Response and Comments

0:00Well, they say the longevity is the great revenge, but I tell you there's something else about longevity. It's the opportunity to hear things said very nicely about you that normally only get into the obituaries. I had two very strong sensations as I was hearing this. One is, I wish I could turn a phrase today like I could 40 years ago. The other is, I wish I looked like that. I think I'll give some of the background on my own Austrian connection because it is perhaps stronger than many people realize and indeed stronger than I realized for a long, long time.

0:55I had two years of happy association with Lew Rockwell. I don't recall us ever even the phrase Austrian. We may have been doing some of it, but those were really the early days. Murray Rothbard was still around. Ludwig von Mises congratulated me personally on that University speech, which was originally after the Liberty Fund was given at a feast of fee program, it's an invited lecture, and he thought it was just right on, so you're right on too. But my connection is an unusual one, and it's someone whose name was mentioned only in passing, but who played a gigantic role School in my life. I can't conceive of having the kind of career I've had, but for this one individual. And I'll tell you a little of the background of it. To avoid military service after I finished law school for as long as I could, I only postponed it, I went to Yale Law School for a year. You could still get student deferments. I had finished three

2:14Three years at Chicago where I had come heavily under the influence of Aaron Director, less so Milton Friedman, but Hayek was there. Aaron was closer to an Austrian than many people understood, and of course Frank Knight was still flourishing at that time. The year at Yale started off, I just realized, was a total bust. The fads and reputations of law schools and universities generally usually lag by many, many, many years. Chicago was a great and exciting and intellectual, high-powered university.

3:01Yale was child's play. They just weren't doing anything in the law school that was anywhere near as intellectually interesting as what I had encountered at Chicago. And so I spent the year largely catching up on readings that I had learned about while at Chicago, including most of Hayek's work, and I claimed to be one of the few people in the world to have read Human Action. in that first very bad translation too. Nonetheless, that's a part of the story because three or four years later, I had started law teaching and was invited to a small conference, again, may have played a role in my own career by a man named Arthur Kemp.

3:53Some of you may remember, Kemp was one of the stalwarts of the Mont Pelerin Society and Strong Hayekian, and he put on these summer programs, two-week programs for young professors. I really don't know how my name came to his attention, I was invited, but the three speakers were Felix Morley, John Hicks, the famous economist from Oxford who had just then spent I spent a year with Aaron Director at Chicago and a man named Armin Altschen, I'd never heard of him, but the very first session, the first day, the first moments, I think there were 15, 16 young professors sitting around, Armin at a podium, reading a paragraph and he said, does anyone know where that came from? I did. I recognized it as coming from human action. Now, I didn't think much of it then. At the break from that, Armand went on to give what became, I think perhaps, for me, the most significant economics article ever, called The Economics of Property Rights, certainly right up there with Evolution, Uncertainty

5:24and Economic Theory, but Armand preferred playing golf, he really wasn't very energetically ambitious as an academic, as a result, that was in 1957, as a result that article was was published in Il Publico in 1965, after the Coase Theorem appeared, tremendous overlap with the Coase Theorem. Had Armand gotten that out earlier, I have no doubt that he would have been a Nobel Laureate today, and that article would be vastly better known than it is. The thrust of it was the thrust of one of the key points that Mises was dealing The Theory of Money and Credit Day-to-Day Life. Well, that was the point of Human Action and that was the point of Armand's Property Rights Theory. Though I think, in all fairness, that's not the central point that most people have taken out of that article. Though that article is still, I think, the beginnings of modern property rights theory. Many years later and after a lifetime of wonderful

7:11I called his attention to that day. I had always wondered about it. Where did he pick up that quote from Human Action? Oh, he said that was very simple. When he was a Ph.D. student at Stanford, he was the only student who had the guts, the courage, the brains to do a Ph.D. dissertation under the famous Alan Wallace. Now, Wallace was one of the famous threesome of Frank Knight students, Milton Friedman, George Stigler, and Alan Wallace. Wallace later went on to be president of the University of Rochester and undersecretary of state under George Schultz.

7:59Also, I think, a founding member of the Montelerin Society. He said that Wallace had put him on to Mises and there this whole connection came back and long after that, you know, at one time, may come as a surprise to some of you here, particularly after some of the almost nice things that were said about the Austrian-Chicago nexus. For years in Mont Pelerin Society meetings, there was inevitably a panel on what was the difference between Austrian economics and the University of Chicago economics. And it was a bitter feud every time, except it was much about nothing.

8:45The overlap was so much vastly greater than the real differences. Certainly there were significant differences of emphasis, particularly on empirical work, I might say. that it's not true, not fair to say that they were the same, they weren't all that different. And one could come out of a Chicago background with a little bit of an Austrian whitewash on it from Mises and Alchin and Hayek and really have gotten the best of both worlds. So, that's sort of the background of this. Now, incidentally, I want to correct a couple of things. At the time I wrote the Insider Trading book, Kirzner had already written about the entrepreneur, not that book, Capitalism, Competition and Entrepreneurship. That came out a little later. But the thrust of it already existed, and it is cited in that book, and He was very generous to me. I've always had just gigantic regard for Israel. He was very kind about that work and about the most recent piece of mine that Alex mentioned on compensation

10:14of entrepreneurship. I made my day when I sent it to Israel and he wrote back, this This is a breath of fresh air. So at least I figured I was on the right track, even though I never closely identified myself, mainly because I just never was one for labeling myself any more as an Austrian than as a non-Austrian. I was very close to the public choice group, both before they were George Mason and afterwards. I had very good friends in the economics department, Department, George Mason, I just never gave much thought to the labeling and I think we even now do too much of it even though there's a lot less of it now than there used to be.

11:07Well to get on to some of the substantive things, I want to correct one thing having said nice things about Mises, I want to correct something that Peter said because it's come came up before, and not just from Peter. Others have noticed a similarity between my concept of the market for corporate control and Mises' reference to fundamentally the Berlian means hypothesis. Not the same. The context in which he was writing was, the thrust of it was, capital markets restrain managers.

11:53Not that a market for corporate control exists, he has no reference and no recognition of a market in votes. Now that came out of public choice theory much later, incidentally introduced to me by Armin Altschen who told me to take a look at Anthony Downe's book that preceded Buchanan and Tellich and was consummate work, if not really the original work in public choice theory. But you can you can see again the connection, the idea here, the Alchin idea, my stuff. I often, I'm not by nature a modest person, but I often do think that it's a little bit exaggerated.

12:45Some of these things just flowed out of what I had done. I'd had the good fortune of meeting reading Armin Auchin, reading Anthony Downs, knowing a little bit about Hayek and Mises. All these things came together so naturally that I had a terrible time and was in the academic room. It was gruesome. It was no fun, I can tell you. Economists weren't quite so bad. In fact, I used to get nice invitations to economics conferences and I was once nominated to be Vice President of the Southern Economics Association. That was the highest ranking I ever got among economists, but it was nice anyway.

13:31Nothing like that happened in law. I can tell you a story. When I first met the great guru of securities regulation, a man named Louis Laws at Harvard Law School. He was a God figure to every law professor in the securities field. Somebody grabbed me and took me over to introduce me to Louis Laws. His back was to us and said, Louis, I'd like you to meet Henry Manning. He turned around and he said, we didn't need a book on insider trading. I know it's wrong. And he turned around and walked away. Well, there were a few people standing there and I was able to come up with one of those great remarks. I said, that is the level of intellectual discourse at the Harvard Law School.

14:18I've always loved that. It was true, that was my name because of these articles that I had written that certainly had to be noticed in the JPE and the Columbia Law Review and the Harvard Business Review. My name would come up regularly at every major law school and just as regularly, the leading guy in Harvard and Corporation Law would say we can't have a conservative kook like that on this faculty. There was no generosity of spirit. There was, incidentally was, one person, strangely enough, did not fit that category.

15:09That was Adolf Berle. I decimated Berle in the 62 article. There was nothing left to his economic theory of Berle and Mises. I mean, literally, it was gone. That was a whole, what do you call it, a paradigm change from one short article. He didn't understand it. But he knew that it was important, and he made a real effort to get me on the faculty at Columbia Law School. It was only vetoed by Bill Carey, later the chairman of the SEC and the author of the Law on Insider Trading. He and I were never terribly friendly. I want to say a word about the libertarian view criticism of corporation law. I think it's, it is a a domination of principle carried to an extreme.

16:18There is an argument that limited liability could have been invented and indeed was well underway as an invention of the common law. Now we know that by and large it existed outside of the torts field where you had involuntary creditors. The corporations corrected that problem almost overnight when it was recognized, and that is the corporations didn't have limited liability for paying off injuries to workers. That was late 19th century legislation, but that happened. I think the limited liability was one of the great inventions, and I know it's a terrible venue in which to give credit, it's perhaps the one invention I can think of that the government was right about it. I thought long and hard about it. I've given up on central banking. I've given up on a few other things. But I think the limited liability is right because it allowed a securities market to exist that could not exist without it. Now, I don't want to push that too far because I think there were things the common law could

17:36would have done. For instance, one of the reasons you had to have a rule of limited liability, if you were to have a broad-scale popular stock market, you had to have some low-cost method of dealing with the liability of millions of, in those days, tens or hundreds of Thousands of Shareholders, we didn't even have class actions then, the joint actions that the common law allowed would have been impossible. And so, in effect, you would have had limited liability anyway simply because the cost of going against those shareholders would have been too great.

18:22The alternative, and lasted in the law in New York and a couple of other states until Well into the 20th century in banks only was unlimited liability and what happens was you always went for the deep pocket. You would go only for the very wealthy shareholder because it was joint in several liability and they didn't have limited liability. Well the problem with that of course was that you'd never get one person to put a lot of money into a venture. Adventure, unless you could get a lot of people putting a small amount in that would be the limit of their liability, or excuse me, excuse me, you'd get only poor people coming into these things, wealthy people wouldn't do it because a tiny infraction could put their entire estate at risk because they might be the only selected plaintiff.

19:20At any rate, those are arguments in favor of limited liability, and I think they're pretty strong arguments, and I'm not sure we'd have as free a system as we have without it. I want to turn to Alex's very nice comments about my insider trading article and the role that it's played in generating not merely a lot of articles, a whole institution. It's just astounding when you look at a bibliography today of articles on insider trading and realize, As Alex said, there were two law pieces mentioning insider trading prior to 1966.

20:12One was Burley and Means that has literally in passing one of the problems with separation of ownership and control was that managers could engage in insider trading. They didn't say anything else, it was a minor problem. The other was a 1914 article, notice long, long before, indeed long before we really had a popular stock market, but it appeared in the Michigan Law Review in 1914 and it made most of the moral and ethical arguments that we still hear. The vitriol that I suffered or that I heard as a result of that book, so I got some benefits out of that book too, and still do, but the hostility and the vitriol and the hatred and the bitterness astounded me, I just could not understand it.

21:17I didn't have any acts to grind. I thought I was just writing an economics analysis of something that people would either disprove or prove, but I didn't think they'd get so very angry about it. Louis Lawson's comment is an illustration. And I've troubled about that for a long, long time until really only in very recent years have I come to understand Something about that, and I think a lesson about human nature and psychology, one that goes far beyond the insider trading issue and involves us with much larger questions that Mises and Hayek addressed for a long time.

22:08And that is that the power of the psychology of envy in the human mind is gigantic. I'd never really appreciated this. I mean, we all know that envy is there. Teenagers envy the straight teeth of their colleagues. They envy the fashion jeans that their friends are wearing. And, you know, that's sort of the level we put it at. Then we think, well, we also envy very wealthy people, that's another human trait that we find, particularly among a lot of leftists in the United States. Nobody is worth getting 22 million dollars a year. Nobody should be worth 3 billion or 30 billion dollars or whatever Gates or Buffett is.

23:01and yet I think a lot of that missed the point that was a comparison of wealth I think the nature of envy this human psychology is a little different and I think it comes to the fore with the idea that the stock market's a lotto and I I should have just as much a chance to win the lottery as Tom or Alex or anyone else. And yet, these guys on the inside, they've got something unfair because they're winning and I'm not. Now, notice that that necessarily incorporates an ignorance about how markets work.

23:50Certainly indicates an ignorance how a market for information works. But I think it does explain the intensity of the emotion on the insider trading subject. Any of you can go out of here next week, go to a cocktail party, mention the phrase insider trading and you'll get it immediately. You'll just hear it. It's astounding how ubiquitous it is. Well, that's my explanation of what I think is going on there. Actually, we're really out of time, but why don't we take a few extra minutes if it's okay. Would you like to entertain a question or two now, just in case people have to run out of time?

24:41No, I'd rather give two cute points. Please do. One is one that Rich Vedder omitted, and he omitted it maybe because I didn't have it in the original article, but somewhere later I published it, but I've never been able to find it, but I've given it in speeches a lot of times. The original blame for the poor quality of American universities today, which Richard did a wonderful job of telling the scenario of what it looks like, all starts in a very, very strange place, but it's a great little bit of historical trivia that you can tell I'll use in stories. It all begins with Henry VIII's domestic relations problems. He was married to Catherine of Aragon. He didn't like her for whatever reason.

25:44I don't know if it was political or romantic or what. He wanted to get rid of her, and so he asked the Pope to give him an annulment, and the Pope wouldn't do it. And so he said, well, the hell with the Pope and the hell with the Catholic Church. We disestablished the Church. Now, thereby hangs one of the incredible accidents of legal and economic history, because in the earliest common law, dating back much earlier, Henry's, back into the 13th century, there was a doctrine in common law. First of all, there was a rule known as the rule against perpetuities. Peace was a wonderful rule and is a wonderful rule today.

26:32What it says is that the title to property cannot be kept off the market forever, only for a life and lives and being or a few months later. What that did was the common law built in a rule that said ever so often, every generation or so, every piece of property has to be subject to a market test. That was a salutary rule and it is today and it's a wonderful rule. There were three exceptions in the time of Henry VIII. The Crown, naturally the Crown went on forever and could own property in perpetuity.

27:20Civil corporations, which, like for some of the same reason as today's corporations, were a revolving continuity of organization, so they could own property in perpetuity. And the third was the Catholic Church. The Church could own property in perpetuity. When he disestablished the church, all the church institutions, including the universities, no longer had the benefit of the exception to the rule against perpetuities. The professors and dons and lecturers at Oxford and Cambridge and where else were up in arms.

28:05Obviously, here they lived this charmed existence of what our professors live in today, and all of a sudden, since this rule against, this exception to the rule against perpetuities was removed, they were going to be out on the market. There was going to be a competitive market for education. They didn't want that. And so they brought enormous pressure, Henry gave in, went to parliament, and got them came to adopt something called the Statute of Charitable Uses, I think 1528, I'm not exactly sure. It became part of the English common law, even though it was a statute, and was adopted as part of the English common law in the colonies and in the early United States, and has remained ever since.

28:59And that's why charities, including universities, have this godawful structure they do of freedom from any market test, any form of competition, any of the restraints or benign effects of having property rights because they can exist in perpetuity. So, our problems with universities, Henry VIII's problem. I'll stop there. I wanted to get that one in because I love that story. I've mismanaged our time by letting the Lorenzo talk way more than I should have. There's another session that begins at 4.30, so we're close to close now, but I'm sure that Professor Manning will be happy to answer any questions during the breaks the rest of the day.

29:49Thank you all. Thank you very much.