The Quest for a Property-Based, Misesian Economics

0:00Thank you, the organizers, for having me. Thank you, Lew Rockwell, for being a great inspiration for me. Let me start by a little piece of geography. As you heard, I come from Prague, the Czech Republic, which is, which for many of you, I guess, has a similar exotic place as is Iowa for me, so Prague at least geographically is more western than Vienna, and by the way those two great cities are not that far away from each other, it's some 200 miles, so our at least geographical proximity to the Austrian Austrian School and the origin of the Austrian School as, you know, useful in our today's effort to revive the school because we can claim that we used to be part of it and we are part of it again.

1:15This morning when Robert Hicks mentioned that one of his books is coming up in Czech language Some of you laughed a little bit, which I don't know exactly why, but I hope I will do my best to show you that the Czech Republic is actually a very miraculous country. I'll start with something which always makes a student interested in it. In my country, beer is cheaper than water, I don't know how, because you start up with water, you put some stuff in it, and it gets cheaper.

2:06So, as you can see, there is not only room for a research program in anarchy, as Edward Stringham mentioned, but, you know, this calls for explanation too. And from this you can derive the whole body of economics because if beer is cheaper than water and you use the first sentence of every economics textbook saying that people respond to incentives you can nicely show that it is not a coincidence that Czech people are number one drinkers of beer measured on per capita basis. Better than Germans and other countries, we are always happy to be better than them.

3:00But this is still not all. Not only economics is alive in my country, now also the Austrian School is a respected school of thought, and a lot of respected way of approaching economic phenomenon. And this is so because of this institution, Ludwig von Mises Institute. It is exactly ten years this year when I came here as a student at that time, attending the summer university.

3:45And that experience, that event, completely changed my life as I learned here how to fight for an ideal and how and why to care about ideas. And since then, step by step, this investment of Ludwig von Mises Institute into myself and a couple of my colleagues can be called responsible for the Austrian school revival in Prague and the whole of Central Europe and perhaps Europe. I'll give you a couple of examples in which my country is very special and in which Austrian school made it to where it is in these days.

4:42As Jeff mentioned, I translated Murray Rothbard's Power and Market, this is the Czech version, under the name Economics of State Interventionism together with Rothbard's paper on utility and welfare economics. And this book now is our textbook for a master course in Economics of State Interventionism which I teach. It is an obligatory course and hundreds of students have to read the book. Just this semester, this spring 2006, I have in my class 230 students, and all of them had to read Murray Rothbard, which I guess doesn't make sure that there will be 230 Austrians in the summer.

5:47However, at least some of them will, or all of them will learn about the ideas and many of them will become followers of or sympathizers with the Austrian School. We also, last year, published the Czech version of Man Economy and State, in Czech it's called Principles of Economics, to make it a real alternative to the other principles books, and it is again widely read by students, and we have now, after one year, have a second print of that book. This year, in two months, Human Action will appear in Czech, and we'll have in Prague Von Paul helping us to book launch Human Action.

6:51And again, it will not just be a new book published, the book will be widely read by by Students, because we do not only work in a think tank, the Liberani Institute, but we also control part of the Praxe School of Economics, which is the biggest economic school of the country, with some 3,000 students entering the school every year, and we control one are fifth of it, so some 600 students are under our direct control and, you know, we realize that this is a real asset.

7:43So, for example, those 600 people in the first semester of their undergraduate studies, they have to read Henry Hazlitt's economics in one lesson. and then it goes on and on through Mises, to Rothbard and other Austrians. Not only us are responsible for teaching Austrian ideas, but I invite everybody from the Austrian circles from around the world to come to Prague as a visiting professor to teach the course on Austrian economics, both theory or applications.

8:34We had people such as Samuel Bostaff, we had Guido Hiltsman, we had Richard Abbeleinck, we will have Robert Hicks in a month to be in Prague with us for two weeks, delivering the whole course for hundreds of students. A few more things I want to mention before presenting my paper on Misesian economics. One of the events of the year in Austrian Economics is our annual conference called Pra-Conference on Political Economy, organized for the first time last year and in a month The 2006 conference with three named lectures, two after people from the Austrian School whose lives were connected to Prague, namely Friedrich von Wieser, who taught in Prague before leaving to Vienna to take over Carl Menger's chair.

9:51And the other man with Austrian School connection is Franz Schuhele. Franz Schuhele to whom Mises makes references in Human Action and other words. Franz Schuhele who wrote a book on ordinal utility and actually Mises took it from him and then the whole of mainstream Economics took it from Mises. This Franz Schuhele being of Czech origin is completely forgotten in my country and this is our attempt to tell to the world that not only beer can be drank in Prague but also we have some spiritual values to adhere to. And this year Robert Dr. Hicks is having one of those lectures and the second is given by Jesus Huerta de Soto whose book on banking and business cycle just appeared in English.

10:55So great people and hundreds of students of Austrian school, not only from the Czech Republic but mostly from Central Europe or Europe in general with numerous American attendees as well. Through this conference I try to do what the Mises Institute did for me, bring the ideas, have events to which people can come and meet the heroes of the school and start working in the tradition. For some of our Central and Eastern European friends, it is a little too costly to come to Auburn, so if I can substitute what the Mises Institute is doing here and do the same thing, or at least try to do the same thing in the heart of Europe, I guess, we can only benefit from it.

12:00We also have an Austrian-English referee journal called New Perspectives on Political Economy, to which some of you already contributed, and our biggest project that is about to materialize within a month will be a European publishing house focusing on Austrian economics called Bohemian Academic Press. So I guess it's a way how we can give a platform for European Austrian scholars to publish their work through us.

12:50Nothing of the above mentioned would not be possible and would not have happened without the afford of people from the Mises Institute and without, of course, Mises's great contribution to economic science and his inspiring work. However, not only my personal life and professional career changed, there were other changes as a result of Misesian scholarship as well. After the collapse of socialism one and a half decades ago, a general belief prevailed that socialism did not deliver, and no one better than Ludwig von Mises explained that it could not deliver prosperity comparable to western standards.

13:55Socialist planners simply were not able to do their homework and were not able to hide this blatant failure before the eyes of the masses anymore. Some sort of transition toward capitalism was therefore suggested and implemented in many countries, such as my own, the Czech Republic. Some prices were set free, some sectors privatized. After many years of socialist economic chaos, economic structure was given a chance to become meaningful, to get real. In the field of economic theory, we could witness an analogical development.

14:43It was hardly possible anymore to claim that Russia will soon outperform the United States, with some celebrating leading economists outrageously have claimed for many years. A complete economic disaster of socialist planning and millions of people in poverty send them a subtle signal that there might be something wrong with their models. and the whole way they approach economic phenomena. Hence, with the collapse of socialism, economists saw a challenge and wanted to get real too, to provide a scientific argument for possible real world transition strategies toward capitalism or more importantly different visions of the end states, different capitalisms.

15:41New schools emerged and felt confident to provide answers to the problem of the day. They do not solve the problem whether capitalism is better than socialism or not. They propose activism from within, that is, in the name of capitalism, for capitalism. Rising from the ashes of the original comparative economics, which loses its sense with the end of socialist experiment, there is nothing to compare to capitalism. We can read about new comparative economics coming from Harvard, whose aim is to choose the best capitalism, an optimal mix of disorder and dictatorship for the people.

16:34At the University of Chicago, we can witness how the New Chicago School, quote, identifies alternatives as additional tools for a more effective activism. The hope is that a state can do more. The government must weigh the costs against the benefits and select the mode that regulates most effectively. Or if people make systematically bad decisions, quote, Then we should be less willing to grant white freedom to adults to make unaided decisions involving the comparison of current benefit and future costs."

17:24This is how a scheme of state-for-saving system, which they call de-biasing people's behavior through governmental action, Within a capitalist framework is justified by an increasingly popular behavioral law and economics. Shortly, economists do not want to be merely armchair theoreticians in Steve Medemma's work as someone who knows a thousand ways to make love, but doesn't know any girls.

18:03To continue this analogy with the collapse of socialism, the Russian muzhik, socialism, does not pretend anymore to be more beautiful than a girl, capitalism, and economists do not pretend anymore to know how to generate his beauty. Economists now focus exclusively on girls, capitalisms, though they often do not have lost their ambitions to impose their beauty standards. They still want to plan, fine-tune the economy or mimic the market. Their arguments for state activism still exist, and to find them is the major task of those who cherish free markets.

18:50Now how? Rather than following the spirit of the day and jump on the bandwagon to introduce once again new economics, a brand new modern school of thought with a new suggestion how to tackle new burning social problems, I would rather suggest to go back to the wisdom of of those who are not surprised by the tragic failure of Communism or Keynesianism or interventionism for that matter, who spend their lives trying to integrate economic science into a coherent body of knowledge rather than divide it into hyper-specialized disconnected pieces, who You have kept emphasizing that scientists of law and economics are connected through the concept of property without which social order becomes meaningless, namely to the ideas of the giants of the Austrian School with Ludwig von Mises as its dean.

20:00By the way, Austrian Law and Economics is together with Exploration of Anarchy, another neglected research program that has to be developed in detail. Ludwig von Mises was a man who famously gave us in his liberalism a one word summary of what is the only workable system of human cooperation in a society based on the division of labor. Such a single word would have to read property. Socialism was alternately based on the neglect of property, abolition of the private property of the means of production. Once socialism as a doctrine is fortunately dead, all countries that want to return to capitalism have to start respecting the property rights.

20:56Unfortunately, it is not what is happening in those countries, and again, my country, the Czech Republic, can be mentioned as one example of such a situation. The reason is both practical economic policies of so-called capitalist countries, And more importantly, most of so-called free market economists could be called capitalist or free market only when compared to the reality of Soviet socialism and Marxian economics.

21:41However, when judged against the benchmark of property Mises so clearly set forth, we would have to call both policies and their intellectual bodyguards, socialists or interventionists, at best. Take first a few examples of how generally accepted strongest intellectual proponents of free markets treat property, law and economics school and public choice school. Richard Posner, who is believed, together with Ronald Coase, to bring property back to economics, came up with, quote, the most ambitious theoretical aspect of the economic approach to law, The proposal of a unified economic theory of law in which laws function is understood to be to facilitate the operation of free markets."

22:44Because it is necessary, it is necessary allegedly, in the name of markets to manipulate the limits of property rights in order to get an optimal, efficient level of economic output. Once again, as Posner says, the issue is rarely property rights or no property rights, but rather limited property rights or unlimited property rights with the limitation designed to induce the correct, not an insufficient or excessive level of investment. It sounds like another attempt to develop a general theory by a man who is not believed to be any great free marketeer.

23:37This suspicious is reinforced when we learn about Posner's macro view on economics, as he points out. Economics is concerned with explaining and predicting tendencies and aggregates, rather than the behavior of each individual person. Shall this be an antidote to our socialist and collectivist approaches of the past? And all this especially when we saw how Posner's ambitious law and economics projects ended up with Posner after decades of studies suggesting that soundness of theoretical arguments is not to be any more decisive because, quote, The ultimate criterion should be pragmatic. We should not worry whether cost-benefit analysis is well grounded in any theory of value.

24:42We should ask how well it serves whatever goals we have." Well, this concept of we and whatever goals seem to be quite frightening in the post-socialist reality and do not seem by no means to give us a clear direction how to move from socialism toward capitalism. Public Choice is a school that came to revolutionize the perception of the state and attempted to demystify it. However, it doesn't seem to be of much help either, with its parallel between economic and political relations that allegedly both, quote, represent cooperation on the part of two or more individuals and hence at base they are much the same, end quote.

25:42It means mutually advantageous. It is hard to find a principal argument against socialist or semi-socialist policies and governmental activities. Moreover, if, as Buchanan says, the status quo always represents an existing implicit social contract and in the name of efficiency it might be justifiable to confiscate inheritance, You are left with nothing to protect property as a keystone of viable social fabric. It is even more disturbing when we realize that both law and economics and public choice are supposed to be, unlike many other pseudo-economic schools, the friends of property and capitalism.

26:38How refreshing it is to read Mises' works and see what a really comprehensive theoretical approach means. His praxeology naturally encompasses both law and political markets and gives us tools such as economic calculation to evaluate their interconnection with other parts of social reality. Now look what the most market oriented practical economic policy reforms proposals are suggested by free marketeers. In countries such as my own, what people who want to move the country away from socialism come up with is compulsory social security system and flat tax.

27:39The reason for the first one, social security, is that we'll have higher savings, hence higher investments, and hence higher GDP, that is, we'll become somehow more efficient. The reason for the second is not to lower taxes, but to have more efficient tax collection. Again, the strange concept of efficiency is entering the scene. Efficiency is here to manipulate property rights. In the name of efficiency, politicians were told years ago by Milton Friedman to get rid of the gold standard, and later by Posner and Coase to destroy property and property rights and redefine them anew, by Buchanan to nationalize inheritance and now, because of efficiency, to semi-nationalize savings and redesign the tax system with the objective to collect more taxes.

28:49It is completely absurd. As Mises said in Human Action, there is no such thing as an appropriation of portions out of a stock of ownerless goods. The products come into existence as somebody's property. If one wants to distribute them, one must first confiscate them. It is certainly very easy for the government apparatus of compulsion and coercion to embark upon confiscation and expropriation. But it does not prove that a durable system of economic affairs can be built upon such confiscation and expropriation.

29:35The very basis of social order is rooted in the concept of property. Efficiency, if it means anything, cannot rest on expropriation and the use of force against peaceful people. It is a result of market operation through which entrepreneurs discover better ways of conducting transactions. Efficiency stems from consent. It is a result of market operation. It is not something that must first be calculated by experts and then implanted onto the economy.

30:21Mises' understanding of this kind of defense of market economy is upped as he pointed out again in Human Action. Even those specialists who do not openly side with a definite pressure group and who claim In order to maintain a lofty neutrality, unwittingly endorse the essential creeds of the interventionist doctrine. Dealing exclusively with the innumerable varieties of government interference with business, they do not want to cling to what they call mere negativism. If they criticize the measures resorted to, They do it only in order to recommend their own brand of interventionism as a substitute for other people's interventionism.

31:14Without a qualm, they endorse the fundamental thesis of both interventionism and socialism. We do not seem to be able, neither here in the US nor in Europe, to, I'm quoting Mises, to bar such squanders from access to the universities and their articles from being printed in the periodicals of the associations of university teachers. That is already reality. We have to live in a world which is hostile to the concept of property, both on the theoretical front and in practical politics.

32:01However, I believe we can use the sorrow experienced with socialism to our benefit. We can show our students how crucial role economic understanding plays. We can show them that there were scholars who understood what is wrong with socialism. And we can use the same powerful economic logic to expose socialist or interventionist policies of today. Simply, we have Mises's property-based economics that can help us understand what is the way to go.

32:48Rather than as many other approaches suggesting a better socialist experiment, it identifies a viable alternative to our socialist past. As Mises pointed out in Human Action, whoever neglects to examine to the best of his abilities all the problems involved, voluntarily surrenders his birthright to a self-appointed elite of Superman. In such vital matters, blind reliance upon experts and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of self-determination and to yielding to other people's domination.

33:44As conditions are today, nothing can be more important to every intelligent man than economics, property-based economics indeed. Thank you for your attention.

34:13Time for questions. What other schools of thought are being taught in your department? Well, we have the whole range of professors teaching other economic schools. We are still not the only department that teaches economics, so in teaching Austrian economics, we might have one ally, but the other faculty members teach it the old way, which is not Marxism anymore, but the old Marxists switch into being Keynesians in theory, and Pro-European Union in Applied Policy, which makes our task easier because you don't need to use very subtle arguments to make students understand who is right and who is not.

35:29How is your government rebuilding and creating the local government? Are they giving your people more property rights? Well, as in many other places in Central and Eastern Europe, there was this wave of privatization at the beginning of the 1990s. Part of it was, they called it restitution, simply the stolen property, stolen by communists, was given back to the original owners. By the way, what was stolen by democrats before 1948, which was generally big firms, coal industry, mining and these important sectors, They were not returned back because this is considered to be, you know, fine as some people voted on it.

36:30But now the situation is getting a little depressive with the EU centralization project. One example, it was quite easy to start up a new business at the beginning of 1990s. In the 90s you just decided to do it and it was not much of red tape to really start business. Now you need all these certificates of, they call it protection of consumers and health and safety regulations, which has nothing to do with health, neither safety. So I like to tell my students that we are somewhere where the United States were a hundred something years ago when the federal income tax was suggested and first declared unconstitutional.

37:37However, you know, when you try for a couple of times, you typically succeed in these ventures. So now in Europe we are at that stage that, you know, something gets regulated centrally, something is only in the form of a draft. You already got the European Center Bank the same or similar way you got your Center Bank 100 years ago. So all the problems stemming from political centralization we can expect in Europe and I would claim that they will be bigger and the centralization will proceed faster because we do not have this tradition of individualism which you have.

38:26We have socialist France with socialist Germany being behind decentralization, so it might have some short-term benefits such as the people from the Czech Republic can go and work in Germany or France or Spain. However, new pressure groups are formed on the continent-wide level with now more than And half of the new legislation already coming from Brussels with no way to reverse it. So politics is now much more distant from people. Living in a small country has an advantage that at least sometimes you might meet your minister who does all the harm to you and tell it directly to him that now if you do If you do not even speak the same language as these gangsters in Brussels, then it's over.

39:29Still, we are optimistic, cautiously. With your kids, describe how interested they get. When they have problems, what are their objections? Why do you have kids that at least seem to want to engage in the material? What are the kinds of reactions you're giving? You mean when exposing them to Austrian economics? Well, they like it because they can understand it. It makes sense. This deductive method has the advantage is that once they understand the basis, you don't need to force them to memorize the result. And they will think themselves through it and perhaps they are surprised at the beginning by what their brain is telling them but after a while they get it.

40:30So we don't have complaints and especially if you approach them with sort of a way in in which they do not feel the pressure on them. You tell them, well, this is the argument and I'll be very happy if you write your semester paper refuting it or telling me what's wrong in it, but you have to use arguments. And then they do it and they educate themselves. You just open the door for them and they do the study and use their logic and capacities Professor Seema, could you comment on our President Wilson and the creation by interventionists of the unified state of Czechoslovakia after World War I, and was that a typical era of Are there any bureaucrats who have joined both the Czechs and the Slovaks into one country?

41:43Well, definitely the project does not seem to be successful as Slovak used the first opportunity to leave and by the way Czechs were happy. Fortunately, it was the end of this nation of two greater nationalities living under one roof, ended up peacefully and I can tell that this split of the state actually improved the relation between both nations, The Theory is what we would theoretically expect, but it's nice to see that it really works, that there is no animosities, nobody has this feeling that, you know, I pay taxes for the subsidies of somebody, somebody else, somewhere else, when everybody pays his bill, it makes people friends.

42:51Your head of state, Mr. Klaus, is the only head of state who proclaimed that he is an Austrian economist. So does it help you in your work or has it been impeded? Well, yeah, we have this phenomena of having a prime minister who read Mises and Hayek, which is not very common. However, it's not helpful either. I would say that the only institutions that appreciate it are some of free market or libertarian think tanks in America, such as the Cato Institute, because they believe that this is the way how you can change the world, that they can show a living example of a successful free market economist.

43:56However, and I wrote an article for Journal of Libertarian Studies on this fable of laissez-faire reform in the Czech Republic. You know, it's simply not trustworthy when you have all banks in state hands, you have socialist health care and school system, you redistribute 50% of GDP and you have a prime minister who is celebrated as a great libertarian. who in addition to it approves draft and attacks everybody who are against draft, right?

44:44At the same time, as I said, he has friends such as Milton Friedman that is helpful in these circles, But, you know, some absurdities appeared. For example, Heritage Foundation produces this Index of Economic Freedom. And it was done at the beginning of 1990s as a sort of questionnaire for free market people, such as Milton Friedman, to rank countries according to economic freedom. And with all banking sector in state hands and all these things I mentioned, because of Klaus being friend to Friedman, Czech Republic ranked, I guess, fifth.

45:34It was like Hong Kong, you know, New Zealand, and then the Czech Republic. So, of course you get all the problems of welfare state. Unfortunately, as people see it, the bad results are associated with your libertarian prime minister or president. So all the blame goes on libertarianism or free market, which is completely, you know, absurd. But I would rather have a socialist as a prime minister doing the same things. And then you can at least claim correctly socialism for the failure.

46:24You criticized Posner and public choice and so on and so forth. Are they... It sounds like you're saying that the former socialists have taken interventionist ideas from What do you think about this from, not only free market thinkers, and not taking the free market parts? I mean, is that a fair description of what you've experienced? Well, what I'm saying is that if you do not really preach pure free market, Then the interventionist in power will misuse this weakness and will claim by practicing semi-socialist policies that even this school and that great free marketeer suggested this.

47:24So, you simply, you create problems within the economy that then are blamed on wrong person, right? So, I understand that politics is based on compromise. Compromise, so I'm not saying that you can like that change the country, but at least if you want to be called a libertarian, you should stick to some principles such as non-confiscation of property, right?

48:10And then if the compromise arrives, then you may say, okay, that's a compromise. But if you started with something which is already semi-socialist, then the result is a disaster. Do you have a political party called the Libertarian Party? Though there are some small parties that have a libertarian agenda, some of them, after attending our summer programs, misunderstood what we are saying and went to politics, starting this venture, however, they will never make it to be anything else than just amusement and for others.