Profit and Loss Calculation

This video covers the importance of profit and loss calculation in context of the socialist calculation debate, which came about in the first half of the 20th century. At this time, communists had taken over the Soviet Union, claiming that central planning would be a more efficient system than capitalism. Two economists from Austria, Ludwig von Mises and Friedrich Hayek, refuted this claim. They argued that businesses need access to market prices to know how to allocate resources. Without market prices, businesses simply don’t know which course of action is most or least profitable.

This video also discusses what happens when politics are superimposed on private capital markets and how public choice theory plays into government price calculations. Finally, we’ll look at South Korea’s industrial policy as an example of how government allocation of capital can benefit economic growth.