WEBVTT NOTE Austrian Economics and the Political Economy of Freedom 1 00:00:00.000 --> 00:00:09.000 After seeing Europe descend into the black cauldron of the First World War, Mises remained true to his boyhood motto, 2 00:00:09.000 --> 00:00:14.000 do not give in to evil but proceed ever more boldly against it. 3 00:00:14.000 --> 00:00:22.000 He continued steadfast in his policy work for the Vienna Chamber of Commerce and he wrote his great works on political economy, 4 00:00:22.000 --> 00:00:27.000 socialism, liberalism and critique of interventionism. 5 00:00:27.000 --> 00:00:38.000 His work has stood the test of time as all truth does. To commemorate his achievements and build on his foundation, we offer the Ludwig von Mises Memorial Lecture. 6 00:00:38.000 --> 00:00:49.000 We are privileged to have Dr. Richard Ebeling deliver this year's Mises Memorial Lecture. Dr. Ebeling is president of the Foundation for Economic Education. 7 00:00:49.000 --> 00:01:03.000 Prior to his appointment at Fee in 2003, he had been the Ludwig von Mises Professor of Economics at Hillsdale College since 1988, and had served as Vice President for the Future of Freedom Foundation. 8 00:01:03.000 --> 00:01:15.000 Dr. Ebeling received his BA in Economics from California State University, his MA in Economics from Rutgers University, and his PhD in Economics from Middlesex University. 9 00:01:15.000 --> 00:01:25.000 He is the author or editor of 18 books and countless articles in scholarly and popular venues such as the International Journal of World Peace, 10 00:01:25.000 --> 00:01:37.000 the American Journal of Economics and Sociology, Critical Review, Political Studies, Advances in Austrian Economics, Reason, Ideas on Liberty, and Freedom Daily. 11 00:01:37.000 --> 00:01:43.000 Dr. Ebeling will speak on the topic, Austrian Economics and the Political Economy of Freedom. 12 00:01:43.000 --> 00:02:01.000 It's a pleasure to be here and particularly to be invited to speak at this memorial lecture to Ludwig von Mises, 13 00:02:01.000 --> 00:02:04.000 who surely was the greatest economist of the 20th century. 14 00:02:04.000 --> 00:02:18.000 And it is also a particular privilege to be asked to speak at the Mises Institute. I don't mean to embarrass him, but I said this to Lew just a little while ago and I want to repeat it. 15 00:02:18.000 --> 00:02:27.000 I think that what Lew Rockwell has done here in establishing the Mises Institute in the ideas and the ideals that are espoused here, 16 00:02:27.000 --> 00:02:33.000 in the superb and magnificent facility in which those ideas can be taught and spread 17 00:02:33.000 --> 00:02:39.000 is a great monument to his dedication and his determination and his uncompromising principle 18 00:02:39.000 --> 00:02:43.000 to liberty and the philosophy of freedom. 19 00:02:43.000 --> 00:02:46.000 And I thank him very much. 20 00:02:57.000 --> 00:03:03.200 I know we've all been in these sessions all day, and perhaps you've not had a chance 21 00:03:03.200 --> 00:03:10.280 to listen to the radio or catch the news on television, but it seems that Al Gore is making 22 00:03:10.280 --> 00:03:17.120 a very determined effort to get the second spot with Kerry for the Democratic nomination. 23 00:03:17.120 --> 00:03:24.160 And to try to make himself appealing to Kerry, he has proposed a change in the national anthem. 24 00:03:24.160 --> 00:03:29.920 Now he has suggested that this could be a winner in the campaign and in addition he 25 00:03:29.920 --> 00:03:37.520 has proposed that it would be a tribute to his wife Tipper and if elected this would 26 00:03:37.520 --> 00:03:45.720 now be the new national anthem that the Kerry Gore ticket would then push through Congress. 27 00:03:45.720 --> 00:03:55.240 tipper-dee-doo-dah, tipper-dee-ay, more big government coming your way, plenty of new 28 00:03:55.240 --> 00:04:02.920 taxes every darn day, tipper-dee-doo-dah, tipper-dee-ay, Mr. Spotted Owl sitting on 29 00:04:02.920 --> 00:04:12.160 your shoulder, it's the truth, it's actual, everything is environmental, satisfactual, 30 00:04:12.160 --> 00:04:29.120 tippity-doo-dah, tippity-ay, born to live your life the government way. 31 00:04:29.120 --> 00:04:39.720 As Jeff mentioned, before my recent appointment to the Foundation, I had been the Mises Professor 32 00:04:39.720 --> 00:04:40.720 at Hillsdale. 33 00:04:40.720 --> 00:04:45.480 And it's a great and pleasurable change to go from, to be honest, as much as I enjoyed 34 00:04:45.480 --> 00:04:49.320 being the Mises professor and teaching Austrian economics and other courses there, to have 35 00:04:49.320 --> 00:04:52.760 lived in basically a rural cornfield to an actual city. 36 00:04:52.760 --> 00:04:59.000 But it has involved the dubious pleasure of now having Hillary Clinton as my senator. 37 00:04:59.000 --> 00:05:05.640 And recently she was going around some grammar schools, making her pitch for, you know, it 38 00:05:05.640 --> 00:05:14.000 It takes a village to educate the young, and if in one of the classes where she was meeting 39 00:05:14.000 --> 00:05:19.580 with little kids, first, second grade, she asked the little kids if any one of them could 40 00:05:19.580 --> 00:05:25.560 tell her what a tragedy was. And a little boy raised his hand and says, I know, I know 41 00:05:25.560 --> 00:05:31.480 what a tragedy is. A tragedy would be if Johnny ran into the street chasing his ball and a 42 00:05:31.480 --> 00:05:38.240 And a car hit him and he died. And Hillary said, you know, that's a very good answer. 43 00:05:38.240 --> 00:05:44.040 But that wouldn't be a tragedy. That would be an accident. Can anyone tell me what a tragedy 44 00:05:44.040 --> 00:05:49.280 would be? Another little girl in the back raises her hand. Senator Clinton, I know, 45 00:05:49.280 --> 00:05:55.440 I know. A tragedy would be if the school bus was going down the mountainside and it went 46 00:05:55.440 --> 00:06:01.120 out of control and tumbled down the mountain and all the little kids and the driver were 47 00:06:01.120 --> 00:06:11.120 Hillary says, you know, that's a good answer, too. But that would not be a tragedy. That would be a great loss. Can anybody tell me what a tragedy would be? 48 00:06:11.120 --> 00:06:25.120 Another little boy raises his hand and says, I know, I know, a tragedy would be if you and your husband Bill were in an aeroplane and suddenly it exploded in the sky and crashed to the ground and the two of you died. 49 00:06:25.120 --> 00:06:35.120 And Hillary says, you know, that's an excellent answer. Yes, that would be a tragedy. But can you tell me why it would be a tragedy? 50 00:06:35.120 --> 00:06:49.120 Because it would be neither an accident nor a great loss. 51 00:06:49.120 --> 00:07:08.120 Bill Clinton is now in his new offices in Harlem. He comes in one day and the staff members look at him very strangely because they noticed attached to his arm is a pair of women's panties. 52 00:07:08.120 --> 00:07:15.120 Now many of these staffers have been with him for years and they're used to Bill's eccentricities, but even for him this is a little weird. 53 00:07:15.120 --> 00:07:19.120 So finally, at the end of the day, one of the senior staffers goes up to him and says, 54 00:07:19.120 --> 00:07:25.120 Bill, you know, we're all wondering, I have to ask, what is this pair of women's panties attached to your arm? 55 00:07:25.120 --> 00:07:38.120 Bill looks down and he says, you mean the patch? I'm trying to quit. 56 00:07:38.120 --> 00:07:43.120 Okay, one more. 57 00:07:43.120 --> 00:07:54.120 Since I have to be equal opportunity here, George Bush and Dick Cheney decide to stop for breakfast one day before going to work at the White House. 58 00:07:54.120 --> 00:08:00.120 And they go into a Denny's and the waitress brings the menus and puts the menus in front of them and says, 59 00:08:00.120 --> 00:08:06.120 Well, Mr. President, what would you like to eat? And George looks at it and looks up and says with a big smile on his face, 60 00:08:06.120 --> 00:08:17.120 You know what? I'd like to have a quickie. A quickie? Mr. President, I'm shocked. I thought that type of language and behavior went out with the previous administration. 61 00:08:17.120 --> 00:08:24.120 She turns around in a huff and walks away. Dick Cheney leans over and says, George, it's pronounced quiche. 62 00:08:36.120 --> 00:08:51.120 Only at the Mises Institute can I be so politically incorrect. Thank you, Lou. 63 00:08:51.120 --> 00:08:57.920 As Jeff mentioned, my topic is Austrian Economics and the Political Economy of Freedom. The 64 00:08:57.920 --> 00:09:04.560 revival of the modern Austrian School of Economics may be dated from 30 years ago, when during 65 00:09:04.560 --> 00:09:12.320 During the week of June 15-22, 1974, the Institute for Humane Studies sponsored a conference 66 00:09:12.320 --> 00:09:20.120 on Austrian economics for about 40 participants in the small New England town of South Royalton, 67 00:09:20.120 --> 00:09:21.320 Vermont. 68 00:09:21.320 --> 00:09:30.380 In 1974, the Austrian School had been in a hiatus for almost a quarter of a century. 69 00:09:30.380 --> 00:09:36.540 In the more than 60 years before the 1940s, the Austrian economists had been considered 70 00:09:36.540 --> 00:09:42.480 one of the most original groups of thinkers and contributors to economic theory and policy. 71 00:09:42.480 --> 00:09:46.380 They were among the leading developers of the theory of marginal utility, opportunity 72 00:09:46.380 --> 00:09:51.860 cost, value and price, capital and interest, market theory and competition, money and the 73 00:09:51.860 --> 00:09:58.060 business cycle, and comparative economic systems, capitalism versus socialism versus the interventionist 74 00:09:58.060 --> 00:10:04.980 Welfare State. But the rise and then triumph of Keynesian economics in the late 1930s and the 75 00:10:04.980 --> 00:10:11.960 1940s as an explanation of and a policy prescription for events like the Great Depression in the early 76 00:10:11.960 --> 00:10:18.860 1930s eclipsed all competing theories of and practical solutions to the problems of high 77 00:10:18.860 --> 00:10:24.860 unemployment and economic depressions. This included the eclipsing of the Austrian Theory 78 00:10:24.860 --> 00:10:30.620 of the Business Cycle, which in the first half of the 1930s had been a leading alternative 79 00:10:30.620 --> 00:10:37.700 to the emerging Keynesian conception of macroeconomics. At the same time, they developed what came 80 00:10:37.700 --> 00:10:43.980 to be called the neoclassical approach to microeconomics. The study of the logic of 81 00:10:43.980 --> 00:10:48.060 individual decision-making, the allocation of scarce resources among their competing 82 00:10:48.060 --> 00:10:52.860 uses and the distribution of income among the factors of production, land, labor and 83 00:10:52.860 --> 00:10:59.580 and Capital became increasingly an exercise in mathematical optimization under conditions 84 00:10:59.580 --> 00:11:02.660 of various quantitative constraints. 85 00:11:02.660 --> 00:11:08.020 The focus of attention was on the specification and determination of the narrow and often 86 00:11:08.020 --> 00:11:12.940 highly artificial conditions under which a market economy as a whole would be in a state 87 00:11:12.940 --> 00:11:17.140 of full and complete general equilibrium. 88 00:11:17.140 --> 00:11:22.260 Now this too was in stark contrast to the approach of almost all the Austrian economists 89 00:11:22.260 --> 00:11:27.260 who attempted to explain the logic and the processes of market competition in a world 90 00:11:27.260 --> 00:11:29.540 of constant change. 91 00:11:29.540 --> 00:11:35.700 The Austrians, unlike their neoclassical rivals, emphasized imperfect knowledge, the pervasive 92 00:11:35.700 --> 00:11:40.660 role of time in all market decision making and the nature of market coordination through 93 00:11:40.660 --> 00:11:45.740 continual adaptation to changing circumstances. 94 00:11:45.740 --> 00:11:53.580 Eight months before that conference in South Royalton in October 1973, the most important 95 00:11:53.580 --> 00:11:58.600 contributor to Austrian economics in the 20th century, Ludwig von Mises, had died at the 96 00:11:58.600 --> 00:12:05.260 age of 92. The second most prominent member of the Austrian school at that time, Friedrich 97 00:12:05.260 --> 00:12:11.120 Hayek, had been invited to attend the conference, but had declined due to health problems that 98 00:12:11.120 --> 00:12:15.280 made it impossible for him to travel to America from Europe. 99 00:12:15.280 --> 00:12:22.080 No one at the conference anticipated that only four months later, in October of 1974, 100 00:12:22.080 --> 00:12:26.640 Hayek would be awarded the Nobel Prize in Economics. 101 00:12:26.640 --> 00:12:31.680 The speakers at the conference were three of the leading figures in Austrian economics. 102 00:12:31.680 --> 00:12:37.480 Ludwig Lachmann, who had studied with Hayek at the London School of Economics in the 1930s. 103 00:12:37.480 --> 00:12:42.520 Daniel Kirzner, who had studied with and written his dissertation under Mises at New York University 104 00:12:42.520 --> 00:12:48.760 in the late 1950s, and Murray Rothbard, who had attended Mises' New York University seminar 105 00:12:48.760 --> 00:12:54.420 for many years, beginning in the late 1940s and had received his doctoral degree in economics 106 00:12:54.420 --> 00:12:56.720 from Columbia University. 107 00:12:56.720 --> 00:13:04.360 I should mention is that it was at that conference 30 years ago that I, in fact, as a young budding 108 00:13:04.360 --> 00:13:11.120 Austrian economist of a mere 24 years old first met these people and I had certainly 109 00:13:11.120 --> 00:13:16.200 never met Murray Rothbard. Now I only knew him from his writings and you know sometimes 110 00:13:16.200 --> 00:13:21.880 we picture people in our minds, we create images and for some reason that I can't explain, 111 00:13:21.880 --> 00:13:26.160 the image I had created having never seen him, I had a picture of Murray Rothbard as 112 00:13:26.160 --> 00:13:36.120 is tall, thin, and extremely serious. Imagine my surprise when into South Royalton comes 113 00:13:36.120 --> 00:13:42.780 this short, rather rotund, laughing, cackling individual who kept us up until the wee hours 114 00:13:42.780 --> 00:13:47.240 of the morning, and Joseph Salerno is here and Walter Block is here and they know what 115 00:13:47.240 --> 00:13:53.360 I'm talking about, kept us up the wee hours of the morning with stories and anecdotes 116 00:13:53.360 --> 00:13:59.640 and Songs Regaling Us, until finally Joey Rothbard would come down from the hotel room 117 00:13:59.640 --> 00:14:04.360 that they were in saying, Murray, it's three o'clock in the morning. You have to come to 118 00:14:04.360 --> 00:14:09.160 bed. But Joey, I don't want to go to bed. Murray, you have a lecture at nine o'clock. 119 00:14:09.160 --> 00:14:16.200 Oh, but I'm... Murray, you'll come to bed now. 120 00:14:16.200 --> 00:14:21.040 One evening during the conference, Milton Friedman came from his summer home in Vermont 121 00:14:21.040 --> 00:14:40.040 Friedman commented that he was delighted to be with us and recalled that he had long known both Mises and Hayek, having himself and one of the founding members of the Mont Pelerin Society in April of 1947 when it met for the first time in Switzerland. 122 00:14:40.040 --> 00:14:50.040 But what stood out in his remarks for many of us in attendance was his statement that there was no such thing as different schools of thought and economics. 123 00:14:50.040 --> 00:14:54.040 There was only good economics and bad economics. 124 00:14:54.040 --> 00:15:04.040 Clearly, therefore, in Friedman's mind, we were on a fool's errand, attending a conference on something called Austrian economics. 125 00:15:04.040 --> 00:15:13.040 Yet most of us attending that conference in South Royalton three decades ago did not consider ourselves on a fool's errand. 126 00:15:13.040 --> 00:15:18.040 We just considered Austrian economics to be good economics. 127 00:15:18.040 --> 00:15:24.400 At its most fundamental level, the Austrians see the individual as acting man. This was 128 00:15:24.400 --> 00:15:29.360 already clearly stated by Mises in 1933 when he said, 129 00:15:29.360 --> 00:15:36.360 In our view, the concept of man is above all else the concept of the being who acts. Our 130 00:15:36.360 --> 00:15:42.160 consciousness is that of an ego which is capable of acting and does act. The fact that our 131 00:15:42.160 --> 00:15:46.960 deeds are intentional makes them actions. Our thinking about men and their conduct, 132 00:15:46.960 --> 00:16:01.640 The Austrian view of man rejects and refutes the positivist, historicist and neoclassical 133 00:16:01.640 --> 00:16:08.960 conceptions of man as what? As mere physical quantitative object, as a passive subject 134 00:16:08.960 --> 00:16:14.120 controlled by the dark forces of history, or as a dependent variable in a system of 135 00:16:14.120 --> 00:16:21.280 of Mathematical Equations, Positivism tried to reduce man and his mind to merely measurable 136 00:16:21.280 --> 00:16:26.520 magnitudes to be studied and manipulated like the inanimate matter experimented upon in 137 00:16:26.520 --> 00:16:32.120 the natural sciences. Historicism claimed that man is determined and molded by external 138 00:16:32.120 --> 00:16:38.260 laws of history that shape his thoughts, actions and destiny with little latitude for the individual 139 00:16:38.260 --> 00:16:49.780 Neoclassical economics treats man as a mathematical function, possessing given tastes and preferences, 140 00:16:49.780 --> 00:16:54.620 which are themselves induced by his surrounding environment and on the basis of which he responds 141 00:16:54.620 --> 00:16:59.780 in predictable ways when confronted with various constraining and objective trade-offs, often 142 00:16:59.780 --> 00:17:02.980 in the form of market prices. 143 00:17:02.980 --> 00:17:08.660 For Austrians, on the other hand, man is an intentional and purposeful being. 144 00:17:08.660 --> 00:17:11.580 He thinks, plans and acts. 145 00:17:11.580 --> 00:17:15.860 Man may be made of matter, but he possesses consciousness. 146 00:17:15.860 --> 00:17:20.020 He has the capacity to imagine, create, initiate. 147 00:17:20.020 --> 00:17:24.300 His mind is simply not reducible to lifeless matter. 148 00:17:24.300 --> 00:17:27.540 He has spirit and will. 149 00:17:27.540 --> 00:17:31.220 Man reflects upon the circumstances in which he finds himself. 150 00:17:31.220 --> 00:17:36.460 He finds aspects of his physical and social surroundings less than satisfactory. 151 00:17:36.460 --> 00:17:40.860 He imagines states of affairs that would be more to his liking. 152 00:17:40.860 --> 00:17:45.260 He creates in his mind plans of action that will bring those preferred states of affairs 153 00:17:45.260 --> 00:17:47.060 into existence. 154 00:17:47.060 --> 00:17:50.420 He discovers that things in his world that could be used as means to the achievement 155 00:17:50.420 --> 00:17:55.220 of his desired ends are insufficient to serve all the purposes for which he could apply 156 00:17:55.220 --> 00:17:56.320 them. 157 00:17:56.320 --> 00:18:00.460 He has to weigh the alternatives and decide in his mind which of those possible states 158 00:18:00.460 --> 00:18:10.460 In the face of affairs, he prefers more and which he prefers less, since some of them, in the face of scarcity, will have to be forgone for today or perhaps forever. 159 00:18:10.460 --> 00:18:24.460 He therefore has to decide on the trade-offs he is willing to make, and as a result he determines the costs of his own choices in the form of desired goals he is willing to give up so as to pursue others that he considers more important. 160 00:18:24.460 --> 00:18:35.460 Those ends and means that neoclassical economics take as given in their analysis of a logic of a choice are in fact created and compared in the actor's mind. 161 00:18:35.460 --> 00:18:42.460 They change and are modified as man experiences successes and failures. They are not static or constant. 162 00:18:42.460 --> 00:18:47.460 Man nor is man a hopeless victim or captive of history. 163 00:18:47.460 --> 00:18:52.460 He makes his own history by reflecting on what has happened in the past and mentally 164 00:18:52.460 --> 00:18:55.120 projecting himself into the future. 165 00:18:55.120 --> 00:19:00.260 He decides what is worth trying to continue along the lines he has been following up till 166 00:19:00.260 --> 00:19:07.200 now and what he thinks might be a better and different course of action as he looks ahead. 167 00:19:07.200 --> 00:19:14.660 This is the reason for Mises' insistence that in every man is the element of entrepreneurship. 168 00:19:14.660 --> 00:19:20.260 Man in all of his actions searches for and creates profitable opportunities to improve 169 00:19:20.260 --> 00:19:25.800 his lot and to try to avoid situations that would generate a loss in the form of change 170 00:19:25.800 --> 00:19:31.100 circumstances that would make his situation worse than it needs to be. 171 00:19:31.100 --> 00:19:37.460 By necessity, man is therefore a speculator in everything he does. 172 00:19:37.460 --> 00:19:43.860 Creating profitable opportunities and avoiding losses are concepts that have no meaning in 173 00:19:43.860 --> 00:19:49.440 and the traditional neoclassical conception of perfect competition in which every market 174 00:19:49.440 --> 00:19:55.160 participant is assumed to possess perfect or sufficient knowledge of all possibilities 175 00:19:55.160 --> 00:19:58.020 that might be relevant to his decisions. 176 00:19:58.020 --> 00:20:03.200 What is the meaning to opportunities discovered or losses avoided when the actors already 177 00:20:03.200 --> 00:20:08.380 know from the beginning what are the best and indeed the only optimal options that should 178 00:20:08.380 --> 00:20:15.300 should be followed, given the perfect and sufficient knowledge of all the relevant circumstances. 179 00:20:15.300 --> 00:20:20.140 From the Austrian perspective, to choose means to select from alternatives. 180 00:20:20.140 --> 00:20:24.900 And to select from alternatives must mean that at least from the individual's perspective, 181 00:20:24.900 --> 00:20:28.720 the future is not preordained. 182 00:20:28.720 --> 00:20:34.540 If the future is not preordained but can be influenced by the choices he makes, then perfect 183 00:20:34.540 --> 00:20:49.540 is logically inconsistent with the very concept of acting and choosing man. Otherwise, man would already know all the decisions he will make and the outcomes that will have to be forthcoming. 184 00:20:49.540 --> 00:21:03.540 But what then remains of any commonsensical notion of what it means for man to choose, even if we assume only knowledge of objective probabilities and not absolute certainties about the future, 185 00:21:03.540 --> 00:21:12.540 Then, every man would still know what are the precise set of options from which he has to choose and the objective weight he should assign to each possible outcome. 186 00:21:12.540 --> 00:21:23.540 Then, given his tastes and preferences for risk, he would again know from the start the only courses of action he could and should logically follow. 187 00:21:23.540 --> 00:21:32.540 Now, many neoclassical economists may despair of a world in which imperfect knowledge and uncertainty prevail. 188 00:21:32.540 --> 00:21:40.540 and therefore a world in which their mathematically deterministic models lose their force. 189 00:21:40.540 --> 00:21:49.540 But for the Austrians, this reality of the human condition is a reason for optimism about man and his world. 190 00:21:49.540 --> 00:21:57.540 The fact that man does not know for certain what the future holds in store, including his own future actions, 191 00:21:57.540 --> 00:22:03.240 means that the world in which he lives is one of wondrous possibility. 192 00:22:03.240 --> 00:22:09.040 Individuals have motives and incentives to experiment with new ideas and creative possibilities 193 00:22:09.040 --> 00:22:15.540 precisely because they don't know for sure, but with any probabilistic degree of certainty, 194 00:22:15.540 --> 00:22:18.540 how they might actually turn out. 195 00:22:18.540 --> 00:22:23.540 It is this element of uncertainty about the future and the direction that it must take 196 00:22:23.540 --> 00:22:30.100 that opens a vista for imagination and action to influence the shape of things to come, 197 00:22:30.100 --> 00:22:38.500 and through them all the advancements in the social economic and cultural condition of mankind. 198 00:22:38.500 --> 00:22:44.660 For the neoclassical economists, the market is reduced to a series of simultaneous equations 199 00:22:44.660 --> 00:22:50.500 of supply and demand functions, the properties of which specify whether a general equilibrium 200 00:22:50.500 --> 00:22:56.500 The same solution exists for the market as a whole, and whether that solution is unique and stable. 201 00:22:56.500 --> 00:23:02.500 Prices in this framework are the quantitative ratios of exchange in which goods may be bought and sold, 202 00:23:02.500 --> 00:23:08.500 and which objectify the tradeoffs at which alternatives in the market may be obtained. 203 00:23:08.500 --> 00:23:13.500 Likewise, the theory of comparative advantage in this neoclassical framework 204 00:23:13.500 --> 00:23:17.500 merely determines the relative opportunity costs of potential trading partners 205 00:23:17.500 --> 00:23:22.500 and the determination of their optimal specializations in the division of labor. 206 00:23:22.500 --> 00:23:30.500 In addition, property rights, money, and the social and political institutions are usually treated as givens in this neoclassical analysis. 207 00:23:30.500 --> 00:23:39.500 They are merely the background context on the basis of which the supply and demand functions interact. 208 00:23:39.500 --> 00:23:50.500 For the Austrians, the essence of the meaning of the market is lost when reduced to a skeletal representation in the form of mathematical functions. 209 00:23:50.500 --> 00:23:55.500 The market is where minds and meanings of men meet. 210 00:23:55.500 --> 00:24:06.500 It is the place where the plans of multitudes of individuals overlap and find the potentials for mutual improvement through discovered and created gains for trade. 211 00:24:06.500 --> 00:24:13.820 It is where the wants of men find greater degrees of fulfillment and satisfaction than under isolated self-sufficiency, 212 00:24:13.820 --> 00:24:23.580 and where opportunities for achieving things never conceived of before become possible and practicable. 213 00:24:23.580 --> 00:24:31.460 In the Austrian conception of the market, prices are not simply quantitative ratios of exchange. 214 00:24:31.460 --> 00:24:37.540 They are the encapsulation of all of the valuations and appraisements of the market participants 215 00:24:37.540 --> 00:24:40.820 resulting from their activities as buyers and sellers. 216 00:24:42.580 --> 00:24:47.380 As Carl Menger, the founder of the Austrian School, expressed it in 1871, 217 00:24:49.220 --> 00:24:54.420 prices are by no means the most fundamental feature of the economic phenomena of exchange. 218 00:24:55.620 --> 00:24:59.780 This central feature lies rather in the better provision that two 219 00:24:59.780 --> 00:25:04.980 Persons Can Make for the Satisfaction of Their Needs by Trade 220 00:25:04.980 --> 00:25:11.620 Prices are incidental manifestations of these activities, symptoms of an economic equilibrium 221 00:25:11.620 --> 00:25:17.900 between the economies of individuals and consequently are of secondary interest for the economic 222 00:25:17.900 --> 00:25:18.900 subjects. 223 00:25:18.900 --> 00:25:25.420 The force that drives prices to the surface is the ultimate and general cause of all economic 224 00:25:25.420 --> 00:25:27.540 activity, Menger explained. 225 00:25:27.540 --> 00:25:32.940 The Endeavor of Men to Satisfy Their Needs as Completely as Possible to Better Their 226 00:25:32.940 --> 00:25:36.340 Economic Positions 227 00:25:36.340 --> 00:25:42.380 In neoclassical theory, prices are usually taken as given, with any changes in prices 228 00:25:42.380 --> 00:25:50.600 coming somehow from the outside, and to which the market participants then respond. 229 00:25:50.600 --> 00:25:55.820 In the Austrian approach, prices emerge out of the interactions of the market actors. 230 00:25:55.820 --> 00:26:01.940 They initiate price bids and offers and competitively move prices up and down. 231 00:26:01.940 --> 00:26:07.180 In Boehm-Bawerk's famous horse market, any resulting equilibrium between suppliers and 232 00:26:07.180 --> 00:26:13.700 demanders arises out of their respective activities on both sides of the market to attract trading 233 00:26:13.700 --> 00:26:19.620 partners by offering better terms of exchange than their rivals. 234 00:26:19.620 --> 00:26:26.660 Thus the Austrian focus is on the logic and sequential process of price formation, rather 235 00:26:26.660 --> 00:26:35.020 than only on any final equilibrium price that may result from this activity of market rivalry. 236 00:26:35.020 --> 00:26:38.960 It is why one prominent member of the Austrian School in the period between the two world 237 00:26:38.960 --> 00:26:44.700 wars referred to the Austrian theory of price as the causal genetic approach. 238 00:26:44.700 --> 00:26:50.260 The purpose of the theory is to explain the process by which prices emerge, change and 239 00:26:50.260 --> 00:26:57.180 adjust to bring about a final equilibrium out of their causal genesis, their causal 240 00:26:57.180 --> 00:27:04.580 origin in the valuations and actions of the market actors themselves. 241 00:27:04.580 --> 00:27:10.800 It is also the basis for the Austrian emphasis on the role and significance of the entrepreneur. 242 00:27:10.800 --> 00:27:16.700 In the division of labor, the entrepreneurs are not only the undertakers of enterprise 243 00:27:16.700 --> 00:27:21.940 who imagine the patterns of future consumer demand, who conceive of ways of organizing 244 00:27:21.940 --> 00:27:27.820 production processes to better satisfy those consumer demands, who oversee the stages of 245 00:27:27.820 --> 00:27:32.540 production leading to the completion of a finished good finally ready for sale and who 246 00:27:32.540 --> 00:27:35.260 then bring the goods to market. 247 00:27:35.260 --> 00:27:41.220 They also set and change the market prices that consumers find on the market based on 248 00:27:41.220 --> 00:27:47.860 their discovery that they may have over underestimated the actual intensity that those consumers may 249 00:27:47.860 --> 00:27:51.300 have for the goods offered to them. 250 00:27:51.300 --> 00:27:56.340 It is the promoting and speculating entrepreneurs who are the driving force of the market as 251 00:27:56.340 --> 00:27:58.580 Mises expressed it. 252 00:27:58.580 --> 00:28:04.260 Their social function is to coordinate the use of resources, capital and labor with the 253 00:28:04.260 --> 00:28:09.560 The Demands of the Consuming Public Through the Rewards of Profits and the Penalties of 254 00:28:09.560 --> 00:28:10.560 Losses 255 00:28:10.560 --> 00:28:19.060 Again, as Mises concisely put it, it is the entrepreneurial decision that creates profit 256 00:28:19.060 --> 00:28:20.260 or loss. 257 00:28:20.260 --> 00:28:26.820 It is mental acts, the mind of the entrepreneur from which profits ultimately originate. 258 00:28:26.820 --> 00:28:31.680 Profit is a product of the mind of success in anticipating the future state of the market. 259 00:28:31.680 --> 00:28:37.900 It is, Mises said, a spiritual and intellectual phenomena. 260 00:28:37.900 --> 00:28:42.240 The intentionality of entrepreneurship and the creative mental processes that are the 261 00:28:42.240 --> 00:28:49.040 essence of the enterprises' activities is drained of all understanding if the market 262 00:28:49.040 --> 00:28:56.120 is reduced to a simplified and barren mathematical functional form. 263 00:28:56.120 --> 00:29:02.640 At the same time, the social institutions of private property and monetary exchange are 264 00:29:02.640 --> 00:29:10.180 not simply conceptual backdrops to the determination of equilibrium prices and outputs as has tended 265 00:29:10.180 --> 00:29:14.440 to be the view in neoclassical economics. 266 00:29:14.440 --> 00:29:18.640 In the standard textbooks from which most economists learn the core concepts of their 267 00:29:18.640 --> 00:29:23.040 discipline, private property is described as an incentive mechanism for work, effort 268 00:29:23.040 --> 00:29:28.360 in the conserving of scarce resources, and money is explained to be a unit of account 269 00:29:28.360 --> 00:29:32.520 that serves as a common denominator for comparing the value of goods bought and sold in the 270 00:29:32.520 --> 00:29:39.960 market. Now both of these are true and important, but these descriptions and explanations of 271 00:29:39.960 --> 00:29:46.160 the role of private property and monetary exchange fail to capture their profundity 272 00:29:46.160 --> 00:29:52.480 for the functioning and coordinating of the complex and ever-changing market order. They 273 00:29:52.480 --> 00:29:59.880 They are instead the core of the market economy and the civilization that develops with it, 274 00:29:59.880 --> 00:30:02.920 and are impossible without them. 275 00:30:02.920 --> 00:30:08.320 The evolution of private property rights and a medium of exchange has facilitated the development 276 00:30:08.320 --> 00:30:15.280 and use of economic calculation in all exchange relationships, without which rational market 277 00:30:15.280 --> 00:30:19.440 decision-making would have been impossible. 278 00:30:19.440 --> 00:30:26.940 And as Mises articulated this most clearly, monetary calculation is the guiding star of 279 00:30:26.940 --> 00:30:30.560 action under the social system of division of labor. 280 00:30:30.560 --> 00:30:34.760 It is the compass of the man embarking upon production. 281 00:30:34.760 --> 00:30:39.280 He calculates in order to distinguish the remunerative lines of production from the 282 00:30:39.280 --> 00:30:41.580 unprofitable ones. 283 00:30:41.580 --> 00:30:45.560 Monetary calculation is the main vehicle of planning and acting in the social setting 284 00:30:45.560 --> 00:30:51.120 Building of a society of free enterprise directed and controlled by the market and prices. 285 00:30:51.120 --> 00:30:56.600 We can view the whole market of material factors of production and of labor as a public auction, 286 00:30:56.600 --> 00:31:02.640 Mises continued. The bidders are the entrepreneurs. Their highest bids are limited by their expectation 287 00:31:02.640 --> 00:31:07.360 of the prices the consumers would be ready to pay for the products. The competition between 288 00:31:07.360 --> 00:31:12.520 the entrepreneurs reflects these prices of consumer goods in the formation of the prices 289 00:31:12.520 --> 00:31:21.520 To the entrepreneur of capitalist society, Mises said, a factor of production through its price sends out a warning. 290 00:31:21.520 --> 00:31:27.520 Don't touch me! I am earmarked for the satisfaction of another, more urgent need. 291 00:31:27.520 --> 00:31:40.520 Only the existence of private property enables all marketable commodities and means of production 292 00:31:40.520 --> 00:31:45.520 to be open for sale and purchase in the haggling process of exchange. 293 00:31:45.520 --> 00:31:51.520 Only a medium of exchange provides the means by which all the heterogeneous commodities and supplies on the market 294 00:31:51.520 --> 00:31:55.520 may be reduced to a valuational common denominator. 295 00:31:55.520 --> 00:32:01.520 Only the open competitive market enables every participant in the society 296 00:32:01.520 --> 00:32:08.520 to make his contribution to the formation of prices through his bids to buy and offers to sell. 297 00:32:08.520 --> 00:32:26.520 Only economic calculation enables the integration of the actions of billions of people around the globe into a network of interdependent market relationships of mutual plan coordination for the advancing benefit of all mankind. 298 00:32:26.520 --> 00:32:34.520 Yet every individual is free to make his own decisions, guided by his own hopes and dreams and goals and plans. 299 00:32:34.520 --> 00:32:46.520 The money prices of the market that facilitate, indeed make possible, the process of economic calculation are used by each individual in the context of his own purposes. 300 00:32:46.520 --> 00:32:53.520 He weighs and evaluates their significance and relevance for the ends he has in mind. 301 00:32:53.520 --> 00:33:01.520 He gives them meaning in terms of his actions accomplished in the past and actions anticipated in the future. 302 00:33:01.520 --> 00:33:21.520 He is at liberty to integrate himself in the social system of division of labor on the basis of his own evaluations of the costs and benefits of alternative courses of action, while in the free market also bearing the consequences for good or ill from the choices he makes. 303 00:33:21.520 --> 00:33:28.520 It is through economic calculation in the free market economy that individual freedom is made compatible with social order. 304 00:33:28.520 --> 00:33:38.520 It is through economic calculation in the market economy that billions of individual plans are combined into patterns of rational social coordination. 305 00:33:38.520 --> 00:33:46.520 No wonder that Mises concluded that our civilization is inseparably linked with our methods of economic calculation. 306 00:33:46.520 --> 00:33:54.520 It would perish if we were to abandon this most precious intellectual tool of acting. 307 00:33:54.520 --> 00:34:14.520 In a similar fashion, the Austrians see in the theory of division of labor and comparative advantage more than simply the determination of the specialization of tasks at various relative prices, given the quantities of capital and labor available to individuals and nations. 308 00:34:14.520 --> 00:34:30.520 And once again, it was Ludwig von Mises who insightfully clarified the implications to be derived from the earlier contributions of the 18th and 19th century classical economists on the benefits that are derived from a system of division of labor. 309 00:34:30.520 --> 00:34:41.520 The theory of division of labor, Mises explained, is really the basis of what he called the law of human association, and therefore the foundation of a theory of society. 310 00:34:41.520 --> 00:34:58.520 Based on Adam Smith's and David Ricardo's expositions of the benefits from specialization of tasks, it was possible to show how society emerged and had taken form over the centuries as the results of individuals discovering mutual benefits from trade. 311 00:34:58.520 --> 00:35:08.520 The additional gains through individuals specializing in particular lines of production resulted in an expanding network of interdependent human relationships. 312 00:35:08.520 --> 00:35:21.520 The theory of division of labor, therefore, is able to serve as the analytical tool for explaining the emergence of society as the result of human action, but not of any prior blueprint of human design. 313 00:35:21.520 --> 00:35:32.520 As Mises explained this process, the law of association makes us comprehend the tendencies which resulted in the progressive intensification of human cooperation. 314 00:35:32.520 --> 00:35:44.520 We conceive what incentive induced people to not consider themselves simply as rivals in the struggle for the appropriation of limited supplies of means of subsistence made available by nature. 315 00:35:44.520 --> 00:35:51.520 We realize what has impelled them and permanently impels them to consort with one another for the sake of cooperation. 316 00:35:51.520 --> 00:35:56.520 We are in a position to comprehend the course of human evolution. 317 00:35:56.520 --> 00:36:03.320 The theory of division of labor and comparative advantage becomes the basis for a science 318 00:36:03.320 --> 00:36:05.960 of society, as Mises explained. 319 00:36:05.960 --> 00:36:10.080 A foundation is laid for the theory of market relationships, the interconnections between 320 00:36:10.080 --> 00:36:14.140 supplies and demand, and the network of market prices for finished goods and the factors 321 00:36:14.140 --> 00:36:15.700 of production. 322 00:36:15.700 --> 00:36:20.600 The way is open to an understanding of the inevitable laws of market and exchange, which 323 00:36:20.600 --> 00:36:27.000 Which is, Mises said, one of the greatest accomplishments of the human mind. 324 00:36:27.000 --> 00:36:32.540 Out of the classical economist theory of division of labor, there now comes the classical liberal 325 00:36:32.540 --> 00:36:39.180 philosophy of peace and social cooperation that is the basis for the accomplishments 326 00:36:39.180 --> 00:36:44.600 in development of the economic civilization of our age. 327 00:36:44.600 --> 00:36:49.860 This greater material productivity of a peaceful division of labor, Mises explained, provides 328 00:36:49.860 --> 00:36:55.100 is the means for the development of what we call civilization. 329 00:36:55.100 --> 00:37:01.100 The means are now provided that enable leisure and the peace of mind for art, literature 330 00:37:01.100 --> 00:37:05.100 and scientific and philosophical reflection. 331 00:37:05.100 --> 00:37:11.020 Men increasingly become differentiated from each other, not only in the specialized tasks 332 00:37:11.020 --> 00:37:15.700 and skills through which they find their place in the division of labor, they differentiate 333 00:37:15.700 --> 00:37:22.300 also in the sense that they have the time to develop their distinct individual personalities 334 00:37:22.300 --> 00:37:27.220 on the basis of the use they make of the greater means they have at their disposal and the 335 00:37:27.220 --> 00:37:31.540 interests and pursuits they find attractive to devote their available greater leisure 336 00:37:31.540 --> 00:37:38.540 time to cultivate. Individualism, meaning man as distinct from a tribal mass and unique 337 00:37:39.440 --> 00:37:45.500 in his qualities and character as a singular human being, becomes one of the products of 338 00:37:45.500 --> 00:37:53.500 and the evolution of society through the extension and the intensification of a system of division of labor. 339 00:37:53.500 --> 00:38:02.500 At the same time, the division of labor and its law of association becomes the foundation for a social philosophy of world peace. 340 00:38:02.500 --> 00:38:07.500 In the collaborative efforts of interdependent specialization and exchange, 341 00:38:07.500 --> 00:38:12.500 men become allies in the fight against the niggardliness of nature, 342 00:38:12.500 --> 00:38:19.500 Not enemies that need to fight one another for the meager means to men's ends that nature itself provides. 343 00:38:19.500 --> 00:38:28.500 No longer are nations and individuals opponents in which the economic improvement of one requires the loss to another. 344 00:38:28.500 --> 00:38:35.500 Instead, all individuals and nations benefit from the productive capabilities of each other's talents, industry and creativity 345 00:38:35.500 --> 00:38:43.500 in devising better and less expensive ways to satisfy each other's ends through the competitive processes of the market. 346 00:38:43.500 --> 00:38:52.500 Human competition, both within and between nations, is no longer a life and death struggle for survival. 347 00:38:52.500 --> 00:39:03.500 The competitive market process becomes the peaceful procedure through which each member of society finds his most productive and profitable niche 348 00:39:03.500 --> 00:39:09.500 and a niche for improving his own circumstances by furthering the ends of others. 349 00:39:09.500 --> 00:39:15.500 Again, Ludwig von Mises captured the essence of this great social process. 350 00:39:15.500 --> 00:39:25.500 He said, all collaborate and cooperate, each in the particular role he has chosen for himself in the framework of the division of labor. 351 00:39:25.500 --> 00:39:55.500 The world, therefore, becomes one integrated community of free men, who, though separated by time and distance and interest, are peacefully 352 00:39:55.500 --> 00:40:07.500 are mutually guided to mutually assist one another through the information and incentives supplied by the global structure of market prices that is generated by their own interactions. 353 00:40:07.500 --> 00:40:20.500 Their buying and selling determines the patterns of production and the allocation of all the means of production around the entire earth for the better satisfaction of the wants and needs of all humanity. 354 00:40:20.500 --> 00:40:41.500 The value that all of humanity places on the services of each individual performance for his fellow men in the market determines the income he earns, so he may attain from all the others around the world the things that he would like to have to fulfill his purposes. 355 00:40:41.500 --> 00:40:51.500 The market economy becomes the means to give reality to the idea and the ideal of the peaceful unity of mankind. 356 00:40:54.500 --> 00:41:04.500 None of these Austrian insights about man and the market is compatible with the positivist, historicist, and neoclassical economic views of the world. 357 00:41:04.500 --> 00:41:14.500 Man reduced to physical object or mathematical functional form is stripped of his most essential and inherent human qualities. 358 00:41:14.500 --> 00:41:28.500 What meaning has intention and imagination, or choice and creativity, when the human mind and its volitional and purposeful qualities are banished from the realm of economic and social analysis? 359 00:41:28.500 --> 00:41:38.500 What meaning, therefore, does freedom have when man is merely a measurable magnitude or a dependent variable in a system of simultaneous equations? 360 00:41:38.500 --> 00:41:52.500 It should not be surprising that so many members of the Austrian School of Economics have also been classical liberals and libertarians, defenders of individual liberty, private property, and the market economy. 361 00:41:52.500 --> 00:42:10.500 Once you see the individual as thinking, creating and acting man, with so many potentials and possibilities within him, who can tolerate the idea of making him the slave to another's will, and to deny him his humanness? 362 00:42:10.500 --> 00:42:40.500 Once you comprehend the majesty of the market order, in which each man is free to find his own, follow his own purposes and plans, and yet at the same time advances the ends and desires of others in society through the free exchanges that interconnect everyone's actions within the system of division of labor, who can want to restrict what men can do to the dictates of a central planner or a political intervener? 363 00:42:40.500 --> 00:42:46.300 Once one understands the role and significance of prices for social coordination and economic 364 00:42:46.300 --> 00:42:51.780 calculation within the market process, who can presume to have the knowledge and ability 365 00:42:51.780 --> 00:43:00.560 to control or command the complexity of consumption and production decisions of the mass of humanity? 366 00:43:00.560 --> 00:43:07.420 It is no wonder, therefore, that so many friends of freedom have been influenced in that direction 367 00:43:07.420 --> 00:43:13.780 by the contributions of the Austrian economists. They, more than almost all the others in the 368 00:43:13.780 --> 00:43:20.780 last 100 years, have been the true political economists of liberty. And it is what has 369 00:43:20.780 --> 00:43:27.420 made Austrian economics, in so many ways, the good economics of our time. Thank you 370 00:43:27.420 --> 00:43:27.940 very much. 371 00:43:37.420 --> 00:44:05.420 Okay, I think we have some time for questions, comments, rotten tomatoes, banana peels. 372 00:44:05.420 --> 00:44:18.420 If you haven't heard it, the question is, if it had not been for that Austrian Economics Conference in June of 1974, might it have been the case that Austrian Economics would have died? 373 00:44:18.420 --> 00:44:34.420 Well, nobody can read tea leaves of what-if history, but it is the case that, for example, if Ludwig Lachmann would say that in the 1950s and 1960s, he presumed that he was going to be one of the last of the Austrian economists. 374 00:44:34.420 --> 00:44:58.420 That it was going to die out. It is true that Rothbard had published his monumental Man Economy and State in 1962, America's Great Depression in 1963, then the year that Mises passed away, 1973, Israel Kirzner had published his first path-breaking work on competition and entrepreneurship. 375 00:44:58.420 --> 00:45:28.420 But it's clear that that conference and then the follow-up conferences, the following year in June of 1975, again the Institute of Humane Studies sponsored another Austrian conference at the University of Hartford where Dominic Armentano, who many of you may know, works on monopoly antitrust theory, hosted another one there. And then following that, again, there was a third conference at Windsor Castle 376 00:45:28.420 --> 00:45:35.860 in Great Britain. Two of those conference proceedings, the first and the third, ended 377 00:45:35.860 --> 00:45:44.940 up being published as volumes of collections. And then in addition to that, and in collaboration 378 00:45:44.940 --> 00:45:51.240 with that, is that Israel Kirzner had been able to get the funding for the creation of 379 00:45:51.240 --> 00:45:58.000 of an Austrian Economics graduate program at New York University in which at that time 380 00:45:58.000 --> 00:46:05.280 Gerald O'Driscoll who had finished a dissertation about Hayek, the first one written at UCLA, 381 00:46:05.280 --> 00:46:10.240 was brought on the faculty and then he was able to bring in Mario Rizzo and that served 382 00:46:10.240 --> 00:46:17.280 as an important catalyst, all of which was occurring in the mid-1970s. It was a combination 383 00:46:17.280 --> 00:46:26.800 One of those factors that acted as focal points for the revival of the Austrian School. 384 00:46:26.800 --> 00:46:31.360 And then what gave it momentum was that people started getting interested in the ideas through 385 00:46:31.360 --> 00:46:33.460 the books and articles. 386 00:46:33.460 --> 00:46:38.040 People started coming out of graduate schools so they could be teaching as well. 387 00:46:38.040 --> 00:46:44.840 And then you had organizations emerging not long after that, such as the Mises Institute. 388 00:46:44.840 --> 00:46:50.840 If I may be permitted to give a pitch to the organization that I now represent as the president, 389 00:46:50.840 --> 00:47:04.840 in between 1946 when Leonard Reed founded FI and the 1970s, there was virtually no other organization devoted to economic education and giving significance to Austrian economics. 390 00:47:04.840 --> 00:47:13.840 Mises had been among the founding advisors and organizers and lecturers at FI. 391 00:47:13.840 --> 00:47:24.160 One of the first books that Leonard Reed published at Fee was Mises's little book Plan Chaos in 1947, the year after Fee was founded. 392 00:47:24.160 --> 00:47:32.480 So it was uncertain as to whether Austrian economics would survive, but those events served as the catalyst for it. 393 00:47:32.480 --> 00:47:44.480 I have a few questions. From your lecture, I understand that the market can bring about peace, social cooperation and prosperity. Are there some market failures? 394 00:47:44.480 --> 00:47:52.480 Second, why do some nations have more entrepreneurship spirit than the other nations? 395 00:48:02.480 --> 00:48:04.480 Are there any market failures? 396 00:48:04.480 --> 00:48:14.480 And the other one, is there an answer to the question as to why some countries' cultures seem to have more of an entrepreneurial spirit than others? 397 00:48:14.480 --> 00:48:19.480 On the first question, I'm going to be very extreme here. 398 00:48:19.480 --> 00:48:24.480 The answer is no, I don't think there are, in the free market, there's no meaning to market failure. 399 00:48:24.480 --> 00:48:31.480 There's error and mistake, which is inherent in the fact that people cannot read the tea leaves of the future. 400 00:48:31.480 --> 00:48:53.480 But the market has its own mechanisms to prevent bad behavior. First of all, there's law, and whether it be in limited government or some who believe in the private provision of these defense agencies, there would be legal means to redress violations of rights, life, liberty, property, fraud. 401 00:48:53.480 --> 00:49:03.480 Second of all, if there are collusive attempts at which people try to sort of gain better terms of trade at the expense of others in the market, 402 00:49:03.480 --> 00:49:10.480 as long as the market is free, this market has its own self-correcting mechanism through the forces of competition, openness to new ideas. 403 00:49:10.480 --> 00:49:19.480 So in the long run, or even basically in the short run, I don't believe that the type of market failures that the neoclassical model talks about are valid. 404 00:49:19.480 --> 00:49:24.980 Market failures sometimes are talked about, I'm thinking of what type of examples you're talking about. 405 00:49:24.980 --> 00:49:28.480 Another one would be like what they call certain public goods. 406 00:49:28.480 --> 00:49:39.480 I don't think that that's the case either. I mean, historically and conceptually, one can show that roads, highways, lighthouses, harbors, 407 00:49:39.480 --> 00:49:44.480 virtually everything that are considered these public spaces for which it's presumed government has to do the provisioning, 408 00:49:44.480 --> 00:49:52.480 I believe that both theory and many historical examples can be given that there are not these market failures for which you need the government. 409 00:49:52.480 --> 00:50:02.480 The second one is on different cultures with entrepreneurial spirits. I think that that's a two-pronged problem. 410 00:50:02.480 --> 00:50:11.480 One is I believe that there is entrepreneurship in every culture and society because people themselves have these urges, I think, as the Austrians have emphasized, 411 00:50:11.480 --> 00:50:20.320 Improving, removing as Mises says, felt uneasiness, creatively imagining new and possible ways. 412 00:50:20.320 --> 00:50:25.240 What hinders, restraints, prevents, makes difficult historically has been government 413 00:50:25.240 --> 00:50:32.080 laws, regulations, controls, prohibitions, punishments, either for ideological reasons 414 00:50:32.080 --> 00:50:40.320 or to give privileges and favors to elect who are around the corridors of power. 415 00:50:40.320 --> 00:50:48.060 Sometimes culture does influence these things, and that's the type of theme that, for example, 416 00:50:48.060 --> 00:50:51.500 Thomas Sowell has emphasized in some of his writings. 417 00:50:51.500 --> 00:50:57.520 But as much as I consider that culture and attitudes intergenerationally passed down 418 00:50:57.520 --> 00:51:03.400 can influence these things to a degree, I consider them secondary or less important 419 00:51:03.400 --> 00:51:08.440 than to the stifling of the entrepreneurial, the speculative, the creative spirit that 420 00:51:08.440 --> 00:51:24.080 Regarding the first question, you said that the proceedings of the South Bolton Conference 421 00:51:24.080 --> 00:51:29.480 and the one at Windsor Castle were put into volumes. What were the names? 422 00:51:29.480 --> 00:51:38.080 The first one was called Foundations of Modern Austrian Economics edited by Ed Dolan. The 423 00:51:38.080 --> 00:51:44.580 The other one, is Walter Block here? New Directions in Austrian Economics, edited by Luce Bedaro. 424 00:51:44.580 --> 00:51:48.460 Those are the two volumes. And those basically were subsidized by the Institute for Humane 425 00:51:48.460 --> 00:51:54.680 Studies also through a publisher in Kansas City called Sheden Ward. And those are important 426 00:51:54.680 --> 00:51:58.280 to get people to think about these ideas in a written form again. 427 00:51:58.280 --> 00:52:01.280 Yes. 428 00:52:01.280 --> 00:52:12.280 Since we know that the Austrians place so much emphasis on the influence of time and calculations of future impact of resources, 429 00:52:12.280 --> 00:52:18.280 how do you fit into your description scarcity of natural resources? 430 00:52:18.280 --> 00:52:28.280 If we just put it on our hat and think about oil depletion, how do we avoid a Hobbesian kind of situation? 431 00:52:28.280 --> 00:52:38.280 You seem to be saying, well, let's assume that we don't invent something to take its place. 432 00:52:38.280 --> 00:52:48.280 Well, you know, to say we won't invent something to take its place is constraining the answer that I would say historically is true. 433 00:52:48.280 --> 00:52:57.280 Well, for example, there's a very famous economist who is also a founder of marginal utility theory along with Carl Menger, the Englishman William Stanley Jevons. 434 00:52:57.280 --> 00:53:07.280 He was paranoid that England was running out of coal and burning down its forests for sources of energy. 435 00:53:07.280 --> 00:53:14.280 and, obviously, production. So much so that he began hoarding paper bags. Paper. 436 00:53:14.280 --> 00:53:20.280 His grandchildren were still using those paper bags after he was long dead. 437 00:53:20.280 --> 00:53:25.280 This is all recounted in a fascinating biographical essay written about Jevons 438 00:53:25.280 --> 00:53:29.280 by, of all people, John Maynard Keynes in his collection, Essays and Biography. 439 00:53:29.280 --> 00:53:44.280 But the whole idea is that a resource gets scarcer. Demand rises relative to the supply, or given the demand, the supply is decreasing through depletion of its available quantity. 440 00:53:44.280 --> 00:53:54.280 And the price rises. People start using substitutes. They creatively, in the long run, try to find ways to not just economize in the short run, but to find alternatives to it. 441 00:53:54.280 --> 00:54:13.280 That's the essence of man. I usually tell my students, what does man need? He needs a fire to keep him warm, he needs the skin of an animal to cover his body, and he needs a cave to keep the rain off his head. That's it. 442 00:54:13.280 --> 00:54:16.920 You can get by with that. Everything else man has creatively thought of. 443 00:54:16.920 --> 00:54:22.240 The caveman is sitting in his cave, and he's just sitting there, bored to death at night, 444 00:54:22.240 --> 00:54:27.280 and he goes like this. You know what that is? That's the beginning of music. That leads 445 00:54:27.280 --> 00:54:32.240 to Beethoven and Mozart. Then he's sitting in the cave, and he's watching the flickering 446 00:54:32.240 --> 00:54:38.100 flame on the cave wall, and his mind works, and suddenly he picks up a stone that perhaps 447 00:55:08.100 --> 00:55:17.100 He asks us along or he shares the stories that he's made up about the history of the tribe and he tries to make them dramatic and interesting and humorous. 448 00:55:17.100 --> 00:55:21.100 Well, there's the beginning of literature. That leads to Herman Melville and Edgar Allan Poe. 449 00:55:21.100 --> 00:55:26.100 I mean, so man has this creative ability in him that is the essence of everything. 450 00:55:26.100 --> 00:55:34.100 So oil gets scarcer, its price rises. Men substitute the existing available energy sources, 451 00:55:34.100 --> 00:55:50.100 Where do you think we're heading for in the future here in this world as we live in it? 452 00:55:50.100 --> 00:56:00.100 In the video, the commanding heights, they made the point that basically the world is going back to the way that it was at the turn of the century. 453 00:56:00.100 --> 00:56:02.100 We're right back where we started from. 454 00:56:04.100 --> 00:56:34.100 I see us at a different benchmark. We're not in 1900. We're in 1929. What do I mean by that? If you if you would talk about 1900, while admittedly it's a bit of a drus- drus- drus- 455 00:56:34.100 --> 00:56:39.380 Brushstroke, Interpretation and Exaggeration, but in an essence not. 456 00:56:39.380 --> 00:56:48.880 1900 was a world that was dominated by both the, still the residues of the ideas and the institutional practices of classical liberalism. 457 00:56:48.880 --> 00:56:54.440 Governments really didn't tax, governments really didn't regulate, trade was hardly restricted, 458 00:56:54.440 --> 00:57:02.780 governments were narrow in their influences on civil liberties, at least in what we call the civilized Western world. 459 00:57:02.780 --> 00:57:12.280 World War I shattered that, and you had a beginning of the socialist and fascist experiments, and so why do I try 1929? 460 00:57:12.280 --> 00:57:22.780 Because by 1929, it had been seen by several people that socialism, at least practically, could not work, because of arguments like Mises'. 461 00:57:22.780 --> 00:57:32.280 But they weren't willing to accept the market economy, and Mises' laissez-faire formulation, as such as in his book, Liberalism, which had come out in 1927. 462 00:57:32.280 --> 00:57:47.280 So what you had was you had neither socialism or the free market economy, what you had is the interventionist state, which was then just intensified in America, particularly by the Great Depression and the New Deal, and that's where I consider us. 463 00:57:47.280 --> 00:57:55.280 People do not any longer believe in Soviet style central planning, that's bankrupt, that's, to use Marx's phrase, in the dustbin of history. 464 00:57:55.280 --> 00:58:04.280 But people, while admitting that socialism can't work, will not accept the idea of a truly free laissez-faire economy. 465 00:58:04.280 --> 00:58:14.280 What they want is what Mises called this inherently unstable, and in the long run, unworkable, intermediary form of the interventionist state. 466 00:58:14.280 --> 00:58:19.280 And that's where we are. That's the ideal now. We're in the ideal of the interventionist state. 467 00:58:19.280 --> 00:58:25.280 So we're back to where Mises was writing about this in 1929 in his book Critique of Interventionism. 468 00:58:25.280 --> 00:58:33.280 Now, that's good for us because nobody believes in socialism anymore and the totalitarian version of it, for the most part. 469 00:58:33.280 --> 00:58:37.280 Except people in universities, of course. 470 00:58:37.280 --> 00:58:42.280 But, I mean, they live in worlds different from the real world. 471 00:58:42.280 --> 00:58:48.280 But what makes this more difficult, in a sense, is that, you see, when it was capitalism and socialism and stark views, 472 00:58:48.280 --> 00:58:53.720 and Start Views. It was easy to tell if you had two ounces of intelligence, which is better, 473 00:58:53.720 --> 00:58:59.640 both in terms of goods and services and freedom. There's East Berlin, and there's West Berlin. 474 00:58:59.640 --> 00:59:07.480 There's North Korea, there's South Korea. There's Mainland China, there's Taiwan, yeah, okay? 475 00:59:07.480 --> 00:59:13.120 And so it was easy to make the contrast, you know, Florida and Cuba. But the difficulty 476 00:59:13.120 --> 00:59:19.640 with the Interventionist State is that you have people say, well, of course we believe 477 00:59:19.640 --> 00:59:20.640 in the market economy. 478 00:59:20.640 --> 00:59:26.060 You know, it's good to have business and enterprise, we need creativity, yes, the profit 479 00:59:26.060 --> 00:59:30.920 model is good, but can't we sort of compromise it at the edges? 480 00:59:30.920 --> 00:59:35.320 Sure the market economy, but a safety net, sure competition, but you know, we have to 481 00:59:35.320 --> 00:59:40.760 watch out for the Martha Stewart's of the world. 482 00:59:40.760 --> 00:59:51.640 I mean, God knows what, you know, world of Martha Stewart's, it's the end of civilization. 483 00:59:51.640 --> 00:59:57.500 That's the situation we find ourselves in, where we seem extreme by wanting laissez-faire, 484 00:59:57.500 --> 01:00:01.400 as opposed to sort of being reasonable, sure of the market, but just a little bit of this 485 01:00:01.400 --> 01:00:08.980 and that. What we need to do is to convince people, is that both on moral grounds, political 486 01:00:08.980 --> 01:00:23.980 In all grounds and economic grounds, even the loss of one increment of liberty is too great a sacrifice to have the one increment of some government subsidy transfer privilege in favor. 487 01:00:23.980 --> 01:00:30.980 That's not an easy task. However, on the other hand, it is a task that succeeded in the past. 488 01:00:30.980 --> 01:00:35.980 I know it's always easy to say, oh, you know, how are we ever going to change things? 489 01:00:35.980 --> 01:00:41.980 The fact is that the ideas of liberty did triumph in the first half of the 19th century. 490 01:00:41.980 --> 01:00:45.980 There was the ideal of limited constitutional government. 491 01:00:45.980 --> 01:00:53.980 Great Britain established unilateral free trade and the elimination of virtually all domestic restraints on competition 492 01:00:53.980 --> 01:01:03.980 without a civil war, but just by the advocates of free trade petitioning, lobbying, persuading, electing, 493 01:01:03.980 --> 01:01:16.780 and they were abolished in 1846 and that because it was appeal of both logic, history and the passion of the right of freedom. 494 01:01:16.780 --> 01:01:22.660 In the great movement for free trade, I'm talking too long, I apologize. 495 01:01:22.660 --> 01:01:28.180 In the 1830s, the free traders would have rallies in which they would debate the protectionists. 496 01:01:28.180 --> 01:01:34.580 They would have a demonstration, Daniel McConnell, who was a free trader from Ireland, would 497 01:01:34.580 --> 01:01:39.620 lead parades around Ireland pulling a cannon, metaphorically, not literally here, but pulling 498 01:01:39.620 --> 01:01:46.380 a cannon with a sign, free trade or this, you know, get the point, we want government. 499 01:01:46.380 --> 01:01:54.820 Young boys, because of the food famines that were going on in 1845 and 1846, would scrawl 500 01:01:54.820 --> 01:02:08.820 Eyes be protected and eyes be starved. Eyes be protected and eyes be starved. Because free, cheaper food from abroad wasn't allowed in. 501 01:02:08.820 --> 01:02:15.820 So there was the practical and the logical and the moral case for freedom. And that's what we have to do. 502 01:02:15.820 --> 01:02:20.820 The most important thing is not to allow the other side to set the terms of the debate. 503 01:02:20.820 --> 01:02:37.820 to argue reasonably and logically, but with an underlying passion of believing that freedom is morally right and morally good and essential if man is to be everything that nature and his creator has made him into be. 504 01:02:37.820 --> 01:02:45.820 And if we do that, I believe the 21st century has the possibility of once again being a century of liberty. 505 01:02:45.820 --> 01:02:54.820 routine. 506 01:02:54.820 --> 01:02:55.340 Thank you very much.