WEBVTT NOTE An Auxiliary for Historians: The Contribution of Older Austrians 1 00:00:00.000 --> 00:00:08.000 Thank you, Mr. Chairman. I hope you will excuse my sitting down. I hope you can hear me, even 2 00:00:08.000 --> 00:00:15.000 if you can't. I will let you see the sort of bit of hair sticking up or something. Right. 3 00:00:15.000 --> 00:00:23.000 Now, I said I'd be talking about an auxiliary for historians, the contribution of the older 4 00:00:23.000 --> 00:00:30.560 Auxiliary is something which is auxiliary to a primary activity. 5 00:00:30.560 --> 00:00:37.400 The primary activity for which the older Austrians, that is to say Menger, Mises and Hayek, were 6 00:00:37.400 --> 00:00:44.560 developing their work, that primary activity was history, the study of history. 7 00:00:44.560 --> 00:00:49.960 The study of history, because that is the actions of human beings, the actual actions 8 00:00:49.960 --> 00:00:57.560 Concrete actions of human beings in a particular historical context, the actions which actually 9 00:00:57.560 --> 00:01:00.480 create that context. 10 00:01:00.480 --> 00:01:07.640 And in developing this, as we'll see, the older Austrians in fact came at the end of 11 00:01:07.640 --> 00:01:14.560 a long line of previous people who also worked in the same field, starting with Sir Edward 12 00:01:14.560 --> 00:01:36.280 I thought I might do is illustrate the points practically, because after all we are looking 13 00:01:36.280 --> 00:01:42.040 at the real world, historical world. 14 00:01:42.040 --> 00:01:47.640 I thought therefore that I might begin by simply looking at a couple of examples, a couple 15 00:01:47.640 --> 00:01:54.480 of fairly simple, relatively simple historical facts, and then working through to see exactly 16 00:01:54.480 --> 00:02:02.000 what lies under the surface to show how that auxiliary works with the material to be studied 17 00:02:02.000 --> 00:02:09.360 to bring out particular points which otherwise would simply not be accessible. 18 00:02:09.360 --> 00:02:21.520 Okay, I'm starting out there with a family in California, two adults, two children and 19 00:02:21.520 --> 00:02:28.440 one invisible cat who of course actually owns the family. 20 00:02:28.440 --> 00:02:30.720 And that's their weekly shopping. 21 00:02:30.720 --> 00:02:35.720 Okay, what's immediately visible, of course, is that there's very large quantities of the stuff. 22 00:02:35.720 --> 00:02:40.720 They're all industrial consumer goods, manufactured consumer goods. 23 00:02:40.720 --> 00:02:47.720 There's a large range, large variety and superior quality. 24 00:02:47.720 --> 00:02:54.720 Okay, we now go to the other extreme. 25 00:02:54.720 --> 00:03:03.680 We now have a family in Mali in West Africa. If you want to find Mali on the map, you first 26 00:03:03.680 --> 00:03:15.320 find the Sahara Desert, and then you move south until you hit Timbuktu, because Timbuktu 27 00:03:15.320 --> 00:03:20.800 is in fact in Mali and the surrounding area is Mali. 28 00:03:20.800 --> 00:03:25.400 Now, if we have a look at the, you know, what's again, what's immediately visible, if you 29 00:03:25.400 --> 00:03:31.400 just have a look, first of all, there seems to be rather a lot of them. 30 00:03:31.400 --> 00:03:38.560 In fact, there's four adults, two young adults and about nine children. 31 00:03:38.560 --> 00:03:42.720 The second thing, of course, is that there's very much less, weekly shopping or whatever 32 00:03:42.720 --> 00:03:46.720 it is, is very much less than for the Californian family. 33 00:03:46.720 --> 00:03:53.720 Also you'll notice that much of it consists of basically raw materials. 34 00:03:53.720 --> 00:04:06.720 As you'll see it consists of things like millet, rice, dried onions, a few tomatoes, etc. 35 00:04:06.720 --> 00:04:14.620 Okay, so what I'll now do is put up a list which shows us, a comparative list which allows 36 00:04:14.620 --> 00:04:24.160 us to see the difference between the two, okay, as I said the cat refused to be in the 37 00:04:24.160 --> 00:04:30.240 photograph, but the humans were there, okay, now if you go through that list it's something 38 00:04:30.240 --> 00:04:34.600 which is familiar to all of us, we're all living in a developed country in the late 39 00:04:34.600 --> 00:04:39.120 In the 20th century, when I showed this list to my husband in Australia, he said, well, 40 00:04:39.120 --> 00:04:42.560 what we buy isn't all that different from what those Californians buy. 41 00:04:42.560 --> 00:04:47.480 Now, we have a look now with the family in Mali. 42 00:04:47.480 --> 00:04:54.680 We've got there 30 kilos of corn, 20 kilos of rice, 20 kilos of millet, oil, onions, 43 00:04:54.680 --> 00:04:55.680 etc. 44 00:04:55.680 --> 00:04:59.720 In other words, to repeat raw materials which have to be worked up further. 45 00:04:59.720 --> 00:05:06.320 I thought I might add there simply an account of what they actually eat, the breakfast which 46 00:05:06.320 --> 00:05:11.680 consists of millet porridge with tamarind juice, or alternatively rice porridge with 47 00:05:11.680 --> 00:05:17.160 sour milk, lunch which consists of that stew of tomatoes, onions, salt, and if they have 48 00:05:17.160 --> 00:05:23.600 money they actually buy some dried fish, and supper, again millet and corn or brittle cakes, 49 00:05:23.600 --> 00:05:26.120 okra soup, etc. 50 00:05:26.120 --> 00:05:32.120 Okay, now what I'll do is start asking the next question. 51 00:05:32.120 --> 00:05:42.120 What are the production processes that go into the production of what the family in Mali consume? 52 00:05:42.120 --> 00:05:46.120 And we have a look there. 53 00:05:50.120 --> 00:05:55.120 Okay, I'll have a look at the milk porridge with tamarind juice. 54 00:05:55.120 --> 00:06:01.560 I don't know if any of us have actually eaten millet, or products made with millet, but 55 00:06:01.560 --> 00:06:10.360 believe you me, it is not easy to eat, it's very heavy, it's not tasty, but it does fill 56 00:06:11.360 --> 00:06:14.840 Okay, now the final good, as I said, millet forage with tamarind juice, so what are the 57 00:06:14.840 --> 00:06:18.960 production processes, the capital structure which produces this? 58 00:06:18.960 --> 00:06:22.960 Well, you've got your cooking vessels, you've got your pounded millet, and we'll come to 59 00:06:22.960 --> 00:06:30.640 We've got a low, urban platform on the floor which has a U-shaped hole in it and that's 60 00:06:30.640 --> 00:06:35.360 where you have your fire and you've got twigs and sticks and so on which you send the kids 61 00:06:35.360 --> 00:06:40.960 out to collect and you've got well water and a hand fan of reeds because you have to 62 00:06:40.960 --> 00:06:46.360 keep fanning the thing to keep it going if it's going to boil your porridge for you. 63 00:06:46.360 --> 00:06:52.920 The pounded millet, hand pounded several times daily, you've got a staff, a wooden 64 00:06:52.920 --> 00:06:59.000 staff about that big and you've got a mortar, a wooden mortar about that high and you put 65 00:06:59.000 --> 00:07:05.960 in your handfuls of millet and you take your staff and you go thud, thud, thud until the 66 00:07:05.960 --> 00:07:10.680 wretched thing gets pounded and then you do that several times daily, so as soon as you've 67 00:07:10.680 --> 00:07:19.680 You've had breakfast, you start pounding the milk for lunch, and so it goes. 68 00:07:19.680 --> 00:07:34.760 And I hope the ladies here are beginning to feel contented with their life. 69 00:07:34.760 --> 00:07:38.920 And there again, it's a household which has to do it, no one else is going to do it. 70 00:07:38.920 --> 00:07:39.920 Your soaked tamarind. 71 00:07:39.920 --> 00:07:49.120 Now, a tambourine is a fruit which is sort of flat and sort of U-shaped almost, and you 72 00:07:49.120 --> 00:07:54.400 have a large tree which is rather spready, and you get the fruit by throwing stones at 73 00:07:54.400 --> 00:07:59.320 the tree, or alternatively you climb it or you get a pole and try and shake the fruit 74 00:07:59.320 --> 00:08:00.320 down. 75 00:08:00.320 --> 00:08:03.760 And that again someone has to do, again you send the kids out to do it. 76 00:08:03.760 --> 00:08:09.640 Well water, which you use, you have to go out and get it, and again you carry that home 77 00:08:09.640 --> 00:08:15.440 on your head and you store it, and in other parts of the underdeveloped world where there's 78 00:08:15.440 --> 00:08:22.200 more water than in Mali, if you have, if you're an upper income person in the village, you 79 00:08:22.200 --> 00:08:27.040 actually have the well inside the house, so that all you have to do is drop the bucket 80 00:08:27.040 --> 00:08:32.480 out the kitchen window and you get your water, you don't have to go all the way down to the 81 00:08:32.480 --> 00:08:36.200 bottom of the street to the well to get the water. 82 00:08:36.200 --> 00:08:41.920 Okay, you then have to thresh the millet, which you pound every day, and the threshed 83 00:08:41.920 --> 00:08:43.840 millet is stored in sacks in the house. 84 00:08:43.840 --> 00:08:48.440 If you remember the photograph, everything was in sacks, and that's because you buy 85 00:08:48.440 --> 00:08:54.120 the thing at harvest and store it in the house and keep it until the next harvest. 86 00:08:54.120 --> 00:08:59.360 Okay, the threshed millet has to be picked over and winnowed, and I've done this sort 87 00:08:59.360 --> 00:09:02.900 of thing, and believe me, it is labor intensive. 88 00:09:02.900 --> 00:09:08.180 You have winnowing baskets, which are made of flat reeds, you winnow the thing by shaking 89 00:09:08.180 --> 00:09:14.580 it up and down, again you have household labour, you've got harvested millet, you've got a 90 00:09:14.580 --> 00:09:17.860 threshing floor, you've got donkeys to tread the crop. 91 00:09:17.860 --> 00:09:24.100 I forgot to say that many households in Mali also have a working donkey, this particular 92 00:09:24.100 --> 00:09:27.500 one doesn't, but other families do. 93 00:09:27.500 --> 00:09:35.580 Okay, now, that household is autarkic. It produces its own millet. 94 00:09:35.580 --> 00:09:42.160 You have a small piece of land for each wife, and the land is obtained from the lineage head. 95 00:09:42.160 --> 00:09:50.020 Hubby belongs to a particular lineage. The head of that lineage gives him a bit of land for his wife, each wife, as he gets one, 96 00:09:50.020 --> 00:09:54.000 and then she grows the food for the household. 97 00:09:54.000 --> 00:10:14.800 Okay, so you've got seeds and you have pointed sticks in which you dig and put in the seeds and then you have hose and throughout the season you've got to put in your own labour, the household labour, sickles for harvesting and you've got baskets and sacks and of course your donkey to transport the millet. 98 00:10:14.800 --> 00:10:22.120 Now, you only go outside the household now when you start getting your utensils, pottery 99 00:10:22.120 --> 00:10:28.860 utensils, pounding staffs, baskets, fans, etc. You've got a craftsman with hand tools 100 00:10:28.860 --> 00:10:34.940 and you've got the things that come in, the wood and the clay and the reeds and so forth. 101 00:10:34.940 --> 00:10:39.760 The pottery is sometimes fired out in the open. You have branches which you put on top 102 00:10:39.760 --> 00:10:44.760 You chop up the pottery, you fire the branches and then you get some sort of pottery. 103 00:10:44.760 --> 00:10:52.760 Alternatively, you've got a furnace, which is much more expensive, and then you put in coal or charcoal or whatever. 104 00:10:52.760 --> 00:10:56.760 And again, it's the craftsman's household who puts in the labour. 105 00:10:56.760 --> 00:10:58.760 Again, donkeys and sacks and so forth. 106 00:10:58.760 --> 00:11:03.760 Now, again, you've got a woodcutter then and a donkey with a rope for transporting the wood. 107 00:11:03.760 --> 00:11:09.760 The clay has to be dug out, it's transported in baskets again on the poor donkey's back. 108 00:11:09.760 --> 00:11:13.760 And finally you've got a blacksmith who makes all these tools, 109 00:11:13.760 --> 00:11:18.760 and he has hanged tools and a shed and a furnace and iron bars and bellows. 110 00:11:18.760 --> 00:11:23.760 He does have an apprentice, and of course again the donkey for transport. 111 00:11:23.760 --> 00:11:28.760 Okay, now I'll put that picture back up again, 112 00:11:28.760 --> 00:11:35.520 And now we see something which we didn't see before. 113 00:11:35.520 --> 00:11:40.280 What we're looking at here is a production unit. 114 00:11:40.280 --> 00:11:42.800 It is not the same as that Californian family. 115 00:11:42.800 --> 00:11:46.680 The Californian family just consumes, if you want. 116 00:11:46.680 --> 00:11:48.400 This is a production unit. 117 00:11:48.400 --> 00:11:50.840 That's why you have all these people there. 118 00:11:50.840 --> 00:11:57.280 They're all helping in the production process, and I should add that the two ladies in the 119 00:11:57.280 --> 00:12:03.040 In the picture, on either side of the gentleman, confided to the photographer that they hoped 120 00:12:03.040 --> 00:12:05.640 Hubby would get a third wife. 121 00:12:05.640 --> 00:12:14.600 The reason for this was they wanted some additional labor to help in the household production. 122 00:12:14.600 --> 00:12:20.600 Okay, so when you've got autarkic production, you enlarge the household, that's the only 123 00:12:20.600 --> 00:12:22.600 way you're going to get the additional output. 124 00:12:22.600 --> 00:12:35.560 All right, now some further observations if we have a look at that capital structure if 125 00:12:35.560 --> 00:12:43.480 you want, the one which produces your millet porridge every morning for breakfast. 126 00:12:43.480 --> 00:12:52.480 The first point to note is that it's a relatively short production process. 127 00:12:52.480 --> 00:12:58.480 You're thinking in terms of one harvest to the next, one season to the next. 128 00:12:58.480 --> 00:13:03.480 It doesn't take very long to establish that production structure, 129 00:13:03.480 --> 00:13:08.480 and it doesn't take very long to turn out whatever you're producing. 130 00:13:08.480 --> 00:13:12.480 What you're producing in the end, the final goods that you get out, 131 00:13:12.480 --> 00:13:17.480 Small in quantity, poor in quality, uncertain. 132 00:13:17.480 --> 00:13:22.480 Because you don't know what the weather is going to be like and you're completely dependent on the weather. 133 00:13:22.480 --> 00:13:26.480 And very limited in range. 134 00:13:26.480 --> 00:13:34.480 Okay, again if we have a look at that production structure there, we notice that we have extremely limited division of labour. 135 00:13:34.480 --> 00:13:41.480 Extremely limited division of labour, a small group involved, a small number of people. 136 00:13:41.480 --> 00:13:47.480 And we have therefore limited, small groups, limited amount of interdependence. 137 00:13:47.480 --> 00:13:56.480 The bulk of the labor goes into the autarkic segment of the production process. 138 00:13:56.480 --> 00:14:04.480 Now, a broader point, which emerges when you have a look at the historical record, 139 00:14:04.480 --> 00:14:08.480 this is the way things have always been. 140 00:14:08.480 --> 00:14:14.080 This is the norm for humanity, the normal way that things are for all human beings, 141 00:14:14.080 --> 00:14:19.680 the way it's been since time began, the way it is for the bulk of the population of this planet, 142 00:14:20.640 --> 00:14:28.880 the short production processes, considerable autarky and all that goes with it. 143 00:14:28.880 --> 00:14:40.360 The other point which also comes out is that what you have is a status-based legal system. 144 00:14:40.360 --> 00:14:49.440 Chief major production asset is the land and you get the land or get access to the land 145 00:14:49.440 --> 00:14:56.440 because of your status as a member of a particular lineage and then you are allocated the land 146 00:14:56.440 --> 00:14:59.440 by the head of that lineage. 147 00:14:59.440 --> 00:15:05.240 There is, where does the status legal system stop and that stops when you start exchanging 148 00:15:05.240 --> 00:15:06.240 goods. 149 00:15:06.240 --> 00:15:12.400 You've got to pay the craftsman and therefore the exchange there, it's a different set 150 00:15:12.400 --> 00:15:15.480 of rules, a different kind of rule. 151 00:15:15.480 --> 00:15:20.280 That is your independent commercial rule, it's a commercial exchange whereas of course 152 00:15:20.280 --> 00:15:25.160 within the household it's autarkic exchange and you have very much, well it's central 153 00:15:25.160 --> 00:15:26.160 planning basically. 154 00:15:26.160 --> 00:15:40.180 Okay, so you have therefore largely what you might call status-based legal rules and a 155 00:15:40.180 --> 00:15:47.860 certain number of ends-independent, instrumental legal rules for the limited amount of exchange 156 00:15:47.860 --> 00:16:05.500 Okay, now you remember that Californian family was not complete with cat and so on. 157 00:16:05.500 --> 00:16:13.700 We'll now use the example of one single item, which is there, which we all remember in the 158 00:16:13.700 --> 00:16:18.700 And that is the bread. 159 00:16:18.700 --> 00:16:26.700 Your investments now, first order investments, you've got foodstuffs in the pantry, or the larder, or kitchen cupboards, or whatever. 160 00:16:26.700 --> 00:16:30.700 Bread and other foodstuffs, they are ready to go. 161 00:16:30.700 --> 00:16:33.700 You get that from the supermarket. 162 00:16:33.700 --> 00:16:39.380 Supermarket building, fixtures and fittings, trolleys, et cetera, labor, power and transport, 163 00:16:39.380 --> 00:16:47.260 kinds of labor that you'd need for producing whatever you produce in that stage of production. 164 00:16:47.260 --> 00:16:51.620 Okay, you then go on to get to the bakeries, which take in flour of various kinds. 165 00:16:51.620 --> 00:16:54.900 You've got yeast and salt and other ingredients, et cetera, et cetera. 166 00:16:54.900 --> 00:17:00.460 You can fill in those blanks, or if you want, you can continue reading that. 167 00:17:00.460 --> 00:17:06.140 You've got a flour mill, again, with wheat or grains and so on, 168 00:17:06.140 --> 00:17:12.500 machinery, sacks and labour, power transport, etc., distributors for the bakery equipment, 169 00:17:12.500 --> 00:17:17.980 warehouses for the grain, factories producing the flour mill machinery, 170 00:17:17.980 --> 00:17:23.980 factories producing stuff for the bakeries, and how far have you got? 171 00:17:23.980 --> 00:17:29.540 And it isn't until we finish going through there that we actually get to the farms. 172 00:17:29.540 --> 00:17:46.140 The farms, again, have seeds and fertilizers and pesticides and so forth, agricultural machinery, factories there producing agricultural machinery, producing fertilizers and pesticides, separate farms which produce the seeds, 173 00:17:46.140 --> 00:17:55.140 steel mills, mines and the factories who produce the mining machinery and so on and so forth. 174 00:17:55.140 --> 00:18:03.140 Okay, now as we go along through there, a couple of comments again. 175 00:18:03.140 --> 00:18:11.140 First comment, of course, is that in addition to everything else we've got legal and insurance services at every stage. 176 00:18:11.140 --> 00:18:16.140 We've got certain loops in the flow. It's not a linear flow. 177 00:18:16.140 --> 00:18:24.140 We've got steel which goes into fifth, sixth, seventh and tenth stages of production or whatever. 178 00:18:24.140 --> 00:18:32.140 The other point is that this is the way in which people use the goods. That's what the classification tells us. 179 00:18:32.140 --> 00:18:38.140 The other point, of course, is that what we have there is only the barest sketch, 180 00:18:38.140 --> 00:18:46.140 the barest sketch of the kind of capital structure which you've got in developed countries in the late 20th century. 181 00:18:46.140 --> 00:18:49.140 And even as we look at this very crude representation, 182 00:18:49.140 --> 00:18:55.240 And we find that clearly that capital structure is going to produce millions upon millions 183 00:18:55.240 --> 00:18:58.240 of final products. 184 00:18:58.240 --> 00:19:04.260 In trying to find out how much the supermarket, the Woolworth supermarket carried, I went 185 00:19:04.260 --> 00:19:08.080 in there and trustingly asked them, can you tell me the total number of items that you 186 00:19:08.080 --> 00:19:09.760 have on your shelves? 187 00:19:09.760 --> 00:19:11.760 They were scandalized. 188 00:19:11.760 --> 00:19:14.760 and he accused me of being a spy for a rival grocery chain. 189 00:19:19.760 --> 00:19:22.760 I said it's a commercial secret, we can't tell you. 190 00:19:23.760 --> 00:19:29.760 But again, from our daily experience in the shopping in a developed area, 191 00:19:30.760 --> 00:19:36.760 we know we're talking about millions of items being turned out by this given capital structure 192 00:19:36.760 --> 00:20:01.760 and bread as being one item but once you start going through it what you find is that you've got a capital structure which in fact produces all these millions of items and again what you've got therefore is the stage of final production, whatever the range of goods are that come out in that stage and then whatever other investments that you've got in stages further removed. 193 00:20:01.760 --> 00:20:12.760 Okay, now let me make a few observations there on the capital structure that we've got here. 194 00:20:12.760 --> 00:20:17.760 Is there any way we can put both of those up? 195 00:20:17.760 --> 00:20:26.760 I'm going to try and put up both together if we can. 196 00:20:26.760 --> 00:20:37.560 Okay, first point I'd like to make is that at all stages of production you've got both 197 00:20:37.560 --> 00:20:42.560 fixed and circulating capital, so that we're not talking about fixed capital by itself 198 00:20:42.560 --> 00:20:46.640 or circulating capital by itself, you need both. 199 00:20:46.640 --> 00:20:51.840 And in every stage of production you've got both fixed and circulating capital, or what 200 00:20:51.840 --> 00:20:53.720 is known as that. 201 00:20:53.720 --> 00:20:58.480 You've also got, in all stages, everywhere, you've got a range of capital combinations. 202 00:20:58.480 --> 00:21:05.160 This is one of the things which Menger noticed very early on. Capital combinations, and they 203 00:21:05.160 --> 00:21:10.560 have to be available in the right capital combination if they're going to have further 204 00:21:10.560 --> 00:21:11.560 production. 205 00:21:11.560 --> 00:21:18.400 Okay, the other point to note is the time taken. From the time you start producing your 206 00:21:18.400 --> 00:21:24.000 Mining Machinery to the time when you finally turn out your millions upon millions of final 207 00:21:24.000 --> 00:21:26.760 consumer goods at the other end. 208 00:21:26.760 --> 00:21:33.160 Again, a point I want to emphasize, we are not simply saying inputs at one end plus t 209 00:21:33.160 --> 00:21:36.360 for time plus outputs at the other end. 210 00:21:36.360 --> 00:21:41.960 You have to have all of these things specifically if you're going to produce the final goods 211 00:21:41.960 --> 00:21:45.800 and services that you're producing. 212 00:21:45.800 --> 00:21:55.800 Okay, another point, this capital structure did not drop from the sky overnight. 213 00:21:55.800 --> 00:21:58.880 It took time to develop. 214 00:21:58.880 --> 00:22:05.760 In fact, if we say, take the example, say, of England, or even of America, England, it 215 00:22:05.760 --> 00:22:10.320 started, this sort of thing started, to build it up to that level, you had to start, you 216 00:22:10.320 --> 00:22:18.320 And we did start back in the 11th century or earlier, 12th century and so on. 217 00:22:18.320 --> 00:22:23.320 So this capital structure took time to develop. 218 00:22:23.320 --> 00:22:28.320 And another point, this is exceptional. 219 00:22:28.320 --> 00:22:31.320 Developed countries are exceptional. 220 00:22:31.320 --> 00:22:42.920 I said, for most of mankind, sorry, politically incorrect, for most of humanity, for most 221 00:22:42.920 --> 00:22:49.320 of humanity, it is your shorter capital structure, which is what we are familiar with, what we 222 00:22:49.320 --> 00:22:50.520 live with. 223 00:22:50.520 --> 00:22:57.420 And even in underdeveloped areas, even with higher income groups, you're still dependent 224 00:22:57.420 --> 00:23:02.500 very much on what is essentially the short capital structure. You're buying this year's 225 00:23:02.500 --> 00:23:08.900 harvest of grain, you're storing it, and you're using it, you're actually eating last year's 226 00:23:08.900 --> 00:23:14.380 harvest because grain is supposed to improve with keeping. And a lot of the final stages 227 00:23:14.380 --> 00:23:18.940 of production, in other words, are still within the household. Every time the harvest comes 228 00:23:18.940 --> 00:23:25.820 in you hire women to come along and help you to winnow and pick over the grain, oil it down, 229 00:23:25.820 --> 00:23:45.060 In India, it is still true that you don't buy flour ready-made when you are ready to 230 00:23:45.060 --> 00:23:49.060 have some sort of grain food in the house. 231 00:23:49.060 --> 00:23:54.140 The grain is then taken down to the flour mill to be turned into flour and then brought 232 00:23:54.140 --> 00:24:12.140 Okay, and of course the bulk of your foodstuffs consist still of grain, not of the other foodstuffs which require much longer production processes before they're turned out. 233 00:24:12.140 --> 00:24:23.260 Okay, now, you notice that in all of this longer production process, the capital structure 234 00:24:23.260 --> 00:24:32.860 in the developed countries, late 20th century, we do not have any sort of status system. 235 00:24:32.860 --> 00:24:39.860 Everything there, the title is a through exchange, in other words, an ends independent and instrumental 236 00:24:39.860 --> 00:24:42.460 Legal Order. 237 00:24:42.460 --> 00:24:47.940 And another thing to notice, the developed countries are the common law countries, the 238 00:24:47.940 --> 00:24:51.260 English common law countries. 239 00:24:51.260 --> 00:24:54.180 Western Europe has Roman law. 240 00:24:54.180 --> 00:25:01.900 Roman law is like English common law, a grown law, and not legislation, it is not status 241 00:25:01.900 --> 00:25:02.900 either. 242 00:25:02.900 --> 00:25:06.900 It ends independent, it is instrumental. 243 00:25:06.900 --> 00:25:11.420 The more developed parts of the underdeveloped world are the ones in which English common 244 00:25:11.420 --> 00:25:16.860 law has become more widely absorbed and used, or Roman law has become more widely absorbed 245 00:25:16.860 --> 00:25:23.900 and used, the Anglophone areas of the underdeveloped world, or the Francophone areas. 246 00:25:23.900 --> 00:25:31.260 Japan, the other developed area, has had similarly grown law, the Japanese Merchant's Law, which 247 00:25:31.260 --> 00:25:36.380 has been going since at least the 16th century, if not earlier. 248 00:25:36.380 --> 00:25:42.580 And again, in the Japanese case, the samurai, the ruling classes, were simply concerned 249 00:25:42.580 --> 00:25:43.580 with themselves. 250 00:25:43.580 --> 00:25:48.500 They couldn't be bothered with such people beneath their notice, like the merchants or 251 00:25:48.500 --> 00:25:56.340 farmers or whatever, and therefore the Japanese economic order developed over centuries, again, 252 00:25:56.340 --> 00:26:03.780 with grown law rather than any sort of imposed legislation or status. 253 00:26:03.780 --> 00:26:08.780 also was exchange-based law, you might say. 254 00:26:08.780 --> 00:26:15.340 Okay, next point, we've been talking about the capital structure here, it's a social 255 00:26:15.340 --> 00:26:16.340 formation. 256 00:26:16.340 --> 00:26:25.020 Again, what we're looking at, the investments in each firm are, as it were, small bits in 257 00:26:25.020 --> 00:26:26.020 the capital structure. 258 00:26:26.020 --> 00:26:32.980 They don't stand independently, they cannot, they're all part of the capital structure. 259 00:26:32.980 --> 00:26:42.460 Okay, now the question therefore which emerges from looking at things in terms of the capital 260 00:26:42.460 --> 00:26:50.620 structure is, with any investment, what is the final good or service to which it contributes, 261 00:26:50.620 --> 00:26:53.420 which it helps to produce? 262 00:26:53.420 --> 00:26:59.020 Where does it stand in relation to that final good or service? 263 00:26:59.020 --> 00:27:05.260 In other words, every investment is really only part of the whole network of investments. 264 00:27:05.260 --> 00:27:10.700 We are looking here at a social formation which involves millions upon millions upon 265 00:27:10.700 --> 00:27:13.740 millions of people. 266 00:27:13.740 --> 00:27:20.660 The other point is that, except for the US, which is always odd man out, in the other 267 00:27:20.660 --> 00:27:29.340 In other developed countries you find that as early as 15th century what you had were 268 00:27:29.340 --> 00:27:34.300 production processes which were already crossing political boundaries. 269 00:27:34.300 --> 00:27:38.760 And so if we are looking at a capital structure like this, we're looking at something which 270 00:27:38.760 --> 00:27:39.760 is already international. 271 00:27:39.760 --> 00:27:46.060 That's why Mises said, of course, that the market economy's field is the world. 272 00:27:46.060 --> 00:28:01.060 Okay, I'll put up now a little diagram. That's the stage furthest removed, then you have the other stages, the standard Hayekian triangle or what you want to call it. 273 00:28:01.060 --> 00:28:11.060 Okay, now that of course is not really an arm block. What you've got is an intricate, very intricate network of investments. 274 00:28:11.060 --> 00:28:16.460 And again, it's so complex that, as Hayek said, you can state the principle on which it's formed, 275 00:28:16.460 --> 00:28:19.960 but you can't really describe each and every investment that goes into it. 276 00:28:19.960 --> 00:28:25.460 So you have to think of it as a sort of highly intricate sort of network like that. 277 00:28:25.460 --> 00:28:31.060 Okay, now you've got your regular production processes then, which turn out your final goods and services, 278 00:28:31.060 --> 00:28:34.460 but you've also got political boundaries. 279 00:28:34.460 --> 00:28:40.260 And what happens is that your political boundaries in relation to the production processes 280 00:28:40.260 --> 00:28:47.580 are completely random so when you look at your export and import statistics what 281 00:28:47.580 --> 00:28:51.740 you're really picking up of course are simply the flows from one stage to the 282 00:28:51.740 --> 00:29:00.540 next or within a stage or whatever okay now for the US for most of your history 283 00:29:00.540 --> 00:29:07.060 your exports and imports your foreign trade has been about 10% or less total 284 00:29:07.060 --> 00:29:23.060 For all other developed countries, foreign trade, exports and imports combined, has always equaled 40-50% of total output. 285 00:29:23.060 --> 00:29:33.060 And in countries like France, which don't like foreign trade very much, it's still 35% and of course it goes up higher. 286 00:29:33.060 --> 00:29:44.060 Now that is simply another way of saying that the production processes that you've got here don't simply end there because you've got a political boundary, they continue on. 287 00:29:44.060 --> 00:29:52.060 And what you've really got therefore is really, by the time you get to the late 19th century, it's been growing for centuries, 288 00:29:52.060 --> 00:30:00.060 by the time you get to the late 19th century you really have an international economic order, worldwide economic order, 289 00:30:00.060 --> 00:30:06.660 in which what you've got is, say, the Australia sector, the British sector, the German sector, and so on. 290 00:30:06.660 --> 00:30:15.660 So, if you start studying economic history of any one country, you soon find that by the time you get to the 16th, 17th centuries or later, 291 00:30:15.660 --> 00:30:25.660 you're really very conscious, find that you are looking at only one part of a very much bigger, very much bigger picture. 292 00:30:25.660 --> 00:30:42.660 Okay. Now, as I said, that capital structure which I put, which I very crudely put up, did not develop recently. 293 00:30:42.660 --> 00:30:52.660 What you had was a switch, a change from a status-based economic activity, status-based legal system, 294 00:30:52.660 --> 00:31:03.660 as you found in rural Mali, gradually changing over time in the course of centuries to become what we see today. 295 00:31:03.660 --> 00:31:13.660 Now, the story is different in different countries, being British, I only know English, of course, complete monoblock. 296 00:31:13.660 --> 00:31:24.660 And I can tell you that so far as England is concerned, the switch, the changeover started, you might say, around about the 15th century. 297 00:31:24.660 --> 00:31:38.660 And what you notice if you compare the economic and the legal changes is that the substantial legal changes occur in the same period in which you've got your substantial economic changes. 298 00:31:38.660 --> 00:31:49.660 The major period of transformation of the English common law, and this is done by legal historians who haven't a clue as to what is happening in the economy or with economic activity, 299 00:31:49.660 --> 00:31:55.820 major changes were in the period 1450 to 1550 and you had a complete 300 00:31:55.820 --> 00:32:01.180 transformation and that is the legal order which still continues, you've got 301 00:32:01.180 --> 00:32:10.460 changes that still continues today in the common law countries. The autarkic 302 00:32:10.460 --> 00:32:17.260 restricted range of exchange, restricted range of goods being produced stage if 303 00:32:17.260 --> 00:32:47.260 In England, at any rate, was certainly during the Anglo-Saxon period and earlier periods, and after William the Conqueror came around, he then got a change for various reasons, and you can see, in particular areas of England, interestingly, those areas of England where you have what is known as a weak lordship, the Lord didn't particularly know what was going on in his estates, those are the areas where you 304 00:32:47.260 --> 00:32:53.260 So you start getting quite definite indicators of economic growth, of extension of the capital structure, 305 00:32:53.260 --> 00:33:00.260 and then the whole thing sort of merging eventually after the Black Death and then developing thereafter. 306 00:33:00.260 --> 00:33:08.260 Okay, again another point I want to emphasize. This is also in a very real sense an historical process. 307 00:33:08.260 --> 00:33:16.260 You started with the specific kinds of rules that you had in 11th, 12th century England 308 00:33:16.260 --> 00:33:22.260 and then you started gradually changing those until you reached the kind of legal system, 309 00:33:22.260 --> 00:33:28.260 broader legal system, the ends, independent, instrumental rules that you've got today. 310 00:33:28.260 --> 00:33:32.260 If Mali were the country that were doing it, then Mali's rules would have changed. 311 00:33:32.260 --> 00:33:36.260 It would have been a specifically Malian sort of process. 312 00:33:36.260 --> 00:33:39.260 Okay, some further observations. 313 00:33:39.260 --> 00:33:45.260 The difference between what we've seen for Mali and what we've seen for the developed areas 314 00:33:45.260 --> 00:33:50.260 It cannot be summed up by the term industrialization. 315 00:33:50.260 --> 00:33:53.260 What Mali lacks is not just a few factories. 316 00:33:53.260 --> 00:33:56.260 If you plonk down a few factories, it isn't going to help matters. 317 00:33:56.260 --> 00:33:59.260 You have to start with what you've got there in Mali, 318 00:33:59.260 --> 00:34:06.260 and then gradually transform it until it becomes developed, if you want. 319 00:34:06.260 --> 00:34:10.260 Okay, now I'll put up that picture again, 320 00:34:10.260 --> 00:34:39.260 Because there are a few indicators there of, I can find my copy of the picture, okay, now, yes, now there are a few indicators of wider exchange, where do we see, see those, I don't know if it's very clear, but the young man there actually has a watch, he's wearing a watch from Taiwan or Japan or, you know, a very cheap watch, 321 00:34:39.260 --> 00:34:49.260 He's also wearing a shirt and trousers, factory made shirt and trousers, not the hand made, hand woven clothing that the rest of the family are wearing. 322 00:34:49.260 --> 00:34:55.260 And if you can just see, the young lady is obviously wearing a pair of manufactured slippers. 323 00:34:55.260 --> 00:35:01.260 Okay, now that means that they are in contact with a wider international economic order. 324 00:35:01.260 --> 00:35:04.260 And they've got their things more cheaply than they would have got otherwise. 325 00:35:04.260 --> 00:35:16.260 What Mali exports are livestock, ground nuts or what you would call peanuts, and cotton, obviously all very poor quality. 326 00:35:16.260 --> 00:35:27.260 It is surrounded by countries like Nigeria, Ghana and so on which produce cocoa, which is obviously an internationally traded good. 327 00:35:27.260 --> 00:35:36.260 And so therefore what you've got is part of this great multilateral exchange through Ghana, Nigeria, the cocoa production. 328 00:35:36.260 --> 00:35:45.260 You've got Mali also, the people in Mali also participating in and obtaining these international goods, if you want, 329 00:35:45.260 --> 00:35:52.260 and therefore obviously somewhat better off than if they didn't have this sort of contact. 330 00:35:52.260 --> 00:36:07.260 Okay, now, historically speaking, the greatest development of the international economy or the international economic order is in the 19th century. 331 00:36:07.260 --> 00:36:11.260 It's one of the most remarkable centuries that the world has seen. 332 00:36:11.260 --> 00:36:16.260 There were no major wars between 1815 and 1914. 333 00:36:16.260 --> 00:36:22.540 In fact, when 1914, the war broke out, the Royal Navy didn't know what to do, so they 334 00:36:22.540 --> 00:36:28.380 commissioned a report on how the Battle of Trafalgar had been fought, back in the 12th 335 00:36:28.380 --> 00:36:31.380 of whenever it was. 336 00:36:31.380 --> 00:36:39.740 It, as I said, it's also the period in which you had greatest peaceful movement of people, 337 00:36:39.740 --> 00:36:45.300 43-odd million people, moving for no reason at all except to improve their conditions, 338 00:36:45.300 --> 00:36:50.500 from the areas in which you had large numbers of people, but perhaps not quite as much capital, 339 00:36:50.500 --> 00:37:00.500 to places of course like the US, Canada, Argentina, Australia, New Zealand, South Africa and so on. 340 00:37:00.500 --> 00:37:12.500 Okay, that is also the period. Now the other point to note is that of course you also have population growth along with the extension of the capital structure. 341 00:37:12.500 --> 00:37:18.500 The population in 16th century England was around 5 million people. 342 00:37:18.500 --> 00:37:25.500 By the time you get to the late 19th century, it is in the region of 50 million people, or somewhat less, 343 00:37:25.500 --> 00:37:33.500 45 million people or so, enormously more prosperous obviously, in living in proper brick houses, etc. 344 00:37:33.500 --> 00:37:38.500 and with much larger output. 345 00:37:38.500 --> 00:37:55.760 Okay, I will stop there abruptly, what I will do now, I have one last handout to put up, 346 00:37:55.760 --> 00:38:00.900 and that is of course to tell you that how do we get this picture, what do we do here, 347 00:38:00.900 --> 00:38:06.300 what we've been doing here is of course looking at historical materials, and we've been using 348 00:38:06.300 --> 00:38:21.300 In addition to the capital structure, similar social formations are of course the English common law, Roman law, private law, language as a whole, society itself, habits, customs, ways of doing things and so on. 349 00:38:21.300 --> 00:38:24.300 They all belong in the same category. 350 00:38:24.300 --> 00:38:35.100 As a whole, society itself, habits, customs, ways of doing things, and so on, they all belong in the same category. 351 00:38:35.100 --> 00:38:51.900 And what I've got there are, as it were, the line which culminates, of course, in the three that I mentioned, Menger, Mises and Hayek. 352 00:38:51.900 --> 00:39:07.900 The first social formation, the kind which we've been looking at, ends independent, growth over time, historical, rules-based, etc. with the English common law, and Sir Edward Cook is of course the name there. 353 00:39:07.900 --> 00:39:18.900 So Matthew Hale, also famous for his debate with Hobbes, Hobbes being the legal positivist, 354 00:39:18.900 --> 00:39:26.900 Matthew Hale trying to explain how the common law developed, Matthew Hale was a legal historian as well. 355 00:39:26.900 --> 00:39:33.900 Hale also mentioned that law was like language, but he had no further investigation after that. 356 00:39:33.900 --> 00:39:47.900 Mandeville, Customs, Habits and Economic Activity, analyzed the production of a piece of scarlet, scarlet being a kind of cloth, 357 00:39:47.900 --> 00:39:55.900 and what he showed there was not only the division of labour but also the extent to which by this time, late 17th century, 358 00:39:55.900 --> 00:40:00.900 you're already getting in say dye stuffs from Russia, from Brazil and all over the place, 359 00:40:00.900 --> 00:40:06.900 and he anticipated Menger by pointing out that the fixed investments, 360 00:40:06.900 --> 00:40:17.900 the investments in the dying bats, the weavers' production goods and so on was also part of the total story. 361 00:40:17.900 --> 00:40:24.900 Okay, he saw that the division of labour is the foundation of society 362 00:40:24.900 --> 00:40:32.020 And that piece of analysis was then picked up by Mises later on. 363 00:40:32.020 --> 00:40:42.820 Hume wrote a history of England and a legal analyst as well as economic activity. 364 00:40:42.820 --> 00:40:50.460 Adam Smith, as we know, the father of our science, such as it is, and if you read the 365 00:40:50.460 --> 00:40:59.460 In the wealth of nations, what you find is extensive historical comparisons. China, France, etc. 366 00:40:59.460 --> 00:41:07.460 Edmund Burke. Edmund Burke wrote An Unfinished History of England and An Unfinished History of the Common Law. 367 00:41:07.460 --> 00:41:17.460 Again, a legal thinker. Important because it is through Edmund Burke that the analysis of the common law reached Menger. 368 00:41:17.460 --> 00:41:25.780 Menger points out that Edmund Burke's historical analysis is at opposite poles from that of 369 00:41:25.780 --> 00:41:27.580 younger German historical school. 370 00:41:27.580 --> 00:41:33.020 They're both historically, he says, but in totally opposite senses. 371 00:41:33.020 --> 00:41:41.020 Adam Ferguson, language again, the first to notice the development of the international 372 00:41:41.020 --> 00:41:56.020 Historical-Economic Order, Historical-Sociologist, William Jones, founder of historical linguistics, 373 00:41:56.020 --> 00:42:11.020 Humboldt, a linguist, Humboldt, a linguist, Humboldt, a linguist, 374 00:42:11.020 --> 00:42:41.020 and again important because again through him reached Menger, and Dougal Stewart, again law, mathematician, a philosopher and an economist and therefore totally impractical and finally of course our great founder Carl Menger and you'll notice that he analyzes the common law and he adds another economic formation which I've not 375 00:42:41.020 --> 00:42:46.020 are not mentioned yet, and that is what Hayek later called the catalaxy. 376 00:42:46.020 --> 00:42:53.020 If you look at his appendix on national economy, you'll see he discovers that we have here 377 00:42:53.020 --> 00:43:01.020 and a formation which is much larger than your individual firm. 378 00:43:01.020 --> 00:43:10.020 It is analogous to what I've just drawn here, the capital structure, with each firm being only an element in something much bigger. 379 00:43:10.020 --> 00:43:18.580 Okay, Mises. Again, the point about Mises here is that he analyzed the development of society. 380 00:43:18.580 --> 00:43:26.260 It's very interesting how he does it. He says that society is not an invention, 381 00:43:27.620 --> 00:43:35.060 it is not a large thing in itself, it is not the result of a social instinct, 382 00:43:35.060 --> 00:43:44.420 because that is not an explanation, it is not God-given and therefore mysterious, 383 00:43:44.420 --> 00:43:47.380 it is the result of the division of labor. 384 00:43:47.380 --> 00:43:52.580 Division of labor, reason and language, he says, are the three things 385 00:43:52.580 --> 00:43:56.020 which distinguish humanity from other beings. 386 00:43:56.020 --> 00:44:00.740 And those three, of course, he takes from Adam Ferguson and Adam Smith. 387 00:44:00.740 --> 00:44:20.740 Okay, and finally Hayek, culmination you might say, who gives us the name, the catallaxy, capital structure we have through, from Menger through Mises and Hayek, all three contributed to, obviously, to what I've been saying here, and again also analyze the common law. 388 00:44:20.740 --> 00:44:36.740 Right, so that what we have here are a range of social formations which all belong in the same category and which all have to be analyzed as actions of individual people. 389 00:44:36.740 --> 00:44:42.740 Now, I'll gallop through, Mr Chairman, another minute or so. 390 00:44:44.740 --> 00:44:48.740 I won't go into the economics or whatever. 391 00:44:48.740 --> 00:44:52.740 I'll simply say how linguists analyze language. 392 00:44:52.740 --> 00:44:54.740 It's something which people already do. 393 00:44:54.740 --> 00:45:02.740 They've been doing it ever since they came out of the stage of being just ordinary primates. 394 00:45:02.740 --> 00:45:14.740 A complex set of rules on which people act, which they don't even know that they're acting on, developed historically over time. 395 00:45:14.740 --> 00:45:19.740 And so that is what the linguists are analyzing scientifically, systematically. 396 00:45:19.740 --> 00:45:29.740 The same sort of thing for all these other formations that I've mentioned, capital structure, common law, other economic phenomena. 397 00:45:29.740 --> 00:45:36.660 And finally a point which I think I want to stress, and that is that both Mises and Hayek 398 00:45:36.660 --> 00:45:42.660 always talked about the pricing system as a whole, they did not talk about isolated 399 00:45:42.660 --> 00:45:51.180 prices of isolated markets, and Hayek in particular points out that it is only the economist imagination 400 00:45:51.180 --> 00:45:57.380 which breaks up the economic system into individual markets, in fact the whole thing is one interrelated 401 00:45:57.380 --> 00:45:58.380 social formation. 402 00:45:58.380 --> 00:46:02.380 Okay, well I think I'll stop there. Thank you very much.