WEBVTT NOTE The Life and Works of Ludwig von Mises 1 00:00:00.000 --> 00:00:08.400 Good morning, everyone. I'm Mark Thornton. I'm an economist and senior research fellow here 2 00:00:08.400 --> 00:00:13.280 at the Ludwig von Mises Institute, and I'd like to welcome everyone from the International 3 00:00:13.280 --> 00:00:18.640 Officers Program, the Air Force War College. We're very happy to have you here today 4 00:00:20.000 --> 00:00:27.520 to address a program on Austrian economics. The Ludwig von Mises Institute is the world-leading 5 00:00:27.520 --> 00:00:35.280 Center for Research and Education Regarding Austrian Economics and the Austrian School of Economics. 6 00:00:36.720 --> 00:00:44.000 We're the oldest school of economics, we're the smallest school of economics, and we're the fastest 7 00:00:44.000 --> 00:00:54.400 growing school of economics. Our brand of economics tends to support a free market economy with limited 8 00:00:54.400 --> 00:01:03.400 Government, private property, and sound money, which usually is in the form of a gold standard. 9 00:01:03.400 --> 00:01:08.840 And we're going to be talking a little bit about that as well here today. 10 00:01:08.840 --> 00:01:13.800 Most of the economics that you may or may not have been exposed to is one or more varieties 11 00:01:13.800 --> 00:01:17.260 of Keynesian economics. 12 00:01:17.260 --> 00:01:22.480 And to the extent that you have been exposed to that school of economics, everything you're 13 00:01:22.480 --> 00:01:29.240 You're going to hear in here is going to be quite the opposite or very different at least. 14 00:01:29.240 --> 00:01:35.160 So I hope everyone has a good time here today and gets a lot of good insights and a different 15 00:01:35.160 --> 00:01:41.600 perspective because the world is in a state where we're looking for solutions to a lot 16 00:01:41.600 --> 00:01:52.200 of major problems and alternatives are the best place to seek those solutions. 17 00:01:52.200 --> 00:01:59.680 So we have a program of three speakers. Our first speaker is Mr. Daniel Sanchez. He is 18 00:01:59.680 --> 00:02:06.720 the director of our online educational program called the Mises Academy. And he is the editor 19 00:02:06.720 --> 00:02:12.160 of our web page, which is one of the largest and most trafficked economic web pages in 20 00:02:12.160 --> 00:02:19.640 the world, Mises.org. And that's M-I-S-E-S dot O-R-G. I hope you all have an opportunity 21 00:02:19.640 --> 00:02:30.520 So I'm going to talk about Ludwig von Mises, of course here at the Mises Institute we think 22 00:02:30.520 --> 00:02:31.520 very highly of him. 23 00:02:31.520 --> 00:02:36.120 We think he's actually probably the most important economist who ever lived, in fact, in spite 24 00:02:36.120 --> 00:02:40.800 of the fact that the public is largely unaware of him, but hopefully through Mises.org and 25 00:02:40.800 --> 00:02:44.220 through our activities we're changing that. 26 00:02:44.220 --> 00:02:51.180 Now in Mises' memoirs of his own life, he focused mostly on his work and I thought it 27 00:02:51.180 --> 00:02:55.320 was fitting that in this speech I would do the same and also on the background and the 28 00:02:55.320 --> 00:02:56.820 context of his work. 29 00:02:56.820 --> 00:03:03.140 Mises was born in September 29th, 1881 in the city of Limburg in Galicia, which at the 30 00:03:03.140 --> 00:03:09.520 time was in the Austrian Empire but is now in the Ukraine. 31 00:03:09.520 --> 00:03:14.960 He moved to Vienna, a very cosmopolitan city at the time as a young boy, and he entered 32 00:03:14.960 --> 00:03:17.400 the University of Vienna. 33 00:03:17.400 --> 00:03:24.400 Later on, Mises was known as a champion of what was known as liberalism at the time. 34 00:03:24.400 --> 00:03:27.480 Liberalism meant the opposite of what it means now. 35 00:03:27.480 --> 00:03:36.140 At the time, it meant belief in private property, belief in the free market, limiting the state. 36 00:03:36.140 --> 00:03:40.260 When he entered the University of Vienna, actually, he was not a liberal. 37 00:03:40.260 --> 00:03:45.440 He was very much an interventionist, a market interventionist, and that was kind of fitting 38 00:03:45.440 --> 00:03:50.160 with the intellectual climate in the German-speaking world at the time. 39 00:03:50.160 --> 00:03:55.120 In the German-speaking world, for example, one of the dominant schools of economic thought 40 00:03:55.120 --> 00:04:01.260 was called the historical school of economics, the German historical school. 41 00:04:01.260 --> 00:04:08.340 And the German Historical School was largely a reaction to the British School of Economics, 42 00:04:08.340 --> 00:04:12.260 known as the Classical School of Economics. 43 00:04:12.260 --> 00:04:14.580 And it was a reaction in two different ways. 44 00:04:14.580 --> 00:04:21.220 One of the ways it was a reaction was that German Historical School was anti-theory. 45 00:04:21.220 --> 00:04:28.300 So the British Classical School built up a pretty extensive theory of economics, and 46 00:04:28.300 --> 00:04:35.260 The German historical school thought that there was no such thing as economic law, and you 47 00:04:35.260 --> 00:04:42.420 certainly couldn't arrive at economic law through theorizing, through reason and theorizing. 48 00:04:42.420 --> 00:04:47.360 There was another way in which they were, it was a reaction against the British classicals, 49 00:04:47.360 --> 00:04:52.180 that it was, the German historical school was largely anti laissez-faire, again that 50 00:04:52.180 --> 00:04:57.900 That was the climate at the time, it was anti-liberalism. 51 00:04:57.900 --> 00:05:03.300 And they used their anti-theory position to buttress their anti-laisez-faire position 52 00:05:03.300 --> 00:05:08.180 because they thought there's no such thing as economic law and so states aren't bound 53 00:05:08.180 --> 00:05:09.320 by economic law. 54 00:05:09.320 --> 00:05:16.020 The classical school, they said that just as you can't escape physical laws, laws 55 00:05:16.020 --> 00:05:19.720 of nature, you can't escape economic laws either. 56 00:05:19.720 --> 00:05:23.540 But what the German Historical School was trying to do largely was to free the state 57 00:05:23.540 --> 00:05:28.360 from the perceived limitations of economic law. 58 00:05:28.360 --> 00:05:33.460 For example, if there's no economic law, then you can't necessarily say that just because 59 00:05:33.460 --> 00:05:38.480 there were price controls in the Roman era and that led to shortages, that that would 60 00:05:38.480 --> 00:05:41.560 necessarily be true in modern Germany. 61 00:05:41.560 --> 00:05:48.040 The German Historical School thought that you just had to look at each historical episode 62 00:05:48.040 --> 00:05:53.440 and look at its own features and not apply any kind of general laws to different stages 63 00:05:53.440 --> 00:05:54.440 of history. 64 00:05:54.440 --> 00:06:01.680 Now, even when Mises was in high school, he was already skeptical of that position, but 65 00:06:01.680 --> 00:06:08.060 he was still kind of imbibed in the anti-liberal ethos of the time. 66 00:06:08.060 --> 00:06:09.980 But then something happened to him. 67 00:06:09.980 --> 00:06:13.800 He read a book and he found a teacher. 68 00:06:13.800 --> 00:06:20.640 Now the book is this pretty thin book actually, it's Principles of Economics by Carl Menger. 69 00:06:20.640 --> 00:06:24.400 And the teacher was Eugen von Boehm-Bawerk. 70 00:06:24.400 --> 00:06:29.000 They were both Austrians as well, based out of Vienna. 71 00:06:29.000 --> 00:06:35.160 He said that reading this book, Principles of Economics, made an economist out of him. 72 00:06:35.160 --> 00:06:40.400 That he didn't even think of his way of thinking as economical before at all, but this book 73 00:06:40.400 --> 00:06:42.580 made an economist out of him. 74 00:06:42.580 --> 00:06:47.900 and that he thought that every educated person should read Boehm-Bawerk, his teacher who 75 00:06:47.900 --> 00:06:50.140 he studied under. 76 00:06:50.140 --> 00:06:59.460 Now Menger really separated from the German, really renounced the German historical school. 77 00:06:59.460 --> 00:07:03.980 He thought that there was such a thing as economic law and that you could arrive at 78 00:07:03.980 --> 00:07:07.580 these economic laws through economic theory. 79 00:07:07.580 --> 00:07:11.380 At the same time, he didn't fully embrace the classical school. 80 00:07:11.380 --> 00:07:15.780 We realized that there were really big problems with the classical school and that might have 81 00:07:15.780 --> 00:07:21.500 been why the German historical school was so skeptical of them because there was problems 82 00:07:21.500 --> 00:07:23.300 with bad theory. 83 00:07:23.300 --> 00:07:28.380 But Menger's point was you don't answer bad theory with rejecting theory altogether. 84 00:07:28.380 --> 00:07:31.020 You answer bad theory with good theory. 85 00:07:31.020 --> 00:07:34.420 And so that's what Menger set out to do. 86 00:07:34.420 --> 00:07:39.640 One of the problems with the classical theory was it's at the very root of the theory. 87 00:07:39.640 --> 00:07:42.000 It's value and price theory. 88 00:07:42.000 --> 00:07:44.760 Now that underlies all of the economic theories. 89 00:07:44.760 --> 00:07:47.960 So if you get that wrong, that's going to have ramifications throughout the entire economic 90 00:07:47.960 --> 00:07:49.680 theory. 91 00:07:49.680 --> 00:07:53.920 And one of the issues that they had is they were thinking about value. 92 00:07:53.920 --> 00:07:56.480 Now what causes the value of a good? 93 00:07:56.480 --> 00:07:59.620 What causes a good to be more valuable or less valuable? 94 00:07:59.620 --> 00:08:05.120 Now the layman's answer, what would seem to make sense, would be the good's usefulness. 95 00:08:05.120 --> 00:08:11.120 And if it's more useful, it ends up being more valuable and higher price and vice versa. 96 00:08:11.120 --> 00:08:16.360 But the classical school economists, they said, aha, that may be good for laymen, but 97 00:08:16.360 --> 00:08:21.880 we really sophisticated thinkers, we realize that there are all sorts of counter examples. 98 00:08:21.880 --> 00:08:24.760 For example, there's the diamond water paradox. 99 00:08:24.760 --> 00:08:32.480 They said, okay, if usefulness causes value, then why are diamonds more valuable and higher 100 00:08:32.480 --> 00:08:34.400 price than water? 101 00:08:34.400 --> 00:08:38.800 And water is obviously more useful than diamonds. 102 00:08:38.800 --> 00:08:42.920 And so based off that, they thought, well, value must be based off of something else 103 00:08:42.920 --> 00:08:43.920 besides usefulness. 104 00:08:43.920 --> 00:08:46.160 And so they tried to come up with all these different answers. 105 00:08:46.160 --> 00:08:52.760 One of the answers they came up with is that they thought that labor caused value. 106 00:08:52.760 --> 00:08:56.680 And so, for example, that diamonds are more valuable than water because it takes more 107 00:08:56.680 --> 00:09:01.280 work to dig them out of the ground than it takes to get water. 108 00:09:01.280 --> 00:09:07.080 The theory was a more general cost of production theory of value, that you have to pay out 109 00:09:07.080 --> 00:09:13.520 more costs in land and labor and capital to produce the diamond, so the costs lead to 110 00:09:13.520 --> 00:09:15.920 the higher price of the diamond than the water. 111 00:09:15.920 --> 00:09:20.240 And to a lay person and to someone who just thinks about it superficially, that might 112 00:09:20.240 --> 00:09:26.160 make sense that business people, they buy a bunch of factors and they produce a product 113 00:09:26.160 --> 00:09:31.000 and they take their costs and they just add a markup and that's the price that they 114 00:09:31.000 --> 00:09:38.600 is set as sort of a rule of thumb and then that had huge ramifications because 115 00:09:38.600 --> 00:09:43.440 then Karl Marx later on would he would say yeah the classicals are right about 116 00:09:43.440 --> 00:09:49.140 about the labor theory of value and if they're right that means that the workers 117 00:09:49.140 --> 00:09:53.920 are getting ripped off by the capitalist because it's the workers labor that 118 00:09:53.920 --> 00:09:59.240 really puts value into the product and so any anything that the capitalist gets 119 00:09:59.240 --> 00:10:04.240 The problem that gets off of that is just stealing from the worker, because the worker could give it all the value. 120 00:10:04.240 --> 00:10:06.240 So there were a lot of problems with that. 121 00:10:06.240 --> 00:10:12.240 And Menger realized that the classical school was just looking at it all wrong. 122 00:10:12.240 --> 00:10:16.240 They weren't even stating the problem right. 123 00:10:16.240 --> 00:10:26.240 He realized that, for example, let's say that there's a Robinson Crusoe alone on his island. 124 00:10:26.240 --> 00:10:30.400 thinking that Austrian economists would do a lot. 125 00:10:30.400 --> 00:10:33.680 And let's say that he has water and a diamond. 126 00:10:33.680 --> 00:10:36.640 But he doesn't just have the class water and the class diamond. 127 00:10:36.640 --> 00:10:40.640 He has certain amounts of water and diamond. 128 00:10:40.640 --> 00:10:44.520 Let's say he has three tanks of 100 gallons of water, 129 00:10:44.520 --> 00:10:46.920 and he has a diamond. 130 00:10:46.920 --> 00:10:51.120 And at the same time, one of the tanks of 100 gallons of water 131 00:10:51.120 --> 00:10:54.040 has sprung a leak, and it's about to empty out onto the ground. 132 00:10:54.040 --> 00:10:57.760 And he could plug it if you put his finger in the hole. 133 00:10:57.760 --> 00:10:59.600 But at the same time, a bird, a magpie, 134 00:10:59.600 --> 00:11:01.920 is about to fly away with this diamond. 135 00:11:01.920 --> 00:11:03.840 So then the question is, what does he save, 136 00:11:03.840 --> 00:11:05.800 the 100 gallons of water or the diamond? 137 00:11:05.800 --> 00:11:08.200 Which is more valuable? 138 00:11:08.200 --> 00:11:11.340 Now, let's say that he saves the diamond. 139 00:11:11.340 --> 00:11:13.560 So the classical economist would say, aha, 140 00:11:13.560 --> 00:11:17.040 that proves that we're right, that it can't be utility 141 00:11:17.040 --> 00:11:20.720 because water is more useful than diamonds. 142 00:11:20.720 --> 00:11:24.020 But then Menger said, OK, let's think about this more carefully. 143 00:11:24.020 --> 00:11:26.860 There's not just one use for the water. 144 00:11:26.860 --> 00:11:30.720 Let's say that he has three different uses for the water. 145 00:11:30.720 --> 00:11:33.820 Let's say that that's his monthly supply of water. 146 00:11:33.820 --> 00:11:37.100 He allocates 100 gallons to drinking to stay alive, 147 00:11:37.100 --> 00:11:39.500 and then another 100 gallons to washing 148 00:11:39.500 --> 00:11:41.500 to just keep good hygiene. 149 00:11:41.500 --> 00:11:44.380 And then another 100 gallons, he just 150 00:11:44.380 --> 00:11:47.220 uses it for water play, like throwing water balloons 151 00:11:47.220 --> 00:11:48.260 and stuff. 152 00:11:48.260 --> 00:11:52.580 Now, if he were to lose 100 gallons, 153 00:11:52.580 --> 00:11:55.220 Which of those uses would he give up? 154 00:11:55.220 --> 00:11:57.420 Would he let himself die of thirst 155 00:11:57.420 --> 00:11:59.300 while he has fun with water balloons? 156 00:11:59.300 --> 00:12:00.340 No, of course not. 157 00:12:00.340 --> 00:12:03.940 He would give up the water play if he were 158 00:12:03.940 --> 00:12:06.740 to lose that 100 gallons. 159 00:12:06.740 --> 00:12:08.580 And let's say with a diamond, he was 160 00:12:08.580 --> 00:12:11.780 going to give it to his mother when he got off the island 161 00:12:11.780 --> 00:12:13.100 as a gift. 162 00:12:13.100 --> 00:12:15.060 And so then the question is not what's 163 00:12:15.060 --> 00:12:19.700 more important, the highest use of water, 164 00:12:19.700 --> 00:12:21.780 just staying alive, or the diamond. 165 00:12:21.780 --> 00:12:26.980 The question is, what's more important, playing with water balloons or making your mother smile? 166 00:12:26.980 --> 00:12:28.700 So how would you answer that? 167 00:12:28.700 --> 00:12:35.180 And just remember that this is a recording and your mother might be watching later, so answer carefully. 168 00:12:35.180 --> 00:12:41.900 Now, so that was the recognition that value was determined by the marginal use, 169 00:12:41.900 --> 00:12:47.300 the lowest use that is allocated to the marginal utility. 170 00:12:47.300 --> 00:12:51.380 It's called the marginal utility theory of value. 171 00:12:51.380 --> 00:12:58.180 And that, along with the work of two other economists, triggered what's called the marginal revolution in economics. 172 00:12:59.020 --> 00:13:03.540 It totally reversed economics in a way. 173 00:13:04.180 --> 00:13:06.700 Now, the German Historical School, they hated that. 174 00:13:06.900 --> 00:13:21.060 They thought the chief of the German Historical School, Gustav Schmoller, he said that, oh, Menger has bloodless abstractions, that he's not even looking at history, he's just theorizing in his head. 175 00:13:21.380 --> 00:13:28.980 And so it was from this debate between the two sides that the Austrian School came about. 176 00:13:28.980 --> 00:13:36.700 It was actually meant as an epithet, as an insult, because at the time there was a rivalry between the Prussians and the Austrians. 177 00:13:36.700 --> 00:13:39.980 And the Prussians had won the Austro-Prussian War. 178 00:13:39.980 --> 00:13:47.380 And so that calling it the Austrian School, it's like, oh, it's just what those Austrians think about economics. 179 00:13:47.380 --> 00:13:53.260 But it really revolutionized the way that you really look at the economy. 180 00:13:53.260 --> 00:13:59.980 Because then Menger structured the economy into orders. 181 00:13:59.980 --> 00:14:04.900 So he said that first-order goods are the things that you consume. 182 00:14:04.900 --> 00:14:07.620 And then second-order goods produce first-order goods, 183 00:14:07.620 --> 00:14:09.700 third-order goods produce second-order goods, 184 00:14:09.700 --> 00:14:12.780 and so on, all the way up to hundreds of orders. 185 00:14:12.780 --> 00:14:17.260 And a cost of production theory of value 186 00:14:17.260 --> 00:14:27.500 might look at that and say, okay, well, the 10th order goods, their costs impart their 187 00:14:27.500 --> 00:14:34.660 value onto the 9th order good and that value is imparted to the 8th order good and so the 188 00:14:34.660 --> 00:14:43.900 causation of value goes forward through time from factors to the products down the line. 189 00:14:43.900 --> 00:14:53.620 What Menger made people realize is that, no, the value of a good is based on its utility, 190 00:14:53.620 --> 00:14:56.140 what it's useful for. 191 00:14:56.140 --> 00:14:59.980 And what is a production good useful for? 192 00:14:59.980 --> 00:15:01.940 It's useful for producing. 193 00:15:01.940 --> 00:15:06.860 So the value of the production good is the value of its product. 194 00:15:06.860 --> 00:15:09.580 It's based on the value of its product. 195 00:15:09.580 --> 00:15:23.580 So he showed that value goes the other way, the complete other direction, that it's consumers' goods, first-order goods, that give the value to second-order goods, they give the value to third-order goods, and so on. 196 00:15:23.580 --> 00:15:37.580 So that explained pricing. It explained pricing of all goods, that it's ultimately the prices of the consumers' goods that determine the prices of all resources in the economy. 197 00:15:37.580 --> 00:15:42.780 Not only that, but it determines factor allocation. 198 00:15:42.780 --> 00:15:51.540 It determines where resources are allocated to, what is actually done with these resources. 199 00:15:51.540 --> 00:15:57.260 Because when you think about it, let's say that tastes change for a consumption good, 200 00:15:57.260 --> 00:16:02.220 that all of a sudden everybody loves these tablet computers. 201 00:16:02.220 --> 00:16:09.540 And so demand goes up for these tablet computers, and that makes the price go up for them. 202 00:16:09.540 --> 00:16:14.540 So then the people who make tablet computers, their costs haven't gone up, but their selling 203 00:16:14.540 --> 00:16:19.020 prices have gone up, and so that creates a profit spread. 204 00:16:19.020 --> 00:16:24.620 And then other businesses see that profit spread, they want to get profits too, so then 205 00:16:24.620 --> 00:16:31.220 they jump into the tablet market, and they bring factors of production with them. 206 00:16:31.220 --> 00:16:38.580 And so those are bringing in more second order goods to produce first order goods. 207 00:16:38.580 --> 00:16:48.360 And then those producers, those business people that go into tablet making, then they bid 208 00:16:48.360 --> 00:16:57.960 up the prices of the factors that they buy and that creates a profit spread for the people 209 00:16:57.960 --> 00:17:04.800 in the stage above them, because then their prices, selling prices go up, but their selling 210 00:17:04.800 --> 00:17:05.800 costs stay the same. 211 00:17:05.800 --> 00:17:07.240 So that creates profit margins. 212 00:17:07.240 --> 00:17:10.100 And so that goes all the way up through all the factors. 213 00:17:10.100 --> 00:17:16.000 And so not only does it change the consumer market, determine the prices, but ultimately 214 00:17:16.000 --> 00:17:23.240 the consumer market determines where goods go in the economy. 215 00:17:23.240 --> 00:17:30.840 Now Israel Kirzner called this view of the market ideological dynamite. 216 00:17:30.840 --> 00:17:33.680 Now why would this be ideological dynamite? 217 00:17:33.680 --> 00:17:39.900 Well the way the classical school looked at the economy, because they had a bad theory 218 00:17:39.900 --> 00:17:43.720 of value, they focused just on the business person. 219 00:17:43.720 --> 00:17:49.220 And so it made production seem kind of selfish, almost antisocial. 220 00:17:49.220 --> 00:17:54.940 But what the Austrian School did is they brought the consumer into the picture, the end user 221 00:17:54.940 --> 00:18:03.400 of consumption goods, and showed that it's the consumer who really holds sway over everything 222 00:18:03.400 --> 00:18:06.160 that goes on in the market. 223 00:18:06.160 --> 00:18:09.680 And that changed the entire picture of the market. 224 00:18:09.680 --> 00:18:13.060 It showed that it was inherently beneficial. 225 00:18:13.060 --> 00:18:23.260 He was inherently trying to allocate goods so as to best satisfy consumer wants and it 226 00:18:23.260 --> 00:18:31.980 unceasingly worked towards the public good. 227 00:18:31.980 --> 00:18:37.540 So this was ideological dynamite to Mises and it was this view of the economy that made 228 00:18:37.540 --> 00:18:45.060 He gave him a champion of liberalism, a champion of the free market. 229 00:18:45.060 --> 00:18:50.100 And so he went to work at trying to fill in whatever gaps that were left by Menger and 230 00:18:50.100 --> 00:18:52.900 Boehm-Bawerk. 231 00:18:52.900 --> 00:18:56.500 So one of his first focus was the theory of money. 232 00:18:56.500 --> 00:19:02.020 He wrote a book called The Theory of Money and Credit in 1912. 233 00:19:02.020 --> 00:19:12.060 And in that book, he brought the theory of money into the subjective marginal utility 234 00:19:12.060 --> 00:19:18.820 realm, because there was a criticism that people said, oh, well, this new Mengerian 235 00:19:18.820 --> 00:19:26.760 theory of marginal utility, it doesn't really apply to money, because if value is based 236 00:19:26.760 --> 00:19:29.800 Based on utility, what's the utility of money? 237 00:19:29.800 --> 00:19:35.680 Well, it's to be spent, it's to be exchanged, it's exchange value. 238 00:19:35.680 --> 00:19:40.240 But then that's reasoning in a circle because then you're explaining value according to 239 00:19:40.240 --> 00:19:44.280 utility and utility according to value. 240 00:19:44.280 --> 00:19:49.920 But Mises said that no, it's not reasoning in a circle and he brought in the time element. 241 00:19:49.920 --> 00:19:56.480 He showed that when people are determining how they're going to value money, it's going 242 00:19:56.480 --> 00:19:59.200 to be based on the future purchasing power. 243 00:19:59.200 --> 00:20:02.360 And they base their estimate of future purchasing power 244 00:20:02.360 --> 00:20:05.320 on past purchasing power. 245 00:20:05.320 --> 00:20:09.320 And that past purchasing power itself, again, 246 00:20:09.320 --> 00:20:12.480 is based on expected future, which 247 00:20:12.480 --> 00:20:16.400 is founded on observations of past purchasing power 248 00:20:16.400 --> 00:20:18.160 of the day before that. 249 00:20:18.160 --> 00:20:20.040 And so it's not reasoning in a circle. 250 00:20:20.040 --> 00:20:23.600 It's going backwards in time. 251 00:20:23.600 --> 00:20:28.720 But then the critics said, aha, well, you're just replacing one logical fallacy with another 252 00:20:28.720 --> 00:20:29.720 logical fallacy. 253 00:20:29.720 --> 00:20:33.240 You're replacing circular logic with an infinite regress. 254 00:20:33.240 --> 00:20:37.200 That can't explain anything because you're just going to regress all the way back and 255 00:20:37.200 --> 00:20:39.160 you just keep going forever. 256 00:20:39.160 --> 00:20:42.400 But then Mises showed that, no, that's not true. 257 00:20:42.400 --> 00:20:45.880 It goes back in time and it stops at a certain point. 258 00:20:45.880 --> 00:20:54.880 And then he used Menger's theory of the origin of money, showing that commodities turn into money. 259 00:20:54.880 --> 00:21:05.880 And so at some point a commodity turned into a money, and the first day of its value of money is based on its use value as a commodity the day before. 260 00:21:05.880 --> 00:21:07.880 So there was no infinite regress. 261 00:21:07.880 --> 00:21:09.880 How much time do I have? 262 00:21:09.880 --> 00:21:11.880 Three minutes? 263 00:21:11.880 --> 00:21:20.480 In that same book, he also came up with the business cycle theory, which was huge because 264 00:21:20.480 --> 00:21:25.280 it was this big mystery that had plagued economists for generations. 265 00:21:25.280 --> 00:21:32.960 He showed that monetary inflation, especially through the expansion of bank credit facilitated 266 00:21:32.960 --> 00:21:39.360 by a central bank, that artificially depresses the interest rate. 267 00:21:39.360 --> 00:21:46.000 It makes producers act as if people had actually saved more. 268 00:21:46.000 --> 00:21:52.360 It makes producers act as if they had restricted consumption and that freed up resources to 269 00:21:52.360 --> 00:22:03.200 be used in longer scale, bigger scale, longer term, more ambitious projects, but it doesn't 270 00:22:03.200 --> 00:22:04.280 actually indicate that. 271 00:22:04.280 --> 00:22:07.800 It was just an artificial, it was just creating money out of thin air. 272 00:22:07.800 --> 00:22:09.800 The Theory of Money and Credit 273 00:22:37.800 --> 00:23:07.800 These expensive projects, but the society isn't actually richer, and so eventually the prices will readjust and the true conditions of scarcity will reveal themselves, and they'll realize they have to liquidate these projects, that they were too ambitious, that they can't sustain them with the given resources, and so that's the bust, and so it's actually the boom that where things are going bad, even though people feel good, they're actually malinvested, 274 00:23:07.800 --> 00:23:37.800 Mises, then, had to go to war. He had to fight in World War I. This was disastrous for him, because he was a child of the age of liberalism. He finally understood liberalism better than anyone else at the time, and World War I was really the death of the age of liberalism, from 1815 to the 19th century, and that was the end of World War I. 275 00:23:37.800 --> 00:23:44.040 on set of World War I. It started a century of collectivism and statism and he spent the 276 00:23:44.040 --> 00:23:49.800 rest of his life fighting that. When he came back from the war, he wrote Economic Calculation 277 00:23:49.800 --> 00:23:56.040 and the Socialist Commonwealth, where he proved that socialism as a system of production 278 00:23:56.920 --> 00:24:03.240 can't allocate resources rationally to consumer wants, the way that the Menger-Boehm-Bawerk 279 00:24:03.240 --> 00:24:08.920 idea of the market showed, because if you don't have private property, if you have socialism, 280 00:24:08.920 --> 00:24:14.920 then you can't have market prices. If you don't have market prices, you can't have market 281 00:24:14.920 --> 00:24:21.400 calculation. You can't subtract revenue from costs, I mean, revenue minus costs. And so you 282 00:24:21.400 --> 00:24:27.480 can't judge profit or loss. So the entrepreneur is blind to the consumer wants. That's the economic 283 00:24:27.480 --> 00:24:51.480 He established economics on logical grounds, showing that it is really just a logical science, almost like geometry, where you deduce from founding principles all the way to a whole system of the logic of human action. 284 00:24:51.480 --> 00:25:03.480 And then he brought all of the ideas that he developed throughout his career into a book that would later become the English language, Human Action, where he showed that economics is a system. 285 00:25:03.480 --> 00:25:19.480 And he spent the rest of his life promoting liberty and promoting free markets using all the scientific accomplishments that he amazingly was able to attain. 286 00:25:19.480 --> 00:25:29.480 At the end of his life, Mises only had one regret, that his powers were then failing when he still had so much to give to the world. 287 00:25:29.480 --> 00:25:39.480 Mises died as he had lived, brimming with goodwill towards his fellow human beings and animated by an unrelenting drive to improve their lot in the world. 288 00:25:39.480 --> 00:25:43.480 And we here at the Mises Institute are trying to continue that. So thank you.