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NOTE 03. The Revival of the Austrian School: Mises and Rothbard (video)

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The title of the lecture, The Revival of the Austrian School, Mises and Rothbard, is slightly inaccurate because what I'm really going to do, I'm going to get to that, but I'm going to finish up more or less from yesterday.

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So really this is going to talk more about the fall and then the revival of the school and the reasons for the decline.

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Let me mention, though, before I start, the similarities between Mises and Rothbard, some very interesting similarities even though they're two generations apart.

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First of all, I consider them the two greatest economists of the 20th century. They were born two generations apart, as I said, and they were worlds apart in their cultural background and in personal temperament.

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But as I said, there were important similarities.

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There were both creative geniuses who constructed a breathtaking system of economic theory.

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Both worked in virtual isolation from mainstream academia during very productive periods of their careers.

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Rothbard for all of his career and Mises for a very productive period of his career beginning in the late 1930s.

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or actually beginning after World War II.

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Thirdly, despite their extraordinary mental abilities, both men displayed tremendous intellectual humility.

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They didn't seek to reinvent the wheel, to rebuild economics from the ground up.

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Their ambition was to refine and advance and correct the work of their acknowledged masters.

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Mises always acknowledged Boehm-Bawerk as his master, whereas Rothbard always acknowledged Mises as his master.

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So they worked within an existing paradigm and tremendously advanced that paradigm.

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And both, importantly for us, both published comprehensive treatises on economics at crucial points in the history of economic thought

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that saved the Austrian School from really disappearing into oblivion.

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Mises' treatise in 1969, and Rothbard's treatise, Man Economy and State, in 1962.

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And finally, both were very passionate and intransigent seekers of truth.

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There was an article written by Mises' friend, Don Mises, Jacques Rouef, a liberal economist, member of the Mont Pelerin Society,

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and the article was titled, The Intransigence of Ludwig von Mises.

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They wouldn't take a step back on principle.

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And Rothbard always talked about compromising on means, but never on ends.

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And they really never deviated from Carl Menger's original vision of economic phenomena as rooted in the valuations and choices of human action.

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So that's sort of an introduction to the two men who did save Austrian economics.

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and who are responsible for its rebirth.

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Now, let me talk about the decline, the fall and the rebirth of Austrian economics.

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First, I'll give you what has come to be the standard account.

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It's not written down anywhere in detail.

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It was an account I accepted myself up until the late 1990s when I started rethinking things.

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You can find it in bits and pieces throughout Israel Kirzner's writing, and recently Bruce Caldwell's biography on Hayek incorporates this view.

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It's a view that almost everyone who was in Austria in the 1970s and later accepted pretty much by osmosis.

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And so I'll call it the Kirzner-Caldwell account.

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Let me just tell the story according to Kirzner and Caldwell.

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According to this view, Austrian economics was riding high.

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It was developing tremendously during the 1920s and 1930s.

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By the early 1930s, it had offered really the only reasonable explanation for the Great Depression.

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so that while English-speaking economists were saying that we were going to live through an era of perpetual prosperity and that business cycles had effectively been abolished in the 1920s because the Fed and the Bank of England, mainly the Fed, had stabilized prices and that therefore without an inflation of consumer prices you could never have an ensuing depression. Irving Fisher, the proto-monitorist and Milton

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Friedman's inspiration, claimed at the end of the 1920s that this was the era of perpetual prosperity and when the Great Depression did strike what occurred was a lack of any explanation for why it should happen.

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It took many, many people by surprise, both in academia and in business.

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So, the Austrian Business Cycle Theory, which had been developed by Mises and Hayek during the 20s, was ready at hand as an explanation.

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And it quickly spread its influence throughout the continent and to the United States.

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So according to the Kirzner-Caldwell account, the Austrian School was actually flourishing and gaining even more adherence in the 1930s.

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Then 1936 struck, and we had, quote, the Keynesian Avalanche, and the Austrian School disappeared down the memory hole.

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It was buried by the Keynesian Avalanche.

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Now, one problem with this, and I'll talk about it in more detail later, is, well, that's only macro.

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Certainly the quantity theory, which was developing at Chicago by some of Milton Friedman's mentors, including Mintz and Henry Simons, that theory was also buried in 1936, but Chicago microeconomics wasn't buried, in fact that continued to flourish.

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So we have the Keynesian Avalanche explanation of why the Austrian School fell from its level of influence and popularity.

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It's up here and suddenly, in 1936, it reaches the nadir of its existence. It's barely alive.

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And then, in this account, there's a big bang theory of its rebirth. Suddenly, someone has a good idea.

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Hey, let's have an Austrian conference in 1974. And if you saw The Natural, the movie The Natural is a great movie with Robert Redford on baseball.

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Oh no, I'm sorry, not the natural, the movie Field of Dreams, with Kevin Costner, who's not such a great actor, but the movie was decent.

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In any case, in that movie, you had the phrase, if you build it, they will come.

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Well, this account can be summed up in the following.

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If you hold it, they will come.

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That is, where did all the thirty participants come from?

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There was no Austrian school.

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If the Austrian School was barely alive, there was only a few people writing who had been Mises' students in the 1950s when he came to America,

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where did the 30 graduate students, myself included, and young faculty members in economics, where did they come from?

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Why did they suddenly appear in this small Vermont town just because this conference was being held?

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No explanation is given. So in 1974 in the summer there was the South Royalton conference and then in October Frederic Hayek received the Nobel Prize for work that he did in the 1930s and boom, there's this big bang and now we have the reborn Austrian School.

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Well, in a way, because I'm making this story brief, I am charactering to some extent what they think.

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But this is basically the story. Now, the problems with this story are many.

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There are many. The first is that it really does not give us any idea, or it attributes almost no role to Mises and Hayek in the rebirth,

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particularly to the books Human Action and Man Economy and State.

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Human Action is looked on as a book that Mises wrote at the end of his productive career in 1949, and yes it's a very good book,

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Also, it treats the Austrian School as really a monolithic entity whose members all agreed with one another, and this wasn't even true at the beginning as I've shown you.

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Wieser and Boehm-Bawerk disagreed very profoundly on basic value and price theory, more particularly,

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it ignores two divergent traditions that grew up right from the beginning of the Austrian School.

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Both Boehm-Bawerk and Wieser were followers of Menger, but they took divergent paths.

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Visors had a student, Hans Meyer, who tried to develop his thought in a certain direction and didn't do very well, and then Hayek followed Visor.

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So we had a tradition, which I'll call the general equilibrium tradition in Austrian economics, which was Visor, and also Schumpeter was in this tradition.

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Wieser, Schumpeter, who was in Mises' cohort, he was in the third generation with Mises,

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and those two from Wieser and Schumpeter to Hayek, who was in the fourth generation.

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On the other hand, we have the Boehm-Bawerk, Mises, Rothbard tradition.

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And Hayek himself, and if you'd read my article on the place of Mises' human action and development

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of Modern Economic Thought, Hayek himself recognizes the difference in tradition and talks about how Mises developed the Boehm-Bawerk line and he himself and Hans Meyer tried to develop the Wieser line and that he was very disappointed that the Wieser line didn't develop more and that he admits that in the United States the Boehm-Bawerk-Mises line or tradition has dominated.

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It also does not deal with the crucial importance of what I talked about yesterday, an institutional framework based on property and resources.

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That is that a paradigm needs resources to exist and flourish.

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You can have geniuses like Mises and Rothbard working in isolation without interaction, much interaction with other minds, developing systems, but most of us are not geniuses.

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geniuses. Mises and Rothbard come around once a century.

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Also, this leaves out of account Joseph Schumpeter, who was treated as if he was just a Volrasian and wasn't really involved much in Austrian economics.

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In fact, he was very involved in Austrian economics. Yes, it's true he followed Ball Roth, but he also followed Wieser.

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and his books influenced the general equilibrium tradition of Austrian economics.

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Finally, it portrays Murray Rothbard wrongly as leaving economics sometime in the 1970s

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and becoming a social philosopher and libertarian activist

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and ceasing any contributions to economic theory or to Austrian economics in general.

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That's completely wrong.

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So that is a standard account.

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Now, what I would call the revisionist account disagrees that the Austrian School suddenly

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was buried under the Keynesian Avalanche in 1936.

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In fact, I argue, and this account argues, that the Austrian School was pretty much dead,

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at least the Boehm-Bawerk-Menger tradition by the late 1920s, early 1930s.

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Let me just mention how this happened. By the late 1980s, there was a tremendous flourishing

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of work. Boehm-Bawerk, Wieser and then many others in Austria began writing works in the

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Tradition of Menger. By the 1890s, the Austrian school had become a worldwide entity. It had great international influence in the U.S. A separate American school grew up. They called themselves the American Psychological School. J.B. Clark, Frank Feder, Herbert J. Davenport, and let me just show you a few pictures of these men.

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This is Clark, who was working along the lines of Menger, but wrote that, in fact, one of his main influences was Menger.

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He's known as the father of scientific American economics, or marginal utility economics.

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Here he is with Frank Fetter, who taught at Princeton and was a follower of Boehm-Bawerk,

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Boehm-Bawerk and developed Boehm-Bawerk's time preference theory of interest into a pure time preference theory and rooted out some errors that Boehm-Bawerk had in his theory.

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Also was a great rent theorist and wrote a good principles text which summed up Austrian principles right on the eve of World War I.

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This text came out in 1915, and there he is with an older Clark, who we considered to be the leader of the American Psychological School, which was an unfortunate choice.

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It was really a praxeological school, it wasn't a psychological school.

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This is Herbert J. Davenport, who wrote a number of important treatises, was a subjective value theorist,

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wrote a great treatise, which came out right around the beginning of World War I,

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called The Economics of Enterprise, in which he stressed the entrepreneur,

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and was an American-Austrian, part of the American Psychological School.

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Unfortunately, as we'll see, this school collapsed because of a tremendous personal animosity between Davenport and Fedder.

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They continually attacked one another in the journals, not just intellectually, but personally.

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And they were very close in their thought. So that was unfortunate.

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So they left no students. They left no followers.

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And then in England, the school, as I mentioned, Jevons' lone follower, Philip Henry Wickstede,

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also became Boehm-Bawerkian and Mengerian and brought Austrian economics to Great Britain

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and there were a few others, Edwin Cannon and William Smart

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and well that's the evil Alfred Marshall which we'll talk about, or who we'll talk about

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Okay, so also in the Romance Countries in Italy and France as we saw we had the liberal school transforming itself into a marginalist liberal school following Boehm-Bawerk

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So the Austrian School became globalized or became international in the 1890s.

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It really reached the peak of its influence by 1914.

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There were three great treatises just in England, just in English.

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One by Wickstede, one by Davenport, and one by Fetter.

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and they were thorough treatises setting out or presenting Austrian thought up to that point in the Menger-Boehm-Bawerk tradition.

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What caused the decline of the Austrian School? First let's look at very briefly at events in Austria.

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As I mentioned yesterday, Boehm-Bawerk went into government service in 1889 after he had finished his three volume treatise on capital and interest

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and Interest, and stayed there until 1904. He returned to academia in 1905, and they

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created a chair for him at the University of Vienna, but he was in ill health, and his

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creative powers had been withered. Just to characterize him, in other words, he ceased

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He used to become really a player in Austrian economics at that point when he came back.

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He couldn't do any innovative or creative work.

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For example, one person described him as to have seemed older than his years suggested.

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He was only 54 years old when he came back.

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He himself, two years after he returned to academia, described himself as an old man.

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This is what all those years in government bureaucracy can do to you.

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He had tremendous workload and he also tried to keep up his economics at the same time.

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Also, Mises had an interesting comment. He attended Boehm-Bawerk's famous seminar when Boehm-Bawerk returned.

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He observed, quote, Boehm-Bawerk could have produced much more if conditions had permitted it,

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but his physical constitution could no longer stand the hard work necessary to embark upon great works.

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So, Boehm-Bawerk was more or less out of the picture when he returned in 1905, and then

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he died prematurely in 1914.

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In the meantime, Menger retired.

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Menger really stopped writing theoretical articles in the 1890s.

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His book went out of print.

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He refused to revise it, despite the tremendous demand for his book, he refused to revise

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it and refused to allow it to be reprinted.

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It was commanding tremendously high prices in used bookstores, it had disappeared from

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the libraries, and yet it wasn't reprinted until after his death by his son.

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So that book wasn't around.

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They created a chair, or they gave the chair to Wieser, Menger's chair was given to Wieser

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as the main professor at the University of Vienna, the person who would teach all incoming

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students economics, because as I said, Boehm-Bawerk was in government service at the time.

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As I pointed out yesterday, or not in too much detail, but Wieser did not follow Menger's

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causal realistic approach to economic theory, trying to find out the causes of real economic

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phenomena, of real prices that we observe every day.

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That was not what Wieser did. He gave us a huge general equilibrium system describing

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how prices would be if everything was pretty much adjusted. That is, how prices would be

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in a never-never land where there's no changes in the data and so on. He didn't use math

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and he tried to make it more realistic than the Volrasian mathematical system, but it

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was still a general equilibrium system. He also published the first complete treatise

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Business on Economics in Austria in 1914, called Social Economics.

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Then in 1903 or 1904, Schumpeter enrolled in the University of Vienna, Joseph Schumpeter,

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who was a brilliant man, a famous economist, and he became a VISA student, but he was also

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a follower of Walras, though he didn't know much math.

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He thought Walras was the greatest economist who had ever lived.

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He wrote two books at a very young age. In 1908 he wrote a book on the nature and essence of economic theory, and then in 1911 he wrote a book on business cycles, the theory of economic development, and that established an international reputation.

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So in the third generation it was Schumpeter who was seen as the star.

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Mises, who was Boehm-Bawerk's student also, had only published a book in 1912 on the theory of money, a great book on the theory of money, but he was seen as much narrower than Schumpeter.

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Schumpeter had produced a book pretty much on methodology in the first book and the second work on business cycles.

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So Schumpeter was seen as a system builder and the star of the third generation.

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Now, when the fourth generation enrolled after World War I, that included Hayek, Fritz Machlup, Gottfried Habler, Oscar Morgenstern, and so on.

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All of these men either went to Great Britain in the 1930s or the United States. Fritz Machlup taught at Princeton and NYU for many years.

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Gottfried Habler taught at Harvard for many years. Morgenstern also taught at Princeton, and so on.

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Anyway, those people entered the University of Vienna between 1918 and 1921.

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They studied under Wieser, so their first exposure to economic theory was through this other tradition.

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Hayek says many great things about Wieser. He calls him my revered teacher.

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You can tell that Wieser was the main influence on the early Hayek.

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There's no doubt about that. You can read Hayek on Hayek.

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and John Hayek. No matter how much the other side argues that that's not true, Bruce Caldwell, Israel Kirzner, it is true.

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In fact, you were not allowed to join Mises' private seminar until after you had had your degree,

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which means after you had had your economics courses at the University of Vienna.

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Now, it's true that Mises did teach a course at the University of Vienna as a private dozant,

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Someone who is an unpaid lecturer, who the students just give nominal fees to.

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But Hayek himself says he sat in one day and didn't like Mises' attitude, and so he never completed the course.

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But even if he had, Mises did not lecture on general economic theory, that was Wieser's job.

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Mises lectured on things that were interesting to him, things that he was researching on,

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on, such as monetary theory, business cycle theory and so on.

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So basically they also, this generation, because Schumpeter had gained an international reputation,

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they read his books, and it had a lot of influence on them, and he was very, very pro-Volrasian,

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very pro-general equilibrium.

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Finally, they did attend Mises' private, Privat Seminar after they graduated, through

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through the 1920s up to 1934 and Mises left. But by that time, as I mentioned, they had already become economists.

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Their views had already been formed by Viser and by reading Schumpeter's books.

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And in the seminar, what they discussed were applied topics and advanced topics.

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Now, that's not to say that Mises didn't have an effect on them. Mises did have an influence on these people.

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When they read his Socialism, which was published in 1922, most of them were social democrats, and almost all of them became much more liberal in the European classical sense because of that book, and Hayek points out how influential that book was.

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But again, that was a book on one aspect of economics, socialism.

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So they were very influenced by Mises' monetary theory and Mises' theory of economic calculations, socialism, and so on.

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But they were looking at these works through the lens of equilibrium theorists because of their early training.

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Now, that's one reason for the Austrian School, or at least the Mangerian-Boehm-Bawerkian part of the school, dying out.

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Second reason is, in the rest of the world, there were various factors operating, which I'll go through pretty quickly.

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Alfred Marshall wrote a very famous, one of the most famous treatises of the 19th century on economics, Principles of Economics, in 1890.

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By 1910 or so, that book had swept all of England.

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The few Austrians that were in England were pretty much marginalized or pushed to the side.

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Wickstede didn't have an academic position. He also was a preacher and wrote on religion and so on.

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His treatise was Sweat the Side, the treatise which he wrote in 1911 was more or less forgotten about.

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By 1920, everybody in England was a Marshallian economist, except for one school.

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This school, the London School of Economics, where Lord Robbins, Lionel Robbins later

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become Lord Robbins, had read a lot of, knew German and read a lot of the Austrian literature,

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was very influenced by the Austrians, was also very influenced by Wickstede's book.

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So there's one outpost that remained in Great Britain after the Marshallian dominance.

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And I'll talk about what happened there in a minute.

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In the U.S. we had the fight between the Fed and Davenport. They never really went on to found the school.

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By the 1920s they were old men. They ceased to contribute to economic theory.

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There was a big gap in economic theory, so what happened? Marshallian economics was imported.

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And the vacuum in economic theory was filled by Frank Taussig, who was sort of a Ricardian,

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Mill and a Marshallian.

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They called Taussig the American Marshall because his brand of sort of neoclassical

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combination of some marginal utility and the old classical school, his brand really dominated

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American economics.

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In France and Italy, I mentioned yesterday that the Austrian marginalist school was eventually

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was eventually replaced by a combination of martial with some German historicism.

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So Austrian economics died out in the 1920s throughout the world.

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Then you had the emigration of Hayek from Austria to the London School of Economics.

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He was invited there by Lord Robbins who was the chairman of the department.

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He gave lectures in 1930, lectures which later became published as his great book,

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Prizes and Production, which was an advance in Mises' business cycle theory.

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But what happened was that when he arrived at the London School of Economics, he met a brilliant

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student of Robin's, John Hicks, who was one of the fathers of sort of modern neoclassical economics,

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And for whatever reason, he influenced Hicks to reread Vilfredo Pareto, who was a follower of Walrassen, who was a mathematical general equilibrium theorist.

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In the English-speaking world, there was no mathematical general equilibrium theory.

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There was some in Italy and France and so on.

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But now, in the 1930s, for the first time, this new theoretical system was introduced.

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and it was introduced through Hayek's influence.

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So Hicks read the book and wrote a book called Value and Capital

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which came out in 1939, but he was working on it throughout the 30s.

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It was a very influential book and what it did was to introduce

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general equilibrium analysis into the English-speaking world.

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Now Robbins, who was an Austrian, who had read Mises and who had read Striegel, who was also a follower of Boehm-Bawerk and others in German,

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happened to have a personality flaw. In the beginning he was under the influence of Hayek very strongly in macroeconomics.

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After Keynes' book came out, The General Theory, in 1936, he quickly changed his mind and became sort of a quasi-Keynesian.

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And he had written a great book explaining the Great Depression using the Austrian Business Cycle Theory, which is simply called The Great Depression.

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And in his autobiography written in the 1970s, he apologizes for writing that book and says that he couldn't even stand to read it through again.

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So, Hayek once, I heard Hayek speak once, and Hayek said that Robbins was very, very influenced by the strong opinions held by those around him.

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So, since everyone in England was becoming a Keynesian, he became a Keynesian.

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Well, the same thing was true, though, which people don't realize, of his price theory, his microeconomic theory.

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He was initially a Mangerian. If you look at his great book on the nature and significance of economic science, it's really straight Menger and early Mises and so on.

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The methodology is very praxeological. But because Hicks began to write this book, and Hicks was a brilliant man, and Hayek also was thinking in terms of general equilibrium,

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Robin's began to forget about his Mengerian, Boehm-Bawerkian roots and to move to that side of the tradition.

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And if you look at his reading list for his course in general economic theory, you see this occurring very clearly between 1934 or so and 1938.

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In his 1934-1935 session, his syllabus included, under the heading Modern Works and General Theory, he had listed treatises by Boehm-Bawerk, Wickstede, Fedder, Clarke, and Davenport, all Austrians, all hardcore Austrians, and he did have, alongside that, he had a few works of Cassell, Pareto, who were general equilibrium theorists, but the main works were Austrian,

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The Treatment will be non-mathematical in character. Students who wish to witness the same problems treated mathematically should attend Course No. 66, Introduction to Mathematical Economics.

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really just different ways of expressing the same concepts, okay?

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Then, things got even worse in his syllabus for 1938-39.

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He moved further away from the Mengerian tradition.

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He got rid of the general theory heading and he put statics and comparative statics.

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Statics meaning, you know, general equilibrium theory.

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and no longer were there listed the great treatises by Clarke, Federer and Davenport, or Boehm-Bawerk.

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He kept Pareto's treatise, mathematical treatise, and then he added Hicks and Allen's article on reconsideration of the theory of value,

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which was the precursor of Hicks' book introducing general equilibrium theory into the English-speaking world.

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He also included another English economist's book called Mathematical Psychics.

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It's a great title.

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And also books by Edward Chamberlain, The Theory of Monopolistic Competition.

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That was also added.

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And instead of Wickstein's treatise as being the main book that entering students should read,

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he listed Knight's Risk, Uncertainty, and Profit, which was hardly Austrian,

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because it introduced perfect competition theory.

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So we see that changing. So the London School of Economics lost its Hungarian character in the early 1930s.

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Finally, if you look at the socialist calculation debate that occurred during the mid-1930s,

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Hayek and Robbins emphasized, and we'll talk about this in two days from now,

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they emphasized the difficulty in central planning of collecting all this dispersed knowledge and getting it to the planner.

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of the Planner, they did not emphasize or stress what Mises had stressed, which was

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the problem of monetary calculation or economic calculation, trying to determine from market

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prices what goods are most demanded by consumers and what methods of producing them are the

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most economic.

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This is what Mises stressed.

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It was not stressed by Hayek and Rometz.

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This was more of a general equilibrium view, that there's a lot of information out there

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that the price system automatically communicates to the producers and things are fairly mechanical.

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Though I don't want to say that they are straightforward Volrasian general equilibrium

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theories.

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So the final problem leading to the Austrian, the final fact leading to the decline of the

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of the Austrian School, the death of the Austrian School, was that there was some problems in the actual Austrian Theory itself, which had been developed up to 1914, okay?

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First of all, it really did not clarify the proper use of equilibrium. There is a use for equilibrium in economics, and it was not clarified even by the most sophisticated treatises of Wick Steed and Davenport, okay?

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Sometimes they talk about a moving equilibrium that the market was moving, that we weren't in a fixed equilibrium, but that equilibrium was moving and the market somehow was chasing it, but they didn't make it clear.

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They also didn't integrate money and price theory. As Mises says, economics is all about explaining money prices. Where do these money prices that we observe every day come from?

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From Menger forward, the theory was really a barter theory. It was a theory of relative prices. Money really wasn't integrated into economics.

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Wickstede tried in his treatise and partially succeeded, I think, but Mises did succeed in 1912, in his book.

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He wanted to write a full treatment of economics but was not able to. He didn't do that until he did Human Action.

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And he says himself that my theory was not complete until I wrote National Economy, which was the German forerunner of Human Action.

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And the third problem was that the Austrians really didn't, before Mises wrote Human Action, didn't stress the important role of the entrepreneur in forecasting the future and acting as someone who demands present capital goods.

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In other words, the entrepreneur is the one who is responsible for the appraisement or for the pricing of factors of production.

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production, based on his or her forecast of what future prices will be.

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So given these defects, in the 1930s, when general equilibrium theory was introduced

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in the English-speaking world, economists looked around and said, well, wait a minute.

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The Austrian theory is simply an unsophisticated, less rigorous version of general equilibrium

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theory.

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It's basically general equilibrium theory, but it's not elegant.

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It's wordy, we can say the same things in equations, much more simply, much more clearly.

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So because of certain errors in the Austrian theory, which undermined or obscured the fact

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that it was focused on a dynamic, changing, uncertain world, it was just pushed aside because

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it was inelegant.

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We can say the same things the Austrians are saying, we can integrate marginal utility

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by a system of simultaneous equations.

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Okay, so that's the way things stood in the 1930s.

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Now, Mises was extremely productive, continued to write articles, books and so on

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through the early 1930s.

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In fact, in 1933 he came out with a collection of his papers

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that went from 1928 to 1933 on methodology

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in which he began to develop a system

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that came to fruition in human action, and was at that point, see that was already too late for the fourth generation, Hayek's generation, to absorb.

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They thought that Mises was saying the same thing in some sense as Wieser was saying.

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They never really realized that Mises had a whole different system in the back of his mind,

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a much more dynamic development of Menger and Boehm-Bawerk's price theory.

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So, Mises now leaves Austria in 1934. Remember, he was working for the Chamber of Commerce,

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which was an advisory body to the Austrian legislature.

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He was working full-time and writing all these books, and it was a full-time job.

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and still writing books and articles and still teaching at the university and holding a private seminar, so he's extremely productive.

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But then when he goes to Switzerland, to the Institute of International Relations, I believe, the Graduate Institute of International Relations, something like that,

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he's invited there, he remains there for six years, and he doesn't write very much there, you're wondering what's going on.

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He writes a few book reviews, I think only one academic article, but what he's doing

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is sitting there realizing that Austrian economics has died, that the dynamic Mengerian-Boehm-Bawerkian

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approach to price theory is completely gone.

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And so he decides to reconstruct this theory, solve the problems, and put forth to the world

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a general treatise.

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So he sits there for five years and he does this and in 1940, we know timing is everything,

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in 1940 out comes his book National Economy and unfortunately because of the outbreak

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of the war, World War II, it can't be distributed in the German speaking market and the Swiss

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publisher goes bankrupt so the book just disappears.

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So, it doesn't appear until after World War II when Marshallian economics has completely

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taken over throughout the world with a little bit of Eurasian economics.

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So if you looked at textbooks after World War II in the 1950s, you have 90% of basically

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Marshall's partial equilibrium analysis and the other 10% at the end you tell the students,

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well, all of these markets are really connected and we can connect them mathematically.

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And that's what you have.

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And then Human Action comes out and no one's going to pay attention to Human Action.

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given that view of things, but the book is there, it's important that the book is there,

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that this whole system now has been integrated, Mises has solved the problems.

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So what happens, in the 1950s then, Austrian economics is almost completely dead, oh let

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Let me mention, before I get to that, it's interesting to see Hayek's reaction both to Mises's, first to the decline of the Austrian School in the 1930s, to the decline of its price theory, and then to Mises's book on national economy.

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First, in my article, I give a quote on page 57 if you're interested, because it really does show how Hayek's thinking is so much different from Mises's.

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Where Mises was in 1934 sitting around, attempting to reconstruct Austrian economics, here's what Hayek said about the fact that Austrian economics as a tradition, as an independent tradition, disappeared in the 1930s.

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He's writing this in 1968, looking back. He says, but if this fourth generation, meaning his generation of Austrians, in style of thinking and in interests, still shows the Vienna tradition clearly,

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Nonetheless, it can hardly any longer be seen as a separate school in the sense of representing particular doctrines.

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A school has its greatest success when it ceases as such to exist because its leading ideals have become a part of the general dominant thinking.

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What's the general dominant thinking in the late 1930s? General equilibrium thinking.

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So he's saying they've absorbed everything good that the Austrians had, they absorbed marginal utility and so on,

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and the Austrian School has disappeared, but this is a triumph for the Austrian School.

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The Vienna School has, to a great extent, come to enjoy such a success.

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Its development has indeed led to a fusion of the thought stemming from Menger with that of Jevins,

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quasi-mathematical, by way of Philip Wixteed, of Leon Walras by way of Alfredo Pareto,

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and especially of the leading ideas of Marshall, of Afro-Marshall.

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So what is he saying? He's saying that the Austrian School has made its mark,

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and it's been combined in this great neoclassical synthesis of Marshall and Balrass and all these guys.

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Now tell me that that's, read Human Action and then see if that's Mises' attitude,

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where he's continually attacking all of these divergent trends.

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Now what does he say about, he's shocked when National Economy comes out,

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because I don't think he realized how differently Mises was thinking.

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So it comes out in 1940, he reviews it.

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Overall he likes the book, but here's some interesting things he sees, perplexed by it.

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He says, he's perplexed by the fact that Mises had been unaffected by, and I'm quoting Hayek,

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the general evolution of our subject during the period over which his work extends.

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In other words, Mises doesn't incorporate imperfect competition theory,

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doesn't incorporate, you know, Walras, doesn't incorporate Marshall.

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So he's perplexed by this, okay.

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He needs a good whack up side the head.

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And he goes on to say that the development of Mises' thought during this period appears to be decidedly autonomous, meaning it's a terrible way of saying that Mises hasn't read anything and that just wrote this on his own without reading the latest literature.

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Why is he confused? He's confused because he fails to realize that this book represented Mises' attempt to autonomously reconstruct a paradigm that could not be reconciled with the general evolution, to use Hayek's term, of economics in the direction of Volrasian-Marshallian combination of which Hayek himself approved.

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Now, particularly revealing is Hayek's prediction that the central part of the book,

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those are the central chapters of Human Action, those are the sections on monetary calculation and on prices,

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which is a development of Menger.

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He says that the central part of the book would not be its main interest to most readers.

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But of course, these are precisely the sections that contain the reconstructed system.

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So he likes the praxeology, he likes the subjectivism, but he doesn't like the actual price theory, which is the central part of the book.

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So this is my revisionist view of why Austrian economics died.

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Sure, the Keynesian Revolution had some effect, but it destroyed one aspect, or made people forget one aspect of Austrian economics, and that was the business cycle theory.

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But one of the reasons for that was that that business cycle theory was based on sort of not very solid foundations.

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It moved away from a dynamic sort of system of pricing and it was based, Hayek himself with his books on business cycle theory, even though they were very good, based it on Volrasian general equilibrium theory.

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In one of the books he says that the highest form that economic theory takes is that of the Lausanne School.

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Lausanne School is the school of Volras and Pareto.

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00:45:54.580 --> 00:45:58.580
Alright, now, so what happens then in the 1950s?

378
00:45:58.580 --> 00:46:01.580
Well, there's not much being published in the 1950s.

379
00:46:01.580 --> 00:46:08.580
What's going on is that Mises does have a seminar at NYU.

380
00:46:08.580 --> 00:46:12.580
He can't get a regular position, though there's some debate about this.

381
00:46:12.580 --> 00:46:21.940
Mises, Pete Becky has seen letters in the archives at the Hoover Institute, the Hayek

382
00:46:21.940 --> 00:46:27.420
archives, in which Hayek and Moklop are exchanging letters, and Moklop is saying, what are we

383
00:46:27.420 --> 00:46:30.860
going to do with our problem child, meaning Mises?

384
00:46:30.860 --> 00:46:34.180
He keeps turning down all these positions.

385
00:46:34.180 --> 00:46:37.420
Moklop tried to get him a position at Johns Hopkins, but he would have to teach undergraduates

386
00:46:37.420 --> 00:46:40.180
and evidently Mises didn't want to teach undergraduates.

387
00:46:40.180 --> 00:46:57.180
He wanted a position, there was something called the Institute for Advanced Studies, it's at Princeton University, it still exists, it's where Einstein worked, it's where Morgenstern and I think Nash worked out game theory.

388
00:46:57.180 --> 00:47:01.180
In any case, he would have liked that, it was a research position, Mises would have liked that position.

389
00:47:01.180 --> 00:47:12.180
He reveals that in his memoirs, or no, his wife actually reveals that in her memoirs of my life at Ludwig von Mises.

390
00:47:12.180 --> 00:47:22.180
So whether or not he could get, he certainly didn't have, he wasn't flooded with offers because he was perceived as right-wing, free market, anti-socialist.

391
00:47:22.180 --> 00:47:29.180
So what happens is that a right-wing foundation begins to pay his salary and gets him a visiting professorship at NYU.

392
00:47:29.180 --> 00:47:33.180
Basically, NYU allows them to teach it because it's free.

393
00:47:33.180 --> 00:47:36.180
They're getting somebody to teach it for free because the foundation is paying a salary.

394
00:47:39.180 --> 00:47:58.180
So, what happens is that there's a period in the 1950s in which there is a seminar going on.

395
00:47:58.180 --> 00:48:10.180
It's going on at NYU, Henry Hazlitt attends it, Murray Rothbard attends it, Israel Kirzner, very bright men, Hans Sennholz, but not much is published during this period.

396
00:48:10.180 --> 00:48:16.180
Hayek has moved out of economics and is writing in social theory on the one hand.

397
00:48:16.180 --> 00:48:24.180
What we get published, there are a few books. Hazlitt writes a great book, Smashing Keynesianism, the failure of the new economics.

398
00:48:24.180 --> 00:48:31.180
and Economics. Rothbard writes a great article reconstructing utility and welfare theory.

399
00:48:31.740 --> 00:48:37.460
Kirzner writes his dissertation under Mises, a very good book on the economic point of view,

400
00:48:37.460 --> 00:48:44.460
which shows, which deals with the history of methodology up to Mises' praxeology.

401
00:48:45.780 --> 00:48:49.540
Not much else is written. Mises does write a great treatise on theory and history. It

402
00:48:49.540 --> 00:48:56.540
The book comes out in 1956, but the books are very few and far between. The school is almost dead.

403
00:48:56.540 --> 00:49:04.540
Now, what happens? In 1962, Rothbard comes out with Man Economy and State.

404
00:49:04.540 --> 00:49:12.540
He had been funded to publish this book by a foundation, the Volcker Fund.

405
00:49:12.540 --> 00:49:18.540
He lived on these grants, and he began writing the book in the early 1950s, after he had read Human Action.

406
00:49:18.540 --> 00:49:26.420
Human Action, and his initial objective is to fill in the blanks in Human Action, but

407
00:49:26.420 --> 00:49:29.580
really to make it a shorter, more accessible book.

408
00:49:29.580 --> 00:49:36.460
He winds up really reconstructing economics once again, or let me put it differently.

409
00:49:36.460 --> 00:49:38.720
He synthesizes economics.

410
00:49:38.720 --> 00:49:46.020
He takes not just Mises, but he takes Federer, Wickstein, the good things that were written

411
00:49:46.020 --> 00:50:16.020
by Robbins, a tremendous number of some of Clark's stuff, and he synthesizes all of these American and British economists that were influenced by the Austrians, and in particular, he constructs a tremendous theory of production, I take up five chapters of the book, and that theory of production was very, very skimpy in Mises, if you look at the Rothbard letters that he's writing to the people

412
00:50:16.020 --> 00:50:25.020
He mentions that he has to write the production theory himself, because there's very little in Mises to guide him.

413
00:50:25.020 --> 00:50:35.020
So he comes up with a new synthesis of economic theory, squarely within the Menger-Boehm-Bawerk Mises tradition.

414
00:50:35.020 --> 00:50:43.020
In fact, Mises himself, for some reason, didn't like the structural production analysis that Hayek had introduced,

415
00:50:43.020 --> 00:50:47.020
which came from Boehm-Bawerk.

416
00:50:47.020 --> 00:50:50.020
And Rothbard reintroduces that.

417
00:50:50.020 --> 00:50:54.020
So he combines the pure time preference theory of Federer

418
00:50:54.020 --> 00:50:58.020
with the structural production theory of Wichsel and Hayek.

419
00:50:58.020 --> 00:51:03.020
So it's a tremendous work, but he's not done.

420
00:51:03.020 --> 00:51:08.020
In 1963 he comes out with America's Great Depression,

421
00:51:08.020 --> 00:51:16.020
A book which applies Austrian theory to the causes of the Great Depression.

422
00:51:16.020 --> 00:51:21.020
He also comes out in 1963 with a short primer.

423
00:51:21.020 --> 00:51:24.020
People think it's simply an introductory book.

424
00:51:24.020 --> 00:51:30.020
A short primer on monetary theory, what has government done to our money?

425
00:51:30.020 --> 00:51:35.020
And in it though, he gives us really for the first time, this is really even missing in Mises,

426
00:51:35.020 --> 00:51:42.020
Mises, a theory of how fiat money comes into existence. How is it that we have this transformation

427
00:51:43.980 --> 00:51:50.140
from a gold standard through to a pure fiat money? Even in Human Action, Mises says it's

428
00:51:50.140 --> 00:51:57.140
not clear whether paper money, the previous episodes of paper money were true fiat money.

429
00:51:57.140 --> 00:51:59.820
That in other words, Mises believed that they could have been credit money, meaning that

430
00:51:59.820 --> 00:52:02.780
people were always expecting at some point to go back to the gold standard because that

431
00:52:02.780 --> 00:52:21.780
always happened. You went off, had paper money during a war or during some sort of crisis, but then a few years later you went back. That's what happened in Great Britain from 1797 to 1821. That's what happened in the United States during the Civil War and elsewhere during World War I.

432
00:52:21.780 --> 00:52:27.780
So the value of money was not purely based on the supply and demand for fiat money.

433
00:52:27.780 --> 00:52:34.780
It was also based on the expectation that, whether it was greater or lesser, that you would go back to gold.

434
00:52:34.780 --> 00:52:38.780
So that tended to maintain the value of paper money.

435
00:52:38.780 --> 00:52:46.780
But Rothbard shows that, in fact, we have a system of fiat money, and he shows how it develops in this very short book, clearly written book.

436
00:52:46.780 --> 00:52:48.780
So it's a great contribution there.

437
00:52:51.780 --> 00:53:09.780
He's not done. He's written actually a third volume of Man Economy and State, which is too radical, so the company that is funding him, the foundation, refuses to publish that third volume.

438
00:53:09.780 --> 00:53:20.780
They make him cut it down tremendously, take out the anarcho-capitalist analysis in power and market, what became power and market, and he cuts it down.

439
00:53:20.780 --> 00:53:27.780
There's only two volumes of Man Economy and State, but he comes out with the full power and market, which was to be the third volume in 1970.

440
00:53:27.780 --> 00:53:35.780
He gives us an exhaustive typology and analysis of the different types of government interventions, including taxing and spending.

441
00:53:35.780 --> 00:53:43.780
If you see that as an intervention, then you see the free market naturally as being a market with competing defense agencies.

442
00:53:43.780 --> 00:53:59.780
In 1973, he publishes Four New Liberty, a work in libertarian political economy, which presented the first full argument in defense of a purely anarcho-capitalist society, which was grounded on natural rights.

443
00:53:59.780 --> 00:54:04.780
Even though Molinari talked about it, he didn't ground it on natural rights like Rothbard did.

444
00:54:04.780 --> 00:54:14.780
and finally in 1974 he publishes a collection of previously published essays called egalitarianism as a revolt against nature.

445
00:54:14.780 --> 00:54:18.780
What else has been done? Not much else has been done during this period.

446
00:54:18.780 --> 00:54:24.780
Israel Kirzner finally publishes in 1973 his influential competition entrepreneurship.

447
00:54:24.780 --> 00:54:33.780
The only other notable work in the Austrian tradition published during this period was The Myths of Antitrust which was published in 1972

448
00:54:33.780 --> 00:54:40.780
by a very young economist, Dominic Armentano, which was a great Austrian critique of antitrust theory.

449
00:54:40.780 --> 00:54:50.780
Hans Sennholtz publishes a number of great pamphlets and articles and booklets criticizing contemporary monetary theory and policy.

450
00:54:50.780 --> 00:54:52.780
But it was mainly Rothbard.

451
00:54:52.780 --> 00:54:56.780
Now, the rebirth then did not occur in 1974.

452
00:54:56.780 --> 00:54:59.780
Why did 30 people come to South Royalton?

453
00:54:59.780 --> 00:55:04.780
Thirty people came to South Whirlton because we were all, to the last man and woman,

454
00:55:04.780 --> 00:55:08.780
and I think there was one woman there, maybe two, we were all Rothbardians.

455
00:55:08.780 --> 00:55:20.780
We had read all of these works that had been the fruit of this enormous period of creativity that Rothbard had between 1962 and 1974.

456
00:55:20.780 --> 00:55:23.780
Everyone was a Rothbardian.

457
00:55:23.780 --> 00:55:29.620
Kirzner's book, yes, was very influential and it was a topic of discussion at the South

458
00:55:29.620 --> 00:55:33.220
Royal Autonomous Conference, but it had just come out, you know, it was out for a year

459
00:55:33.220 --> 00:55:38.200
and everyone looked on it as, well, being consistent with Rothbard and just being a critique

460
00:55:38.200 --> 00:55:43.640
of the neoclassical microeconomic theory.

461
00:55:43.640 --> 00:55:53.960
So, it was 1962, I mark as the revival of Austrian economics.

462
00:55:53.960 --> 00:56:03.760
Now Rothbard's work inspired many graduate students and young faculty members.

463
00:56:03.760 --> 00:56:11.880
I was telling some people at lunch yesterday, I was in college and discovered the Austrian

464
00:56:11.880 --> 00:56:25.880
I was in school I think in 1970 or so, 1971, I was a junior in college, and a great article in New York Times had come out about the radical alternative, libertarianism and the radical alternative.

465
00:56:25.880 --> 00:56:31.880
It was on the front page, this would never happen today, the front page of New York Times Sunday Magazine.

466
00:56:31.880 --> 00:56:39.880
And there were two Columbia pre-law students standing there, on the front page they had their fists raised

467
00:56:39.880 --> 00:56:50.280
and they had a black flag behind them and in it they mentioned, I had read Rand and that was really about it, I knew Rand

468
00:56:50.280 --> 00:56:56.680
and I knew when I arrived at college my freshman year I realized that there was a difference between conservatives and libertarians

469
00:56:56.680 --> 00:57:03.160
and it was sort of a magazine called, I forget the exact name, Conflict or something, I forget the name of it

470
00:57:03.160 --> 00:57:08.720
But it was a magazine in which you had the division talked about.

471
00:57:08.720 --> 00:57:12.720
So I considered myself a libertarian, but I didn't know much about Austrian economics.

472
00:57:12.720 --> 00:57:19.400
And I was taking all these lousy, you know, I took principles of macro, micro, and then intermediate macro, micro.

473
00:57:19.400 --> 00:57:26.440
And then I happened to mention to someone, I read this article in the New York Times Sunday Magazine,

474
00:57:26.440 --> 00:57:35.440
and that they mentioned this Austrian economist who I had heard about the Austrian School in my history of thought class as being Boehm-Bawerk, Menger and Wieser

475
00:57:35.440 --> 00:57:41.440
and the teacher was actually a very good professor and he was very very excited about it, he wasn't an Austrian himself

476
00:57:41.440 --> 00:57:53.440
but he says one of the first times in the history of thought that three such brilliant men had gotten together and worked together on developing the same paradigm.

477
00:57:53.440 --> 00:57:58.440
So when I read that there's a guy who was in Austria, I said, was he 200 years old?

478
00:57:58.440 --> 00:58:12.440
So I mentioned to one of the conservatives in the Young Americans for Freedom, there were libertarians and conservatives in this chapter at Boston College that I attended.

479
00:58:12.440 --> 00:58:20.440
And we got along pretty well when we argued. He said, well, he's here. He brought me in the next day a pamphlet. It was called Depressions, Causes and Cures.

480
00:58:20.440 --> 00:58:28.440
So I went home and it was 30 pages of a small little mini book and I read it and it was by Rothbard and I just saw the light.

481
00:58:28.440 --> 00:58:38.440
I just realized that I learned more in reading that in 45 minutes than I did in sitting through all the principles of macro and intermediate macro.

482
00:58:38.440 --> 00:58:48.440
And so I just became an Austrian and so then when I went home that summer between my junior and senior year, I remember as I was mentioning I was a janitor.

483
00:58:48.440 --> 00:58:58.440
I was a janitor, it was a recession during that, it was a stagflation, so I had to take a job as a manager, as a janitor.

484
00:58:58.440 --> 00:59:06.440
So I'd do my work real fast and I'd sit in this broom closet with this little light and I was reading through America's Great Depression.

485
00:59:06.440 --> 00:59:11.440
So I mean, my experience isn't, you know, I'm not alone in that.

486
00:59:11.440 --> 00:59:23.440
All of these people throughout the country, who were libertarians and who had discovered the Austrian School, were reading Rothbard on their own, or in very small groups. No one knew the other existed.

487
00:59:23.440 --> 00:59:37.440
So when you did have this South Whirlton conference announced, you had people who were already completely grounded in Austrian economics, to a greater or lesser extent.

488
00:59:37.440 --> 00:59:47.440
By 1974 I had read Human Action, Price and Production, so on, most of Mises and Rothbard and Hayek.

489
00:59:47.440 --> 00:59:55.440
And once again, that's not peculiar, that occurred throughout the country.

490
00:59:55.440 --> 01:00:08.440
That's why you had these people coming together, coalescing into a self-conscious movement in 1974.

491
01:00:08.440 --> 01:00:15.440
The rebirth started in 1962. Maybe the movement itself, as a self-conscious movement, began in 1974.

492
01:00:15.440 --> 01:00:20.440
And then, of course, it was reinforced when Hayek won the Nobel Prize in October of 1974.

493
01:00:20.440 --> 01:00:26.440
But without Man Economy and State, without Human Action, you would not have had the Austrian Revival.

494
01:00:26.440 --> 01:00:34.440
We can do it counterfactual, or even just with Human Action, one without the other wouldn't have...

495
01:00:34.440 --> 01:00:37.440
Well, there would have been no Man Economy and State without Human Action.

496
01:00:37.440 --> 01:00:43.440
In fact, I asked Rothbard once, I said, well, before you read Human Action in 1949, he was in graduate school, right?

497
01:00:43.440 --> 01:00:48.440
I said, I knew you were a libertarian, but what kind of economics did you hold?

498
01:00:48.440 --> 01:00:56.440
I read Alfred Marshall, I knew about supply and demand, I knew price controls were bad, but really not much else.

499
01:00:56.440 --> 01:00:58.440
I was really dissatisfied with economics.

500
01:00:58.440 --> 01:01:04.440
I liked when the institutionalists attacked the neoclassicals and when the neoclassicals attacked the institutionalists,

501
01:01:04.440 --> 01:01:10.440
but there was no positive theory that attracted me.

502
01:01:10.440 --> 01:01:15.440
Rothbard would have been some sort of quasi-Marshallian or something without human action,

503
01:01:15.440 --> 01:01:19.440
Even though he would have still been a libertarian, of course he was.

504
01:01:19.440 --> 01:01:23.440
Alright, so now the other point I wanted to make, we have a little time here,

505
01:01:23.440 --> 01:01:35.440
is what happens is that after this coalition, or this coalescing of a new Austrian movement in 1974,

506
01:01:35.440 --> 01:01:41.440
there are two more conferences run by the Institute for Humane Studies, which sponsored the first conference.

507
01:01:41.440 --> 01:01:47.440
In 1975 there's a conference in which young graduate students such as myself give papers

508
01:01:47.440 --> 01:01:56.440
and senior Austrians such as Rothbard, Kirzner, Haslett, Hutt, Hayek was even there, Leland Jaeger and Ludwig Lachmann,

509
01:01:56.440 --> 01:02:03.440
they commented on our papers and I actually had Hayek comment on my paper which was really thrilling.

510
01:02:03.440 --> 01:02:10.440
And my paper was sort of on international monetary economics and Hayek wrote a great book on this in 1937.

511
01:02:10.440 --> 01:02:16.440
and the small book, it's called Monetary Nationalism and International Order.

512
01:02:16.440 --> 01:02:22.440
In any case, so I cited that quite a bit in there, and one of the first things he says was,

513
01:02:22.440 --> 01:02:25.440
I had forgotten that I made a contribution in this area when he got up.

514
01:02:25.440 --> 01:02:30.440
I mean, he had written so much.

515
01:02:30.440 --> 01:02:46.440
But in any case, what happens then is, then in 1976 there's another conference at Windsor Castle in Great Britain and so a couple of books come out.

516
01:02:46.440 --> 01:02:55.440
A book comes out of the first conference in 1974. That book comes out, I think it came out in 1975. It's called The Foundations of Austrian Economics.

517
01:02:55.440 --> 01:03:01.440
Then a book comes out of the Windsor Castle Conference, I think it's called New Trends in Austrian Economics.

518
01:03:01.440 --> 01:03:03.440
So things look like they're going great.

519
01:03:03.440 --> 01:03:08.440
But then in 1977, there's a change in what we might call the property base.

520
01:03:13.440 --> 01:03:21.440
A billionaire, Charles Koch, begins to donate money to the Institute for Humane Studies.

521
01:03:21.440 --> 01:03:29.440
comes under his influence and he helps create the Cato Institute, a think tank in Washington, a libertarian think tank.

522
01:03:29.440 --> 01:03:36.440
Initially he's very, very friendly to Austrian economics, he and the people that are working for him.

523
01:03:36.440 --> 01:03:44.440
But they begin to develop a different strategy about how to go about disseminating the ideas of Austrians.

524
01:03:44.440 --> 01:03:53.440
and one of those ideas, strategic ideas, is to downplay the radicalism of Mises

525
01:03:53.440 --> 01:04:03.440
and to play up Hayek's contribution because Hayek is much more amenable to modern trends in thought.

526
01:04:03.440 --> 01:04:07.440
Hayek isn't a rigid praxeologist like Mises is.

527
01:04:07.440 --> 01:04:22.440
He's not as, I don't want to say rabidly, but he's not as opposed to mathematical economics as Hayek and so on.

528
01:04:22.440 --> 01:04:29.440
So there's a number of conferences now in which we begin to pass the message on to college students.

529
01:04:29.440 --> 01:04:36.440
In the early 1980s, I teach some of these, and they have names like spontaneous order conference.

530
01:04:36.440 --> 01:04:40.440
and you don't see a lot of Hayekian topics.

531
01:04:40.440 --> 01:04:44.440
Now we were told we could certainly talk about Mises and Rothbard, there's a lot of readings from Mises and Rothbard

532
01:04:44.440 --> 01:04:49.440
but the form changes and when the form changes, when you try to moderate your message

533
01:04:49.440 --> 01:04:53.440
eventually what you believe begins to change.

534
01:04:53.440 --> 01:04:57.440
So Mises, what I call in my paper this the period of

535
01:04:57.440 --> 01:05:03.440
from 1977 to 1986, Austrian economics without you know who.

536
01:05:03.440 --> 01:05:07.440
And you know who was Mises, we weren't allowed really to mention his name.

537
01:05:07.440 --> 01:05:15.440
IHS also begins to promote the work of Lachman.

538
01:05:15.440 --> 01:05:21.440
Lachman considers himself a radical subjectivist, and almost to the point of nihilism,

539
01:05:21.440 --> 01:05:25.440
where he believes that economists can't really say anything about the real world.

540
01:05:25.440 --> 01:05:32.440
He wrote a very good book on capital theory in 1956, but he became more and more radically subjectivist.

541
01:05:32.440 --> 01:05:49.440
and so he's brought over, funding is given for a program in Austrian Economics in the late 1970s at NYU and then Lachman's brought over as a visiting professor every other semester he comes from South Africa and teaches there

542
01:05:49.440 --> 01:06:00.440
and I point out that now what begins to happen is that you have resources being poured into Kirzner's work and Lachman's work

543
01:06:00.440 --> 01:06:08.440
Rothbard breaks, has an ideological break, not so much ideological, a strategic break with the Cato Institute.

544
01:06:08.440 --> 01:06:19.440
Cato, by 1983, the Cato Institute is beginning to hire Chicago economists because they're more amenable to the mainstream, more acceptable to the mainstream.

545
01:06:19.440 --> 01:06:26.440
So he breaks over that. I get involved, I'm a young faculty member by then.

546
01:06:26.440 --> 01:06:32.440
I'm a faculty member by then. I get involved in an Austrian program for undergraduates at Rutgers University for two years.

547
01:06:32.440 --> 01:06:36.440
I think we're given $20,000 a year to run programs.

548
01:06:36.440 --> 01:06:45.440
We run a massive conference on inflation in 1978, I believe it was, and the main speakers are not Austrians.

549
01:06:45.440 --> 01:06:50.440
I mean, there are some young Austrians such as myself, John Egger, I don't know if Roger Garrison came.

550
01:06:50.440 --> 01:06:57.440
But the main speakers are people like Martin Feldstein, basically sort of right-wing Keynesians are invited.

551
01:06:57.440 --> 01:07:07.440
Axel Lehenhoeffer, who is sort of sympathetic to the Austrians, but is himself not Austrian, has a very big name, and a number of others.

552
01:07:07.440 --> 01:07:11.440
In other words, Austrian economics and its radicalism is beginning to be downplayed now.

553
01:07:11.440 --> 01:07:16.440
I don't know what's going on, it's great, these people seem to be free market.

554
01:07:16.440 --> 01:07:23.940
You also see the divergence between the three main speakers at the South Ornithan Conference.

555
01:07:23.940 --> 01:07:34.940
When the book comes out, if you look at it, you'll notice that on the one hand, Kirzner is emphasizing the distinction between what he calls a Rubividzian economizer,

556
01:07:34.940 --> 01:07:41.940
who purposefully allocates resources to given ends, ends that he knows, given his knowledge,

557
01:07:41.940 --> 01:07:51.940
and what he calls a Misesian actor who is supposedly continually alert and seeking new ends, always seeking for new ends and means to pursue these new ends.

558
01:07:51.940 --> 01:08:01.940
But if that were true, if human beings were homo querens, meaning a seeking man, rather than homo agens, which is Mises' acting man,

559
01:08:01.940 --> 01:08:08.940
Mises talks about homo agens being the acting man, if it's really someone who is continually seeking, they never act.

560
01:08:08.940 --> 01:08:15.940
At some point when people act, you must act on the basis of what you know right now and how you rank those values.

561
01:08:15.940 --> 01:08:21.940
You're not continually seeking. At the moment of action, all seeking stops.

562
01:08:21.940 --> 01:08:30.940
So right now, let's say at the point where I started to give this lecture, I had been seeking for different ways to present this material.

563
01:08:30.940 --> 01:08:37.940
But whether or not this is the best way to present it, it's the way that I believe is at the top of my value scale.

564
01:08:37.940 --> 01:08:47.940
So Kirzner is moving away from Misesian praxeology. You can see that in that book.

565
01:08:47.940 --> 01:08:54.940
And what's interesting is that Robbins, who Kirzner criticizes quite a bit at the South Wharleton conference,

566
01:08:54.940 --> 01:09:01.940
based his concept of choice specifically on Menger's economizing man.

567
01:09:01.940 --> 01:09:19.940
Now, I found out from Guido Holzmann that Mises's German treatise, precursor of human action, had a subtitle, The Theory of Action and Economizing.

568
01:09:19.940 --> 01:09:25.940
So Mises believed in mangarian economizing, which is, given your state of knowledge at this point in time,

569
01:09:25.940 --> 01:09:31.940
You rank your ends and you choose those ends which your resources will allow you to choose which are highest.

570
01:09:31.940 --> 01:09:35.940
Then if you look at Lachman's papers, you can't figure out really what he's saying.

571
01:09:35.940 --> 01:09:40.940
He's basically saying the market process is ruled by autonomous expectations.

572
01:09:40.940 --> 01:09:46.940
People expect different things continually. These expectations have nothing to do with the real world.

573
01:09:46.940 --> 01:09:49.940
They're detached from human purpose, judgment and property.

574
01:09:49.940 --> 01:09:54.940
The free market is incapable of systematically weeding out bad entrepreneurs over time.

575
01:09:54.940 --> 01:10:05.940
I asked him, I went up to Lockman, I said, don't entrepreneurs have the ability to forecast what the revenue will be on certain decisions?

576
01:10:05.940 --> 01:10:08.940
They make, he says, absolutely not.

577
01:10:08.940 --> 01:10:16.940
So Mises in Human Action says, it's a datum of human action that people have better or worse judgement of the future.

578
01:10:16.940 --> 01:10:18.940
We have to take that, we have to accept that.

579
01:10:18.940 --> 01:10:29.940
So, again, once again, Lachman was a very dignified and formidable European professor.

580
01:10:29.940 --> 01:10:35.940
So, initially, I accepted what he was saying, as many of us did.

581
01:10:35.940 --> 01:10:44.940
Anyway, by 1978, there's really a headlong retreat from Mises and a praxeological paradigm.

582
01:10:44.940 --> 01:10:56.940
The split in Austrian economics is pretty open by that point. We had something called the Austrian Economics Newsletter, which I was a member of the Board of Editors on, and the late Don Lavoie.

583
01:10:56.940 --> 01:11:02.940
He wrote a review of the monthly Austrian Economics Seminar, which was held at NYU, where Israel Kirzner taught.

584
01:11:02.940 --> 01:11:13.940
In one of the issues of that newsletter, he correctly identified two contrasting intellectual tendencies among Austrians, nihilism and Ricardianism.

585
01:11:13.940 --> 01:11:21.340
In other words, if you didn't follow Lachman and become a nihilist, you were a Ricardian,

586
01:11:21.340 --> 01:11:24.980
you were an objectivist, which was worse.

587
01:11:24.980 --> 01:11:30.060
It's better to mean you don't know things than to be an objectivist.

588
01:11:30.060 --> 01:11:35.420
He went on to declare, the modern Austrian School can be usefully analyzed as a theoretical

589
01:11:35.420 --> 01:11:38.220
tool of this nihilist-ricardian spectrum.

590
01:11:38.220 --> 01:11:43.900
So the other side, he's on the Kirzner-Lachman side, the other side recognizes that these

591
01:11:43.900 --> 01:11:51.820
These two traditions are still with us, or now there's a different sort of tradition.

592
01:11:51.820 --> 01:11:58.220
Then they interview Shackle, who was sort of Lachman's mentor in this nihilism, and

593
01:11:58.220 --> 01:12:04.660
he wrote this book, Epistemics and Economics, which was very influential among young Austrians

594
01:12:04.660 --> 01:12:06.820
in the late 1970s.

595
01:12:06.820 --> 01:12:12.340
And Shackle, in the interview, in the Austrian Economics newsletter, says the following.

596
01:12:12.340 --> 01:12:18.340
He admits his approach to economics, quote, is a very nihilistic position, and I realize that.

597
01:12:18.340 --> 01:12:26.340
He also says, I've been saying for almost 40 years that economics isn't a science, and we ought not to call it a science, unquote.

598
01:12:26.340 --> 01:12:38.340
Finally, he says, my idea of welfare economics is that you choose an administrator, a man with a conscience himself and broad sympathy, with a generous mind, and then you say, leave it to him.

599
01:12:38.340 --> 01:12:44.340
What's a dictator? Okay, so this is his welfare theory.

600
01:12:44.340 --> 01:12:49.340
So let me just sum this up so I can get some questions in here.

601
01:12:49.340 --> 01:12:55.340
By late 1970, Rothbard is really deprived of an institutional base.

602
01:12:55.340 --> 01:12:58.340
He's teaching at a small college in Brooklyn.

603
01:12:58.340 --> 01:13:01.340
He doesn't have many resources at his disposal.

604
01:13:01.340 --> 01:13:06.340
In the early 1980s, after he breaks with the Cato Institute, he's really alone.

605
01:13:06.340 --> 01:13:17.340
There's no one there to give him material sustenance, his resource base has shrunk.

606
01:13:17.340 --> 01:13:25.340
A second PhD program, which initially, not now, but initially was anti-Misesian, pro-lochmanian,

607
01:13:25.340 --> 01:13:29.340
is opened up at George Mason University in Northern Virginia.

608
01:13:29.340 --> 01:13:34.340
It's not an Austrian program, it's a market process economics program.

609
01:13:34.340 --> 01:13:42.340
So, again, they're following a strategic vision of soft-peddling Austrian economics.

610
01:13:42.340 --> 01:13:50.340
But, regardless, because Rothbard is a genius like Mises, he continues to write on his own, comes out with a tremendous number of papers,

611
01:13:50.340 --> 01:14:00.340
contrary to what many Austrians believe in the accepted version of the rebirth of Austrian economics.

612
01:14:00.340 --> 01:14:30.340
Rothbard did not leave economics in the late 1970s. He wrote papers like The Myth of Neutral Taxation in 1981, Law, Property, Rights and Air Pollution in 1982, The Federal Reserve as a cartelization device in 1984, The Case of the Genuine Gold Dollar in 1985, The Ethics of Liberty comes out in 1982, and The Mystery of Banking comes out in 1983. So he's continuing to write despite his deprivation of any sort of institutional

613
01:14:30.340 --> 01:14:38.340
infrastructure. Now, this is where the Mises Institute comes in. In 1983, Lew Rockwell

614
01:14:38.340 --> 01:14:48.020
founds, or in 1982, he founds the Mises Institute and it's unabashedly inspired by the scientific

615
01:14:48.020 --> 01:14:53.340
vision of Ludwig von Mises. He gets together with Rothbard. Rothbard becomes the head of

616
01:14:53.340 --> 01:15:04.340
The academic programs, they talk about starting a journal, which they begin the journal in 1985, I believe, the review of Austrian economics has begun.

617
01:15:04.340 --> 01:15:20.340
There is a boycott, Rothbard asked many of the younger Austrians that he knew, such as Don LaVoy and Larry White and myself and others, to be on the board of editors and they're going to name it the review of Austrian economics.

618
01:15:20.340 --> 01:15:35.340
Well, he gets, many of them boycott it and say no, they don't want to do it because they want it to be run like a real journal, meaning that it has to, you know, in effect, they don't trust Rothbard to have the articles refereed, okay?

619
01:15:35.340 --> 01:15:45.340
So, and it's sort of a, and I have some of the letters that they wrote, because they copied me, thinking that I would join the boycott, but I did not.

620
01:15:45.340 --> 01:15:58.340
By that I realized that there was a split in Austrian economics, that I wasn't Misesian, and that Rothbard was the most important Austrian, well I always thought that, the most important living Austrian economist at the time.

621
01:15:58.340 --> 01:16:15.340
So, Lew Rockwell then starts the institute and it's really in 1986 when the review of Austrian Economics begins that you get a real flowering of Austrian Economics.

622
01:16:15.340 --> 01:16:21.640
Economics. You have Hans Hoppe coming over in 1985 and David Gordon being discovered

623
01:16:21.640 --> 01:16:31.640
and many others. Mark Forten coming to Auburn to the PhD program. Now the Mises Institute

624
01:16:31.640 --> 01:16:37.260
being at Auburn draws people here. Unfortunately the PhD program was abolished a few years

625
01:16:37.260 --> 01:16:58.260
but the Austrian movement now is in full bloom and it continues to grow and it grows because of the resources and the institutional infrastructure that Lew Rockwell and the Mises Institute has made available to us.

626
01:16:58.260 --> 01:17:06.260
We would be nowhere as advanced as we are had it not been for the Mises Institute.

627
01:17:06.260 --> 01:17:15.260
It really rescued Rothbard in the sense of giving him an institutional base and giving him an audience for his work.

628
01:17:15.260 --> 01:17:20.260
Very interestingly, there was a big fight over what the name of the journal would be,

629
01:17:20.260 --> 01:17:27.260
and Rothbard stuck to his guns to call it the Review of Austrian Economics instead of something like Market Process or something.

630
01:17:27.260 --> 01:17:36.260
Let me close with the following. In 1982, Rothbard closed his remarks on the controversy over the journal's name with the following statement.

631
01:17:36.260 --> 01:17:42.260
He wrote, at any rate, we have a tough road to hoe in Austrianism in general to rescue it from

632
01:17:42.260 --> 01:17:58.260
Lockman-Shackel Nihilism, Stanford-Probable, modern philosophy, fuzzy Hayekianism, all this makes a hardcore institute all the more necessary.

633
01:17:58.260 --> 01:18:02.260
And we have that hardcore institute here at the Mises Institute.

634
01:18:02.260 --> 01:18:05.260
I'll stop and it's about ten minutes for questions.

635
01:18:05.260 --> 01:18:06.260
Yes?

636
01:18:06.260 --> 01:18:10.260
Do you have any comments on Faye and Leonard Reed?

637
01:18:10.260 --> 01:18:15.260
How did they contribute to this?

638
01:18:40.260 --> 01:18:45.260
about starting a graduate school at fee in Austrian economics. That never panned out.

639
01:18:45.260 --> 01:18:51.260
But Mises kept saying that we must, as professors in this graduate school, give talks to businessmen,

640
01:18:51.260 --> 01:18:57.260
give talks to laypersons. That is, communicate to them Austrian economics.

641
01:18:57.260 --> 01:19:04.260
Why? Because Mises strongly believed that the whole political system and economic system was driven by ideology,

642
01:19:04.260 --> 01:19:12.260
driven by the values that people adopted, and this had to be widespread.

643
01:19:12.260 --> 01:19:19.260
So I think fee was essential in keeping alive in the 1950s the Austrian tradition.

644
01:19:19.260 --> 01:19:23.260
And I think the same thing is true with Hans Sennholz. I wrote a little article on him.

645
01:19:23.260 --> 01:19:27.260
I think he was an extremely underrated but very important economist.

646
01:19:27.260 --> 01:19:39.260
He is a vocational economist who has taught many, many students who have gone on to become active in academia or in the writing of Austrian economics.

647
01:19:39.260 --> 01:19:40.260
Yes?

648
01:19:40.260 --> 01:19:49.260
I would also ask that he just published six months ago that series of lectures for Professor von Mises from 1951.

649
01:19:49.260 --> 01:19:51.260
Did I get a hold of that?

650
01:19:51.260 --> 01:20:00.020
did just come out now you're saying come out what I have to look and see what

651
01:20:00.020 --> 01:20:09.140
I know I didn't see that I okay yeah I have to take oh yeah definitely thank

652
01:20:09.140 --> 01:20:11.660
you know there's no under Richard Ebeling is still doing a good job

653
01:20:11.660 --> 01:20:16.940
Richard Ebeling is a good Misesian a little more tolerant than I am but but

654
01:20:16.940 --> 01:20:42.940
Well, Kirzner's seeking man is someone that's continually trying to find the framework within which he can act, that is a new framework of means and ends, okay?

655
01:20:42.940 --> 01:20:52.940
Whereas, if you follow that through logically, and I'm sure he would say that I'm taking it, I'm going beyond what he's saying, you would never act.

656
01:20:52.940 --> 01:21:02.940
You're always looking for better ends to pursue and better means to use to achieve the ends you're pursuing.

657
01:21:02.940 --> 01:21:08.940
Whereas Mises' acting men are Homo Agens, we're acting at every point in time.

658
01:21:08.940 --> 01:21:18.940
I mean, time is scarce. We're acting at every point in time. Right now, I am choosing the words that I'm speaking to you.

659
01:21:18.940 --> 01:21:27.940
I'm doing it very rapidly and maybe not very well. But if I sat down and thought more about it, well, maybe I could have presented this in a different way.

660
01:21:27.940 --> 01:21:31.940
Maybe I could have written something down and put it here and put it up on the wall.

661
01:21:31.940 --> 01:21:38.940
In order to act, you must suspend all seeking.

662
01:21:38.940 --> 01:21:43.940
Now, that's not to say that you can't learn from your actions. If that's what Kirzner means, that's okay.

663
01:21:43.940 --> 01:21:50.940
In other words, ex post, you can make a mistake. You can say, aha, it didn't turn out like I thought it would.

664
01:21:50.940 --> 01:21:57.940
In similar conditions, next time I would do it differently. I would aim at maybe different ends next time.

665
01:21:57.940 --> 01:22:05.940
Let's say I buy a motorcycle and I drive the motorcycle around and after a few near brushes, in New Jersey you don't want to drive a motorcycle.

666
01:22:05.940 --> 01:22:11.940
A few near brushes with bad drivers and driving in the rain, I say, geez, I shouldn't have spent that $10,000 on that motorcycle.

667
01:22:11.940 --> 01:22:17.940
Well, if I'm in that situation again, I'll seek to do something else to find a better use of my money.

668
01:22:17.940 --> 01:22:22.940
But as Hans Hoppe points out, it's not a controlled experiment. We're never in that situation again.

669
01:22:22.940 --> 01:22:44.540
Kirzner would not call him seeking man. He would say this is the act of discovery. Entrepreneurial

670
01:22:44.540 --> 01:22:52.100
discovery. In his economics he has the entrepreneur as a person who discovers opportunities for

671
01:22:52.100 --> 01:23:05.100
of Profit, and then he has these Rabinzian automatons, the consumers and the resource sellers that simply react to the prices that are offered by the entrepreneurs on output markets and input markets.

672
01:23:05.100 --> 01:23:20.100
And so the entrepreneur becomes the seeking man. Now think about it. The entrepreneur never loses any money in Kirzner's world. The entrepreneur just reaches out. He sees things that other people don't see.

673
01:23:20.100 --> 01:23:24.100
So he reaches out and grabs $10 bills that are floating down that people don't see.

674
01:23:24.100 --> 01:23:28.100
Those $10 bills represent the difference between the input prices and the output prices.

675
01:23:28.100 --> 01:23:31.100
I don't like that way of looking at entrepreneurship.

676
01:23:31.100 --> 01:23:39.100
The revenue lies in the future. You have to estimate what that revenue will be.

677
01:23:39.100 --> 01:23:44.100
Ludwig Lachmann to the contrary makes some forecasts about it.

678
01:23:44.100 --> 01:23:48.100
You have to rank the best uses of your investment capital now.

679
01:23:48.100 --> 01:24:18.100
capital now, you have to stop seeking at some point, make a commitment, when you make that commitment, you make it based on your best forecast of the future, which may be wrong, and then you use your investment capital to bid for resources today, and then hope for the best, and the better entrepreneurs will find that they earn a profit in the future, others will learn that they lost money, but those circumstances will never reproduce themselves, so I'm opposed to this whole idea

680
01:24:18.100 --> 01:24:26.100
of action being really tied up with discovery in some sense. It's tied up with choice. It's choosing.

681
01:24:26.100 --> 01:24:34.100
And if that's what Rubensia maximizer is, then that's what I think is the core of Austrian economics.

682
01:24:34.100 --> 01:24:40.100
I don't like the word maximizer. I think we're just choosers. Yes?

683
01:24:40.100 --> 01:24:44.100
Do you have any idea why Menger apparently dropped off the face of the earth?

684
01:24:44.100 --> 01:24:55.100
He got involved in arguing with the German Historical School. He got off the track. He was going to write a three-volume treatise.

685
01:24:55.100 --> 01:24:59.100
His principal was an introduction to a three-volume treatise on economics. That would have been great.

686
01:24:59.100 --> 01:25:08.100
He wrote two very good theoretical articles in the 1890s after the debate with the Historical School ended, in the early 90s.

687
01:25:08.100 --> 01:25:34.100
And after that he didn't write much. He retires in 1903, still fairly young, lives until 1921, but Hayek went through his papers and Hayek said that he just kept writing and rewriting his economics and as he got older and older it just became worse and worse and so it's almost incomprehensible, stacks of papers that he kept rewriting.

688
01:25:34.100 --> 01:25:50.100
I don't know. Mises somewhere says that Menger and Boehm-Bawerk were both very depressed because they saw the end of Western civilization coming with the interventionism and socialism and wars and so on.

689
01:25:50.100 --> 01:25:57.100
That may have sapped his productivity. Menger is a very interesting case and I'd like to know more about that.

690
01:25:57.100 --> 01:26:07.100
Also, by the way, hints, or Mises hinted, I've heard this a couple of times, that Boehm-Bawerk could have committed suicide in 1914.

691
01:26:07.100 --> 01:26:16.100
There are hints. I mean, I don't think it's necessarily true, but he was depressed.

692
01:26:16.100 --> 01:26:19.100
Yes? I think this might be the last question. Yes?

693
01:26:19.100 --> 01:26:29.100
I'm curious, in Schumpeter's Capitalism, Socialism and Democracy, he says that capitalism can't last. Socialism will come and it will last.

694
01:26:29.100 --> 01:26:41.100
He's got the instances of calculation problems, of Galilean dialectics. To what extent is Schumpeter really an Austrian in practice, rather than an Austrian?

695
01:26:41.100 --> 01:26:47.100
No, in practice he's not an Austrian. He is a Volrasian in practice, but he doesn't know mathematics.

696
01:26:47.100 --> 01:26:55.100
He's a Volrasian. That's why he believes that prices, if you know the prices of the outputs,

697
01:26:55.100 --> 01:27:02.100
and you know the available inputs, well then you can have these imputed back without an entrepreneur.

698
01:27:02.100 --> 01:27:07.100
So he believes that you can directly impute prices back to the inputs.

699
01:27:07.100 --> 01:27:36.100
Hayek criticizes him, but it's not on a Misesian basis. Hayek criticizes him because of the dispersed knowledge problem, not because there's no entrepreneur who's trying to appraise future prices and use his forecasts to bid on the markets for inputs.

700
01:27:36.100 --> 01:27:41.100
Okay, that's where the prices of inputs come from, that's where your cost of production comes from, and that allows you to calculate economically.

701
01:27:42.100 --> 01:27:49.100
So, he's an Austrian by birth, but there is strains of Austrianism in Schumpeter, there's no doubt about that.

702
01:27:50.100 --> 01:27:56.100
Mises and Schumpeter didn't like each other. When Mises came to the United States, they met once for tea.

703
01:27:57.100 --> 01:28:03.100
His wife said it was very, very frigid. But they didn't get along.

704
01:28:03.100 --> 01:28:09.100
I didn't get along. I think they were rivals in Boehm-Bawerk's seminar.

705
01:28:11.100 --> 01:28:14.100
I think we can stop here. Okay, thank you.