WEBVTT NOTE Austrian Economics Then and Now 1 00:00:00.000 --> 00:00:09.000 My talk this morning is on Austrian economics then and now, and basically it's my own personal 2 00:00:09.000 --> 00:00:17.920 perspective on what the Austrian economic movement was 25 years ago compared to what 3 00:00:17.920 --> 00:00:19.920 it is today. 4 00:00:19.920 --> 00:00:25.520 I was an economics major at St. Bonimacher University during the late 1970s and early 5 00:00:25.520 --> 00:00:27.480 1980s. 6 00:00:27.480 --> 00:00:33.200 I liked economics, and there were certainly plenty of important economic issues in the 7 00:00:33.200 --> 00:00:39.640 economy, all of them bad, like inflation, unemployment and recession. 8 00:00:39.640 --> 00:00:43.160 But even though I liked economics, it was not completely satisfying. 9 00:00:43.160 --> 00:00:50.160 I thought supply and demand was great, opportunity cost, analysis of price controls, all of that 10 00:00:50.160 --> 00:00:54.640 seemed intuitively obvious and fine. 11 00:00:54.640 --> 00:00:59.640 The things like calculating price indexes and indifference curves were a different matter 12 00:00:59.640 --> 00:01:04.600 and didn't seem to me to be scientific enough. 13 00:01:04.600 --> 00:01:09.300 Then I discovered libertarianism and eventually Austrian economics. 14 00:01:09.300 --> 00:01:16.500 In between I read Milton Friedman, which I thought was a big improvement and somebody 15 00:01:16.500 --> 00:01:22.160 that none of my professors had ever mentioned, even Milton Friedman's name, but yet even 16 00:01:22.160 --> 00:01:29.400 and Friedman was still unsatisfying. Finally I found the Austrians and I read Israel Kirzner, 17 00:01:29.400 --> 00:01:36.600 Murray Rothbard and Ludwig von Mises and I felt like I had found the science of the market. 18 00:01:36.600 --> 00:01:41.320 I was especially excited about the Austrian theory of the business cycle and I wanted 19 00:01:41.320 --> 00:01:47.800 to really study that in detail because I thought it was a scientific way of understanding the 20 00:01:47.800 --> 00:01:56.900 the Macroeconomy and believe me the economy of the 1970s and early 1980s was a wild ride. 21 00:01:56.900 --> 00:02:01.980 The next semester I was signed up to take a course on business cycles and another one 22 00:02:01.980 --> 00:02:06.880 on the Russian economy so I thought finally you know I'm going to get some Austrian economics 23 00:02:06.880 --> 00:02:13.480 in some of my courses but the course on business cycles was a complete disappointment. 24 00:02:13.480 --> 00:02:19.560 Not a word about the Austrian theory of the business cycle, even though every other possible 25 00:02:19.560 --> 00:02:24.080 theory of the business cycle was presented and discussed at great length. 26 00:02:24.080 --> 00:02:31.440 I asked my professor about the Austrian theory and he said that it wasn't in the book. 27 00:02:31.440 --> 00:02:36.240 And that he didn't understand it anyways. 28 00:02:36.240 --> 00:02:43.440 The course on the Russian economy was, shall we say, more sinister. 29 00:02:43.440 --> 00:02:50.240 Remember the Soviet Union had invaded Afghanistan and the Iranian Revolution took place in 1979. 30 00:02:50.240 --> 00:02:57.400 The Iran-Iraq War started in 1980. I was already involved in the anti-draft movement 31 00:02:57.400 --> 00:03:04.120 and believe me, I wanted no part of the Middle East or the Soviet Union. My professor regularly 32 00:03:04.120 --> 00:03:09.100 sung the praises of the Soviet Union and its economy. He did show that there were certain 33 00:03:09.100 --> 00:03:14.220 and drawbacks like waiting in line to buy goods. 34 00:03:14.220 --> 00:03:17.920 But the biggest impression he gave was that the Soviet Union was becoming progressively 35 00:03:17.920 --> 00:03:21.960 more powerful and would likely take over the world. 36 00:03:21.960 --> 00:03:26.620 Every week he would hand out copies of articles from magazines that would display comparisons 37 00:03:26.620 --> 00:03:32.780 between the United States and the Soviet Union and between all NATO countries and all Warsaw 38 00:03:32.780 --> 00:03:35.540 Pact countries. 39 00:03:35.540 --> 00:03:37.580 I'm sure you might remember some of these. 40 00:03:37.580 --> 00:03:41.620 The charts would represent the size of, say for example, comparative armies. 41 00:03:41.620 --> 00:03:45.220 You know, if you had ten divisions, you got one little toy soldier. 42 00:03:45.220 --> 00:03:47.320 So if a block had 43 00:03:47.320 --> 00:03:52.620 forty-five divisions, you'd get four and a half little toy soldiers in the chart. 44 00:03:52.620 --> 00:03:54.100 One week it would be 45 00:03:54.100 --> 00:03:55.780 nuclear weapons, 46 00:03:55.780 --> 00:03:59.020 the next week it would be tanks and artillery pieces, 47 00:03:59.020 --> 00:04:03.340 then we would see, the next week would be aircraft carriers, 48 00:04:03.340 --> 00:04:06.700 followed by nuclear submarines, and even things like 49 00:04:06.700 --> 00:04:12.380 the amount of farmland or oil reserves and of course in each case the Soviet Union and 50 00:04:12.380 --> 00:04:19.420 the Warsaw Pact countries would be made to seem superior. 51 00:04:19.420 --> 00:04:24.780 There was never a word about starving people, environmental devastation or that many of 52 00:04:24.780 --> 00:04:30.220 the Soviet soldiers were not even given bullets to use in their guns either because there 53 00:04:30.220 --> 00:04:35.500 simply were no bullets available or because the Soviet officials did not trust the soldiers 54 00:04:35.500 --> 00:04:43.860 with Bullets. Years later, only in retrospect did I grow suspicious of my professor. He 55 00:04:43.860 --> 00:04:49.660 used to spend his summers in Hawaii on some kind of international fellowship, although 56 00:04:49.660 --> 00:04:56.540 he never published anything in his entire career. I did have one professor, Scott Sumner, 57 00:04:56.540 --> 00:05:02.660 who provided me with a directed readings course in the Austrian theory of the business cycle. 58 00:05:02.660 --> 00:05:07.980 He was a recent graduate of Chicago and a relative had given him a copy of Human Action. 59 00:05:07.980 --> 00:05:14.460 I saw it on his bookshelf one day and so he did know what the Austrian theory was about 60 00:05:14.460 --> 00:05:20.060 and I will be forever grateful for his willingness and assistance as well as his relative's 61 00:05:20.060 --> 00:05:23.620 intervention in his graduate studies. 62 00:05:23.620 --> 00:05:30.500 I graduated in 1982 and I had to go to graduate school because the economy was in the tanks. 63 00:05:30.500 --> 00:05:33.380 There was no jobs available, essentially. 64 00:05:33.380 --> 00:05:37.460 After thinking long and hard, I chose to go to Auburn University for my master's degree 65 00:05:37.460 --> 00:05:38.900 in economics. 66 00:05:38.900 --> 00:05:45.060 It seemed to me to be the most Austrian-friendly program and was one of the best master's only 67 00:05:45.060 --> 00:05:49.800 program graduate in economics in the country. 68 00:05:49.800 --> 00:05:55.220 Like most graduate students, I was very disappointed with much of this program. 69 00:05:55.220 --> 00:06:01.940 Especially, there were two remarks from my professors that are burned into my memory. 70 00:06:01.940 --> 00:06:09.620 One told me that the Austrian Theory of the Business Cycle was a grisly embarrassment. 71 00:06:09.620 --> 00:06:15.460 Another told me that the Austrian School was a historical fact. 72 00:06:15.460 --> 00:06:22.540 It did exist, but there were only a handful of Austrians still working in the profession, 73 00:06:22.540 --> 00:06:27.860 And none of them were at graduate programs putting out new PhDs in economics. 74 00:06:27.860 --> 00:06:31.100 So this school of thought was an historical fact, but it was doomed. 75 00:06:31.100 --> 00:06:34.920 It was going to be essentially extinct. 76 00:06:34.920 --> 00:06:41.460 Even in Roger Garrison's macroeconomics class, all we discussed was Keynes' general theory, 77 00:06:41.460 --> 00:06:46.900 which by the way was a lot of fun, but not much about Austrian theory in particular. 78 00:06:46.900 --> 00:06:52.380 In fact, towards the end of the first year, I decided to drop out of graduate school and 79 00:06:52.380 --> 00:06:58.900 to take a job offer back home as the economy was starting to recover, and I had even decided 80 00:06:58.900 --> 00:07:06.380 not to take my final exam in econometrics. At that time, I found out about the Ludwig 81 00:07:06.380 --> 00:07:12.460 von Mises Institute, that they were moving to Auburn, Alabama. They were going to set 82 00:07:12.460 --> 00:07:22.020 up seminars, conferences, publications, and that they were going to give me a fellowship. 83 00:07:22.020 --> 00:07:28.020 So this meant for me only one thing. I would have to start cramming for my econometrics 84 00:07:28.020 --> 00:07:34.780 exam, which I barely passed. To top it off, at the same time I learned that Auburn would 85 00:07:34.780 --> 00:07:40.380 have a new PhD program in economics, which I quickly transferred into. Talk about being 86 00:07:40.380 --> 00:07:47.940 at the right place, at the right time. So later on in that summer, armed with only a 87 00:07:47.940 --> 00:08:02.940 A Good Idea, a few newsletters, and an electric typewriter, Lew and Marty set up shop in the College of Business at Auburn University in an office that was smaller than the last office I had as a graduate student. 88 00:08:02.940 --> 00:08:07.940 Things started to pick up quickly. I was put in charge of the Austrian Economics newsletter. 89 00:08:07.940 --> 00:08:15.940 We had the gold standard conference in Washington D.C. in 1984, which is where I met Ron Paul. 90 00:08:15.940 --> 00:08:42.940 And by the way, I've long been a gold bug. I collected coins as a boy, and I made $70 off of selling my junk silver at about the same time the Hunt brothers were trying to cover a quarter of the market in silver, which is the only time I've ever sold, by the way. So I think I have a very good track record. 91 00:08:42.940 --> 00:09:12.940 Over the next few years, with the help of the Mises Institute, myself and other graduate students met and had lectures from just about everybody in the Austrian School, including Murray Rothbard, Israel Kirzner, and James Buchanan of the Public Choice School, and as great as all this was, it made you realize that if you got to meet every Austrian economist in a couple of years' time, that you're dealing with a school that was very small. 92 00:09:12.940 --> 00:09:18.940 In fact, at the time, the Austrian School of Economics was not as big as some economics departments. 93 00:09:18.940 --> 00:09:23.940 The Mises University was started in 1986, and it was a great program. 94 00:09:23.940 --> 00:09:28.940 And I still remember in the early years, thinking and talking to the other students and saying, 95 00:09:28.940 --> 00:09:34.940 you know, this is really great, but we were wondering, can we really keep this thing going? 96 00:09:34.940 --> 00:09:39.940 You know, before everybody in the world who really wanted to go to the Mises Institute, 97 00:09:39.940 --> 00:09:46.280 Institute at the Mises University had already been to one. 98 00:09:46.280 --> 00:09:52.040 It was that, you know, our vision of most people at the time was very limited, and my 99 00:09:52.040 --> 00:09:58.360 point here is that this was a very small enterprise and a very fragile one, and few people had 100 00:09:58.360 --> 00:10:02.460 any vision of what it might actually become. 101 00:10:02.460 --> 00:10:08.200 One of my jobs at the Mises Institute is to answer academic questions from members, from 102 00:10:08.200 --> 00:10:14.200 from students and from the media around the world, and I love doing this, but very often 103 00:10:14.200 --> 00:10:22.320 members of the Institute especially will express a deep sense of frustration and pessimism 104 00:10:22.320 --> 00:10:28.720 about the state of the world, about our government, and about the place of the Austrian School 105 00:10:28.720 --> 00:10:32.420 within the broader frame of economics. 106 00:10:32.420 --> 00:10:37.880 And I understand that, but from where I sit, I can't help be optimistic about the Austrian 107 00:10:37.880 --> 00:10:43.440 School and the world in general. If we start with the world, just think in terms of China 108 00:10:43.440 --> 00:10:52.040 and the Soviet Union have all gone to much more market-oriented policies. This is also 109 00:10:52.040 --> 00:10:56.680 true of the former British Empire. All the countries of the former British Empire have 110 00:10:56.680 --> 00:11:03.440 gone from state socialism to more market-oriented economies. We have a world in which technology 111 00:11:03.440 --> 00:11:10.440 is zooming and standards of living are booming. Sure, the United States is a basket case 112 00:11:10.440 --> 00:11:18.280 in terms of its economic policies, war and deficits. Sure, we have a president who appears 113 00:11:18.280 --> 00:11:25.280 to want to speed the day of our national bankruptcy, but the funny thing, not funny haha, but the 114 00:11:25.280 --> 00:11:31.360 funny thing is that people around the world seem to understand this. In fact, it's gotten 115 00:11:31.360 --> 00:11:49.400 The Austrian School has certainly grown from the situation where every Austrian economist 116 00:11:49.400 --> 00:11:54.560 knew every other Austrian economist in the world, to the current situation where we don't 117 00:11:54.560 --> 00:12:01.320 even know all of the Austrian economists, and we find out about new ones every week. 118 00:12:01.320 --> 00:12:07.260 New educational programs are coming online as well as independent institutes inspired 119 00:12:07.260 --> 00:12:10.120 by Austrian economics. 120 00:12:10.120 --> 00:12:15.940 Instead of the irregular Austrian economics newsletter, we now have several journals and 121 00:12:15.940 --> 00:12:21.740 professional conferences devoted to Austrian economics. 122 00:12:21.740 --> 00:12:28.860 We have a website which is the leading most trafficked economic website in the world. 123 00:12:28.860 --> 00:12:35.060 These resources combined with the Mises University and the Rowley Summer Fellows Program at the 124 00:12:35.060 --> 00:12:42.420 Mises Institute means that our graduate students now have, are no longer handicapped when attempting 125 00:12:42.420 --> 00:12:47.020 to earn a graduate degree and attempting to earn an academic position. 126 00:12:47.020 --> 00:12:51.900 Indeed, I would almost say that they have an advantage. 127 00:12:51.900 --> 00:12:56.920 Not only is the Austrian School getting bigger, it's getting younger over time. 128 00:12:56.920 --> 00:13:01.620 The group of speakers here today may be getting a little long in the tooth, but there are 129 00:13:01.620 --> 00:13:08.260 many, many younger economists coming online every day and they are very bright and well-trained. 130 00:13:08.260 --> 00:13:12.660 Not only are we getting bigger and younger, the school is getting more refined in terms 131 00:13:12.660 --> 00:13:16.900 of theory and more radical in terms of policy. 132 00:13:16.900 --> 00:13:21.740 And not only we're getting bigger, younger, more refined and radical, the Austrian School 133 00:13:21.740 --> 00:13:26.340 is increasingly recognized in the mainstream press. 134 00:13:26.340 --> 00:13:33.380 Whether it's the Wall Street Journal, Barons, The Economist, or the Financial Times in London, 135 00:13:33.380 --> 00:13:37.620 the Austrian School is getting increasing recognition. 136 00:13:37.620 --> 00:13:44.220 For example, John Desaard, the senior economics columnist of the Financial Times, said recently 137 00:13:44.220 --> 00:14:07.220 The only good research on the real estate bubble is being done at the Mises Institute in Auburn, Alabama. Only in our publications would you read about the bubble before it was too late, and only in our publications could you read about when the bubble turned into a bust. 138 00:14:07.220 --> 00:14:15.220 In fact, my research and publications demonstrate that only the Austrians have seen the major turning points in the economy. 139 00:14:17.220 --> 00:14:26.220 Prior to the Great Depression, economist Irving Fisher was the architect of modern mainstream macroeconomics and central bank policy. 140 00:14:27.220 --> 00:14:34.220 He declared in the fall of 1929 that America had now created a perpetual prosperity. 141 00:14:37.220 --> 00:14:54.220 And people still basically are following Fischer's architecture. In 1928, Ludwig von Mises published an entire book demonstrating the fallibility of Fischer's approach and that the economy was soon to go under in a crash. 142 00:14:54.220 --> 00:15:04.220 In the late 1960s, Murray Rothbard and Henry Hazlitt, among others, warned of a stagflation that would consume the 1970s. 143 00:15:04.220 --> 00:15:16.220 Meanwhile, the Keynesian chairman of the President's Council of Economic Advisers declared in a book that the business cycle was dead. 144 00:15:16.220 --> 00:15:22.220 The book was published the same month that the economy first slipped into recession. 145 00:15:22.220 --> 00:15:29.220 During the late 1990s, again, it was the Austrians who recognized the bubble in tech stocks. 146 00:15:30.220 --> 00:15:38.220 A good dozen Austrian economists published this in print and warned of the inevitable implosion that was poised to happen. 147 00:15:38.220 --> 00:15:49.220 Meanwhile, mainstream and Wall Street economists did not see the bubble coming and were generally getting even more optimistic as the bust approached. 148 00:15:49.220 --> 00:16:02.220 So, in all of that research, I've finally had the opportunity to study and apply the Austrian business cycle theory that had so turned me on in the late 1970s. 149 00:16:02.220 --> 00:16:17.220 Far from being a grisly embarrassment, it has been, I think, thoroughly vindicated through experience of what the Austrian economists have done and what mainstream and Wall Street economists have failed to do. 150 00:16:17.220 --> 00:16:27.220 So I want to thank all of you. I want to thank Lew Rockwell from snatching me from the grasp 151 00:16:27.220 --> 00:16:33.220 of a normal life and allowing me to live out all my dreams. Thank you very much.