Austrian Economics and the Political Economy of Freedom

0:00After seeing Europe descend into the black cauldron of the First World War, Mises remained true to his boyhood motto, do not give in to evil but proceed ever more boldly against it. He continued steadfast in his policy work for the Vienna Chamber of Commerce and he wrote his great works on political economy, socialism, liberalism and critique of interventionism. His work has stood the test of time as all truth does. To commemorate his achievements and build on his foundation, we offer the Ludwig von Mises Memorial Lecture. We are privileged to have Dr. Richard Ebeling deliver this year's Mises Memorial Lecture. Dr. Ebeling is president of the Foundation for Economic Education.

0:49Prior to his appointment at Fee in 2003, he had been the Ludwig von Mises Professor of Economics at Hillsdale College since 1988, and had served as Vice President for the Future of Freedom Foundation. Dr. Ebeling received his BA in Economics from California State University, his MA in Economics from Rutgers University, and his PhD in Economics from Middlesex University. He is the author or editor of 18 books and countless articles in scholarly and popular venues such as the International Journal of World Peace, the American Journal of Economics and Sociology, Critical Review, Political Studies, Advances in Austrian Economics, Reason, Ideas on Liberty, and Freedom Daily.

1:37Dr. Ebeling will speak on the topic, Austrian Economics and the Political Economy of Freedom. It's a pleasure to be here and particularly to be invited to speak at this memorial lecture to Ludwig von Mises, who surely was the greatest economist of the 20th century. And it is also a particular privilege to be asked to speak at the Mises Institute. I don't mean to embarrass him, but I said this to Lew just a little while ago and I want to repeat it. I think that what Lew Rockwell has done here in establishing the Mises Institute in the ideas and the ideals that are espoused here, in the superb and magnificent facility in which those ideas can be taught and spread is a great monument to his dedication and his determination and his uncompromising principle to liberty and the philosophy of freedom.

2:43And I thank him very much.

2:57I know we've all been in these sessions all day, and perhaps you've not had a chance to listen to the radio or catch the news on television, but it seems that Al Gore is making a very determined effort to get the second spot with Kerry for the Democratic nomination. And to try to make himself appealing to Kerry, he has proposed a change in the national anthem. Now he has suggested that this could be a winner in the campaign and in addition he has proposed that it would be a tribute to his wife Tipper and if elected this would now be the new national anthem that the Kerry Gore ticket would then push through Congress.

3:45tipper-dee-doo-dah, tipper-dee-ay, more big government coming your way, plenty of new taxes every darn day, tipper-dee-doo-dah, tipper-dee-ay, Mr. Spotted Owl sitting on your shoulder, it's the truth, it's actual, everything is environmental, satisfactual, tippity-doo-dah, tippity-ay, born to live your life the government way. As Jeff mentioned, before my recent appointment to the Foundation, I had been the Mises Professor at Hillsdale.

4:40And it's a great and pleasurable change to go from, to be honest, as much as I enjoyed being the Mises professor and teaching Austrian economics and other courses there, to have lived in basically a rural cornfield to an actual city. But it has involved the dubious pleasure of now having Hillary Clinton as my senator. And recently she was going around some grammar schools, making her pitch for, you know, it It takes a village to educate the young, and if in one of the classes where she was meeting with little kids, first, second grade, she asked the little kids if any one of them could tell her what a tragedy was. And a little boy raised his hand and says, I know, I know what a tragedy is. A tragedy would be if Johnny ran into the street chasing his ball and a And a car hit him and he died. And Hillary said, you know, that's a very good answer.

5:38But that wouldn't be a tragedy. That would be an accident. Can anyone tell me what a tragedy would be? Another little girl in the back raises her hand. Senator Clinton, I know, I know. A tragedy would be if the school bus was going down the mountainside and it went out of control and tumbled down the mountain and all the little kids and the driver were Hillary says, you know, that's a good answer, too. But that would not be a tragedy. That would be a great loss. Can anybody tell me what a tragedy would be? Another little boy raises his hand and says, I know, I know, a tragedy would be if you and your husband Bill were in an aeroplane and suddenly it exploded in the sky and crashed to the ground and the two of you died.

6:25And Hillary says, you know, that's an excellent answer. Yes, that would be a tragedy. But can you tell me why it would be a tragedy? Because it would be neither an accident nor a great loss. Bill Clinton is now in his new offices in Harlem. He comes in one day and the staff members look at him very strangely because they noticed attached to his arm is a pair of women's panties. Now many of these staffers have been with him for years and they're used to Bill's eccentricities, but even for him this is a little weird.

7:15So finally, at the end of the day, one of the senior staffers goes up to him and says, Bill, you know, we're all wondering, I have to ask, what is this pair of women's panties attached to your arm? Bill looks down and he says, you mean the patch? I'm trying to quit. Okay, one more. Since I have to be equal opportunity here, George Bush and Dick Cheney decide to stop for breakfast one day before going to work at the White House. And they go into a Denny's and the waitress brings the menus and puts the menus in front of them and says, Well, Mr. President, what would you like to eat? And George looks at it and looks up and says with a big smile on his face, You know what? I'd like to have a quickie. A quickie? Mr. President, I'm shocked. I thought that type of language and behavior went out with the previous administration.

8:17She turns around in a huff and walks away. Dick Cheney leans over and says, George, it's pronounced quiche.

8:36Only at the Mises Institute can I be so politically incorrect. Thank you, Lou. As Jeff mentioned, my topic is Austrian Economics and the Political Economy of Freedom. The revival of the modern Austrian School of Economics may be dated from 30 years ago, when during During the week of June 15-22, 1974, the Institute for Humane Studies sponsored a conference on Austrian economics for about 40 participants in the small New England town of South Royalton, Vermont.

9:21In 1974, the Austrian School had been in a hiatus for almost a quarter of a century. In the more than 60 years before the 1940s, the Austrian economists had been considered one of the most original groups of thinkers and contributors to economic theory and policy. They were among the leading developers of the theory of marginal utility, opportunity cost, value and price, capital and interest, market theory and competition, money and the business cycle, and comparative economic systems, capitalism versus socialism versus the interventionist Welfare State. But the rise and then triumph of Keynesian economics in the late 1930s and the 1940s as an explanation of and a policy prescription for events like the Great Depression in the early 1930s eclipsed all competing theories of and practical solutions to the problems of high unemployment and economic depressions. This included the eclipsing of the Austrian Theory of the Business Cycle, which in the first half of the 1930s had been a leading alternative to the emerging Keynesian conception of macroeconomics. At the same time, they developed what came

10:37to be called the neoclassical approach to microeconomics. The study of the logic of individual decision-making, the allocation of scarce resources among their competing uses and the distribution of income among the factors of production, land, labor and and Capital became increasingly an exercise in mathematical optimization under conditions of various quantitative constraints. The focus of attention was on the specification and determination of the narrow and often highly artificial conditions under which a market economy as a whole would be in a state of full and complete general equilibrium. Now this too was in stark contrast to the approach of almost all the Austrian economists who attempted to explain the logic and the processes of market competition in a world of constant change.

11:29The Austrians, unlike their neoclassical rivals, emphasized imperfect knowledge, the pervasive role of time in all market decision making and the nature of market coordination through continual adaptation to changing circumstances. Eight months before that conference in South Royalton in October 1973, the most important contributor to Austrian economics in the 20th century, Ludwig von Mises, had died at the age of 92. The second most prominent member of the Austrian school at that time, Friedrich Hayek, had been invited to attend the conference, but had declined due to health problems that made it impossible for him to travel to America from Europe.

12:15No one at the conference anticipated that only four months later, in October of 1974, Hayek would be awarded the Nobel Prize in Economics. The speakers at the conference were three of the leading figures in Austrian economics. Ludwig Lachmann, who had studied with Hayek at the London School of Economics in the 1930s. Daniel Kirzner, who had studied with and written his dissertation under Mises at New York University in the late 1950s, and Murray Rothbard, who had attended Mises' New York University seminar for many years, beginning in the late 1940s and had received his doctoral degree in economics from Columbia University. I should mention is that it was at that conference 30 years ago that I, in fact, as a young budding Austrian economist of a mere 24 years old first met these people and I had certainly never met Murray Rothbard. Now I only knew him from his writings and you know sometimes we picture people in our minds, we create images and for some reason that I can't explain,

13:21the image I had created having never seen him, I had a picture of Murray Rothbard as is tall, thin, and extremely serious. Imagine my surprise when into South Royalton comes this short, rather rotund, laughing, cackling individual who kept us up until the wee hours of the morning, and Joseph Salerno is here and Walter Block is here and they know what I'm talking about, kept us up the wee hours of the morning with stories and anecdotes and Songs Regaling Us, until finally Joey Rothbard would come down from the hotel room that they were in saying, Murray, it's three o'clock in the morning. You have to come to bed. But Joey, I don't want to go to bed. Murray, you have a lecture at nine o'clock.

14:09Oh, but I'm... Murray, you'll come to bed now. One evening during the conference, Milton Friedman came from his summer home in Vermont Friedman commented that he was delighted to be with us and recalled that he had long known both Mises and Hayek, having himself and one of the founding members of the Mont Pelerin Society in April of 1947 when it met for the first time in Switzerland. But what stood out in his remarks for many of us in attendance was his statement that there was no such thing as different schools of thought and economics. There was only good economics and bad economics. Clearly, therefore, in Friedman's mind, we were on a fool's errand, attending a conference on something called Austrian economics.

15:04Yet most of us attending that conference in South Royalton three decades ago did not consider ourselves on a fool's errand. We just considered Austrian economics to be good economics. At its most fundamental level, the Austrians see the individual as acting man. This was already clearly stated by Mises in 1933 when he said, In our view, the concept of man is above all else the concept of the being who acts. Our consciousness is that of an ego which is capable of acting and does act. The fact that our deeds are intentional makes them actions. Our thinking about men and their conduct, The Austrian view of man rejects and refutes the positivist, historicist and neoclassical conceptions of man as what? As mere physical quantitative object, as a passive subject controlled by the dark forces of history, or as a dependent variable in a system of of Mathematical Equations, Positivism tried to reduce man and his mind to merely measurable magnitudes to be studied and manipulated like the inanimate matter experimented upon in

16:26the natural sciences. Historicism claimed that man is determined and molded by external laws of history that shape his thoughts, actions and destiny with little latitude for the individual Neoclassical economics treats man as a mathematical function, possessing given tastes and preferences, which are themselves induced by his surrounding environment and on the basis of which he responds in predictable ways when confronted with various constraining and objective trade-offs, often in the form of market prices. For Austrians, on the other hand, man is an intentional and purposeful being. He thinks, plans and acts.

17:11Man may be made of matter, but he possesses consciousness. He has the capacity to imagine, create, initiate. His mind is simply not reducible to lifeless matter. He has spirit and will. Man reflects upon the circumstances in which he finds himself. He finds aspects of his physical and social surroundings less than satisfactory. He imagines states of affairs that would be more to his liking. He creates in his mind plans of action that will bring those preferred states of affairs into existence. He discovers that things in his world that could be used as means to the achievement of his desired ends are insufficient to serve all the purposes for which he could apply them. He has to weigh the alternatives and decide in his mind which of those possible states In the face of affairs, he prefers more and which he prefers less, since some of them, in the face of scarcity, will have to be forgone for today or perhaps forever.

18:10He therefore has to decide on the trade-offs he is willing to make, and as a result he determines the costs of his own choices in the form of desired goals he is willing to give up so as to pursue others that he considers more important. Those ends and means that neoclassical economics take as given in their analysis of a logic of a choice are in fact created and compared in the actor's mind. They change and are modified as man experiences successes and failures. They are not static or constant. Man nor is man a hopeless victim or captive of history. He makes his own history by reflecting on what has happened in the past and mentally projecting himself into the future. He decides what is worth trying to continue along the lines he has been following up till now and what he thinks might be a better and different course of action as he looks ahead.

19:07This is the reason for Mises' insistence that in every man is the element of entrepreneurship. Man in all of his actions searches for and creates profitable opportunities to improve his lot and to try to avoid situations that would generate a loss in the form of change circumstances that would make his situation worse than it needs to be. By necessity, man is therefore a speculator in everything he does. Creating profitable opportunities and avoiding losses are concepts that have no meaning in and the traditional neoclassical conception of perfect competition in which every market participant is assumed to possess perfect or sufficient knowledge of all possibilities that might be relevant to his decisions.

19:58What is the meaning to opportunities discovered or losses avoided when the actors already know from the beginning what are the best and indeed the only optimal options that should should be followed, given the perfect and sufficient knowledge of all the relevant circumstances. From the Austrian perspective, to choose means to select from alternatives. And to select from alternatives must mean that at least from the individual's perspective, the future is not preordained. If the future is not preordained but can be influenced by the choices he makes, then perfect is logically inconsistent with the very concept of acting and choosing man. Otherwise, man would already know all the decisions he will make and the outcomes that will have to be forthcoming.

20:49But what then remains of any commonsensical notion of what it means for man to choose, even if we assume only knowledge of objective probabilities and not absolute certainties about the future, Then, every man would still know what are the precise set of options from which he has to choose and the objective weight he should assign to each possible outcome. Then, given his tastes and preferences for risk, he would again know from the start the only courses of action he could and should logically follow. Now, many neoclassical economists may despair of a world in which imperfect knowledge and uncertainty prevail. and therefore a world in which their mathematically deterministic models lose their force.

21:40But for the Austrians, this reality of the human condition is a reason for optimism about man and his world. The fact that man does not know for certain what the future holds in store, including his own future actions, means that the world in which he lives is one of wondrous possibility. Individuals have motives and incentives to experiment with new ideas and creative possibilities precisely because they don't know for sure, but with any probabilistic degree of certainty, how they might actually turn out. It is this element of uncertainty about the future and the direction that it must take that opens a vista for imagination and action to influence the shape of things to come, and through them all the advancements in the social economic and cultural condition of mankind.

22:38For the neoclassical economists, the market is reduced to a series of simultaneous equations of supply and demand functions, the properties of which specify whether a general equilibrium The same solution exists for the market as a whole, and whether that solution is unique and stable. Prices in this framework are the quantitative ratios of exchange in which goods may be bought and sold, and which objectify the tradeoffs at which alternatives in the market may be obtained. Likewise, the theory of comparative advantage in this neoclassical framework merely determines the relative opportunity costs of potential trading partners and the determination of their optimal specializations in the division of labor. In addition, property rights, money, and the social and political institutions are usually treated as givens in this neoclassical analysis.

23:30They are merely the background context on the basis of which the supply and demand functions interact. For the Austrians, the essence of the meaning of the market is lost when reduced to a skeletal representation in the form of mathematical functions. The market is where minds and meanings of men meet. It is the place where the plans of multitudes of individuals overlap and find the potentials for mutual improvement through discovered and created gains for trade. It is where the wants of men find greater degrees of fulfillment and satisfaction than under isolated self-sufficiency, and where opportunities for achieving things never conceived of before become possible and practicable.

24:23In the Austrian conception of the market, prices are not simply quantitative ratios of exchange. They are the encapsulation of all of the valuations and appraisements of the market participants resulting from their activities as buyers and sellers. As Carl Menger, the founder of the Austrian School, expressed it in 1871, prices are by no means the most fundamental feature of the economic phenomena of exchange. This central feature lies rather in the better provision that two Persons Can Make for the Satisfaction of Their Needs by Trade Prices are incidental manifestations of these activities, symptoms of an economic equilibrium between the economies of individuals and consequently are of secondary interest for the economic subjects.

25:18The force that drives prices to the surface is the ultimate and general cause of all economic activity, Menger explained. The Endeavor of Men to Satisfy Their Needs as Completely as Possible to Better Their Economic Positions In neoclassical theory, prices are usually taken as given, with any changes in prices coming somehow from the outside, and to which the market participants then respond. In the Austrian approach, prices emerge out of the interactions of the market actors. They initiate price bids and offers and competitively move prices up and down. In Boehm-Bawerk's famous horse market, any resulting equilibrium between suppliers and demanders arises out of their respective activities on both sides of the market to attract trading partners by offering better terms of exchange than their rivals.

26:19Thus the Austrian focus is on the logic and sequential process of price formation, rather than only on any final equilibrium price that may result from this activity of market rivalry. It is why one prominent member of the Austrian School in the period between the two world wars referred to the Austrian theory of price as the causal genetic approach. The purpose of the theory is to explain the process by which prices emerge, change and adjust to bring about a final equilibrium out of their causal genesis, their causal origin in the valuations and actions of the market actors themselves. It is also the basis for the Austrian emphasis on the role and significance of the entrepreneur.

27:10In the division of labor, the entrepreneurs are not only the undertakers of enterprise who imagine the patterns of future consumer demand, who conceive of ways of organizing production processes to better satisfy those consumer demands, who oversee the stages of production leading to the completion of a finished good finally ready for sale and who then bring the goods to market. They also set and change the market prices that consumers find on the market based on their discovery that they may have over underestimated the actual intensity that those consumers may have for the goods offered to them. It is the promoting and speculating entrepreneurs who are the driving force of the market as Mises expressed it.

27:58Their social function is to coordinate the use of resources, capital and labor with the The Demands of the Consuming Public Through the Rewards of Profits and the Penalties of Losses Again, as Mises concisely put it, it is the entrepreneurial decision that creates profit or loss. It is mental acts, the mind of the entrepreneur from which profits ultimately originate. Profit is a product of the mind of success in anticipating the future state of the market. It is, Mises said, a spiritual and intellectual phenomena. The intentionality of entrepreneurship and the creative mental processes that are the essence of the enterprises' activities is drained of all understanding if the market is reduced to a simplified and barren mathematical functional form.

28:56At the same time, the social institutions of private property and monetary exchange are not simply conceptual backdrops to the determination of equilibrium prices and outputs as has tended to be the view in neoclassical economics. In the standard textbooks from which most economists learn the core concepts of their discipline, private property is described as an incentive mechanism for work, effort in the conserving of scarce resources, and money is explained to be a unit of account that serves as a common denominator for comparing the value of goods bought and sold in the market. Now both of these are true and important, but these descriptions and explanations of the role of private property and monetary exchange fail to capture their profundity for the functioning and coordinating of the complex and ever-changing market order. They They are instead the core of the market economy and the civilization that develops with it, and are impossible without them.

30:02The evolution of private property rights and a medium of exchange has facilitated the development and use of economic calculation in all exchange relationships, without which rational market decision-making would have been impossible. And as Mises articulated this most clearly, monetary calculation is the guiding star of action under the social system of division of labor. It is the compass of the man embarking upon production. He calculates in order to distinguish the remunerative lines of production from the unprofitable ones. Monetary calculation is the main vehicle of planning and acting in the social setting Building of a society of free enterprise directed and controlled by the market and prices.

30:51We can view the whole market of material factors of production and of labor as a public auction, Mises continued. The bidders are the entrepreneurs. Their highest bids are limited by their expectation of the prices the consumers would be ready to pay for the products. The competition between the entrepreneurs reflects these prices of consumer goods in the formation of the prices To the entrepreneur of capitalist society, Mises said, a factor of production through its price sends out a warning. Don't touch me! I am earmarked for the satisfaction of another, more urgent need. Only the existence of private property enables all marketable commodities and means of production to be open for sale and purchase in the haggling process of exchange.

31:45Only a medium of exchange provides the means by which all the heterogeneous commodities and supplies on the market may be reduced to a valuational common denominator. Only the open competitive market enables every participant in the society to make his contribution to the formation of prices through his bids to buy and offers to sell. Only economic calculation enables the integration of the actions of billions of people around the globe into a network of interdependent market relationships of mutual plan coordination for the advancing benefit of all mankind. Yet every individual is free to make his own decisions, guided by his own hopes and dreams and goals and plans.

32:34The money prices of the market that facilitate, indeed make possible, the process of economic calculation are used by each individual in the context of his own purposes. He weighs and evaluates their significance and relevance for the ends he has in mind. He gives them meaning in terms of his actions accomplished in the past and actions anticipated in the future. He is at liberty to integrate himself in the social system of division of labor on the basis of his own evaluations of the costs and benefits of alternative courses of action, while in the free market also bearing the consequences for good or ill from the choices he makes.

33:21It is through economic calculation in the free market economy that individual freedom is made compatible with social order. It is through economic calculation in the market economy that billions of individual plans are combined into patterns of rational social coordination. No wonder that Mises concluded that our civilization is inseparably linked with our methods of economic calculation. It would perish if we were to abandon this most precious intellectual tool of acting. In a similar fashion, the Austrians see in the theory of division of labor and comparative advantage more than simply the determination of the specialization of tasks at various relative prices, given the quantities of capital and labor available to individuals and nations.

34:14And once again, it was Ludwig von Mises who insightfully clarified the implications to be derived from the earlier contributions of the 18th and 19th century classical economists on the benefits that are derived from a system of division of labor. The theory of division of labor, Mises explained, is really the basis of what he called the law of human association, and therefore the foundation of a theory of society. Based on Adam Smith's and David Ricardo's expositions of the benefits from specialization of tasks, it was possible to show how society emerged and had taken form over the centuries as the results of individuals discovering mutual benefits from trade. The additional gains through individuals specializing in particular lines of production resulted in an expanding network of interdependent human relationships.

35:08The theory of division of labor, therefore, is able to serve as the analytical tool for explaining the emergence of society as the result of human action, but not of any prior blueprint of human design. As Mises explained this process, the law of association makes us comprehend the tendencies which resulted in the progressive intensification of human cooperation. We conceive what incentive induced people to not consider themselves simply as rivals in the struggle for the appropriation of limited supplies of means of subsistence made available by nature. We realize what has impelled them and permanently impels them to consort with one another for the sake of cooperation. We are in a position to comprehend the course of human evolution.

35:56The theory of division of labor and comparative advantage becomes the basis for a science of society, as Mises explained. A foundation is laid for the theory of market relationships, the interconnections between supplies and demand, and the network of market prices for finished goods and the factors of production. The way is open to an understanding of the inevitable laws of market and exchange, which Which is, Mises said, one of the greatest accomplishments of the human mind. Out of the classical economist theory of division of labor, there now comes the classical liberal philosophy of peace and social cooperation that is the basis for the accomplishments in development of the economic civilization of our age.

36:44This greater material productivity of a peaceful division of labor, Mises explained, provides is the means for the development of what we call civilization. The means are now provided that enable leisure and the peace of mind for art, literature and scientific and philosophical reflection. Men increasingly become differentiated from each other, not only in the specialized tasks and skills through which they find their place in the division of labor, they differentiate also in the sense that they have the time to develop their distinct individual personalities on the basis of the use they make of the greater means they have at their disposal and the interests and pursuits they find attractive to devote their available greater leisure time to cultivate. Individualism, meaning man as distinct from a tribal mass and unique in his qualities and character as a singular human being, becomes one of the products of and the evolution of society through the extension and the intensification of a system of division of labor.

37:53At the same time, the division of labor and its law of association becomes the foundation for a social philosophy of world peace. In the collaborative efforts of interdependent specialization and exchange, men become allies in the fight against the niggardliness of nature, Not enemies that need to fight one another for the meager means to men's ends that nature itself provides. No longer are nations and individuals opponents in which the economic improvement of one requires the loss to another. Instead, all individuals and nations benefit from the productive capabilities of each other's talents, industry and creativity in devising better and less expensive ways to satisfy each other's ends through the competitive processes of the market.

38:43Human competition, both within and between nations, is no longer a life and death struggle for survival. The competitive market process becomes the peaceful procedure through which each member of society finds his most productive and profitable niche and a niche for improving his own circumstances by furthering the ends of others. Again, Ludwig von Mises captured the essence of this great social process. He said, all collaborate and cooperate, each in the particular role he has chosen for himself in the framework of the division of labor. The world, therefore, becomes one integrated community of free men, who, though separated by time and distance and interest, are peacefully are mutually guided to mutually assist one another through the information and incentives supplied by the global structure of market prices that is generated by their own interactions.

40:07Their buying and selling determines the patterns of production and the allocation of all the means of production around the entire earth for the better satisfaction of the wants and needs of all humanity. The value that all of humanity places on the services of each individual performance for his fellow men in the market determines the income he earns, so he may attain from all the others around the world the things that he would like to have to fulfill his purposes. The market economy becomes the means to give reality to the idea and the ideal of the peaceful unity of mankind. None of these Austrian insights about man and the market is compatible with the positivist, historicist, and neoclassical economic views of the world.

41:04Man reduced to physical object or mathematical functional form is stripped of his most essential and inherent human qualities. What meaning has intention and imagination, or choice and creativity, when the human mind and its volitional and purposeful qualities are banished from the realm of economic and social analysis? What meaning, therefore, does freedom have when man is merely a measurable magnitude or a dependent variable in a system of simultaneous equations? It should not be surprising that so many members of the Austrian School of Economics have also been classical liberals and libertarians, defenders of individual liberty, private property, and the market economy.

41:52Once you see the individual as thinking, creating and acting man, with so many potentials and possibilities within him, who can tolerate the idea of making him the slave to another's will, and to deny him his humanness? Once you comprehend the majesty of the market order, in which each man is free to find his own, follow his own purposes and plans, and yet at the same time advances the ends and desires of others in society through the free exchanges that interconnect everyone's actions within the system of division of labor, who can want to restrict what men can do to the dictates of a central planner or a political intervener?

42:40Once one understands the role and significance of prices for social coordination and economic calculation within the market process, who can presume to have the knowledge and ability to control or command the complexity of consumption and production decisions of the mass of humanity? It is no wonder, therefore, that so many friends of freedom have been influenced in that direction by the contributions of the Austrian economists. They, more than almost all the others in the last 100 years, have been the true political economists of liberty. And it is what has made Austrian economics, in so many ways, the good economics of our time. Thank you very much.

43:37Okay, I think we have some time for questions, comments, rotten tomatoes, banana peels. If you haven't heard it, the question is, if it had not been for that Austrian Economics Conference in June of 1974, might it have been the case that Austrian Economics would have died? Well, nobody can read tea leaves of what-if history, but it is the case that, for example, if Ludwig Lachmann would say that in the 1950s and 1960s, he presumed that he was going to be one of the last of the Austrian economists.

44:34That it was going to die out. It is true that Rothbard had published his monumental Man Economy and State in 1962, America's Great Depression in 1963, then the year that Mises passed away, 1973, Israel Kirzner had published his first path-breaking work on competition and entrepreneurship. But it's clear that that conference and then the follow-up conferences, the following year in June of 1975, again the Institute of Humane Studies sponsored another Austrian conference at the University of Hartford where Dominic Armentano, who many of you may know, works on monopoly antitrust theory, hosted another one there. And then following that, again, there was a third conference at Windsor Castle in Great Britain. Two of those conference proceedings, the first and the third, ended up being published as volumes of collections. And then in addition to that, and in collaboration with that, is that Israel Kirzner had been able to get the funding for the creation of of an Austrian Economics graduate program at New York University in which at that time

45:58Gerald O'Driscoll who had finished a dissertation about Hayek, the first one written at UCLA, was brought on the faculty and then he was able to bring in Mario Rizzo and that served as an important catalyst, all of which was occurring in the mid-1970s. It was a combination One of those factors that acted as focal points for the revival of the Austrian School. And then what gave it momentum was that people started getting interested in the ideas through the books and articles. People started coming out of graduate schools so they could be teaching as well. And then you had organizations emerging not long after that, such as the Mises Institute.

46:44If I may be permitted to give a pitch to the organization that I now represent as the president, in between 1946 when Leonard Reed founded FI and the 1970s, there was virtually no other organization devoted to economic education and giving significance to Austrian economics. Mises had been among the founding advisors and organizers and lecturers at FI. One of the first books that Leonard Reed published at Fee was Mises's little book Plan Chaos in 1947, the year after Fee was founded. So it was uncertain as to whether Austrian economics would survive, but those events served as the catalyst for it.

47:32I have a few questions. From your lecture, I understand that the market can bring about peace, social cooperation and prosperity. Are there some market failures? Second, why do some nations have more entrepreneurship spirit than the other nations?

48:02Are there any market failures? And the other one, is there an answer to the question as to why some countries' cultures seem to have more of an entrepreneurial spirit than others? On the first question, I'm going to be very extreme here. The answer is no, I don't think there are, in the free market, there's no meaning to market failure. There's error and mistake, which is inherent in the fact that people cannot read the tea leaves of the future. But the market has its own mechanisms to prevent bad behavior. First of all, there's law, and whether it be in limited government or some who believe in the private provision of these defense agencies, there would be legal means to redress violations of rights, life, liberty, property, fraud.

48:53Second of all, if there are collusive attempts at which people try to sort of gain better terms of trade at the expense of others in the market, as long as the market is free, this market has its own self-correcting mechanism through the forces of competition, openness to new ideas. So in the long run, or even basically in the short run, I don't believe that the type of market failures that the neoclassical model talks about are valid. Market failures sometimes are talked about, I'm thinking of what type of examples you're talking about. Another one would be like what they call certain public goods. I don't think that that's the case either. I mean, historically and conceptually, one can show that roads, highways, lighthouses, harbors, virtually everything that are considered these public spaces for which it's presumed government has to do the provisioning, I believe that both theory and many historical examples can be given that there are not these market failures for which you need the government.

49:52The second one is on different cultures with entrepreneurial spirits. I think that that's a two-pronged problem. One is I believe that there is entrepreneurship in every culture and society because people themselves have these urges, I think, as the Austrians have emphasized, Improving, removing as Mises says, felt uneasiness, creatively imagining new and possible ways. What hinders, restraints, prevents, makes difficult historically has been government laws, regulations, controls, prohibitions, punishments, either for ideological reasons or to give privileges and favors to elect who are around the corridors of power.

50:40Sometimes culture does influence these things, and that's the type of theme that, for example, Thomas Sowell has emphasized in some of his writings. But as much as I consider that culture and attitudes intergenerationally passed down can influence these things to a degree, I consider them secondary or less important than to the stifling of the entrepreneurial, the speculative, the creative spirit that Regarding the first question, you said that the proceedings of the South Bolton Conference and the one at Windsor Castle were put into volumes. What were the names?

51:29The first one was called Foundations of Modern Austrian Economics edited by Ed Dolan. The The other one, is Walter Block here? New Directions in Austrian Economics, edited by Luce Bedaro. Those are the two volumes. And those basically were subsidized by the Institute for Humane Studies also through a publisher in Kansas City called Sheden Ward. And those are important to get people to think about these ideas in a written form again. Yes. Since we know that the Austrians place so much emphasis on the influence of time and calculations of future impact of resources, how do you fit into your description scarcity of natural resources?

52:18If we just put it on our hat and think about oil depletion, how do we avoid a Hobbesian kind of situation? You seem to be saying, well, let's assume that we don't invent something to take its place. Well, you know, to say we won't invent something to take its place is constraining the answer that I would say historically is true. Well, for example, there's a very famous economist who is also a founder of marginal utility theory along with Carl Menger, the Englishman William Stanley Jevons. He was paranoid that England was running out of coal and burning down its forests for sources of energy.

53:07and, obviously, production. So much so that he began hoarding paper bags. Paper. His grandchildren were still using those paper bags after he was long dead. This is all recounted in a fascinating biographical essay written about Jevons by, of all people, John Maynard Keynes in his collection, Essays and Biography. But the whole idea is that a resource gets scarcer. Demand rises relative to the supply, or given the demand, the supply is decreasing through depletion of its available quantity. And the price rises. People start using substitutes. They creatively, in the long run, try to find ways to not just economize in the short run, but to find alternatives to it.

53:54That's the essence of man. I usually tell my students, what does man need? He needs a fire to keep him warm, he needs the skin of an animal to cover his body, and he needs a cave to keep the rain off his head. That's it. You can get by with that. Everything else man has creatively thought of. The caveman is sitting in his cave, and he's just sitting there, bored to death at night, and he goes like this. You know what that is? That's the beginning of music. That leads to Beethoven and Mozart. Then he's sitting in the cave, and he's watching the flickering flame on the cave wall, and his mind works, and suddenly he picks up a stone that perhaps

55:08He asks us along or he shares the stories that he's made up about the history of the tribe and he tries to make them dramatic and interesting and humorous. Well, there's the beginning of literature. That leads to Herman Melville and Edgar Allan Poe. I mean, so man has this creative ability in him that is the essence of everything. So oil gets scarcer, its price rises. Men substitute the existing available energy sources, Where do you think we're heading for in the future here in this world as we live in it? In the video, the commanding heights, they made the point that basically the world is going back to the way that it was at the turn of the century.

56:00We're right back where we started from. I see us at a different benchmark. We're not in 1900. We're in 1929. What do I mean by that? If you if you would talk about 1900, while admittedly it's a bit of a drus- drus- drus- Brushstroke, Interpretation and Exaggeration, but in an essence not. 1900 was a world that was dominated by both the, still the residues of the ideas and the institutional practices of classical liberalism.

56:48Governments really didn't tax, governments really didn't regulate, trade was hardly restricted, governments were narrow in their influences on civil liberties, at least in what we call the civilized Western world. World War I shattered that, and you had a beginning of the socialist and fascist experiments, and so why do I try 1929? Because by 1929, it had been seen by several people that socialism, at least practically, could not work, because of arguments like Mises'. But they weren't willing to accept the market economy, and Mises' laissez-faire formulation, as such as in his book, Liberalism, which had come out in 1927. So what you had was you had neither socialism or the free market economy, what you had is the interventionist state, which was then just intensified in America, particularly by the Great Depression and the New Deal, and that's where I consider us.

57:47People do not any longer believe in Soviet style central planning, that's bankrupt, that's, to use Marx's phrase, in the dustbin of history. But people, while admitting that socialism can't work, will not accept the idea of a truly free laissez-faire economy. What they want is what Mises called this inherently unstable, and in the long run, unworkable, intermediary form of the interventionist state. And that's where we are. That's the ideal now. We're in the ideal of the interventionist state. So we're back to where Mises was writing about this in 1929 in his book Critique of Interventionism. Now, that's good for us because nobody believes in socialism anymore and the totalitarian version of it, for the most part.

58:33Except people in universities, of course. But, I mean, they live in worlds different from the real world. But what makes this more difficult, in a sense, is that, you see, when it was capitalism and socialism and stark views, and Start Views. It was easy to tell if you had two ounces of intelligence, which is better, both in terms of goods and services and freedom. There's East Berlin, and there's West Berlin. There's North Korea, there's South Korea. There's Mainland China, there's Taiwan, yeah, okay? And so it was easy to make the contrast, you know, Florida and Cuba. But the difficulty with the Interventionist State is that you have people say, well, of course we believe in the market economy.

59:20You know, it's good to have business and enterprise, we need creativity, yes, the profit model is good, but can't we sort of compromise it at the edges? Sure the market economy, but a safety net, sure competition, but you know, we have to watch out for the Martha Stewart's of the world. I mean, God knows what, you know, world of Martha Stewart's, it's the end of civilization. That's the situation we find ourselves in, where we seem extreme by wanting laissez-faire, as opposed to sort of being reasonable, sure of the market, but just a little bit of this and that. What we need to do is to convince people, is that both on moral grounds, political In all grounds and economic grounds, even the loss of one increment of liberty is too great a sacrifice to have the one increment of some government subsidy transfer privilege in favor.

1:00:23That's not an easy task. However, on the other hand, it is a task that succeeded in the past. I know it's always easy to say, oh, you know, how are we ever going to change things? The fact is that the ideas of liberty did triumph in the first half of the 19th century. There was the ideal of limited constitutional government. Great Britain established unilateral free trade and the elimination of virtually all domestic restraints on competition without a civil war, but just by the advocates of free trade petitioning, lobbying, persuading, electing, and they were abolished in 1846 and that because it was appeal of both logic, history and the passion of the right of freedom.

1:01:16In the great movement for free trade, I'm talking too long, I apologize. In the 1830s, the free traders would have rallies in which they would debate the protectionists. They would have a demonstration, Daniel McConnell, who was a free trader from Ireland, would lead parades around Ireland pulling a cannon, metaphorically, not literally here, but pulling a cannon with a sign, free trade or this, you know, get the point, we want government. Young boys, because of the food famines that were going on in 1845 and 1846, would scrawl Eyes be protected and eyes be starved. Eyes be protected and eyes be starved. Because free, cheaper food from abroad wasn't allowed in.

1:02:08So there was the practical and the logical and the moral case for freedom. And that's what we have to do. The most important thing is not to allow the other side to set the terms of the debate. to argue reasonably and logically, but with an underlying passion of believing that freedom is morally right and morally good and essential if man is to be everything that nature and his creator has made him into be. And if we do that, I believe the 21st century has the possibility of once again being a century of liberty. routine.

1:02:54Thank you very much.