WEBVTT NOTE The Book That Saved Economics 1 00:00:00.000 --> 00:00:06.000 According to conventional accounts, the scientific doctrine and influence of Austrian economics 2 00:00:06.000 --> 00:00:12.000 developed steadily from 1871, when it was founded, until well into the 1930s. 3 00:00:12.000 --> 00:00:18.000 By 1936, the Austrian school was riding high and at the peak of its international influence. 4 00:00:18.000 --> 00:00:27.000 However, suddenly, tragically and completely, the school was buried under the Keynesian avalanche of statist nonsense. 5 00:00:27.000 --> 00:00:37.000 The Austrian School was not revived until 1974 when Friedrich Hayek, the most eminent member of the fourth generation of the school, was awarded the Nobel Prize in Economics. 6 00:00:37.000 --> 00:00:44.000 Now, this conventional story of the development of Austrian Economics is wrong on two counts. 7 00:00:44.000 --> 00:00:50.000 First, Austrian Economics, in terms of its core doctrine of value and price theory, 8 00:00:50.000 --> 00:00:57.000 reached really the pinnacle of its influence not in 1936, but in 1914. 9 00:00:57.000 --> 00:01:06.000 From that point, its influence declined rapidly until by the early 1920s in most countries, including Austria herself, 10 00:01:06.000 --> 00:01:13.000 it had been substantially displaced by two rival approaches, which I'll talk about, two rival schools of thought. 11 00:01:13.000 --> 00:01:20.000 The second problem with the conventional story is that it neglects the crucial role of human action in the revival. 12 00:01:20.000 --> 00:01:32.000 In my talk I will present a revised account of how and why the Austrian School already had become a closed chapter of the history of economic thought by 1936, 13 00:01:32.000 --> 00:01:36.000 the year of the Keynesian Revolution and its supposed demise. 14 00:01:36.000 --> 00:01:42.960 And I also shall address how Mises single-handedly diverted the entire course of intellectual 15 00:01:42.960 --> 00:01:50.200 history by writing and publishing Human Action and thus reviving the Austrian School. 16 00:01:50.200 --> 00:01:54.400 Let me begin my story with the founding of the Austrian School in 1871 by Carl Menger. 17 00:01:54.400 --> 00:01:58.680 Menger's purpose in writing his great book, The Principles of Economics, which I highly 18 00:01:58.680 --> 00:02:05.580 recommend to everyone, it's certainly amenable to reading by laypeople, was to formulate 19 00:02:05.580 --> 00:02:08.540 What he called a theory of price based on reality. 20 00:02:08.540 --> 00:02:14.460 Menger realized that the explanation of how actual prices are determined on real markets 21 00:02:14.460 --> 00:02:17.020 is the core of economic theory. 22 00:02:17.020 --> 00:02:21.060 The theory of price originated not only, 23 00:02:21.060 --> 00:02:24.500 that Menger originated, was not only realistic, but it was also systematic. 24 00:02:24.500 --> 00:02:26.660 It explained all economic phenomena, 25 00:02:26.660 --> 00:02:30.020 by that we simply mean prices, wages and interest rates, 26 00:02:30.020 --> 00:02:33.860 exclusively in terms of consumer values and choices. 27 00:02:33.860 --> 00:02:43.860 At about the same time, a Swiss economist, Leon Walras, independently arrived at the conclusion that human values and choices are important in the process of determining market prices. 28 00:02:43.860 --> 00:02:59.860 However, unlike Menger, whose theory was based on verbal, common sense, cause and effect analysis, Walras tried to explain price formation using the mathematical equations of astronomy and classical mechanics. 29 00:02:59.860 --> 00:03:12.860 As a result, Oratze's theory, which came to be known as general equilibrium theory, described a timeless and mechanical economy that was peopled by pre-programmed robots, and it was wholly unrealistic. 30 00:03:12.860 --> 00:03:24.860 Later on in 1890, a British economist named Alfred Marshall attempted to develop a realistic theory of price by focusing on the decisions confronting businessmen. 31 00:03:24.860 --> 00:03:31.860 But Marshall's so-called partial equilibrium approach to economic theory turned out to be superficial rather than realistic. 32 00:03:31.860 --> 00:03:38.860 It neglected the fact that the ultimate causes of all prices and costs 33 00:03:38.860 --> 00:03:43.860 lay not in the ledgers of the businessman, but in the very souls of consumers. 34 00:03:43.860 --> 00:03:46.860 So those are the two schools that at the time were competing with the Austrian School, 35 00:03:46.860 --> 00:03:51.860 the general equilibrium school, the mechanical school of thought, and the partial equilibrium school, 36 00:03:51.860 --> 00:03:56.020 School, which ignored a large part of economic phenomenon. 37 00:03:56.020 --> 00:03:59.680 Against this background, I will now briefly trace the development of Austrian economics 38 00:03:59.680 --> 00:04:05.220 after World War I. It should be kept in mind that the heart of all systems of economics 39 00:04:05.220 --> 00:04:13.220 is the explanation or theory of price. Mises himself said that, quote, economics is mainly 40 00:04:13.220 --> 00:04:18.680 concerned with the analysis of the determination of money prices of goods and services exchanged 41 00:04:18.680 --> 00:04:21.080 on the Market." 42 00:04:21.080 --> 00:04:27.200 The heart of Austrian economics was beginning in 1871 and continues to this day to be Menger's 43 00:04:27.200 --> 00:04:33.320 causal realistic analysis of price, the simple, obvious cause and effect analysis that begins 44 00:04:33.320 --> 00:04:34.320 with human wants. 45 00:04:34.320 --> 00:04:39.560 Okay, now let me, again, just talk about the heyday of Austrian economics prior to World 46 00:04:39.560 --> 00:04:40.560 War I. 47 00:04:40.560 --> 00:04:47.920 In the early 1880s, Menger's first followers of Boehm-Bawerk and the latter's friend and 48 00:04:47.920 --> 00:05:01.920 and brother-in-law, Friedrich von Mises, began to publish, and as the decade progressed, the growing stream of publications by these people, by these men, and by others who had been influenced by Menger in Austria and elsewhere, increased to a flood. 49 00:05:01.920 --> 00:05:13.920 By the end of the decade, there emerged an identifiable Austrian school that was known to the rest of the world. So by 1889-1890, there was an Austrian school with an international reputation. 50 00:05:13.920 --> 00:05:20.920 It is important to note that even at this early stage, the Austrian School was deeply divided on a crucial issue. 51 00:05:20.920 --> 00:05:28.920 On the one hand, Boehm-Bawerk fully absorbed Menger's approach to price theory and tried to develop it further and apply it to new areas. 52 00:05:28.920 --> 00:05:39.920 On the other hand, Wieser, Boehm-Bawerk's brother-in-law, who refused to talk with him about economics for whatever reason, maybe because he knew he was wrong, 53 00:05:39.920 --> 00:05:49.920 sees now only on Menger's subjectivism and completely ignored the structure of reality-based price theory that Menger had tried to build. 54 00:05:49.920 --> 00:06:02.920 Mises' purpose was to construct his own unique mechanical general equilibrium price theory, linking it through the concept of marginal utility, which was Menger's concept, to the foundations in human psychology. 55 00:06:02.920 --> 00:06:15.920 But despite this early split, in the three decades, from 1884 to 1914, the Austrian School flourished and substantial progress was made in developing Menger's approach into a complete theory of price. 56 00:06:15.920 --> 00:06:30.920 Just to mention some names that are important in this period, the progress was embodied especially in the works of Boehm-Bawerk, Wickstede in Great Britain, J.D. Clarke, Frank Fetter and Herbert Davenport, who were the members of an important school in the United States. 57 00:06:30.920 --> 00:06:42.920 The peak of the influence of Menger's theory coincided with the publication of treatises by Wickstede, Davenport, and Fedder in the years 1910, 1913, and 1950. 58 00:06:42.920 --> 00:06:47.920 And Hayek, as I said, a member of the fourth generation, wrote, quote, 59 00:06:47.920 --> 00:07:02.920 In the early post-war period, the work of the American theorists John Bates Clarke, Thomas Nixon Carver, Irving Fischer, Federer and Davenport was more familiar to us in Vienna than that of any foreign economist except perhaps the Swedes. 60 00:07:02.920 --> 00:07:07.920 So by this point, the Austrian School was truly international by World War I. 61 00:07:07.920 --> 00:07:14.920 Come next to the reasons for the decline of the Hungarian tradition, which had reached this zenith of influence. 62 00:07:14.920 --> 00:07:21.920 Unfortunately, the Austrian School and its causal-realistic method declined swiftly from the peak of its influence. 63 00:07:21.920 --> 00:07:24.920 There are four basic causes of this decline. 64 00:07:24.920 --> 00:07:30.920 The first involved events that occurred in Vienna in the decade leading up to the First World War. 65 00:07:30.920 --> 00:07:37.920 These included, most importantly, the premature withering of Boehm-Bawerk's vital and creative powers. 66 00:07:37.920 --> 00:07:40.920 He was really the leader of the Austrian School from 1890 onwards. 67 00:07:40.920 --> 00:07:47.920 I'll explain why his creative powers didn't decline. 68 00:07:47.920 --> 00:07:50.920 He died very young in 1914. 69 00:07:50.920 --> 00:07:59.920 At the same time, there occurred a flowering of the creativity and intellectual influence of Joseph A. Schumpeter, 70 00:07:59.920 --> 00:08:29.920 someone who's always ignored in the story of the Austrian School. The second factor was a rapid rise of the partial equilibrium of Marshallian economics in English-speaking countries to almost complete dominance by the 1920s. Austrian economics was shunted aside in the United States and Great Britain by the early 1920s. The third factor that served to undermine Austrian price theory was a great stimulus given to research in general equilibrium analysis at the London School of Economics either 71 00:08:29.920 --> 00:08:46.920 by Ludwig von Mises and Friedrich Hayek in 1931. Finally, the Mangerian approach itself contained important problems. There were only two generations of economists that were working on this approach up in 1914. They couldn't solve all problems, and they left a few glaring holes in the theory. 72 00:08:46.920 --> 00:08:53.320 And unfortunately, what this allowed people to do was to confuse the Austrian theory with the other two theories, 73 00:08:53.320 --> 00:08:59.600 the Mechanical General Equilibrium Theory and the Unrealistic and Partial Marshallian Theory. 74 00:08:59.600 --> 00:09:06.040 And I'll say a few words about each of these, but especially on the first. 75 00:09:06.040 --> 00:09:13.880 Why did the Austrian School begin to decline in Austria in about 1903? 76 00:09:13.880 --> 00:09:19.880 Well, as I said, Boehm-Bawerk had assumed the mantle of leadership of the Austrian School for Menger by 1890. 77 00:09:20.880 --> 00:09:22.880 He was now an international personality. 78 00:09:22.880 --> 00:09:32.880 The problem, however, was that in 1889, Boehm-Bawerk went into government service, which was a big problem, where he remained for 15 years. 79 00:09:32.880 --> 00:09:38.880 Now, he did write during these years and he did follow the literature and the evolution of Austrian economics. 80 00:09:38.880 --> 00:09:45.880 But when he returned to full-time academic pursuits in 1905, he was, in common parlance, completely burned out. 81 00:09:45.880 --> 00:09:52.880 He himself said that he was an old man. I'm already an old man. He was in his fifties. 82 00:09:52.880 --> 00:09:57.880 Which is scary because I'm nearing that. 83 00:09:57.880 --> 00:10:02.880 Mises himself noticed this about Bomerberg. 84 00:10:02.880 --> 00:10:07.880 Mises said, Bomerberg could have produced much more if conditions had permitted it, 85 00:10:07.880 --> 00:10:13.880 But his physical constitution could no longer stand the hard work necessary to embark upon great works. 86 00:10:13.880 --> 00:10:18.880 His nerves were failing him. The two-hour seminar already taps his strength. 87 00:10:18.880 --> 00:10:20.880 Well, I teach a two-hour class and my nerves fail me. 88 00:10:20.880 --> 00:10:23.880 Well, I have to deal with the students during that period of time. 89 00:10:23.880 --> 00:10:25.880 But this seemed to be more deep-seated. 90 00:10:25.880 --> 00:10:31.880 One of the reasons for this was that Boehm-Bawerk undertook an enormous workload while he was in government for the fifteen years. 91 00:10:31.880 --> 00:10:35.880 Took a very long, great toll on his health. 92 00:10:35.880 --> 00:10:47.880 Meanwhile other problems were brewing in Vienna. Menger retired from the University of Vienna in 1902 and Wieser, the bad guy, acceded to his chair the following year. 93 00:10:47.880 --> 00:10:53.880 And as we said Wieser followed the Volrasian generally moving approach, the Price Theory. 94 00:10:53.880 --> 00:11:02.880 Now this wouldn't be so bad, but at about the same time Trumpeter, a brilliant man, entered the University of Vienna in 1901. 95 00:11:02.880 --> 00:11:07.920 in 1901, and he began to study economics under Wieser in 1903. 96 00:11:07.920 --> 00:11:13.080 The fateful meeting of these two men as teacher and pupil marks the beginning of the downfall 97 00:11:13.080 --> 00:11:17.840 of the Mengerian approach to price theory in Austria itself. 98 00:11:17.840 --> 00:11:22.160 Schumpeter was deeply influenced by Wieser, I'm quoting here, and quote, their ideas on 99 00:11:22.160 --> 00:11:26.080 many topics in economic theory bear great similarity, unquote. 100 00:11:26.080 --> 00:11:31.120 Schumpeter himself identified von Ross, a mechanically delivering theorist, and Wieser, 101 00:11:31.120 --> 00:11:37.120 In this first book, quote, as the two authors to whom I felt closest affinity. 102 00:11:37.120 --> 00:11:42.640 This book, which was translated as, actually it wasn't translated, but the title translated 103 00:11:42.640 --> 00:11:48.160 as The Nature and Essence of Theoretical Economics, was published in 1908 and was an attempt to 104 00:11:48.160 --> 00:11:52.940 explain and defend the use of the model of general equilibrium as the main tool of pure 105 00:11:52.940 --> 00:11:55.120 economic analysis. 106 00:11:55.120 --> 00:12:00.520 The book immediately propelled Schumpeter to the front ranks of economic theorists on 107 00:12:00.520 --> 00:12:05.920 on the Continent and established him as the preeminent member of the third generation, 108 00:12:05.920 --> 00:12:10.680 that's Mises' generation, of the Austrian School. 109 00:12:10.680 --> 00:12:16.960 Wieser, Walras, Clark, great names in international economics all favorably reviewed the book by 110 00:12:16.960 --> 00:12:17.960 Schumpeter. 111 00:12:17.960 --> 00:12:26.120 However, Boehm-Bawerk bitterly attacked the book, which was on grounds that were legitimate. 112 00:12:26.120 --> 00:12:36.120 However, unfortunately, for reasons I can't understand, Boehm-Bawerk did not have anything, well, he did not have anything good to say about this book, Das Bessen, which is the essence. 113 00:12:36.120 --> 00:12:44.120 He evidently considered Schumpeter an outstanding economic theorist, who had just gone wrong. 114 00:12:44.120 --> 00:12:50.120 Now, Boehm-Bawerk, this is a very strange situation in the history of economic thought, which up to this point hasn't been dealt with. 115 00:12:50.120 --> 00:13:07.120 Boehm-Bawerk's strangely ambivalent attitude towards Schumpeter, his contempt for his work, but his esteem for his abilities, is starkly revealed in letters that he wrote to another great economist, in a letter dated July 9th, 1912, Boehm-Bawerk wrote, 116 00:13:07.120 --> 00:13:16.120 Schumpeter is also very young, and of course, he neither could possibly have been able to master the gigantic undertaking, meaning his book, that he has ventured to tackle. 117 00:13:16.120 --> 00:13:24.120 But I consider him to be very talented. About his next, second book, you will probably be shocked even more. 118 00:13:24.120 --> 00:13:29.120 He has developed his theory of interest, which I consider to be totally wrong. So he thinks Schumpeter is totally wrong at everything. 119 00:13:29.120 --> 00:13:36.120 In fact, Boehm-Bawerk penned a bitter 60-page attack on Schumpeter's theory of interest. 120 00:13:36.120 --> 00:13:42.620 And after a 40-page reply by Schumpeter, he returned to the attack and a 20-page rejoinder. 121 00:13:42.620 --> 00:13:48.120 Yet in another letter, in April 1913 written in a big cell, Boehm-Bawerk alluded to, quote, 122 00:13:48.120 --> 00:13:52.620 the clever but insubstantial fantasies of Schumpeter, unquote. 123 00:13:52.620 --> 00:14:00.120 But in correspondence a few months later, in September 1913, Boehm-Bawerk was again singing the praises of Schumpeter's many talents, 124 00:14:00.120 --> 00:14:04.120 while dismissing his work as superficial, quote, 125 00:14:04.120 --> 00:14:21.120 So, with our young economists, I am also not in agreement. Schumpeter I consider to be the most gifted among them, and if he could find his way from his present cursoriness to solid and meticulous research, he could, with his ability, make important contributions to science. 126 00:14:21.120 --> 00:14:26.960 We hadn't yet done this after two books, but yet Boehm-Bawerk held that great hope. 127 00:14:26.960 --> 00:14:36.280 Now, it's instructive at this point to contrast Boehm-Bawerk's treatment of Schumpeter with that received by Mises in these same letters to Vicksel. 128 00:14:36.280 --> 00:14:42.440 Whereas Schumpeter is affectionately portrayed as a brilliant, if rambunctious and willful child, 129 00:14:42.440 --> 00:14:49.000 Boehm-Bawerk's references to Mises do not portray the slightest degree of personal regard or appreciation for his abilities. 130 00:14:49.000 --> 00:14:53.440 Despite the fact that Mises had been a regular participant in his seminar for seven years, 131 00:14:53.440 --> 00:15:01.440 for example, a letter dated August 1912, Boehm-Bawerk requested that Vicksel write a review of Mises' Theory of Money and Credit. 132 00:15:01.440 --> 00:15:03.160 We mark it, quote, 133 00:15:03.160 --> 00:15:09.760 You have probably also recently received a book on the theory of money by a young Viennese scholar, Dr. von Mises. 134 00:15:09.760 --> 00:15:16.840 Mises is a student of myself and Professor Bieser, which, however, does not mean I would want to take responsibility for all his views. 135 00:15:16.840 --> 00:15:21.840 I have just begun to read this book myself, and am not yet familiar with its content. 136 00:15:21.840 --> 00:15:25.840 It's strange that he would mention that. 137 00:15:25.840 --> 00:15:29.160 Similarly, in the three subsequent letters written over the next twenty months, in which 138 00:15:29.160 --> 00:15:33.000 Boehm-Bawerk referred to Vicksel's review of Mises's book, there is not a positive word 139 00:15:33.000 --> 00:15:36.480 conveyed concerning Mises's contributions or abilities. 140 00:15:36.480 --> 00:15:40.240 From this, it must be concluded that even Boehm-Bawerk, despite his profound objections 141 00:15:40.240 --> 00:15:44.960 to Schumpeter's approach to price theory, considered him far and away the most promising 142 00:15:44.960 --> 00:15:49.840 of the Third Generation of Austrian Economists. 143 00:15:49.840 --> 00:15:52.760 Now, this had tremendous consequences. 144 00:15:52.760 --> 00:15:54.160 From a worldwide point of view now, 145 00:15:54.160 --> 00:15:58.360 Boehm-Bawerk, or Schumpeter, was being proclaimed by his teachers, 146 00:15:58.360 --> 00:16:01.200 Wieser and Boehm-Bawerk, as their most brilliant student, 147 00:16:01.200 --> 00:16:02.960 and he was attaining, at the same time, 148 00:16:02.960 --> 00:16:05.960 the youngest full professorship in Austria-Hungary's 149 00:16:05.960 --> 00:16:09.760 second-most prestigious university. 150 00:16:09.760 --> 00:16:13.160 And that full professorship was gotten in his behalf 151 00:16:13.160 --> 00:16:15.760 by Balderberg. 152 00:16:15.760 --> 00:16:18.080 When his second book, The Theory of Economic Development, 153 00:16:18.080 --> 00:16:21.120 appeared in 1911, it was greeted with broad acclaim 154 00:16:21.120 --> 00:16:23.360 and almost immediately established his reputation 155 00:16:23.360 --> 00:16:25.320 among the international community of scholars. 156 00:16:25.320 --> 00:16:26.680 According to one of his biographers, 157 00:16:26.680 --> 00:16:29.160 Schumpeter's development book, as he had called, 158 00:16:29.160 --> 00:16:31.560 made him world famous among serious economists 159 00:16:31.560 --> 00:16:34.480 almost overnight in 1911. 160 00:16:34.480 --> 00:16:37.560 While his first book had alerted the profession 161 00:16:37.560 --> 00:16:39.840 to a rising new star, his second one 162 00:16:39.840 --> 00:16:47.840 and cemented his position as the wunderkind of economics and identified him as the most outstanding theorist of social and economic development. 163 00:16:47.840 --> 00:16:52.840 So now this is the leading member of the third generation of the Austrian School. 164 00:16:52.840 --> 00:17:00.840 The decade leading up to World War I best represented the watershed decade for the Austrian School in the nation of its birth. 165 00:17:00.840 --> 00:17:08.840 A physically debilitated Boehm-Bawerk, although still an influential teacher, was no longer able to undertake original work with pure theory, 166 00:17:08.840 --> 00:17:12.840 while Menger had already retired from active teaching and publishing in 1903. 167 00:17:12.840 --> 00:17:18.840 In this situation, the publication of Schumpeter's two books sparked a powerful movement 168 00:17:18.840 --> 00:17:27.840 to recast the price theory of Austrian economics along the lines of verbal Eurasian general equilibrium analysis. 169 00:17:27.840 --> 00:17:34.840 Basically, it's mechanical analysis without the math, but still not the dynamic analysis of Menger. 170 00:17:34.840 --> 00:17:40.840 The publication of Wieser's treatise, which occurred in 1914, added momentum to this movement. 171 00:17:40.840 --> 00:17:45.840 Remember, Wieser was Schumpeter's mentor, and he also was a volatilist. 172 00:17:45.840 --> 00:17:50.840 Since Wieser's book, which was later translated into English as Social Economics, 173 00:17:50.840 --> 00:17:54.840 was the first comprehensive treatise on economics produced by the Austrian School, 174 00:17:54.840 --> 00:18:01.840 this meant that the field of pure theory was now almost completely dominated by the general equilibrium wing of the school. 175 00:18:01.840 --> 00:18:20.840 Now, the momentous consequences were this. The fourth generation, that was Hayek's generation, entered the University of Vienna after World War I. Who was their teacher? Their teacher was Wieser. Hayek called him the Grandseigneur of the Austrian School. He also called him my revered teacher. 176 00:18:20.840 --> 00:18:28.840 And Hayek always considered himself an adherent of the Wieser tradition, rather than the Boehm-Bawerk and Mises tradition. 177 00:18:28.840 --> 00:18:35.840 Also, Magluck called Wieser his first major teacher. Fritz Magluck was another important member of the fourth generation. 178 00:18:35.840 --> 00:18:41.840 Gottfried Haveler, another member of this generation, took Wieser's course. 179 00:18:41.840 --> 00:18:48.840 And Oscar Morgenstern, another member of this generation, also was very close to Wieser. 180 00:18:48.840 --> 00:18:58.840 So now here we have the upcoming generation of the Austrian School having fallen under the wing of the General Equilibrium part of the school. 181 00:18:59.840 --> 00:19:09.840 So even more important than Wieser's treatise, which they all read when they went through his course, was Schumpeter's first book, which as I said was called Das Vestige, 182 00:19:09.840 --> 00:19:14.840 in which he defended the General Equilibrium model as a core concept of pure economic theory. 183 00:19:14.840 --> 00:19:21.720 Hayek referred to this book in 1980, looking back, as his first brilliant book, quote-unquote, 184 00:19:21.720 --> 00:19:26.640 and argued that the ideas in this work are certainly essential enough to the understanding 185 00:19:26.640 --> 00:19:29.960 of the development of economic theory. 186 00:19:29.960 --> 00:19:34.760 Hayek also revealed that, quote, of course, Schumpeter's two pre-war books and his essay 187 00:19:34.760 --> 00:19:38.320 on money were familiar to all of us of the fourth generation, unquote. 188 00:19:38.320 --> 00:19:42.760 Morgenstern, one of Hayek's cohorts, recollected that, quote, 189 00:19:42.760 --> 00:19:47.560 The work was read abidantly in Vienna even long after the First World War, 190 00:19:47.560 --> 00:19:51.440 and its youthful freshness and vigor appealed to the young students. 191 00:19:51.440 --> 00:19:56.120 I myself remember what sort of revelation it was to me when I first laid hands on it, 192 00:19:56.120 --> 00:20:02.680 and like many others of my generation, I resolved to read everything Schumpeter had written and would ever write. 193 00:20:02.680 --> 00:20:05.440 So my thesis then is that Schumpeter, this is a controversial thesis, 194 00:20:05.440 --> 00:20:12.440 had an enormous influence on Hayek and his cohorts. 195 00:20:12.440 --> 00:20:16.200 But what of the tradition of Menger and Boehm-Bawerk during the 1920s? 196 00:20:16.200 --> 00:20:20.400 Wasn't Menger's principals, after all, still the guiding star of the Austrian school? 197 00:20:20.400 --> 00:20:25.480 And wasn't Mises, the long-time student of Boehm-Bawerk, now teaching a university seminar 198 00:20:25.480 --> 00:20:30.360 and conducting his own privat seminar, basically a private seminar in his own office? 199 00:20:30.360 --> 00:20:35.080 Regarding Menger's direct influence during this period, although he was still alive, 200 00:20:35.080 --> 00:20:46.080 It was more a myth than a reality to quote Hayek to the fourth generation, particularly since his book had become a great rarity which was practically unobtainable as a copy that even disappeared from the libraries unquote. 201 00:20:46.080 --> 00:21:04.080 And though it is true that Mises was a popular lecturer at the university, he lectured as an unsalaried, pre-bac-dos-en, basically an unpaid professor who taught one course a semester, unlike us who are unpaid professors that teach three or four courses a semester. 202 00:21:04.080 --> 00:21:16.080 In the early 1920s, Mises hardly rivaled Beezer in prestige as a teacher, or Schumpeter in reputation as a pure theorist. 203 00:21:16.080 --> 00:21:25.080 In addition, Mises' university course was an advanced seminar that reflected Mises' research interests and did not really focus on value and price theory. 204 00:21:25.080 --> 00:21:31.080 Regarding Mises' private seminar, this was even less focused on pure theory. 205 00:21:31.080 --> 00:21:41.080 And students were only allowed to attend after they had already received their degree, so it was unlikely that he had a formative influence on Hayek and the others in theory. 206 00:21:42.080 --> 00:21:54.080 In fact, and I won't go into too much detail, Mises did influence Hayek, but through his political-economic writings and through his monetary writings, not in terms of his pure theory. 207 00:21:54.080 --> 00:22:00.000 Theory. His book Socialism, Hayek said, did greatly affect the world view of the fourth 208 00:22:00.000 --> 00:22:06.640 generation. But that was basically on political grounds, not on purely theoretical grounds. 209 00:22:08.080 --> 00:22:12.160 I also want to put forth another controversial thesis. If you look at the works of this fourth 210 00:22:12.160 --> 00:22:17.360 generation in 1930, Machlif Borkenstein Habler and Hayek himself, were all generally political 211 00:22:17.360 --> 00:22:25.360 If you look at Hayek's early work on business cycle theory, monetary theory and trade theory, 212 00:22:25.360 --> 00:22:31.360 he made it clear that successful business cycle theory must be logically integrated with the 213 00:22:31.360 --> 00:22:35.360 fundamental propositions of the theory of equilibrium. 214 00:22:35.360 --> 00:22:38.360 And by equilibrium theory, Hayek explicitly understood 215 00:22:38.360 --> 00:22:43.360 primarily the modern theory of the general interdependence of all economic quantities, 216 00:22:43.360 --> 00:22:48.600 and Quantities, which was most perfectly expressed by the Lausanne School of Theoretical Economics. 217 00:22:48.600 --> 00:22:56.840 All that means is that Hayek believed that the Bolrasian equations were the core of economics, 218 00:22:56.840 --> 00:23:00.880 something that Menger and later Mises completely rejected. 219 00:23:00.880 --> 00:23:06.200 Now it's true, Hayek himself did try to break out his Bolrasian box. 220 00:23:06.200 --> 00:23:17.200 and he struggled mightily between 1933 or so and 1945 to try, he realized the inadequacies of general equilibrium theory and he tried to replace it but he was really unable to. 221 00:23:17.200 --> 00:23:29.200 In 1945 he came to the conclusion that, well, the economy was always near enough to general equilibrium that all the data, the scattered knowledge in the economy was brought together 222 00:23:29.200 --> 00:23:34.200 and the result was that we got prices and we got outputs that were very like general equilibrium. 223 00:23:34.200 --> 00:23:39.200 So, it was still the center of his theoretical view. 224 00:23:39.200 --> 00:23:43.200 Now, that's the first factor I wanted to deal with. 225 00:23:43.200 --> 00:23:49.200 That economics in Austria itself led to a decline of dynamic, 226 00:23:49.200 --> 00:23:54.200 mangarian, causal realistic analysis. 227 00:23:54.200 --> 00:23:57.200 A second factor, I'm just going to state it, I'm not going to talk too much about it, 228 00:23:57.200 --> 00:24:01.200 is the rise of the economics of Alfred Marshall. 229 00:24:01.200 --> 00:24:06.200 Basically, as I said before, it's a superficial view. It's focused on the businessman and not on basic human, 230 00:24:06.200 --> 00:24:17.200 fundamental human values and choices. Marshall was a very unlikable man, but he was able to gain a very great influence 231 00:24:17.200 --> 00:24:25.200 in English-speaking economics for various reasons. So that by the 1920s, British economic theory was all Marshallian, 232 00:24:25.200 --> 00:24:31.200 Except for one particular section, which we'll talk about, and that was at the London School of Economics in the Rockies. 233 00:24:31.200 --> 00:24:40.200 And even in the United States, I won't go into too much detail, the great Austro-American school of Clark, Fedder and Davenport, 234 00:24:40.200 --> 00:24:47.200 due to personal animosity between two of the people, Davenport and Fedder, they hated each other's guts basically, 235 00:24:47.200 --> 00:24:54.200 they failed to really generate a second generation, or produce a second generation of Austro-American economists. 236 00:24:54.200 --> 00:25:01.200 And in fact, Hayek himself, when he visited America in the early 1920s wrote, 237 00:25:01.200 --> 00:25:05.200 I must confess that from my predominantly theoretical interest, 238 00:25:05.200 --> 00:25:09.200 the first impression of American economics was disappointing. 239 00:25:09.200 --> 00:25:12.200 I soon discovered that the great names which were household words to me 240 00:25:12.200 --> 00:25:16.200 were regarded as old-fashioned men by my American contemporaries. 241 00:25:16.200 --> 00:25:19.200 That work on their lines had moved no further than I knew already. 242 00:25:19.200 --> 00:25:23.200 So by 1921, 1922, the American-Austrian School is dead. 243 00:25:23.200 --> 00:25:25.600 Okay, and then Hayek attends it to that. 244 00:25:27.600 --> 00:25:35.500 Also, I deal with, in my paper, and I'll just briefly mention it, that the Austrian School did make them headway in France and Italy, 245 00:25:35.900 --> 00:25:47.000 but it soon lost out to a sort of eclectic, bastardized combination of German historical economics and classical economics. 246 00:25:47.100 --> 00:25:52.000 Okay, so by 1920, it was really gone in Italy and in France. 247 00:25:52.000 --> 00:26:01.000 In Germany, Germany was under the influence of the historical school, which didn't believe in theory. 248 00:26:01.000 --> 00:26:10.000 They began to become curious about theory again in the early 1920s, but the book that reawakened their curiosity was not an Austrian book, 249 00:26:10.000 --> 00:26:19.000 but it was a book by a Swede named Gustav Kassel, and it was basically of Eurasian verbal general equilibrium, basically mechanical equilibrium without the equations. 250 00:26:19.000 --> 00:26:31.120 Which brings us to the third factor. This is Hayek and his influence in transforming 251 00:26:31.120 --> 00:26:37.600 economics at the London School. By 1930, there remained one seemingly impregnable academic 252 00:26:37.600 --> 00:26:43.200 stronghold of mangarian economics in Europe. The economics department of the London School 253 00:26:43.200 --> 00:26:48.720 of Economics headed by Robbins, Lionel Robbins. But events were already developing elsewhere 254 00:26:48.720 --> 00:26:54.720 Here in Europe, that would rapidly and fundamentally transform the character of LSE economics. 255 00:26:54.720 --> 00:27:01.720 In the early 1930s, the Austrian School had begun to melt away in Austria as more attractive prospects abroad, 256 00:27:01.720 --> 00:27:10.720 or the national socialist threat drove the leading Austrian economists to emigrate to Great Britain, United States and Switzerland. 257 00:27:10.720 --> 00:27:19.720 So, all the great Austrian economists, or most of them, Hayek, Matlab, Haber, Morgan, Stern, and Mises, all left Austria by the mid-1930s. 258 00:27:19.720 --> 00:27:28.720 Ironically, this great Austrian migration was the third factor contributing to the downfall of the Mangerian tradition, particularly in Great Britain. 259 00:27:28.720 --> 00:27:33.720 For it was under Hayek's influence that economists at the LSE, especially John Hicks, 260 00:27:33.720 --> 00:27:39.720 began to introduce Volrasian General Equilibrium Theory, as reformulated by an Italian, Alfredo Paredo, 261 00:27:40.720 --> 00:27:45.720 you can tell by the vowel at the end of each of these two names, to Anglo-American economists. 262 00:27:47.720 --> 00:27:52.720 However, more important than the direct influence, Hayek's direct influence on Hicks, 263 00:27:52.720 --> 00:27:59.720 was the profound effect that Hayek's verbal general equilibrium approach had on the Mangerian Robbins. 264 00:27:59.720 --> 00:28:03.720 Marion Robbins, Robbins was the head of the London School of Economics. 265 00:28:03.720 --> 00:28:06.720 He was the very heart and soul of LSE Economics. 266 00:28:06.720 --> 00:28:11.720 Between 1927 and 1934, Robbins had written a series of brilliant papers 267 00:28:11.720 --> 00:28:17.720 elaborating and applying causal-realistic price theory and criticizing 268 00:28:17.720 --> 00:28:21.720 the Marshallian variety of partial equilibrium economics. 269 00:28:21.720 --> 00:28:24.720 In addition, he wrote a great book called 270 00:28:24.720 --> 00:28:28.720 Essay on the Nature and Significance of Economic Science which was first published in 1932. 271 00:28:28.720 --> 00:28:38.720 And this clearly revealed the author's, quote, a special indebtedness, unquote, to the works of Mises and Wicksky, two Mengerians. 272 00:28:38.720 --> 00:28:44.720 And he argued with Menger that economic theory was indeed based upon reality. 273 00:28:44.720 --> 00:28:54.720 Robin's book quickly succeeded in demonstrating to most of the profession that the Mengerian method of formulating economic theory was both obvious and realistic. 274 00:28:54.720 --> 00:28:58.720 And as Robbins characterized this method, he said, quote, 275 00:28:58.720 --> 00:29:05.720 The propositions of economic theory, like all scientific theory, are obviously deductions from a series of postulates. 276 00:29:05.720 --> 00:29:13.720 And the chief of these postulates are all assumptions involving, in some way, simple and indisputable facts of experience, 277 00:29:13.720 --> 00:29:21.720 relating to the way in which the scarcity of goods, which is the subject of our science, actually shows itself in the world of reality. 278 00:29:21.720 --> 00:29:26.720 So he was a very firm staunch follower of Carl Menger. 279 00:29:26.720 --> 00:29:31.720 By the mid-1930s, however, Robbins had begun to fall under the sway of Hayek and Hicks, 280 00:29:31.720 --> 00:29:39.720 confusing the dynamic Menger-Wicksky analysis with the Volrasian general equilibrium analysis as the essence of economic theory. 281 00:29:39.720 --> 00:29:48.720 For example, in a syllabus for his course on general principles of economic analysis, which he gave during 1934-1935, 282 00:29:48.720 --> 00:29:49.720 and Life. 283 00:29:49.720 --> 00:29:53.840 Robbins included under the heading, Modern Works and General Theory, the treatises by 284 00:29:53.840 --> 00:29:59.320 Bumperberg, Rick Steedfeder, Clark and Davenport, all great Mengerian treatises. 285 00:29:59.320 --> 00:30:04.360 But he added alongside those, alongside of those, the treatises of Cassell, Pareto and 286 00:30:04.360 --> 00:30:07.400 other Volrasian economists. 287 00:30:07.400 --> 00:30:12.760 In a revealing note in the syllabus, Robbins wrote, quote, the treatment will be non-mathematical 288 00:30:12.760 --> 00:30:14.480 in character. 289 00:30:14.480 --> 00:30:18.480 Students who wish to witness the same problems treated mathematically should attend course 290 00:30:18.480 --> 00:30:24.240 First Number 66, unquote. For Robbins evidently, the choice between the causal realistic and 291 00:30:24.240 --> 00:30:29.320 the mechanical generally equilibrium approaches was now merely a matter of taste. Further evidence 292 00:30:29.320 --> 00:30:33.360 of Robbins' drift away from the Mangerian camp can be found in the second edition of 293 00:30:33.360 --> 00:30:37.320 The Nature and Significance, that great book I talked about, which was published in the 294 00:30:37.320 --> 00:30:42.760 second edition in 1935. In this edition there were still numerous footnotes to the works 295 00:30:42.760 --> 00:30:48.400 of Fenner, Davenport, Wixfeed, Mises and Richard von Schriegel, but now they coexisted with 296 00:30:48.400 --> 00:30:52.400 The footnote references to the work suddenly of Pareto and Hicks. 297 00:30:52.400 --> 00:30:55.400 Apparently, this was not the case in the first edition. 298 00:30:55.400 --> 00:30:57.400 I haven't seen the first edition. It's very scarce. 299 00:30:57.400 --> 00:31:01.400 But as Richard M. Eberle, who compared the two editions, explains, 300 00:31:01.400 --> 00:31:05.400 quote, the footnote references in this first edition show more clearly 301 00:31:05.400 --> 00:31:11.400 the strongly Austrian influence on Roberts' thinking than in the second edition of 1935, 302 00:31:11.400 --> 00:31:17.400 in which modifications in the text and deletions and additions to the footnote references 303 00:31:17.400 --> 00:31:21.400 and the impression of different authorities having influenced Robbins. 304 00:31:21.400 --> 00:31:32.400 And significantly, in the second edition, Robbins thanks Hayek and another student of Bieser, Paul Rosenstein-Rodan, 305 00:31:32.400 --> 00:31:36.400 for the advice and criticism in helping him make these changes. 306 00:31:36.400 --> 00:31:40.400 That was absent in the first edition, evidently. 307 00:31:40.400 --> 00:31:49.620 Finally, I want to say a word about the socialist calculation debate, which Hayek, Mises and 308 00:31:49.620 --> 00:31:53.320 Robbins were involved in on the same side. 309 00:31:53.320 --> 00:31:59.920 They were criticizing the ability of the socialist regime to calculate. 310 00:31:59.920 --> 00:32:05.960 Both Hayek and Robbins, however, in their critiques of socialist central planning, emphasize impracticality 311 00:32:05.960 --> 00:32:12.400 of the full and timely discovery by the central planning board of the widely dispersed knowledge 312 00:32:12.400 --> 00:32:17.440 that was needed to solve the system of simultaneous equations that were supposed to substitute 313 00:32:17.440 --> 00:32:20.320 for monetary calculations of entrepreneurs. 314 00:32:20.320 --> 00:32:24.320 So while admitting that if you could solve these equations, you would have an efficient 315 00:32:24.320 --> 00:32:28.560 economy, Hayek and Robbins really said, well, you'll never be able to get the information 316 00:32:28.560 --> 00:32:29.560 needed. 317 00:32:29.560 --> 00:32:33.520 Things are changing continually and it's very difficult to get all the information together 318 00:32:33.520 --> 00:32:35.720 to solve these equations. 319 00:32:35.720 --> 00:32:41.320 Now, for Mises, the economy was always in deep and fundamental disequilibrium, 320 00:32:41.320 --> 00:32:46.080 and these equations were therefore completely irrelevant to the problem of economic calculation. 321 00:32:46.080 --> 00:32:51.120 Moreover, the problem of incomplete knowledge, especially due to the uncertainty of the future, 322 00:32:51.120 --> 00:32:55.480 was a problem that afflicted, according to Mises, both central planners and private entrepreneurs. 323 00:32:55.480 --> 00:32:58.640 No one could know the future. Everybody was in the same position. 324 00:32:58.640 --> 00:33:05.680 Even with the price system, the entrepreneurs could not know more than the central planners, 325 00:33:05.680 --> 00:33:07.680 more in the future, in the sense of planners. 326 00:33:08.080 --> 00:33:12.460 Now, I won't quote it here, but there was an argument that Mises never really criticized 327 00:33:13.300 --> 00:33:14.320 Hayek. 328 00:33:14.320 --> 00:33:19.600 You know, there were very few antisocials in the 1930s, and certainly it was strategic not to criticize him, 329 00:33:19.600 --> 00:33:25.080 but in a French journal, he did draw attention to the differences between him and Hayek, and we'll probably 330 00:33:26.080 --> 00:33:28.240 translate this article and publish it in the 331 00:33:28.960 --> 00:33:30.960 quarterly journal of Wall Street Economics. 332 00:33:30.960 --> 00:33:36.960 In any case, let me get back to Robbins momentarily, for further evidence, I'm sorry. 333 00:33:36.960 --> 00:33:45.960 Actually, let me go on to the fourth problem, and then I'll show how Mises overcame all these problems. 334 00:33:45.960 --> 00:33:55.960 The fourth factor in the decline of Austrian economics were certain problems that existed within Menger's paradigm, his overall system. 335 00:33:55.960 --> 00:33:59.960 Remember, there were only two generations, as I said, of Austrian economists before 1914. 336 00:33:59.960 --> 00:34:06.680 2014 are really able to work on these problems of value of price, and they left two big gaps. 337 00:34:06.680 --> 00:34:12.760 Unfortunately, the gaps they left allowed many people, many economists, to portray Austrian 338 00:34:12.760 --> 00:34:20.920 economics as really simply a less rigorous verbal rendition of mechanical Eurasian economics. 339 00:34:22.040 --> 00:34:24.840 Two things that they did not do, which Mises finally did do. 340 00:34:24.840 --> 00:34:29.480 One, they did not integrate money and price theory. 341 00:34:29.480 --> 00:34:36.480 In other words, in the theory of general equilibrium, there is no money, there is no uncertainty, 342 00:34:36.480 --> 00:34:42.480 everybody knows exactly what they want, no one needs to hold money in order to buy different things in the future. 343 00:34:42.480 --> 00:34:50.480 To make a long story short, the other reason why this competing theory is unrealistic is because it doesn't create money prices. 344 00:34:50.480 --> 00:34:52.480 It's really a theory of a barter economy. 345 00:34:52.480 --> 00:34:58.480 Well, Mises saw this, this was a problem, and Menger and Boehm-Bawerk did not solve this problem. 346 00:34:58.480 --> 00:35:04.480 Even the later, more sophisticated treatises of Wick, Steed and Fedder didn't solve this problem. They tried to, but they did not. 347 00:35:04.480 --> 00:35:12.480 So that was one problem. The second problem was that it was difficult to define the role of equilibrium. 348 00:35:12.480 --> 00:35:20.480 I mean, obviously the Volrasians were wrong about saying that generally equilibrium represented the real world economy in some sense. 349 00:35:20.480 --> 00:35:30.480 But yet there is a role in economic theory, an important role for general equilibrium, okay, verbally specified, not in terms of mathematical equation. 350 00:35:30.480 --> 00:35:37.480 So since the Austrians did not do, the old Austrians did not address this question and solve this problem, 351 00:35:37.480 --> 00:35:42.480 it was thought later on in the 20s and 30s that they were really just general equilibrium peers too. 352 00:35:42.480 --> 00:35:45.480 And so this was a second problem. 353 00:35:45.480 --> 00:35:50.480 And I go into much more detail about the problems. I don't want to belabor them. 354 00:35:50.480 --> 00:35:57.480 There were two serious problems. So these were the four factors that brought down Austrian economics. 355 00:35:57.480 --> 00:36:09.480 By the mid-1930s, there were no Austrian economists in the sense of a causal realistic analysis of prices. 356 00:36:09.480 --> 00:36:16.480 One School of Economics in Robbins were pretty much gone by 1935-1936. 357 00:36:16.480 --> 00:36:27.480 There, as I said, in the United States and Italy and France and so on, the Austrians were a chunk of the side. 358 00:36:27.480 --> 00:36:32.480 Now, it is true that there were important Austrian contributions to money, capital, and business cycle theory 359 00:36:32.480 --> 00:36:38.480 that continued to pour forth from the LSC throughout the 1930s, most of them from the Panopiah himself. 360 00:36:38.480 --> 00:36:47.480 by Hayek himself. But they were progressively weakened by the fact that they were not well-grounded in a dynamic price sphere. 361 00:36:47.480 --> 00:36:55.480 The culmination of this unfortunate trend was Hayek's Pure Theory of Capital, which was published in 1941 and was really ignored. 362 00:36:55.480 --> 00:37:04.480 And it was largely unsuccessful, precisely because it was an attempt to reconstruct Austrian Capital Theory on the basis of an inter-temporal, 363 00:37:04.480 --> 00:37:26.480 Mises must have been fully aware of this disaster state of affairs when he immigrated to Switzerland in 1934. 364 00:37:26.480 --> 00:37:42.480 He was comfortably ensconced as a full-time salary faculty member for the first time that he didn't have to worry about earning a paycheck in government or that he could devote his full time to economics. 365 00:37:42.480 --> 00:37:46.480 For the first time, he could focus his attention on academic research. 366 00:37:46.480 --> 00:37:49.920 Mises used this opportunity to write National Economy, 367 00:37:49.920 --> 00:37:52.320 the German language predecessor of Human Action, 368 00:37:52.320 --> 00:37:55.520 and a book that was intended to revive the Hungarian approach 369 00:37:55.520 --> 00:37:59.520 and elaborate it into a complete and unified system of economic theory. 370 00:37:59.520 --> 00:38:02.880 As evidence of the importance that Mises attached to this book, 371 00:38:02.880 --> 00:38:05.040 and of the time and energy he poured into it, 372 00:38:05.040 --> 00:38:09.280 he wrote very little else in the years leading up to its publication in 1940. 373 00:38:09.280 --> 00:38:12.880 Previously an enormously prolific writer, 374 00:38:12.880 --> 00:38:17.600 The extent of his output from 1934 to 1939 is comparatively meager. 375 00:38:17.600 --> 00:38:23.360 In addition to book reviews, short memos, newspaper and magazine articles, notes and introductions, 376 00:38:23.360 --> 00:38:28.560 there was only one substantial article during these five years for an academic audience. 377 00:38:28.560 --> 00:38:32.240 In retrospectively describing his purpose in writing National Economy, 378 00:38:32.240 --> 00:38:36.960 Mises left no doubt that he sought to address the two burning issues left unresolved by his 379 00:38:36.960 --> 00:38:44.960 by his Mangerian forerunners, the status of the equilibrium construct, and the split between monetary and value theory. 380 00:38:44.960 --> 00:38:47.960 Regarding the former Mises-Roe, quote, 381 00:38:47.960 --> 00:38:53.960 I try in my treatise to consider the concept of static equilibrium as instrumental only, 382 00:38:53.960 --> 00:38:56.960 and to make use of this purely hypothetical abstraction, 383 00:38:56.960 --> 00:39:01.960 only as a means of approaching and understanding a continually changing world. 384 00:39:01.960 --> 00:39:06.960 It is one of the shortcomings of many economic theorists, and he here could have been referring to Rothenheim, 385 00:39:06.960 --> 00:39:13.960 that they have forgotten the purpose underlying the introduction of this hypothetical concept into our analysis. 386 00:39:15.960 --> 00:39:25.960 So, and he also addressed the problem of the split between money and prices. 387 00:39:25.960 --> 00:39:29.960 Now I don't want to go into that in too much detail, there is detail on that in my paper, 388 00:39:29.960 --> 00:39:40.960 But let me just sum up by saying that the national economy marked the culmination of the Mengerian theoretical approach, in a real sense, the rebirth of the Austrian School of Economics. 389 00:39:40.960 --> 00:39:51.960 Now this book was published in 1940. The causal realistic approach now had the great systematic treatise it needed in order to definitively distinguish itself from the rival approaches to price theory. 390 00:39:51.960 --> 00:40:01.960 When one compared national economy to the influential restatement of the general equilibrium approach John Hicks had presented in Value and Capital, 391 00:40:01.960 --> 00:40:11.960 the fundamental and irreconcilable differences between the Mangerian and the Moravian approaches were at last starkly and unmistakably revealed. 392 00:40:11.960 --> 00:40:20.960 With the Austrian School poised for a vigorous comeback on the strength of the publication of national economy in early 1940, disaster struck. 393 00:40:20.960 --> 00:40:29.460 Cut off from the German-speaking market by the war in Europe, its Swiss publisher went out of business and the sale and distribution of Mises' treatise ceased. 394 00:40:29.460 --> 00:40:35.960 By the time the English language edition was published by Yale University Press in 1949 as Human Action, 395 00:40:35.960 --> 00:40:44.960 the moment had passed for the immediate restoration of the influence of Mengerian price theory within the mainstream of economic theory. 396 00:40:44.960 --> 00:40:50.960 Now, my discussion suggests a revisionist thesis regarding the main reason why the influence of Austrian economics, 397 00:40:50.960 --> 00:41:01.960 seemingly at its international peak in the mid-1930s, should have declined so precipitously that by 1940, and certainly by the end of World War II, it was absolutely nil. 398 00:41:01.960 --> 00:41:06.960 The conventional view was that Austrian economics, as I said earlier, was buried by the Keynesian avalanche. 399 00:41:06.960 --> 00:41:16.960 But this is only true if we acquiesce in the mistaken identity of the essence of Austrian economics as money and business cycle theory. 400 00:41:16.960 --> 00:41:22.960 No, causal realistic price theory was a quintessence of Austrian economics. 401 00:41:22.960 --> 00:41:30.960 And it was not suddenly undone in its pride by the thunderous eruption of Keynesian macroeconomics in the mid-1930s in Great Britain. 402 00:41:30.960 --> 00:41:38.160 Britain. Rather it was abandoned by almost all of its defenders while still in an 403 00:41:38.160 --> 00:41:42.560 immature state. It had begun to be silently usurped by a rival approach many 404 00:41:42.560 --> 00:41:46.560 years before in the land of its birth. Returning to Mises' achievement, the 405 00:41:46.560 --> 00:41:50.800 writing of National Economy then was a profoundly lonely venture. By the late 406 00:41:50.800 --> 00:41:55.040 1930s, Mises could count on no intellectual allies in his solitary quest 407 00:41:55.040 --> 00:42:08.040 The Austrian School of Economics was virtually a closed chapter in the history of economic thought as Mises toiled away in Geneva at the close of the 1930s. 408 00:42:08.040 --> 00:42:16.040 When the first fruits of his labor withered on the vine unattended by a world otherwise occupied by war, 409 00:42:16.040 --> 00:42:23.040 Mises persisted and delivered human action into a positively hostile and uncomprehending world almost a decade later. 410 00:42:23.040 --> 00:42:24.040 later. 411 00:42:24.040 --> 00:42:29.080 It was this great work that, however improbably, diverted the course of intellectual history 412 00:42:29.080 --> 00:42:36.400 by reigniting the modern revival of research in the Mangerian paradigm. 413 00:42:36.400 --> 00:42:40.000 Which started in the early 1960s with the brilliant work of Murray and Rothbard. 414 00:42:40.000 --> 00:42:43.000 And it's continued to flourish down to this very day. 415 00:42:43.000 --> 00:42:46.840 But on account of this chapter, the post-Human Action chapter, of the Austrian School has 416 00:42:46.840 --> 00:42:47.840 yet to be written. 417 00:42:48.840 --> 00:42:50.840 Thank you very much.