The Profit and Loss System

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Ludwig von Mises was the clearest articulator of the system of profit and loss as an industrial policy. The idea that there's a particular price in the capitalist system, which is I compare the amount of revenue that I get from consumers to the costs of what it took me to make the thing. If my revenue exceeds my cost, we call that particular price a profit. And that profit is an indication that this activity is socially valuable.

Economist and political scientist Michael Munger of Duke University talks about industrial policy with EconTalk host Russ Roberts. Munger argues that in a democracy, the default outcome for industrial policy is crony capitalism--attempts to improve on that outcome either by appointing experts or eliminating cronyism are going to fail for political reasons. The conversation concludes with a discussion of the reliability of Munger's claim and what options are left for dissatisfied reformers.