WEBVTT NOTE The Contributions of Henry Manne 1 00:00:00.000 --> 00:00:04.840 Well, Rich reminded me this morning that the last time he and I were on the same panel, 2 00:00:04.840 --> 00:00:08.440 I caused Jack Kemp to blow a gasket and run out of the room. 3 00:00:08.440 --> 00:00:17.720 This was a long time ago, but I became instantly famous over that. 4 00:00:17.720 --> 00:00:24.640 Anyway, it involved some comments on Rich's paper where I said he and his partner in crime, Galloway, 5 00:00:24.640 --> 00:00:28.400 should have gone back another hundred years with their data to the Civil War era, 6 00:00:28.400 --> 00:00:32.080 because there was a paper on the growth of government and that because you know 7 00:00:32.080 --> 00:00:35.200 we had the first income tax, the first military conscription, the National 8 00:00:35.200 --> 00:00:39.760 Currency Acts, seemed to me they were a boost to big government then and Kemp 9 00:00:39.760 --> 00:00:44.560 just couldn't tolerate it and ran out of the room cussing and swearing and I 10 00:00:44.560 --> 00:00:49.080 didn't even mention his hero Lincoln's name but he took it as an insult to 11 00:00:49.080 --> 00:00:55.080 Abe Lincoln. Anyway, as Peter asked me to comment on a paper of 12 00:00:55.080 --> 00:00:59.680 Henry's wrote five years ago called how law and economics was marketed in a 13 00:00:59.680 --> 00:01:05.180 hostile world a very personal history and Peter asked me to do this one I guess 14 00:01:05.180 --> 00:01:11.280 because I was a graduate student at VPI in the 70s I was student of Jim Buchanan 15 00:01:11.280 --> 00:01:15.320 Gordon Tullock and a lot of the faculty were publishing in the Journal of Law 16 00:01:15.320 --> 00:01:19.560 and Economics at the time my office mates for a couple years was Henry 17 00:01:19.560 --> 00:01:22.900 Butler who left and went to the University of Miami is one of your early 18 00:01:22.900 --> 00:01:28.100 Students at Miami in Law and Economics. And so I was sort of a fly on the wall of the 19 00:01:28.100 --> 00:01:33.900 development of the public choice segment of Law and Economics. And also a lot of the faculty 20 00:01:33.900 --> 00:01:38.180 were publishing in the Journal of Law and Economics and Journal of Legal Studies and 21 00:01:38.180 --> 00:01:42.060 places like that. And then of course I was a colleague of Buchanan and Tollex at George 22 00:01:42.060 --> 00:01:47.660 Mason for several years too. And so I guess Peter for some reason thinks I would have 23 00:01:47.660 --> 00:01:50.660 I have some insights on this, on Henry's entrepreneurship. 24 00:01:50.660 --> 00:01:53.660 And one thing I'll say about his famous article, 25 00:01:53.660 --> 00:01:55.660 Mergers in the Market for Corporate Control, 26 00:01:55.660 --> 00:01:57.660 is I would never have been surprised at all 27 00:01:57.660 --> 00:01:59.660 if I had read that article for the first time 28 00:01:59.660 --> 00:02:04.660 and an Israel Kirzner or Fritz Machlop were the authors of it. 29 00:02:04.660 --> 00:02:08.660 It's very good sound economic analysis based on a real-world problem. 30 00:02:08.660 --> 00:02:11.660 That's what attracted me to the Austrian School in the first place 31 00:02:11.660 --> 00:02:15.660 when I was a student, that sort of research. 32 00:02:15.660 --> 00:02:20.660 And so I'm going to read you some of the things that Henry says in his article. 33 00:02:20.660 --> 00:02:26.660 It really reminded me of really the parallel between the development of public choice and law and economics. 34 00:02:26.660 --> 00:02:31.660 He says the law and economics was, quote, a bad joke originally in a lot of places. 35 00:02:31.660 --> 00:02:35.660 That's how public choice was treated. When I first went to graduate school, 36 00:02:35.660 --> 00:02:41.660 I talked to some of the students who had been there for a few years and were out interviewing for jobs. 37 00:02:41.660 --> 00:02:52.660 They would come back saying they'd go to some economics department somewhere and there would be like uproarious laughter at what they were doing, applying economic analysis to political institutions. 38 00:02:52.660 --> 00:02:58.660 And these are people who eventually would publish these articles, their dissertations, in pretty good journals. 39 00:02:58.660 --> 00:03:10.660 But the economics profession was so, you know, they thought they had the market failure way of looking at economics so nailed down that any challenge to that was they would just laugh. 40 00:03:10.660 --> 00:03:15.780 and those are the same thing and Henry said another quote is quote I was 41 00:03:15.780 --> 00:03:21.540 probably the most reviled law professor in America end quote and that's it that 42 00:03:21.540 --> 00:03:25.600 was a good thing that was a good thing that he was reviled if the right people 43 00:03:25.600 --> 00:03:30.140 hate you you're doing the right thing and and Buchanan and Tullock and the 44 00:03:30.140 --> 00:03:35.760 others face this too it reminded me instantly of Jim Buchanan and Jeff 45 00:03:35.760 --> 00:03:39.980 Brennan wrote a book called The Power to Tax and in it they made the argument 46 00:03:39.980 --> 00:03:45.580 and that excise taxes are more virtuous than the income tax because there's more escape 47 00:03:45.580 --> 00:03:50.780 routes for the consumer, for the taxpayer. It's easier to escape paying taxes. And it 48 00:03:50.780 --> 00:03:54.860 was reviewed in the economics journal, which is kind of prestigious economics journal and 49 00:03:54.860 --> 00:04:01.300 the reviewer called them fascists for making an intellectual argument for limiting government. 50 00:04:01.300 --> 00:04:05.380 And so there certainly was a lot of that. Henry talks about ideological discrimination 51 00:04:05.380 --> 00:04:08.820 against the Whole Idea of Law and Economics. 52 00:04:08.820 --> 00:04:11.300 Well, I've heard this story many times 53 00:04:11.300 --> 00:04:12.980 of why Gordon Tullock didn't get tenure 54 00:04:12.980 --> 00:04:14.500 at the University of Virginia, 55 00:04:14.500 --> 00:04:16.500 which is why they all ended up at VPI. 56 00:04:16.500 --> 00:04:20.780 Where I went to school was the president 57 00:04:20.780 --> 00:04:22.140 of the University of Virginia. 58 00:04:22.140 --> 00:04:25.740 Said he just could no longer tolerate all this individualism 59 00:04:25.740 --> 00:04:28.780 among the faculty associated with the economics department 60 00:04:28.780 --> 00:04:30.620 and the public choice center. 61 00:04:30.620 --> 00:04:34.580 And so they had that kind of discrimination too. 62 00:04:34.580 --> 00:04:44.300 And, but an important point that Henry makes in his essay, I thought, was, you know, he's talking about the anti-Chicago school bias in academe. 63 00:04:45.060 --> 00:04:53.260 But one of his statements is, most of this was overcome by, quote, the raw intellectual power of the works of Milton Friedman and Friedrich Hayek, end quote. 64 00:04:53.660 --> 00:05:00.460 And that's certainly true. I think that's what happened with public choice, too, that, you know, I get there in graduate school and I'm thinking, what am I doing? 65 00:05:00.460 --> 00:05:08.460 The people who have been there for three or four years are interviewing and are coming back saying there's no hope of getting this job. They laughed at me and things like that. 66 00:05:08.460 --> 00:05:19.460 But the sheer intellectual power of someone like Henry Manning, I would add, into that group of Milton and Hayek did overcome these things. 67 00:05:19.460 --> 00:05:25.460 So nowadays, public choice is pretty much a mainstream discipline. 68 00:05:25.460 --> 00:05:31.960 The kind of economics that was taught in Henry's famous seminars for judges 69 00:05:31.960 --> 00:05:35.960 was the same economics that every graduate student in the public choice school, 70 00:05:35.960 --> 00:05:38.960 at least when I was there, was told you had to learn this first. 71 00:05:38.960 --> 00:05:41.260 That is the Alcheon and Allen textbook. 72 00:05:41.260 --> 00:05:44.660 And this was the most Austrian-friendly textbook at the time. 73 00:05:44.660 --> 00:05:47.260 University Economics was the title of it. 74 00:05:47.260 --> 00:05:50.860 And it incorporated property rights and transactions costs 75 00:05:50.860 --> 00:05:56.060 and, you know, it explored the incentive effects of alternative property rights regimes 76 00:05:56.060 --> 00:06:00.940 as opposed to the sort of the mechanistic engineering problems that you would learn 77 00:06:00.940 --> 00:06:07.100 in other economics textbooks. In fact, the first thing the older students told me when I was a 78 00:06:07.100 --> 00:06:11.500 first-year graduate student is to pass the comprehensive exams, the first thing you have to do 79 00:06:12.140 --> 00:06:17.420 is just master Alchean and Allen, you know, then you can learn all the other more sophisticated 80 00:06:17.420 --> 00:06:21.420 stuff. Then you can learn all the game theory and all this stuff, but you're 81 00:06:21.420 --> 00:06:24.620 gonna have to answer several questions on the prelims that are sort of Alchi and 82 00:06:24.620 --> 00:06:28.540 Allen questions. So every graduate student there in my day anyway, in 83 00:06:28.540 --> 00:06:32.900 addition to all the coursework, made sure you understood Alchi and Allen inside 84 00:06:32.900 --> 00:06:36.540 and out, and I've talked from it for the first several years out of school, 85 00:06:36.540 --> 00:06:41.300 but by that time it was too advanced for undergraduates in the most American 86 00:06:41.300 --> 00:06:59.300 University, alcohol-soaked sex fiends, as Richard said. It doesn't really work with undergraduates, but it was a great book at the time. It was very Austrian-friendly. 87 00:06:59.300 --> 00:07:07.300 Speaking of that, a lot of the work in law and economics, one of the fields I published over the years is industrial organization. 88 00:07:07.300 --> 00:07:14.300 And there was somewhat of a revolution in the Chicago School of Law and Economics movement in the antitrust area. 89 00:07:14.300 --> 00:07:18.300 And sort of one of the famous books is Industrial Organization, The New Learning. 90 00:07:18.300 --> 00:07:20.300 I'm sure Peter is very familiar with this. 91 00:07:20.300 --> 00:07:22.300 And I always thought, well, this is not new at all. 92 00:07:22.300 --> 00:07:28.300 This is the old learning of how the Austrians thought of competition as a dynamic, rivalrous process. 93 00:07:28.300 --> 00:07:35.300 Some of the classic articles, for example, a real simple, even simplistic article by the late Yale Brozin, 94 00:07:35.300 --> 00:07:55.300 at Yale-Broson, where some of the Harvard economists would look at just correlation coefficients between profitability and industrial concentration and just the mere existence of a correlation they claimed proved that there was market power there, that the concentration somehow caused monopoly power, case closed. 95 00:07:55.300 --> 00:08:00.840 All Yale-Broson did was to look at the same data, the same industries, over time. 96 00:08:00.840 --> 00:08:06.300 Look at 20 years prior to this date where they collected these data, and what happens 97 00:08:06.300 --> 00:08:07.300 to market shares? 98 00:08:07.300 --> 00:08:12.340 Well, there was a big movement from the top earners down toward the median, and most of 99 00:08:12.340 --> 00:08:16.180 the ones from the bottom ascended up toward the median also. 100 00:08:16.180 --> 00:08:19.220 And so manufacturing, he thought that was very competitive. 101 00:08:19.220 --> 00:08:26.960 and Harold Dempsets too, some of his hallmark articles, one of them in particular, he looked 102 00:08:26.960 --> 00:08:33.260 at the same data set that Rosen was looking at and he noticed that within an industry 103 00:08:33.260 --> 00:08:37.320 that had high profitability for an extended period of time, there were some companies 104 00:08:37.320 --> 00:08:40.420 that had much higher profit margins than others. 105 00:08:40.420 --> 00:08:41.420 Why is that? 106 00:08:41.420 --> 00:08:44.020 Well, they were bigger and they had economies of scale. 107 00:08:44.020 --> 00:08:48.420 And so, in other words, what they did was to disaggregate these data and that's the 108 00:08:48.420 --> 00:09:18.420 is the kind of thing Austrians would do and that point was very powerful that Harold Demsitz came up with and it really broke the back of this old system of just assuming industrial concentration meant monopoly power of some kind and I always thought that well this is very Austrian and I've probably several articles in it also. Another aspect of law and economics that I would never be surprised if I heard someone who calls himself an Austrian economics 109 00:09:18.420 --> 00:09:34.420 The famous article about the lighthouse in economics and Stephen Chun, the fable of the bees, these articles that challenge the market failure ideas in the economics profession. 110 00:09:34.420 --> 00:09:44.420 This is exactly the kind of thing Austrians have done and ought to be doing a lot more of in good, solid historical research guided by economic theory. 111 00:09:44.420 --> 00:09:52.420 And they really did a great job in debunking these assumptions that markets fail based on just theorizing. 112 00:09:52.420 --> 00:10:00.420 My students always laugh when I teach this stuff and I talk about Stephen Chung's famous essay, 113 00:10:00.420 --> 00:10:04.420 famous among law and economics people, anyway, The Fable of the Bees, 114 00:10:04.420 --> 00:10:07.420 that he did something very unusual for an academic economist. 115 00:10:07.420 --> 00:10:11.420 He actually got up out of his swivel chair and looked around outside. 116 00:10:11.420 --> 00:10:24.420 And for those of you who aren't familiar with this, for decades in economics literature, an example of market failure was apple orchards and beekeepers. 117 00:10:24.420 --> 00:10:29.420 The bees pollinate the apple orchards, the apple orchards feeds the bees. 118 00:10:29.420 --> 00:10:39.420 There's a reciprocal positive externality, but generations of economists said there's market failure here because there's no way of compensating this externality. 119 00:10:39.420 --> 00:10:45.480 Stephen Chun found out that for generations the beekeepers and apple orchard owners had had very 120 00:10:45.480 --> 00:10:51.420 explicit contracts doing just that, paying each other. If there's money to be made, someone will 121 00:10:51.420 --> 00:11:01.580 figure out how to make it, in other words. And so in Henry's, his seminars for judges, they've had 122 00:11:01.580 --> 00:11:06.980 had just a tremendous impact. Just in my own studying of some of the antitrust literature, 123 00:11:06.980 --> 00:11:11.620 Well, probably one of the worst, the dumbest statements ever made by a judge was Judge 124 00:11:11.620 --> 00:11:16.260 Learned Hand in the Alcoa Antitrust Case and I can paraphrase it, I didn't bring it with 125 00:11:16.260 --> 00:11:21.660 me right here, but he found Alcoa guilty of having the best management around and never 126 00:11:21.660 --> 00:11:27.740 missed an opportunity to cut costs or to hire the best people and his condemnation of Alcoa 127 00:11:27.740 --> 00:11:33.380 sounded like what should be in every MBA student's package of knowledge of how to run a good 128 00:11:33.380 --> 00:11:38.980 Company, and hopefully, I'm sure, the Law and Economics Center and its programs with 129 00:11:38.980 --> 00:11:42.420 judges did a lot to defeat that. 130 00:11:42.420 --> 00:11:48.300 And here's my favorite statement, although in Henry's paper, quality innovation in an 131 00:11:48.300 --> 00:11:53.780 institution, that is, institution of higher education, is inversely related to the power 132 00:11:53.780 --> 00:11:56.300 that the faculty exercise. 133 00:11:56.300 --> 00:12:02.020 And he's talking about how he created the Law and Economics Center at George Mason, 134 00:12:02.020 --> 00:12:03.020 and that is certainly true. 135 00:12:03.020 --> 00:12:07.260 I almost had an opportunity like that myself, but I was too much of a chicken where I had 136 00:12:07.260 --> 00:12:13.100 a trustee member of a small college in Maryland say, we're going to kick out this president. 137 00:12:13.100 --> 00:12:17.940 He wanted me to be a candidate for the president of this small college with my job of firing 138 00:12:17.940 --> 00:12:19.660 two-thirds of the faculty. 139 00:12:19.660 --> 00:12:25.940 This was about 12 years ago, and I regret that I didn't take him up on it, but the time 140 00:12:25.940 --> 00:12:26.940 wasn't right. 141 00:12:26.940 --> 00:12:31.580 If he called me back today, I would do it just for the fun of it, even if I didn't succeed. 142 00:12:31.580 --> 00:12:39.580 Richard Vetter would be the first person I would hire as my assistant in doing that. 143 00:12:39.580 --> 00:12:46.580 And so, anyway, the lesson I get from, I would recommend, read this article that's online by Henry, 144 00:12:46.580 --> 00:12:53.580 how law economics was marketed in a hostile world about how an academic entrepreneur can prevail. 145 00:12:53.580 --> 00:12:59.580 So Henry is sort of the Chicago school Lew Rockwell, in my view, as far as what he has achieved.