Law v. Legislation: A Hayekian Entrepreneur in London

0:00A milestone in the revival of the Austrian School came in 1974 when Hayek received the Nobel Prize in Economics. No longer could the economics profession dismiss the Austrians out of hand. Now they would need, however grudgingly, to read Hayek's work or at least learn about it. In the intervening years, it's safe to say that Hayek's reputation has been secured. Some of his insights have even become commonplace, the nature of law and its role in the development of the entrepreneurial market process, and how legislation impedes the market process are two of these. To commemorate his achievements and build on his foundation, we offer the F.A. Hayek Memorial Lecture.

0:45We are delighted to have Mr. Toby Baxendale deliver this year's Hayek Memorial Lecture. Mr. Baxendale is the founder of Billfield's Food Company Limited. Established in 1992, Billfield supplies most of the upscale London and southeast hotels and restaurants exclusively with their meat, poultry, game and deli items. Additionally, he owns Direct Seafoods and Dry Stores Direct, which sells select spices and Oriental products. Mr. Baxendale earned his BS with honors in economics from the London School of Economics. In October of 2001, he presented a series of lectures on entrepreneurship and Austrian economics to the European School of Management, Economy 21st Century course at Oxford.

1:34In 2002, he funded the Distinguished Hayek Visiting Fellowship at the London School of Economics. Professor Roger Garrison gave the inaugural Hayek Memorial Lectures on his book, Time and Money. Mr. Baxendale will speak on the topic, Law vs. Legislation, a Hayekian entrepreneur in London.

2:06Well thank you Professor Harbner for your kind words there. I suppose Lew has very kindly invited me to come here in my capacity as an entrepreneur I'm an entrepreneur who's also got some connection with the Austrian School and one of the great pleasures of coming here, because we all tend to be fairly off-piece thinkers, we're not part of the mainstream here, is everyone's got a little interesting story as to how they've come to find the Austrian School. I'll start really with my first entrepreneurial activities and then come to how I found the Austrian School and what insights I have as an entrepreneur and a businessman as to why the Austrian School is the correct school of economic thought.

2:51So, anyway, if you imagine, in the 1980s, there was a great polarisation in politics. I'm sure it was the same over here as well. as well, you had Ronald Reagan trying to roll back the frontiers of the state and to break the sort of social democrat consensus that existed. In the UK we had Margaret Thatcher and she was elected on the platform of smashing the trade unions who were effectively ruling the country and establishing freedom of contract as a right rather than monopoly union privileges as the central core thing that was driving the economy. So it was a great time to be just becoming politically aware.

3:42I was absolutely enthralled by Margaret Thatcher's appeal to the enterprise economy and at age thirteen, when I was at boarding school, my first entrepreneurial insight was to I set up an insurance company. What used to happen and Well, what used to happen is if you got caught smoking or drinking or doing any other kind of activity that was banned by the school authorities, they were very generous with you. I was at a Quaker school. They used to just have to pay a fine first time around. They wouldn't tell your parents. So what I did is I insured everyone. I insured everyone against getting their fines. I'll take their money and then pay out in the eventuality, I'll take a few pounds and then pay out the big fine when they got caught.

4:34But the problem was, my business, I think it lasted 10 days, it might have been 12 days. We all went on a school trip to Cambridge, we were about 12 miles away from Cambridge, the school was, and got completely and utterly wrecked and drunk, punting on the river Camel and went back to the minibus to be taken back to school and of course we're all busted and that was it at that point in time, so I was required to pay out, you know, and unfortunately though I'd spent all the money, you know, at one point in time So that was my first business venture and unfortunately it was a failure.

5:23And on a side point, a very interesting side point, being a Quaker scholar I actually got the restitution was being beaten up by my fellow Quaker students there. Anyway, I wasn't off put by my little capitalist ventures, you know, I thought we'll put them on the back burner now and maybe concentrate a bit more on studying and off I went to the London, where did I go to? Hammersmith and West London International College, which was a very highly regarded college in West London, but it was a hotbed of left-wing activity and I set up a branch of the Federation of Conservative Students there, I thought that would be the sensible thing to do We were really quite radical, there were four of us, against the 2000 assorted lefties of various descriptions.

6:30We used to organise speaker meetings but we could never really hold them because when you've got that weight and body of left-wing resistance, we were kind of just being pushed off campus all the time. So I used to hold my meetings at the Polish war centre in Hammersmith. And they were a very sound bunch of people. They were all former RAF pilots who'd been working on our side during the Second World War. And they were very case-hardened towards all these left-wing activities. And I was holding a meeting with the, he was either the then Foreign Secretary or Home Secretary Douglas Hurd. It was one of my speaker meetings at the Hammersmith Polish Centre.

7:16and the left-wingers came along and gave this massive demonstration against us calling us fascists, you know, we were always called fascists, all points in time we were fascists. And the Socialist Workers' Party came along and I don't know whether, you probably have never experienced this in politics, but the Socialist Workers' Party were really quite violent, they actually would want to have a proper punch-up, I don't want to drop a punch up, but the Home Secretary came along and the police sort of moved them on and we had our meetings and one of the chief sort of immigrants there from the Polish Centre got hold of me and said look, you must be a fairly sound guy here, my country has suffered from national socialism under the Germans and it suffered from international socialism under Stalin and one of the greatest campaigners And against this has been a chap called Hayek. Do you know anything about him?

8:15And I said, no, I don't know anything about him at all. No idea. Who is he? And this old gentleman took me off to a bookshop and we bought Dr. Amon Butler's first, well, it was a really nice little book, an introduction to the thought of Friedrich Hayek. And at 16 I was hooked. I was absolutely hooked at that point in time on Hayek and I really wanted to get in and understand more about him because he seemed to give a justification for the free market system. And I knew at that point in time that I wanted to study economics. But I thought, you know, where shall I go? Being fairly sure of myself, I applied for Cambridge, so I had the grades to get into Cambridge.

9:02LSE was my second choice And I remember going to my interview down in college at Cambridge and the master there was a chap called Hopkins and after my interview he said to me, Mr. Baxendale, I don't doubt your intellectual ability, I doubt your commitment, so I was doing other entrepreneurial things, I doubt your commitment and you are far too arrogant young man, far too arrogant to come here. Anyway, that set me on the path of LSE, so that's how I ended up at LSE, and I'm glad I ended up at LSE really, because that is my spiritual home, and it was correct that Cambridge swerved me and put me on the direction to LSE, but as I was going to LSE, I thought this would be wonderful, I'd be able to study Hayek and Lionel Robbins and all the great Austrians, because after all, Hayek was I was there for 21 years. Robbins must have been there for nearly 45 years.

10:07But to my shock and horror, I enrolled in the economics department and there was nothing, nothing at all. It was all, you know, Alice in Wonderland economics, really, of Keynes. So I moved out of that department because I couldn't get any sense there at all and went into the government department and studied philosophy and law under one of Michael Oakeshott's protégés, Dr Robert Orr, and studied British idealism of Collingwood and Oakeshott, which actually has a lot of similarities and parallels with Mises, but Mises wouldn't have even appeared on the Richter scale in any way, shape or form at the LSE.

11:00So, unfortunately, the only thing I did manage to study at the LSE on Hayek was his political philosophy going forward from 1945. So, you could get... It was respectable enough to be able to read and study the Road to Serfdom and the Constitution of Liberty. But that's as far as it goes. So, I left the LSE still with these questions in my mind as to why is Hayek called an economist? Why is he an economist? I've never seen any of his works and no one could ever show me any of his works and no one was really interested in teaching any of his works. So I made a mental note at that point in time to then refer back to Hayek at some later point in time. And I had already resumed my entrepreneurial careers and money-making schemes have become far more of interest to me than any politics or any academic studies.

11:57And really, the students in here, you'll love what I was doing when I was a student. At age 19, I was absolutely fascinated by society, it girls, very affluent, I don't know what they're called in this country, The King's Road is a very exclusive, affluent area and a lot of inherited money and wealth resides in that area. I managed to get into the country and I was fascinated by these beautiful ladies. They used to go to this nightclub called the 151 Club on the King's Road in Chelsea. If you know London, the King's Road is a very exclusive, very affluent area and a lot of inherited money and wealth resides in that area. So, anyway, managed to get into the club, took my way in, started talking to the owners and the owners were, well, one of the owners in particular was looking to retire, he just had a hernia operation and he wanted out and I thought, this is too much of a good opportunity,

12:59it really is an opportunity, I've got to buy this place, now how do you buy this place This is the case when you have no money, you know, this is a problem. But anyway, what I thought, if some of you are involved in politics, you'll understand this. There are always a few guys who are, you know, probably a little bit socially inadequate, you know, a bit, shall we say, sexually challenged. So I thought to myself, well, what I'll do is I'll have two individuals who I thought, They're rich and wealthy. I'll go and approach them and spin the line to them that, look, if they got involved in this nightclub, backed me, so I could have a few percent, my first little few percent of ownership, they'd vastly enhance their chances with the opposite sex, if they became involved. And that was it. They fell for it.

13:57They fell for it and we bought this nightclub in 1989 and it was the start of the LSE in fact. So whilst I suddenly went from having absolutely nothing to having a fabulous income and absolutely tremendously, I'd never seen money like I was earning. I was earning so then of course you know as soon as it was coming in it was going immediately out on fast women, fast cars, rock and roll lifestyle and everything like that but you know it was fun and I have to say though if my son who's now three years old ever decides to do anything like this and not concentrate on his studies and be a good boy and so on and so forth I'll take a very Anyway, I got away with it. We got my first little bit of ownership and it was wonderful.

14:58I used to go to lectures and then go to the night club, have a good time doing whatever I was doing, then a little sleep and then back into lectures again. So I had a whale of a time through university. the recession had really started hitting us and I thought, well, what I ought to do is divest, let's be sensible, let's try and put some money aside here, I'm spending it all on fast cars and women and so on and so forth, let's go and invest it in the future. And I chose a restaurant venture, again in Chelsea, in Lower Sloan Street, called La Casino.

15:44And the reason why I went for it is I thought it's got to be recession-proof, because it was only £5. Everything in there was £5. Everything cost £5 for a meal. You could eat anything you wanted. And it was packed, absolutely packed, and I thought this would be a good start point here. I can't really go wrong, but, you know, 1991 recession came in, London and the whole economy just tanked in London and things started going terribly wrong in the restaurant, it started becoming loss-making, so I had to think of how am I going to get out of this and what I used to do is I used to, after the nightclub, before the nightclub I'd go to the restaurant, then I'd go to the nightclub and then I'd go to the markets, the fresh produce markets in London of which there are three principal fresh produce markets, Billingsgate for fish, Smithfield for meat and Nine Elms Covent Garden for fruit and veg And I cut out our traditional suppliers and go to the restaurants in my own van

16:44and go to the markets in my own van and pick up all the fresh produce and I was saving about a thousand pounds a week for the restaurant which allowed it to trade out of the 1991 recession and then allowed me to offload it But we offloaded it, well I had two partners in there, offloaded it for a loss of 70,000 pounds and I had one of those very awkward conversations with the bank, age 21 which consisted of bank manager why should I fund this 70,000 pounds to get you out of trouble and sell the restaurant You know, you've got no income now, how are you going to pay it back?

17:31Perhaps I should just bankrupt you. And I said, well, I don't think that's wise. If you bankrupt me, you know, at the end of the day, it's blood on your face. You'll never get any money back. So what I did is I said to him, look, I'm saving a thousand pounds a week for the restaurant. If I go and offer my services to other restaurants as a buyer for them, then, you know, we've got a money-making operation here. and he accepted that and agreed a five-year loan repayment period for the £70,000. I paid it off in 18 months and we built a £20 million turnover business on the back of it since then, supplying hotels and restaurants and life's calmed down a bit, it's all very sensible now and very respectable and so on and so forth.

18:22But anyway, that was what I was building up whilst I was at university and then after university. And then in 1996, when life did settle down and I had proper management in place and so on and so forth, I thought I'd like to get back to my academic interests and really now actually try and find out After nearly 10 years, what are Hayek's economics? Because no one could tell me, no one knew, none of his books were published or anything. Hayek used to refer to this chap called Mises very respectfully, very, very respectfully indeed, and I thought, well, I'll try on the internet who this Mises is, plugged in Mises in 1996, and then bang, I came to the Ludwig von Mises Institute and that was just such a great, an eye-opener, it was a great, it gave me such clarity of mind and thinking.

19:27And then I learned actually about Austrian economics and it was, well I haven't looked back since, it's answered all my questions. But anyway, just in terms of some of the observations I'd like to share with you about my experiences in the business world and how they relate to Austrian economics. I think the first thing I'd like to tell you about is Smithfield Meat Market. Smithfield Meat Market is a fresh produce market and for any of you teachers here, I strongly recommend that there will be places in the United States where cattle is traded or where meat products or fish products or fruit and veg is traded.

20:18We are told in any economics class, you start with learning about demand and supply and you can see how the market works, clears all the time, efficient allocation of resources and so on and so forth. and then that's a kind of week of your course and then you spend the next year learning about how the markets are completely and utterly imperfect and they never clear, they never work and you know the story. But the first thing, when I first went down to Smithfield Meat Market it was an absolute eye-opener for me because I'd sort of accepted this line of thinking and I believed in the imperfect competition type of thing I've been pushed down the sort of public choice in Chicago school way of understanding things but then to see it with the beauty about a fresh produce market is that you've got the time clicking against you from day one so as a trader you have to clear your product on day one so all product clears the market to all different buyers the price adjusts it clears out they are the nearest thing you're going to get

21:31Why can it work in food production and not in any other aspect of business? I don't know. No one can really answer that question. There isn't an answer to that question. The free market works in all marketplaces. The only time you'll ever see surpluses in fresh produce markets is where government is involved, in 2012, such as where in the United Kingdom we have the Common Agricultural Policy, which is a European-wide driven policy that subsidizes production of certain fresh produce, and what a surprise, you know, there's massive oversupply, huge great big beef mountains, butter mountains, grain mountains, you know, you name it, so it's only when the government intervenes in the fresh produce marketplaces. Do you ever get any inefficiencies? So I would recommend to any teacher, you know, take your students down, you know, after they've been given, after they've been spoon-fed the first year course of all the rubbish, actually take them to take them to these marketplaces and see the free market in operation.

22:41Unhampered, it works, it clears. You have to clear your produce at all points in time. So that's the first little observation I made when I went into my business career proper. The second observation that I made is that I don't know whether the meat market, certainly in the United Kingdom, they're full of how shall we say, characters, affable rogues, you know, is the politest way I can describe these people. I remember one of them, his name is Jimmy, I won't say his surnames, I'll incriminate him. He used to always come up to me, and if you're a proprietor of a business, you were called Governor.

23:28He used to refer to you as Governor. So he'd say to me, come on Governor, look, I've got loads of stuff I want to show you. And he'd take me to his van, and in his van you'd see all this array of Gucci knocked off products and Versace and so on and so forth. Very foolishly, I was trying to resist purchasing anything off this character. Really, really, I spent about two years trying to resist him, but he kept on pursuing me because being a polite sort of guy, I never really told him to sod off, you know, in any meaningful way. So he kept pursuing me and in the end, struggling to buy Christmas presents for all the female members of my family, I bought some Chanel No. 5 off him, and to my great disappointment, on Christmas Day there were strange looks at me and my sister was the only one who'd, being on the same level as me, so she sort of came up to me and said, you disgust me, you do.

24:30I said, why, what have I done, what have I done now, you disgust me, you've sold them and stuff that all smells like gnats piss. So anyway, with Jimmy, you'd think I'd learn my lesson, but he then came up to me one day, and he produced a role of, it was money, counterfeit money, he was getting involved in some very seriously criminal activities, and he rolled out this whole ream of twenty pound notes and said to me, you know, you can buy this 2 pound, 2 pound or 20 pound note, Toby, you've got to be mad not to buy this off me and I said, no, thank you, Jimmy, not interested, not interested at all.

25:20Anyway, a few days later, a few days later, there's Jimmy laughing away, smiling, he was so happy, this was about 5 o'clock in the morning, he was really, really, really happy with himself, I said, oh Jimmy, why are you so happy? And he said, oh well, you're never, ever going to believe it, I've had real luck this morning, I was driving down the Seven Sisters Road, now for any of you who know the Seven Sisters Road, that is a very, very seriously dodgy part of town, where the professional ladies work the streets, shall we say, and he said, oh yeah, I've just had such a result, I've stopped, and I was asked by a girl if I wanted any services, so I said yes, went over, did the business gave her a £20 note and I got £10 back and I can't believe my luck so I've got the service and I've earned £10 with my money. I turned around to him and said Jimmy

26:21are you trying to be the next candidate for governor of the Bank of England? But Jimmy Jimmy, anyway, he didn't understand that last week. Now, needless to say, in probably 10 years, I haven't seen Jimmy again, so I suspect he's serving time at one of Her Majesty's institutions. Yeah, that's right, where he's probably best kept there. But anyway, I mention that because I think Austrians will understand that. I still am slightly confused into my mind, actually, of who's the bigger criminal? Is it the Jimmy's of the world who's the counterfeiter, who's ripping off the working lady?

27:11Or is it the governor of the Bank of England who's just ripping off the whole population period? You know, I don't know. You know, ever since reading Rothbard's What Has Government Done With My Money? I can't really answer that question, you know, before I take the conventional view that it's the petty criminal, but now I'm completely lost. This is a major problem. But I mentioned the counterfeiting story, because I think the Austrian audience will understand where I'm coming from there. There's an interesting point of history here. I was reading a biography of Isaac Newton, I don't know whether any of you know that Isaac Newton has actually played a very important role in sound money.

28:01He was master of the Royal Mint from the 1690s for about 20 years or so. And he was made master of the Royal Mint and he was so concerned with the clipping of the coinage that was going on that he agreed a deal with the Crown whereby he would be paid a little percentage of each coin to pull all the coinage in from the economy and re-mint it and get proper value established in the coinage. Now that could be an inflationist dream there, being paid to bring in coinage, But the counterbalance against that was that he underwent periodically every few months the trial of the PICS, which actually still happens today. It's where the goldsmith company, which is a livery company of goldsmiths, assess the weight and integrity of the coinage.

29:06And Newton had severe financial penalties put against him if the coinage didn't come up to standards. came up to standards, so there was a check and a balance, and to top that all, Newton also became a justice of the peace, so he could vigorously pursue all counterfeiters and have them executed, which poor old Jimmy, if he was around in 1690, he wouldn't be languishing at Her Majesty's pleasure now, he would be executed, but that's how sound money was was delivered into England from 1690 onwards and I picked out a little quote from a contemporary economist and scientist Sir William Petty in his book Political Arithmetic and he said that Newton had established a standard measure that the whole cash of England with some six million pounds and that was it, was money sufficient to drive the trade of the nation and quite right too, you know, there's never any need to have more money than that and there never is, it's only, we've only increased it due to all the inflationist policies, so

30:22there's one thing I just thought you might like to know about Isaac Newton and sound money and he has a role in the sound money movement, he's not only just a scientist But I digress anyway. Moving back into the modern period, some other observations I've made is that it became clear that during the 1990s a Labour government or a traditional Labour government would never ever be elected again under their banner of common ownership of the means of production, distribution and exchange, which is what you had to sign down to if you joined the Labour Party. Tony Blair changed all that when he came in power in 1994 and he publicly stated that none of the Thatcher reforms would ever be repealed or replaced by his government.

31:17So, in a sense, he was turning the Labour Party into a Conservative party, a Thatcherite party, and he got elected on the back of it in 1997. And I think all the business community largely welcomed it. I don't think we saw any particular problem with Blair if he's stuck to what his election promises were. Now, Blair is the best actor in the world and he's a total and utter comedian. He has stuck to his promises largely, but what he's done and the thing that has affected us terribly and tragically is that he's incorporated all the social chapter legislation in from Europe into the United Kingdom law and that's a union charter really so we now have, and that's why the unions are silent in the United Kingdom, they don't need to resort to violence and intimidation and their closed shop practices to extract money out of businessmen, they don't need to do that anymore and what they have is they have a whole raft of legislation that's

32:28driven from Europe that now gives them all their wishes, you can't, it's virtually impossible now to sack someone in the United Kingdom, virtually impossible. We have on the back of the social chapter a 48-hour working week, which certainly if you're a night worker, even if you consent to working more, want to work more, want to work overtime more, you can't do, you're not allowed to, it's prohibited under the social chapter, you've You've got to give people minimum four weeks holiday pay, plus public holidays. You've got to give paternity leave paid for two weeks. You've got to give 13 weeks, up to 13 weeks off to anyone who asks for unpaid paternity leave.

33:13So you can conceivably, every male member of your staff can have up to, who has children, This applies to you if you have children, not just if your wife is giving birth to a child, but if you have children, period, you can have paternity leave, periodically, and you can literally work for 40% of the year, you can be being on paid leave, and the other 60% you can work, if you so choose, to turn up to work. But if you do turn up to work, you know, as a boss, you've got to be very careful now with your staff in terms of how you handle things and the cost that this has put on our business and the lack of flexibility that we now have because you can't, it's just so dangerous to sack people.

34:04In the last year I've been sued for over £100,000 which has been tragic for me, no-one wants to give away that kind of money in cold blood. These are very spurious claims and this is the way law is and then on the other side of the equation just so much as you can't sack people it's very difficult to recruit people as well for manual labour because your competition is in fact the social security system that's who you're competing against in our country and I have some sympathy with the individuals who do this If you live in London, and let's say the minimum rental you're going to pay for a one-bedroom apartment is probably 300 pounds a week, it's very expensive.

34:59If you go on the Social Security, your housing costs are paid. So, for a start, that's 15,000 pounds a year worth of benefit. Then when you get your income support and various other things and you can take a cash job in the black economy, what's the point of working? There's no real point in working, so it's tremendously difficult to recruit people occasionally, and thankfully, I'm very pro-immigration in one respect, because you get, for every ten immigrants in, you might get nine economic immigrants who are coming to benefit from the social security system, but you'll probably get one who's really genuinely hungry and wants to improve their lot. I would say that in our London operations we probably employ 40 or 50% foreign, certainly non-native, English speaking people.

35:55That's the tragedy of what all this legislation has done. And it's slowly, slowly grinding us all to a halt. We're all, you know, because you can't respond to market situations and you can see in America where things are a bit more flexible. You always have higher growth figures. I think four or five percent is quite a common growth over here. Europe is now slowing down to one percent, two percent. And I'm sure at some point in time it will go to negative growth because of the social costs that we all have on top of us, which are far too restrictive. And I think Britain is actually viewed still to be one of the better and more flexible economies.

36:44I think in France they really have it bad, where it's a 35-hour week. You are excluded from working anything over 35 hours. And the social insurance costs are on cost of 40% onto your salary. So it's really, really, really crippling stuff. But this is the state of the economy that we're in and what we're experiencing at the moment. But on a European point, now I'm in danger of getting on my high horse here. Europe to me is the biggest, biggest of all problems that is potentially facing our nation at the moment.

37:29and in fact all of the nations of Europe because what it is, it's a great big socialist project of income redistribution from the richer parts of Europe to the poorer parts of Europe and we're just about to sign a constitution, the first European constitution and I mention this point because reading the works of Thomas di Lorenzo and looking at the, lewrockwell.com, you're very key on promoting the secession point, which is something I would never, not really studying American history or anything, it's something I wouldn't really focus my mind on, but there's no, up until two months ago there were no secession provisions in the draft European constitution, and now through Lots of agitation by various people.

38:25There is a secession point and it's in Article 59 of the draft Constitution and it's called Voluntary Withdrawal from the Union. I'd like to read it to you. Point number one, any member state may decide to withdraw from the European Union in accordance with its own constitutional requirements. That sounds lovely, doesn't it? That's perfect. Now, if only a politician could kind of leave it there, but we go on. Any member state which decides to withdraw shall notify the European Council of its intention. The European Council should examine that notification. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that state, setting out the arrangements for its withdrawal, taking account of the framework of its future relationship with the Union.

39:16That sort of sounds all okay, they're talking about negotiation, well, you know, maybe you can give them the courtesy of negotiating with them. It then goes on, that agreement shall be concluded on behalf of the Union by the Council of Ministers, acting by a qualified majority, so they can vote, if they vote against you, you're, well, kind of game over, you can't succeed, after obtaining the consent of the European Parliament. And then they really, really clarify what their intention is here. The representative of the withdrawing member states shall not participate in the Council of Ministers or European Council discussions or decisions concerning it. So you're allowed to say you wish to leave, but then that's it, the negotiation is very one-sided thereafter.

40:02And I fear, I really do genuinely fear, certainly within my lifetime. In the American experience, I think it's probably about 70 years from constitution to civil war. If you don't have a right to succeed, then you don't have any freedom. And really, that's the end of any independence of the independent European states. That's it. It's finished. So that's a very, very real possibility that that will come into law within this calendar year. And Blair has said that there will be no referendum on this at all, as the politicians have already been empowered and mandated to act on our behalf on such a momentous issue of history.

40:56So we've already been told our masters will decide for us. and by the way we've already decided it's we're going to be signing it so you know there we have it the other points that I'd like to just dwell on the Austrian Austrian theory of the business cycle is something that's very very close to my heart as a businessman you know we sit in the economy and we feel the exact movements that Hayek initially described in his work in prices and production at the LSE in the 1930s and what Roger Garrison has so eloquently brought up to date and applied to the economy in his book, Time and Money, is because we live and experience the business cycle, business people have a natural affinity to the Austrian cause But I'd like to put one more, a little footnote to the Austrian theory, when, and it might actually be a good research project for some post-graduate students. The Austrian Theory of the Business Cycle describes how when the interest rate moves and monetary inflation

42:14is initiated, the various stages of production get skewed as people think there's more consumption

42:25Well, there's an investment overhang and a business cycle ensues. This is, I don't need to go into it and perhaps I won't be best explaining it, but in the Austrian theory, when the correction comes, it can predict what areas of industry the correction will come in, what stages of production, but it can actually go a stage further as well. Well, the only businesses that will ever be affected during the business cycle are those businesses, the large corporations where you don't lend on asset base against your asset base, where you're lending on your cash flow risk or when you're lending on mezzanine finance and so on and so forth.

43:12When the correction comes, the vast majority of small businesses that exist in the economy survive. We survive any recession because we don't have gearings that the big corporations do because the banks won't lend us any money. Anything is done, they'll only lend you against your assets. So the Austrian theory of the business cycle has a great advantage. If you look at the way companies are structured and what their borrowing positions are, you can And then predict actually what companies, not only what stages of production are going to be worse affected, but you can actually then predict what kind of companies are going to get blown out of the water in any correctional period. And they'll be all companies based on non-asset-based lending. So post-graduates could do some research into that. I think you'd be able to really fine-tune the Austrian theory of the business cycle and make it a very good predictive tool.

44:19But anyway, Geoffrey Herbin is very complimentary about me in terms of what we've set up at the LSE now, being inspired by the Austrian School. I've endowed a teaching programme at the LSE with the Ludwig von Mises Institute helping me here at all points in time and Roger Garrison was the first lecturer. We have Pete Beccy next year who's going to be working on the socialist calculation debate and then really I'd like to move on to the third year. I'd like to get into putting forward Austrian methodology and really establishing the foundations and the groundworks of the school and that's what we're doing at the NSE.

45:09I put my money where my mouth is, I believe in the school and we'll promote it actively. The other thing that we're doing is we've established the Cobden Centre as a charity in the United Kingdom and you'll soon start seeing our website, it's a scholarly website, the Cobden Centre, and we aim to produce all of Cobden's work. Richard Cobden's work. Now, for some of you who don't know that much about Richard Cobden, in my opinion of things, he's the most successful of all what you'd call a libertarian, political libertarians, or he was a liberal, a radical liberal in the 1830s, and he achieved three big things, and Professor Ebeling touched upon them last night. One of them was repeal of the the Corn Laws in 1846.

46:06And he managed to achieve this, it was a food tax by great political guile and cunning because only landowners had the vote in 1846. And the landowners were largely the aristocracy and they owned four-fifths of the land with Other freeholders, small people, are owning the rest. From 1490, and this applies to the Americans, the Americans took this law on as well, even after independence. The 40 shilling freehold principle was that anyone who could show that their land produced more than 40 shillings worth of income had a right to a vote. It was enshrined in the 1832 Reform Act, and not many people knew about this provision.

46:59So Cobden immediately started knocking on the doors of all these little independent freeholders and got their sons and daughters and anyone vaguely related to them registered as freeholders because it never said, the 40 shilling freehold principle just said as long as you're a freeholder of that land now you could be a common, you could own that freehold in common with other people So he got lots of, some people will call this gerrymandering, but he got lots of people on the electoral roll and managed to turn the tide of opinion against the aristocracy and repealed the Corn Laws. So he's a great political manoeuvrer as well.

47:45The third major achievement was the Chevalier, Cobden-Chevalier Act. There's a treaty establishing free trade in 1860. And that, if you look at the statistics of how wealth was created, you saw from 1800 there were uplifts, modest uplifts in any measurement of wealth in Western Europe. And then from the 1860s onwards with this free trade treaty, I think it went up about 200% in 20 years. It's absolutely fabulous what his achievements were. His next achievement was... I don't know whether it's an achievement or two minds, whether it could be a failure as well.

48:34He was called the man of international peace, and what Cobden did was he'd established... Instead of going to war and killing each other, and so on. It would be probably nicer to have a conversation about things and he set up the principles of arbitration which was a great move forward because at the time the then liberal foreign secretary and then prime minister Lord Palmerston was instituting a policy rather like Donald Runsfield does now, gunboat diplomacy. It was called gunboat diplomacy in the British Empire and I think in the American Empire We should call it Stealth Bomber Diplomacy, which is whereby if anyone touched the hair or an asset of an Englishman, we'd send the Navy in and just blow up the country.

49:29And that happened in the Don Pacifico affair, where a Greek-British Jew had his house burnt down by some irate Turks, and Palmerston sent in the gunboats and invaded Turkey. And this is, but Cobden stood vociferously against this at all points in time. So we're setting up the Cobden Centre to really revitalise all this work. And I know that Hayek was a great fan of Cobden, Rothbard was, Mises was, Manchester Liberalism was something that was close to their heart. And I know Ralph Raco over there had the Cobden Society as well, I think, George Reisman and Rothbard and various others, and I think you then called it the Bastiat Society after that.

50:22There's probably a story as to why you went from British to French allegiance, I don't quite know what it is. But that's what we're doing. And then the other interesting thing, and the thing I'll finish on, I'm a great believer in you practice what you preach and the Austrian monetary theory is another important way of actually now making money which is we have an interest in a fund called the Alternative Investment Fund which is a hedge fund based in the Cayman Islands which is dedicated entirely to exploration of money. We are exploiting the works of principally Mises and his initial definition of the money supply and now developed by Frank Shostak and published in the quarterly journal of Austrian Economics.

51:17We have a very accurate working definition of the money supply and with that definition in place and various economic modelling we can track the various different changes and the purchasing powers of currencies and it's incredibly lucrative using applied Austrian theory to money making activities and I'm going to be donating 5% of my proceeds to the Mises Institute going forward on all our foreign exchange transactions benefiting from the work of Mises and Shostak and applied Austrian theory. We're then going to be looking at the Mises and Rothbard Natural Interest Rate Theory and how it applies to credit spreads and looking at exploiting any arbitrage opportunities there.

52:11So, on the back of my interests in Austrian economics, we've now got some very interesting businesses. and I've got to say, my introduction to Austrian Economics, although I was trying desperately to find Austrian Economics, I owe it really to Lew Rockwell over there and he's my inspiration in terms of setting up the Cobden Institute and we will shamelessly copy everything he's done over at the Mises Institute. As we will with his online publication, we're producing a publication called The Liberal and it will be, again, we'll copy Lew at lewrockwell.com, but anyway, that's my little story, I hope it's been of some interest to you, thank you very much.

53:16Every once in a while over here we hear some news clip about the Mayor of London and what he's been doing. Do you see anything about the pathology of then that could affect your business?

53:46I ask myself, either I should have a whip-round with other fellow businessmen or should we raise a fund to terminate him or shall I calm myself down a bit and try and oppose him in other ways? What Roderick is referring to, I believe, is the implementation of the congestion charge. This, Ken Livingston, who is the Mayor of London, has hailed this as a great Friedmanite policy of charging for road use. And, but of course it's, you know, to me, I'd be very supportive of paying for my own road use, if I got my taxes back, you know, then the problem is I don't want to pay for it, I pay for it once through the road tax, I pay through it twice, then second time round through our tax on diesel, which is 85% of the value of the diesel, and now we pay, yeah, 85%, now we pay again through congestion charge, There's a five pound charge to come into the central London area.

54:48Now, we, in our ignorance, and I should have thought this through even more, believe that the five pound charge would not actually, everyone would just pay it, because, you know, after all, it's only five pounds. There wouldn't be any, there'd only be a cost implication on the charging side. There wouldn't be an actual loss of revenue on the demand side for our products. So, the cost of the charge is, for our 45 vehicles going in and out of London, I think the cost of our charge is about £5,000 a month. Now that, okay, you know, you can live with on the level and volume of business that we do, and you know, you economise elsewhere, we can work with that. But what the terrible thing has been, and he will hail this as a great achievement, is that 25% less people come into London as a result of the charging.

55:43And why they do that is because it's a very difficult thing to actually pay. It's not like here where you have those easy passes and you can just stick one in your car and you go down a toll roll and then it bills you at the end of the month. You have to phone up a call centre and you can imagine it's typically an efficient call centre and you have to then give them your credit card number and remember your number plate and make sure you do it all between certain hours and if you do it outside those certain hours that's just tough luck. If you don't pay you automatically get a £40 fine that on day two goes to £80 and then on day three they're entitled to confiscate your car. with no right of appeal, so it's absolutely lethal, so people don't come in, they don't go into London and that's where, on the London side of my business, we were probably doing about £10 million worth of sales into London, they went down to £7.5 million, so at a 30 odd percent gross margin, that revenue's just gone, and that's the bigger problem, is the loss of revenue, and the politician can just do that,

56:54And, you know, if a politician decides to build an airline, you know, wants to knock down a few houses and, you know, position it somewhere in London, there's a whole sort of inquiry about things and people are given compensation when their land is compulsory purchased. I feel that 25% of my London business has been compulsory purchased and I've got no compensation for it. Fortunately for us, we're in a reasonably strong position whereby we can expand our supply outside our traditional areas. But the shopkeeper, if you're a barber shop or something, what can you do? You've lost 25% of your customer base. And it's not, if you think in a recession, people get blown out when 3% of the economy tanks, you know, but 25%, 25%, and this is done by a socialist who cares for people, and that's the irony of it all, so the only thing that we've done is we've sacked people.

58:01and then we've got sued for sacking people, I've got to sack them because you won't have the money to pay for them if we don't readjust our overhead. So whatever way you skin it, you're damned, but of course we're the nasty capitalist businessmen so as far as they're concerned we can just pick up the tab for everything. So sorry that's the answer to that question, dangerous question that one. Thank you, we've finished on time.