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Vol 8 No |

~ Austrian Economics Newsletter

An Interview with Henry Hazlitt

AEN: When did your interest in economics begin?

Hazlitt: Oh, it began very early, when [ was about 18 or 19.
My original interests wete in psychology. 1. was a great
admirer of William James, and my ambition was to go to
Harvard and study psychology and be a professor of psy-
chology and philosophy, but I had to go out and get a job
instead to support my mother.

So then I decided that I'd like to get on a newspaper, and
the only way I found I could do that was to join the Wall
Street Journal as secretary to the managing editor. After I got
on I began to try to study the stock market. I began to realize
there was such a thing as economics, that it was a science,
“nd as worthy of my attention as psychology. I began to read

in economics. I'm not sure whether I had good taste or good [id Cd
luck, but the first book I read was a small volume on Qutlines Henry Hazlitt
of Political Economy (1911) by S. J. Chapman, a disciple of
Alfred Marshall. Then I found out that the most popular
college textbooks were those by E.R.A. Seligman and by
Henry R. Seager. So I chose Seligman, who was pretty much
of a socialist, though I was somehow on guard aginst him; I AEN: You mentioned that you were born a free enterpriser.
was almost born a free enterpriser. (I did not learn about E
W. Taussig till later.) Anyway, I picked up my economics, not
by taking any course in it, but by reading economics books.
As I say, | read the book by Alfred Marshall’s disciple
Chapman. I never took much to Alfred Marshall. I didn’t
like his compromising attitude.

Then I stumbled across a book in the library that fasci-
nated me. That was Philip H. Wicksteed’s The Common
Sense of Political Economy. (I had never heard of it, nor had
nearly anybody else at that time. It was published in 1910
and I think I found the book only a couple of years after it
was published.) That had a tremendous influence on me.
Wicksteed was one of the first expounders of “marginal”
economics, a disciple of Jevons, and his work was very close

Austrian economics. Mainly through him, I got in- AEN: Since your interest in economics obviously grew very
terested in theoretical economic questions. suddenly, was there ever a point where you thought of

In 1920 I became financial editor of The New York Evening abandoning j ournalism and pursuing an academic career?

Mail. I did a daily signed column on finance and economics. (Continued on page 2)

I decided I would study one commodity market at a time and
learn that market. I continued this to learn both about
individual commodities and markets in general.

Hazlitt: Almost. I think one early reason was because one
summer, when I was a kid, I was with my uncle who was an
electrician for an amusement park show called The Galves-
ton Flood. The owners were always hoping for customers. No
one was coming in. But they were looking forward to the
Fourth of July. Then people would flock in. But on the
Fourth of July it poured. Nobody even came to the enter-
tainment park. | acquired a deep empathy with entrepre-
neurs. | didn’t think of them as people who make obscene
profits but people who could make unforseen losses. That
experience put me on the free enterprise side. I learned that
it took a great deal of luck as well as judgment to make a
profit.



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(Continued from page 1) Mises. (I found out from Cape that he was then living in

Hazlitt: I couldn’t; I had no choice. I had been going for a Geneva.) Lu answered me. That was the beginning of our
time to City College, because there was no tuition charge, correspondence. Sometime in 1940 I got a telephone call.
but I had to give that up within a year in order to take a job The voice on the other end said “This is Mises speaking” As- <
earning money. So I could only have gotten an academic job I've told many of my friends since, it was as if someone haves

by getting a college and post-graduate education first. called and said “This is John Stuart Mill speaking.” I had
referred to Mises as “a classic) and you don’t expect a classic

to call you on the telephone! Anyway, that led to our
acquaintance. That was my formal introduction to Aus-
Hazlitt: That's hard to say. Reading Wicksteed of course trian economics, although I had read, much earlier, Bohm-
was close. I was very lucky in my friendships and lucky in Bawerk’s Karl Marx and the Close of His System.
the books chose. I read a book by Benj amin M. Anderson, AEN: Mises came to the U.S. in 1940, and you were a close
whom I later got to know. This was his 1917 book The Value ) Cy
LL . friend of his. What was his situation like then?

of Money. He was an acute critic of nearly all other writers on
money, and especially of Irving Fisher and his mechanical Hazlitt: He was having great financial problems. He never
quantity theory of money. Mac Anderson read German, told me a word about them, but Margit, his wife, did. [ had
and discussed many German writers on money. He referred very few close acquaintances in the academic world. But 1
to the German edition of Ludwig von Mises’ Theory of knew that Alvin Johnson, who was then running the New
Money and Credit and wrote: “In von Mises thereseem tome School for Social Research in New York, was giving a lot of
to be very noteworthy clarity and power. His Theorie des German refugees jobs as teachers there. Sol gave a dinner at
Geldes und der Umlaufsmittel is an exceptionally excellent my home to which I invited Lu and Margit, Alvin Johnson
book” That impressed me. and a few others. I tock Johnson aside and asked him

When in 1936 Jonathan Cape in England brought out the ~~ whether he could possibly offer a job to Mises. Johnson's
English translation of Mises’ Socialism read a review of itin only answer was: “He’s pretty much to the right, isn’t he”
The Economist, I requested a copy from Cape and eventually Then I realized, of course, that those jobs that Alvin John-
received one. I reviewed it in the New York Times. [ was son had given out were all to German socialists. But 1did
terrifically enthusiastic about the book and called it “a finally get the Yale University Press to publish Mises’ Omninad
classic written in our time” I mailed a copy of my review to potent Government and, later, his Human Action, both of
which 1 edited at the publisher’s request, for English idiom.

AEN: When did you first become acquainted with the
Austrian school?

AEN: Was there a sudden transition of opinion away from
the advocacy of the free market toward interventionism
during your career?

Hazlitt: Only a gradual one. It wasn’t a conscious transition
at the beginning. There were a lot of socialistic ideas, for
example, in Seligman, and other popular text-book writers.
Seligman himself probably didn’t realize the extent of his
own socialistic tendencies. Socialism did rather suddenly
come in with the New Deal, beginning in 1933, but not
under the socialist name.

AEN: Did a person with very free market views have an
easier time finding an audience years ago, and didn’t there
come a point in time where he could no longer be too
explicit about his beliefs?

Hazlitt: Most economists moved unconsciously with the
political tide. When I wrote my Economics in One Lesson in
1946 1 didn’t quite realize how socialistic most economic
writing had already become. This was a fortunate thing fou)
me because my book was not angry at all; it just spoofed the
controllers and the price-fixers. I think that’s one of the
things that attracted readers — there was little anger in the



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book. It just treated the interventionists as if they didn't over the past number of years, there is not only a quantita-
really know what they were talking about. tive increase in money and credit but a constant lowering of
the quality of credit. We are headed toward an increasingly

w= AEN: Let’s turn to the subject of the Bretton Woods agree-
dangerous inflation.

 aentof 1944, Obviously you and Benjamin Anderson were
among the few who had some idea that trouble was lurking ~~ AEN: Should the government have any role whatsoever in
in that agreement. How do you account for the fact that a monetary system?
your warnings had no noticeable influence on policy in

those times? Hazlitt: It already has a tremendous role. The political

difficulties of locking it where it is are tremendous. The
Hazlite: T just don’t know. I'm writing a book now called question in my mind is: Should we be discussing what
From Bretton Woods to World Inflation. At the time of the should be done or should we be discussing what's likely to be
Bretton Woods conference, 1944 and 1945, I was writing all ~~ done? Are we being very unrealistic when we ask what the
the editorials in the New York Times on the Bretton Woods government should do? Is there any real likelihood that
decisions as they were being made. As you will remember we're going to get a sound money?
the guiding spirit at that conference was John Maynard
Keynes. The delegates were making inflationary decisions
every day. [ was tirelessly pointing out that these decisions
were inflationary. Nobody else seemed to be pointing this
out and nobody paid any attention to what [ was saying. In
fact, I think an awful lot of people were astonished that the ~~ Hazlitt: It’s a difficult question. As long as government is in
New York Times was taking this strange eccentric position. the picture the tendency will be toward further inflation.
When the 43 nations represented all signed the agreement That's what the political forces dictate. However, I am in
adopting the Bretton Woods program, Arthur Sulzberger, doubt about whether all controls of banking should be
then publisher of the Times, called me into his office and suddenly removed. While the Federal Reserve is an engine
said, “Look, Henry, I've been letting you write these things, of inflation, it’s hard to know what would have happened if
~~ nlthough I had misgivings about them, but now that 43 the Federal Reserve System hadn’t been developed. I'm of
Nardations have agreed to accept the agreement, I don’t see two minds about this. I know most of my friends in the
how the Times can continue to oppose it” I replied “Mr. Austrian school are in favor of removing all government
Sulzberger, if you feel that way, I can’t continue to write any ~~ controls of banking, but [ can’t view that situation quite
more editorials in the New York Times on the agreement; I with equanimity. I wish I had more firm convictions than I
believe it is too harmful” Well, I did continue to write on it do that monetary problems would solve themselves if gov-
but only in my signed column on the financial page, but ernment completely got out of the picture. I know Mises
there was a strained relationship between myself and the believed in free banking, and I have much respect for his
ownership of the Times because of that. judgment, but I still have reservations about removing all
government controls.

AEN: But for purposes of argument, is a system that pto-
vides sound money more likely to be achieved without
government regulation of any sort? Or do you think that
there has to be, even in an ideal system, some oversight?

AEN: A little bit on the side, but I'm very curious about
Benjamin Anderson. He fought so vigorously against this AEN: Is it the defenders of the market that bear the burden
kind of inflation right through the twenties and then much of proof to show that the market can work, or is this burden
afterward. Was he a bitter person because his advice was on the interventionists?

? Co :
never heeded’ Hazlitt: I'm not sure which group bears this burden. But I

Hazlitt: Yes, he did become embittered. I remember he was just frankly admit that I am personally in doubt about what
at my house when Landon was running for President ought to be the precise limits on the role of government.
against FDR. As the radio returns came rolling in, Mac Perhaps a good rule of thumb might be: When in doubt,
shook his head and said “This is the mob” He was very don’t control. The real question, though, is when that
depressed, but [ don’t think his writing was ever bitter. It  doubtbecomes legitimate. Even where we admit the govern-
remained analytical and objective. ment has a right to step in, it’s probable that government
will do the wrong thing anyway. I'm just admitting areas of
doubt rather than feeling sure that I have the exact solution
hey changed much since your book on inflation? : Co
\/ about just where the line should be drawn against interven-
Hazlitt: I'm still a believer in the gold standard. I still believe tion. It would take a long time to explain the basis of my
that central banking — the Fed — is responsible for more doubts regarding just where to draw the line.
and more inflation. And because of inflationist legislation | (Continued on page 4)

AEN: What about your views on monetary reform? Have

” |



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(Continued from page 3) money that is issued. That can happen for a certain period,
AEN: You have also, of course, been a long-time critic of but the value of money is not determined mechanically and
Keynesianism, and your book The Failure of the New proportionately with the amount issued. It is determined by
Economics was a landmark in that regard. Some people say public psychological forces. A panic can break out wher 7}
that you, in your analysis, were really not grasping the people suddenly expect the value of money to collapse. Tho
subtleties of Keynes, that you really missed the point. How was illustrated in the German inflation of 1920 to 1923.
do you respond to that? Prices rose for a time roughly proportional with the amount

of money issued. But suddenly prices soared far faster than
the money supply because the public got panicky. It is
psychologic forces that determine the value of money as of
other commodities, although influenced, of course, by
quantitative considerations.

Hazlitt: If [ was missing the point then I'm still missing the
point now. In fact, I just reviewed for Reason a newly trans-
lated book by Mises entitled Nation, State, and Economy
along with Keynes’ Economic Consequences of the Peace, be-
cause there were a great many similarities between these two
books. First of all, they both appeared in 1919. (Mises wrote
his book about three months before Keynes wrote The
Economic Consequences.) Despite the similarities, however,
Keynes couldn’ prevent himself even then from taking
sarcastic jabs at capitalism. He was at that time a disciple of
Alfred Marshall, he was what we might call a ‘near-classicist’” Hazlitt: Precisely. Keynes more or less accepted propot-
of the Cambridge School. In 1919 both Mises and Keynes tional monetarism, also.

deplored the size of the reparations burden put on Ger-

AEN: You criticize Keynes for resorting to block-thinking
and falsely precise mathematical presentations of his ideas,
but isn’t there a sense in which the monetarists have de-
cided to play according to the Keynesian rules and methods
in their work?

AEN: What is your opinion about the present state of
economics! Do you see a tendency to return te sounder
AEN: But you have not accepted the view that Keynes was thinking or would you say the tendency is just the opposite?
actually a very profound writer.

many.

Hazlitt: The Austrian school, which is happily getting more
Hazlitt: No. The Economic Consequences contains one of the numerous, represents a tendency to return to sounder and.
- most eloquent denunciations of inflation that has ever been more precise thinking. But popular and political thinking ivf
written. Yet the same man turned around in 1936 and wrote more and more drifting toward interventionism and social-
the General Theory which recommended inflation as the gm.
principal remedy for unemployment. Keynes probably
didn’t even recognize that inflation was really what he was
recommending; he thought he was just recommending gov- Hazlitt: It’s very hard to predict what the next trend will be.
ernment borrowing and credit expansion. Of course, the But the present trend has been toward interventionism. If
same logic that led him to believe that such a course would there is a trend toward free-enterprise advocacy, except by
create jobs, should have also led him to conclude that ever the Austrian school, I'm certainly not confident about it.
paying off the debt and reducing the credit expansion would |
‘restore the unemployment. Only never-ending inflation
would keep his full employment going.

AEN: You don’t see any change from that trend at all?

AEN: Are you pleased with the development of Austrian
economics since the South Royalton conference of 1974?
Do you feel that we've been accomplishing something since
AEN: But wasn’t Keynes a very brilliant man? then?

Hazlitt: A very brilliant man, indeed, a very brilliant writer, Hazlitt: I am and I do. The Austrian school has been
a very witty writer. But being a brilliant writer was confused growing numerically. It is making theoretical advances.
with being a brilliant economist. He wasn’t. We should There is an extremely promising young group of writers in
never confuse wit with profundity. it.

AEN: Why don’t you consider the type of monetarism AEN: Austrians seem to have aligned themselves either in
espoused by Friedmai: and Meltzer to be an adequate re- the Misesian praxeological camp or in the Hayekian
sponse to Keynesianism? evolutionary-institutions camp. What are your thoughts on

7 -
Hazlitt: The monetarist outlook, as proposed by Milton tha? -

Friedman is, in fact, a mechanical quantity theory of money. Hazlitt: Hayek is a great admirer of Mises, but he likes to
He assumes that “the” price level — that is to say, an average compare Mises to Jeremy Bentham. Hayek thinks his own
of prices — will rise proportionately to the amount of papet (Continued on. page 6)



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

Books should be validated in ways that are radically different from
those used to validate theories or hypotheses about natural

b= 5 Mark Blaug, The Methodol ogy of phenomena. The categorical denial of such methodological

. , . duali i i ism.”
Economics, Or How Economists Explain ne tutes what call metho dologica eh
(Cambridge: Cambridge University p. 7H). Falsiicatio 5 Of course, the Topperian “meth

. d ’ h >
Press, 1980) pp. xiv, 296. odological stan point t at regards theories and hypotheses
as scientific if and only if their predictions are, at least in

Reviewed by Israel M, Kirzner principle, empirically falsifiable” (p. 266). With views resting
squarely on these pillars it is not surprising that Blaug

Professor Mark Blaug is a highly respected economist who ~ declares Austrians to be persona non grata, and is with
has established an eminent reputation in a number of dismay compelled to find it “curious that Knight, who in the
branches of economics. Particularly in the area of the his- arly [930s had become one of the principal opponents of
tory of economic doctrines Blaug is well-known for the the Austrian theory of capital, should have continued
lucidity of his expositions and for his sensitivity to the throughout his life to take his methodological views straight
subtleties of the wide varieties of theories that have been from Mises and company.” (p. 98). But, when one searches
presented by countless economic thinkers during the past for any reasons for Blaug’s insistence on methodological
two hundred years. So that it is with considerable anticipa- monism, or, to put it differently, for excluding a priori (!
tion that one begins to read Blaug’s comprehensive account Ve! the possibility of scientific knowledge that does not
of “how economists explain” — and with a corresponding EE the falsificationist demarcation criterion, one searches
degree of puzzlement, not to say disappointment, that one in vain! [tis as if the case for methodological monism were to
completes one’s study of the book. Because this review is be established merely by the device (as in the above-cited
directed toward a specialized audience, it will (not without Passage) of characterizing the methodologically dualistic
some danger of distortion) concentrate on the aspects of the View as “startling”. In fact Blaug’s views seem to be es-
work that relate particularly to the methodological con- tablished by assertion, and little more. The almost amusing

cerns of Austrian Economics. Although Blaug refers only flavor of Blaug’s discussion is well-expressed in a passage in
infrequently, and relatively briefly to Austrian Economics, which he rejects a doctrine of “methodological individual-
it should be pointed out that the book contains a very great 5% strictly interpreted” Such a doctrine, Blaug percep-
deal to provoke the interest, and the puzzled concern, of tively points out, would in effect “rule out all ma-
Austrians. croeconomic propositions that cannot be reduced to

Blaug’s rare ability to present complicated and subtle microeconomic ones, and since few have vet been so re-
ideas with clarity, is fully apparent in the book. Its survey of duced, this amounts in turn to saying goodbye to almost the
developments in the philosophy of science, much of his whole of received macroeconomics. There must be some-
detailed accounts of the methodological underpinnings of Ring wrong with a methodological principle that has such
modern economics, and his comprehensive bibliography, devastating implications” (p. 51). Surely an Austrian might

combine to make this a lucid expository work, and a valu- be forgiven for responding to such an overwhelming line of
able source book in its field. Yer, as a statement of Blaug’s TeASONITg, that there must then, presumably, be “something
own methodological credo the work must be deeply disap-  ¥TO"8 with a methodological principle that in effect asks
pointing, especially to Austrians. Austrians must be disap- the economic profession to say goodbye to the work of Mises
pointed not only, or even primarily, because of his cavalierly nd Knight. Indeed, since Blaug again and again repeats his
ill-tempered and contemptuous — and, let it be stated, less charge that the “central weakness of modern economics”

than fully informed — treatment of their position, but has been its “reluctance to produce the theories that yield
b4 .
unambiguously refutable implications” and “a general un-

because Blaug’s own views can hardly appear to Austrians
to be anything but narrowly conceived and dogmatically willingness to confront those implications with the facts”
asserted. Let us consider the twin pillars upon which Blaug’s (p. 254), is one therefore to conclude that “there must be
: ” : «ff ’ .

position rests, methodological monism and falsificationism. something wrong” with the methodology of falsificationism?

“The methodology of a science is its rationale for accept- (On this latter point see the excellent discussion in Professor
ing or rejecting its theories or hypotheses. Thus, to hold Bruce Caldwell’s stimulating new book, Beyond Positivism,
that the social sciences should employ a methodology dis- Economic Methodology in the Twentieth Century (London:
George Allen and Unwin, 1982), pp. 125-126.)

tinct from the natural sciences is to advocate the startling
view that theories or hypotheses about social questions {Continued on page 6)

+



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

(Continued from page 4) Books: Mark Blaug (Continued fron: page 5)
approach is less rigid and dogmatic than that of Mises. But
I’m not at all sure that the attempt to build a clean-cut
unified system without fuzzy edges is necessarily to be con-
demned.

Let us have done, however, with the fun of amassing such
embarrassingly tempting debating points, and consider” py
more seriously the methodological status of one simple,
important praxeological theorem. Surely no more central
AEN: As a last question we'd like to know what else you economic theorem can be stated than that which asserts a
may be working on aside from your forthcoming book on tendency, within a given market to which entry is free, for
Bretton Woods? the prices at which a given commodity is sold, to converge
towards a single price. Few economists would question the
validity or the scientific character of the theorem. (It was of
course the basis for Jevons' famous Law of Indifference.)
Now, the theorem certainly fails to meet the falsificationist
criterion. For all kinds of good reasons (having to do for
example with the difficulty of pinning down precisely what
is to be taken, in a constantly changing world, as the
empirical expression of “a tendency”, of “a commodity”, of
“a market”, and so on) we would be indulging in utter self-
delusion were we to claim that the theorem offers predic-
tions capable, even in principle, of empirical refutation. Yet
AEN: Earlier you expressed some reservations about radi- surely the theorem affords us insights into the workings of
cally free-market solutions; now you are expressing pes- markets which, once having glimpsed, no economist would
simism concerning political arrangements. At any rate, you be prepared to surrender. And this last assertion surely
seem to be more skeptical than you were when you wrote A applies with equal validity to economists who may believe
New Constitution Now. Are you looking back at your old that in fact entry into markets is not free, that kaleidic
work and asking the questions over again? changes in preferences and in supply conditions continually” &
frustrate the tendency asserted in the theorem. One can
readily appreciate the intellectual satisfaction obtained from
witnessing the successful withstanding, by predictions made
on the basis of scientific theory, of repeated empirical tests.
And one can readily appreciate that a falsificationist ap-
proach affords a scientific community a useful means by
which to weed out, and to protect itself from, fraudulent
assertions made in the name of science. But surely all this
does not provide grounds for rejecting out of hand impor-
tant conclusions, based on careful, rigorous reasoning capa-
ble of being checked by one’s professional peers, — simply
because the nature of the subject matter happens to pre-
clude such satisfactions and such useful protections.

The truth surely is that the postulation of a tendency-
towards-a-single-price simply expresses our understanding
of the systematic ways in which purposeful human beings
AEN: Well, if a man with your knowledge and understand- revise their plans upon the discovery that they have
ing of market phenomena doesn’t have firm answers to hitherto overlooked attractive available opportunities. The
these questions, that certainly serves to indicate that Austri- marker regularities that may be based upon such systematic
ans have a great deal of work to do. Thank you, Mr. Hazlitt. plan revisions are manifestations of more abstract regularities
that are able to be grasped quite apart from their particular
empirical manifestations. To refuse to deal with such non’ 4
(Interview conducted August 31, 1983, by George Selgin, empirical regularities on the grounds of falsificationist meth-
Don Boudreaux, and Sanford Ikeda.) odology is not merely to be applying an arbitrary, self-
{Continued on page 7)

Hazlitt: [ have in mind a book of which I have so far written
about a half-dozen chapters. It will be called Is Politics
Insoluable? This is on the question of what should be the
actual agenda of the state. It also asks whether or not it is
possible to even draw up a workable set of rules for an ideal
state. Is there any point in drawing up plans for an ideal
state when you know that the yen for power on the part of
individuals will forever make all such ideal states utopian? Is
it possible to draw up rules for an ideal state, or is that just a
way of day-dreaming?

Hazlitt; Yes, I am. When I wrote A New Constitution Now |
was sure, as I still am, that parliamentary government tends
to be a better form of government than our own presidential
system. We have a method of selecting presidents that has
been lowering and lowering their quality right along. A
person selected as a prime minister will almost necessarily be
a better person than one elected president under our sys-
tem, for under our system we're governed by the calendar
and the clock. But now my doubts run deeper as to whether
even the parliamentary system brings the most desirable
persons into powet. Nonetheless, | do think that we must
live with the dangers of democracy rather than turn to
another form of government which will almost systemati-
cally be worse. Anyway, [ find as | grow older that I'm less
sure of all my answers than I used to be.



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

Publications from the Mises Institute

———

po _Eugen von Bohm-Bawerk EA. Hayek

\ ihe Exploitation Theory of Socialism-Communism (pb) Capitalism and the Historians (pb)

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Value and Price (pb) The Road to Serfdom (pb)
The nature of both. The postware manifesto that started it all.
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Roger W. Garrison Henry Hazlitt
Austrian Macroeconomics (pb) Economics in One Lesson (pb)
A diagrammatical exposition of Austrian principles. The best primer in economics.
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| Israel M. Kirzner
Books: Mark Blaug {Continued from page 6) Competition and Entrepreneurship (pb)
How a market economy functions.
denying ordinance — it is to don blinders that prevent one from. List: $7.95; members: $6.35.
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refutable predictions, then any methodologically monistic
falsificationism must have the consequence of barring scien- Ludwig von Mises
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b ¢ ced . Why some people hate freedom.
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