An Investor's Introduction to Austrian Economics

0:00It's a pleasure to be here at last, in a slight detour. I'm not going to really go into the history of Austrian economics at this point. I wanted to concentrate on an introduction to Austrian economics for people who are investment-oriented and how it differs from other schools of economics. The School of Austrian Economics, as Mark said, was founded in 1871 by Carl Menger. was succeeded by Eugen von Boehm-Bawerk, who later became finance minister of Austria, put the principles into effect by going back to the gold standard, and taught here for many years, a very distinguished professor and brilliant integrator of capital and interest theory, along with his brother-in-law, Friedrich von Wieser.

0:48By the way, they were both students of Menger. By the way, even though they were brothers-in-law and they saw each other all the time, They never discussed economics, they differed on various things, Boehm-Bawerk, which was much sounder in general, and they never discussed economics in public, they argued about it in print, which I thought was a good way of handling their family situation. At any rate, Ludwig von Mises was a student of Boehm-Bawerk, and so he founded this modern Austrian school, which essentially integrated the macro and the micro. In other words, the older Austrians dealt only with individual prices and demands and supply and not have, however, deal with money and business cycles and Mises integrated the whole thing into one great structure.

1:33I think one of the things to concentrate on is how Austrian economics particularly differs from every other school of thought, even alleged free market schools of thought, including the Chicagoite, is that only the Austrian School focuses on the tremendous importance of the entrepreneur as the major actor, so to speak, in the economy. The entrepreneur is the one who meets, assumes risks, meets the uncertainty of the world and the uncertainty of the market, invests capital and tries to gain profits and avoid making losses, which is not always possible. The entrepreneur then is the key figure in the whole economic system. If you look through micro-text, regular micro-textbooks and economics, regardless of the other schools of thought, let alone, of course, macro-textwork, goes without saying, is never mentioned.

2:23The entrepreneur is never mentioned. You look through the whole thing, there ain't no such person, there's hardly any mention of profits or losses. That all drops out because the orthodox economics or standard economics assumes that the world is always in what they call equilibrium, that everything is always in a state of rest, contentment and Perfect Knowledge, where everybody knows everything. And in a state of perfect knowledge, there are no, of course, no losses. There's no problem about making forecasts erroneous. And no profits, where everybody's settled down in sort of an endless round. And so this peculiar model has risen up over the years in standard economics and is then not only totally unrealistic, it totally falsifies what goes on, but is then used to apply the standards to the market. In other words, well, the market isn't working well because it's not like The Austrian School focuses on the entrepreneur, facing uncertainty, investing capital, hoping to get profits and avoid losses.

3:34The first lesson of Mises in this field in Austrian economics and on the entrepreneur is, the first general lesson, I'll explain in a minute, in ways in which it's not always totally true, but it's certainly basically true. The first lesson is that the entrepreneur knows more about his subject than the economist does. Key, key situation, the entrepreneur knows more than the economist about his particular market, his or her particular market. If you have an entrepreneur in the steel industry or in the clothing industry or in the logging and the banking industry or whatever, this person, this entrepreneur knows more about what's going on, about demands and costs and what's happening and how to act in that industry, knows much more than economists, government officials, assorted experts and bureaucrats and whatever.

4:21And one of the reasons the entrepreneur knows more is the entrepreneur's life is always on the line. When he does something, he invests capital, he risks losing money and he hopes to gain money. The economist, and as all of his forecasting and other activities in Washington are jetting back and forth across the country, the economist doesn't risk his own capital. As a matter of fact, the economist, the situation is, there's so-called talk amongst critics of the market of market failure. There's a market failure in this and a market failure in that. The only market failure that I know of, and it's now fortunately coming to an end, is a market failure in the market and the forecasting industry. In other words, economic forecasters have constantly made lousy, rotten forecasts for 20 years and are still getting customers by the bushel barrel.

5:06Well, it's coming to an end now. The last couple of years has been a great depression in the econometric forecasting industry, economic forecasting industry. And for good reason, they're always wrong. I'll get to that a little bit later. But the point is that these guys are not risking their reputation. Reputation You might think, well, if they make a consistent string of bad forecasts, they're not going to get many customers. That's not really true. In various ways, their reputation doesn't catch up for a long time. They continue to be eminent forecasters even though their forecasts are always wrong. One of the tactics they use, by the way, and this is self-conscious, it's not just intuitive, I know for a fact this is true. Well, if you notice all the forecasts, the typical forecasting season is around Christmas.

5:54Around the end of the year, all the economists forecast GNP, unemployment, inflation rates, interest rates for the next year. And they're almost all the same. I mean, there's slight variance, variations. You know, one guy says it's going to be 3.8% inflation, the other one says 4.2%. And that's about it. And the reason why there's such a narrow range is they all call each other up on the phone to make sure that the ranges are narrow. I know that's true. I know it looked as if it was true, and I now know it is true. They call each other up. It's a small industry where they all know each other, and they collude. So they make sure, in other words, if they're all off the beam, as often they are, well, gee, all the top distinguished forecasters made the same error I did. I can't be blamed. It's not my fault. So all the other big shots, the econometric chasers, the forecasting bureau, whatever, they all said the same thing.

6:44So it's worked for a long time, and as I say, in the last couple of years, reality has finally caught up with it. But there have been many studies for the last 30 years or so, literally, of forecasting, economic forecasts and how successful they've been. About every year, the Wall Street Journal sort of updates it, and it's always terrible, it's always awful. I mean, worse than if you just took a ruler, what's called an extrapolating trend. If they take a ruler, if things have been going up by four or five percent in the last six months, you assume they'll go up by another four or five percent in the next six months. That's taking a ruler. If they took a ruler, they'd do a little bit better than they actually have. By the way, the forecasters keep saying, well, gee, we're very good.

7:29We keep rectifying our high-speed computer models. We're doing a very good job in forecasting, except we can't forecast changes in trend. If you go okay when the trend is the same, but once in a while the trend changes, we don't know what, we can't understand that yet. Of course, any moron can take a ruler. You don't need high-speed computer models. You take a ruler, you put it in the middle of the curve, and you fork it, and you extrapolate. You don't need to spend two million dollars a year on these forecasts. At any rate, that's the, the, the entrepreneur knows more than economists. And generally, and one of the things that happens, one of the reasons why the entrepreneur knows more than the economist is the lousy entrepreneur has got to leave the market. In other words, it's sort of a survival of the fittest mechanism.

8:14If you're a lousy forecaster, you don't last too long as an entrepreneur. You go back on the ranks, join me in the ranks of the proletariat, of wage earners. If you do well, however, if you're a good forecaster, then you make more money, you plow it back in, and your assets keep increasing. So it's sort of a built-in mechanism in the market, as there is in most other areas of the market, just to ensure that better forecasters make more money, lousy forecasters drop out, lose money and drop out, and this means that they will be generally fairly accurate, although not completely so. And I say much more so than economists. Okay, so if, if, if forecasters, if, if entrepreneurs know more than economists, what does, what does Austrian economics have to contribute? Well, one thing is this knowledge itself. I mean, sort of like, show entrepreneurs they're really, they're really better than they think they are.

9:03Second of all, as an analog, as an analog of this, this is one of the basic reasons why all government intervention is counterproductive. First of all, it fails, and second of all, it's counterproductive, because government intervention is usually, of course, promulgated by experts, economists and whatever, So that's point number two of what economists have to contribute to this, what Austrian economics has to contribute to this, to show that their colleagues in the economics profession mess things up and are kind of productive. There's another point, Mises used to mention this in a seminar at one point, around I think during the Truman administration, I think this is Truman administration, I haven't checked it, in 1950, early 50s, late 40s, for some reason the economists concluded that the steel industry wasn't producing enough, there was an under-production of steel, a big hysteria on Us and All the Establishment, Organs of Opinion, and Truman and his experts who kept denouncing the steel industry for not producing enough steel, why aren't you out there producing

10:11more steel, and you're monstrous for doing that, you're unpatriotic for not producing more steel. Now this is, Mises pointed out in his seminar, this is very much like a traditional story of a minister in a Sunday sermon denouncing the congregation for not enough people showing

11:00Why take it out on the steel industry? They were doing a great job compared to the other industries. Yet somehow, of course, Truman didn't do that. In other words, as Mises pointed out, there's no caste system in the United States. There's no law that only U.S. Steel, Bethlehem, whatever, can produce steel. Anybody can produce steel if they want to. They get into the steel industry if they think it's the most efficient and most profitable thing to do. And of course, the next point, as a resource allocating point, If you think there's supposed to be more steel produced, if that's the official doctrine of the establishment, what less should be produced? It's easy to say more steel should be produced. If you say that, should it be less aluminum, or less peanuts, or less copper, or less clothing, or what? Because you have to take out the resources from somewhere to produce more in steel, and of course, that's never, nobody ever says what should be produced less of. That's never pointed out.

11:53Because there's no criterion. The only criterion is for economic, whether something is economic or not, is if it's profitable or not. And so it's not more, no more steel was being produced because it wasn't profitable to do so. And so once you're, once you leave the profit-loss criterion, you're at sea without a rudder. It's just, everything is totally arbitrary. Any, any jerk can say, well, I think it should be 20% more steel produced. All right, but 20% less of what? Blank out. because there are no standards left, there are no criteria for production if you leave the market, okay, and what next can we say about investors, don't forget every investor is an entrepreneur of course, if you invest your capital you're being an entrepreneur, you're risking losses and you're hoping to gain profits, can the economist say anything Well, in addition to the points I made up till this point, there is one cautionary note that an economist could point out.

12:55For example, if you think, if you come to the conclusion there is going to be a growing industry coming up, a new, great new industry, like computers were, still are, but computers were particularly a few years ago, or like plastics were in the 1950s. If you see a great new industry arising, don't necessarily think there's a lot of profits to be made in it because it depends whether the market has discounted, how much the market has discounted this expectation. In other words, how many other people, how many other investors have also anticipated it and have bid up the price of the share of stock. So the fact that a company or industry is going to be growing is not necessarily a key because you have to think of how your other colleagues, other investor colleagues, How much they have also discounted this expectation, and how much therefore they bid up the price of the stocks is no longer profitable. So that's one point an economist can make, a cautionary note.

13:42Try to look around and try to estimate how much other investors have discounted this possibility of future profits. Okay, the other, as a general point, a general point that Austrian economics, Austrian economics can contribute are general principles, particularly macro principles, so to speak. In other words, when I've said about entrepreneurship, when I've said about counterproductive government intervention and discounting the future, it's just that only can be said about individual industries or individual stocks. However, there are general principles of money and business cycles which touch everything, which touch all industries in different ways, and it's difficult for investors or entrepreneurs to have a general knowledge of the whole economy as Austrian economics does.

14:35So even though entrepreneurs may know more about the steel drum industry or the clothing industry than economists do, they know less about money and banking or business cycles. Taxes. It's one thing sound economics can contribute. To sum up the Austrian view of this, the Misesian view of this is an increase in the money supply will cause an increase in prices, will cause a, if it's done through business lending, expansion of business lending, which it usually is, it will cause over investment in capital goods industries and under investment consumer goods, and therefore a whole bunch of, materials, construction projects, things like that, which is not really enough voluntary savings to complete, finish.

15:26And so this is again an act of government intervention, but it's an act of government intervention that's not quite as clear as other things. If the government heavily taxes the liquor industry, you know darn well that profits in liquor are going to be but this sort of bank credit expansion, inflationary bank credit expansion is much more subtle and not obvious to anyone, entrepreneurs or anybody else. So this, once we're in business cycles we know that every, and again this is the only school of economics that believes this, Any inflationary expansion, any inflationary credit expansion must lead to a recession. A recession becomes a necessary, inevitable and good. In other words, once you've got the boom, you have to have the recession to liquidate the malinvestments and go back to sound production which satisfies the desires of consumers in the most efficient manner.

16:21So a recession becomes not only inevitable, it becomes good, quote-unquote, vis-a-vis the fact you have to wipe out malinvestments, unsound investments. Expansions. So that means that when a recession comes, which always comes after a credit expansion either stops or slows down significantly for whatever reason, sometimes people get scared about inflation, other times the banks start collapsing, whatever the reason is, once the credit expansion stops or significantly slows down, recession then becomes inevitable and immediate. At that point, the Austrian economists say, good, let it happen as quickly as possible. In other words, let the recession process as an adjustment process. It's the same thing as the adjustment process. It's a painful but necessary adjustment. And the more you leave it alone, the more the adjustment, the faster the adjustment will be, and the sooner recovery process will come to pass.

17:13Any attempt by the government to interfere with the recession adjustment, any attempt to bail out bankrupt businesses, prop up wage rates, prop up prices, whatever, or inflate credit more, or public works expansion, that sort of thing. Any attempt of that sort, all it does is prolong the recession, makes it worse, makes the consequences worse, makes unemployment worse, and all the rest of it, and it creates another depression or recession a few years later. So this is, again, the Austrian School is the only school that points this out, but it's the only school that believes that recessions are the inevitable consequence of boom periods, of inflationary booms. Everybody else is trying to adjust it somehow, they're trying to iron everything out, one way or the other. The government should step in and iron out recessions and inflations. Even those, even those economists who were skeptical about government intervention, they still think that free market left to itself will cause recessions and oppressions.

18:06Okay, on the, on this macro forecasting point, my colleague Roger Garrison, a very good Misesian economist, likes to think of either as a special tactic or as a, or whatever, or as an aesthetic join itself. He likes to think of the Austrian School since we were always attacked as being extremists. He likes to think of us as middle of the rotors in between other extremes. And there are ways you can look at it that way. I think it's useful in many ways to do that. For example, one group on a macro forecasting question, one group believes, or various groups believe, what we call mechanistic precise forecasting, Mark has already alluded to this, Somehow, by various charts or equations or cycles or whatever it is, you can predict exactly what's going to happen, you know, in November 1992, the proper prices will fall by 3.2 percent, that sort of thing.

18:59I've heard, I've been to seminars, I've sat there and watched people say this. And this sort of thing, Austrian has done, it's total nonsense. In the first place, we have, every individual has free will, every individual has values and Preferences, and what they learn, as Mark said, the learning experience, they learn in different ways, at different rates of time, in different contexts, and how they learn and how they conclude, how they think about what's going on, what's going to happen deeply influences the actual facts of the market. There's no way to make these quantitative predictions, precise predictions. I've heard somebody say, I know one investment analyst, this was a few years ago, I remember I've never heard him say this, and there will be nuclear war in August 2012. He's learned this from a cycle of researches. Well, I mean, of course, it's very difficult to test this.

19:50First of all, those of us, many of us are not going to be around in August 2012, so we're not going to know. And those of us who are around probably have forgotten this crazy forecast. So it's difficult to pin somebody down, this sort of, this sort of the accuracy of the forecast. Well, the various wings of this, of this extreme, extremism in the sense of Mechanistic Precise Forecasting. One wing is the, I've already mentioned the econometricians, the GMP forecasters, and already pointed out, they're becoming a cropper, as they say, big depression in econometric forecasting. Another wing are the monetarists, the Feminites, who are Chicago school people, who believe that by, you could chart the money supply by precise correlations, leads and lags, and that sort of thing, you can predict when the recession is going to come and how deep it's Well, they started making a whole bunch of prediction. Interestingly enough, the Chicago School believes that science is prediction. Science doesn't explain anything, it's not

20:49coherent, all it does is predict. And they stake their whole life on prediction. Well, he who lives by prediction, dies by prediction. So they've made a series of terrible predictions the last six years, all of which have been blatantly incorrect, as a result of crediting in the Reganomics field. Reganomics is a deeply contested field about four or five conflicting groups of economists, all of whom hate each other's guts, of course, and then you're either in or out every six months. And the monetarists were in the money field in 1981. By 1982, they started making terrible predictions. Then, of course, they were out. They're slightly back in again because everybody else has been out. But basically, they've been out for a long time to such an extent that they're even checking their own assumptions.

21:35Many monitors now say they don't know what's going on. They can't understand the money field anymore. And again, the problem is that they're trying to make these predictions on the basis of these last correlations and leaving out the subjective factor, leaving out the psychological factor of individualism, how they expect, what they expect to happen. The so-called demand for money. If people expect the prices will go up rapidly in the next few months, they're going to spend money faster. The demand for money is going to fall. They're going to speed up their purchases. This is going to affect inflation. If they expect prices to fall, they will slow down their money purchases. They will hold on to the money and spend the money later. And you can't feed that into some kind of computer. That's a question of figuring out what's going on with the public psyche.

22:21The, there's an opposing, supposedly opposing group before I get to the Austrian middle-of-the-road position here, I already mentioned the cycle theorists, there's another weird group which is now dominant, which is now the orthodoxy in the finance field. Professors of finance are now in the so-called rational expectations or efficient market movement. Now this group believes that all, sort of the other position, in other words, they believe that the markets are, The market, with a capital M, sort of like an organic collective soul, the market knows that it is omniscient, not just as an efficient mechanism for transmitting signals and for predicting things, but knows everything. The market knows the future perfectly, and therefore everything is, remember I mentioned about discounting before.

23:07You have to watch out that other people might have discounted the new computer industry or whatever. Well, these guys believe that everything is always discounted. By definition, everything is perfectly discounted, therefore nobody can ever make any profits in the stock market or any other market. They can't make any losses either. Everything is perfect. So if you yourself making profits and losses, how do you explain that? That's just random events, they claim. It's all random. It's all luck. In other words, the market of the capital M is perfect, but individuals don't count. Individuals are not part of the market. They're somehow outside of it. And they're just playing around because they don't affect anything. They're simply, they're making either good luck or bad luck. So oddly enough, even though these people tend to be free market economists, they're outgrowths of the Chicago School, mathematical versions of the Chicago School, they wind up as the Keynesians wind up.

23:53In other words, the Keynesians believe that the stock market and financial markets are like a gambling casino, have no impact on the economic system, they just win or lose, it's like playing a roulette. There's no influence on asset markets, there's no economic function in the economy, just a pain in the neck. Well, these guys come out with the same conclusion. It's an oral gambling casino because, after all, individuals' profits and losses mean nothing. So, notice the Austrian School believes that individuals, that markets are efficient but not perfect, they're not omniscient. And one of the reasons why they're efficient is because better forecasters went out over those lousy forecasters and get more assets. And so, the financial markets have become extremely important as methods of channeling assets, ownership of assets of the most efficient, most knowledgeable owners, stock owners, bond owners or whatever.

24:43So it's only the Austrian School that really believes that financial markets are important, perform an important economic function. All these other guys kind of, no, no, it's all sort of, it's all a gambling casino one sort or another, and therefore they really have no justification for private property and assets, and capital assets. Okay, let's take, to get to the positive Austrian point, now having demolished the other, the two extremes, so to speak, which turn out to be very similar. The extremes turn out to meet here because the people who claim that you can forecast perfectly tend to meet with those who can't forecast at all. Because both sides see no role for the entrepreneur, No role for any kind of, no real economic function for financial markets, for asset markets.

25:33Let's take a typical Austrian statement how this, how it's related to forecasting or the investor or whatever. We know with an absolute truth from Austrian economics, we know that if the money supply increases and if the demand for money remains the same, prices will go Now, this is an absolute truth. Well, all right, but we can't, so how much can we forecast? We know this is a general principle. What we don't know, however, is one, whether money will increase or not in the next six months. Whether money increases or not depends on the central bank, on the Federal Reserve, on their, who they are and what their political connections are, what their ideology is, what they read on the paper the next day, what Financial elites impinge upon them. All these things are not something you can learn from equations or a computer. It's something you have to sort of have a feel for, a historical feel of the current situation. And it's very interesting because there's all sorts of bi-plays

26:31here I'm trying to forecast. For example, I would predict, sticking my neck out, that if a Dukakis victory becomes, I would say, generally expected, I'd say, there'd probably There will probably be a big increase in inflation or interest rates because people will think the democratic administration will be a wild spending administration as compared to the republic. It's probably not true. It's probably almost no difference. But people's perceptions are the democrats are free spenders and therefore if the general public expects a democratic victory, there will probably be immediate acceleration of inflation and interest rates in order to discount the expected future. So all these things, I mean, you can't feed that on any computer. There's no equations that will sum this up. You have to have sort of a feel for the situation and follow the public feel for the situation, follow what the public is expecting.

27:18Okay, and then the question is, once you try to forecast what's going to happen in the supply of money, what about the demand for money? Well, that depends, as I already mentioned, on what people's expectations are of the future. One of the reasons why the so-called Reagan miracle occurred for about five years, 1982-86 or something like that, money supply went up, increased a great deal, prices only increased a little bit. They kept increasing. Inflation has always been here. It just was less than before. So why is that? Well, there are various reasons you can talk about. One reason certainly, one factor there, was the public expected that the inflation would be over, The Reagan miracle would be a miracle, some magic was being performed here, maybe through astrology or other forces, and that therefore inflation will decline.

28:10People with expectation of inflation declining meant that inflation actually did decline. It's not the, it doesn't determine everything, it's a powerful contributing factor. The money supply interacts with the demand for money, with the expectation of the future. And then for several years, other factors entered into it. First of all, there's a recovery from big depression, 1981-82, a depression the biggest since the 1930s. It's now called a recession, by the way, just to point out. There's a certain linguistic point here. The science of public relations has been invented over the last few decades, and they decided you don't call anything depression anymore because it's too depressing. So they call it recession, but it's really the same thing. Before that, by the way, before depression, financial crises were called panics.

28:58They decided it was too panicky to call it panic, and they called it depression. And then they modified that. For a while in the 50s and 60s, they tried to get rid of the word recession also. They tried to call it a sideways movement, something like that. But they couldn't get away with that, so that euphemism is too great. They founded on that one. Reality hit a little bit. At any rate, the biggest depression since the 1930s, and therefore, of course, demand for borrowing dropped and all that sort of thing, and naturally, prices, inflation rate fell, but inflation rate did not, was not succeeded by deflation. In other words, in the old days, that means in the old days before the Federal Reserve took total control over the economic system and the monetary system, in the old days when there was a recession or depression, prices fell.

29:47I mean real price. I mean the cost of living. I don't mean ZIG prices. I mean the cost of living index or whatever you want to call it. Consumer prices fell sharply during recessions. It was great because it meant the public, even though many of the public are unemployed, all of the public enjoyed a lower cost of living. Cheaper food, cheaper clothing, cheaper housing and all the rest of it. Now after 50 years of Keynesian, neo-Keynesian, monetarist, whatever manipulation, We're now in a situation where the prices are not allowed to fall anymore because the Fed is always pumping more money into the system because there's no gold standard, there's no check, there's no limit on Fed inflation. So the Fed is always pouring money into the system. So now they arrange, the recessions are still there. They haven't cured recessions. It simply means that now when there's a recession, instead of the cost of living falling, there's a sugar coating on the pillow of the depression, and now the cost of living goes up even more, in a sense.

30:40So in many cases you have an inflationary recession in other words. So now a person can be both unemployed, bankrupt and suffer from a higher cost of living than they did before. That's the advantage, that's the consequences of 50 years of non-Austrian economic manipulation of the system. So we've got to figure out then, when you apply the general principle, you know what's going, figure out what's going on in the economic system. and the economic system. You apply the general principle, increase the money supply causes and price inflation, but you have to apply it with knowing all the other factors. In other words, knowing or trying to, if you're trying to forecast it, trying to figure out, figuring out what the Fed is going to do. It's very difficult to figure out. There's always, by interplay, the Fed, of course, is a secret organization and its deliberations are secret. There's no, there's no popular pressure on the Fed. It's designed that way.

31:30And then trying to figure out how the public is going to react to it. For example, it took It took the German public and hyperinflation in the early 20s, it took the German public about five years to wake up to the fact that inflation is going to be permanent. They're not going to go back to the pre-war, good old days, the pre-war, pre-World War I system. It took the America about 20 years to wake up to the permanent inflation from about 1960 to 1970s, 1950s, 1970s. Usually the inflation era starts during a war. I should backtrack a little bit on that. War time, of course, is a situation where government needs a lot of money fast. Government always wants more money since the early ages of government, primitive government on, ancient Persia, whatever, they want more money. But in war time they need money very, very rapidly. So how do you get more money? Well, one of the easy ways to do it is to print it.

32:21And so big increases in public debt and in printing money, creating new money during war time. Well, during wartime, this happened in the U.S. in World War II and it happened in Germany in World War I, the public, of course, doesn't understand money and banking at all, zilch. And for good reason, it's a very mystical sort of thing now. It's all obfuscated, deliberately obfuscated by the establishment. The public doesn't understand it, but they do see when prices are going up. They see when they're out of a job or not. That's much more evident. And so, the public sees it as a shortage of goods. They see that the prices are going up during the war. What do they blame it on? They blame it, of course, on the war. Of course, the government is right there pointing out that the war is the problem. There's a shortage of goods. You know, lucky strike green is going to war, if you're old enough to remember that great slogan.

33:10So lucky strike cigarettes are not here because they're off to the war fighting front. So all material, all material, whatever, if there's any shortage or any increase in prices, you blame it on the war effort, okay? So the public believes then that after the war is over, prices will go back to the good old days before the war, 1940 or 1914, whichever you want to make it. And they save that money, there's a big increase in saving, hoarding the money or holding on to the money, because waiting to make the purchases when the good old days come and prices will be much cheaper. There will be washing machines and automobiles and houses and that sort of stuff at cheap prices. As a result, the prices during the war go up much less than the money supplies, a big gap. When the war is over, of course, the government keeps printing more money, because now they found a great bit is in their teeth, especially after World War II. Fed now has absolute power, there's no more gold standard.

34:02They're just printing money like mad and they love it. And the public begins to realize that even though the war is over and there's new goods are coming on the market, are coming on the market, there's washing machines and cars and houses again, somehow prices are going up instead of down. There's no return of the good old days of the eight course lunch for fifty cents. But it takes a while for the public to realize it. It's a learning process, as Mark says. It takes time. There's no way to predict how long it's going to take. But somehow it happens. By the 1970s, the public began to realize, one, not only that there ain't going to be no good old days of a twenty-five cent lunch or fifty

35:06That sort of thing. And again, it depends on the memory of the public. The public has a short memory, and sometimes the memory is longer. I think one of the big reasons why the real interest rate remained high during the Reagan administration, even though the inflation rate fell, the real interest rate remained high. I'm convinced the reason is that the public still had this lingering thought, hey, maybe inflation will return again in a big way, and therefore we better keep the interest rate, keep the inflation premium and the interest rate. So all these things are an interpretation or analysis of what's going on in the public's mind. It's very important to do that, but it's not a mathematical equation type of operation. So this I think gives an example of the sort of positive analysis of sort of stuff that Austrians do to more mechanistic schools of thought, which believe that people do not have values and preferences that act on them, but somehow everything is part of a giant computer or

36:09mechanism which sort of is ground out by some kind of mathematical laws. And I hope this has been a lightning way of covering the field of Austrian economics, which is a large one. I hope you investigate and explore other fields of it. Thank you.