===== PAGE 1 =====

Volume 4/No. 1 Spring 1983

An Interview
with
G.L.S. Shackle

Nw An often controversial figure within the seminar necessarily, but they sometimes writing the book which came out in 1841,
penumbra of Austrian economics, G.L.S. gave lectures In the afternoon. These under the title The Pure Theory of
Shackie, through his books (which in- were people many of whom were taking Capital. A student would write a paper
clude Epistemics and Economics, Time refuge from what was going on in Central with the topic largely of his own choos-
In Economics, and Decision, Order, and Europe. Some of them were ing; anything acceptable to Hayek would

Time in Human Affairs) and articles has  famous—Karl Popper, for instance. | be discussed—money, and various
developed a radically subjectivist ap- heard him give the first lecture he ever aspects, | suppose, of capital
proach to economics. gave in England. Then there was Gott- theory—but I'm afrald | can't remember

tried Haberler, and Fritz Machlup; Paul in detall now. Hayek used to give me the
Rosenstein-Rodan was also in London. manuscript of The Pure Theory of
That was the sort of seething excitement Capital to read, as he was always
at the London School in those years. For rewriting the draft. | read several ver-
anyone really hooked on the subject, t sions of it.

Born in Cambridge, England in 1903,
Shackle began his formal training
relatively late in life under F. A. Hayek,
his “discoverer,” at the London Schoo! of
Economics. This interview, conducted by

Richard Ebeling in the fall of 1981, Was absolutely thrilling. INTERVIEWER: Sir John Hicks has por-

begins with Shackle recounting his days INTERVIEWER: What topics were dis- trayed the 1830's as a period of great In-

at the L.S.E. cussed in Hayek's seminar? tellectual battles between what he por-
SHACKLE: Well, of course, Hayek was Continued on page 5

INTERVIEWER: When you were a stu-

dent at the London School of Economics

In the 1930's, | understand that you had A Message to Our Readers

an opportunity to participate In the

Hayek-Robbins seminar. Starting with the next Issue, the Austrian Economics Newsletter will be

SHACKLE: Yes. Well, it was really published by the Ludwig von Mises Institute for Austrian Economics, inc., a tax-

Hayek's seminar. There were two exempt educational foundation in Washington, D.C.

seminars, one on Monday afternoons,
which was Robbing’, and a more worka-
day pedestrian affair. The high-powered
one was the Hayek seminar on Thursday
evenings. These seminars were star-

The new AEN willl focus on the people and the institutions involved in
Austrian economics: academic appointments and openings; scholarships and
grants awarded and available; books and articles published and in preparation;
research interests; meetings and conferences; and student activities.

studded, with marvelous lectures: Hayek AEN will continue to publish interviews and articles, but its main Ingredient
\ Was there, Robbins came once or twice, wlll be news. Such a publication is, of course, impossible without reader help. If

and there were also John Hicks, Nickolas you have information about your own work, or anything else, that would interest

Kaldor, Abba Lerner, and Ursula Hicks. your colleagues, please write the Mises Institute, 325 Pennsylvania Avenue,

We had a constant stream of people of S. E., Washington, D.C. 20003.

varlous degrees of eminence-—some of --Sanford Ikeda and Don Boudreaux, Editors

them very eminent—coming to the Llewellyn H. Rockwell, Jr., Publisher

school.They didn’t come to the Hayek



===== PAGE 2 =====

Briefs

—
“r’
The first session of a two-part Liberty ~~ Processes.
AUSTRIAN ECONOMICS Fund symposium called “Economics as The other conference participants in-
a Process” took place on October 13-15 cluded Therese Flaherty of the Harvard
Volume 4/No. 1 Spring 1983 | |, Greenwich, Connecticut. Business School; Ronald Heiner of

UCLA; Mario Rizzo of NYU; David Teece

d
The symposium, organized by Richar of the Berkeley Business School; and

The Austrian Economics Newslelter is Langlois, an adjunct assistant professor

designed as a research and communica: | at New York University, brought together ~~ >'dney Winter of Yale.

tions device for work In Austrian eco representatives of several related The March session will likely inject
nomics. As such, it Is essential that we strands of economic thought alternative ~~ some additional participants into the
have the active support and cooperation to and critical of ‘mainstream’ mix, Including James Buchanan of the
of our readers. We need any information neoclassical work. Partisans of the Center for Study of Public Choice. Louis
which would be of value to other Austri- Austrian School were featured Spadaro will be the symposium
ans and we welcome any suggestions prominently in this group. moderator.

for improving the Newsletter. The suc As the title suggests, the theme of the The participants were unanimous in

cess of the Newsletter fundamentally |  .. co 0nca ig economic processes, prin- judging the Greenwich meeting a
ation a ach 1o ent of the cipally the notions of competition as a success.

Dare ° process and (not unrelatedly) the evolu- The conference in March. which wil

tion of social institutions. (The Idea of likely take place at Airlie House In

progress and change in economic ideas vying will be devoted to a more formal

gives the title a second meaning as well.) presentation and discussion of the by-

The recent session was the first of then-completed papers. It will shift the

Co-editors what wlll be a two-conference sym- focus from exploration to assertion; and

Don Boudreaux posium, a novel format for Liberty Fund the authors have been charged with the

Sanford |keda gatherings. goal of playing down criticism of the

This first meeting allowed the par- mainstream in favor of highlighting the

: itive, substantive contribution their
ticlpants—who had not previously been ~~ POS!UVe. : }
well acquainted either personally or alternative approaches have to give.

Advisors professionally—to discuss ideas in a
Lawrence H. White relatively unstructured format. The Mont Pelerin Soclety, the inter-
Richard N. Langlois national organization founded by F. A.
Seven of the participants each led a Hayek to nurture classical liberalism, at-

discussion based on the outline of &  {racted hundreds of. participants to its

paper which Is to be presented atthe se- 1982 general meeting. The meeting took

Staff cond meeting of the symposium, place In West Berlin from the 5th to the
Roger Koppl scheduled for March. 10th of September. Austrian economics
Esteban Thomsen This approach permitted the paper- was represented by, among others,
givers to learn about and incorporate the ~~ Hayek, Gerald P. O'Driscoll of the

ideas of the other particlpants at an early Federal Reserve Bank of Dallas, Karen I.

stage In their writing. Vaughn of George Mason University,

The paper-givers Included Stephen pe), Lo ULES 8) US Co

Littlechild of the University of Bir- White of New York University. There was

mingham, England, who discussed alter- Wi
The Austrian Economics Newsletter is . nothing on the program specifically in-
native theorles of market process; clined toward Austrian economics,

an independent project funded by the | Gerald O'Driscoll, late of NYU and now of
' . | t mists presen-
Center for Libertarian Studies and is | tng Federal Reserve Bank of Dallas, who ea dpi isis pr seh

published three times a year. Annual discussed the discovery-procedure view

a nd Kar! Brunne
subscriptions are $7.50 of competition; Richard Nelson of Yale, RE Tn cs Milt on Fri man
goes are available for $3.50 who discussed the ways in which Nn ,;4'pgg0a) Salin on the European Com-
aplece. evolutionary model of competition \.,\ w1arket James Bennett and Colin

changes the analysis of industrial Campbell on the welfare state, and Allan

Austrian Economics Newsletter productivity growth; Andrew Schotter of

200 Park Avenue South NYU. who talked about the logic and in- | Meltzer on monetary reform.

Suite 1314 formational properties of social in- Hayek, appearing in good health,
New York, N.Y. 10003 stitutions: Oliver Wlliamson of the offered remarks from the floor during

University of Pennsylvania, who discuss- several sessions and a prepared com-
ed the “governance structures” that sup- ment during a gession on socialist
port economic exchange; Axel Lei- thought. The volume of conference.
jonhutvud of UCLA, who recounted and papers included a chapter on “The —
analyzed the evolution of the factory Ethics of Liberty and Property” from his’
system in Europe; and Brlan Loasby, of forthcoming work on socialism, The
the University of Stirling in Scotland, who ~~ Fatal Conceit. Word has it that this work,
suggested how the analogy of scientific like Law, Legislation, and Liberty, will
discovery helps one understand economic appear in three volumes. [|

PAGE 2 : | AUSTRIAN ECONOMICS NEWSLETTER


===== PAGE 3 =====

Programs in Austrian Economics
o

This is a new feature of the Austrian A final word to anyone in the process a fine start, especially with Leland
Economics Newsletter. The following are of selecting a graduate school. The Yeager coming as a Visiting Professor
brief descriptions of graduate programs Austrian program here is still growing for the Winter and Spring quarters of
in Austrian economics at two univer- and the voice of an individual student will 1983. (Professor Yeager, of course, is a
sities. The first was written by Sanford make a difference. We are small yet not ~~ scholar of international reputation and is
tkeda of New York University and the se- exclusive. Anyone with ideas of his own particularly well-known to Austrians.)
cond by Don Boudreaux of Auburn will be welcomed and encouraged to There is a great deal of well-founded op-
University. Both are graduate students at make them known. timism that Auburn's doctoral program
their respective universities. wlll mature rapidly and healthily.

Despite the fact that there is no officlal
(l,e., formal} program in Austrian
* * * economics at Auburn, the student in-

terested in working within the paradigm
of the Austrian school toward a doc-

New York University Auburn University torate will have ample opportunity to do
so. It warrants repeating that the

it ig safe to say that at no other univer- Students who are interested in knowledge and open-mindedness of
sity today can one find a more illustrious Austrian-Subjectivist economics will feel ~~ Auburn's faculty (of whose members
collection of Austrian scholars in Quite comfortable at Auburn University. two—Roger Garrison and Don
residence than at New York University. The Department of Economics at Auburn Bellante—have served as Visiting
Current faculty Include Israel Kirzner, has a number of faculty members Professors In New York University's
Mario Rizzo, Lawrence H. White, Fritz (including Professors Don Bellante, Austrian economics program) Is con-
Machlup. Richard Langlois, and, in the Pamela Brown, Robert Ekelund, Roger ~ ducive to study within the Austrian-
spring, Ludwig Lachmann. With the ex- Garrison, Robert Hebert, and Mark Sublectivist paradigm and of the
ception of Professor Machlup, ali of the Jackson) who are familiar with, and Austrian tradition.
above regularly attend the weekly collo- refreshingly receptive to, work done in For further information, contact
quium: the heart of N.Y.U.'s program in the Austrian-Subjectivist tradition. This Professor Robert F. Hebert, Head
wAustrian economics. Nine graduate familiarity is not shallow; itruns sure and  pepartment of Economics, 107 Thach
feilows also participate in these sessions deep. Hail, Auburn University, Alabama 36849
and are led In discussion by a member of The validity of this point is attested to or telephone (205)826-4910.
the faculty, a visiting scholar, or one of by Auburn's strength in the history of
the students themselves. While the economic thought. There are no less
colloguium has changed its format from than four professors on the graduate
time to time, articles from mainstream- acuity whose knowledge of the historical
sia ratiios or chapters from roots of current developments in
ar ics i - :
regarded as somehow falling within the OO I Xen am Ts Not long after the above piece on
Austrian tradition are critiqued and fact alone serves to foster an at- N.Y.U's program was written Professor
reviewed. Machiup passed away. Unfortunately, it was
mosphere of scholarly inquiry toward by then too late to make major changes
Austrian faculty teach several courses which Austrians might naturally 7 who oriole. We apologize, therefore
that appear regularly in the Graduate gravitate. It should be emphasized, to. on misunderstanding that may arise
School's curriculum. These include the however, that this high degrees of ap- oo roc, ¢ y
following (subject to change): History of ~~ preciation of (and keen intersst in) the
Both editors of this newsletter were at

Economic Thought, Survey of Austrian history of thought does not act as a sub-
Economics (Kirzner); industrial stitute for knowledge and interest in what one time students of Professor Machiup

Organization, Economic Analysis of Law 8 currently happening on the trontiers of and were touched by his Intellect, his
(Rizzo): Methodology of the Social economic science. Rather, the faculty at charm, and his good humor. We mourn
Sciences. International Trade (Machlup); Auburn view an extensive knowledge of the passing of a great teacher and
and Advanced Economic Theory the former as a necessary ingredient to thinker, u
(Lachmann). Currently at the un- be used in attempts to gain a more com-
dergraduate level are Money and Bank- plete understanding of the latter.
ing (White), and Industrial Organization Another distinctive feature of Auburn
(Langlois). lies in the extent of the rapport that exists
The general intellectual milieu Is between the students and faculty. This is,
further enhanced by the Bohemian sur- of course, a very valuable, yet intangible,
roundings of Greenwhich Village. Poten- ~~ asset that cannot be rated too highly.
tial Austrian Fellows are advised that This rapportis both an effect, as well as a
\/ousing has been obtainable within quite cause, of the relatively informal aura that
reasonable distances through the permeates the Department of
University—but check into this as earty Economics at Auburn.
as possible. Also, Austrian fellowships Although the Ph.D. program in
covering tuition plus a generous stipend gconomics at Auburn is in its infancy
should be iooked into at an early date. (1982-1983 marks its first year), it Is off to

AUSTRIAN ECONOMICS NEWSLETTER PAGE 3



===== PAGE 4 =====

| Dissertations

>)

- -

This is another new feature of the then contrast the arrangement and legal authority over money, and allows an
Austrian Economics Newsletter. inan ef- framework of Scottish banking in its hey- ~~orderly yet unmanipulated monetary
fort to make the latest work in the day with those of contemporary English system. We argue that its use of preclous
Austrian tradition more widely known, banking, and find the Scottish system metals as a monetary base is not inef-
we shall present summaries and syn- superior. Finally we examine some ficient when consumers prefer

opses of recent doctoral dissertations by evidence contrasting the redeemable currency for its greater
young Austrian scholars. macroeconomic experiences of England trustworthiness. A free market in curren-
and Scotland. cy is the only means of discovering the
The third chapter shows that the ques- Monetary system most preferred by con-
* * 0% tion of free banking versus central bank- ~~ SUMers.
ing as the remedy for business cycles
FREE BANKING was a focal point of British monetary

policy debates between 1820 and 1845.
The standard “Currency School-Banking

by Lawrence H. White School” framework for recanting: the
debates fails to come to grips with the
free banking question.

KNOWLEDGE, ORDER, AND
TECHNOLOGY

by Richard N. Langlois

gree banking—the system under Secondary accounts using this

which the paper currency otf an area is framework have slighted an important The increasing technological
Issued by unregulated and competitive  thirg body of monetary thought, which  gonnstication of the modern world is a
private banks on the basis of conver- we jdentify as the Free Banking School. phenomenon that presents the ‘student
tibllity into standard coin — was widely wg trace chronologically, beginning with of society with many sorts of problems:
advocated in the nineteenth century. Adam Smith and then the Bullionist con- technological, economic, sociological.

This dissertation studies the question  troversy of 1800-1820. We go through Most fundamentally, though, the
of free banking as it confronted policy the free-banking controversy of 1820-  proplem of technology is just a
makers and economic writers in Britain 1845 in detail, placing the major con-  phijpgophical problem; it is, in more
in the first half of the nineteenth century.  tributors and thelr contributions against modern terms, a matter of world-view, a

We engage monetary theory, economic two sets of background events of the era, question of one's “paradigm.”
history, and the history of economic doc- successive business cycles and Acts of 7 in ih d dt:
trines in the examination. banking legislation, here are, in this regard, two nor-
mative visions of the post-industrial
Chapter 1 undertakes to build a theory Chapter 4 deals issue-by-lssue with j4rg that stand out distinctly. One is a

of free banking as a framework for the the major analytical differences dividing  tgchnocratic vision In which scientific
historical and doctrine-historical dis- the Currency, Banking, and Free Bank-  ynowledge is preeminent and the con-
cussions of later chapters. We flrst con- ing School theorists. The issues treated scious, rational management of society
sider the equliibrium of an Individual are: (1) whether the principles of free jnevitable. The other is an “Aquarian” or
bank of issue, modelling it as a profit- trade apply to the issue of currency; (2) “New Age” vision which would substitute
maximizing firm. This exercise es- the possibilities for over-lssues under he mythic for the scientific, the organic
tablishes that the desired banknote cir- free banking and under central banking, tor the technological, and the "“ap-
culation of the bank is limited by cost (3) the origin and transmission of  grgpriate” for the rational in the manage-
considerations. We next consider the business cycles; @ the appr opriateriess ment of society.
" nciple,” ar
equillbrlum of the system as a whole, ©f the “currency principle,” ithe moneiary This dissertation accepts the premise

viewing it as a small open economy on role proposed by the Currency School;
an International specle standard. We (5) the merlt-of the alternative “banking that the political economy of technology

derive an expression for the determina- principles”, Among which we distinguish ~~ ust be understood as a matter of
tion of the domestic monetary base (the the real bllis doctrine, the needs of trade world-view before It can be examined as
stock of specie held by banks and the doctrine, and the “law of the reflux” & question of economics. The essay is
public). We then examine the propounded by John Fullarton; and (6) fundamentally a critique of both “post-
equillbrating mechanisms which restrain whether monetary order should be spon- industrial” visions in light of a third alter-

banks from over-issuing by bringing taneous (undesigned) or constructed native.

about a “reflux” of excess notes. Reflux (designed by policymakers). In general The malin analytic lens is the question
occurs as holders of excess notes re- we find the positions of the Free Banking of knowledge and its use, which | cast in
establish thelr asset-holding School to have the greatest cogency. terms of three “metaphors” for the way
preferences. Commonly the route of The final chapter argues for the society (and its technology) might be

reflux passes through a note-exchange rgigvance of free banking to contem- Organized. One of these is the well-
system, an Interbank clearing porary discussion—particularly Hayek's known “machine model” often held to
mechanism whose origin we explain in cali for "denationalization of money '—of  Underlie the technocratic vision. (The
an invisible-hand fashion. alternative monetary institutions. We pic- forms of knowledge applicable to
Chapter 2 examines the record of free ture free banking as a means of escaping designing and running a machine are. Ie
banking in Scotland, the worid’s the problems inherent in the institution of the model, equally applicable to social
clearest-cut example of free banking in Government monetary authority. A Management) The alternative fo this.
practice. We trace the evolution of the monetary authority must be dangerously one often hears, Is the organic “New
Scottish banking Industry, emphasizing flexible or dangerously inflexible. Free Age” vision broadly construed. It is my
competitive entry and innovation. We banking dispenses with government Continued on next page

PAGE 4 AUSTRIAN ECONOMICS NEWSLETTER


===== PAGE 5 =====

Interview with G.L.S. Shackle

(Continued)
NS

trays as the "Hayekians” versus the bud- 1935 there was a strong Hayeklan in- withdraw from trade, they sweep their
ding Keynesians. What are your fluence at the LSE—people were greatly chips up from the table. If they decide It's

memories of that time? sold on Hayek's views as expressed in too risky, if their nerve gives out and they
SHACKLE: Well, | don't think it can realty ~~ Prices and Production; | should say that can't bring themselves to go on in-
be said to have started until a small included Hicks and Lerner and Kaldor. vesting, they cease to give employment

group of us went down to Cambridge on INTERVIEWER: If you go through the and that is the explanation. When
a Sunday afternoon in October 1935. economics journals for the couple of businessis at all unsettled—when there's
That's where we heard Joan Robinson years after the appearance of The any sign at all of depression—or when
and Richard Kahn and really learned General Theory in 1936 and read the there's been a lot of investment and peo-
about Keynes' The General Theory. | reviews of the book, e.g., Hicks’ first ple have run out of ideas, or when their
didn't really understand what The review, Frank Knight's, Joseph goods are not selling quite as fast as they
General Theory was going to be all about  Schumpeter’'s, Jacob Viner's, Dennis have been, they no longer know what the
until | heard Joan Robinson. | don't think ~~ Robertson's, and so on down the line, marginal value product of an extra man
you can say that a real battle began until every one of them criticized the book  is—it's non-existent. How can you say
after The General Theory had made severely. And If one compiles a list of all that a certain number of men have a cer-
some Impact on us in that way—perhaps the criticisms made in those reviews, tain marginal productivity when you can’t
not even until after It came out. But upto there Is very little in Keynes’ arguments know what the per unit value of the
left unchallenged. Yet, within a few years, goods they would produce if you
the book became the volume guiding employed them would sell for?

Dissertations economic theorists. Given the opposition INTERVIEWER: Let me present an alter-
(Continued) to it by so many leaders in the profes- native for you, Let's take someone like
sion, why? Philip Wicksteed in his book, The Com-

thesis that, to the contrary, the “A- SHACKLE: Well, | think the opposition mon Sense of Political Economy. Now
quarian” paradigm In general—and the was because the book's object was to from beginning to end almost every page
notion of “appropriate” technology in overturn the established theory of value, in Wicksteed is loaded with the words
particular—involves a view of knowledge which it did. | think it's fair to say thatthe “anticipation” and “expectations.” He
not far different from that embodied in accepted, the received, theory of value analyzes consumer's marginal utility

the machine model. and distribution in those days could not evaluations as well as production activi-

Ad The alternative to a machine model is " ,
surely an “organic” metaphor. What has Up to 1935 . . . people were greatly sold on Hayek's
not been well recognized, though, is that views . . . that included Hicks and Lerner and Kaldor.”

there are two different “organic”

metaphors one could choose. One is the possibly account for involuntary un- ty, in terms of the forward-looking
“organism” metaphor, which, | argue, employment because its premises in- perspective of the actors. So there was a
has a number of strong affinities to the | ciuded something very iike perfect different tradition other than Knightian
machine model, the second is an knowledge; and, If everyone had perfect perfect competition in existence that
“evolutionary” metaphor, which, | con- knowledge, why should they have allow- used expectations in a process sense.
tend, is not only the superior alternative ed a disaster like the early 1830's? It Let me make a point about analyzing the
but also the alternative more consistent didn't make sense. The received theory Great Depression. The money supply
with the rhetoric (though not the political § of value and distribution up to the early was contracting In the early 1930's—a
program) of “appropriate” technology. 1830's was a theory of perfectly fact that seems to have been not clearly

Drawing on the writings of such | Successful adjustment, perfect coordina- understood at that time, but which we
thinkers as F. A. Hayek, Michael Polanyi, | tion. And, if things are perfectly coor- now appreciate. It Is possible to interpret
and Karl Popper, the dissertation carries | dinated, there's no reason why anybody this in a Wickselilan framework, i.e., of
the analysis of the three metaphors | Should be involuntarily unemployed. the money rate being above the natural
through several realms: the history of Keynes pointed out that there was this rate. The structure of production was be-
ideas; the methodology of the social § contradiction requiring an explanation Ing artlficlally “shortened,” so to speak,
sciences; economic theory; organization | 8nd he explained it. His theory of in- Instead of “lengthened.” Using Wicksell
theory; and, finally, political philosophy. | voluntary unemployment Is perfectly in this manner, within a Wicksteedian

slmpie and can be expressed In a framework, one can analyze the Great
paragraph, or in a sentence. If you ex- Depression as a cumulative contraction

»*% » * press it in a sentence, you simply say in an environment of incorrect expec-
that enterprise is the launching of tations—and without a Keynesian
resources upon a project whose out- framework.

We would welcome contributions of | come you do not, and cannot, know. The ~~ SHACKLE: Yes, yes | can see that. That
the above nature. Lengthy summaries | business of enterprise involves invest- certainly is very interesting Indeed.
are unnecessary, however—100-200 } ment, the investing of large amounts of Especially the reference to Wicksell. Yes,
words is a good length. Descriptions of | resources—huge sums of money—in | do see that, but | must say | stlil think

Ny Proposals or work in progress would | things whose outcome you cannot be that Keynes didn't really get right home
also be acceptable. These may be sent | certain of, which could perfectly well turn on his target until he wrote his 1937 arti-
(until further notice) to the AEN, ¢/o the | Into a disaster or a brilliant success. The cle on.“ “The General Theory of
Center for Libertarian Studies, 200 Park | people who do this kind of Investing are Employment” in the Quarterly Journal of
Avenue South, Suite 1314, New York, | essentlally gamblers and they can lose
N.Y. 10003. B ' thelr nerve. And if they decide to Continued on next page

AUSTRIAN ECONOMICS NEWSLETTER PAGE 5


===== PAGE 6 =====

Interview with G.L.S. Shackle | |
(Continued) —_

Z

Economics. There he put the whole SHACKLE: Yes, I'm sure you're right. everything is just a product of the mind,
weight on uncertainty and | still think that ~~ Keynes, no doubt, in dealing with totally unrelated to objective reality. How
that is the real point. That “involuntary aggregates, was too “aggregated.” | would you respond to that?
unemployment” merely means thatthere quite agree with what you say. | once SHACKLE: | think that's the view some
are people who haven't enough faith in used a little diagram in which a lot of take. | can only speak for myself and /
their expectations to give employment. arrows are going up vertically, with the don’t say that objective reality doesn't
INTERVIEWER: An aspect that the arrows representing the value of par-  exist—this is a philosophical problem far
Austrians have emphasized, particularly ticular investment projects, which will be out of my depth. But | do think that what
in the recent works of Israel Kirzner, e.g. invested in if the rate of interest goes we do in our actions is based on what
his book Competition and En- down. Now, there'll be for each of these goes on in our own minds, and one way |
trepreneurship, is that the market Projects a level of cost of construction. have tried to put it is that the things which
operates through the coordinating ac- Their vatue has to go up high enough to you can choose amongst have to be
tivities of the entrepreneur. The en- be above the cost of construction. If the made by yourself. You can only choose
trepreneur is the one who searches for rate of interest goes down far enough, it actions and acts. When people say, I'm
opportunities, for profits from arbitrage. will bring some of them up into the realm choosing a new suit, or I'm choosing a
The market process over time tends to Of profitability; if it goes down even house, what they're really saying is, I'm
weed out the “poor” entrepreneurs, who further, itll bring more of them up, and choosing which one to buy. It's the ac-
suffer losses, while the “good” en- $0 on. Well, there's no hint of that in The tions they're choosing. | think that the ac-
trepreneurs reap profits and gain ad- General Theory. The marginal efficiency tion must be formulated in one's own
ditional control over factors of produc-  ©f capital is just this thing you compare mind—it's a work of art, it's a work of im-
tion. As a consequence, the people who With the interest rate, isn't it? agination. Your list of chocsable things
at any moment in time will be making INTERVIEWER: The multiplier and the has to be constructed or composed by
production decisions will tend to be consumption function, it seems to me, yourself before you can choose.

those entrepreneurs who are the “con- suffer from the same problem, For cer- INTERVIEWER: Some economists would
fident” entrepreneurs, i.e., who tend to tain analytical purposes, it may be useful respond by saying that you've made this
see the future better than others. Why to refer to the “total” level of consump- conception so broad, so general, that
would you expect the sudden coliapse of tion, but surely, again, what matters is there's almost no determinism left in it, -
confidence, when the market is always whether the relative demands for and You can’t say whether this wil happen Olea
tending to give control to those who supplies of different consumer goods that will happen. How would you respond
show the most confidence. are “right.” to that?

“I can only speak for myself and | don't say that objective reality doesn’t
exist—this is a philosophical problem far out of my depth.”

SHACKLE: Yes, well, | think that | would SHACKLE: Well, you see, | think that one. SHACKLE: in the most radical way, I'm
say that they may have confidence, butit of the things that Keynes was best at was afraid. | think there is pretty complete in-
wilt have to survive sore terrible shocks. simplifying and encapsulating ideas like determinacy. | did spend a lot of energy
| mean, there will always be shocks and the consumption function. i think he trying to see if | could devise any theory
things that really upset all calculations. I. would have agreed that economics is an of how expectations are formed and |
can't really quite believe in the idea of imprecise subject and that the best you ended with the conclusion that expec-
steady improvement, you know. After all, can do sometimes, if a probiem is full of tations are far too elusive and subtle to
some of these men, they're very clever difficulties, is cope with it by wrapping it find out any principles or rules to explain
entrepreneurs, are not all working up tightly and saying “we're going to their emergence. They're based on
together, they're trying to undermine treat this as a whole.” And 1 think that's suggestions and you get suggestions
each other's positions, they're working what he did in the consumption function. from any mortal thing that
against each other and trying to outdo | think, of course, he did so because he  happens-~that you happen to read, that

each other. was very much concerned with refuting you happen to hear. You get suggestions
INTERVIEWER: There's an aspect of the idea that an increase of thrift will from anywhere. No mortal person can
Keynes's analysis that Austrians find necessarily increase investment. So, | say where they come from. That, you

particularly unsatisfactory, that being his think his own answer would have been see, is the trouble. Economics started as
emphasis on analyzing economic that you have to go in for these rather an attempt to imitate physics, Newtonian
phenomena primarily In “macro” or “black box” ideas, because they're the physics, and | think in doing so, it got off
. aggregate terms. Now, it seems that both only way of coping with the intolerable on the wrong foot. You couid ask an
In the Treatise on Money and in The complexity and the elusiveness of things. historian to explain the institutions in
General Theory, required micro- INTERVIEWER: You have emphasized England in the eighteenth century, but
relationships are the very aspects the importance of expectations—that ex- would you try asking him what is going to
Keynes glossed over in dealing purely at pectations are a product of an in- happen during the next century? He'd
the macro level. The micro-economic dlvidual's subjective perception of op-  $ay, "my goodness, man, of course |
relationships are surely the essential portunities laying before him. The argu- can't tell you that!” He'd absolutely reject
ones in an analysis to determine whether ment is made that a probiem with radical the notion of that sort of prediction. Well,
a “macro” situation represents a condi- subjectivists is that it almost seems as if if an historian can't do it, why should an
tion of equllibrium or disequilibrium. they aren't sure if reality exists, as if Continued on next page

PAGE 6 | AUSTRIAN ECONOMICS NEWSLETTER


===== PAGE 7 =====

Interview Professor Kirzner on Entrepreneurship
{Continued} by G.L.S. Shackle
economist be able to do it? it seems to me astounding that political The practical man with an influence

INTERVIEWER: This ties in with your | economy should ever have been thought and a burden in the world Is the business
view of what “choice” means in | of asa calculus. A calculus is a means of ~~ man. There is a question about him that
neoclassical or mainstream economics. | re-arranging data so that they throw a cuts rignt down to the foundalione Soul
i different light upon their subject-matter. View Of lle. Wi :
ta Shoes hioa) Cedrank hn cat wo | This fresh illumination may excite, startle Soon be taken over by the silicon Snips?
claim that every choice can be complete- | and inspire its beholders. But thisis only 11 we say yes, we are determirists who
ly explained by or wholly accounted for § one kind of new knowledge. It is a fuller, think that, in the last analysis, Sony
via circumstances and tastes and, if you | more penetrating insight into material not of our making but we are simply bits
determinist world. it may be that deter- | the same data. We cannot use acalculus  Kirzner's business man is the bol
minism doesn't exclude ignorance. The for practical ends until we have some repudiation of that view. The Kirznerlan
amount of ignorance that a person suf- | data. Without data we can only play  entreprensur is not threatened by the
fers from may itself be determined by his | !0gic-games or indulge in science- silicon-chips. He is their esigher. or
history, his educational history, and his | fiction. Even a calculus is a playground their out-reacher. Wha, then, os ihe
circumstances. But | think if you can ex. | With a wall around it. There are surely business man really, essentially. He
plain every choice completely, then you | other playgrounds, fresh alphabets and ~ dispensably do? He dreams dreams. He
really are a determinist taking up a languages, new grammars and new sym- has thoughts that do not arise from hd
determinist point of view. | find it difficult | Dolisms, into which data could be poured accepted programme or paradigm. He
to see the point of calling it choice, if itis | in freshly glittering streams, once these conjures knowledge that, in Pro ner]
completely determined. new receptacles had been imagined. Kirzner's words, no one knew existed.
Ii we can really explain any choice | And such imaginations and originations ~~ Professor Kirzner has not, perhaps,
completely, we are saying we can point | Merge into the apprehension of new data fitted words to the fuli impact of this
fo causes which made this choice in- | Of new kinds, data made conceivable by thought. Our language seems to lack a
evitable. It's the only thing that could new systems of classification, new word to give the full strength of it. The
have happened in the circumstances. | categories of thought. is not all this the nearest we can come, | think, Is
We really are saying that the person who | legitimate field of the political economist, ~~ originate. But this sometimes means
made the choice is merely a link in the and of the business man, If their intellec- merely the bringing together 0 in-

Nich means he's not a maker of history assurgent? Continued on next page

in any real sense. Well, it may be that it's
a foolish ambition to try to think of then g question could be asked of you: should have their training based In
human history as made by human Given what you have said, what should economic history, and they only need as

beings. but see Van as 2 pegnring. a economists do? much theory as you find up to the second
chooser which cannot be 1ully explained. guacKLE: | think they should give up Year textbook.
He is an uncaused cause. | don't think 00 0 Gvice, except on the most hesi- INTERVIEWER: How would you respond

you can really say much more. tant, the most broad grounds. | think they to the rebuttal that, aren't you, in a sense,
INTERVIEWER: | take it that you don't should introduce an ethical element, a suggesting that economics become
hold much confidence or faith in more than ethical element. If a man is historicism. General theory may exist, at
attempts at economic prediction through asked whether public expenditure a very simple or fundamental level, e.g.,
econometric techniques. should be cut or not, he perhaps should the concept of marginal utility, but,
SHACKLE: No, frankly | don't. | shall be say, “Well, if we cut it, we shail cause a beyond that, all we ever have Is the
shot out of the profession even further great deal of misery; if we don’t cut it, we historical record and what was historical-
than | have been already; this will be the = don’t know what the consequences will ly relevant in the past may not be for our
end of my career, if it hasn't ended many be, but we can’t at least have this misery period.

SHACKLE: No, it may not. And it won't
“uy see man as a ‘beginning,’ a chooser which cannot be fully be. Weil, it's a very nihilistic position and

explained.” | realize that.
P ° INTERVIEWER: In a sense, what you're

: suggesting is that a very large proportion
years ago. However, | will be honest and on our consciences”. This sort of argu- rion hos been vary iy =P pi two

say that | don't think that economics can - ment is not an economic argument, it's hundred years in economics as a dis-
yield constants of the kind that physics an argument with one’s conscience. For ¢ibline needs to be set aside, that it
does. Physicists have constants, e.g..the very many years I've not believed in throws into question the very notion of
acceieration due to gravity, the table of welfare economics as a scientific COn- . what most economists view as what is
atomic. weights. | don’t believe that struction. My Idea of welfare economics required of economics to be a science?
economics can have constants like that. is that you choose an administrator, a
You might make measurements which man with a conscience himself, and
re all right for today. But, there are broad sympathy, with a generous mind, : k
Ncountless people whose interest it is to and then you aay “Loe it to him" | Science, and we ought not to call it a
make nonsense of those measurements don’t believe you can do any better. science.
tomorrow. Well, now | have really been Those economists who are going to give INTERVIEWER: Thank you, Professor
quite honest. advice, or who are going to be advisors Shackle,
INTERVIEWER: If one takes that position, either to government or to business, = SHACKLE: Thank you. u

AUSTRIAN ECONOMICS NEWSLETTER RE SE PAGE 7

SHACKLE: I've been saying for almost
forty years that economics isn't a


===== PAGE 8 =====

Professor Kirzner on Entrepreneurship
(Continued) Co Pa

knowledge, what we may call in- ing answers to questions posed ready-
gredients, ideas known and even made by existing technology. Solving
familiar, may be visible at the same time arithmetical problems does not (except
to the same man without the sudden at rare conjunctures) establish new
flash of fusion into something new ever arithmetical ideas. The very word we uso
taking piace. Professor Kirzner is for the seeking of answers to existing
suggesting in effect, | think, that the guestions seems a little restrictive and
natural entrepreneur is the man in whose ~~ oppressive. Research envisages resuits
mind such fusions do take place. | am whose outlines we can in some sense
not sure, however, that what he calls see in advance, Thus there may even be
alertness is the heart of the matter. Were some sense in trying to compare the cost
Dante, Michaelangelo, Shakespeare, and the value of ‘research’ in this con-
Newton, and Beethoven merely alert? No fined sense. But does it make sense 10
doubt, if we look at biological Nature put a price on the time spent in ranging
herself, we see a boundless prodigality untrodden fields? If we knew in an ex-
of experiment, the random heritabie ploitable degree what we should find, we

mutations most of which are disadvan- should not need to find it. If we do not
tageous. The few that confer special know what we shall find, how can we say
fitness for an available environment give ~~ what it will be worth? The true en-
the new species a powerful ascendancy. trepreneur, Professor Kirzner is saying in

Does this theory, then, teach us that all is ~~ effect, is the man whose thoughts can
random? The entrepreneur's special gift, ~~ encounter knowledge that nobody knew
even if not comparabte to the poet's or existed. Pure speculative thought can

the composer's, seems to need a special have no price. Will economists ever
prodigality of random trial and error. of the idea that economics is a calculus? Professor Israel M. Kirzner
It seems quite plain why the business- [|
man who attains and exploits a true
noveity does not usually do so by seek- “—

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