WEBVTT NOTE From Electrical Engineering to Macroeconomics 1 00:00:00.000 --> 00:00:08.040 Okay. My talk today, the title is From Electrical Engineering to Macroeconomics. Now, it seems 2 00:00:08.040 --> 00:00:17.300 an unlikely even strange metamorphosis. That was my career path, though, as I'll explain. 3 00:00:17.300 --> 00:00:23.720 But my talk today is not intended strictly as autobiographical in nature. You don't need 4 00:00:23.720 --> 00:00:32.200 to know that much about me and so I plan to hang some ideas on it about methodology, about 5 00:00:32.200 --> 00:00:37.120 the nature of Austrian economics, something we can learn about the relationship between 6 00:00:37.120 --> 00:00:46.520 mathematics and economics and even a few recommendations along the way. 7 00:00:46.520 --> 00:00:51.040 Given the twists and turns in my career, we can even say something about the graphical 8 00:00:51.040 --> 00:00:56.680 Analysis of Macroeconomics. That's probably what I'm known best for, and I'll present 9 00:00:56.680 --> 00:01:04.280 that as an effective pedagogy, for one thing, and as a check on the logical consistency 10 00:01:04.280 --> 00:01:12.140 of theories that we may develop. Now, with that much said, I have to admit that my talk 11 00:01:12.140 --> 00:01:17.700 The talk today is a bit reflective. It's, well, it's very reflective. And I realize 12 00:01:17.700 --> 00:01:29.980 that any speaker, to give a reflective talk, has to meet two qualifications. And one is, 13 00:01:29.980 --> 00:01:39.860 you have to be old, okay? Sorry. Okay, I got that one. I've got that one. And secondly, 14 00:01:39.860 --> 00:01:45.940 You have to have clear, objective evidence that you've actually achieved some degree 15 00:01:45.940 --> 00:01:48.740 of success during your career. 16 00:01:48.740 --> 00:01:50.220 You have to have that too. 17 00:01:50.220 --> 00:01:56.420 Well, I've got that too. 18 00:01:56.420 --> 00:02:08.900 I've got my graphics on the back of a Mises Institute t-shirt, so my career is whole. 19 00:02:08.900 --> 00:02:17.660 Now as Joe mentioned, those graphs and that pamphlet was first published in 1978. 20 00:02:17.660 --> 00:02:18.660 He showed the new version. 21 00:02:18.660 --> 00:02:19.660 There's the old version. 22 00:02:19.660 --> 00:02:25.620 It's published by the Institute for Humane Studies. 23 00:02:25.620 --> 00:02:32.140 And the new version then that he's shown you came out just last year in 2010. 24 00:02:32.140 --> 00:02:38.020 And they got very different reactions from fellow Austrians and others. 25 00:02:38.020 --> 00:02:44.700 So I'm getting ahead of my story, so back to that part later. 26 00:02:44.700 --> 00:02:49.300 So let me give you a little chronology to show you how I got from electrical engineering 27 00:02:49.300 --> 00:02:53.260 to Austrian macroeconomics. 28 00:02:53.260 --> 00:03:00.620 That when I first went to college, I simply followed my nose from mathematics, which seemed 29 00:03:00.620 --> 00:03:07.500 like that came natural for me, and into engineering, okay? 30 00:03:07.500 --> 00:03:16.300 And that was at a little college in my hometown of Joplin, Missouri, which I'm happy to say 31 00:03:16.300 --> 00:03:25.200 is mostly still there, including the college where I went, that's where Obama spoke. 32 00:03:25.200 --> 00:03:29.340 And later I went to Missouri's engineering school, which then was called the Missouri 33 00:03:29.340 --> 00:03:31.020 School of Mines and Metallurgy. 34 00:03:31.020 --> 00:03:35.740 I mean, that's hardcore engineering. 35 00:03:35.740 --> 00:03:43.220 Started out as a mining college and developed from there. 36 00:03:43.220 --> 00:03:50.300 During this time, I avoided even looking down on any courses in the social studies or in 37 00:03:50.300 --> 00:03:51.840 the humanities. 38 00:03:51.840 --> 00:03:55.660 My idea was just, it's a bunch of mush, okay? 39 00:03:55.660 --> 00:03:57.200 Social studies, a bunch of mush. 40 00:03:57.200 --> 00:03:59.780 You can't get your teeth into it. 41 00:03:59.780 --> 00:04:06.720 And if I dug a little more deeply, I would discover you can't apply math to it, okay? 42 00:04:06.720 --> 00:04:08.040 So the heck with it. 43 00:04:08.040 --> 00:04:09.040 Stay away from it. 44 00:04:09.040 --> 00:04:12.540 Stay in engineering. 45 00:04:12.540 --> 00:04:21.580 After college, I dodged the military draft by ducking into the Air Force, where I spent 46 00:04:21.580 --> 00:04:30.380 4 years, and I spent it in an electronics development lab in the Mohawk Valley. Now, 47 00:04:30.380 --> 00:04:37.220 for those of you not in this country, the Mohawk Valley lies between the Catskill Mountains 48 00:04:37.220 --> 00:04:42.280 and the Adirondacks in upstate New York, which turned out to be a pretty good place to be 49 00:04:42.280 --> 00:04:52.880 during the Vietnam War. I'm happy about it. But since the Vietnam War was a limited war, 50 00:04:52.880 --> 00:04:59.080 I had plenty of time to read and was influenced by my brother who sent me copies of Rand's 51 00:04:59.080 --> 00:05:07.640 books, Atlas Shrugged, The Novels, Fountainhead, and importantly Capitalism, The Unknown Ideal. 52 00:05:07.640 --> 00:05:16.200 And there, with Rand, you had philosophy without the mush, okay, it was hardcore stuff. 53 00:05:16.200 --> 00:05:24.640 And so, I relished it, I read it, it was great, but I gravitated towards the economics. 54 00:05:24.640 --> 00:05:32.440 And the book on capitalism, The Unknown Ideal, contained a bibliography at the end, which 55 00:05:32.440 --> 00:05:38.640 Which was a virtual reading list to anybody who wanted to study Austrian economics. 56 00:05:38.640 --> 00:05:46.160 I checked this morning just to see what's in there, eight books by Mises, four by Hazlitt, 57 00:05:46.160 --> 00:05:48.480 one by Benjamin Anderson. 58 00:05:48.480 --> 00:05:52.640 So that was what I read for starters. 59 00:05:52.640 --> 00:06:00.240 In my foggy memory, I thought Hayek was in that list too, and Rothbard, they weren't 60 00:06:00.240 --> 00:06:06.000 it turns out, but if you start reading Mises and Hayek and related materials you soon find 61 00:06:06.000 --> 00:06:14.700 your way to Hayek and Rothbard, which I did. Now, my formal transition from electrical 62 00:06:14.700 --> 00:06:21.920 engineering to economics involves both some pushing out of electrical engineering and 63 00:06:21.920 --> 00:06:28.920 some pulling into economics. Being pushed out of electrical engineering came from the 64 00:06:28.920 --> 00:06:39.440 And the fact that I spent four years figuring out how to jam antique Soviet radar. 65 00:06:39.440 --> 00:06:44.800 Not a saleable skill as the Vietnam War is winding down. 66 00:06:44.800 --> 00:06:49.000 Those are the radar that they gave to North Vietnam, of course. 67 00:06:49.000 --> 00:06:54.520 And so it was practical at the time to figure out how to jam the things. 68 00:06:54.520 --> 00:07:03.600 So my options were either to go with a defense contractor as an engineer or get out of engineering. 69 00:07:03.600 --> 00:07:06.120 So I was pushed out in that sense. 70 00:07:06.120 --> 00:07:11.100 I was pulled into economics, of course, by my fascination with Rand and then subsequently 71 00:07:11.100 --> 00:07:17.480 with Mises, Hayek, and Rothbard, and even before I left the Air Force, I had read some 72 00:07:17.480 --> 00:07:23.920 of Hayek and some of Rothbard, including Man Economy and State. 73 00:07:23.920 --> 00:07:31.660 So my graduate work began at University of Missouri, Kansas City, and you might think, 74 00:07:31.660 --> 00:07:36.920 given my background, that I would just go headlong into mathematical economics, but 75 00:07:36.920 --> 00:07:38.160 it wasn't so. 76 00:07:38.160 --> 00:07:39.160 I didn't. 77 00:07:39.160 --> 00:07:42.960 And for reasons I only came to understand later. 78 00:07:42.960 --> 00:07:50.200 The key, I don't need to save my punchline to the end, the key is that I learned math 79 00:07:50.200 --> 00:07:53.240 quite separately from economics. 80 00:07:53.240 --> 00:07:57.840 I learned math and its obvious applicability to the hard sciences, including certainly 81 00:07:57.840 --> 00:08:05.960 electrical engineering, and then economics separately from that. So my math and my economics 82 00:08:05.960 --> 00:08:12.760 are stored on separate brain cells. It helps, it turns out. It helps. It keeps math from 83 00:08:12.760 --> 00:08:22.040 getting in your way when you're doing economics. And to show you how that works, in my double 84 00:08:22.040 --> 00:08:28.600 Double E days, electrical engineering is always called double E. In my double E days, I learned 85 00:08:28.600 --> 00:08:41.600 how to get the maximum gain out of an amplifier, subject to some bandwidth constraint. Alright? 86 00:08:41.600 --> 00:08:46.880 And you do that with a little bit of calculus, using Lagrangian multipliers. Those of you 87 00:08:46.880 --> 00:08:51.560 You've taken math, econ, know what that is. 88 00:08:51.560 --> 00:09:00.640 Now when I got to economics at the graduate level, I learned how to maximize utility subject 89 00:09:00.640 --> 00:09:03.720 to an income constraint. 90 00:09:03.720 --> 00:09:09.620 It's a little bit of calculus, okay, with use of the Lagrangian multipliers. 91 00:09:09.620 --> 00:09:13.820 And so all of a sudden I was way ahead of my fellow students because I already knew 92 00:09:13.820 --> 00:09:19.540 I knew the technique and all I had to remember was to report my answer in terms of utils 93 00:09:19.540 --> 00:09:22.620 rather than decibels. 94 00:09:22.620 --> 00:09:28.780 And that was one of my tip-offs that economics really isn't about the math. 95 00:09:28.780 --> 00:09:33.420 The math is just a very formalized way of doing that sort of thing. 96 00:09:33.420 --> 00:09:35.000 So what is it about? 97 00:09:35.000 --> 00:09:41.300 Well it's about the nature of the so-called utility or the utils that we're supposedly 98 00:09:41.300 --> 00:09:48.740 and to get insights into that I end up going back to Menger, Menger's principles, the 99 00:09:48.740 --> 00:09:54.980 subjectivist revolution, the reckoning of utilities in an ordinal sense rather than 100 00:09:54.980 --> 00:10:02.540 a cardinal sense and one that you can't quantify in terms of utils. 101 00:10:02.540 --> 00:10:07.980 For the budget constraint, rather than simply drawing a line that goes from one axis to 102 00:10:07.980 --> 00:10:16.860 To the next, learn something about the basic concept of scarcity and the calculation debate, 103 00:10:16.860 --> 00:10:22.500 the business of determining what resources can be used and at what cost and so on, and 104 00:10:22.500 --> 00:10:24.100 Hayek's use of knowledge. 105 00:10:24.100 --> 00:10:33.060 It's the market process that grapples with that problem that causes the budget constraint 106 00:10:33.060 --> 00:10:35.820 to take on a certain reality in the economy. 107 00:10:35.820 --> 00:10:37.380 So my focus was very different. 108 00:10:37.380 --> 00:10:43.540 I got past the math of it very quickly, and I noticed at the same time that I was sort 109 00:10:43.540 --> 00:10:49.980 of having this advantage over other students by knowing the math already, I noticed that 110 00:10:49.980 --> 00:10:58.020 some of my fellow students couldn't quite tell the economics from the math. 111 00:10:58.020 --> 00:11:03.700 They were learning them at the same time and storing them evidently on the same brain cell. 112 00:11:03.700 --> 00:11:10.060 And so it was easy to conflate one with the other. I remember, in fact, one classmate 113 00:11:10.060 --> 00:11:16.860 who thought that Joseph Lagrange was an economist. No, no, no, no. Eighteenth century French 114 00:11:16.860 --> 00:11:24.940 mathematician, okay, and nothing about economics. So if I want to issue my first recommendation, 115 00:11:24.940 --> 00:11:28.600 many of you I know are graduate students or beyond and past this point, but for those 116 00:11:28.600 --> 00:11:34.600 For those of you thinking about studying economics at the graduate level, get a degree in electrical 117 00:11:34.600 --> 00:11:37.540 engineering first, okay? 118 00:11:37.540 --> 00:11:42.800 Or if you want to tone that down a little bit, at least learn the math separately from 119 00:11:42.800 --> 00:11:52.560 the economics and make sure you can tell one from the other, never getting them confused. 120 00:11:52.560 --> 00:12:00.040 I was particularly drawn into macroeconomics, where what counts is the interconnectedness 121 00:12:00.040 --> 00:12:03.880 of all the different aspects of the economy. 122 00:12:03.880 --> 00:12:10.880 We find the most general statement to that effect in Leon Volra's work, where he says 123 00:12:10.880 --> 00:12:14.640 essentially everything depends upon everything else. 124 00:12:14.640 --> 00:12:17.440 That's Volra's. 125 00:12:17.440 --> 00:12:23.260 In macroeconomics, you sort of boil it down to a relatively small number of magnitudes 126 00:12:23.260 --> 00:12:28.440 that depend interrelatedly one on the other. 127 00:12:28.440 --> 00:12:35.000 The trick is choosing the magnitudes wisely so that you can actually capture the workings 128 00:12:35.000 --> 00:12:37.500 of the market economy. 129 00:12:37.500 --> 00:12:47.200 So my first exposure to these interconnected relationships that supposedly depict the macroeconomy 130 00:12:47.200 --> 00:12:53.640 Money, is something called ISLM analysis. Let me just take a poll. How many have gone 131 00:12:53.640 --> 00:12:59.460 through that, ISLM? In some curriculums now, it's just viewed as old hat and nobody deals 132 00:12:59.460 --> 00:13:11.260 with it. ISLM is the interpretation of Keynes offered by Hicks and elaborated by Hansen 133 00:13:11.260 --> 00:13:18.220 Back in the early part of the Keynesian Revolution, and at a time, at one time, it was affectionately 134 00:13:18.220 --> 00:13:26.220 known as the Islamic art, ISLM, although that term, I'm told, has become politically unpopular. 135 00:13:26.220 --> 00:13:27.220 Okay? 136 00:13:27.220 --> 00:13:32.580 So we don't use Islamic art anymore. 137 00:13:32.580 --> 00:13:37.900 The IS, of course, stands for the equality between investment and saving, and the LM 138 00:13:37.900 --> 00:13:43.100 for the Equality Between the Demand for Money, that's liquidity, L, and the Money Supply, 139 00:13:43.100 --> 00:13:48.940 that's M. So those are the things that are juggled in ISLM analysis. But it's a fixed 140 00:13:48.940 --> 00:13:56.260 price, fixed wage Keynesian model. Okay, so you model the economy on the assumption that 141 00:13:56.260 --> 00:14:00.860 wages don't change and prices don't change. It seems like such an economy would be doomed 142 00:14:00.860 --> 00:14:06.660 from the beginning. If you can't change prices and wages, then it's going to perform very 143 00:14:06.660 --> 00:14:17.100 And certainly, ISLM didn't square with what I'd learned from Mises, Hayek and Rothbard. 144 00:14:17.100 --> 00:14:19.860 They seem to be worlds apart. 145 00:14:19.860 --> 00:14:25.260 But there needs to be some way of bringing them together to get a one-to-one comparison. 146 00:14:25.260 --> 00:14:29.980 In fact, that's what I was doing and trying to do in my first little pamphlet there on 147 00:14:29.980 --> 00:14:32.120 Austrian macroeconomics. 148 00:14:32.120 --> 00:14:39.080 So one of my objectives was to figure out how best to demonstrate ISLM's wrongheadedness, 149 00:14:39.080 --> 00:14:40.080 okay? 150 00:14:40.080 --> 00:14:45.160 And by the way, that term wrongheaded comes from Haslett. 151 00:14:45.160 --> 00:14:48.680 He uses it a lot, wrongheaded. 152 00:14:48.680 --> 00:14:54.160 And I've read Hayek and reread and gone back to Haslett. 153 00:14:54.160 --> 00:15:01.840 And I certainly get the impression that wrongheaded is different from just plain being wrong. 154 00:15:01.840 --> 00:15:06.120 I can't tell you just what the difference is except wrong-headed is much worse, okay, 155 00:15:06.120 --> 00:15:08.120 is much worse. 156 00:15:08.120 --> 00:15:13.480 And so I thought the ISLM analysis was definitely wrong-headed. 157 00:15:13.480 --> 00:15:19.120 Now here's another instance where you actually can use the math, sort of in a defensive mode 158 00:15:19.120 --> 00:15:21.480 so to speak. 159 00:15:21.480 --> 00:15:27.560 Every once in a while someone shoves a model in my face, sometimes strictly a mathematical 160 00:15:27.560 --> 00:15:32.600 Model and wants a comment on it or what's wrong with this or is this right or is this 161 00:15:32.600 --> 00:15:36.560 Austrian or is this Keynesian or something else. 162 00:15:36.560 --> 00:15:41.640 Well, it turns out there's an acid test, the Keynesian, I call it the Keynesian acid 163 00:15:41.640 --> 00:15:49.360 test and if it's a graph, it's a bunch of interlocking graphs, you can write equations 164 00:15:49.360 --> 00:15:55.540 for each of the graphs and you've got a set of simultaneous equations. 165 00:15:55.540 --> 00:16:02.720 You can even solve, and this is the key, you solve those equations for consumption as it 166 00:16:02.720 --> 00:16:08.620 relates to investment, all right? 167 00:16:08.620 --> 00:16:15.060 And then you take a derivative of consumption with respect to investment and you look at 168 00:16:15.060 --> 00:16:16.060 the sign. 169 00:16:16.060 --> 00:16:23.020 Now, if the sign turns out to be positive, which means they both move up and down together, 170 00:16:23.020 --> 00:16:30.060 And that right sign is positive, they both move up and down together. 171 00:16:30.060 --> 00:16:36.380 Then that means that the chances of the market working are simply ruled out because the market 172 00:16:36.380 --> 00:16:41.700 has to have some way of trading off how you use your resources, partly for investment, 173 00:16:41.700 --> 00:16:42.700 partly for consumption. 174 00:16:42.700 --> 00:16:47.820 There ought to be a way for the market to shuffle resources out of consumption into 175 00:16:47.820 --> 00:16:52.980 investment or out of investment into consumption, in which case CNI would have to move opposite. 176 00:16:52.980 --> 00:16:55.980 as well as the business of one another. 177 00:16:55.980 --> 00:17:02.980 That's an integral part of the Austrian theory, but in the Keynesian theory, it doesn't work 178 00:17:02.980 --> 00:17:03.980 that way. 179 00:17:03.980 --> 00:17:04.980 They always move up and down together. 180 00:17:04.980 --> 00:17:06.740 Now, let me qualify that. 181 00:17:06.740 --> 00:17:12.260 In the simplest Keynesian theory, certainly in the ISLM analysis, then they simply move 182 00:17:12.260 --> 00:17:19.980 up and down together, which precludes a healthy functioning market from the get-go. 183 00:17:19.980 --> 00:17:26.780 All right. If you get into some of the more complex Keynesian theories, then they move 184 00:17:26.780 --> 00:17:34.580 up and down together with the exception of a set of imagined parametric values that are 185 00:17:34.580 --> 00:17:42.960 decidedly un-Keynesian, okay? You have to really find some odd numbers for the parameters 186 00:17:42.960 --> 00:17:49.120 to get consumption and investment to move against one another. So there's an application 187 00:17:49.120 --> 00:17:56.120 of Math as an Acid Test to see if at root a particular model is Keynesian and doesn't 188 00:17:56.160 --> 00:18:03.160 have a chance of capturing the Austrian insights. Now, one of my objectives in the early Austrian 189 00:18:07.080 --> 00:18:14.080 macroeconomics and also in Time and Money, written much later, it was published in 2001, 190 00:18:14.080 --> 00:18:22.200 is to show how those market mechanisms work. What are the market mechanisms that allow 191 00:18:22.200 --> 00:18:30.480 resources to be removed from consumption and into investment? In fact, that's how economy 192 00:18:30.480 --> 00:18:36.920 grows. People save. The savings are borrowed by the investment community. They take command 193 00:18:36.920 --> 00:18:42.840 of resources that weren't consumed and use them to expand the productive capacity of 194 00:18:42.840 --> 00:18:47.320 The economy, that's what causes economic growth. 195 00:18:47.320 --> 00:18:49.220 Saving comes first. 196 00:18:49.220 --> 00:18:53.640 And so I was devising a model that would do that. 197 00:18:53.640 --> 00:19:00.480 Now, some people didn't like my model because it involved some aggregation, right? 198 00:19:00.480 --> 00:19:02.680 And it did, but all models involve aggregation. 199 00:19:02.680 --> 00:19:05.480 It's a question of what are your aggregates? 200 00:19:05.480 --> 00:19:11.660 Do you choose your aggregates where you can actually get alternative movements in consumption 201 00:19:11.660 --> 00:19:16.660 and Investment, or choose them such that you can't, okay? 202 00:19:16.660 --> 00:19:23.740 So in the Austrian spirit, I chose them so that you can and showed what market mechanisms 203 00:19:23.740 --> 00:19:27.100 do the job. 204 00:19:27.100 --> 00:19:35.340 Now to show, in fact, how those alternatives get traded off with people's changing time 205 00:19:35.340 --> 00:19:40.980 preference, in other words, if people decide to consume less now in order to be able to 206 00:19:40.980 --> 00:19:47.260 Consume More in the Future, then those resources that they didn't consume now get employed 207 00:19:47.260 --> 00:19:56.260 in industry, in the business world, to produce at a profit consumption goods available in 208 00:19:56.260 --> 00:19:59.300 the future. 209 00:19:59.300 --> 00:20:08.220 Now back to my two publications of this, again side by side, 78 and 2010, 32 years apart, 210 00:20:08.220 --> 00:20:15.860 You know, they get separated, and the reaction was different from the one time versus the 211 00:20:15.860 --> 00:20:17.980 first time. 212 00:20:17.980 --> 00:20:29.420 The first time I did it, I actually got hate mail, hate mail, saying that this is a sacrilege 213 00:20:29.420 --> 00:20:30.420 to Mises. 214 00:20:30.420 --> 00:20:34.780 You know, I've drawn a graph and claimed that it captures a Misesian idea. 215 00:20:34.780 --> 00:20:55.980 Even people who wanted to like the Austrian macro were critical of the graphical model. 216 00:20:55.980 --> 00:21:07.460 Now, one critic who will remain nameless, it was Richard Ebeling. 217 00:21:07.460 --> 00:21:15.700 This is recorded, too, and he suggested strongly, and with support from Mises, that graphs are 218 00:21:15.700 --> 00:21:18.780 not an appropriate tool for economics. 219 00:21:18.780 --> 00:21:22.980 Now, Richard is a dear friend of mine. 220 00:21:22.980 --> 00:21:33.020 He's a brilliant economist, and he is a bottomless source of knowledge about the history of economic 221 00:21:33.020 --> 00:21:34.020 thought. 222 00:21:34.020 --> 00:21:41.900 He's a virtual walking encyclopedia of economic thought, and at the time though that he made 223 00:21:41.900 --> 00:21:47.300 this suggestion, he was an undergraduate. 224 00:21:47.300 --> 00:21:51.340 He was an undergraduate at, I think it was Sacramento State, and isn't that where he 225 00:21:51.340 --> 00:21:52.340 was? 226 00:21:52.340 --> 00:21:53.340 in California. 227 00:21:53.340 --> 00:21:56.060 So he was an undergraduate. 228 00:21:56.060 --> 00:22:00.940 At the time, I was at Menlo Park Institute for Humane Studies, so was Jerry O'Driscoll, 229 00:22:00.940 --> 00:22:04.620 Suda Shanoi and a few others. 230 00:22:04.620 --> 00:22:08.220 And Evelyn had made that charge. 231 00:22:08.220 --> 00:22:15.420 Now O'Driscoll, Jerry O'Driscoll, pioneer in the early resurgence of Austrian macro at 232 00:22:15.420 --> 00:22:22.020 the time, decided to look through Mises and find, if he could find Mises actually saying 233 00:22:22.020 --> 00:22:45.220 And the passage said, and I have to paraphrase because I don't actually have the exact quote, 234 00:22:45.220 --> 00:22:53.220 The passage was, in economics, graphs are inappropriate, except for undergraduates. 235 00:22:53.220 --> 00:22:59.220 Well, that was ambling, you know what I mean? 236 00:22:59.220 --> 00:23:03.220 Okay, Richard, we won't do it, but you know, you go right ahead. 237 00:23:03.220 --> 00:23:07.220 And he hasn't lived that one down yet. 238 00:23:07.220 --> 00:23:14.220 Now, as Joe indicated, I did get some positive response from the monograph. 239 00:23:14.220 --> 00:23:44.220 and one from Rothbard because in fact the story is that when I finished this paper while I was at Kansas City, University of Missouri, Kansas City, I was invited to present at a professional meeting in Chicago and in fact my professor of macro had arranged for that for me but I hadn't really gotten feedback from an Austrian economist 240 00:23:44.220 --> 00:23:50.300 There were no Austrian economists at Kansas City, and so I hardly wanted to go to Chicago 241 00:23:50.300 --> 00:23:53.740 without getting some feedback from some Austrian economists. 242 00:23:53.740 --> 00:24:02.540 And so I just sent it on a hope to Murray Rothbard, hoping to get something back in 243 00:24:02.540 --> 00:24:09.780 time for me to feel more confident in going or possibly to cancel my reservation, depending 244 00:24:09.780 --> 00:24:10.780 on what he said. 245 00:24:10.780 --> 00:24:40.780 and a few days later I got a phone call and actually it was Joey Rothbard and said Murray liked your paper and then she brought Murray to the phone and I was expecting him of course to hear this very scholarly voice I heard all this cackling cackling that went on and on and he loved the paper but mainly in the defensive mode in other words he just he's what he was cackling about is that it was the Austrians beating Keynes at his own gas 246 00:24:40.780 --> 00:24:47.780 of Money and Credit, The Theory of Money and Credit, The Theory of Money and Credit, The 247 00:25:10.780 --> 00:25:12.540 and the Future. 248 00:25:12.540 --> 00:25:17.500 And so I said, yeah, I'll be there spring break. 249 00:25:17.500 --> 00:25:18.500 And that worked out. 250 00:25:18.500 --> 00:25:23.380 So I went up there spring break and met with Murray and he brought in other economists, 251 00:25:23.380 --> 00:25:28.260 including Walter and Walter Grinder. 252 00:25:28.260 --> 00:25:29.260 Bill Stewart. 253 00:25:29.260 --> 00:25:30.260 You remember him? 254 00:25:30.260 --> 00:25:31.260 Was there one more? 255 00:25:31.260 --> 00:25:37.500 Can't remember, but brought in a bunch of people who discussed this paper. 256 00:25:37.500 --> 00:25:40.260 It was about a 32-page paper. 257 00:25:40.260 --> 00:25:46.640 And we didn't start the discussion until after dinner, which is, say, about 10 o'clock. 258 00:25:46.640 --> 00:25:51.980 And by about 3.30 or 4, it seemed to me to be getting late. 259 00:25:51.980 --> 00:25:56.920 I didn't want to wear out my welcome. 260 00:25:56.920 --> 00:26:03.060 And so I started inching towards the front door, you know, and it was time to go. 261 00:26:03.060 --> 00:26:07.980 And not realizing that Murray was getting a little insulted, you know, what, you're 262 00:26:07.980 --> 00:26:08.980 leaving? 263 00:26:08.980 --> 00:26:24.980 We just got started. I didn't know at the time that he was a complete night owl, okay, and didn't plan to go to bed anytime soon, so I stayed and went, walked back to my hotel in the daylight without any trouble. 264 00:26:24.980 --> 00:26:33.980 So anyhow, that was quite an experience, but it sort of energized me to get going all the more on Austrian economics. 265 00:26:38.980 --> 00:26:47.980 Now, what I'd like to do in finishing up here is extend Mises' pronouncement and say that 266 00:26:47.980 --> 00:26:57.060 the graphical technique has its advantages and over and above undergraduates, okay? 267 00:26:57.060 --> 00:27:03.560 Although it is good for pedagogy, in fact that's one of my points, but for pedagogical 268 00:27:03.560 --> 00:27:08.960 reasons to instruct students and to get them to see the difference between the Keynesian 269 00:27:08.960 --> 00:27:17.720 in the Austrian view. It works charms. And let me just remind you that if you look at 270 00:27:17.720 --> 00:27:26.480 the development of Keynesianism, what you see is it went through pedagogical evolution 271 00:27:26.480 --> 00:27:31.880 that has no counterpart in the Austrian school. In other words, you have Keynes's own general 272 00:27:31.880 --> 00:27:37.880 theory, which only has one graph, single graph, and it's not a Keynesian graph. It's a supply 273 00:28:07.880 --> 00:28:34.000 And that went through an evolution of pedagogy. 274 00:28:34.000 --> 00:28:40.380 You got Samuelson and his Keynesian Cross by 1948 or so, simple stuff. 275 00:28:40.380 --> 00:28:49.220 You got Hicks and then later Hanson, about 49, who did the ISLM analysis. 276 00:28:49.220 --> 00:28:56.580 Then you got the so-called Keynesian neoclassical synthesis where for the first time they let 277 00:28:56.580 --> 00:29:02.720 wages and prices change, although they always change in the same direction. 278 00:29:02.720 --> 00:29:08.520 And then you've got what's called, let's see if I can, oh, you get new Keynesianism. 279 00:29:08.520 --> 00:29:13.200 And then you get something called the stochastic dynamic general equilibrium models, which 280 00:29:13.200 --> 00:29:17.320 have new Keynesianism embedded in it, okay? 281 00:29:17.320 --> 00:29:19.560 So you have this evolution. 282 00:29:19.560 --> 00:29:25.560 You don't have that kind of evolution pedagogically in the Austrian School. 283 00:29:25.560 --> 00:29:34.260 You've got refinements and developments and articles for journals and so on. 284 00:29:34.260 --> 00:29:36.560 But you don't have the pedagogy building. 285 00:29:36.560 --> 00:29:41.440 One of my objectives in doing the graphical stuff is to build a pedagogy that can go head 286 00:29:41.440 --> 00:29:44.920 to head with the Keynesians. 287 00:29:44.920 --> 00:29:53.840 And I have to say that I found it very heartening that the students, despite the fact that the 288 00:29:53.840 --> 00:29:59.900 The Austrian view, it's a little more complex because simply because it allows for this 289 00:29:59.900 --> 00:30:05.240 variation in opposite directions of consumption and investment. 290 00:30:05.240 --> 00:30:10.360 But nonetheless, it's easier to learn because it makes sense, it's straightforward, okay? 291 00:30:10.360 --> 00:30:16.920 So my students struggle learning Keynesian stuff with the spirits and the fetish and 292 00:30:16.920 --> 00:30:18.820 all that. 293 00:30:18.820 --> 00:30:21.960 And then when they get to the Austrian stuff, it almost teaches itself. 294 00:30:21.960 --> 00:30:23.400 They learn it very easy. 295 00:30:23.400 --> 00:30:28.240 is just the easiest kind of macroeconomics. In fact, in my principal's class, I've been 296 00:30:28.240 --> 00:30:38.360 calling it Easy Mac, which is a brand reserved for macaroni, I know, but it works. I'm not 297 00:30:38.360 --> 00:30:48.560 trying to get a copyright on it. Easy Mac. Now, beyond pedagogy, it helps you reconcile 298 00:30:48.560 --> 00:30:53.880 about different Austrian's views of the business cycle. 299 00:30:53.880 --> 00:31:02.560 And the one example I'll give here is that if you read Hayek, he talks about forced saving 300 00:31:02.560 --> 00:31:07.280 as it being an integral part of the cycle, forced saving. 301 00:31:07.280 --> 00:31:15.420 If you read Mises, you read about the boom consisting of malinvestment and overconsumption. 302 00:31:15.420 --> 00:31:21.220 So supposedly there's forced saving and overconsumption, what, going on at the same time? 303 00:31:21.220 --> 00:31:22.220 How can this be? 304 00:31:22.220 --> 00:31:26.540 It seems to be a contradiction, there's got to be some reconciliation. 305 00:31:26.540 --> 00:31:33.740 And I use the graphical model to show how each played a role as soon as you correctly 306 00:31:33.740 --> 00:31:37.420 understood what forced savings actually means. 307 00:31:37.420 --> 00:31:42.300 And in fact, I'll end with saying that will be a big issue tomorrow with me when we look 308 00:31:42.300 --> 00:31:47.300 Chapter 20 in Human Action. Thank you.