Time and Money

0:00The book I'm going to talk about is Time and Money. It looks like this. You can order it at the laissez-faire books. In fact, I recommend it's about the only place that you should think about buying it because you can buy it at a reasonable price, something like $29.95. If you buy it from Routledge, you spend $100. I haven't met anyone yet who's actually done that. and turns out to be one of my disappointments about the book is the pricing that Routledge has. If you look in the book and there'll be copies lying around during the weekend, you'll see it has a lot of pictures in it, a lot of graphs and about 50 of them, I think.

0:50But I promise you today I'm not going to draw any of the graphs here on Lew's wall. Instead, I want to do a little bit of storytelling just to explain how I came to write this book and then some reaction to the book's reception. And in thinking about talking today, I had to decide how far back to go to begin the story. Hans is Right. It's almost a lifetime project. It begins well before I ever met Hans Hoppe. How far back to go? And I have to go back a long ways, partly because it took me a long time to write the book. Once I got started writing it, even that took a long time. But at the same time, there's a lot of prehistory that I think is relevant here that I want to say at least something about.

1:40And I'll start by fessing up and saying that my early training was in engineering. My bachelor's degree is in electrical engineering. And I drew a lot of graphs there too, mostly circuit theory and circuits and so on. But I developed certain analytical skills in an engineering program. But somewhere I took a wrong turn and ended up in economics. The short story is that during my military years, I began reading on my own eras where I thought of being fairly weak and the social studies was certainly prime among them. So I started reading economics but following my nose and reading those books in economics that I thought seemed right, seemed appealing, and be on the right track and of course very soon found my way into the Austrian school.

2:36So during my military years I read lots of Mises and I read Rothbard, I read Hayek and a number of others. And so then coming out of the military I was in the odd circumstance of having background in electrical engineering and Austrian economics, at least self-taught in Austrian economics. decided at that point to study economics formally and get at least a master's in economics, having no idea what mainstream economics was about, because I hadn't followed my nose in that direction at all. And in fact, most of you who have read Mises and Rothbard, you know there aren't many graphs, there aren't many equations in those books.

3:24So I enrolled in an economics program at the University of Missouri at Kansas City. Missouri is my home state. And was immediately, I guess, caught flat-footed with all of the graphics. Any of you, a lot of you have taken courses formally at universities, and you know that economics, both micro and macro, are full of graphs. and it was awfully difficult for me to see where within those ISLM graphs and aggregate supply, aggregate demand graphs and all the rest, where within all those were the insights of the Austrian School? They were buried deep. And I think the turning point in my development here came with some discussion with my brother, of all people, who's neither an engineer nor an economist, but instead a graphic designer, well that helped, okay.

4:24And I remember explaining to him that the Keynesians is sort of a hard nut to crack because there were all these graphics and students got a vested interest in these graphics being right or relevant or worthwhile once they had labored hard to actually learn them. And my brother asked me very innocently, well, couldn't you generate some graphics to illustrate the Austrian point of view? And he never realized at the time how much work he cost me. I spent quite a long time doing just that. Even at that level, working on a master's degree, I produced a paper that was a forerunner to time and money. but based almost exclusively on the early writings of the Austrians on Mises' Theory of Money and Credit.

5:16But I developed something that I call Austrian Macroeconomics, a graphical exposition, used it as a term paper at Kansas City, and on the basis of that was actually asked by one of the faculty members to present that paper at a professional meeting in Chicago that was upcoming. He had given me a good grade on the paper, but I was convinced he hadn't actually read it. He was a Marxist and I think he weighed it, you know, as a labor theory of value. And so I realized that here I was going to present this paper at Chicago, but nobody, certainly no one who knew anything about Austrian theory, had read it.

6:02Well, that's a risky business. You'd like to have a little feedback before you present a paper, a professional meeting. And so I sent a copy to Murray Rothbard to see if I could get comments from him. Well, it turns out that Rothbard was delighted with the paper, not because he loved the graphical analysis, but he perceived it as a way of beating the opposition at their own game, of using the graphs like the Keynesians do by telling the Austrian story. I got a phone call from Joey Rothbard who asked me, did I plan to be in New York any time soon? That Murray would like to talk to me if I had any such plans. Well, I had no such plans, so I said yes.

6:48I'll be there over spring break, which was just upcoming. And so I went to New York, and this was in March of 73. We have to go back at least that far, you see, to tell the story. I went to New York in March of 73 and met with Rothbard, and he invited a number of budding Austrian economists over to his apartment to discuss the graphical paper. And I'm reminded of this episode, reminded very vividly, just in the last couple of days, because Murray also invited me the next day. He said that he was going to do a book signing at laissez-faire books. His For a New Liberty had just come out.

7:33And why didn't I stop by laissez-faire bookstore down on Mercer Street in Lower Manhattan? And I did, at the time he was signing books there. Well, Jeff Tucker just posted yesterday a photograph, it turns out, that was taken that day at Lasez-Faire Books. I didn't know any pictures were taken that day, but a photograph where he was trying to identify who's this guy with Murray. I must have aged that much since 1973 that Jeff couldn't recognize. Who's this guy with Murray? Well of course it was me, and it's a photograph that's posted now to the laissez-faire books website as one of the photos in their gallery on the occasion of their 30th anniversary, they're showing the early years you see.

8:21So anyhow, it all started back at least that far. This was also a year, 1973 if you know the sort of modern history of the Austrian resurgence, Just before Austrian economics got off the ground again, 1974 was the, what became famous or notorious, depending on your point of view, Austrian conference at South Royalton, where there were lectures by Rothbard and Kirzner and Lachman, and as a result of my trip to New York, I was invited to that. and there were several conferences. That one, the next year, there was one at Hartford, Connecticut and the following year one at Windsor Castle in England. And by the time we got to Windsor Castle, I had rewritten this paper on a graphical exposition of Austrian macroeconomics and presented it at Windsor Castle.

9:17And it was subsequently published as part of the conference volume. and it was also published as a monograph by the Institute for Humane Studies, it's called Austrian Macroeconomics, very thin volume as you can see, mostly graphs, okay, just a few words between the graphs and that was published in 78. Now, the reaction to this monograph is pretty easy to tell, the short story is that I got some hate mail because of it. and Austrian economists actually drawing graphs. This was viewed as a sacrilege to Mises and so on. But I got some positive response too, sometimes among engineers who had turned their attention to economics.

10:03Well, it's a long road then between the monograph itself and the book. But just a number of years ago, well 1992 I think it was, I was asked by the editors of the Rattling series to write a book-length treatment of Austrian macroeconomics. The editors are Mario Rizzo at New York University and Larry White, now at the University of Missouri at St. Louis. So I literally began on this book in 1992. It was a slow process and it did move forward with fits and starts. In 1997, I managed to get a sabbatical from Auburn to take some time to work on the book.

10:52But almost at the same time I got the sabbatical, I got an invitation to deliver the Ludwig Loughlin Memorial Lecture in Johannesburg in South Africa in September of that year. And I decided I would do that and to make the effort pay, I would write a lecture that would also become a chapter of the book and sort of a survey of the Keynesian macroeconomics that shows up as chapter two in time and money. And while I was at Johannesburg, I was also scheduled to give a talk at the Reserve Bank in Pretoria, the capital of South Africa, and talk about the American experience with chronically large deficits.

11:41Well, I gave that paper and turned that into a publication that was first published in the South African Journal of Economics but was later turned into Chapter 6 of this book where I deal with the issues of deficit finance from an Austrian point of view. So, one way or the other, I began piecing together the book, actually the graphical layout itself came to me literally during a class, I was teaching intermediate macroeconomics, and with a number of graphs on the board, and I saw how they fit together, that these things gel together, lining up with one another, axis to axis, so I fit them together on the board to tell the story, of the Business Cycle Theory.

12:36And from that came the basic graphical model in the book. I had written a forerunner article in 84 for the Journal of Macroeconomics, which carried the title Time and Money. And at that point, the title was a takeoff on an idea that I got out of Hayek's Pure Theory of Capital, where Hayek talked about money being something of a loose joint in the system. It created a loose joint that you wouldn't see in, say, a system of pure barter because you could trade one thing without immediately getting another. Money served as the intermediary. And because of that looseness of a joint, it made the equilibrating mechanism subject to disequilibrium on an economy-wide basis.

13:30Certainly, if ill-conceived policies were being pursued by the monetary authority. And Hayek exploited very briefly this idea of money as a loose joint. That was in his book on capital theory, where the looseness of the joint became particularly significant in a capital-using economy, where people had to commit themselves to long-term projects well in advance of seeing who and when people might actually be willing to spend money on the output. So my title, Time and Money, which was used in that early article, became the title of the book. And in truth, in the book itself, there's only two chapters, three and four, that come I'm directly from that article or that are related to it in any substantive way, but nonetheless I kept the title Time and Money and let the subtitle be maybe a little more informative.

14:32It's called the Macroeconomics of Capital Structure. If you look at the other chapters in Time and Money and their relationship to these core chapters, Chapter 3 and 4, what you see is the book turns out to be an exercise in alternative analytical frameworks. The way I put the Austrian theory together, the Austrian graphics together, permitted me to create similar graphics to represent the Keynesian system. and another set of similar graphics to represent monetarism but all with common denominators graphically speaking where it became much easier than in conventional macroeconomics to make the translation from one analytical framework to another so you could put ideas through their paces in either of at least three different frameworks to see what the conclusions gave us and I think this this came in particularly It was handy and useful when it came to comparing Keynes and Hayek.

15:47If you've read the literature of the 30s, you know that Keynes and Hayek debated. Well, debate may be not quite the right word. They had some interchanges in terms of book reviews of one another's books, relatively hostile reviews, and with no resolution. I think, in so many instances, they were talking past one another, and so one of the things I tried to achieve in this book, and I think I've achieved it, is set up a set of analytics where Keynes and Hayek go head-to-head, okay, where you can see that there's enough of a common core that would be subscribed to by both, that you can see exactly what the two combatants are saying and exactly where they differ and can evaluate the alternative ideas of Keynes and Hayek.

16:39Keynes and Hayek, and as you might guess, Hayek comes out on top, okay, he takes into account some critical facts, at least I think are critical, in terms of capital theory that Keynes simply overlooked. So I put Keynes and Hayek head to head, and therefore point up in very explicit ways some of the key fallacies in Keynesianism. Okay, I'd like to turn now just to the question of the reaction to the book and I've got a short list here in terms of what things I'm pleased with and what things I'm surprised about and what things I'm disappointed about, not too much disappointment, and in fact a lot to be pleased about.

17:30The first thing is, there was no hate mail, okay, so I'm already ahead there. Secondly, the people that have reviewed the book or that have written critiques of it or whatever seem to see the book for what it is in at least two dimensions that pleases me very much. One is they see it as, using my own terminology, capital-based macroeconomics. They see it as something much more than just the Austrian theory of the business cycle. Even though the genesis of the book was aimed at creating a device for an exposition of the Austrian business cycle, it turns out that that same framework was suitable for For analyzing all sorts of other macro-phenomenon, a phenomenon that the Austrian simply had not analyzed in a systematic way, in the same way that they had analyzed business cycles.

18:33So issues such as reform of the tax system from an income tax to a consumption tax, okay, the analytics, the same analytics that I use for analyzing business cycles can be used to analyze the effects of that. or the effects of public finance or deficit spending or the consequences of government spending on infrastructure. All sorts of issues that claim the attention of mainstream economists can also get attention from the Austrians and significantly with the use of this one single macroeconomic model. So I was pleased that the book is seen for what it is in the sense is a fairly widespread macroeconomic theory and not just a business cycle theory.

19:22And beyond that, I'm pleased that it's seen, again, for what it is, as an exercise in comparative analytical frameworks. The Keynesians going head-to-head with the Austrians and the monetarists being brought into the picture, too, to in their own separate chapters near the end of the book because that's what that's what it's intended to be and in fact what may be one of the most stinging criticisms one that I'm going to deal with when I answer a lot of paper that answers some of the criticisms in the quarterly journal one of the authors said that that I had exposited Keynesianism a little better than I just and Exposited Austrianism and he went on to suggest that I'd left a chapter out of the Austrian formulation and by that he meant that with the Keynesian system I had developed the Keynesian framework I'd put it through its paces in terms of business cycles and policy recommendations and then I had a separate chapter in the Keynesian section on social reform the kind of reform that Keynes advocated

20:41But in the Austrian chapters, I left out that chapter on social reform, okay. I had the Austrian framework, I put it through its paces as far as policy recommendations go. But I didn't include a chapter on social reform. What would the Austrians like to see? Sort of an overall wholesale reform of the system. And I did that, I left it out knowingly so because I think that in itself would have required another book-length treatment and so on, because there's a lot of diversity even within the Austrians about just what the nature of that reform should be. One thing that pleases me a lot about this book is the response from students. I began using the book, or at least large parts of it, in teaching upper-level undergraduate macroeconomics.

21:32And what I discover is that the students catch on to this particular layout of the macroeconomic issues much more readily, much more easily than they catch on to the Keynesian or the analytics that they find in the conventional textbooks. So that pleases me. I've had responses on the basis of the book, partly, and on the basis of some newspaper articles that I've done, from readers. And what I've detected is that I get a particularly positive response from people who are actually in the real world, as opposed to academics. and people who are in the world of finance and I'll have emails from somebody that starts out saying, well now, I manage a hedge fund and then he goes on to explain how he uses the model in time and money to do what he does.

22:32I read that with great interest because I have no idea what a manager of a hedge fund does. I don't understand just what all goes on there. But I'm pleased to know that these people who find ISLM and aggregate supply, aggregate demand utterly worthless, find utility in time and money. I don't know if I want to say please, I'll say amused with one development. And that is that someone in the International Monetary Fund has written a working paper on the Austrian theory of the business cycle and the insights offered therein. And a fellow named Stephen Oppers, he advertises himself as, quote, in the European office.

23:24Europe's a big place, he could have pinned it down, but in the European office. and is posted to the web. If you go into the IMF website, you can find your way to it fairly easily. He cites time and money fairly prominently and actually, as I read Hoppe's article, I could tell that his article is, I have to say, virtually a reading digest version of my chapter 3 and chapter 4. It borrows the particular analytical tools, it borrows the phraseology and the wording and so on. There's a lot there that's time and money writ small, okay, in a working paper. I haven't seen the IMF interested in Austrian theory in a long time, okay, and so it's nice to see interest even in those quarters.

24:21One thing that surprises me about the reaction to the book, and there'll be more about this in the paper than I give on Saturday at this conference, is a certain reaction from the Austrians themselves about key aspects of the graphical construction. I've used a very familiar sophomoric production possibilities frontier in order to illustrate some points, and I'm very explicit about defining that frontier in terms of sustainable levels of output and as soon as you define it that way, that means that the economy can push beyond that frontier, it can be pushed beyond that frontier but not on a sustainable basis.

25:06The economy can be overheated if you want to look at it in terms of the modern vernacular. It can push beyond the frontier but not on a sustainable basis. Well, a number of people have reacted to that and insisted that the frontier is some kind of an absolute physical limit, that it never can be surpassed at all, even temporarily. And that surprises me, because I think the subjectivist insights of the Austrian School suggest that a construction of my sort is much more compatible with Austrian theory than one that's defined in physical terms. and also with that PPF defined that way it's much more consistent with mainstream constructions and therefore allows the Austrians to speak much more easily to the mainstream and show just where the differences are so I'm a little surprised that that construction is seen as unique to me if there's anything unique it's only in my being explicit about what that frontier means but if you look in In the normal textbooks, you can easily read between the lines and see that conventional PPFs are defined in that way too.

26:20Typically, the PPF is defined as being combinations of the output of consumption goods and capital goods that are consistent with full employment. Well, yeah, that's what it is. Well, full employment doesn't mean 100% full, okay? It allows for some slack in the system, some 5% or 6% unemployment. And certain policies can push that unemployment level down to the 4% range and cause output to be even higher than the one associated with that PPF. So even though it's questionable in the view of some Austrians and is criticized on the basis of the constructions, it's very consistent with the mainstream in that sense.

27:12And finally I'll conclude, I shouldn't be concluding with disappointments should I, but I will, and maybe to say first that there aren't many disappointments, okay, that I'm basically very pleased with the way things have gone. Probably my biggest disappointment is that I can't get Raleigh to put the thing in paperback. I think that there's all sorts of scope for having this book adopted as a textbook. In fact, some people already have. I already have. I can name several universities where this book is used as a text, either at the entry level, graduate level, or upper level, undergraduate. But until it's out in paperback and affordable even from Routledge, there won't be many adoptions and Routledge is resistant to that.

27:59Routledge has a very idiosyncratic marketing strategy which involves not printing books. So it might mean I chose the wrong publisher. Okay, I'm willing to concede that. And at this point, there hasn't been much in the way of reviews of the book from the mainstream. Although that takes time and I'm patient. I think those things might come. But I will add that there's been many, many more reviews and articles from people within the Austrian School. and the Austrian School, and that's been very gratifying. Posted to the Mises website, reviews by David Gordon and reviewed by Richard Ebeling.

28:46And in recent issue of the Journal of Austrian Economics, a symposium devoted to time and money with several, quite a few papers by Austrians commenting on time and money. and Money. So, in spite of being disappointed by the lack of mainstream reviews, I'm very gratified with the kind of reviews that I actually have gotten. Okay, thank you very much. Anybody got any burning macroeconomic questions?

29:37We'll turn the floor to Hans.