WEBVTT NOTE Why Free Markets Matter 1 00:00:00.000 --> 00:00:15.000 All right, for our closing act today, we have a senior fellow at the Mises Institute, holds a bachelor's degree from Harvard, PhD from Columbia, has written a number of books. 2 00:00:15.000 --> 00:00:20.000 He had a New York Times bestseller and a politically incorrect guide to American history. 3 00:00:20.000 --> 00:00:24.000 He wrote the 33 questions about American history you're not supposed to ask. 4 00:00:24.000 --> 00:00:30.280 Church in the Market, and of course last year he hit the New York Times bestseller list again with Meltdown. 5 00:00:30.280 --> 00:00:37.400 He's got a new book coming out called Nullification that I understand is going to be his hottest book yet. 6 00:00:38.000 --> 00:00:41.920 He has conveniently changed the title of his speech. 7 00:00:43.040 --> 00:00:48.320 So if you were hoping to hear about applying economics to American history, you will not hear about that, 8 00:00:48.720 --> 00:00:53.120 but you will hear about Tom Woods's Perfect World, I think, more or less. 9 00:00:54.000 --> 00:00:58.000 Please help me welcome Mr. Thomas Woods. 10 00:01:06.000 --> 00:01:08.000 Okay. Thank you very much. 11 00:01:08.000 --> 00:01:15.000 Yeah, I am sorry about changing the topic at the last minute, but this is the exact, that's the exact topic I spoke about at the last one of these. 12 00:01:15.000 --> 00:01:19.000 So if you're dying to hear that, you can go to YouTube and type in, you know, 13 00:01:19.000 --> 00:01:21.000 Applying Economics to American History 14 00:01:21.000 --> 00:01:25.000 Which may be the dullest title of any topic ever given 15 00:01:25.000 --> 00:01:27.000 But actually it turned out okay 16 00:01:27.000 --> 00:01:29.000 Actually it was one of the better ones 17 00:01:29.000 --> 00:01:31.000 So you can watch it 18 00:01:31.000 --> 00:01:34.000 But today we're going to talk about something different 19 00:01:34.000 --> 00:01:37.000 Basically what I want to do, since I've got you guys here 20 00:01:37.000 --> 00:01:41.000 Is sort of say the sorts of things that I would say 21 00:01:41.000 --> 00:01:45.000 If I had the attention of the whole world for a half an hour 22 00:01:45.000 --> 00:01:50.000 If I wanted to talk to them about the market economy in particular, what would I say to them? 23 00:01:50.000 --> 00:01:54.000 I got half an hour, and that's all they're giving me. What would I say? 24 00:01:54.000 --> 00:01:59.000 Well, I want to start off by, first of all, considering what exactly is the free market economy? 25 00:01:59.000 --> 00:02:06.000 This is an easy question to answer, but the so-called experts try to make it difficult for us. 26 00:02:06.000 --> 00:02:14.000 So that is to say, a lot of people going through school get very much caricatured definitions of what a free market is. 27 00:02:14.000 --> 00:02:37.000 The free market economy is simply defined. Free market is simply the sum total of voluntary exchanges bounded by private property rights. That's all it is. It's just individuals freely exchanging one thing for another. 28 00:02:37.000 --> 00:02:41.000 And very often one of those things is money, money for some good. 29 00:02:41.000 --> 00:02:44.000 That's all it is, just people making voluntary exchanges. 30 00:02:44.000 --> 00:02:50.000 And yet, these voluntary exchanges give rise to extraordinary things. 31 00:02:50.000 --> 00:02:57.000 Dr. Thornton told you this morning about the miracle of the freaking pencil, for heaven's sake. 32 00:02:57.000 --> 00:03:03.000 A pencil, a dumb little pencil requires this extraordinary structure of production all over the world, 33 00:03:03.000 --> 00:03:33.000 in the world coming together at just the right moment and just the right quantities and there are no surpluses or shortages and this all occurs spontaneously without the need for any global pencil planning board and earlier this week I was at an investment conference and I was giving an example like that and I said isn't it amazing that we can get through our lives without you know a man's hat planning board in the world and somebody in the audience said well not yet anyway and I thought yeah unfortunately 34 00:03:33.000 --> 00:03:38.000 This seems to be the way things are going. Before you know it, there will be a planning board. We don't need it. That's the point. 35 00:03:38.000 --> 00:03:44.000 The free market suffices to bring about these miracles on a daily basis. 36 00:03:44.000 --> 00:03:48.000 Murray Rothbard was fond of giving the example of the ham sandwich. 37 00:03:48.000 --> 00:03:53.000 If you look at all the different stages of production that go into the production of a ham sandwich, 38 00:03:53.000 --> 00:03:56.000 think about having a storefront that sells ham sandwiches. 39 00:03:56.000 --> 00:03:59.000 Well, what does that storefront need? It's got to have refrigeration units. 40 00:03:59.000 --> 00:04:01.500 So right away, what does a refrigeration unit require? 41 00:04:01.500 --> 00:04:07.000 Well, it's going to be made out of steel and rubber and other things, and those have production processes of their own. 42 00:04:07.000 --> 00:04:09.500 All kinds of things are necessary just for the storefront. 43 00:04:09.500 --> 00:04:15.000 The ham is going to be brought to you, it's going to be transported from a wholesaler, 44 00:04:15.000 --> 00:04:19.500 who's going to get it from a meatpacker, who gets it from a slaughterhouse, who gets it from a farmer, 45 00:04:19.500 --> 00:04:22.500 who has to feed his pigs with corn grown somewhere else. 46 00:04:22.500 --> 00:04:26.500 And this is just the level of the ham, forget about anything else on the sandwich. 47 00:04:26.500 --> 00:04:32.500 all these things by all these independent suppliers who are not owned by the same firm typically 48 00:04:32.500 --> 00:04:40.500 and who are not centrally directed. Nevertheless, all this stuff occurs without the need for any central coordination. 49 00:04:40.500 --> 00:04:44.500 And in fact, when you think about it, there is no human being on earth who would even... 50 00:04:44.500 --> 00:04:49.500 even if he wanted to follow all those steps necessary for the ham sandwich, 51 00:04:49.500 --> 00:04:55.500 there isn't a single person on earth who would have the technological expertise in all the necessary fields. 52 00:04:55.500 --> 00:05:03.000 Who knows about mining, and also knows about putting refrigeration units together, and also knows about building construction? 53 00:05:03.000 --> 00:05:06.800 No one has that kind of knowledge all in his one head. 54 00:05:06.800 --> 00:05:12.000 So the free market allows us, even though we have puny heads as individuals, 55 00:05:12.000 --> 00:05:16.500 to take advantage of the knowledge contained in everybody's head. 56 00:05:16.500 --> 00:05:22.400 We can all put it together, and it's far greater than the mere parts. 57 00:05:22.400 --> 00:05:31.840 Now, you would never guess that the free market system, first of all, is socially desirable, 58 00:05:31.840 --> 00:05:33.940 based on what we learn about in school. 59 00:05:33.940 --> 00:05:39.280 You would be inclined to think that the free market system is a system in which little 60 00:05:39.280 --> 00:05:45.160 kids have to work in mines all day and get their limbs blown off, and that's the end 61 00:05:45.160 --> 00:05:46.160 of it. 62 00:05:46.160 --> 00:05:49.560 I mean, we all got that in school, or maybe some of you folks might have been able to 63 00:05:49.560 --> 00:06:19.560 to avoid it but that's the sort of thing that we get and it's just horrific and so that's sort of what I'm talking about today is to try to dispel some of this so that we understand the free market correctly and also to point out that any any derogation from the free market anytime we move away from the free market involves violence necessarily involves violence the free market is an arena of peace peaceful interaction among people and if you interfere with it but then by definition you're introducing violence or the threat of violence into the equation so here's a 64 00:06:19.560 --> 00:06:26.440 Here's a little useful mechanism, a device when you're listening to a political speech 65 00:06:26.440 --> 00:06:29.520 or presidential speech, doesn't matter what party. 66 00:06:29.520 --> 00:06:35.080 When you hear the president make a promise, I will do thus and so, I will increase the 67 00:06:35.080 --> 00:06:41.680 number of thus and so, mentally add the words, with a gun, to the end of each sentence. 68 00:06:41.680 --> 00:06:43.640 Because that's ultimately what it is. 69 00:06:43.640 --> 00:06:49.640 Every promise that is being transmitted to you involves the use of a gun. 70 00:06:49.640 --> 00:06:54.840 In effect, the president is saying, I'm going to set aside the free results of voluntary 71 00:06:54.840 --> 00:07:00.720 interaction between rational human beings, and I'm instead going to introduce violence. 72 00:07:00.720 --> 00:07:05.580 Now, I know my mother taught me violence never accomplished anything, and violence is the 73 00:07:05.580 --> 00:07:09.560 tool of the ignorant, so why don't we turn this back on our politicians when they so 74 00:07:09.560 --> 00:07:11.800 eagerly introduce it? 75 00:07:11.800 --> 00:07:19.280 You'd also never guess that world poverty has declined dramatically in direct proportion 76 00:07:19.280 --> 00:07:22.920 to the spread of market institutions around the world. 77 00:07:22.920 --> 00:07:27.260 Now over the course of the past half century we have seen economic liberalization, liberal 78 00:07:27.260 --> 00:07:30.960 in the best sense of that word, in many parts of the world. 79 00:07:30.960 --> 00:07:35.960 Now to be sure we haven't seen enough of it, it hasn't been extensive enough, but nevertheless 80 00:07:35.960 --> 00:07:41.960 Yes, we have seen it, and as a result, we have seen extraordinary progress against poverty. 81 00:07:41.960 --> 00:07:45.160 And these are statistics, I'm about to give you, these are statistics that you can get 82 00:07:45.160 --> 00:07:49.560 from the World Bank mainstream sources that are easily consulted. 83 00:07:49.560 --> 00:07:54.600 These are not coming from the Tom Woods Wicked Free Market Statistical Fund. 84 00:07:54.600 --> 00:07:59.280 These are easily consulted, and yet we don't hear about them at all. 85 00:07:59.280 --> 00:08:03.240 That in the past 50 years, we've seen more progress against poverty around the world 86 00:08:03.240 --> 00:08:13.440 In 1820, the percentage of people who lived in what economists call absolute poverty was 87 00:08:13.440 --> 00:08:15.560 85 percent. 88 00:08:15.560 --> 00:08:18.800 By 1950, it was 50 percent. 89 00:08:18.800 --> 00:08:23.040 By the early 1980s, it was down to 33 percent. 90 00:08:23.040 --> 00:08:28.800 In the developing world, the rate of poverty has gone, again, absolute poverty has gone 91 00:08:28.800 --> 00:08:36.840 It's gone from the early 1980s, went from about 40% to in the early 2000s down to 21%. 92 00:08:36.840 --> 00:08:44.440 In the world as a whole, it's gone from 33% to 18% over that same two-decade period. 93 00:08:44.440 --> 00:08:49.680 Now this is the first time in history that we have seen a two-decade period in which 94 00:08:49.680 --> 00:08:54.820 not just the percentage but also the absolute number of people living in absolute poverty 95 00:08:54.820 --> 00:08:56.820 has declined. 96 00:08:56.820 --> 00:09:01.460 We've seen since the 1960s that the caloric intake on average in the developing world has 97 00:09:01.460 --> 00:09:03.900 increased by 30 percent. 98 00:09:03.900 --> 00:09:08.500 We've seen life expectancies increase again very substantially to the point where they're 99 00:09:08.500 --> 00:09:12.340 beginning to catch up with life expectancy in the developed world. 100 00:09:12.340 --> 00:09:15.980 And this is happening every single day and we hear nothing about this. 101 00:09:15.980 --> 00:09:19.740 I mean, you'd think this would be like somebody would write one article about it in the New 102 00:09:19.740 --> 00:09:20.740 York Times, right? 103 00:09:20.740 --> 00:09:23.740 I mean, it'd be something, but by and large nothing. 104 00:09:23.740 --> 00:09:27.240 I mean, to the contrary, this is the opposite of what we're led to believe. 105 00:09:27.240 --> 00:09:29.740 The rich get richer and the poor get poorer. 106 00:09:29.740 --> 00:09:31.140 Well, that's not true. 107 00:09:31.140 --> 00:09:35.340 I mean, well, some of the rich are getting richer because they're jerks who have political connections 108 00:09:35.340 --> 00:09:36.940 and they're looting the rest of the population. 109 00:09:36.940 --> 00:09:38.540 I don't support that. 110 00:09:38.540 --> 00:09:43.340 But the poor are managing to escape poverty at a rate never before seen. 111 00:09:43.340 --> 00:09:49.040 Now, it could be that that's just a coincidence, that we had these market reforms and then 112 00:09:49.040 --> 00:09:52.480 poverty declined, but maybe the two things have nothing to do with each other. 113 00:09:52.480 --> 00:09:57.880 These are entirely unrelated, but here I want to suggest that they are related, and I want 114 00:09:57.880 --> 00:10:01.640 to do so by using a thought experiment that I used at the last one of these events, but 115 00:10:01.640 --> 00:10:07.040 it's important and I do want to do this just this one additional time. 116 00:10:07.040 --> 00:10:11.560 Let's imagine what would happen if we lived in a world in which all the machines we used 117 00:10:11.560 --> 00:10:15.680 to produce things were ferreted away by Martians. 118 00:10:15.680 --> 00:10:16.680 So they're all gone. 119 00:10:16.680 --> 00:10:21.960 We have no assembly line machinery, no capital equipment, nothing. 120 00:10:21.960 --> 00:10:28.320 Everything we used for transportation is all gone except horses. You can ride on horseback. 121 00:10:28.320 --> 00:10:33.720 And everything we used for communication purposes is gone, other than the telegraph. I will 122 00:10:33.720 --> 00:10:39.140 grant you the telegraph, given that 99% of us have no idea how to use it, the thing. 123 00:10:39.140 --> 00:10:43.640 And now you've got to go and try and produce. Go ahead and produce with your bare hands. 124 00:10:43.640 --> 00:10:48.760 You and your telegraph and your horse and see how much you can produce. Well, you plus 125 00:10:48.760 --> 00:10:52.200 Plus lots of machines equals lots of output. 126 00:10:52.200 --> 00:10:56.360 You plus nothing equals very little output. 127 00:10:56.360 --> 00:10:57.360 That's the difference. 128 00:10:57.360 --> 00:11:02.560 This economy is not going to be able to produce a tiny fraction of the goods we used to have. 129 00:11:02.560 --> 00:11:05.200 And there will be whole classes of goods we won't be able to produce at all. 130 00:11:05.200 --> 00:11:09.000 Try producing a flat screen TV with your bare hands from beginning to end. 131 00:11:09.000 --> 00:11:11.000 Cannot be done. 132 00:11:11.000 --> 00:11:14.180 Now in that environment, we would be poor. 133 00:11:14.180 --> 00:11:15.180 We would all be poor. 134 00:11:15.180 --> 00:11:24.180 For our capital, there would be so few consumer goods produced for each of us to use because the economy is simply not physically productive enough to produce them. 135 00:11:24.180 --> 00:11:33.180 It would not be that there are some rich people in the world who are hoarding all the flat-screen TVs for themselves and refusing to share them with us. 136 00:11:33.180 --> 00:11:35.180 No, there are no flat-screen TVs in this world. 137 00:11:35.180 --> 00:11:42.180 So we understand the problem in that world would not be that our bosses are wickedly depriving us of the fruits of our labor. 138 00:11:42.180 --> 00:11:46.300 labor and if only they would we could enforce a minimum wage on them then we 139 00:11:46.300 --> 00:11:50.700 could all enjoy steak dinners and flat-screen TVs and automobiles. Now it 140 00:11:50.700 --> 00:11:53.980 doesn't matter how much you make them pay the dollar bills won't be able to 141 00:11:53.980 --> 00:11:58.020 buy you things that don't exist or things that can be produced only in 142 00:11:58.020 --> 00:12:03.780 very very limited quantities. So we would have to maybe triple the amount of hours 143 00:12:03.780 --> 00:12:07.920 we work we have to go from 40 to 120 hours and even tripling our hours with 144 00:12:07.920 --> 00:12:12.320 With our crummy bare hands, it would still have a negligible effect on output. 145 00:12:12.320 --> 00:12:15.960 So we'd be working an exhausting schedule for a pittance. 146 00:12:15.960 --> 00:12:19.400 Now if this were junior high school, this would be where your teacher would come in 147 00:12:19.400 --> 00:12:23.360 and say, you see, isn't that terrible that on the free market people have to work constantly 148 00:12:23.360 --> 00:12:24.920 and they just get a lousy pittance? 149 00:12:24.920 --> 00:12:26.940 Isn't that terrible? 150 00:12:26.940 --> 00:12:29.120 But you see, that's not the free market's fault. 151 00:12:29.120 --> 00:12:31.960 That's the fault of the fact that somebody took all our machines away. 152 00:12:31.960 --> 00:12:36.800 Well, imagine an economy in which that wasn't some nightmare scenario that we just woke 153 00:12:36.800 --> 00:12:40.800 I'm going to look up to find the machines taken by Martians, imagine that's reality. 154 00:12:40.800 --> 00:12:44.800 Well that was the economy 250 years ago, that was reality. 155 00:12:44.800 --> 00:12:48.800 That was what people lived in, and yes they did earn very little, but again not because 156 00:12:48.800 --> 00:12:52.800 short men with white mustaches running around carrying sacks of money 157 00:12:52.800 --> 00:12:56.800 with dollar signs on them were keeping all the money. 158 00:12:56.800 --> 00:13:00.800 It was because the economy was not physically productive enough to allow us all 159 00:13:00.800 --> 00:13:04.800 to enjoy that level of goods that we're accustomed to today. 160 00:13:04.800 --> 00:13:07.320 So how would we get out of that scenario? 161 00:13:07.320 --> 00:13:10.480 How do we get out of the rotten scenario where all we've got is the telegraph, the 162 00:13:10.480 --> 00:13:11.480 horse and our bare hands? 163 00:13:11.480 --> 00:13:17.600 The answer is the free market because on the free market businesses make profits and they 164 00:13:17.600 --> 00:13:22.080 take the profits and they don't just go blow them on yachts, they invest the profits. 165 00:13:22.080 --> 00:13:27.900 They invest them in buying capital equipment to make their production process more physically 166 00:13:27.900 --> 00:13:33.280 productive so they can produce more goods at lower cost and the existence of an abundance 167 00:13:33.280 --> 00:13:42.280 The abundance of goods is going to push those prices down so that when we spend our paychecks we'll be able to get in return for those dollars a lot more goods because they'll exist in such great abundance. 168 00:13:42.280 --> 00:13:56.280 This happens automatically on the free market. It's in the interests of businessmen to want to expand their production capacity, to want to invest their profits in the expansion of that capacity by investing in capital equipment. 169 00:13:56.280 --> 00:14:02.280 That's how it happens. That occurs on the free market when you don't tax this process. 170 00:14:02.280 --> 00:14:08.280 If you tax this process, then in effect what you're saying is, I'm an enemy of mankind. 171 00:14:08.280 --> 00:14:11.280 I don't want to see mankind improve its standard of living. 172 00:14:11.280 --> 00:14:20.280 I don't want to support the one process that allows society as a whole to become wealthier and enjoy a higher standard of living. 173 00:14:20.280 --> 00:14:25.280 No, I am so full of envy that I would rather see us all starve to death than make that sort of advance. 174 00:14:25.280 --> 00:14:28.280 That's kind of implicitly what you're saying. Maybe you don't totally realize that's what you're saying, 175 00:14:28.280 --> 00:14:31.280 but I'm trying to let people know that is kind of what you're saying if you're doing that. 176 00:14:31.280 --> 00:14:49.280 As Frederic Bastiat said, in a single day, under the miracle of a market economy, the average worker consumes more than he could himself produce in ten centuries. 177 00:14:49.280 --> 00:14:58.280 So, everyone benefits, and we also see that this idea of the survival of the fittest is also nonsense. 178 00:14:58.280 --> 00:15:03.280 That the free market is the area of the survival of the fittest. Only the fittest survive. 179 00:15:03.280 --> 00:15:10.280 Well, it seems to me the free market makes it possible for a whole lot more people to be alive in the first place. 180 00:15:10.280 --> 00:15:14.280 A whole lot of people who, if they were living in a primitive pre-market society, 181 00:15:14.280 --> 00:15:18.120 Society, and had to fend for themselves to provide food and clothing for themselves would 182 00:15:18.120 --> 00:15:20.160 probably be dead. 183 00:15:20.160 --> 00:15:23.480 The free market produces enough wealth that we can support all these people. 184 00:15:23.480 --> 00:15:28.400 So it's not the survival of the fittest at all, it's the survival of everybody. 185 00:15:28.400 --> 00:15:33.280 Here's George Reisman, an economist I like very much, speaking on precisely this. 186 00:15:33.280 --> 00:15:38.600 He says, totally unlike lions in the jungle, who must compete for a limited supply of animals 187 00:15:38.600 --> 00:15:44.000 such as zebras and gazelles by means of the power of their senses and limbs, producers 188 00:15:44.000 --> 00:15:48.720 Manufacturers under capitalism are in competition for a limited supply of dollars in the hands 189 00:15:48.720 --> 00:15:54.760 of consumers, which they compete for by means of offering the best and most economical products 190 00:15:54.760 --> 00:15:57.440 their minds can devise. 191 00:15:57.440 --> 00:16:02.200 Since such competition is a competition in the positive creation of new and additional 192 00:16:02.200 --> 00:16:06.880 wealth, there are no genuine long-run losers as the result of it. 193 00:16:06.880 --> 00:16:08.320 There are only winners. 194 00:16:08.320 --> 00:16:09.560 And he goes on, 195 00:16:09.560 --> 00:16:14.440 The competition of farmers and farm equipment manufacturers enables the hungry and weak 196 00:16:14.440 --> 00:16:16.680 to eat and grow strong. 197 00:16:16.680 --> 00:16:20.960 That of pharmaceutical manufacturers enables the sick to recover their health. 198 00:16:20.960 --> 00:16:25.600 The competition of eyeglass and hearing aid manufacturers enables many who otherwise could 199 00:16:25.600 --> 00:16:28.360 not see or hear to do so. 200 00:16:28.360 --> 00:16:33.360 So far from being a competition whose outcome is the survival of the fittest, the competition 201 00:16:33.360 --> 00:16:38.320 of capitalism is more accurately described as a competition whose outcome is the survival 202 00:16:38.320 --> 00:16:44.040 of all, or at least of more and more, for longer and longer and ever better. 203 00:16:44.040 --> 00:16:49.520 The only sense in which only the fittest survive is that it is the fittest products and the 204 00:16:49.520 --> 00:16:55.640 fittest methods of production that survive, until replaced by still fitter products and 205 00:16:55.640 --> 00:16:58.280 methods of production. 206 00:16:58.280 --> 00:17:00.120 Now let's consider the alternative. 207 00:17:00.120 --> 00:17:03.080 Instead of investing in capital equipment so that we become wealthier, why don't we 208 00:17:03.080 --> 00:17:06.040 just steal from the rich people, like wouldn't that be a lot quicker? 209 00:17:06.040 --> 00:17:08.040 I mean, they have to sleep sometime, right? 210 00:17:08.040 --> 00:17:12.040 So we just go in and grab their stuff and then just hand it out to people. 211 00:17:12.040 --> 00:17:15.040 Well, Reisman anticipates this, too. He says, all right, imagine you've got a society, 212 00:17:15.040 --> 00:17:21.040 this would be very typical, primitive economy, and one out of every thousand people is a rich capitalist. 213 00:17:21.040 --> 00:17:26.040 He says, let's imagine this. One out of every thousand people eats twice as much 214 00:17:26.040 --> 00:17:30.040 and has 20 times the furniture as the average person. 215 00:17:30.040 --> 00:17:35.040 He says, now, what would happen if we took this rich person's greater than average consumption, 216 00:17:35.040 --> 00:17:42.360 of Consumption. Divided it by 999 and then redistributed across the society. Nobody's 217 00:17:42.360 --> 00:17:47.440 even going to notice the difference. Oh, wonderful. I have one fortieth of a table leg. What a 218 00:17:47.440 --> 00:17:51.500 contribution to my standard of living. No one would even notice the difference, number 219 00:17:51.500 --> 00:17:56.520 one. So just on practical grounds, it wouldn't work. Apart from the moral question of maybe 220 00:17:56.520 --> 00:18:00.720 stealing we probably should avoid doing, but just practically. There isn't enough stuff 221 00:18:00.720 --> 00:18:04.760 that they own for this to work. Secondly, they're probably not going to keep working 222 00:18:04.760 --> 00:18:09.760 And I'm wondering if they know that every time they stop working and go to sleep, people take their stuff. 223 00:18:09.760 --> 00:18:12.760 They'll just go to sleep and become takers themselves. 224 00:18:12.760 --> 00:18:15.760 And so much for wealth creation. 225 00:18:15.760 --> 00:18:18.760 But also, and not only does it lower capital formation, 226 00:18:18.760 --> 00:18:21.760 because there'll be less saving, less investment if we do this, 227 00:18:21.760 --> 00:18:23.760 but also it feeds on itself. 228 00:18:23.760 --> 00:18:27.760 And what I mean by that is a lot of times we'll read articles in which people will say, 229 00:18:27.760 --> 00:18:36.060 You know, it would cost only X billion dollars to give every American, fill in the blank, 230 00:18:36.060 --> 00:18:40.440 whatever it is, a free Cadillac, whatever the benefit is, it would cost only X billion 231 00:18:40.440 --> 00:18:45.400 dollars to give every American below a particular income level, fill in the blank. 232 00:18:45.400 --> 00:18:49.720 The problem with that line of reasoning is that once people realize that if I get below 233 00:18:49.720 --> 00:18:53.960 this level, I get a free Cadillac, what do you think they're going to do? 234 00:18:53.960 --> 00:18:59.960 It becomes more attractive to put yourself in the situation that entitles you to the benefit. 235 00:18:59.960 --> 00:19:03.160 So the initial cost estimate will always be too low, because it'll turn out, 236 00:19:03.160 --> 00:19:07.360 oh, wait a minute, there are a lot more people than we thought who qualify for the Free Cadillac. 237 00:19:07.360 --> 00:19:09.760 Oh, well, you don't say. 238 00:19:09.760 --> 00:19:17.160 And so what winds up happening is that a larger and larger group of people clamoring for free stuff 239 00:19:17.160 --> 00:19:22.060 is being supported by an ever-shrinking pool of productive human beings 240 00:19:22.060 --> 00:19:25.300 who are the suckers who are pouring all the wealth in that makes this possible. 241 00:19:25.300 --> 00:19:33.600 So again, it undermines the path to prosperity that occurs without violence on a free market. 242 00:19:33.600 --> 00:19:37.440 You may have noticed that we sell t-shirts with economists' faces on them here at the 243 00:19:37.440 --> 00:19:38.440 Mises Institute. 244 00:19:38.440 --> 00:19:42.760 I don't know if anybody else does that, doesn't make it bad. 245 00:19:42.760 --> 00:19:45.580 My own wife, I think, feels a little funny about this. 246 00:19:45.580 --> 00:19:50.280 She has not really given me too much grief about it, but I think the understanding is 247 00:19:50.280 --> 00:19:56.700 is that I am just about hitting the level at which the dorkiness is to the point where 248 00:19:56.700 --> 00:20:00.540 she just can't tolerate it anymore. She's been more than reasonable up to now. But the 249 00:20:00.540 --> 00:20:05.240 economist on the t-shirts, but one of the t-shirts I have is the Frederic Bastiat t-shirt. 250 00:20:05.240 --> 00:20:10.780 I love it because it says on it economic harmonies, which is one of his works. And I love that 251 00:20:10.780 --> 00:20:16.160 work, and I love that phrase because precisely he is saying that in the economy we do not 252 00:20:16.160 --> 00:20:22.160 does not have natural antagonisms, that the market economy, properly understood, does not have natural antagonisms, 253 00:20:22.160 --> 00:20:26.160 not between employers and workers, not between lenders and borrowers. 254 00:20:26.160 --> 00:20:30.160 The market is a peaceful arena of large-scale social cooperation. 255 00:20:30.160 --> 00:20:35.160 You need large-scale social cooperation, as we've seen, to produce even a pencil or a ham sandwich. 256 00:20:35.160 --> 00:20:40.160 And we see this occurring all the time, voluntarily, on the market. 257 00:20:40.160 --> 00:20:50.660 And we likewise perceive a natural order of things, which if we interfere with it, if we interfere with these harmonies, we get problems. 258 00:20:50.660 --> 00:20:55.660 If we introduce a gun into this peaceful environment, we get problems. 259 00:20:55.660 --> 00:21:04.160 So for example, prices. Now you all know if you interfere with prices, you're going to wind up with either surpluses of goods or shortages of goods, depending on how you interfere. 260 00:21:04.160 --> 00:21:09.660 So let's imagine that we want to push the price of something lower. Let's say it's lumber. 261 00:21:09.660 --> 00:21:13.520 Lumber is too expensive. Let's push the price lower. What's going to happen? 262 00:21:14.080 --> 00:21:19.740 Well, what's going to happen is fewer people are going to supply lumber because it'll be less profitable to do so and a lot more 263 00:21:19.740 --> 00:21:24.340 people are going to demand it. People who wouldn't have wanted to build a birdhouse before, 264 00:21:24.340 --> 00:21:28.860 but now they see lumber is only half as expensive, saying, well, you know what, maybe I will build a birdhouse. 265 00:21:28.860 --> 00:21:33.240 Why the heck not? You know, I'm a loser. I might as well build a birdhouse. Sure. 266 00:21:34.140 --> 00:21:36.140 I don't know why I said that. It's perfectly fine. 267 00:21:36.140 --> 00:21:43.140 I'm perfectly fine to build a birdhouse, just filling in some space there. 268 00:21:43.140 --> 00:21:46.300 But you notice what's going to happen is, okay, everybody wants it, nobody's supplying 269 00:21:46.300 --> 00:21:47.300 it. 270 00:21:47.300 --> 00:21:48.300 That's going to be the problem. 271 00:21:48.300 --> 00:21:51.820 Now, you see, now a lot of people sort of get that today, but you will nevertheless 272 00:21:51.820 --> 00:21:56.300 see if they'll say there's a hurricane that hit some place and people's houses have collapsed 273 00:21:56.300 --> 00:21:58.420 and suddenly lumber prices will shoot up. 274 00:21:58.420 --> 00:22:03.340 People will say, gosh, that free market, the free market with those greedy people there, 275 00:22:03.340 --> 00:22:05.540 those raising prices, that's terrible. 276 00:22:05.540 --> 00:22:09.380 We should push prices back down to just the way they were before. 277 00:22:09.380 --> 00:22:11.460 What's the result of that going to be? 278 00:22:11.460 --> 00:22:14.980 People are trying to rebuild their houses, and now you're going to have a million people 279 00:22:14.980 --> 00:22:18.700 demanding lumber at that price, and no one in his right mind is going to want to supply 280 00:22:18.700 --> 00:22:21.220 it at that price, in that amount. 281 00:22:21.220 --> 00:22:24.460 And so most people are going to have to go without houses at all. 282 00:22:24.460 --> 00:22:29.460 And somehow this is supposed to be more humane than the market saying, look, right now, see, 283 00:22:29.460 --> 00:22:32.220 we did just have this hurricane, so you'll understand there's a little bit of a strain 284 00:22:32.220 --> 00:22:33.800 going on on the lumber supply. 285 00:22:33.800 --> 00:22:39.080 So we're all going to have to understand here, we've got to move with caution on the lumber. 286 00:22:39.080 --> 00:22:45.120 If the lumber price stays high, you know, I'm some guy in Auburn, and just so as to rehabilitate 287 00:22:45.120 --> 00:22:48.440 the birdhouse builders, let's say I'm a birdhouse builder, okay? 288 00:22:48.440 --> 00:22:52.560 I'm building a birdhouse, I may decide when I see that the lumber price is high, I may 289 00:22:52.560 --> 00:22:55.680 decide, nah, you know what, the birds can fend for themselves, right, they've been around 290 00:22:55.680 --> 00:22:58.840 a long time, they know what they're doing, deck with it, I'm not going to waste my money 291 00:22:58.840 --> 00:22:59.840 at this time. 292 00:22:59.840 --> 00:23:09.840 That decision on my part to relinquish my right to build a birdhouse releases lumber for somebody else to use to build an extremely tiny house for himself. 293 00:23:09.840 --> 00:23:16.840 But you understand the point that the price makes me economize on the existing supply. 294 00:23:16.840 --> 00:23:22.840 And it makes sure that I use that existing supply only for the most serious and urgent purposes. 295 00:23:22.840 --> 00:23:27.840 That I don't use lumber to build a doghouse at a time when people are homeless. 296 00:23:27.840 --> 00:23:31.840 that it makes sure that things go to their most highly valued ends. 297 00:23:31.840 --> 00:23:34.840 Or during the 1970s, during the oil crisis, 298 00:23:34.840 --> 00:23:40.840 people, through the price system, could not indicate the relative urgency of their various needs 299 00:23:40.840 --> 00:23:42.840 for oil and oil products. 300 00:23:42.840 --> 00:23:47.840 And the result was that some trucks carrying shipments of food 301 00:23:47.840 --> 00:23:51.840 a lot of times didn't want to drive to bring food to South Florida 302 00:23:51.840 --> 00:23:55.840 because they were afraid they wouldn't be able to get the fuel necessary to make the return trip 303 00:23:55.840 --> 00:24:13.840 Because artificially low prices meant there was huge demand, shortages, and so here we have probably the most important thing of all, bringing food to people, and yet they can't outbid some other people who might be engaged in more trivial uses, they can't outbid them for the resource, they can't use the price system of the free market. 304 00:24:13.840 --> 00:24:29.840 This is one of my favorite examples. Oil rigs themselves, off the coast of Louisiana, the continuing functioning of oil rigs themselves was jeopardized because of the price control. 305 00:24:29.840 --> 00:24:39.840 So here we are trying to presumably get out from under this oil crisis. We're making it difficult for oil rigs themselves to get enough oil products to produce more oil. 306 00:24:39.840 --> 00:24:45.360 Oil, I mean it's that perverse, that's the consequence of interfering with the market. 307 00:24:45.360 --> 00:24:50.240 Now if you interfere with money, as Professor Salerno pointed out, if a central bank interferes 308 00:24:50.240 --> 00:24:56.200 with money and artificially pushes interest rates low, there are consequences to that. 309 00:24:56.200 --> 00:24:59.840 Namely you get the business cycle, which we understand the Austrian theory of the business 310 00:24:59.840 --> 00:25:05.320 cycle is being discussed quite a bit these days in light of the crisis that we've been 311 00:25:05.320 --> 00:25:10.320 and Enduring and you can learn an awful lot about that through the Mises Institute. 312 00:25:10.320 --> 00:25:17.080 Now Murray Rothbard spoke in Man, Economy and State, his great treatise. 313 00:25:17.080 --> 00:25:21.600 He spoke of the beautiful order of the market and what's notable about this is that if you've 314 00:25:21.600 --> 00:25:27.420 read a lot of Rothbard's popular writings aimed at the general public, he can be really 315 00:25:27.420 --> 00:25:32.440 feisty and polemical and you can almost hear him talking coming through the page. 316 00:25:32.440 --> 00:25:37.840 So when you read his great treatise, Man Economy and State, his style is much more restrained 317 00:25:37.840 --> 00:25:42.480 and sober and scientific, relentlessly so. 318 00:25:42.480 --> 00:25:48.080 But yet even there, he can't restrain himself on several occasions from pointing out the 319 00:25:48.080 --> 00:25:53.540 beautiful order of the market as he's covering production theory and factor pricing, pricing 320 00:25:53.540 --> 00:25:57.640 of the factors of production and the structure of production and how it all interlocks and 321 00:25:57.640 --> 00:26:02.920 interweaves again spontaneously without the need for any central direction. 322 00:26:02.920 --> 00:26:07.560 This is beautiful, it's elegant, it works on its own. 323 00:26:07.560 --> 00:26:11.280 This is what we mean by the natural order. 324 00:26:11.280 --> 00:26:18.280 And this is why Ludwig von Mises said that dictators hate economists. 325 00:26:18.280 --> 00:26:23.040 Well they hate good economists, we'll correct Mises slightly, because after all John Maynard 326 00:26:23.040 --> 00:26:29.040 Dr. Keynes once said that his system was perhaps more suited to a totalitarian state than to a free one. 327 00:26:29.040 --> 00:26:31.040 So maybe they might sort of like that. 328 00:26:31.040 --> 00:26:35.040 But what Mises meant is that the economist is always telling you that there are costs. 329 00:26:35.040 --> 00:26:39.040 And there are costs in particular of intervening in the free market. 330 00:26:39.040 --> 00:26:43.040 When you override the natural order, you cannot do so costlessly. 331 00:26:43.040 --> 00:26:46.040 There will always be consequences. 332 00:26:46.040 --> 00:26:52.040 No matter how great a dictator you are, you cannot override the laws of the free market. 333 00:26:52.040 --> 00:26:57.640 No dictator wants to be told this. Why? I'm the dictator. My will is law. 334 00:26:57.640 --> 00:26:59.040 Okay? 335 00:26:59.040 --> 00:27:05.840 But just in the same way that a dictator can't jump off a cliff and start screaming at the law of gravity to allow him to have a soft landing, 336 00:27:05.840 --> 00:27:15.940 likewise, he can't interfere with money, interest rates, prices, or any of the other aspects of the market economy without tears. 337 00:27:15.940 --> 00:27:20.540 Finally, Austrian economics is value-free. 338 00:27:20.540 --> 00:27:26.040 We say it's value-free. That means that Austrian economics, strictly speaking, is purely scientific. 339 00:27:26.040 --> 00:27:31.540 It is positive rather than normative, and all that means is that it's descriptive rather than prescriptive. 340 00:27:31.540 --> 00:27:34.540 It explains to you how the world works. 341 00:27:34.540 --> 00:27:38.040 It does not say, therefore, you should do A, B, C and D. 342 00:27:38.040 --> 00:27:41.540 It simply describes how the world works, strictly speaking. 343 00:27:41.540 --> 00:27:46.540 Now, as a human being, who also happens to be an Austrian economist, you could then turn around and say, 344 00:27:46.540 --> 00:27:50.040 oh, by the way, as a human being, I think we should do this and we shouldn't do that. 345 00:27:50.040 --> 00:27:55.340 But strictly speaking, as an Austrian economist, all you're doing is describing the likely consequences. 346 00:27:55.340 --> 00:28:00.740 But we can move from the one to the other because we realize, when we study Austrian economics, 347 00:28:00.740 --> 00:28:04.140 we come face to face with this natural order. 348 00:28:04.140 --> 00:28:10.940 We come face to face with the theory of it and we perceive it in our daily lives, in reality. 349 00:28:10.940 --> 00:28:16.140 And we realize that when we work to undermine it, we bring about impoverishment. 350 00:28:16.140 --> 00:28:22.980 When we allow it to occur, to take place unhampered, we get wealth and prosperity. 351 00:28:22.980 --> 00:28:28.100 And so since we don't hate the human race and we want wealth and prosperity, therefore 352 00:28:28.100 --> 00:28:30.260 we do favor these various things. 353 00:28:30.260 --> 00:28:35.540 We do favor free exchange among peoples and so on and so forth. 354 00:28:35.540 --> 00:28:40.860 So what we learn from Austrian economics, even though the discipline itself is value-free, 355 00:28:40.860 --> 00:28:43.300 can influence our values. 356 00:28:43.300 --> 00:28:48.540 We can learn from it that the parasitic behavior of the so-called public servants that we're 357 00:28:48.540 --> 00:28:55.240 all taught in our schools to revere in fact impoverishes the productive sector and hampers 358 00:28:55.240 --> 00:29:00.000 if not reverses the process of wealth creation for all classes. 359 00:29:00.000 --> 00:29:06.380 We can learn that central banks are unnecessary, that money always emerges as a commodity on 360 00:29:06.380 --> 00:29:09.120 the free market. 361 00:29:09.120 --> 00:29:15.360 We can learn that the whole apparatus of coercion on the part of the state of violence that 362 00:29:15.360 --> 00:29:21.760 tries to overpower the market is the greatest scam ever perpetrated on mankind. 363 00:29:21.760 --> 00:29:27.000 And finally, we can learn that human beings interacting peacefully and without coercion, 364 00:29:27.000 --> 00:29:33.560 without hangmen and torturers, can establish a society of peace, freedom and prosperity, 365 00:29:33.560 --> 00:29:37.160 the likes of which the world has never seen. 366 00:29:37.160 --> 00:29:49.320 Thank you very much. 367 00:29:49.320 --> 00:29:50.320 Thank you, Tom. 368 00:29:50.320 --> 00:29:58.280 Well, for those who have been held here against their will and hated every minute of it, you 369 00:29:58.280 --> 00:30:00.840 have made it to the promised land. 370 00:30:00.840 --> 00:30:05.240 The program has concluded. 371 00:30:05.240 --> 00:30:09.760 I would like to thank Jerry and Helen Davis for their sponsorship of this event. They 372 00:30:09.760 --> 00:30:15.880 made it all possible. I'd like to thank our speakers and the staff of the Mises Institute 373 00:30:15.880 --> 00:30:23.160 that make these events go off so seamlessly. And I especially want to thank you. I know 374 00:30:23.160 --> 00:30:30.440 many of you spent a lot of time in the car getting here. But you know, you're going 375 00:30:30.440 --> 00:30:34.320 to inherit the world here soon and you can make it a better place. And we think free 376 00:30:34.320 --> 00:30:36.120 Free Markets and Liberty can do that. 377 00:30:36.120 --> 00:30:38.080 So that's my challenge to you. 378 00:30:38.080 --> 00:30:43.060 I want to thank the parents for caring so much about their kids to bring them here today. 379 00:30:43.060 --> 00:30:44.360 Thank you and travel well.