Name: What If There Were No Prices? Railroad Thought Experiment - Learn Liberty
Uploaded: 2016-09-29T23:49:09.000Z
Duration: 6 min 40 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

consider what a fix we would be in without them.

Suppose you were the commissar of railroads in the old Soviet Union.

Now, directly plan how to use available resources.

You want a railroad from city A to city B, but

Suppose somehow you know that the railroad once built.

Whether it goes through the mountains or around.

If you build through the mountains, you'll use much less steel for the tracks.

But you'll use a great deal of engineering to design the trestles and

tunnels needed to cross the rough terrain.

That matters because engineering is also needed to design irrigation systems,

mines, harbor installations and other structures.

And you don't want to tie up engineering on your railroad

if it would be more valuable designing those other structures instead.

You can save engineering for other projects.

If you build around the mountains on level ground.

But that way you'll use much more steel rail to go the longer distance and

For vehicles, girders, ships, pots and pans and thousands of other things.

Which route should you choose for the good of the nation?

To answer, you would need to determine which bundle of resources

is less urgently needed for other purposes.

The large amount of engineering and small amount of steel for

the route through the mountains, where the small amount of engineering and

large amount of steel for the roundabout route.

But how could you find out the urgency of need for engineering and

Just one way engineering is used is to build irrigation systems.

To assess the importance of a particular irrigation system, you would need to know

what the farmers know about how irrigation would increase the yield of their fields.

And to know the value of that increased yield, you'd need to know what grocers

know about their customers eagerness for that produce.

That in turn depends on what customers know about the better meals they could fix

Just one way to use steel is to build new trucks.

To assess the importance of a particular new truck, you would need to know what

the trucker knows about the capacity of his current truck, and how much more

quickly he could make the deliveries his customers want with a new bigger truck.

To know the importance of those deliveries, you would need to know what

his customers know about the value of getting goods delivered.

That in turn depends on what still others know about the uses of those goods

To reason about where to route the railroad,

you need this kind of information for all possible uses of engineering and steel.

That's a massive amount of knowledge, held by millions of people throughout society.

You might try surveys, but think how many people you would need to survey.

All those who prepare meals with produce, and

all those who take delivery by truck for starters.

And often people don't even know what they prefer until they face an actual choice.

So they might not be able to answer survey questions accurately.

Even if they could, by the time the surveys were returned and

processed, much of the information would be out of date.

And even if you could get complete and timely information

about what everyone knows, that's relevant to every use of steel in engineering,

you would still need to deduce from it where to build the railroad.

How would you begin to make sense of that mountain of data?

In the words of Ludwig von Mises, you would be groping in the dark.

You would face what is known as the knowledge problem of central planning.

The reason why comprehensive socialism inevitably fails.

Central planners cannot get the knowledge they need in order to plan effectively.

You, commissar, simply cannot know on what projects scarce resources should be used

Imagine that somewhere in the market economy part of the world,

you are the chief operating officer of a railroad company.

You work not for the good of the nation, but to generate profits for your firm.

You want to run a railroad line from city C to city D.

Again, there's a mountain range between them.

You would calculate the total cost of each route for each one,

multiplying the amount of engineering required by the price of engineering, and

adding that to the amount of steel required times the price of steel.

Then, you would choose whichever cost your company less.

You might give no thought at all to the good of the nation or society as a whole.

But, and here's the marvel, by choosing the route that is cheapest for

your company you would thereby choose the route that's best for society.

You would use the bundle of resources that's least urgently needed for

Because those market prices you calculate with reflects the urgency of need for

engineering and steel in all their alternative uses.

For example, suppose customers wanting to taste your meals, would buy better,

more expensive produce, if it were on the shelf of their local grocery.

In effect, they're offering grocers more for produce.

So the grocers will offer farmers more for produce.

So the farmers who feels would be sufficiently improved by irrigation

And those who build irrigation systems will offer engineers more to design them.

Now that designing irrigation systems pays engineers better,