Hayek on Socialist Calculation

Course Outline

Hayek on Socialist Calculation

Instructor: Tyler Cowen, George Mason University

This video covers the three essays “Socialist Calculations I, II and III” by Friedrich Hayek, first published in 1935. In these essays, Hayek builds on arguments made by Ludwig von Mises on why socialism would not work.

In the first essay, Hayek covers profit and loss and whether it’s possible to do rational economic calculation without reference to prices (see the earlier MRU video on “Profit and Loss Calculation”). The second and third essays respond to the proposal for “managed competition” in socialist economies.

Under “managed competition,” the government could simulate perfect competition under socialism by instructing firms to act like competitors. Hayek responds with important questions on who manages these firms, how resources will be allocated, how innovation will be managed, and whether these firms can go bankrupt. Under capitalism, all of these questions are answered by private capital markets. Ultimately, Hayek argues that knowledge is key to competition, and knowledge cannot be managed.

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