which both sides can win. Listen. If I didn't want that food from the restaurant more than I wanted the money, I wouldn't have gone in there in the first place. The guy who gets my money wins, But I win also because what I got in exchange for my money was something that ranked higher in my value scale at the moment than the money did. We both walk away as winners. Now, this is not to say there isn't exploitation in the world, but the powerful never oppress the weak. Obviously that happens. But what I'm saying to you is that one can be an ally of capitalism and an enemy of oppression and exploitation. The two are not connected. In fact, when you do come across genuine examples of exploitation and oppression, you'll find that what has transpired are not genuine capitalist exchanges. You're going to have something more like interventionism. Second objection to capitalism, see, and the objections always proceed on the grounds that it's immoral. You'd have to be you'd have to be deaf, dumb and blind not to recognize that capitalism works and socialism doesn't anymore. So you have to attack it on moral grounds. So the second argument goes like this. Capitalism is immoral because it encourages some Christian attitudes, like greed and greed. Oh, how many people think that capitalism and greed are somehow inseparable? Capitalism encourages greed. We're supposed to believe. Here's my answer. Capitalism does not encourage greed. Capitalism, when you understand it properly, neutralizes greed. It neutralizes greed. Now let's consider an example. Let's suppose in downtown Altamont Springs, I don't know where downtown Altamont Springs is, but let's suppose there lives there in downtown Altamont Springs, the greediest guy in the world, call him Joe Scrooge. Okay. And let's suppose this guy realizes how much money resides in this little pocket of Maitland right here. All of these students and professors and administrators, and he just lusts after all of our money when he goes to bed at night. He doesn't come cheap. He counts dollar bills flowing from your wallet to his bank account. This guy says to his wife every morning, I've got to get their money. I got to get their money. And he's thinking about you and me. See? Wealthy? Yes. Now, the question is this. If Joe Scrooge is going to get his hands on our money and operate in a capitalist environment, what's the only way he can get our money? The only way he can get his money is to think of some way in which he can offer us something that we want more than our money. Now, he might say, Let me put up a lawn and I see we don't have a we don't have a a campus setting here. But suppose he comes out to Plantation Cove, where many of you are blessed to live, and he says, I'm going to put up a laundromat just for seminary students right now. He knows that you people have got good taste, so he's going to have good music piped in there. He's going to have little games, little chess boards. He knows he's dealing with cultured people. And then you're going to come in and you're going to wash your clothes in his laundromat. But notice, in order to get your money, the capitalist system forces him to think of a way of serving your wants and your needs. He might open up a restaurant that would be great. Wouldn't have a restaurant across the road where we wouldn't have to get our food out on machines. He's going to have to find a way. He's going to have to think about you first. But now let's change the analogy. Suppose John Scrooge is not operating under capitalism. Suppose Joe Scrooge is operating under an interventionist system or, heaven forbid, a socialist system. Then how will he get his hands on your money? He won't think about you first or your wants or your needs first. He will think in these systems about the people in power first. The politicians. Who can I bribe? Who can I pay under the table to get some unique, monopolistic advantage over people? Notice I slipped in the word monopoly there. Yeah. I argue in the book that capitalism doesn't create monopolies. It is governments that create monopolies by giving special privileges to certain select individuals or companies in exchange for favors. That's how monopolies really come into existence. So Joe Scrooge, under an interventionist system, might bribe some politicians to pass a law that would say that he was the only one entitled to do business in the whole city. In this in this manner or that manner. And of course, in the socialist system, he would strive to become a member of the elitist group that controls the economy from the top down. That's how he would get wealthy. That's how he would gain access to our money. So I'm saying here, if you understand capitalism correctly, these various objections that are hurled against it are diffused. When most people think about capitalism, when in America today, they really think about an interventionist system. And so now let's make my next point. The economy of the United States is not capitalist. The economy of the United States is interventionist, and it has been interventionist for generations. It was, in fact, the interventionist nature of the American economy that brought about the Great Depression. It started in late 1929 and ran through the decade of the thirties. Whether the American economy is more heavily interventionist or less heavily interventionist depends upon who controls the government and who makes the laws. When the Republicans are in power, you tend to have less interventionism, but you still have interventionism. When the Democrats are in power, you have far more interventionism under a true capitalist system. There is no security. There are no guaranteed results. And lots of people don't want that, including a lot of businessmen. They would rather trade some freedom for more security and guarantees from the government. And so we get here and the powerful people in the society realize that they're giving up some of their special privileges. And so they begin to look for special advantages from the interventionist state. Now, while we're on this lot, since I told you that the economy of the United States is not capitalist but is interventionist, let me identify the economies in the world that best exemplify a market system, that best exemplify capitalism. Maybe they're still slightly interventionist. Maybe they're over here. None of them are. Or far enough to the number of zero to satisfy the satisfy. I think right thinking people, the best nations in the world that exemplify capitalism are the nations of Southeast Asia, Thailand, the Crown colony of Hong Kong, Taiwan, Malaysia, Singapore. Now, I'm not suggesting that those countries are perfect, but remember that what what the left wants is is help with the poor. All right. And what you find in those countries, for all of the faults that remain, is a smaller degree of governmental control over economic conduct, a greater degree of individual economic liberty for its citizens. And you want to know what else? The highest rates of economic growth in the world over the last two decades or more. The countries in the world that exhibit the highest rates of economic growth read the last couple of chapters of poverty and wealth are these countries that best exemplify a market system. Now, if you're interested in helping the poor, then you ought to applaud these countries in spite of whatever problems might still remain, because they have raised literally hundreds of thousands of their own people economically to a higher standard of living. Now, of course, we as Christians know that that is only the beginning. We want those people also to know the truth of the gospel. But remember, we're operating with several different objectives here, helping the poor and helping spread the gospel. Something else that's interesting about these countries. They have achieved these enormous rates of economic growth without any access to natural resources. There's another myth out there that says our country can never be wealthy unless it has natural wealth, natural resources. These countries, them the lie in their theory. There is no no gold, no silver, no great agricultural land to speak of in these countries. What they've accomplished, they have accomplished with ingenuity, with dedication, with sacrifice, with entrepreneurial expert expertise and human labor. Now, the. It says capitalism will never work in Latin America. What that statement implies, of course, is that capitalism has never been been tried in Latin America, and it hasn't. The economies of every Latin American country are statist, are interventionist. When they aren't worse than that, there is no part of the world with more natural wealth than Latin America. And yet we see on a steady basis pictures of abject poverty in Latin America. The reason for that poverty is the stupidity and the corruption of the political leaders of those countries that will not allow people the freedom, the freedom to develop businesses, the freedom to explore entrepreneurial opportunities. Michael Novak, the great Roman Catholic scholar, has a lot to say to Latin America in these respects. He says, Who's going to feed Latin America in the in the next century? Where will the food come from? What you've got to do is free the poor from the shackles of corrupt and stupid political leaders who try to keep them enslaved in some kind of intervention. A system. Let me give you an excellent example of this in Peru. The formal economy of Lima, Peru, is totally controlled by corrupt politicians, totally control. If you were a Peruvian today and you had the money to start a business in Lima, Peru, it would take you 15 months to get that business started because you would have to go from office to office, leaving a bribe behind at every office. You've got to get license and certificate after certificate. The whole system is designed to prevent creativity and freedom. That's not capitalism. What has sprung up in Lima, Peru, is a whole system of black markets run by. It's called the informal market. People just come up and they set up a table on a street corner in Lima and they offer whatever they have to sell without licenses, without bribes. They simply they bring their food in from the country. And it is that informal market that is keeping Peru alive economically. And it is that informal market that is keeping the poor of Peru alive because these people ignore the state regulations and simply set up a table and enter into free exchanges. If you do something good for me, give me your money. I'll do something good for you. Give you my bananas or my lettuce or my tomatoes or my silver, whatever it is. And so the government of Lima has gotten to the point where it ignores the black market because it knows that if it shut the black market off, economic activity in Lima, Peru, would come to a dead stop. This is a beautiful example of capitalism, only in this case capitalism being run by poor people, trying to save themselves from starvation against the evils of an interventionist statist system. Let me give you in a nutshell one argument against socialism and one argument against interventionism. What's incredible is the discovery that somebody identified the Achilles heel of socialism 72 years ago. Somebody predicted exactly why socialism would fail in the Soviet Union, and yet that man has been ignored. The man who made that major accomplishment has been ignored to a great extent. His name is Ludwig von Mises. In 1920, the Russian Revolution was just a couple of years old. It was failing already. It would have collapsed had it not been for an influx of food and support from the American government that kept Lenin running. But in 1920, Ludwig von Mises wrote an article and then later a book. The book is called Socialism, in which he laid out the major reason why socialism must fail. Okay, now the full details of the argument are in your book. Chapter eight. Let me just summarize it for you. NIS is recognized that you can have rational economic activity only in the presence of sufficient information. Whenever people make economic exchanges, they want information. Whenever people go into business and buy and sell, they want information. What do they want information about? They want information about the subjective economic preferences of other human beings. How much are people willing to sacrifice for a pound? The pork chops for a pound of coal? For a pound of cotton? What subjective value do people place upon various goods and services? You cannot have a rational economy apart from that kind of information. Now, Jesus said, there's only one way in which you can get that information in a market system of free prices. The objective information that we all need about the subjective preferences of people is available in the prices that people are willing to pay in order to get something. When the price goes up in a free market, Jesus said, You can be sure that one of two things has happened. If the price goes up, either demand has gone up, that is, people want it more or the supply has diminished. And when prices come down, you can be sure that that means either that the supply has increased or the demand has decreased. Well, let's take some examples. Smart people, that is, people who are alert in an entrepreneurial sense and economic sense will pay attention to rising and falling prices because rising and falling prices in a market system tell you that people's values are changing, that the degree to which they want something is changing. And so a smart person paying attention to changing relative prices would say to himself, this is not the right time for me to start a business that rents movie tapes. Right. This is not a good time. Right. Because the supply has has expanded out of sight and, you know, the demand has lessened. So if I'm going to go into business, this is not a good time for me to start a new branch of blockbuster video or something. But when you find that prices are rising, for example, forgive this capitalist example, the price of Disney stock, I was thinking the other day, boy, in 1978, Disney was down to $18 a share. And I've never owned stock. Right. I'm afraid of the stock market. It's kind of an irrational thing. But again, it's perfectly subjective. I said, I don't think I should buy Disney at $18 a share. No. It's pushing $160 a share and there's going to be a four for one split next month, you know. But fortunately, I am not a materialist. You see, money. Those things aren't important to me. But I do kick myself now and then because think of the good that my time from all of that could have done. All right. Rising property now within a socialist economic system, that kind of information cannot be available. And here's why. Here's why. Suppose you are the man. Suppose you are the director of a factory that produces widgets. I'll spell it for you. I don't know what a widget is. Suppose you or the man exposure the director of a factory in Russia that produces widgets. All right. Now you're producing, let's say, 10,000 widgets a day. You have a little problem, however. And that little problem is this. What price should I charge for my widgets? Now, in a socialist economy, here's the reason for the problem. The government owns everything. The government owns the factory. The government owns the machines. The government owns the the electricity producing plants. The government owns the forests. It owns the transportation system. Now, where the government owns everything, there's no way to figure out how much each widget costs. How could you? How do you figure the price? The cost of a widget. Now, you see, in a rational economic system, you have to know the cost before you can set a price because you're supposed to make a little more than the cost. I sometimes compare this to a self enclosed farm. Suppose somewhere around here there's a farm that is so self-sufficient it has no contact with the outside world. They make their own electricity. They grow their own food. They never go outside the farm. And one day you and I drive up to the front door of the farm and we say, Do you have an extra dozen eggs? Remember, this guy has no, you know, the regional newspapers. He watches no television. He has no idea what the market price of eggs is. All right. So he says, sure, we've got an extra dozen eggs. And so you say, how much do you want for them? And he says, Well, I really don't know how, but $50, it's guesswork. He owns everything. He has no idea what it costs him to produce a dozen eggs. So he just pulls a figure out of the air. Well, you say, well, that's a little more than we were planning to pay. Can you come down on your price? He says, Well, what about $0.10? Again, he has no idea what it cost. You say $0.10 a dozen. How many dozen can we have? That's called arbitrage, where you buy cheap and you say you're going to buy. You take all the eggs you give you, and then you go sell them to Publix. You see, for six $0.50. A dozen, maybe. The fact is, under a socialist system, our system of rational pricing is impossible because nobody knows what it costs to produce those things. Now, let me tell you how the Russians figured out what prices to charge for their goods. The Russian director of the widget factory would get on the telephone and he would call his friend Hans in West Germany, and he'd say, Hans, how's the widget business? Very good. What are you selling widgets for these days? Now, remember, the West German widget maker is forced to compete in a market system. And so he not only knows what it costs to make each widget, he knows what the market price for widgets will be. And so he says, Well, we sell our widgets for $0.10 apiece. Hmm. Thank you, Hans. And then you see, Vladimir now begins to price his widgets at an approximate price without the information that the Russian manufacturers and all of the socialist manufacturers got from, uh, from Western manufacturers. The Russian economy would have been in far worse position than it was. Socialism is irrationalism is economic irrationalism. Socialism is economic madness because it rules out the all of the elements that are necessary for rational pricing. And that's why you see the garbage cans end up in one city and attached to the garbage cans end up in another city. The shoes end up in one city and the shoelaces end up somewhere else. Rational planning in that kind of economic chaos simply cannot work. That's why socialism collapsed. Now, let me tell you why interventionism doesn't work. All right. Interventionism was also attacked only in this case a few years later by the same economist, Ludwig von Mises. In this case, he did it in 1927. In this case, he was attacking economic interventionism in Germany. Now, economic interventionism is supposed to be half hearted controls. It's supposed to be a halfway house between the greater freedom of capitalism and the total status control of socialism. So what interventionists do is they try to introduce partial controls, thinking that this will help advance certain laudable goals that the politicians regard as desirable. Now, measles objection to interventionism was this It said half hearted controls will never work. And he's right. As long as people are not totally controlled, they will always find ways of getting around partial controls. They will either they will either move towards black markets or they will move their merchandise in some other way. They'll from their nose at the politicians. And in the meantime, the goals for which these controls were added, the very opposite goals will be realized. Let me give you an example. Suppose Teddy Kennedy feels badly about poor people who don't have enough money to buy a dozen eggs, let's say on a free market. In a market system, a dozen eggs are selling for $0.75 a dozen. So Ted Kennedy persuades the liberal majority in Congress to adopt a law that makes it all that makes it against the law to sell eggs. These are called price controls to sell eggs for more than $0.50. Now, the goal for this governmental intervention, the goal for this price control, is to help make eggs more available to poor people. Okay. What will be the long range consequences of this insane action? Let's follow it through. As Abbott and Costello used to say, step by step. All right. First of all, we recognize that a large percentage of the eggs sold in this country are produced by marginal egg producers. These are mom and pop operations, small farms where maybe to make a few extra bucks a week, mom and pop produce 30 or 40 or 50 dozen eggs. All right. Now, they're marginal egg producers because they barely. Through a profit. Now, because of Senator Kennedy's compassion for the poor, these people are no longer able to make the little profit that once gave them an incentive to produce all of these eggs collectively so that every time now, thanks to Senator Kennedy, they sell a dozen eggs. Let's say they lose five or $0.10 a dozen. Now, I don't know about your mom and pop, but my mom and pop wouldn't be dumb enough to continue to stay in that business for very long. Every time I sell a dozen eggs, I'm losing money. So what do Mom and Pop do with their chickens? Well, they kill them. They sell them to Colonel Sanders. All right. What else can you do? Now, all of a sudden, and once again, you see, this is not difficult. All of a sudden, there are millions of fewer chickens producing eggs in this country. Why? Because those marginal egg producers could no longer make money feeding those millions of extra chickens. They're gone. All of a sudden, there aren't enough eggs to satisfy demand. Now, remember, the liberal got started down this road because he wanted to make eggs more available. What has he succeeded in doing? Making eggs harder to get. In fact, if he removed his price controls right now, the price of eggs would shoot sky high. But what would that increase price of eggs do for you? It would suddenly give people incentives to come back into the egg producing market. The only catch is you can't. Only God can create an egg out of nothing. You see, once you've killed all these chickens, to get back to your former egg producing capacity will take more than a year. Thank you very much, Senator Kennedy. Know what Senator Kennedy will push through now is a new law that will impose price controls on the people who produce chicken feed. So his thinking is that poor marginal egg producers are losing money because they're paying too much money for chicken feed. So we'll sock it to the chicken feed producer. Now, what happens to the marginal chicken feed producer? He goes out of business. See? So we've not only destroyed the egg producing market, we've destroyed the chicken feed producing market. Now, what else is Senator Kennedy going to do? Well, this is Liza's point. Half hearted measures never work. And so the interventionist is either going to be forced to admit that he did something very stupid that produced the direct opposite of the consequences he desired. That will take years to remedy. But again, what the intervention is more likely will do is simply add more and more and more controls and less, he adds. Increasing controls. We move in the direction of socialism. So that was means point. Either the intervention is stops intervening with the economy or else he keeps intervening until we've moved all the way towards the insanity of socialism.